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. This management's
discussion and analysis contains forward-looking statements that involve risks
and uncertainties, such as statements of our plans, objectives, expectations and
intentions. Any statements that are not statements of historical fact are
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties that could cause our actual results or events to differ
materially from those expressed or implied by the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those identified below and those discussed in section Item 1A. "Risk
Factors" in this Annual Report. Except as required by applicable law we do not
undertake any obligation to update our forward-looking statements to reflect
events or circumstances occurring after the date of this Annual Report.
Overview
We are an early-stage biotechnology company that has been focused on pioneering
the development of bioprinted human tissues that emulate key aspects of human
biology and disease. We have focused 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 have also explored the development of other potential
pipeline in vivo tissue constructs in-house and through collaborations with
academic and government researchers. Our current limited operations comprise of
managing certain collaborations with research institutions and universities with
respect to our NovoGen Bioprinters® for research purposes. Our NovoGen
Bioprinters® are automated devices that enable the fabrication of 3D living
tissues comprised of mammalian cells. We believe that the use of our bioprinting
platform by major research institutions may help to advance the capabilities of
the platform and generate new applications for bioprinted tissues. In some
instances, an academic institution or other third party has provided funding to
support the academic collaborator's access to our technology platform. This
funding is typically reflected as collaboration revenues in our financial
statements; however, we are not currently generating any revenues from these
collaborations. Our research collaborations typically involve both us and the
academic partner contributing resources directly to projects, but also involves
sponsored research agreements where we fund specific research programs. We also
continue to retain certain key management, employees and consultants, our core
intellectual property and licenses.
Strategic Alternatives Process
In August 2018, following a pre-pre-IND meeting with the FDA regarding our lead
liver therapeutic candidate, we announced that we were concentrating our
financial resources around supporting our healthy liver therapeutic tissue
development, and that we would continue to opportunistically generate revenue to
support our therapeutics program by leveraging our cell and in vitro tissue
platform including providing funded access to our developmental in vitro liver
tissue platform to clients for their own R&D programs.
In August 2019, after a rigorous assessment of our 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 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 also engaged a financial advisory firm to explore its
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 The Nasdaq 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, in November 2019, we sold certain inventory and equipment and
related proprietary information held by our wholly-owned subsidiary, 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
twenty-seven non-binding indications of interest from interested parties and
careful evaluation and consideration of those proposals, and following extensive
negotiation with Tarveda, on December 13, 2019, we entered into 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 into
Tarveda, with Tarveda surviving the merger. The Merger Agreement included
various conditions to the consummation of the merger, including approval by our
stockholders at the Special Meeting.
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On April 7, 2020 at the Special Meeting of Shareholders, the Merger was not
approved by our stockholders. As a result, we are currently reconsidering our
strategic alternatives and may pursue one of the following courses of action,
which include but are not limited to the following actions:
• Pursue another strategic transaction similar to the Merger. We may resume
our process of evaluating other candidate companies interested in pursuing a
strategic transaction and, if a candidate is identified, focus our attention
on negotiating and completing such strategic transaction with such
candidate.
• Continue to operate and expand our business. We could elect to continue to
operate and expand our business and pursue licensing or partnering
transactions or utilize our intellectual property and platform technology to
pursue the redevelopment of our liver tissues or the development of
therapeutic tissues currently being studied by our collaborators. Due to the
early development stage of our, and our collaborators', potential
therapeutic tissues, any such redevelopment or development efforts would
require a significant amount of time and financial resources, and would be
subject to all the risk and uncertainties involved in the development of
novel, early stage therapeutic products, research tools, and drug screening
technologies. There is no assurance that we could raise sufficient capital
to support these efforts, that our development efforts would be successful
commercially in the case of research applications or that we could
successfully obtain any required regulatory approvals to market any
therapeutic product we pursue. We would also need to increase qualified
scientific, sales and marketing, and administrative staffing, lease a
suitable facility and make other expenditures necessary to support these
efforts.
• Dissolve and liquidate our assets. If we are unable, or do not believe that
we will be able, to find a suitable candidate for another strategic
transaction or continue to operate our business, we may dissolve and
liquidate our assets, subject to approval by our stockholders. In that
event, we would be required to pay all of our debts and contractual
obligations and to set aside certain reserves for potential future claims.
