NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS; BASIS OF PRESENTATION; PRINCIPLES OF CONSOLIDATION; SIGNIFICANT ACCOUNTING POLICIES
Accelerate Diagnostics, Inc. (“we” or “us” or “our” or “Accelerate” or “the Company”) is an
in vitro
diagnostics company dedicated to providing solutions which improve patient outcomes and lower healthcare costs through the rapid diagnosis of serious infections.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles, (“U.S. GAAP”), and applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”), regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2015
, as filed with the SEC on March 9, 2016.
The condensed consolidated balance sheet as of
December 31, 2015
included herein was derived from the audited financial statements as of that date, but does not include all disclosures such as notes required by U.S. GAAP.
The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the entire year ending
December 31, 2016
or any future period.
All amounts are rounded to the nearest thousand dollars unless otherwise indicated.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of intercompany transactions and balances. During the
nine months ended
September 30, 2016
new entities were formed based in Europe.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or less at time of purchase are considered to be cash equivalents. Cash and cash equivalents include overnight repurchase agreement accounts and other investments. As part of our cash management process, excess operating cash is invested in overnight repurchase agreements with our bank. Repurchase agreements and other investments classified as cash and cash equivalents are not deposits and are not insured by the U.S. Government, the FDIC or any other government agency and involve investment risk including possible loss of principal. We believe however, that the market risk arising from holding these financial instruments is minimal.
Investments
The Company invests excess funds in various investments which are primarily held in the custody of major financial institutions. Investments consist of debt securities in U.S. government and agency securities, corporate debt
securities, certificates of deposit, and commercial paper. Management classifies its investments as available-for-sale investments and records these investments in the condensed consolidated balance sheet at fair value. The Company considers all available-for-sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs. Unrealized gains or losses for available-for-sale securities are included in accumulated other comprehensive income or loss, a component of stockholders’ equity. The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations.
The Company assesses whether an other-than-temporary impairment loss has occurred due to declines in fair value or other market conditions when an investment’s fair value remains less than its cost for more than twelve months. This assessment includes a determination of whether the investment is expected to recover in value and whether the Company has the intent and ability to hold the investment until the anticipated recovery in value occurs. When an investment is identified as having an other-than-temporary impairment loss, we adjust the cost basis of the investment down to fair value resulting in a realized loss. The new cost basis is not changed for subsequent recoveries in fair value and temporary future increases or decreases in fair value are included in other comprehensive income
.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current year presentation.
Inventory
The Company currently purchases and produces inventory prior to U.S. Food and Drug Administration (“FDA”) or other regulatory agency approval. We do not believe probable future economic benefit can be asserted prior to the de novo request being granted by the U.S. FDA. Accordingly, the Company does not capitalize pre-launch inventory prior to receipt of marketing authorization, unless the regulatory review process has progressed to a point that objective and persuasive evidence of regulatory approval is sufficiently probable, and future economic benefit can be asserted. Costs associated with the Company’s purchase of inventory are either reported as research and development costs, or if the inventory is used in marketing evaluations, as sales, general and administrative costs on the condensed consolidated statements of operations and comprehensive loss.
Revenue
The Company recognizes revenue in accordance with ASC 605, “Revenue Recognition,” when persuasive evidence of an arrangement exists, the price is fixed or determinable, collection is reasonably assured and delivery of products has occurred or services have been rendered. Additional considerations include whether the applicable fee arrangement contains future delivery or performance obligations that should be divided into separate accounting units, whether the arrangement requires the Company to retain risks consistent with a collaborative arrangement, and/or whether any of the fees are contingent on the achievement of future milestones.
Deferred revenue represents amounts received but not yet earned under existing agreements.
Revenue from operations includes product sales, principally of Accelerate Pheno™ systems (formerly referred to as Accelerate ID/AST systems). When an instrument is sold, revenue is generally recognized upon installation of the unit consistent with contract terms, which do not include a right of return.
Warranty
A limited warranty of less than a year is covered under selected contracts. Accordingly, a provision for the estimated cost of the limited warranty repair is recorded at the time revenue is recognized. Our estimated warranty provision is based on our estimate of future repair events and the related estimated cost of repairs. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. The expense incurred for these provisions is included in sales, general and administrative on the condensed consolidated statements of operations and comprehensive loss.
Foreign Currency Translation and Foreign Currency Transactions
The Company follows ASC 830 “Foreign Currency Matters,” which provides guidance on foreign currency transactions and translation of financial statements. Adjustments resulting from translating foreign functional currency
financial statements into U.S. dollars are included in the foreign currency translation adjustment, within the condensed consolidated statements of operations and comprehensive loss.
