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ONVO
ORGANOVO HOLDINGS, INC.
false
Accelerated Filer
2015
10-Q
2014-06-30
0001497253
--03-31
Q1
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The estimated fair values of the liabilities measured on a
recurring basis are as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr style="COLOR: white; LINE-HEIGHT: 0pt; VISIBILITY: hidden">
<td width="52%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td style="Times:" nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td style="Times:" nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td style="Times:" nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td style="Times:" nowrap="nowrap">
<b>                           </b></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="14" align="center">
<b>Fair Value Measurements at June 30 and March 31, 2014 (in thousands):</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Balance at</b><br />
<b>June 30,</b><br />
<b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Quoted<br />
Prices in<br />
Active<br />
Markets<br />
(Level 1)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other<br />
Observable<br />
Inputs<br />
(Level 2)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other<br />
Unobservable<br />
Inputs<br />
(Level 3)</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Warrant liability</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">352</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">352</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr style="COLOR: white; LINE-HEIGHT: 0pt; VISIBILITY: hidden">
<td width="51%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td style="Times:" nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td style="Times:" nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td style="Times:" nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td style="Times:" nowrap="nowrap">
<b>                           </b></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center">
<b>    Balance at    <br />
March 31,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Quoted<br />
Prices in<br />
Active<br />
Markets<br />
    (Level 1)    </b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other</b><br />
<b>    Observable   <br />
Inputs<br />
(Level 2)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other<br />
  Unobservable  <br />
Inputs<br />
(Level 3)</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Warrant liability</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">377</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">  377</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>4. Commitments and Contingencies</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Operating leases</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company leases office and laboratory space under a
non-cancelable operating lease which was entered into in February
2012 and amended in December 2013, with the future minimum lease
payments from the lease included below. The Company records rent
expense on a straight-line basis over the life of the lease and
records the excess of expense over the amounts paid as deferred
rent. Deferred rent is included in accrued expenses in the
condensed consolidated balance sheets.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Rent expense was approximately $235,000 and $105,000 for the three
months ended June 30, 2014 and 2013, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On February 27, 2012, the Company entered into a facilities
lease at 6275 Nancy Ridge Drive (the “Original Lease”),
San Diego, CA 92121, with occupancy as of July 15, 2012. The
base rent under the lease was approximately $38,800 per month with
3% annual escalators. The lease term was 48 months with an option
for the Company to extend the lease at the end of the lease
term.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On December 5, 2013, the Company entered into a First
Amendment (the “Amendment”) to the Original Lease,
together with the Amendment, (the “Amended Lease”).
Pursuant to the Amendment, the Company expanded the size of its
facility by approximately 15,268 square feet (the “Expansion
Premises”) from approximately 15,539 square feet (the
“Original Premises”) for a total of approximately
30,807 square feet. The Amended Lease provides for base rent
(i) on the Original Premises to continue at approximately
$38,800 per month, with annual escalators, until August 1,
2016, at which point the base rent shall be payable at the same
rate per rentable square foot as the Expansion Premises and
(ii) on the Expansion Premises of approximately $38,934 per
month, with 3% annual escalators, not to commence until two months
after the earlier of (A) the date that the landlord delivers
possession of the Expansion Premises to the Company with the work
in the Expansion Lab Premises (as defined in the Amendment)
substantially complete and (B) the date the landlord could
have delivered the Expansion Premises with the work in the
Expansion Lab Premises (as defined in the Amendment) substantially
complete but for certain delays of the Company. Additionally, the
Company has a right of first refusal on adjacent additional
premises of approximately 14,500 square feet. The term of the
Amended Lease expires on the seven-year anniversary of the earlier
of (A) the date that the landlord delivers possession of the
Expansion Premises to the Company and (B) the date the
landlord could have delivered the Expansion Premises but for
certain delays of the Company (the “Expansion Premises
Commencement Date”). The target Expansion Premises
Commencement Date is September 1, 2014. The Company also has
the option to terminate the Amended Lease on the 5-year anniversary
of the Expansion Premises Commencement Date. The Company intends
for the Expansion Premises to contain office, laboratory, and clean
room areas.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Future minimum rental payments required under operating leases that
have initial or remaining non-cancelable lease terms in excess of
one year as of June 30, 2014, are as follows (in
thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="89%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fiscal year ended March 31, 2015</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">567</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fiscal year ended March 31, 2016</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">979</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fiscal year ended March 31, 2017</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">984</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fiscal year ended March 31, 2018</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,001</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fiscal year ended March 31, 2019</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,031</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Thereafter</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,527</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7,089</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Legal Matters</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In addition to commitments and obligations in the ordinary course
of business, the Company is subject to various claims and pending
and potential legal actions arising out of the normal conduct of
its business. The Company assesses contingencies to determine the
degree of probability and range of possible loss for potential
accrual in its financial statements. An estimated loss contingency
is accrued in its financial statements if it is probable that a
liability has been incurred and the amount of the loss can be
reasonably estimated. Because litigation is inherently
unpredictable and unfavorable resolutions could occur, assessing
litigation contingencies is highly subjective and requires
judgments about future events. When evaluating contingencies, the
Company may be unable to provide a meaningful estimate due to a
number of factors, including the procedural status of the matter in
question, the presence of complex or novel legal theories, and/or
the ongoing discovery and development of information important to
the matters. In addition, damage amounts claimed in litigation
against it may be unsupported, exaggerated or unrelated to possible
outcomes, and as such are not meaningful indicators of its
potential liability. The Company regularly reviews contingencies to
determine the adequacy of its accruals and related disclosures. The
amount of ultimate loss may differ from these estimates. It is
possible that cash flows or results of operations could be
materially affected in any particular period by the unfavorable
resolution of one or more of these contingencies. Whether any
losses finally determined in any claim, action, investigation or
proceeding could reasonably have a material effect on the
Company’s business, financial condition, results of
operations or cash flows will depend on a number of variables,
including: the timing and amount of such losses; the structure and
type of any remedies; the monetary significance of any such losses,
damages or remedies may have on our consolidated financial
statements; and the unique facts and circumstances of the
particular matter that may give rise to additional factors.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<u>Spencer Trask Matter</u>. On June 28, 2013, the Company
filed a lawsuit for declaratory relief in the Supreme Court for the
State of New York (case # 652305/2013) against Spencer Trask
Ventures, Inc. (“STV” or “Spencer Trask”)
in connection with a Warrant Solicitation Agency Agreement (the
“WSAA”) that the Company entered into with STV in
February 2013 (the “New York Action”). In the New York
Action, the Company is seeking a declaration that the WSAA remains
a valid and enforceable agreement. Over the course of several weeks
in February 2013, Organovo and STV, through their respective
attorneys, negotiated the WSAA pursuant to which the Company
engaged STV as the Company’s warrant solicitation agent in
connection with the Company’s efforts to solicit the exercise
of outstanding Organovo warrants during the first quarter of 2013.
STV’s President signed the WSAA on behalf of STV, and the
Company’s CEO executed the agreement on behalf of Organovo.
Spencer Trask provided services to the Company pursuant to the
WSAA, and the Company has paid STV for those services.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company’s dispute with Spencer Trask arose in March 2013
after the Company approached Spencer Trask about exercising its
outstanding warrants to help the Company qualify for up-listing its
common stock on the NYSE MKT. Previously, Spencer Trask had not
asserted any claims for additional compensation as a result of the
warrant tender offer the Company completed in December 2012.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In March 2013, the Company received two demand letters from STV,
and a demand for arbitration notice in June 2013. In the first
demand letter, STV alleges that it is entitled to compensation
(including a cash fee and warrants to purchase common stock) as a
result of the warrant tender offer the Company completed in
December 2012 and as a result of the notice of warrant redemption
the Company completed in March 2013. In the second letter, STV
alleges it is entitled to damages because the Company allegedly
violated confidentiality provisions in the Placement Agency
Agreement (the “PAA”) the Company had previously
entered into with STV in December 2012 in connection with the
private placement financings the Company completed in February and
March 2012 (the “Private Placements”), by contacting
the warrant holders who participated in the warrant tender offer.
