10-Q 1 nviv-20190930x10q.htm 10-Q nviv_Current_Folio_10Q

 

 

 

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: 001-37350


InVivo Therapeutics Holdings Corp.

(Exact name of registrant as specified in its charter)


 

Nevada

 

36-4528166

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

 

 

One Kendall Square, Suite B14402

 

 

Cambridge, MA

 

02139

(Address of principal executive offices)

 

(Zip code)

(617) 863-5500

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)


 

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

 

 

 

 

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00001 par value per share

NVIV

The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically if any, 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  ☐

 

As of November 4, 2019, 9,519,570 shares of the registrant’s Common Stock,  $0.00001 par value, were issued and outstanding.

 

 

 

 

INVIVO THERAPEUTICS HOLDINGS CORP.

Quarterly Report on Form 10-Q for the Quarter Ended September 30,  2019

 

TABLE OF CONTENTS

 

 

 

 

 

     

Page

PART I 

 

 

 

 

 

FINANCIAL INFORMATION 

 

 

 

 

 

1. Financial Statements (Unaudited) 

 

3

 

Consolidated Balance Sheets as of September 30, 2019, and December 31, 2018

 

3

 

Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2019 and 2018

 

4

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2019 and 2018

 

5

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

 

7

 

Notes to Consolidated Financial Statements

 

8

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

 

23

3. Quantitative and Qualitative Disclosures about Market Risk 

 

30

4. Controls and Procedures 

 

30

 

 

 

PART II 

 

 

 

 

 

OTHER INFORMATION 

 

 

 

 

 

1A. Risk Factors 

 

31

2. Unregistered Sales of Equity Securities and Use of Proceeds 

 

54

6. Exhibits 

 

54

 

 

2

PART I — FINANCIAL INFORMATION

 

 

Item 1.Financial Statements.

 

InVivo Therapeutics Holdings Corp.

Consolidated Balance Sheets

(In thousands, except share and per-share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

    

September 30, 

    

December 31, 

 

 

 

2019

 

2018

 

ASSETS:

 

 

    

 

 

    

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,136

 

$

16,660

 

Restricted cash

 

 

 4

 

 

 4

 

Prepaid expenses and other current assets

 

 

386

 

 

461

 

Total current assets

 

 

8,526

 

 

17,125

 

Property, equipment and leasehold improvements, net

 

 

70

 

 

100

 

Restricted cash - non current

 

 

110

 

 

110

 

Operating lease right-of-use assets

 

 

1,278

 

 

 —

 

Prepaid clinical trial expenses

 

 

1,130

 

 

996

 

Other assets

 

 

30

 

 

46

 

Total assets

 

$

11,144

 

$

18,377

 

LIABILITIES AND STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

821

 

$

815

 

Loan payable, current portion

 

 

 —

 

 

100

 

Operating lease liabilities

 

 

286

 

 

 —

 

Accrued expenses

 

 

1,020

 

 

1,290

 

Total current liabilities

 

 

2,127

 

 

2,205

 

Other liabilities

 

 

63

 

 

61

 

Operating lease liabilities - non current

 

 

1,097

 

 

 —

 

Total liabilities

 

 

3,287

 

 

2,266

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.00001 par value, authorized 25,000,000 shares; 9,519,570 shares issued and outstanding, including 206,500 shares of unvested restricted stock, at September 30, 2019;  9,309,255 shares issued and outstanding at December 31, 2018

 

 

 1

 

 

 1

 

Additional paid-in capital

 

 

223,644

 

 

223,440

 

Accumulated deficit

 

 

(215,788)

 

 

(207,330)

 

Total stockholders’ equity

 

 

7,857

 

 

16,111

 

Total liabilities and stockholders’ equity

 

$

11,144

 

$

18,377

 

 

See notes to the unaudited consolidated financial statements.

 

 

 

 

3

InVivo Therapeutics Holdings Corp.

Consolidated Statements of Operations

(In thousands, except share and per-share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2019

    

2018

    

2019

    

2018

    

Operating expenses:

 

 

    

 

 

    

 

 

    

 

 

    

 

Research and development

 

$

1,459

 

$

928

 

$

4,285

 

$

3,352

 

General and administrative

 

 

1,273

 

 

1,185

 

 

4,473

 

 

6,405

 

Total operating expenses

 

 

2,732

 

 

2,113

 

 

8,758

 

 

9,757

 

Operating loss

 

 

(2,732)

 

 

(2,113)

 

 

(8,758)

 

 

(9,757)

 

Other income / (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

51

 

 

71

 

 

222

 

 

122

 

Other income

 

 

 2

 

 

834

 

 

78

 

 

902

 

Derivatives loss

 

 

 —

 

 

(1,967)

 

 

 —

 

 

(12,165)

 

Other income / (expense), net

 

 

53

 

 

(1,062)

 

 

300

 

 

(11,141)

 

Net loss

 

$

(2,679)

 

$

(3,175)

 

$

(8,458)

 

$

(20,898)

 

Net loss per share, basic and diluted

 

$

(0.29)

 

$

(0.42)

 

$

(0.91)

 

$

(5.81)

 

Weighted average number of common shares outstanding, basic and diluted

 

 

9,311,956

 

 

7,562,807

 

 

9,311,258

 

 

3,597,460

 

 

 

See notes to the unaudited consolidated financial statements.