If we dissolve and liquidate our assets, there can be no assurance as to the
amount or timing of available cash that will remain for distribution to our
stockholders after paying our debts and other obligations and setting aside
funds for our contingent liabilities.
COVID-19
In December 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 in
China it has spread globally. 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 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
strategic alternatives, 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, if we elect to do so, to advance our
research and development activities and pursue development of any 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 U.S. generally accepted
accounting principles ("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 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. 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.
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There have been no significant changes to our critical accounting policies since
March 31, 2019, with the exception of changes made upon adoption of Accounting
Standards Update ("ASU") 2016-02, Leases ("ASC 842") and the related
supplemental ASUs. Our significant accounting policies are set forth in "Note 1.
Description of Business and Summary of Significant Accounting Policies" in the
Notes to Consolidated Financial Statements contained within this Annual Report.
Of those policies, we believe that the policies discussed below may involve a
higher degree of judgment and may be more critical to an accurate reflection of
our financial condition and results of operations.
Revenue recognition
We have 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.
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 March 31, 2020 and 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 ASU
2014-09, Revenue from Contracts with Customers ("Topic 606"). In the year ended
March 31, 2020, we 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 with the Company's decision to pursue its strategic alternatives,
the Company halted commercial activities related to its liver tissues. The
Company expects to continue to maintain its external research collaborations and
its intellectual property portfolio.
Product sales, net
The Company's product-based business, Samsara, 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.
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On November 7, 2019, the Company entered into an agreement to sell substantially
all of the Samsara inventory and associated assets for $1.5 million, which was
recorded to other income. As a result, the Company will have no further product
sales of cells nor tissues beyond what it sold prior to the November 2019 sale.
In March 2020, the Company dissolved Samsara.
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.
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 year ended March 31, 2020, all collaborations and licenses revenue was
within the scope of Topic 606 and recognized accordingly. As of September 30,
2019, the Company completed its obligations under the existing agreements with
respect to receipts of revenue and does not anticipate recording any further
revenue. See "Note 4. Collaborative Research, Development, and License
Agreements" in the Notes to Consolidated Financial Statements included in this
Annual Report 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 $1.7 million, of funding over three years. The Company
has concluded this government grant is not within the scope of Topic 606, as
government entities do not meet the definition of a "customer" as defined by
Topic 606, as there is not considered to be a transfer of control of goods or
services to the government entity funding the grant. Additionally, the Company
has concluded this government grant does meet the definition of a contribution
and is a non-reciprocal transaction, however, Subtopic 958-605,
Not-for-Profit-Entities-Revenue Recognition does not apply, as the Company is a
business entity and the grant is with a governmental agency.
Revenues from this grant have been based upon internal costs incurred that are
specifically covered by the grant, plus an additional rate that provides funding
for overhead expenses. Revenue has been recognized as the Company incurs
expenses that are related to the grant. The Company believes this policy is
consistent with the overarching premise in Topic 606, to ensure that it
recognizes revenues to reflect the transfer of promised goods or services to
customers in an amount that reflects the consideration to which it expects to be
entitled in exchange for those goods or services, even though there is no
"exchange" as defined in the FASB Accounting Standards Codification ("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.
Revenue recognized under this grant was approximately $52,000 and $587,000 for
the year ended March 31, 2020 and 2019, respectively.
In connection to the Company's decision to pursue its strategic alternatives,
specific to the NIH grant, all internal research activities have been halted and
transferred to the University of California, San Diego, leaving a remaining
available balance of approximately $0.5 million that will not be utilized by the
Company.
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Cost of revenues
We reported approximately $0.3 million and $0.5 million in cost of revenues for
the year ended March 31, 2020 and 2019, respectively, which includes an
inventory write-off during the current year fiscal second quarter of
approximately $0.2 million consisting of raw materials related to the Company's
bioprinting and testing services and is a result of the Company's decision to
pursue its strategic alternatives. Cost of revenues consists of our costs
related to manufacturing and delivering our product and service revenue.