In response, on June 28, 2013, the Company filed a lawsuit for
declaratory relief in the Supreme Court for the State of New York
against STV. The Company’s tender offer was made to warrant
holders of record relating to warrants already owned by them and
whose identity was public information via a Registration Statement
on Form S-1 the Company was required to file to register the resale
of the shares underlying their warrants. For these and other
reasons, including applicability of the WSAA, the Company believes
STV is not entitled to compensation under the PAA and there was no
violation of confidentiality. The Company received notice on
August 5, 2013 that STV had filed its arbitration demand with
the arbitrator (the “Arbitration”). In July, 2013, the
Company filed a motion to stay the arbitration pending
determination of the New York Action. In January 2014, the New York
Court stayed the New York Action, finding that the arbitrator
should determine in the first instance which disputes between the
Company and Spencer Trask should proceed in the Arbitration and
which disputes between the Company and Spencer Trask should proceed
in the New York Court. The parties are proceeding in the
Arbitration and the Company has reserved its right to file a
summary disposition motion with regard to the proper venue for its
claims under the WSAA. The Arbitration is currently scheduled to
commence during the second calendar quarter of 2015.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company believes that the assertions made against it by STV are
without merit and the Company intends to continue to vigorously
defend against the claims made by STV. The Company has not
established a loss contingency accrual for these claims because any
potential liability is not probable or estimable. Nonetheless, an
unfavorable resolution of these claims could have a material
adverse effect on the Company’s business, liquidity or
financial condition in the reporting period in which such
resolution occurs.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<u>Other Legal Matters</u>. In addition to the matter described
above, the Company is subject to normal and routine litigation in
the ordinary course of business. The Company has not accrued any
loss contingencies for such matters. The Company intends to defend
itself in any such matters and does not currently believe that the
outcome of such matters will have a material adverse effect on its
business, liquidity or financial position.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
A summary of the Company’s restricted stock award activity
from March 31, 2014 through June 30, 2014 is as
follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="87%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Number of</b><br />
<b>Shares</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Unvested at March 31, 2014</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">573,495</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Granted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Vested</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(6,250</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Canceled / forfeited</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Unvested at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">567,245</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
Revenue Arrangements with Multiple Deliverables</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company occasionally enters into revenue arrangements that
contain multiple deliverables. Judgment is required to properly
identify the accounting units of the multiple deliverable
transactions and to determine the manner in which revenue should be
allocated among the accounting units. Moreover, judgment is used in
interpreting the commercial terms and determining when all criteria
of revenue recognition have been met for each deliverable in order
for revenue recognition to occur in the appropriate accounting
period. For multiple deliverable agreements, consideration is
allocated at the inception of the agreement to all deliverables
based on their relative selling price. The relative selling price
for each deliverable is determined using vendor-specific objective
evidence (“VSOE”) of selling price or third-party
evidence of selling price if VSOE does not exist. If neither VSOE
nor third-party evidence of selling price exists, the Company uses
its best estimate of the selling price for the deliverable.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company recognizes revenue for delivered elements only when it
determines there are no uncertainties regarding customer
acceptance. While changes in the allocation of the arrangement
consideration between the units of accounting will not affect the
amount of total revenue recognized for a particular sales
arrangement, any material changes in these allocations could impact
the timing of revenue recognition, which could affect the
Company’s results of operations.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company expects to periodically receive license fees for
non-exclusive research licensing associated with funded research
projects. License fees under these arrangements are recognized over
the term of the contract or development period as it has been
determined that such licenses do not have stand-alone value.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Stock-based compensation</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company accounts for stock-based compensation in accordance
with the Financial Accounting Standards Board’s
(“FASB”) ASC Topic 718, <i>Compensation — Stock
Compensation,</i> which establishes accounting for equity
instruments exchanged for employee services. Under such provisions,
stock-based compensation cost is measured at the grant date, based
on the calculated fair value of the award, and is recognized as an
expense, under the straight-line method, over the employee’s
requisite service period (generally the vesting period of the
equity grant).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company accounts for equity instruments, including restricted
stock or stock options, issued to non-employees in accordance with
authoritative guidance for equity based payments to non-employees.
Stock options issued to non-employees are accounted for at their
estimated fair value determined using the Black-Scholes
option-pricing model. The fair value of options granted to
non-employees is re-measured as they vest, and the resulting
increase in value, if any, is recognized as expense during the
period the related services are rendered. Restricted stock issued
to non-employees is accounted for at its estimated fair value as it
vests.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Fair value measurement</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Financial assets and liabilities are measured at fair value, which
is defined as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value
must maximize the use of observable inputs and minimize the use of
unobservable inputs. The following is a fair value hierarchy based
on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure
fair value:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 6pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">Level 1 — Quoted prices in
active markets for identical assets or liabilities.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 6pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">Level 2 — Inputs other than
Level 1 that are observable, either directly or indirectly, 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.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 6pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">Level 3 — Unobservable inputs
that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company has issued warrants, of which some are classified as
derivative liabilities as a result of the terms in the warrants
that provide for down-round protection in the event of a dilutive
issuance. The Company uses Level 3 inputs for its valuation
methodology for the warrant derivative liabilities. The estimated
fair values were determined using a Monte Carlo option pricing
model based on various assumptions (see Note 2). The
Company’s derivative liabilities are adjusted to reflect
estimated fair value at each period end, with any decrease or
increase in the estimated fair value being recorded in other income
or expense accordingly, as adjustments to the fair value of
derivative liabilities. Various factors are considered in the
pricing models the Company uses to value the warrants, including
the Company’s current stock price, the remaining life of the
warrants, the volatility of the Company’s stock price, and
the risk-free interest rate. Future changes in these factors will
have a significant impact on the computed fair value of the warrant
liability. As such, future changes in the fair value of the
warrants could vary significantly from quarter to quarter.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The estimated fair values of the liabilities measured on a
recurring basis are as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0"><!-- Begin Table Head -->
<tr style="COLOR: white; LINE-HEIGHT: 0pt; VISIBILITY: hidden">
<td width="52%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="14" align="center">
<b>Fair Value Measurements at June 30 and March 31, 2014 (in thousands):</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Balance at</b><br />
<b>June 30,</b><br />
<b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Quoted<br />
Prices in<br />
Active<br />
Markets<br />
(Level 1)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other<br />
Observable<br />
Inputs<br />
(Level 2)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other<br />
Unobservable<br />
Inputs<br />
(Level 3)</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Warrant liability</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">352</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">352</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0"><!-- Begin Table Head -->
<tr style="COLOR: white; LINE-HEIGHT: 0pt; VISIBILITY: hidden">
<td width="51%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center">
<b>    Balance at    <br />
March 31,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Quoted<br />
Prices in<br />
Active<br />
Markets<br />
    (Level 1)    </b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other</b><br />
<b>    Observable   <br />
Inputs<br />
(Level 2)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other<br />
  Unobservable  <br />
Inputs<br />
(Level 3)</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Warrant liability</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">377</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">  377</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
The following table presents the activity for liabilities measured
at estimated fair value using unobservable inputs for the three
months ended June 30, 2014:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 24pt" align="center"><b>Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="83%"></td>
<td valign="bottom" width="14%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Warrant<br />
Derivative<br />
Liability<br />
(in thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at March 31, 2014</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">377</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Issuances</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Adjustments to estimated fair value</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">30</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Warrant liability removal due to settlements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(55</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Warrant liability reclassified to equity</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">352</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
0.0156
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Revenue recognition</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company’s revenues are derived from collaborative
research agreements, grants from the NIH, U.S. Treasury Department
and private not-for-profit organizations.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company recognizes revenue when the following criteria have
been met: (i) persuasive evidence of an arrangement exists;
(ii) services have been rendered or product has been
delivered; (iii) price to the customer is fixed and
determinable; and (iv) collection of the underlying receivable
is reasonably assured.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
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 June 30, 2014 and
March 31, 2014, the Company had approximately $147,000 and
$17,000, respectively, in deferred revenue related to its grants
and collaborative research programs.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
A summary of the Company’s stock option activity for the
three months ended June 30, 2014 is as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0">
<tr>
<td width="62%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Options</b><br />
<b>Outstanding</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted-</b><br />
<b>Average</b><br />
<b>Exercise Price</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>Aggregate</b><br />
<b>Intrinsic</b><br />
<b>Value</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at March 31, 2014</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,935,888</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4.87</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">20,482,823</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Options granted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">266,801</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7.31</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Options canceled</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(22,125</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7.22</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Options exercised</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(60,522</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.83</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">279,284</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6,120,042</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.00</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">23,228,321</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Vested and Exercisable at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,942,013</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2.48</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">11,491,009</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
</table>
</div>
200000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The following table
summarizes warrant activity for the three months
ended June 30, 2014:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="74%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Warrants</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Weighted-<br />
Average<br />
Exercise Price</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at March 31, 2014</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,194,756</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.79</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Granted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Exercised</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(111,647</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2.08</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,083,109</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.76</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Comprehensive income (loss)</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Comprehensive income (loss) is defined as the change in equity
during a period from transactions and other events and
circumstances from non-owner sources. The Company is required to
record all components of comprehensive income (loss) in the
financial statements in the period in which they are recognized.