 

 

 

 

4

InVivo Therapeutics Holdings Corp.

Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share and per-share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Month Period Ended September 30, 2018

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount    

    

Capital

    

Deficit

    

Equity 

Balance as of June 30, 2018

 

4,077,667

 

$

 1

 

$

199,720

 

$

(201,630)

 

$

(1,909)

Share-based compensation expense

 

 —

 

 

 —

 

 

85

 

 

 —

 

 

85

Fair value of derivative warrant liability reclassified to additional paid-in capital

 

 —

 

 

 —

 

 

23,436

 

 

 —

 

 

23,436

Issuance of common stock upon vesting of restricted stock units

 

1,250

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock upon exercise of warrants

 

4,427,084

 

 

 —

 

 

44

 

 

 —

 

 

44

Issuance of common stock under ESPP

 

945

 

 

 —

 

 

 1

 

 

 —

 

 

 1

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(3,175)

 

 

(3,175)

Balance as of September 30, 2018

 

8,506,946

 

$

 1

 

$

223,286

 

$

(204,805)

 

$

18,482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Month Period Ended September 30, 2019

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount 

    

Capital    

    

 Deficit   

    

    Equity

Balance as of June 30, 2019

 

9,311,820

 

$

 1

 

$

223,576

 

$

(213,109)

 

$

10,468

Share-based compensation expense

 

 —

 

 

 —

 

 

68

 

 

 —

 

 

68

Issuance of common stock upon vesting of restricted stock units

 

1,250

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of restricted common stock

 

206,500

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(2,679)

 

 

(2,679)

Balance as of September 30, 2019

 

9,519,570

 

$

 1

 

$

223,644

 

$

(215,788)

 

$

7,857

 

 

See notes to the unaudited consolidated financial statements.

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Month Period Ended September 30, 2018

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity 

Balance as of December 31, 2017

 

1,370,992

 

$

 1

 

$

194,016

 

$

(183,907)

 

$

10,110

Share-based compensation expense

 

 —

 

 

 —

 

 

541

 

 

 —

 

 

541

Fair value of derivative warrant liability reclassified to additional paid-in capital

 

 —

 

 

 —

 

 

25,326

 

 

 —

 

 

25,326

Issuance of common stock upon vesting of restricted stock units

 

1,250

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock upon exercise of warrants

 

5,478,002

 

 

 —

 

 

55

 

 

 —

 

 

55

Issuance of common stock in public offering

 

1,652,396

 

 

 —

 

 

3,338

 

 

 —

 

 

3,338

Issuance of common stock under ESPP

 

1,133

 

 

 —

 

 

 4

 

 

 —

 

 

 4

Fractional shares issued due to reverse stock split

 

2,733

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock to 401(k) plan

 

440

 

 

 —

 

 

 6

 

 

 —

 

 

 6

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(20,898)

 

 

(20,898)

Balance at September 30, 2018

 

8,506,946

 

$

 1

 

$

223,286

 

$

(204,805)

 

$

18,482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Month Period Ended September 30, 2019

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

 Deficit   

    

Equity     

Balance as of December 31, 2018

 

9,309,255

 

$

 1

 

$

223,440

 

$

(207,330)

 

$

16,111

Share-based compensation expense

 

 —

 

 

 —

 

 

203

 

 

 —

 

 

203

Issuance of common stock upon vesting of restricted stock units

 

2,750

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of restricted common stock

 

206,500

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock under ESPP

 

1,065

 

 

 —

 

 

 1

 

 

 —

 

 

 1

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(8,458)

 

 

(8,458)

Balance at September 30, 2019

 

9,519,570

 

$

 1

 

$

223,644

 

$

(215,788)

 

$

7,857

 

 

See notes to the unaudited consolidated financial statements.

 

 

6

 

 

InVivo Therapeutics Holdings Corp.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2019

    

2018

 

Cash flows from operating activities:

 

 

    

 

 

    

 

Net loss

 

$

(8,458)

 

$

(20,898)

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

44

 

 

75

 

Amortization of operating lease right-of-use assets

 

 

197

 

 

 —

 

Loss on impairment of fixed assets

 

 

 —

 

 

48

 

Derivatives loss

 

 

 —

 

 

12,165

 

Gain on lease assignment

 

 

 —

 

 

(603)

 

Non-cash interest expense

 

 

 1

 

 

 2

 

Common stock issued to 401(k) plan

 

 

 —

 

 

 6

 

Share-based compensation expense

 

 

203

 

 

541

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(72)

 

 

(961)

 

Accounts payable

 

 

 6

 

 

291

 

Operating lease liability

 

 

(74)

 

 

 —

 

Accrued expenses and other liabilities

 

 

(272)

 

 

 9

 

Net cash used in operating activities

 

 

(8,425)

 

 

(9,325)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

 —

 

 

(65)

 

Net cash used in investing activities

 

 

 —

 

 

(65)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of stock under ESPP

 

 

 1

 

 

 4

 

Proceeds from exercise of warrants

 

 

 —

 

 

55

 

Repayment of loan payable

 

 

(100)

 

 

(636)

 

Repurchase of warrants

 

 

 —

 

 

(14)

 

Proceeds from issuance of common stock and warrants, net of commissions and issuance costs