Stock-based compensation
For purposes of calculating stock-based compensation, we estimate the fair value
of stock options and shares acquirable under our 2016 Employee Stock Purchase
Plan (the "ESPP") using a Black-Scholes option-pricing model. The determination
of the fair value of share-based payment awards utilizing the Black-Scholes
model is affected by our stock price and a number of assumptions, including
expected volatility, expected life, risk-free interest rate and expected
dividends. For stock options, 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. For shares acquirable under our ESPP, during
the first full year of ESPP offering periods, beginning September 1, 2016, the
expected volatility incorporates the historical and implied volatility of
comparable companies whose share prices are publicly available due to our
limited historical data as an early-stage commercial business. As of September
1, 2017, we are using our Company-specific volatility rate. The expected life of
the stock options is based on historical and other economic data trended into
the future. The risk-free interest rate assumption is based on observed interest
rates appropriate for the expected terms of our stock options. The dividend
yield assumption is based on our history and expectation of no dividend payouts.
If factors change and we employ different assumptions, our stock-based
compensation expense may differ significantly from what we have recorded in the
past. If there is a difference between the assumptions used in determining our
stock-based compensation expense and the actual factors that become known over
time, specifically with respect to anticipated forfeitures, we may change the
input factors used in determining stock-based compensation costs for future
grants. These changes, if any, may materially impact our results of operations
in the period such changes are made.
For purposes of calculating stock-based compensation, we estimate the fair value
of restricted stock units ("RSUs") and performance-based restricted stock units
("PBRSUs") with pre-defined performance criteria, is based on the closing stock
price on the date of grant. No exercise price or other monetary payment is
required for receipt of the shares issued in settlement of the respective award;
instead, consideration is furnished in the form of the participant's service to
the Company. The expense for PBRSUs with pre-defined performance criteria is
adjusted with the probability of achievement of such performance criteria at
each period end.
Results of Operations
Comparison of the Years Ended March 31, 2020 and 2019
The following table summarizes our results of operations for the years ended
March 31, 2020 and 2019 (in thousands):
Year Ended March 31, Increase (decrease)
2020 2019 $ %
Revenues $ 2,196 $ 3,091 $ (895 ) (29 %)
Cost of revenues $ 328 $ 482 $ (154 ) (32 %)
Research and development $ 5,284 $ 14,752 $ (9,468 ) (64 %)
Selling, general and administrative $ 18,059 $ 15,131 $ 2,928 19 %
Other income $ 2,767 $ 642 $ 2,125 331 %
Revenues
Revenues of $2.2 million for the year ended March 31, 2020 decreased
approximately $0.9 million, or approximately 29%, over revenues of $3.1 million
for the year ended March 31, 2019. This change reflects decreases of $0.5
million and $0.3 million in grant revenue and product and service revenue,
respectively, over the year ended March 31, 2019, as we reduced our activities
and streamlined expenses during the year to pursue strategic alternatives.
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Costs and Expenses
Cost of Revenues
Cost of product and service revenues, which reflects expenses related to
manufacturing our products and delivering services, was $0.3 million and $0.5
million for the years ended March 31, 2020 and 2019, respectively. The decrease
was primarily due to the wind-down of certain commercial activities related to
our liver tissues during the year ended March 31, 2020.
Research and Development Expenses
The following table summarizes our research and development expenses for the
years ended March 31, 2020 and 2019 (in thousands):
Year ended March 31, Increase (decrease)
2020 2019 $ %
Research and development $ 4,940 $ 13,290 $ (8,350 ) (63 %)
Non-cash stock-based compensation 111 911 (800 ) (88 %)
Depreciation and amortization 233 551 (318 ) (58 %)
Total research and development
expenses $ 5,284 $ 14,752 $ (9,468 ) (64 %)
Research and development expenses decreased $9.5 million, or 64%, from
approximately $14.8 million for the year ended March 31, 2019 to approximately
$5.3 million for the year ended March 31, 2020 as we materially reduced research
and development activities following our decision to pursue our strategic
alternatives during the second quarter of fiscal 2020. This action caused a $4.2
million reduction of personnel related costs, a $2.4 million reduction in lab
supply costs, a $1.6 million reduction in facilities costs, and a $1.3 million
reduction in all other costs. The Company's average full-time research and
development staff decreased from an average of forty-seven full-time employees
for the year ended March 31, 2019 to an average of fourteen full-time employees
for the year ended March 31, 2020. Going forward, we do not currently expect to
incur any further research and development expenses.
