urov-10q_20190930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number: 001-38667

 

Urovant Sciences Ltd.

(Exact Name of Registrant as Specified in its Charter)

 

 

Bermuda

98-1463899

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

Suite 1, 3rd Floor

11-12 St. James’s Square

London SW1Y 4LB, United Kingdom

Not Applicable

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: +44 (0)207 400-3347

 

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

(Title of each class)

(Trading Symbol)

(Name of each exchange on which registered)

Common Shares, $0.000037453 par value

UROV

Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 6, 2019, the registrant had 30,381,433 common shares, $0.000037453 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and March 31, 2019

2

 

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

3

 

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

4

 

Condensed Consolidated Statements of Shareholders’ Equity (Deficit) for the Three and Six Months Ended September 30, 2019 and 2018

5

 

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

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3.

Defaults Upon Senior Securities

74

Item 4.

Mine Safety Disclosures

74

Item 5.

Other Information

74

Item 6.

Exhibits

75

Signatures

76

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1.Financial Statements (Unaudited)

UROVANT SCIENCES LTD.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

September 30, 2019

 

 

March 31, 2019

 

Assets

 

 

 

 

 

(Note 2)

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,796

 

 

$

85,353

 

Restricted cash

 

 

243

 

 

 

243

 

Prepaid expenses and other current assets

 

 

8,823

 

 

 

12,914

 

Total current assets

 

 

76,862

 

 

 

98,510

 

Furniture and equipment, net

 

 

1,226

 

 

 

923

 

Operating lease right-of-use assets

 

 

3,301

 

 

 

 

Restricted cash, net of current portion

 

 

623

 

 

 

600

 

Other assets

 

 

16

 

 

 

88

 

Total assets

 

$

82,028

 

 

$

100,121

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,567

 

 

$

1,925

 

Accrued expenses

 

 

9,590

 

 

 

9,877

 

Due to Roivant Sciences Ltd.

 

 

133

 

 

 

15

 

Current portion of long-term debt

 

 

10

 

 

 

 

Current portion of operating lease liabilities

 

 

265

 

 

 

 

Total current liabilities

 

 

11,565

 

 

 

11,817

 

Long-term debt, net of current portion

 

 

43,438

 

 

 

13,534

 

Operating lease liabilities, net of current portion

 

 

3,269

 

 

 

 

Total liabilities

 

 

58,272

 

 

 

25,351

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Common shares, par value $0.000037453 per share, 267,001,308 shares

   authorized, 30,381,433 and 30,322,911 issued and outstanding at

   September 30, 2019 and March 31, 2019, respectively

 

 

1

 

 

 

1

 

Common shares subscribed

 

 

(1

)

 

 

(1

)

Accumulated other comprehensive income

 

 

365

 

 

 

269

 

Additional paid-in capital

 

 

253,148

 

 

 

250,032

 

Accumulated deficit

 

 

(229,757

)

 

 

(175,531

)

Total shareholders' equity

 

 

23,756

 

 

 

74,770

 

Total liabilities and shareholders' equity

 

$

82,028

 

 

$

100,121

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


UROVANT SCIENCES LTD.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

Six Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development(1)

 

$

17,796

 

 

$

20,664

 

 

$

39,810

 

 

$

48,009

 

General and administrative(2)

 

 

7,435

 

 

 

3,664

 

 

 

12,900

 

 

 

7,788

 

Total operating expenses

 

 

25,231

 

 

 

24,328

 

 

 

52,710

 

 

 

55,797

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(581

)

 

 

 

 

 

(1,094

)

 

 

 

Loss on disposal of furniture and equipment

 

 

 

 

 

 

 

 

(236

)

 

 

 

Other income (expense)

 

 

79

 

 

 

(309

)

 

 

(111

)

 

 

(80

)

Loss before provision for income taxes

 

 

(25,733

)

 

 

(24,637

)

 

 

(54,151

)

 

 

(55,877

)

Provision for income taxes

 

 

8

 

 

 

5

 

 

 

75

 

 

 

60

 

Net loss

 

$

(25,741

)

 

$

(24,642

)

 

$

(54,226

)

 

$

(55,937

)

Net loss per common share—basic and diluted

 

$

(0.85

)

 

$

(1.23

)

 

$

(1.79

)

 

$

(2.79

)

Weighted average common shares outstanding—basic and diluted

 

 

30,355,874

 

 

 

20,025,098

 

 

 

30,340,603

 

 

 

20,025,098

 

 

(1)

Includes $0 and $0 and $48 and $2,230 of costs allocated from Roivant Sciences Ltd. during the three and six months ended September 30, 2019 and 2018, respectively. Also includes share-based compensation expense (see Note 8).

(2)

Includes $72 and $132 and $537 and $1,679 of costs allocated from Roivant Sciences Ltd. during the three and six months ended September 30, 2019 and 2018, respectively. Also includes share-based compensation expense (see Note 8).