 

 

 —

 

 

16,511

 

Net cash (used in) provided by financing activities

 

 

(99)

 

 

15,920

 

Decrease in cash and cash equivalents and restricted cash

 

 

(8,524)

 

 

6,530

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

16,774

 

 

13,271

 

Cash, cash equivalents and restricted cash at end of period

 

$

8,250

 

$

19,801

 

Supplemental disclosure of cash flow information and non-cash investing and financing activities:

 

 

 

 

 

 

 

Cash paid for interest

 

$

 1

 

$

35

 

Right-of-use assets and lease liability recorded upon adoption of ASC 842

 

$

1,475

 

$

 —

 

Fair value of derivative warrant liability reclassified to additional paid-in capital

 

$

 —

 

$

25,326

 

Non-cash issuance of common stock for warrants

 

$

 —

 

$

287

 

 

See notes to the unaudited consolidated financial statements.

 

 

7

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

 

1.NATURE OF OPERATIONS AND GOING CONCERN, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS

 

Business

 

InVivo Therapeutics Holdings Corp., including its subsidiary, (the “Company”) is a biomaterials and biotechnology company with a focus on the treatment of spinal cord injuries (“SCIs”). The Company’s proprietary technologies incorporate intellectual property that is licensed under an exclusive, worldwide license from Boston Children’s Hospital (BCH) and the Massachusetts Institute of Technology (MIT), as well as intellectual property that has been developed internally in collaboration with its advisors and partners.

 

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, and raising capital. The Company has historically financed its operations primarily through the sale of equity-related securities. At September 30, 2019, the Company had cash and cash equivalents of $8.1 million. The Company has not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. The Company does not expect to be profitable in the next several years, but rather expects to incur additional operating losses. The Company has limited liquidity and capital resources and must obtain significant additional capital resources in order to sustain its product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of its anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for selling, general and administrative expenses, and other working capital requirements. The Company expects that it will need additional capital to fund its operations, which it may raise through a combination of equity offerings, debt financings, other third party funding, marketing and distribution arrangements, and other collaborations, strategic alliances, and licensing arrangements.

 

Going Concern

 

The Company’s consolidated financial statements as of September 30, 2019 were prepared under the assumption that the Company will continue as a going concern. At September 30, 2019, the Company had cash and cash equivalents of $8.1 million. Given the Company’s development plans, the Company estimates cash resources will be sufficient to fund its operations into the first quarter of 2020. This estimate is based on assumptions that may prove to be wrong; expenses could prove to be significantly higher, leading to a more rapid consumption of the Company’s existing resources.

 

The Company’s ability to continue as a going concern depends on its ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. If the Company is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which those assets are carried on its unaudited consolidated financial statements, and it is likely that investors will lose all or part of their investment. If the Company seeks additional financing to fund its business activities in the future and there remains substantial doubt about its ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to the Company on commercially reasonable terms or at all. Based on these factors, as of September 30, 2019, management determined that there is substantial doubt regarding the Company’s ability to continue as a going concern.

 

Reverse Stock Split

 

On April 16, 2018, the Company effected a reverse stock split of its common stock, par value $0.00001 per share (the “Common Stock”), at a ratio of 1-for-25. As a result of the reverse stock split, (i) every 25 shares of the issued and outstanding Common Stock were automatically converted into 1 newly issued and outstanding share of Common Stock, without any change in the par value per share; (ii) shares of Common Stock underlying outstanding stock options and other equity instruments convertible into Common Stock were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the

8

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

terms of the agreements governing such securities, and (iii) the number of authorized shares of Common Stock outstanding was proportionally decreased.

 

All of the Company’s historical share and per share information related to issued and outstanding Common Stock and outstanding options and warrants exercisable for Common Stock in these consolidated financial statements were adjusted, on a retroactive basis, to reflect this 1-for-25 reverse stock split.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) consistent with those applied in, and should be read in conjunction with, the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on April 1, 2019. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of September 30, 2019 and its results of operations and cash flows for the interim period presented, and are not necessarily indicative of results for subsequent interim periods or for the full year. The interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements, as allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading.

 

Recently Adopted Accounting Standards

 

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance leases or operating leases, with classification affecting the pattern of expense recognition in the statement of operations. In January, July and December 2018, the FASB issued ASU No’s. 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01, which were targeted improvements to ASU No. 2016-02 (collectively, with ASU No. 2016-02, “ASC 842”) and provided entities with an additional (and optional) transition method to adopt the new lease standard, and provided clarifications to address potential narrow-scope implementation issues. The Company adopted ASU 2016- 02 effective January 1, 2019 and elected the optional transition method for adoption. The Company also took advantage of the transition package of practical expedients permitted within ASU 2016-02, which among other things, allowed it to carryforward historical lease classifications. The Company also elected to keep leases with an initial term of 12 months or less off of the balance sheet as a policy election and will recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. As of the adoption date, the Company identified one operating lease arrangement in which it is a lessee.  The adoption of this standard resulted in the recognition of operating lease liabilities and right-of-use assets of $1.5 million and $1.5 million, respectively, on the Company’s balance sheet as of January 1, 2019. The adoption of the standard did not have a material effect on the Company’s consolidated statements of operations or statements of cash flows.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting which is intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. The amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption was permitted, but no earlier than an entity’s adoption date of ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606). The Company adopted ASU 2018-07 on January 1, 2019 and it did not have a material effect on the Company’s financial position, results of operations or disclosures.