Net income (loss) and other comprehensive income (loss), including
unrealized gains and losses on investments, are reported, net of
their related tax effect, to arrive at comprehensive income (loss).
For the three months ended June 30, 2014 and 2013, the
comprehensive loss was equal to the net loss.</p>
</div>
0.7802
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Restricted cash</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
As of June 30, 2014 and March 31, 2014, the Company had
approximately $78,800 of restricted cash deposited with a financial
institution. The entire amount is held in certificates of deposit
to support a letter of credit agreement related to the
Company’s facility lease.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Liquidity</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
As of June 30, 2014, the Company had an accumulated deficit of
approximately $98.6 million. The Company also had negative cash
flows from operations of approximately $3.4 million during the
three months ended June 30, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Through June 30, 2014, the Company has financed its operations
primarily through the sale of convertible notes, the private
placement of equity securities, the public offering of common
stock, and through revenue derived from grants or collaborative
research agreements or the commercialization of products and
services. Based on its current operating plan and available
cash resources, the Company has sufficient resources to fund its
business for at least the next twelve months.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company will need additional capital to further fund product
development and commercialization of its human tissues that can be
employed in drug discovery and development, biological research,
and as therapeutic implants for the treatment of damaged or
degenerating tissues and organs. The Company intends to cover its
future operating expenses through cash on hand, through additional
financing from existing and prospective investors, from revenue
derived from grants and collaborative research agreements, and
revenue from the commercialization of products and services.
However, we may not be successful in obtaining sufficient funding
to support our operations from new or existing collaborative
research agreements or the commercialization of products and
services. In addition, we cannot be sure that additional financing
will be available when needed or that, if available, financing will
be obtained on terms favorable to us or to our stockholders.
Further, we cannot assure you that we will receive 100% of the
potential funding under existing grants, and we may not be
successful in securing additional grants in the future.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Having insufficient funds may require us to delay, scale back, or
eliminate some or all of our development programs or 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.</p>
</div>
P8Y8M23D
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
Future minimum rental payments required under operating leases that
have initial or remaining non-cancelable lease terms in excess of
one year as of June 30, 2014, are as follows (in
thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="89%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fiscal year ended March 31, 2015</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">567</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fiscal year ended March 31, 2016</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">979</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fiscal year ended March 31, 2017</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">984</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fiscal year ended March 31, 2018</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,001</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fiscal year ended March 31, 2019</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,031</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Thereafter</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,527</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7,089</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>5. Concentrations</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<i>Credit risk</i></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments. The Company maintains cash balances at various
financial institutions primarily located in San Diego. Accounts at
these institutions are secured by the Federal Deposit Insurance
Corporation. Balances may exceed federally insured limits. The
Company has not experienced losses in such accounts, and management
believes that the Company is not exposed to any significant credit
risk with respect to its cash and cash equivalents.</p>
</div>
P6Y
<div>The fair value of stock options was estimated at the grant
date using the following weighted average assumptions:
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="60%"></td>
<td valign="bottom" width="18%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="18%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center">
<b>Three Months Ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center">
<b>Three Months Ended<br />
June 30, 2013</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Volatility</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">78.02</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86.90</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.56</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.04</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected life of options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6.00 years</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6.00 years</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Weighted average grant date fair value</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4.94</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2.99</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The derivative liabilities were valued at the closing dates of the
Private Placement and the end of each reporting period using a
Monte Carlo valuation model with the following assumptions:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="61%"></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center">
<b>June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center">
<b>March 31, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center">
<b>June 30, 2013</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Closing price per share of common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">8.35</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7.64</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3.78</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Exercise price per share</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.00</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.00</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.00</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected volatility</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">78.20</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">76.50</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86.90</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.62</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.90</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.04</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Remaining expected term of underlying securities (years)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2.71</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2.96</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3.63</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
78241373
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>3. Stockholders’ Equity</b></p>
<!-- xbrl,body -->
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<i>Common stock</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
A shelf registration statement on Form S-3 (File
No. 333-189995), or shelf, was filed with the SEC on
July 17, 2013 authorizing the offer and sale in one or more
offerings of up to $100,000,000 in aggregate of common stock,
preferred stock, debt securities, warrants to purchase common
stock, preferred stock or debt securities, or any combination of
the foregoing, either individually or as units comprised of one or
more of the other securities. This shelf was declared effective by
the SEC on July 26, 2013.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
On August 2, 2013, the Company, entered into an Underwriting
Agreement (the “Underwriting Agreement”) with Lazard
Capital Markets LLC, acting as representative of the underwriters
named in the Underwriting Agreement (the
“Underwriters”) and joint book-runner with
Oppenheimer & Co. Inc., relating to the issuance and sale
of 10,350,000 shares of the Company’s common stock, which
includes the issuance and sale of 1,350,000 shares pursuant to an
overallotment option exercised by the Underwriters on
August 5, 2013 (the “Offering”). JMP Securities
LLC and Maxim Group LLC each acted as co-managers for the Offering.
The price to the public in the Offering was $4.50 per share, and
the Underwriters purchased the shares from the Company pursuant to
the Underwriting Agreement at a price of $4.23 per share. The net
proceeds to the Company from the Offering were approximately $43.4
million, after deducting underwriting discounts and commissions and
other offering expenses of $3.2 million payable by the
Company, including the Underwriters’ exercise of the
overallotment option. The transactions contemplated by the
Underwriting Agreement closed on August 7, 2013.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In November 2013, the Company entered into an equity distribution
agreement with an investment banking firm. Under the terms of the
distribution agreement, the Company may offer and sell up to
4,000,000 shares of its common stock, from time to time, through
the investment bank in “at the market” offerings, as
defined by the SEC, and pursuant to the Company’s effective
shelf registration statement previously filed with the SEC. During
the year ended March 31, 2014, the Company issued 334,412
shares of common stock in at the market offerings under the
distribution agreement with net proceeds of $3.5 million. No shares
of common stock were issued under the distribution agreement during
the three months ended June 30, 2014. See Note 7.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In addition, during the three months ended June 30, 2014 and
2013, the Company issued 110,600 and 200,135 shares of common stock
upon exercise of 111,647 and 252,129 warrants, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Finally, during the three months ended June 30, 2014, the
Company issued 60,522 shares of common stock upon exercise of
60,522 stock options. No stock options were exercised during the
three months ended June 30, 2013.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Restricted stock awards</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
In May 2008, the Board of Directors of the Company approved the
2008 Equity Incentive Plan (the “2008 Plan”). The 2008
Plan authorized the issuance of up to 1,521,584 common shares for
awards of incentive stock options, non-statutory stock options,
restricted stock awards, restricted stock award units, and stock
appreciation rights. The 2008 Plan terminates on July 1, 2018.