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


UROVANT SCIENCES LTD.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

 

 

 

Three Months Ended September 30,

 

 

Six Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(25,741

)

 

$

(24,642

)

 

$

(54,226

)

 

$

(55,937

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(92

)

 

 

317

 

 

 

96

 

 

 

97

 

Total other comprehensive income (loss)

 

 

(92

)

 

 

317

 

 

 

96

 

 

 

97

 

Comprehensive loss

 

$

(25,833

)

 

$

(24,325

)

 

$

(54,130

)

 

$

(55,840

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


UROVANT SCIENCES LTD.

Condensed Consolidated Statements of Shareholders’ Equity (Deficit)

(in thousands, except share data)

 

 

 

Common Shares

 

 

Common

Shares

 

 

Shareholder

 

 

Additional

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Subscribed

 

 

Receivable

 

 

Paid-in Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balance at March 31, 2019

 

 

30,322,911

 

 

$

1

 

 

$

(1

)

 

$

 

 

$

250,032

 

 

$

(175,531

)

 

$

269

 

 

$

74,770

 

Capital contributions from RSI and RSG

 

 

 

 

 

 

 

 

 

 

 

 

 

 

130

 

 

 

 

 

 

 

 

 

130

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,047

 

 

 

 

 

 

 

 

 

1,047

 

Exercise of stock options

 

 

17,521

 

 

 

 

 

 

 

 

 

 

 

 

70

 

 

 

 

 

 

 

 

 

70

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

188

 

 

 

188

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,485

)

 

 

 

 

 

(28,485

)

Balance at June 30, 2019

 

 

30,340,432

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

251,279

 

 

 

(204,016

)

 

 

457

 

 

 

47,720

 

Capital contributions from RSI and RSG

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60

 

 

 

 

 

 

 

 

 

60

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,221

 

 

 

 

 

 

 

 

 

1,221

 

Exercise of stock options

 

 

41,001

 

 

 

 

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

 

150

 

Warrants issued with long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

438

 

 

 

 

 

 

 

 

 

438

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(92

)

 

 

(92

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,741

)

 

 

 

 

 

(25,741

)

Balance at September 30, 2019

 

 

30,381,433

 

 

$

1

 

 

$

(1

)

 

$

 

 

$

253,148

 

 

$

(229,757

)

 

$

365

 

 

$

23,756

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

Common

Shares

 

 

Shareholder

 

 

Additional

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Subscribed

 

 

Receivable

 

 

Paid-in Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity (Deficit)

 

Balance at March 31, 2018

 

 

20,025,098

 

 

$

1

 

 

$

(1

)

 

$

(1,310

)

 

$

72,562

 

 

$

(64,185

)

 

$

7

 

 

$

7,074

 

Capital contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,500

 

 

 

 

 

 

 

 

 

18,500

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

320

 

 

 

 

 

 

 

 

 

320

 

Capital contribution – share-based

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

486

 

 

 

 

 

 

 

 

 

486

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(220

)

 

 

(220

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,295

)

 

 

 

 

 

(31,295

)

Balance at June 30, 2018

 

 

20,025,098

 

 

 

1

 

 

 

(1

)

 

 

(1,310

)

 

 

91,868

 

 

 

(95,480

)

 

 

(213

)

 

 

(5,135

)

Capital contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,744

 

 

 

 

 

 

 

 

 

21,744

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

895

 

 

 

 

 

 

 

 

 

895

 

Capital contribution – share-based

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

 

94

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

317

 

 

 

317

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,642

)

 

 

 

 

 

(24,642

)

Balance at September 30, 2018

 

 

20,025,098

 

 

$

1

 

 

$

(1

)

 

$

(1,310

)

 

$

114,601

 

 

$

(120,122

)

 

$

104

 

 

$

(6,727

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5


UROVANT SCIENCES LTD.

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(54,226

)

 

$

(55,937

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

113

 

 

 

85

 

Share-based compensation expense

 

 

2,268

 

 

 

1,795

 

Amortization of debt discount and issuance costs

 

 

352

 

 

 

 

Non-cash operating lease cost

 

 

256

 

 

 

 

Loss on disposal of furniture and equipment

 

 

236

 

 

 

 

Unrealized foreign currency translation adjustment

 

 

96

 

 

 

97

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

4,091

 

 

 

(6,561

)

Other assets

 

 

72

 

 

 

 

Due to Roivant Sciences Ltd.

 

 

55

 

 

 

6,574

 

Accounts payable

 

 

(358

)

 

 

3,801

 

Accrued expenses

 

 

100

 

 

 

5,802

 

Operating lease liabilities

 

 

(23

)

 

 

 

Net cash used in operating activities

 

 

(46,968

)

 

 

(44,344

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of furniture and equipment

 

 

(589

)

 

 

(162

)

Net cash used in investing activities

 

 

(589

)

 

 

(162

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from capital contributions from Roivant Sciences Ltd.