 

9

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements which clarifies, corrects errors in, and makes improvements to several Codification Topics, including to:

 

·

Clarify when excess tax benefits should be recognized for share-based compensation awards

 

·

Remove inconsistent guidance in income tax accounting for business combinations

 

·

Clarify the circumstances when derivatives may be offset

 

·

Clarify the measurement of liability or equity-classified financial instruments when an identical asset is held as an asset

 

·

Allow portfolios of financial instruments and nonfinancial instruments accounted for as derivatives to use the portfolio exception to valuation

 

The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this ASU do not require transition guidance and are effective upon issuance of this ASU. However, many of the amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018. The Company adopted ASU 2018-09 on January 1, 2019, and it did not have a material effect on the Company’s financial position, results of operations or disclosures.

 

In August 2018, the FASB issued ASU No. 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement which improves the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this ASU. The Company does not expect the adoption of this ASU to have a material effect on its consolidated financial statements.

 

In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections. This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. One of the changes in the ASU requires a presentation of changes in stockholders’ equity in the form of a reconciliation, either as a separate financial statement or in the notes to the financial statements, for the current and comparative year-to-date interim periods. The Company presented changes in stockholders' equity as separate financial statements for the current and comparative year-to-date interim periods. The additional elements of the ASU did not have a material impact on the Company's consolidated financial statements. This guidance was effective immediately upon issuance.

 

 

 

 

 

2.CASH AND CASH EQUIVALENTS

 

At September 30, 2019 and December 31, 2018, cash equivalents were comprised of money market funds and other short-term investments.

 

From time to time, the Company may have cash balances in financial institutions in excess of insurance limits. The Company has not experienced any losses related to these balances. The Company considers only those investments that are highly liquid, readily convertible to cash, and that mature within 3 months from date of purchase to be cash equivalents. Management believes it is not exposed to significant credit risk.

 

10

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

Cash and cash equivalents consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

(In thousands)

    

2019

    

2018

 

Cash

 

$

70

 

$

(83)

 

Money market funds

 

 

8,066

 

 

16,743

 

Total cash and cash equivalents

 

$

8,136

 

$

16,660

 

 

 

 

3.RESTRICTED CASH

 

Restricted cash as of both September 30, 2019 and December 31, 2018 was $114 thousand. Restricted cash as of September 30, 2019 and December 31, 2018 included a $50 thousand security deposit related to the Company’s credit card account, $4 thousand related to 401(k) reserve account and a $60 thousand standby letter of credit in favor of a landlord (see Note 5).

 

4.FAIR VALUES OF ASSETS AND LIABILITIES

 

The Company groups its assets and liabilities generally measured at fair value into three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

 

Level 1 — Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

 

Level 2 — Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 — Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

The Company used valuation methods and assumptions that considered, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life, and dividend rates in estimating fair value for the warrants considered to be derivative instruments (see Notes 10 and 11).

 

Assets and liabilities measured at fair value on a recurring basis are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018

 

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

 

Cash equivalents

 

$

16,743

 

$

 —

 

$

 —

 

$

16,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2019

 

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

 

Cash equivalents

 

$

8,066

 

$

 —

 

$

 —

 

$

8,066

 

 

 

 

11

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

5.COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

On November 30, 2011, the Company entered into a commercial lease for 26,342 square feet of office, laboratory, and manufacturing space in Cambridge, Massachusetts (as amended on September 17, 2012 and October 31, 2017, the “Cambridge Lease”). The term of the Cambridge Lease was 6 years and 3 months, with one 5-year extension option. On August 21, 2017, the Company exercised its option for the 5-year extension on the Cambridge Lease. The 5-year renewal lease term was set to commence on November 1, 2018 and end on October 31, 2023. The terms of the Cambridge Lease required a standby letter of credit in the amount of $311 thousand.

 

On June 13, 2017, the Company entered into a new short-term lease, to sub-lease 5,233 square feet of its facility (the “Moderna Sublease”). The lease term was from July 1, 2017 through October 26, 2018. On June 19, 2017, the Company received a $55 thousand security deposit under the terms of the Moderna Sublease. In connection with Moderna Sublease, the Company did not record any sublease income for the three-month period ended September 30, 2018. In connection with the Moderna Sublease, the Company received sublease income of $112 thousand for the nine-month period ended September 30, 2018, which was recorded as an offset to rent expense. In conjunction with the assignment of the Cambridge Lease on May 3, 2018 further described below, this security deposit was transferred to the third party that assumed the lease. The Company did not record any sublease income associated with the Moderna Sublease during the three or nine months period ended September 30, 2019.

 

On May 3, 2018, the Company assigned the Cambridge Lease to a third party who assumed all of the Company’s remaining rights and obligations under the Cambridge Lease including the Moderna Sublease. On the same date as the lease assignment, the Company entered into a sublease for 5,104 square feet of space, originally part of the Cambridge Lease, from the third party to which the Company assigned the Cambridge Lease (the “Current Cambridge Lease”). The Current Cambridge Lease commenced on May 3, 2018 and expires October 31, 2023 and contains rent holiday and rent escalation clauses. The Current Cambridge Lease does not contain any renewal options.