No shares have been issued under the 2008 Plan since 2011, and the
Company does not intend to issue any additional shares from the
2008 Plan in the future.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In January 2012, the Board of Directors of the Company approved the
2012 Equity Incentive Plan (the “2012 Plan). The 2012 Plan
authorized the issuance of up to 6,553,986 shares of common stock
for awards of incentive stock options, non-statutory stock options,
stock appreciation rights, restricted stock, restricted stock
units, performance units, performance shares, and other stock or
cash awards. The Board of Directors and stockholders of the Company
approved an amendment to the 2012 Plan in July 2013 and August
2013, respectively, to increase the number of shares of common
stock that may be issued under the 2012 Plan by 5,000,000 shares,
for an aggregate of 11,553,986 shares issuable under the 2012 Plan.
The 2012 Plan terminates ten years after its adoption.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During the three months ended June 30, 2013, the Company
issued an aggregate of 60,000 restricted stock units with immediate
vesting to a consultant. No restricted stock units were awarded
during the three months ended June 30, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During the three months ended June 30, 2014 and 2013, there
were 2,301 and 2,543 shares of restricted stock, respectively,
cancelled related to shares of common stock returned to the
Company, at the option of the holders, to cover the tax liability
related to the vesting of 6,250 and 6,250 restricted stock units,
respectively. Upon the return of the common stock, an equal number
of stock options with immediate vesting were granted to the
individuals at the vesting date market value strike price.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
There are 200,000 of restricted stock awards that were issued to a
member of senior management in a prior year, the vesting of which
is performance based. As of June 30, 2014, the Company
believed the financial targets would be met, and accordingly is
recognizing the related stock-based compensation expense over the
requisite service period.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
A summary of the Company’s restricted stock award activity
from March 31, 2014 through June 30, 2014 is as
follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="87%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Number of</b><br />
<b>Shares</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Unvested at March 31, 2014</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">573,495</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Granted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Vested</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(6,250</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Canceled / forfeited</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Unvested at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">567,245</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The fair value of each restricted common stock award is recognized
as stock-based compensation expense over the vesting term of the
award. The Company recorded restricted stock-based compensation
expense in operating expenses for employees and non-employees of
approximately $133,000 and $402,000 for the three months ended
June 30, 2014 and 2013, respectively. Stock-based compensation
expense included in research and development was $4,000 and $4,000
for the three months ended June 30, 2014 and 2013,
respectively. Stock-based compensation expense included in general
and administrative expense was $129,000 and $398,000 for the three
months ended June 30, 2014 and 2013, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As of June 30, 2014, total unrecognized restricted stock-based
compensation expense was approximately $600,000, which will be
recognized over a weighted average period of 1.24 years.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Stock options</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Under the 2012 Plan, 266,801 and 51,500 incentive stock options
were issued during the three months ended June 30, 2014 and
2013, respectively, at various exercise prices. The stock options
generally vest over a four-year period, with a quarter vesting on
either the one year anniversary of employment or the one year
anniversary of the vesting commencement date, and the remainder
vesting ratably over the remaining 36 month terms. The Company also
issued 45,500 non-qualified stock option grants during the three
month period ended June 30, 2013, which vest quarterly over
three years.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
A summary of the Company’s stock option activity for the
three months ended June 30, 2014 is as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="62%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Options<br />
Outstanding</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Weighted-<br />
Average<br />
Exercise Price</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Aggregate<br />
Intrinsic<br />
Value</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at March 31, 2014</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,935,888</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4.87</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">20,482,823</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Options granted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">266,801</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7.31</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Options canceled</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(22,125</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7.22</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Options exercised</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(60,522</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.83</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">279,284</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6,120,042</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.00</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">23,228,321</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Vested and Exercisable at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,942,013</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2.48</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">11,491,009</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The weighted-average remaining contractual term of options
exercisable and outstanding at June 30, 2014 was approximately
8.16 years and 8.73 years, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company uses the Black-Scholes valuation model to calculate the
fair value of stock options. Stock-based compensation expense is
recognized over the vesting period using the straight-line method.
The fair value of stock options was estimated at the grant date
using the following weighted average assumptions:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="60%"></td>
<td valign="bottom" width="18%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="18%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center">
<b>Three Months Ended<br />
June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center">
<b>Three Months Ended<br />
June 30, 2013</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Volatility</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">78.02</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86.90</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.56</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.04</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected life of options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6.00 years</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6.00 years</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Weighted average grant date fair value</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4.94</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2.99</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
The assumed dividend yield was based on the Company’s
expectation of not paying dividends in the foreseeable future. Due
to the Company’s limited historical data, the estimated
volatility incorporates the historical and implied volatility of
comparable companies whose share prices are publicly available. The
risk-free interest rate assumption was based on the U.S. Treasury
rates. The weighted average expected life of options was estimated
using the average of the contractual term and the weighted average
vesting term of the options. Certain options granted to consultants
are subject to variable accounting treatment and are required to be
revalued until vested.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The total stock option-based compensation recorded as operating
expense was approximately $1,405,000 and $400,000 for the three
months ended June 30, 2014 and 2013, respectively. Expense
included in research and development was $248,000 and $67,000 for
the three months ended June 30, 2014 and 2013, respectively.
Expense included in general and administrative was $1,157,000 and
$333,000 for the three months ended June 30, 2014 and 2013,
respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The total unrecognized compensation cost related to unvested stock
option grants as of June 30, 2014 was approximately
$15,800,000 and the weighted average period over which these grants
are expected to vest is 3.32 years.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Warrants</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
During the three months ended June 30, 2014 and 2013, 8,647
and 252,129 warrants, respectively, were exercised through a
cashless exercise provision for issuance of 7,600 and 200,135
shares of common stock, respectively. Also during the three months
ended June 30, 2014 and 2013, 103,000 and 100,000 warrants,
respectively, were exercised at prices ranging from $1.00 to $2.21
for total proceeds of $224,000 and $100,000, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
8,647 and 35,000 of the warrants exercised during the three months
ended June 30, 2014 and 2013, respectively, were derivative
liabilities and were valued at the settlement date. For the three
months ended June 30, 2014 and 2013, approximately $55,000 and
$129,000, respectively, of the warrant liability was removed due to
the exercise of these warrants. (See Note 2).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During April 2013, the Company entered into amendment agreements
for 269,657 warrants to purchase common stock which reduced the
exercise price of the warrants from $1.00 to $0.85 and removed the
down-round price protection provision of the warrant agreement
related to the adjustment of exercise price upon issuance of
additional shares of common stock. As a result of the removal of
the down-round price protection provision, the warrants were
reclassified from liability to equity instruments at their fair
value of $767,000. The Company determined the incremental expense
associated with the modification based on the fair value of the
awards prior to and subsequent to the modification. The fair value
of the awards subsequent to modification was calculated using the
Black-Scholes model. The incremental expense associated with the
modification of approximately $12,000 was recognized as interest
expense for the three months ended June 30, 2013.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During the year ended December 31, 2012, the Company entered
into four agreements with consultants for services. In connection
with the agreements, the Company issued a total of 650,000 warrants
to purchase common stock, at prices ranging from $1.70 to $3.24,
with lives ranging from two to five years, to be earned over
service periods of up to six months. The fair value of the warrants
was estimated to be approximately $890,000, which was recognized as
a prepaid asset and was amortized over the term of the consulting
agreements. These warrants were classified as equity instruments
because they do not contain any anti-dilution provisions. The
Black-Scholes model, using volatility rates ranging from 79.8% to
103.8% and risk-free interest rate factors ranging from 0.24% to
0.63%, were used to determine the value. The value has been
amortized over the term of the agreements. The Company recognized
approximately $72,000 during the three months ended June 30,
2013 related to these services.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Additionally, during November 2013 the Company entered into an
agreement with a consultant for services. In connection with the
agreement, the Company issued 75,000 warrants to purchase common
stock, at a price of $7.36, with a life of five years, to be earned
over a twelve month service period. The fair value of the warrants
was estimated to be approximately $404,000, which was recognized as
a prepaid asset and is being amortized over the term of the
consulting agreement. These warrants were classified as equity
instruments because they do not contain any anti-dilution
provisions. The Black-Scholes model, using a volatility rate of
96.90% and a risk-free interest rate factor of 0.60%, was used to
determine the value. The Company recognized approximately $101,000
during the three months ended June 30, 2014 related to these
services.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The following table
summarizes warrant activity for the three months
ended June 30, 2014:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="74%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Warrants</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Weighted-<br />
Average<br />
Exercise Price</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at March 31, 2014</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,194,756</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.79</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Granted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Exercised</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(111,647</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2.08</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,083,109</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"><font style="FONT-SIZE: 8pt"> </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.76</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
The warrants outstanding at June 30, 2014 are immediately
exercisable at prices between $0.85 and $7.36 per share,
and have a weighted average remaining term of approximately 2.73
years.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Common stock reserved for future issuance</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Common stock reserved for future issuance consisted of the
following at June 30, 2014:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="85%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Common stock warrants outstanding</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,083,109</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Common stock options outstanding under the 2008 Plan</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">672,192</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Common stock options outstanding and reserved under the 2012
Plan</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,476,768</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">11,232,069</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Preferred stock</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company is authorized to issue 25,000,000 shares of preferred
stock. There are no shares of preferred stock currently
outstanding, and the Company has no present plans to issue shares
of preferred stock.</p>
</div>
7.31
-3365000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<i>Fixed assets and depreciation</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Property and equipment are carried at cost. Expenditures that
extend the life of the asset are capitalized and depreciated.