 

 

190

 

 

 

40,244

 

Proceeds from exercise of stock options

 

 

220

 

 

 

 

Debt financing costs paid

 

 

(387

)

 

 

 

Cash proceeds from debt financing

 

 

30,000

 

 

 

 

Initial public offering costs paid

 

 

 

 

 

(1,273

)

Net cash provided by financing activities

 

 

30,023

 

 

 

38,971

 

Net change in cash, cash equivalents and restricted cash

 

 

(17,534

)

 

 

(5,535

)

Cash, cash equivalents and restricted cash—beginning of period

 

 

86,196

 

 

 

7,194

 

Cash, cash equivalents and restricted cash—end of period

 

$

68,662

 

 

$

1,659

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Warrants issued with long-term debt

 

$

438

 

 

$

 

Furniture and equipment included in due to Roivant Sciences Ltd.

 

$

63

 

 

$

 

Unpaid initial public offering costs included in accounts payable

 

$

 

 

$

928

 

Supplemental disclosure of cash paid:

 

 

 

 

 

 

 

 

Income taxes

 

$

50

 

 

$

155

 

Interest

 

$

867

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6


 

UROVANT SCIENCES LTD.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1—Description of business and liquidity

[A] Description of business:

Urovant Sciences Ltd. and its subsidiaries (collectively, the “Company”) is a clinical-stage biopharmaceutical company focused on developing and commercializing innovative therapies for urologic conditions. The Company’s lead product candidate, vibegron, is an oral, once-daily, small molecule beta-3 agonist. The Company is currently developing vibegron for the treatment of overactive bladder, or OAB. The Company is also developing vibegron for the treatment of two additional potential indications: OAB in men with benign prostatic hyperplasia and abdominal pain due to irritable bowel syndrome. The Company’s second product candidate, URO-902, is a gene therapy that the Company is developing for patients with OAB who have failed oral pharmacological therapy. There are no currently available FDA-approved gene therapy treatments for OAB. The Company was founded on January 27, 2016 as a Bermuda Exempted Limited Company and a wholly owned subsidiary of Roivant Sciences Ltd. In November 2016, the Company incorporated as its wholly owned subsidiaries (1) Urovant Holdings Ltd. (“UHL”), a private limited company incorporated under the laws of England and Wales, (2) Urovant Sciences GmbH (“USG”), a company with limited liability formed under the laws of Switzerland, (3) Urovant Sciences, Inc. (“USI”), a Delaware corporation based in the United States of America, and in March 2019 incorporated as its wholly owned subsidiaries (4) Urovant Treasury Holdings, Inc. (“UTH”), a Delaware corporation based in the United States of America, and (5) Urovant Sciences Treasury, Inc. (“UST”), a Delaware corporation based in the United States of America.

Since its inception, the Company has devoted substantially all of its efforts to organizing and staffing the Company, acquiring its product candidates, vibegron and URO-902, and preparing for and advancing vibegron into clinical development. Vibegron was licensed from Merck Sharp & Dohme Corp. (“Merck”), a subsidiary of Merck & Co., in February 2017. URO-902 was licensed from Ion Channel Innovations, LLC (“ICI”) in August 2018. The Company has determined that it has one operating and reporting segment as it allocates resources and assesses financial performance on a consolidated basis.

[B] Liquidity:

The Company has not historically been capitalized with sufficient funding to conduct its operations. Certain other costs of conducting the Company’s operations prior to the Company’s initial public offering, which was completed in October 2018, were paid by Roivant Sciences Ltd., inclusive of its wholly owned subsidiaries (“RSL”), and were reimbursed by the Company including amounts pursuant to services agreements with Roivant Sciences, Inc. (“RSI”) and Roivant Sciences GmbH (“RSG”).

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. The Company has incurred and expects to continue to incur significant and increasing operating losses and negative cash flows for at least the next several years. To date, the Company has not generated any revenues and does not anticipate generating any revenues unless and until it successfully completes development and obtains regulatory approval for one of its product candidates. The Company currently believes its existing cash and cash equivalents will be sufficient to fund its committed operating expenses and capital expenditure requirements over which the Company has control of timing of payments for at least the next 12 months from the date of issuance of these condensed consolidated financial statements. This estimate is based on the Company’s current assumptions, including assumptions relating to its ability to manage the amount and timing of its’ spend, and the Company could use its available capital resources sooner than currently expected. In October 2019, the Company entered into a letter agreement with Sumitomo Dainippon Pharma Co., Ltd. (“DSP”) pursuant to which DSP committed to provide the Company with a $200 million low-interest loan facility (see Note 11). These funds will not be sufficient to enable the Company to complete all necessary development activities and commercially launch vibegron or URO-902. Accordingly, the Company will seek to obtain additional capital through equity financings, the sale of debt or other arrangements. However, there can be no assurance that the potential loan facility with DSP will be available or that the Company will be able to raise additional capital when needed or under acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding common shares. The Company’s agreement with Hercules Capital, Inc. involves, and any agreements for future debt or preferred equity financings, if available, may involve, covenants limiting or restricting the Company’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If the Company is unable to obtain such additional financing, including the potential loan facility with DSP, operations would need to be scaled back to reduce working capital requirements beginning in the first calendar quarter of 2020 or discontinued and substantial uncertainty would exist with respect to the Company’s ability to continue as a going concern. The Company will prioritize necessary and appropriate steps to enable the continued operations of the business and preservation of the value of its assets beyond the next twelve months, including but not limited to actions such as reduced personnel-related costs, curtailment of the Company’s development activities and other discretionary expenditures that are within the Company’s control.  These reductions in expenditures, if required, may have an adverse impact on our ability to achieve certain of the Company’s planned objectives in fiscal year 2020.