Selling, General and Administrative Expenses
The following table summarizes our selling, general and administrative expenses
for the years ended March 31, 2020 and 2019 (in thousands):
Year ended March 31, Increase (decrease)
2020 2019 $ %
Selling, general and $ 13,153 $ 10,420 $ 2,733 26 %
administrative
Non-cash stock-based compensation 3,997 4,282 (285 ) (7 %)
Depreciation and amortization 909 429 480 112 %
Total selling, general and
administrative
expenses $ 18,059 $ 15,131 $ 2,928 19 %
Selling, general and administrative expenses increased approximately $2.9
million, or 19%, from $15.1 million for the year ended March 31, 2019 to
approximately $18.1 million for the year ended March 31, 2020 as we incurred
approximately $2.1 million of legal, accounting, financial printing, and
shareholder solicitation costs related to our proposed Merger with Tarveda and
$0.2 million of costs related to settling various stockholder actions. In
addition, we also incurred approximately $0.9 million of depreciation and
amortization costs related to leasehold improvement write-offs in connection
with the early termination of our lease and $2.7 million of severance related
costs in connection with restructuring the business following our decision to
pursue our strategic alternatives. These actions caused a $2.2 million increase
in corporate costs, a $0.7 million increase in allocated facilities costs, and a
$0.5 million increase in depreciation and amortization costs, which were offset
by a $0.5 million decrease in personnel and other costs. Our average selling,
general and administrative headcount was twelve full-time employees for the year
ended March 31, 2020 compared to twenty-two full-time employees in the prior
year period.
Other Income (Expense)
Other income was approximately $2.8 million for the year ended March 31, 2020,
consisting of a $1.2 million gain from the sale of Samsara assets, a $0.5
million of gain on our lease termination, $0.5 million of income from the sale
of other assets, and $0.6 million of interest income. For the year ended March
31, 2019, other income was approximately $0.6 million for the year ended March
31, 2019 and consisted of $0.7 million of interest income, offset by a $0.1
million loss on disposal of assets. Interest income decreased year over year due
to lower average yields and investment balances.
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Financial Condition, Liquidity and Capital Resources
We have primarily devoted our efforts to developing 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 have taken steps to manage our resources and
extend our cash runway, including reducing all commercial and research and
development laboratory activities related to our liver tissues, negotiating an
exit from our long-term facility lease, selling lab equipment and inventory, and
reducing our workforce We have retained certain key management, employees and
consultants, our core intellectual property, licenses, collaborations with
research institutions and universities, and proprietary equipment, and will
continue our operations as we explore strategic alternatives.
As of March 31, 2020, we had cash and cash equivalents of approximately $27.4
million and an accumulated deficit of $279.5 million. As of March 31, 2019, we
had cash and cash equivalents of $36.5 million and an accumulated deficit of
$260.8 million. We also had negative cash flows from operations of $14.9 million
and $20.4 million for the years ended March 31, 2020 and 2019, respectively.
As of March 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. At March 31, 2019, we had total current assets of
approximately $38.6 million and current liabilities of approximately $3.8
million, resulting in working capital of $34.8 million.
The following table sets forth a summary of the primary sources and uses of cash
for the years ended March 31, 2020 and 2019 (in thousands):
Year ended March 31,
2020 2019
Net cash (used in) provided by:
Operating activities $ (14,882 ) $ (20,375 )
Investing activities 747 (76 )
Financing activities 4,935 13,154
Net decrease in cash, cash equivalents, and restricted cash $ (9,200 ) $ (7,297 )
Operating activities
Net cash used by operating activities was approximately $14.9 million and $20.4
million for the years ended March 31, 2020 and 2019, respectively. This $5.5
million decrease, for the year ended March 31, 2020, is a result of a $6.5
million improvement in our cash net loss resulting from streamlining our
research and administrative activities, which was offset by a $1.0 million
increase in working capital requirements.
Investing activities
Net cash provided by investing activities was $0.7 million versus net cash used
by investing activities of less than $0.1 million for the years ended March 31,
2020 and 2019, respectively. The net cash provided by investing activities was
related to proceeds from the disposal of fixed assets associated with the
streamlining of our operations.
Financing activities
Net cash provided by financing activities was approximately $4.9 million and
$13.2 million for the years ended March 31, 2020 and 2019, respectively. The
results in both years are primarily driven by "at-the-market" share offerings.