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the related assets or, in
the case of leasehold improvements, over the lesser of the useful
life of the related asset or the remaining lease term. The
estimated useful lives of the fixed assets range between two and
five years.</p>
</div>
The estimated useful lives of the fixed assets range between two and five years.
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
The following table presents the activity for liabilities measured
at estimated fair value using unobservable inputs for the three
months ended June 30, 2014:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 24pt" align="center"><b>Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="83%"></td>
<td valign="bottom" width="14%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Warrant<br />
Derivative<br />
Liability<br />
(in thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at March 31, 2014</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">377</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Issuances</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Adjustments to estimated fair value</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">30</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Warrant liability removal due to settlements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(55</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Warrant liability reclassified to equity</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">352</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>2. Derivative Liability</b></p>
<!-- xbrl,body -->
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
During 2011 and 2012, the Company issued five-year warrants to
purchase its common stock. For certain of these warrants, the
exercise price is protected against down-round financing throughout
the term of the warrant. Pursuant to ASC 815-15 and ASC 815-40, the
fair value of the warrants was recorded as a derivative liability
on the issuance dates.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company revalues the warrants classified as derivative
liabilities as of the end of each reporting period. The estimated
fair value of the outstanding warrant liabilities was approximately
$0.4 million as of June 30, 2014 and March 31,
2014. The changes in fair value of the derivative liabilities
for the three months ended June 30, 2014 and 2013 were
increases of approximately $30,000 and $23,000, respectively, and
are included in other expense in the statement of operations.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During the three months ended June 30, 2014 and 2013, 8,647
and 35,000 warrants, respectively, that were classified as
derivative liabilities were exercised. The warrants were revalued
as of the settlement dates, and the change in fair value was
recognized to earnings. In addition, during the three months ended
June 30, 2013, the Company entered into amendment agreements
with certain of the warrant holders, which removed the down-round
pricing protection provisions, resulting in 269,657 of these
warrants being reclassified from liability instruments to equity
instruments. The Company also recognized a reduction in the warrant
liability based on the fair value as of the settlement date for the
warrants exercised and as of the modification date for the warrants
that were amended, with a corresponding increase in additional
paid-in capital.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The derivative liabilities were valued at the closing dates of the
Private Placement and the end of each reporting period using a
Monte Carlo valuation model with the following assumptions:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="61%"></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center">
<b>June 30, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center">
<b>March 31, 2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" nowrap="nowrap" align="center">
<b>June 30, 2013</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Closing price per share of common stock</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">8.35</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">7.64</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3.78</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Exercise price per share</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.00</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.00</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1.00</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected volatility</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">78.20</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">76.50</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86.90</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.62</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">0.90</td>
<td valign="bottom" nowrap="nowrap">% </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.04</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom"> </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Remaining expected term of underlying securities (years)</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2.71</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2.96</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3.63</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
</div>
4.94
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Inventory</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Inventories are stated at the lower of the cost or market
(first-in, first-out). Inventory consisted of approximately $71,000
and $63,000 in raw materials as of June 30, 2014 and
March 31, 2014, respectively, net of reserves.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company provides inventory allowances based on excess or
obsolete inventories determined based on anticipated use in the
final product. The reserve for obsolete inventory at June 30,
2014 and March 31, 2014 was approximately $31,000.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Cash and cash equivalents</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalents.</p>
</div>
3400000
-0.08
1.83
266801
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>7. Subsequent Events</b></p>
<!-- xbrl,body -->
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
From July 1, 2014 to August 6, 2014, the Company sold
292,865 shares of its common stock in “at the market
offerings” under its distribution agreement with an
investment banking firm (see Note 3), for proceeds of approximately
$2,391,700.</p>
</div>
22125
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Research and development</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Research and development expenses, including direct and allocated
expenses, consist of independent research and development costs, as
well as costs associated with sponsored research and development.