7


 

The Company’s future operations are highly dependent on a combination of factors, including (1) the success of its research and development programs; (2) the timely and successful completion of any additional financing; (3) the development of competitive therapies by other biotechnology and pharmaceutical companies; (4) the Company’s ability to manage growth of the organization; (5) the Company’s ability to protect its technology and products; and, ultimately (6) regulatory approval and market acceptance of vibegron, URO-902 or any future product candidate.

Note 2—Summary of significant accounting policies

[A] Basis of presentation:

The Company’s fiscal year ends on March 31. The accompanying interim condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended September 30, 2019 and 2018, the condensed consolidated statements of cash flows for the six months ended September 30, 2019 and 2018 and the condensed consolidated statements of shareholders’ equity (deficit) for the three and six months ended September 30, 2019 and 2018 are unaudited. The accompanying interim unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements as certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2019 included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed with the Securities and Exchange Commission (“SEC”) on June 14, 2019.

The condensed consolidated balance sheet at March 31, 2019 has been derived from the audited consolidated financial statements at that date. In the opinion of management, the interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated financial position and its results of operations and cash flows for the interim periods presented. The results for the three and six months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending March 31, 2020 or for any future period.

Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include the accounts of USL and UHL, USG, USI, UTH and UST, USL’s wholly owned subsidiaries. USL has no unconsolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

There have been no significant changes in the Company's accounting policies from those disclosed in its Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed with the SEC on June 14, 2019 other than the adoption of ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”).      

[B] Use of estimates:

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets, liabilities, costs, expenses and compensation expense allocated to the Company under its services agreements with RSI and RSG, as well as share-based compensation, research and development costs and income taxes. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could materially differ from those estimates.

[C] Financial instruments:

The Company applies a fair value framework in order to measure and disclose its financial assets and liabilities. Fair value 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. The fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Fair values are determined by utilizing quoted prices for similar assets and liabilities in active markets or other market observable inputs such as interest rates and yield curves.

 

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.

8


 

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company’s financial instruments consist of cash, cash equivalents consisting of money market accounts, restricted cash, accounts payable, accrued expenses, amounts due to and from RSL and long-term debt. The carrying value of the Company’s long-term debt approximates fair value based on current interest rates for similar types of borrowings and is included in Level 2 of the fair value hierarchy. The remaining financial instruments are stated at their respective historical carrying amounts, which approximates fair value due to their short-term nature.

[D] Cash, cash equivalents, and restricted cash:

Cash and cash equivalents include cash deposits in banks and all highly liquid investments that are readily convertible to cash without penalty. The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains cash deposits and cash equivalents in highly-rated, federally-insured financial institutions in excess of federally insured limits. The Company has established guidelines relative to diversification and maturities to maintain liquidity and preservation of capital. The Company has not experienced any credit losses related to these financial instruments and does not believe that it is exposed to any significant credit risk related to these instruments.

Restricted cash consists of legally restricted non-interest-bearing deposit accounts held as compensating balances against the Company’s corporate credit card program and irrevocable standby letters of credit connected to its office leases (see Note 10)Restricted cash classified as a current asset consists of the restricted deposit account relating to the Company’s corporate credit card agreement. Restricted cash classified as a long-term asset consists of the restricted deposit account related to the irrevocable standby letters of credit.

Cash as reported in the condensed consolidated statements of cash flows includes the aggregate amounts of cash, cash equivalents, and restricted cash as presented on the condensed consolidated balance sheets. Cash as reported in the condensed consolidated statements of cash flows consists of (in thousands):

 

 

 

September 30, 2019

 

 

March 31, 2019

 

Cash and cash equivalents

 

$

67,796

 

 

$

85,353

 

Restricted cash

 

 

866

 

 

 

843

 

Cash, cash equivalents and restricted cash

 

$

68,662

 

 

$

86,196

 

[E] Leases:

In accordance with ASC 842, as adopted by the Company on April 1, 2019, the Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease liabilities on our condensed consolidated balance sheets.