Operations funding requirements
During the year ended March 31, 2020, we raised net proceeds of approximately
$5.0 million through the sale of 6,087,382 shares of our common stock through
"at-the-market" offerings, which were offset by less than $0.1 million of
payroll taxes paid by the Company related to the vesting of restricted stock
units where vested shares were withheld by us to satisfy employee withholding
tax obligations.
During the year ended March 31, 2019, we raised net proceeds of approximately
$13.2 million through the sale of 11,631,803 shares of our common stock through
"at-the-market" offerings, $0.1 million through the sale of shares through the
ESPP, and less than $0.1 million through stock option exercises, which were
offset by $0.2 million of payroll taxes paid by the Company related to the
vesting of restricted stock units where vested shares were withheld by us to
satisfy employee withholding tax obligations.
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Through March 31, 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. Based on our current operating plan and available cash resources, we have
sufficient resources to fund our business for at least the next twelve months.
Aside from the maintenance of our intellectual property portfolio, license and
collaboration agreements, remaining assets, and listing on The Nasdaq Capital
Market, our ongoing cash requirements are expected to consist primarily of fees
associated with pursuing strategic alternatives, including fees payable to
financial advisors, consulting fees, legal and accounting support, insurance
premiums, key employee retention, severance and change of control benefits and
ongoing compensation obligations for the six general and administrative
personnel that remain with us.
We have an effective shelf registration statement on Form S-3 (File No.
333-222929) ("the 2018 Shelf") that registered $100,000,000 of common stock,
preferred stock, warrants and units, or any combination of the foregoing, which
expires on February 22, 2021. On March 16, 2018, we filed a prospectus
supplement to the 2018 Shelf to register the sale of up to $50.0 million of
shares of our common stock that may be issued in at-the-market offerings
pursuant to an equity offering sales agreement we entered into with two
investment banking firms as of the same date. During the year ended March 31,
2020, we sold 6,087,382 shares of common stock in at-the-market offerings, with
net proceeds of approximately $5.0 million under the 2018 Shelf.
Based on our use of the 2018 Shelf through March 31, 2020, we cannot raise more
than $81.3 million in future offerings under the 2018 Shelf, including through
our at-the-market program.
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.
On June 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). On December 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. On April 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") through June 30, 2020. Accordingly, since we had 66 calendar days
remaining in the compliance period as of April 16, 2020, we will, upon
reinstatement of the Price-based Requirements, still have 66 calendar days from
July 1, 2020, or until September 4, 2020, to regain compliance. We can regain
compliance, either during the suspension or during the compliance period
resuming after the suspension, by evidencing compliance with the Price-based
Requirements for a minimum of 10 consecutive trading days. To qualify, we 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.
As of March 31, 2020, we had 130,558,098 total issued and outstanding shares of
common stock and no warrants were outstanding.
In addition, our 2008 Equity Incentive Plan provided for the issuance of up to
1,521,584 shares of common stock upon the exercise of outstanding stock options,
of which 896,256 shares were issued. The 2008 Equity Incentive Plan terminated
on July 1, 2018. The 2012 Equity Incentive Plan, as amended, provides for the
issuance of up to 28,553,986 shares of our common stock, of which 14,158,654
shares remain available for issuance as of March 31, 2020, to executive
officers, directors, advisory board members, employees and consultants.
Additionally, 1,500,000 shares of common stock have been reserved for issuance
under the 2016 ESPP, of which 1,188,718 shares remain available for future
issuance as of March 31, 2020. Lastly, 2,246,918 shares of common stock have
been reserved for issuances under Inducement Award Agreements. In aggregate,
issued and outstanding common stock, shares underlying outstanding warrants, 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 2016 ESPP total 157,976,729 shares of common stock as of March 31, 2020.
31
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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 warrants and 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.
Effect of Inflation and Changes in Prices
Management does not believe that inflation and changes in price will have a
material effect on our operations.
Recent Accounting Pronouncements
For information regarding recently adopted and issued accounting pronouncements,
see "Note 12. Recent Accounting Pronouncements" in the Notes to Consolidated
Financial Statements contained in this Annual Report.
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ORGANOVO HOLDINGS, INC. 