Research and development costs are expensed as incurred.</p>
</div>
P8Y1M28D
60522
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Reclassifications</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Certain reclassifications were made to the Condensed Consolidated
Statement of Operations for the three months ended June 30,
2013 in order to conform to the presentation of the Condensed
Consolidated Statement of Operations for the three months ended
June 30, 2014. The reclassifications did not have any effect
on previously reported net loss.</p>
</div>
7.22
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Derivative financial instruments</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company does not use derivative instruments to hedge exposures
to cash flow, market or foreign currency.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company reviews the terms of convertible debt and equity
instruments it issues to determine whether there are derivative
instruments, including an embedded conversion option that is
required to be bifurcated and accounted for separately as a
derivative financial instrument. In circumstances where a host
instrument contains more than one embedded derivative instrument,
including a conversion option, that is required to be bifurcated,
the bifurcated derivative instruments are accounted for as a
single, compound derivative instrument. Also, in connection with
the sale of convertible debt and equity instruments, the Company
may issue freestanding warrants that may, depending on their terms,
be accounted for as derivative instrument liabilities, rather than
as equity.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Derivative instruments are initially recorded at fair value and are
then revalued at each reporting date with changes in the fair value
reported as non-operating income or expense. When the convertible
debt or equity instruments contain embedded derivative instruments
that are to be bifurcated and accounted for as liabilities, the
total proceeds allocated to the convertible host instruments are
first allocated to the fair value of all the bifurcated derivative
instruments. The remaining proceeds, if any, are then allocated to
the convertible instruments themselves, usually resulting in those
instruments being recorded at a discount from their face value.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The discount from the face value of the convertible debt, together
with the stated interest on the instrument, is amortized over the
life of the instrument through periodic charges to interest
expense, using the effective interest method.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Impairment of long-lived assets</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
In accordance with authoritative guidance, the Company reviews its
long-lived assets, including property and equipment and other
assets, for impairment whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets,
the Company evaluates whether future undiscounted net cash flows
will be less than the carrying amount of the assets and adjusts the
carrying amount of its assets to fair value. Management has
determined that no impairment of long-lived assets has occurred
through June 30, 2014.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Use of estimates</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates. Significant estimates
used in preparing the condensed consolidated financial statements
include those assumed in computing the valuation of warrants,
revenue recognized under the proportional performance model, the
valuation of stock-based compensation expense, and the valuation
allowance on deferred tax assets.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<i>Net loss per share</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding
during the period. The weighted-average number of shares used to
compute diluted loss per share excludes any assumed exercise of
stock options and warrants, the assumed release of restriction of
restricted stock units, and shares subject to repurchase as the
effect would be anti-dilutive. No dilutive effect was calculated
for the three months ended June 30, 2014 or 2013, as the
Company reported a net loss for each respective period and the
effect would have been anti-dilutive. Common stock equivalents
excluded from computing diluted net loss per share were
approximately 7.8 million and 8.7 million for the three
months ended June 30, 2014 and 2013, respectively.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Financial instruments</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
For certain of the Company’s financial instruments, including
cash and cash equivalents, accounts receivable, inventory, prepaid
expenses and other current assets, accounts payable, accrued
expenses, deferred revenue and capital lease obligations, the
carrying amounts are generally considered to be representative of
their respective fair values because of the short-term nature of
those instruments.</p>
</div>
6250
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Income taxes</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Deferred income taxes are recognized for the tax consequences in
future years for differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year end
based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the combination of the tax payable for the
year and the change during the year in deferred tax assets and
liabilities.</p>
</div>
60522
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<b>1. Description of Business and Summary of Significant Accounting
Policies</b></p>
<!-- xbrl,body -->
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<i>Nature of operations and basis of presentation</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
References in these notes to the unaudited condensed consolidated
financial statements to “Organovo Holdings,
Inc.,” “Organovo Holdings,”
“we,” “us,” “our,”
“the Company” and “our Company”
refer to Organovo Holdings, Inc. and its consolidated
subsidiary Organovo, Inc. The Company is developing and
commercializing functional three-dimensional (3D) human
tissues that can be employed in drug discovery and development,
biological research, and as therapeutic implants for the treatment
of damaged or degenerating tissues and organs.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As of June 30, 2014, the Company has devoted its efforts
primarily to developing a platform technology for the generation of
functional human tissues that can be employed in drug
discovery and development, biological research, and as therapeutic
implants for the treatment of damaged or degenerating tissues and
organs, raising capital and building infrastructure. The
Company has not yet realized significant revenues from its planned
principal operations. The Company’s activities are
subject to significant risks and uncertainties including failing to
secure additional funding to operationalize the Company’s
current technology before another company develops similar
technology or products.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The accompanying interim condensed consolidated financial
statements have been prepared by the Company, without audit, in
accordance with the instructions to Form 10-Q and, therefore, do
not necessarily include all information and footnotes necessary for
a fair statement of its financial position, results of operations,
stockholders’ equity and cash flows in accordance with
generally accepted accounting principles (“GAAP”). The
balance sheet at March 31, 2014 is derived from the audited
balance sheet at that date.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In the opinion of management, the unaudited financial information
for the interim periods presented reflects all adjustments, which
are only normal and recurring, necessary for a fair statement of
the Company’s financial position, results of operations,
stockholders’ equity and cash flows. These financial
statements should be read in conjunction with the financial
statements included in the Company’s Annual Report filed on
Form 10-K for the year ended March 31, 2014 filed with the
Securities and Exchange Commission (the “SEC”) on
June 10, 2014. Operating results for interim periods are not
necessarily indicative of operating results for the Company’s
fiscal year ending March 31, 2015.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>NYSE:MKT Listing</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
On July 9, 2013, the Company announced that its common stock
had been approved for listing on the NYSE:MKT. Shares began trading
on the New York Stock Exchange on July 11, 2013 under the
symbol “ONVO”. Prior to that time, the Company’s
shares were quoted on the OTC QX.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Liquidity</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
As of June 30, 2014, the Company had an accumulated deficit of
approximately $98.6 million. The Company also had negative cash
flows from operations of approximately $3.4 million during the
three months ended June 30, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Through June 30, 2014, the Company has financed its operations
primarily through the sale of convertible notes, the private
placement of equity securities, the public offering of common
stock, and through revenue derived from grants or collaborative
research agreements or the commercialization of products and
services. Based on its current operating plan and available
cash resources, the Company has sufficient resources to fund its
business for at least the next twelve months.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company will need additional capital to further fund product
development and commercialization of its human tissues that can be
employed in drug discovery and development, biological research,
and as therapeutic implants for the treatment of damaged or
degenerating tissues and organs. The Company intends to cover its
future operating expenses through cash on hand, through additional
financing from existing and prospective investors, from revenue
derived from grants and collaborative research agreements, and
revenue from the commercialization of products and services.
However, we may not be successful in obtaining sufficient funding
to support our operations from new or existing collaborative
research agreements or the commercialization of products and
services. In addition, we cannot be sure that additional financing
will be available when needed or that, if available, financing will
be obtained on terms favorable to us or to our stockholders.
Further, we cannot assure you that we will receive 100% of the
potential funding under existing grants, and we may not be
successful in securing additional grants in the future.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Having insufficient funds may require us to delay, scale back, or
eliminate some or all of our development programs or 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.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Use of estimates</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates. Significant estimates
used in preparing the condensed consolidated financial statements
include those assumed in computing the valuation of warrants,
revenue recognized under the proportional performance model, the
valuation of stock-based compensation expense, and the valuation
allowance on deferred tax assets.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Financial instruments</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
For certain of the Company’s financial instruments, including
cash and cash equivalents, accounts receivable, inventory, prepaid
expenses and other current assets, accounts payable, accrued
expenses, deferred revenue and capital lease obligations, the
carrying amounts are generally considered to be representative of
their respective fair values because of the short-term nature of
those instruments.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Cash and cash equivalents</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalents.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Derivative financial instruments</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company does not use derivative instruments to hedge exposures
to cash flow, market or foreign currency.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company reviews the terms of convertible debt and equity
instruments it issues to determine whether there are derivative
instruments, including an embedded conversion option that is
required to be bifurcated and accounted for separately as a
derivative financial instrument. In circumstances where a host
instrument contains more than one embedded derivative instrument,
including a conversion option, that is required to be bifurcated,
the bifurcated derivative instruments are accounted for as a
single, compound derivative instrument. Also, in connection with
the sale of convertible debt and equity instruments, the Company
may issue freestanding warrants that may, depending on their terms,
be accounted for as derivative instrument liabilities, rather than
as equity.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Derivative instruments are initially recorded at fair value and are
then revalued at each reporting date with changes in the fair value
reported as non-operating income or expense. When the convertible
debt or equity instruments contain embedded derivative instruments
that are to be bifurcated and accounted for as liabilities, the
total proceeds allocated to the convertible host instruments are
first allocated to the fair value of all the bifurcated derivative
instruments. The remaining proceeds, if any, are then allocated to
the convertible instruments themselves, usually resulting in those
instruments being recorded at a discount from their face value.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The discount from the face value of the convertible debt, together
with the stated interest on the instrument, is amortized over the
life of the instrument through periodic charges to interest
expense, using the effective interest method.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Restricted cash</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
As of June 30, 2014 and March 31, 2014, the Company had
approximately $78,800 of restricted cash deposited with a financial
institution. The entire amount is held in certificates of deposit
to support a letter of credit agreement related to the
Company’s facility lease.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Inventory</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Inventories are stated at the lower of the cost or market
(first-in, first-out). Inventory consisted of approximately $71,000
and $63,000 in raw materials as of June 30, 2014 and
March 31, 2014, respectively, net of reserves.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company provides inventory allowances based on excess or
obsolete inventories determined based on anticipated use in the
final product. The reserve for obsolete inventory at June 30,
2014 and March 31, 2014 was approximately $31,000.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 18px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<i>Fixed assets and depreciation</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Property and equipment are carried at cost. Expenditures that
extend the life of the asset are capitalized and depreciated.