Operating lease ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. Operating lease ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The Company determines the lease term as the noncancellable period of the lease, and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recognized on the condensed consolidated balance sheet. The Company’s leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The Company accounts for lease and non-lease components as a single lease component for all its facilities leases.

Prior to April 1, 2019, at the inception of a lease, the Company evaluated the lease agreement to determine whether the lease was an operating or capital lease. For operating leases, the Company recognized rent expense on a straight-line basis over the lease term and recorded the difference between cash rent payments and the recognition of rent expense as a deferred liability. Where lease agreements contained rent escalation clauses, rent abatements and/or concessions, such as rent holidays and tenant improvement allowances, the Company applied them in the determination of straight-line rent expense over the lease term.

[F] Net loss per common share:

Basic net loss per common share is computed by dividing net loss applicable to common shareholder by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss applicable to common shareholders by the diluted weighted-average number of common shares outstanding during the period calculated in accordance with the treasury stock method. In periods in which the Company reports a net loss, all common share equivalents are deemed anti-dilutive such that basic net loss per common share and diluted net loss per common share are equivalent. Potentially dilutive common shares have been excluded from the diluted net loss per common share computations in all periods presented because such securities have an anti-dilutive effect on net loss per common share due to the Company’s net loss. There are no reconciling items used to calculate the weighted-average number of total common shares outstanding for basic and diluted net loss per common share data.

9


 

At September 30, 2019 and 2018, potentially dilutive securities were as follows:

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Options

 

 

4,169,654

 

 

 

2,554,875

 

Restricted stock units (unvested)

 

 

15,000

 

 

 

 

Warrants

 

 

99,777

 

 

 

 

Total

 

 

4,284,431

 

 

 

2,554,875

 

 

[G] Recently adopted accounting pronouncements:

In February 2016, the FASB issued ASU No. 2016-02, a comprehensive new lease standard that amended various aspects of existing accounting guidance for leases. The core principle of ASU No. 2016-02 required lessees to present the assets and liabilities that arise from leases on their consolidated balance sheets. ASU No. 2016-02 was effective for annual periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2018. The Company adopted this standard, codified as ASC 842, on April 1, 2019 using the optional modified retrospective transition method and applied the transition package of practical expedients allowed by the standard. Comparative periods were not restated. Upon adoption, on April 1, 2019, the Company recorded a $0.2 million increase in operating lease right-of-use assets and a $0.2 million increase in operating lease liabilities. The adoption of the new standard did not materially impact the Company’s consolidated results of operations and cash flows and did not have an impact on the Company’s beginning accumulated deficit balance.

ASU No. 2016-02 provided a number of optional practical expedients in transition. For leases that commenced prior to April 1, 2019, the Company elected the following package of practical expedients when assessing the transition impact: (1) not to reassess whether any expired or existing contracts are or contain leases; (2) not to reassess the lease classification for any expired or existing leases; and (3) not to reassess initial direct costs for any existing leases. The Company also elected to: (1) use the total lease term in its initial incremental borrowing rate calculation; (2) combine its lease and non-lease components and account for them as a single lease component for its facilities leases; and (3) not apply the use of hindsight in determining the lease term when considering lessee options to extend or terminate the lease and to purchase the underlying asset. For additional information regarding the Company’s leases, see Note 10.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial position, results of operations or cash flows.

[H] Recently issued accounting pronouncements:

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, (“ASU No. 2016-13”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU No. 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses on available-for-sale debt securities to be recorded through an allowance for credit losses instead of as a reduction in the amortized cost basis of the securities. ASU No. 2016-13 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. The Company does not expect the adoption to have a material impact on the Company’s consolidated financial position, results of operations, and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU No. 2018-13”) which provides guidance that remove, modify and add to the disclosure requirements related to fair value measurements. The guidance removes the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 assets, the policy for timing and transfers between levels and the valuation process for Level 3 fair value measurements. The guidance modifies disclosure requirements for investments in certain entities that calculate net asset value and clarifies the purpose of the measurement uncertainty disclosure. The guidance adds requirements to disclose changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company does not expect the adoption to have a material impact on the Company’s consolidated financial position, results of operations, and related disclosures.