 

In connection with the assignment of the Cambridge Lease and the entry into the Current Cambridge Lease, the $311 thousand standby letter of credit was terminated, and a new standby letter of credit was established for $40 thousand. On November 1, 2018, the standby letter of credit was increased to $60 thousand. The $55 thousand security deposit under the Moderna Sublease was transferred to the third party and $603 thousand of deferred rent was removed from the consolidated balance sheets as of June 30, 2018. The resulting gain was recorded within the consolidated statement of operations during the second quarter of 2018. The Company also wrote off certain furniture, fixtures and equipment (including laboratory equipment) and recorded an impairment charge of $48 thousand for the nine months ended September 30, 2018. The Company did not record any impairment charges for the three-month period ended September 30, 2018.

 

Under the Current Cambridge Lease, the Company will be required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises in excess of new base year amounts. These costs are considered to be variable lease payments and are not included in the determination of the lease’s right-of-use asset or lease liability. 

 

The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:

 

·

As the Company’s Current Cambridge Lease does not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company has

12

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

estimated its incremental borrowing rate based on electing the remaining lease term as of the adoption date.

·

Since the Company elected to account for each lease component and its associated non-lease components as a single combined component, all contract consideration was allocated to the combined lease component.

·

The expected lease terms include noncancelable lease periods.

 

The elements of lease expense are as follows:

 

 

 

 

 

 

 

Lease cost (In thousands)

Three Months  Ended September 30, 2019

    

Nine Months  Ended September 30, 2019

Operating lease cost

$

91

 

$

273

Short-term lease cost

 

 9

 

 

21

Variable lease cost

 

39

 

 

39

Total lease cost

$

139

 

$

333

 

 

 

 

 

 

 

 

 

 

 

 

Other information (In thousands)

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

Operating cash flows from short term leases

$

 9

 

$

21

Operating cash flows from operating leases

 

90

 

 

150

Total cash paid for leases

$

99

 

$

171

Right-of-use assets obtained in exchange for operating lease liabilities

 

 -

 

 

 -

Weighted-average remaining lease term - operating leases

 

4.1 Years

 

 

4.1 Years

Weighted-average discount rate - operating leases

 

7.0%

 

 

7.0%

 

Maturities of lease liabilities due under the Company’s Current Cambridge Lease as of September 30, 2019 is as follows:

 

 

 

 

 

 

 

Leases (In thousands)

 

 

    

As of September 30, 2019

2019 (excluding the 9 months ended September 30, 2019

 

 

 

$

93

2020

 

 

 

 

375

2021

 

 

 

 

386

2022

 

 

 

 

398

2023

 

 

 

 

339

Thereafter

 

 

 

 

 —

Total lease payments

 

 

 

 

1,591

Less: imputed interest

 

 

 

 

(208)

Present value of lease liabilities

 

 

 

$

1,383

 

 

 

 

 

 

 

 

 

 

Leases (In thousands)

 

 

    

 

Classification

    

As of September 30, 2019

Assets

 

 

 

 

 

 

 

 

Lease asset

 

 

 

 

Operating

 

$

1,278

Total lease assets

 

 

 

 

 

 

$

1,278

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current

 

 

 

 

Operating

 

$

286

Non Current

 

 

 

 

Operating

 

 

1,097

Total lease liabilities

 

 

 

 

 

 

$

1,383

 

13

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

Under FASB Accounting Standards Codification (“ASC”) Topic 840, Leases (“ASC 840”) the Company recognized rent expense on a straight-line basis over the term of the lease and recorded the difference between the amount charged to expense and the rent paid as prepaid rent or deferred rent liability. As of December 31, 2018, the amount of prepaid rent was $17 thousand and this amount was subsequently reversed upon adoption of ASU No. 2016-02 on January 1, 2019.

 

Under ASC 840, rent expense related to the Company’s real estate lease charged to operations for the three month period ended September 30, 2018 was $107 thousand. 

 

Under ASC 840, rent expense related to the Company’s real estate lease charged to operations for the nine month period ended September 30, 2018 was $746 thousand, and did not include the one-time gain on termination of the Cambridge Lease of $603 thousand that was recorded to the consolidated statement of operations during the second quarter of 2018.

 

As of December 31, 2018, minimum future lease payments under non-cancellable leases were as follows (in thousands):

 

 

 

 

 

Year Ended December 31,

    

    

 

2019

 

$

243

2020

 

 

375

2021

 

 

386

2022

 

 

398

2023

 

 

339

Total

 

$

1,741

 

 

6.       ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

(In thousands)

    

2019

    

2018

 

Severance and restructuring

 

$

 —

 

$

517

 

Compensation

 

 

606

 

 

489

 

Clinical

 

 

172

 

 

73

 

Legal

 

 

62

 

 

35

 

Other accrued expenses

 

 

180

 

 

176

 

    Total accrued expenses

 

$

1,020

 

$

1,290

 

 

 

7.LOAN PAYABLE

 

In October 2012, the Company entered into a loan agreement with the Massachusetts Development Finance Agency (“MassDev”). The loan agreement provided the Company with a $2.0 million line of credit from the Commonwealth of Massachusetts’ Emerging Technology Fund, with $200 thousand designated to be used for working capital purposes and the remainder to be used for the purchase of capital equipment. The annual interest rate on the loan was fixed at 6.5% with interest-only payments for the first 30 months, commencing on November 1, 2012, and then equal installments of interest and principal over the next 54 months, until the final maturity of the loan in March 2019. Commencing on May 1, 2015, equal monthly payments of $41 thousand were due until loan maturity.