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the related assets or, in
the case of leasehold improvements, over the lesser of the useful
life of the related asset or the remaining lease term. The
estimated useful lives of the fixed assets range between two and
five years.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Impairment of long-lived assets</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
In accordance with authoritative guidance, the Company reviews its
long-lived assets, including property and equipment and other
assets, for impairment whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets,
the Company evaluates whether future undiscounted net cash flows
will be less than the carrying amount of the assets and adjusts the
carrying amount of its assets to fair value. Management has
determined that no impairment of long-lived assets has occurred
through June 30, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Fair value measurement</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Financial assets and liabilities are measured at fair value, which
is defined as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value
must maximize the use of observable inputs and minimize the use of
unobservable inputs. The following is a fair value hierarchy based
on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure
fair value:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 6pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">Level 1 — Quoted prices in
active markets for identical assets or liabilities.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 6pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">Level 2 — Inputs other than
Level 1 that are observable, either directly or indirectly, 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.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 6pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">Level 3 — Unobservable inputs
that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company has issued warrants, of which some are classified as
derivative liabilities as a result of the terms in the warrants
that provide for down-round protection in the event of a dilutive
issuance. The Company uses Level 3 inputs for its valuation
methodology for the warrant derivative liabilities. The estimated
fair values were determined using a Monte Carlo option pricing
model based on various assumptions (see Note 2). The
Company’s derivative liabilities are adjusted to reflect
estimated fair value at each period end, with any decrease or
increase in the estimated fair value being recorded in other income
or expense accordingly, as adjustments to the fair value of
derivative liabilities. Various factors are considered in the
pricing models the Company uses to value the warrants, including
the Company’s current stock price, the remaining life of the
warrants, the volatility of the Company’s stock price, and
the risk-free interest rate. Future changes in these factors will
have a significant impact on the computed fair value of the warrant
liability. As such, future changes in the fair value of the
warrants could vary significantly from quarter to quarter.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The estimated fair values of the liabilities measured on a
recurring basis are as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0"><!-- Begin Table Head -->
<tr style="COLOR: white; LINE-HEIGHT: 0pt; VISIBILITY: hidden">
<td width="52%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="14" align="center">
<b>Fair Value Measurements at June 30 and March 31, 2014 (in thousands):</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Balance at</b><br />
<b>June 30,</b><br />
<b>2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Quoted<br />
Prices in<br />
Active<br />
Markets<br />
(Level 1)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other<br />
Observable<br />
Inputs<br />
(Level 2)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other<br />
Unobservable<br />
Inputs<br />
(Level 3)</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Warrant liability</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">352</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">352</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0"><!-- Begin Table Head -->
<tr style="COLOR: white; LINE-HEIGHT: 0pt; VISIBILITY: hidden">
<td width="51%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td nowrap="nowrap">
<b>                           </b></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center">
<b>    Balance at    <br />
March 31,<br />
2014</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Quoted<br />
Prices in<br />
Active<br />
Markets<br />
    (Level 1)    </b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other</b><br />
<b>    Observable   <br />
Inputs<br />
(Level 2)</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Significant<br />
Other<br />
  Unobservable  <br />
Inputs<br />
(Level 3)</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Warrant liability</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">377</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">  377</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
The following table presents the activity for liabilities measured
at estimated fair value using unobservable inputs for the three
months ended June 30, 2014:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 24pt" align="center"><b>Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="83%"></td>
<td valign="bottom" width="14%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Warrant<br />
Derivative<br />
Liability<br />
(in thousands)</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at March 31, 2014</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">377</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Issuances</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Adjustments to estimated fair value</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">30</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Warrant liability removal due to settlements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(55</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Warrant liability reclassified to equity</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">352</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Research and development</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Research and development expenses, including direct and allocated
expenses, consist of independent research and development costs, as
well as costs associated with sponsored research and development.
Research and development costs are expensed as incurred.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Income taxes</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Deferred income taxes are recognized for the tax consequences in
future years for differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year end
based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the combination of the tax payable for the
year and the change during the year in deferred tax assets and
liabilities.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Revenue recognition</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company’s revenues are derived from collaborative
research agreements, grants from the NIH, U.S. Treasury Department
and private not-for-profit organizations.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company recognizes revenue when the following criteria have
been met: (i) persuasive evidence of an arrangement exists;
(ii) services have been rendered or product has been
delivered; (iii) price to the customer is fixed and
determinable; and (iv) collection of the underlying receivable
is reasonably assured.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
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 June 30, 2014 and
March 31, 2014, the Company had approximately $147,000 and
$17,000, respectively, in deferred revenue related to its grants
and collaborative research programs.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
Research and Development Revenue Under Collaborative Agreements</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company’s collaboration revenue consists of license and
collaboration agreements that contain multiple elements, including
non-refundable up-front fees, payments for reimbursement of
third-party research costs, payments for ongoing research, payments
associated with achieving specific development milestones and
royalties based on specified percentages of net product sales, if
any. The Company considers a variety of factors in determining the
appropriate method of revenue recognition under these arrangements,
such as whether the elements are separable, whether there are
determinable fair values and whether there is a unique earnings
process associated with each element of a contract.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company recognizes revenue from research funding under
collaboration agreements when earned on a “proportional
performance” basis as research hours are incurred. The
Company performs services as specified in each respective agreement
on a best-efforts basis, and is reimbursed based on labor hours
incurred on each contract. The Company initially defers revenue for
any amounts billed or payments received in advance of the services
being performed, and recognizes revenue pursuant to the related
pattern of performance, based on total labor hours incurred
relative to total labor hours estimated under the contract.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 18px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
Revenue Arrangements with Multiple Deliverables</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company occasionally enters into revenue arrangements that
contain multiple deliverables. Judgment is required to properly
identify the accounting units of the multiple deliverable
transactions and to determine the manner in which revenue should be
allocated among the accounting units. Moreover, judgment is used in
interpreting the commercial terms and determining when all criteria
of revenue recognition have been met for each deliverable in order
for revenue recognition to occur in the appropriate accounting
period. For multiple deliverable agreements, consideration is
allocated at the inception of the agreement to all deliverables
based on their relative selling price. The relative selling price
for each deliverable is determined using vendor-specific objective
evidence (“VSOE”) of selling price or third-party
evidence of selling price if VSOE does not exist. If neither VSOE
nor third-party evidence of selling price exists, the Company uses
its best estimate of the selling price for the deliverable.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company recognizes revenue for delivered elements only when it
determines there are no uncertainties regarding customer
acceptance. While changes in the allocation of the arrangement
consideration between the units of accounting will not affect the
amount of total revenue recognized for a particular sales
arrangement, any material changes in these allocations could impact
the timing of revenue recognition, which could affect the
Company’s results of operations.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company expects to periodically receive license fees for
non-exclusive research licensing associated with funded research
projects. License fees under these arrangements are recognized over
the term of the contract or development period as it has been
determined that such licenses do not have stand-alone value.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
Grant Revenues</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
During 2012, the NIH awarded the Company a research grant totaling
approximately $290,000. Revenue from the NIH grant is based upon
internal and subcontractor costs incurred that are specifically
covered by the grant, and an additional facilities and
administrative rate that provides funding for overhead expenses.
This revenue is recognized when expenses have been incurred by
subcontractors and as the Company incurs internal expenses that are
related to the grants. Activities under this grant concluded in
April 2013. Revenue recognized under the grant was approximately
$12,000 for the three months ended June 30, 2013.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During August of 2013, the Company was awarded a research grant by
a private, not-for-profit organization for up to $251,700,
contingent on go/no-go decisions made by the grantor at the
completion of each stage of research as outlined in the grant
award. Revenues from the grant are based upon internal costs
incurred that are specifically covered by the grant, plus an
additional rate that provides funding for overhead expenses.