10


 

Note 3—Accrued expenses

Accrued expenses at September 30, 2019 and March 31, 2019 consist of the following (in thousands):

 

 

 

September 30, 2019

 

 

March 31, 2019

 

Research and development expenses

 

$

7,722

 

 

$

4,993

 

Compensation-related expenses

 

 

1,494

 

 

 

3,398

 

Professional services expenses

 

 

242

 

 

 

821

 

Other general and administrative expenses

 

 

132

 

 

 

665

 

Total accrued expenses

 

$

9,590

 

 

$

9,877

 

 

Note 4—Long-term debt

In February 2019, the Company and its subsidiaries, UHL, USG (collectively with the Company and UHL, the “Borrowers”) and USI (collectively with the Borrowers, the “Loan Parties”) entered into a secured debt financing agreement (the “Hercules Loan Agreement”) with Hercules Capital, Inc. (“Hercules”), as agent and lender, in the amount of $100 million (the “Term Loans”). A first tranche of $15 million, or net cash proceeds of $14.1 million, was funded upon execution of the Hercules Loan Agreement, and a second tranche of $30 million was funded in September 2019. The remaining $55 million is available in two additional optional tranches through June 30, 2021, subject to certain terms and conditions, including the achievement of certain milestones.

The Term Loans bear a variable interest rate equal to the greater of (i) 10.15% or (ii) the lesser of (x) the prime rate as reported in The Wall Street Journal plus 4.65% and (y) 12.15%. The interest rate on the Term Loans was 10.15% at September 30, 2019. The Company is obligated to make monthly payments of accrued interest for the first 12 months from closing (the “Interest-only Period”), followed by monthly installments of principal and interest through the maturity date. Pursuant to the terms of the Hercules Loan Agreement, the end of the Interest-only Period has been extended from April 1, 2020 to October 1, 2020 as a result of the achievement of a clinical milestone. The Interest-only Period may be extended an additional six months to April 1, 2021 if certain milestones are met.

The Term Loans mature 36 months from closing and include an option for the Loan Parties to extend the maturity date up to 18 months if certain defined milestones are met. Pursuant to the terms of the Hercules Loan Agreement, the Term Loan Maturity Date (as defined in the Hercules Loan Agreement) has been extended from March 1, 2022 to March 1, 2023 as a result of the achievement of a clinical milestone. The Loan Parties have the option to prepay the Terms Loans and the prepayment of the Term Loans will be subject to, in some circumstances, a prepayment charge equal to 2% in the first 12 months from closing, 1% in the second 12 months, and 0% thereafter. Upon repayment of the Term Loans, the Company will be obligated to pay an end of term charge in an amount equal to 4.25% of the amount of the Term Loans actually advanced.

The Company’s obligations under the Hercules Loan Agreement are fully and unconditionally guaranteed by the subsidiaries of the Borrowers, including USI. The Loan Parties’ obligations under the Hercules Loan Agreement are secured by a first priority security interest on substantially all of their personal property, other than intellectual property, and subject to certain other exceptions. The Hercules Loan Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The agreement also contains a minimum cash covenant that requires the Loan Parties to hold certain minimum cash balances in the event that either certain milestones are not achieved or the market capitalization of the Company is below a certain threshold for certain periods of time. Such minimum cash covenant ceases to apply if the Company achieves certain clinical development and financial milestones as set forth in the Hercules Loan Agreement. The Hercules Loan Agreement also contains customary events of default (subject, in certain instances, to specified grace periods). If any event of default occurs, the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Term Loans may become due and payable immediately. Upon the occurrence of an event of default, a default interest rate of an additional 5% may be applied to the outstanding principal balance, and Hercules may declare all outstanding obligations immediately due and payable (subject, in certain instances, to specified grace periods) and take such other actions as set forth in the Hercules Loan Agreement. Upon the occurrence of certain bankruptcy and insolvency events, the obligations under the Hercules Loan Agreement would automatically become due and payable. The Company is in compliance with the covenants under the Hercules Loan Agreement as of September 30, 2019.

In connection with each funding of the Term Loans, the Company is required to issue to Hercules a warrant (the “Warrants”) to purchase a number of the Company’s common shares equal to 2% of the principal amount of the relevant Term Loan funded divided by the exercise price, which will be based on the closing price of the Company’s common shares on the business day immediately prior to the relevant Term Loan funding (or for the first and second tranches only at the lower of (i) $9.02 per share or (ii) the closing price of the Company’s common shares on the business day immediately prior to the relevant Term Loan funding). The Warrants may be exercised on a cashless basis, and are immediately exercisable through the seventh anniversary of the applicable funding date. The number of common shares for which each Warrant is exercisable and the associated exercise price are subject to certain proportional adjustments as set forth in such Warrant.