 

In May 2018, in order to obtain the consent of MassDev for facility changes, including the assignment of the Cambridge Lease, and the sale of certain assets, the Company paid down $300 thousand of principal on the MassDev loan. During the nine month period ended September 30, 2019, the Company made principal loan payments of $100 thousand. As of September 30, 2019, there was no outstanding loan payable balance.

14

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

 

In October 2012, as part of the agreement, the Company issued MassDev a warrant for the purchase of 362 shares of the Company’s Common Stock of which 243 shares remain outstanding at September 30, 2019. The warrant has a 7-year term and is exercisable at $166 per share. The fair value of the warrant was determined to be $32 thousand and was amortized through interest expense over the life of the note. Amortization expense related to this loan for the three and nine month periods ended September 30, 2018 was $1 thousand and $3 thousand,  respectively. The Company did not record any amortization expense during the three months ended September 30, 2019. During the nine month period ended September 30, 2019,  the Company recorded $1 thousand in amortization expense. This amortization expense was included in interest expense in the Company’s consolidated statements of operations.

 

The equipment line of credit was secured by substantially all the assets of the Company, excluding intellectual property. The Company did not record any interest expense during the three months ended September 30, 2019. Interest expense related to this loan for the three month period ended September 30, 2018 was $9 thousand. Interest expense related to this loan for the nine month periods ended September 30, 2019 and 2018 was $1 thousand and $35 thousand, respectively.

 

8.COMMON STOCK

 

In May 2018, the Company’s stockholders approved an amendment to the Company’s Articles of Incorporation to increase the number of shares of authorized Common Stock from 4,000,000 to 25,000,000 shares.  As of September 30, 2019, and December 31, 2018, 9,519,570 and 9,309,255 shares were issued and outstanding respectively.

 

In June 2018, the Company closed an underwritten public offering of an aggregate of 1,378,400 Common Units, at an offering price of $2.00 each, each comprised of 1 share of the Company’s Common Stock and 1 Series A warrant to purchase 1 share of Common Stock. The public offering also included 6,242,811 pre-funded units at an offering price of $1.99 each, each comprised of 1 pre-funded Series B Warrant, and 1 Series A warrant to purchase 1 share of Common Stock. Each Series A warrant has an exercise price of $2.00 per share, is exercisable immediately and expires 5 years from the date of issuance. Each Series B warrant had an exercise price of $0.01 per share, was exercisable immediately and would have expired 20 years from the date of issuance (see Note 11). The net proceeds to the Company, after deducting the underwriting discounts and commissions and other offering expenses, were $13.5 million (see Note 11). In September 2018, the Company entered into an Amendment to the Warrant Agency Agreement and Warrants (the “Ladenburg Warrant Amendment”) with Continental Stock Transfer & Trust Company (“Continental”) that amended the Warrant Agency Agreement, by and between the Company and Continental, as Warrant Agent, dated June 25, 2018, the Series A Common Stock Purchase Warrant, and the Series B Pre-Funded Common Stock Purchase Warrant, both dated June 25, 2018 (the Series A and Series B Warrant, collectively the “2018 Warrants”). The Ladenburg Warrant Amendment added a provision to each of the warrants that allowed the Company or a successor entity whose stock is not listed on a trading market to, in connection with a Fundamental Transaction (as such term is defined in the 2018 Warrants) that is not within the Company’s control, purchase the warrant from the holder, at the holder’s option, by paying the same form of consideration in the same proportion that is offered to the holders of the Company’s Common Stock in connection with the Fundamental Transaction, including cash, stock, any combination thereof and any choice of consideration thereof, in an amount equal to the Black-Scholes Value of the remaining unexercised portion of the Warrant on the consummation date of the Fundamental Transaction. The 2018 Warrants were initially classified as liabilities, as a result of the amendment, the Company reassessed the warrant classification and concluded that the warrants qualified for equity classification. The fair value of the amended 2018 Warrants was re-measured immediately prior to the date of the Ladenburg Warrant Amendment with changes in fair value recorded as a loss of $764 thousand in the Company’s consolidated statement of operations, and $14.7 million was reclassified to equity. During the three months ended September 30, 2018, the Company issued an aggregate of 4,427,084 shares of common stock upon the exercise of Series B warrants for aggregate proceeds of $44 thousand. The Company reclassified $8.7 million from derivative warrant liability to additional paid-in capital and recorded a derivative loss of $1.2 million in connection with the warrant exercises. During the nine months ended September 30, 2018,

15

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

the Company issued an aggregate of 5,478,002 shares of common stock upon the exercise of Series B warrants for aggregate proceeds of $55 thousand. The Company reclassified $10.6 million from derivative warrant liability to additional paid-in capital and recorded a derivative loss of $1.2 million in connection with the warrant exercises. During the three and nine months ended September 30, 2019, the Company did not issue any shares as a result of warrant exercise activity. There are no outstanding Series B warrants as of either September 30, 2019 or December 31, 2018.