Revenue is recognized when the Company incurs expenses that are
related to the grant. Revenue recognized under this grant was
approximately $30,000 for the three months ended June 30,
2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Stock-based compensation</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company accounts for stock-based compensation in accordance
with the Financial Accounting Standards Board’s
(“FASB”) ASC Topic 718, <i>Compensation — Stock
Compensation,</i> which establishes accounting for equity
instruments exchanged for employee services. Under such provisions,
stock-based compensation cost is measured at the grant date, based
on the calculated fair value of the award, and is recognized as an
expense, under the straight-line method, over the employee’s
requisite service period (generally the vesting period of the
equity grant).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company accounts for equity instruments, including restricted
stock or stock options, issued to non-employees in accordance with
authoritative guidance for equity based payments to non-employees.
Stock options issued to non-employees are accounted for at their
estimated fair value determined using the Black-Scholes
option-pricing model. The fair value of options granted to
non-employees is re-measured as they vest, and the resulting
increase in value, if any, is recognized as expense during the
period the related services are rendered. Restricted stock issued
to non-employees is accounted for at its estimated fair value as it
vests.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 18px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<i>Comprehensive income (loss)</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Comprehensive income (loss) is defined as the change in equity
during a period from transactions and other events and
circumstances from non-owner sources. The Company is required to
record all components of comprehensive income (loss) in the
financial statements in the period in which they are recognized.
Net income (loss) and other comprehensive income (loss), including
unrealized gains and losses on investments, are reported, net of
their related tax effect, to arrive at comprehensive income (loss).
For the three months ended June 30, 2014 and 2013, the
comprehensive loss was equal to the net loss.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Net loss per share</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding
during the period. The weighted-average number of shares used to
compute diluted loss per share excludes any assumed exercise of
stock options and warrants, the assumed release of restriction of
restricted stock units, and shares subject to repurchase as the
effect would be anti-dilutive. No dilutive effect was calculated
for the three months ended June 30, 2014 or 2013, as the
Company reported a net loss for each respective period and the
effect would have been anti-dilutive. Common stock equivalents
excluded from computing diluted net loss per share were
approximately 7.8 million and 8.7 million for the three
months ended June 30, 2014 and 2013, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Reclassifications</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Certain reclassifications were made to the Condensed Consolidated
Statement of Operations for the three months ended June 30,
2013 in order to conform to the presentation of the Condensed
Consolidated Statement of Operations for the three months ended
June 30, 2014. The reclassifications did not have any effect
on previously reported net loss.</p>
</div>
99000
-117000
7000
-6433000
7800000
30000
-6410000
60000
2000
-23000
8000
0
238000
0
30000
333000
130000
279284
1537000
-3270000
-238000
572000
513000
141000
2814000
111000
96000
235000
3695000
2014-09-01
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<i>Nature of operations and basis of presentation</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
References in these notes to the unaudited condensed consolidated
financial statements to “Organovo Holdings,
Inc.,” “Organovo Holdings,”
“we,” “us,” “our,”
“the Company” and “our Company”
refer to Organovo Holdings, Inc. and its consolidated
subsidiary Organovo, Inc. The Company is developing and
commercializing functional three-dimensional (3D) human
tissues that can be employed in drug discovery and development,
biological research, and as therapeutic implants for the treatment
of damaged or degenerating tissues and organs.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As of June 30, 2014, the Company has devoted its efforts
primarily to developing a platform technology for the generation of
functional human tissues that can be employed in drug
discovery and development, biological research, and as therapeutic
implants for the treatment of damaged or degenerating tissues and
organs, raising capital and building infrastructure. The
Company has not yet realized significant revenues from its planned
principal operations. The Company’s activities are
subject to significant risks and uncertainties including failing to
secure additional funding to operationalize the Company’s
current technology before another company develops similar
technology or products.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The accompanying interim condensed consolidated financial
statements have been prepared by the Company, without audit, in
accordance with the instructions to Form 10-Q and, therefore, do
not necessarily include all information and footnotes necessary for
a fair statement of its financial position, results of operations,
stockholders’ equity and cash flows in accordance with
generally accepted accounting principles (“GAAP”). The
balance sheet at March 31, 2014 is derived from the audited
balance sheet at that date.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
In the opinion of management, the unaudited financial information
for the interim periods presented reflects all adjustments, which
are only normal and recurring, necessary for a fair statement of
the Company’s financial position, results of operations,
stockholders’ equity (deficit) and cash flows. These
financial statements should be read in conjunction with the
financial statements included in the Company’s Annual Report
filed on Form 10-K for the year ended March 31, 2014 filed
with the Securities and Exchange Commission (the “SEC”)
on June 10, 2014. Operating results for interim periods are
not necessarily indicative of operating results for the
Company’s fiscal year ending March 31, 2015.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
Common stock reserved for future issuance consisted of the
following at June 30, 2014:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="85%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Common stock warrants outstanding</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,083,109</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Common stock options outstanding under the 2008 Plan</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">672,192</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Common stock options outstanding and reserved under the 2012
Plan</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9,476,768</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">11,232,069</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
111647
38800
224000
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>6. Recently Adopted Accounting Standards</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
In June 2014, the FASB issued Accounting Standards Update
(“ASU”) 2014-10, “Development Stage
Entities”, which eliminated certain financial reporting
requirements under Topic 915 for entities considered to be in the
development stage. This standard becomes effective for annual
reporting periods beginning after December 15, 2014 and
interim reporting periods beginning after December 15, 2015,
with earlier application permitted. The Company adopted this
standard prospectively as of April 1, 2014. This adoption had
no effect on current or previously reported amounts, but eliminated
the need to present inception-to-date financial information that
was previously required under Topic 915.</p>
</div>
55000
P48M
69000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
Grant Revenues</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
During 2012, the NIH awarded the Company a research grant totaling
approximately $290,000. Revenue from the NIH grant is based upon
internal and subcontractor costs incurred that are specifically
covered by the grant, and an additional facilities and
administrative rate that provides funding for overhead expenses.
This revenue is recognized when expenses have been incurred by
subcontractors and as the Company incurs internal expenses that are
related to the grants. Activities under this grant concluded in
April 2013. Revenue recognized under the grant was approximately
$12,000 for the three months ended June 30, 2013.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
During August of 2013, the Company was awarded a research grant by
a private, not-for-profit organization for up to $251,700,
contingent on go/no-go decisions made by the grantor at the
completion of each stage of research as outlined in the grant
award. Revenues from the grant are based upon internal costs
incurred that are specifically covered by the grant, plus an
additional rate that provides funding for overhead expenses.
Revenue is recognized when the Company incurs expenses that are
related to the grant. Revenue recognized under this grant was
approximately $30,000 for the three months ended June 30,
2014.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
Research and Development Revenue Under Collaborative Agreements</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company’s collaboration revenue consists of license and
collaboration agreements that contain multiple elements, including
non-refundable up-front fees, payments for reimbursement of
third-party research costs, payments for ongoing research, payments
associated with achieving specific development milestones and
royalties based on specified percentages of net product sales, if
any. The Company considers a variety of factors in determining the
appropriate method of revenue recognition under these arrangements,
such as whether the elements are separable, whether there are
determinable fair values and whether there is a unique earnings
process associated with each element of a contract.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The Company recognizes revenue from research funding under
collaboration agreements when earned on a “proportional
performance” basis as research hours are incurred. The
Company performs services as specified in each respective agreement
on a best-efforts basis, and is reimbursed based on labor hours
incurred on each contract. The Company initially defers revenue for
any amounts billed or payments received in advance of the services
being performed, and recognizes revenue pursuant to the related
pattern of performance, based on total labor hours incurred
relative to total labor hours estimated under the contract.</p>
</div>
110600
101000
0
8647
0
P5Y
P90D
P2Y
0
30000
129000
1157000
4000
248000
P2Y8M16D
0.7820
0.0162
55000
133000
P3Y3M26D
1405000
A quarter vesting on either the one year anniversary of employment or the one year anniversary of the vesting commencement date
P4Y
6250
2301
2301
30000
55000
2.08
P2Y8M23D
111647
30000
224000
103000
103000
8647
12000
0
2018-07-01
266801
P36M
P10Y
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