11


 

In connection with the first tranche of the Term Loans, the Company issued a Warrant to Hercules, exercisable for an aggregate of 33,259 of the Company’s common shares at an exercise price of $9.02 per share. Concurrent with the funding of the second tranche, the Company issued a Warrant to Hercules exercisable for an aggregate of 66,518 of the Company’s common shares at an exercise price of $9.02 per share. The Company accounted for the Warrants as equity instruments since they were indexed to the Company’s common shares and met the criteria for classification in shareholders’ equity. The relative fair value of the Warrants related to the first and second tranche funding was approximately $0.2 million and $0.4 million, respectively, and were treated as a discount to the Term Loans. This amount is being amortized to interest expense using the effective interest method over the life of the Term Loans. The Company estimated the fair value of the Warrants using the Black-Scholes option-pricing model based on the following key assumptions:

 

 

 

Tranche 1

 

 

Tranche 2

 

Exercise price

 

$

9.02

 

 

$

9.02

 

Common share price on date of issuance

 

$

10.50

 

 

$

10.12

 

Expected volatility

 

 

69.6

%

 

 

65.9

%

Contractual term, in years

 

7.00

 

 

7.00

 

Risk-free interest rate

 

 

2.55

%

 

 

1.68

%

Expected dividend yield

 

 

%

 

 

%

 

The Company recorded the first tranche of the Term Loans at a discount of $1.8 million, including the proceeds allocated to the related Warrant, and incurred financing costs of $0.4 million relating to the Hercules Loan Agreement which are recorded as an offset to long-term debt on the Company’s condensed consolidated balance sheet. The Company recorded the second tranche of the Terms Loans at a discount of $1.7 million, including the proceeds allocated to the related Warrant. The debt discount and deferred financing costs are being amortized over the term of the debt using the effective interest method, and are included in interest expense in the Company’s condensed consolidated statement of operations. During the three and six months ended September 30, 2019, interest expense included $0.2 million and $0.4 million, respectively, of amortized debt discount and issuance costs related to the Term Loans.

Outstanding debt obligations to Hercules Capital, Inc. are as follows (in thousands):

 

 

 

September 30, 2019

 

Principal amount

 

$

45,000

 

End of term charge

 

 

1,913

 

Less: unamortized debt discount and issuance costs

 

 

(3,465

)

Loan payable less unamortized debt discount and issuance costs

 

 

43,448

 

Less: current maturities

 

 

(10

)

Long-term debt, net of unamortized debt discount and issuance costs

 

$

43,438

 

 

Note 5—Related party transactions

[A] Services agreements:

In May 2017, the Company entered into a services agreement with RSI effective January 17, 2017, as amended and restated on July 9, 2018, under which RSI agreed to provide certain administrative and research and development services to the Company during its formative period. Under this services agreement, the Company will pay or reimburse RSI for any expenses it, or third parties acting on its behalf, incurs for the Company. For any general and administrative and research and development activities performed by RSI employees, RSI will charge back the employee compensation expense plus a pre-determined markup. RSI also provided such services prior to the formalization of this services agreement, and such costs have been recognized by the Company in the period in which the services were rendered. Employee compensation expense, inclusive of base salary and fringe benefits, is determined based upon the relative percentage of time utilized on Company matters. All other costs will be billed back at cost.  The condensed consolidated financial statements also include third-party expenses that have been paid by RSI and RSL since the inception of the Company.

In addition, in May 2017, USG entered into a separate services agreement with RSG, effective as of January 17, 2017, as amended and restated on July 9, 2018, for the provisioning of services by RSG to USG related to clinical development, administrative and finance and accounting activities. The Company refers to the amended and restated services agreements with RSI and RSG, collectively, as the Services Agreements.

Under the Services Agreements, for the three and six months ended September 30, 2019 and 2018, the Company incurred expenses of $0.07 million and $0.1 million and $0.5 million and $3.3 million, respectively, inclusive of the mark-up. Based upon the service performed under the Services Agreements, amounts included in research and development expenses totaled $0 and $0 and $0.2 million and $2.1 million, and amounts included in general and administrative expenses totaled $0.07 million and $0.1 million and $0.3 million and $1.2 million during the three and six months ended September 30, 2019 and 2018, respectively.  

12


 

[B] Information sharing and cooperation agreement:

On July 9, 2018, the Company entered into an information sharing and cooperation agreement (the “Cooperation Agreement”) with RSL. The Cooperation Agreement, among other things: (1) obligates the Company to deliver to RSL periodic financial statements and other information upon reasonable request and to comply with other specified financial reporting requirements; (2) requires the Company to supply certain material information to RSL to assist it in preparing any future SEC filings; and (3) requires the Company to implement and observe certain policies and procedures related to applicable laws and regulations. The Company agreed to indemnify RSL and its affiliates and their respective officers, employees and directors against all losses arising out of, due to or in connection with RSL’s status as a shareholder under the Cooperation Agreement and the operations of or services provided by RSL or its affiliates or their respective officers, employees or directors to the Company or any of the Company’s subsidiaries, subject to certain limitations set forth in the Cooperation Agreement. No amounts have been paid or received under this agreement; however, the Company believes this agreement is material to its business and operations.