 

In January 2018, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “RRA”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), under which it had the right to sell up to $15 million, in shares of our Common Stock, to Lincoln Park over a 24 month period, subject to certain limitations and conditions set forth in the Purchase Agreement and RRA. On May 30, 2018, the Company’s stockholders approved to increase the issuance and sale by the Company to Lincoln Park, including the Company’s prior issuances and sales of shares of Common Stock to Lincoln Park since January 2018, of up to 1,200,000 shares of Common Stock. In accordance with the terms of the Purchase Agreement, at the time the Company signed the Purchase Agreement and the RRA, it issued 17,192 shares to Lincoln Park as consideration for its commitment to purchase shares of the Company’s Common Stock under the Purchase Agreement and recorded $627 thousand in deferred offering costs of which the full amount was capitalized into additional paid-in capital as of September 30, 2018. During the three months ended September 30, 2018, the Company did not sell any shares to Lincoln Park. During the nine months ended September 30, 2018, the Company sold an aggregate of 256,804 shares to Lincoln Park, for aggregate proceeds of $3.1 million net of issuance costs. During the three and nine months ended September 30, 2019,  the Company did not sell any shares to Lincoln Park. In May 2019, the Company terminated the Purchase Agreement with Lincoln Park.

 

In May 2018, the Company’s Board of Directors approved to increase the number of shares of Common Stock reserved under the 401(k) Plan by 4,000 shares, bringing the aggregate number of shares of Common Stock eligible for distribution pursuant to the 401(k) Plan as of that date to 4,100 shares. In the second quarter of 2018 the Company revised its 401(k)-matching policy to move from share matching to cash-based matching. During the three months ended September 30, 2018, the Company did not issue shares in 401(k) matching. During the nine months ended September 30, 2018, the Company issued an aggregate of 440 shares of Common Stock with a fair value of $6 thousand to the Company’s 401(k) plan as a matching contribution. The Company contributed $32 thousand in matching contributions to employee 401(k) accounts during the nine months ended September 30, 2018. During the nine months ended September 30, 2019, the Company contributed $45 thousand in cash as a matching contribution to employee 401(k) accounts.

 

During the three months ended September 30, 2019, the Company did not issue any shares under the Company’s Employee Stock Purchase Plan (the “ESPP”). In January 2019, 1,065 shares that were purchased in the offering period commencing on July 1, 2018 and ending on December 31, 2018 were issued under the ESPP. During the three months ended September 30, 2018, the Company issued an aggregate of 945 shares of common stock under the Company’s ESPP and received cash proceeds of approximately $1 thousand. During the nine months ended September 30, 2018, the Company issued an aggregate of 1,133 shares of common stock under the Company’s ESPP and received cash proceeds of approximately $4 thousand.

 

During the three months ended September 30, 2019, the Company issued an aggregate of 1,250 shares of Common Stock upon vesting of restricted stock units. During the nine months ended September 30, 2019,  the Company issued an aggregate of 2,750 shares of Common Stock upon vesting of restricted stock units.

 

During the three and nine months ended September 30, 2018, the Company issued an aggregate of 1,250 shares of Common Stock upon vesting of restricted stock units.

 

During the three and nine months ended September 30, 2018, as part of the adjustment to reflect the Company’s 1-for-25 reverse stock split on its Common Stock on April 16, 2018, the Company issued 2,733 shares of Common Stock to account for the fractional roundup of shareholders.

 

16

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

9.STOCK-BASED COMPENSATION

 

In 2007, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently approved, the 2007 Employee, Director and Consultant Stock Plan (the “2007 Plan”). The 2007 Plan provided that the Company’s Board of Directors (or committees and/or executive officers delegated by the Board of Directors) could grant incentive and nonqualified stock options to the Company’s employees, officers, directors, consultants and advisors.

 

On October 26, 2010, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently approved, the 2010 Equity Incentive Plan (as subsequently amended, the “2010 Plan”). The 2010 Plan provided for grants of incentive stock options to employees, and nonqualified stock options and restricted Common Stock to employees, consultants, and non-employee directors of the Company.

 

In April 2015, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently approved, the 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan provides for grants of incentive stock options to employees, and nonqualified stock options, restricted Common Stock, restricted stock units (“RSUs”), and stock appreciation rights to employees, consultants, and non-employee directors of the Company.

 

Upon approval of the 2015 Plan by the Company’s shareholders on June 16, 2015, the 2010 Plan was terminated and no additional shares or share awards have been subsequently granted under the 2010 Plan. As of September 30, 2019, the total number of shares available to be issued under the 2015 Plan was 2,046 shares, consisting of 160,000 shares initially authorized under the 2015 Plan shares plus the shares that remained available for grant under the 2010 Plan at the time of its termination adjusted for cumulative cancellations, forfeitures and issuances from the 2010 Plan and 2015 Plan.

 

Options issued under the 2007 Plan, 2010 Plan, and 2015 Plan (collectively, the “Plans”) are exercisable for up to 10 years from the date of issuance.

 

In March 2015, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently approved, the ESPP. The ESPP allows employees to buy company stock twice per year through after-tax payroll deductions at a discount from market. The Company’s Board of Directors initially authorized 7,500 shares for issuance under the ESPP. Commencing on the first day of the year ended December 31, 2016 and on the first day of each year thereafter during the term of the ESPP, the number of shares of Common Stock reserved for issuance shall be increased by the lesser of (i) 1% of the Company’s outstanding shares of Common Stock on such date, (ii) 2,000 shares, or (iii) a lesser amount determined by the Board of Directors. Under the terms of the ESPP, in no event shall the aggregate number of shares reserved for issuance during the term of the ESPP exceed 50,000 shares. As of both September 30, 2019 and December 31, 2018, there were 7,923 shares reserved for issuance under the ESPP.

 

In January 2019, 1,065 shares that were purchased in the offering period commencing on July 1, 2018 and ending on December 31, 2018 were issued under the ESPP. The ESPP is considered a compensatory plan with the related compensation cost recognized over each 6 month offering period. None of the Company’s employees participated in the ESPP plan in the current offering period and consequently no compensation expense was recorded in each of three and nine months periods ended September 30, 2019. The compensation expense related to the ESPP for each of the three and nine month periods ended September 30, 2018 was $1 thousand and was included in share-based compensation expense.

 

Stock-based compensation

 

For the three month periods ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense of $68 thousand and $85 thousand, respectively, inclusive of the expense related to the ESPP.

 

17

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

For the nine month periods ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense of $203 thousand and $541 thousand, respectively, inclusive of the expense related to the ESPP

 

The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The expected term of options granted under the Plans, all of which qualify as “plain vanilla,” is based on the average of the contractual term (10 years) and the vesting period (generally, 48 months). For non-employee options, the expected term is the contractual term. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.

 

The assumptions used principally in determining the fair value of options granted were as follows:

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

 

    

2019

 

2018

 

 

Risk-free interest rate

    

2.55%

 

2.45 - 2.88%

 

 

Expected dividend yield

 

0%

 

0%

 

 

Expected term (employee grants)

 

6 Years

 

5.62 Years

 

 

Expected volatility

 

105%

 

104%

 

 

 

The Company grants RSUs and restricted stock awards (“RSAs”), collectively referred to as restricted securities under its the 2015 Equity Incentive Plan. These restricted securities, generally vest over a three-year period, contingent on the recipient’s continued employment. Prior to vesting, all RSAs have the right to vote and receive dividends under the 2015 Equity Incentive Plan; however, the Company’s form of Restricted Stock Agreement provides that the payment of dividends on unvested RSAs shall be deferred until such time as the shares vest. The grant date fair value of these awards is based on the fair market value of our common stock on the date of grant.

 

Stock options

 

A summary of option activity as of September 30, 2019 and changes for the nine-month period then ended are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

 

 

Exercise

 

Contractual

 

Intrinsic

 

Options

    

Shares

    

Price

    

Term in Years

    

Value

 

Outstanding at December 31, 2018

 

54,849

 

$

100.83

 

7.32

 

$

 —

 

Granted

 

90,000

 

$

1.53

 

 

 

 

 

 

Expired

 

(2,500)

 

$

231.00

 

 

 

 

 

 

Cancelled/Forfeited

 

(17,459)

 

$

40.12

 

 

 

 

 

 

Outstanding at September 30, 2019

 

124,890

 

$

35.15

 

8.42

 

$

 —

 

Vested and Exercisable at September 30, 2019

 

28,283

 

$

134.22

 

5.82

 

$

 —

 

 

The weighted average grant-date fair value of options granted during the nine months ended September 30, 2019 was $1.25 per share. The total fair value of options that vested in the three months ended September 30, 2019 was $34 thousand. The total fair value of options that vested in the nine months ended September 30, 2019 was $103 thousand. For the three month period ended September 30, 2019, the Company recorded stock-based compensation expense of $42 thousand related to stock options. For the nine month period ended September 30, 2019, the Company recorded stock-based compensation expense of $126 thousand related to stock options. As of September 30, 2019, total unrecognized compensation expense related to non-vested share-based option compensation arrangements amounted to $219 thousand and is estimated to be recognized over a period of 1.80 years.

 

18

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2019 (Unaudited)

(Continued)

 

Restricted Securities

 

The following table summarizes the restricted securities activity under the 2015 Plan during the nine month period ended September 30, 2019:

 

 

 

 

 

 

 

Restricted Stock Awards

 

 

 

Weighted-Average

and Restricted Stock Units

    

Number of Grants

    

Grant Date Fair Value

Unvested balance at December 31, 2018

 

10,250

 

$

23.13

Granted

 

206,500

 

$

0.52

Vested

 

(2,750)

 

$

26.20

Unvested balance at September 30, 2019

 

214,000

 

$

1.27

 

For the three month period ended September 30, 2019, the Company recorded stock-based compensation expense of $26 thousand related to the time-based restricted securities. For the nine-month period ended September 30, 2019, the Company recorded stock-based compensation expense of $77 thousand related to the time-based restricted securities. As of September 30, 2019, total unrecognized compensation expense related to non-vested restricted securities amounted to $253 thousand which the Company expects to recognize over a remaining weighted-average of 2.54 years.

 

10.     WARRANTS

 

The following table presents information about warrants to purchase Common Stock issued and outstanding at September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Number of

    

Exercise

    

 

 

Year Issued

 

Classification

 

Warrants

 

Price