[C] Data sharing agreement:

On May 22, 2018, USG entered into a data sharing agreement (the “Data Sharing Agreement”) with Datavant, Inc. (“Datavant”), a subsidiary of the Company’s parent company, RSL. Pursuant to this Data Sharing Agreement, USG granted to Datavant a royalty-free, worldwide (excluding jurisdictions prohibited by the United States government), non-exclusive, irrevocable license to all data, subject to certain exceptions set forth in the Data Sharing Agreement, collected as part of clinical trials (but not prior to completion of such clinical trials and the publication or presentation of the data generated in connection with such clinical trials) or other patient-level data that is owned or licensed by USG and all other data mutually agreed by USG and Datavant, solely for Datavant to (1) use such data to develop its data or other analytics products (the “Datavant Products”), or (2) provide such data to third parties, subject to the limitations and conditions set forth in the Data Sharing Agreement, including limitations on providing such data to any third party that competes with USG. Pursuant to the Data Sharing Agreement, Datavant granted to USG a royalty-free, worldwide (excluding jurisdictions prohibited by the United States government), nonexclusive, irrevocable license to use all data, subject to certain exceptions set forth in the Data Sharing Agreement, owned or licensed by Datavant and applicable Datavant Products for such specified purposes as set forth in the Data Sharing Agreement. The Data Sharing Agreement has an initial term of two years and will automatically renew annually thereafter, subject to 30 days’ written notice of termination by either party. In addition, either party may terminate (1) upon a change of control of either party upon 60 days’ written notice or (2) upon 90 days’ written notice for an uncured material breach by the other party. No amounts have been paid or received under this agreement, however, the Company believes this agreement is material to its business and operations.

[D] Operating lease:

In June 2019, the Company entered into a sublease agreement with our affiliate, RSI, for 2,784 square feet of office space located in Durham, North Carolina that expires in July 2025. The lease has scheduled rent increases each year and the total lease payment obligations under the agreement is $0.6 million.  See Note 10 for more details on the lease.

Note 6—Income taxes

The Company is not subject to taxation under the laws of Bermuda since it was organized as a Bermuda Exempted Limited Company, for which there is no current tax regime. The Company’s provision for income taxes is primarily based on income taxes in the U.S. for federal and state taxes.

The Company’s effective tax rate for the three months ended September 30, 2019 and 2018 was (0.03)% and (0.02)%, respectively. The Company’s effective tax rate for the six months ended September 30, 2019 and 2018 was (0.14)% and (0.11)%, respectively. The effective tax rate is driven by the Company’s jurisdictional earnings by location and a valuation allowance that eliminates the Company’s global net deferred tax assets.

The Company assesses the realizability of its deferred tax assets at each balance sheet date based on available positive and negative evidence in order to determine the amount which is more likely than not to be realized and records a valuation allowance as necessary.

Note 7—Shareholders’ equity

Capital contributions:

For the three and six months ended September 30, 2019 and 2018, RSL made capital contributions of $0.1 million and $0.2 million and $21.7 million and $40.2 million, respectively.

Note 8—Share-based compensation

Equity incentive plan:

On June 1, 2017, the Company adopted its 2017 Equity Incentive Plan (the “2017 Plan”), under which 2,002,509 common shares are reserved for grant.  On June 15, 2018, the Board of Directors approved an increase in the common shares reserved for grant under the 2017 Plan of 1,068,006 common shares. The 2017 Plan was approved by the Company’s shareholders in September 2018. In connection with the Company’s initial public offering, the 2017 Plan was amended effective upon the execution of the underwriting agreement related to the offering.  All references herein to the Company’s 2017 Plan will be deemed to refer to the 2017 Plan, as amended and restated, unless context otherwise requires.    

13


 

In September 2019, the shareholders of the Company approved at the 2019 Annual General Meeting of Shareholders an amendment to the 2017 Plan to increase the number of common shares reserved for issuance under the 2017 Plan by 3,000,000 shares.  

Pursuant to the “evergreen” provision contained in the 2017 Plan, the number of common shares reserved for issuance under the 2017 Plan automatically increases on November 1 of each year, commencing on November 1, 2018 and ending on November 1, 2028, in an amount equal to 4% of the total number of the Company’s common shares outstanding on the last day of the preceding month, or by a lesser number of common shares as may be determined by the Company’s Board of Directors prior to any such increase date. On November 1, 2019 and 2018, the number of common shares authorized for issuance increased automatically by 1,215,257 shares and 1,212,916 shares, respectively, in accordance with the evergreen provision of the 2017 Plan.

At September 30, 2019, a total of 3,040,255 common shares were available for future issuance under the 2017 Plan.

Stock options:

The Company estimated the fair value of each stock option on the date of grant using the Black-Scholes option pricing model applying the range of assumptions in the following table:

 

 

 

Three Months

Ended

September 30, 2019

 

Three Months

Ended

September 30, 2018

 

 

Six Months

Ended

September 30, 2019

 

Six Months

Ended

September 30, 2018

Risk-free interest rate

 

1.39% - 1.92%

 

2.77% - 2.99%

 

 

1.39% - 2.33%