The Company has assets and liabilities, primarily receivables and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, the impact of which is recorded in foreign currency exchange gain or loss, within the condensed consolidated statements of operations and comprehensive loss.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2016, the Financial Accounting Standards Board (
“
FASB
”
) issued Accounting Standards Update (
“
ASU
”
) 2016-13, Financial Instruments-Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which amends the guidance on measuring credit losses on financial assets (including trade accounts receivable and available for sale debt securities) held at amortized cost. Currently, an
“
incurred loss
”
methodology is used for recognizing credit losses which delays recognition until it is probable a loss has been incurred. The amendment requires assets valued at amortized cost to be presented at the net amount expected to be collected using an allowance for credit losses. Reversal of credit losses on available for sale debt securities will be recorded in the current period net income. The amendment will be effective for us on January 1, 2020 with early adoption permitted. We do not anticipate this guidance will have a significant impact on our financial statements and plan to adopt on the effective date.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. This guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The guidance is effective for us on January 1, 2017 with early adoption permitted. We are currently evaluating the impact of this guidance on our financial statements and plan to adopt on the effective date.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This replaces the existing standards relating to leases for both lessees and lessors. For lessees, the new standard requires most leases to be recorded on the balance sheet with expenses recognized much like the existing standard. For lessors, the new standard modifies the classification criteria and accounting for sales-type and direct financing leases and eliminates leveraged leases. For both lessees and lessors, the standard eliminates real estate-specific provisions, changes some of the presentation and disclosure requirements, and changes sale and leaseback criteria. The ASU is required for us on January 1, 2019 with early adoption permitted. We are currently assessing the impact this will have on our consolidated financial statements and the timing of adoption.
In May 2014, the FASB issued ASU 2014-09
,
Revenue from Contracts with Customers (Topic 606), which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We are carefully evaluating our existing revenue recognition practices to determine whether any contracts in the scope of the guidance will be affected by the new requirements. The effects may include identifying performance obligations in existing arrangements, determining the transaction price and allocating the transaction price to each separate performance obligation. We will also establish practices to determine when a performance obligation has been satisfied, and recognize revenue in accordance with the new requirements. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers Deferral of the Effective Date, which deferred the effective date resulting in a new effective date of January 1, 2018 for us. We are permitted to adopt early but not before the original effective date of January 1, 2017. FASB has issued several other ASU's which provide further guidance on Topic 606 and have the same effective date. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. We are currently evaluating the transition method and the adoption date that will be elected. We will implement ASU 2014-09 and all relevant subsequently issued ASU's on Topic 606 concurrently.
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following tables represent the financial instruments measured at fair value on a recurring basis on the financial statements of the Company and the valuation approach applied to each class of financial instruments at
September 30, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
(in thousands)
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
28,731
|
|
$
|
—
|
|
$
|
—
|
|
$
|
28,731
|
|
Investments:
|
|
|
|
|
Certificates of deposit
|
7,011
|
|
—
|
|
—
|
|
7,011
|
|
US Treasury securities
|
8,580
|
|
—
|
|
—
|
|
8,580
|
|
US Agency securities
|
—
|
|
4,507
|
|
—
|
|
4,507
|
|
Asset-backed securities
|
—
|
|
6,566
|
|
—
|
|
6,566
|
|
Corporate notes and bonds
|
—
|
|
34,758
|
|
—
|
|
34,758
|
|
Total investments
|
15,591
|
|
45,831
|
|
—
|
|
61,422
|
|
Total assets measured at fair value
|
$
|
44,322
|
|
$
|
45,831
|
|
$
|
—
|
|
$
|
90,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
(in thousands)
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
120,585
|
|
$
|
—
|
|
$
|
—
|
|
$
|
120,585
|
|
Investments:
|
|
|
|
|
Asset-backed securities
|
—
|
|
2,507
|
|
—
|
|
2,507
|
|
Corporate notes and bonds
|
—
|
|
9,332
|
|
—
|
|
9,332
|
|
Total investments
|
—
|
|
11,839
|
|
—
|
|
11,839
|
|
Total assets measured at fair value
|
$
|
120,585
|
|
$
|
11,839
|
|
$
|
—
|
|
$
|
132,424
|
|
Level 1 assets are priced using quoted prices in active markets for identical assets which include cash accounts, money market funds, certificates of deposit and U.S. Treasury securities as these specific assets are liquid.
Level 2 available-for-sale securities are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs. There were no transfers between levels during the
nine months ended
September 30, 2016
.
NOTE 4. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, investments and accounts receivable, including receivables from major customers.
The Company’s main financial institution for banking operations held
70%
and
100%
of the Company’s cash and cash equivalents as of
September 30, 2016
and
December 31, 2015
, respectively.
The Company extends credit to domestic and international clients in various industries. Exposure to losses on accounts receivable is principally dependent on each client's financial position. At
September 30, 2016
and
December 31, 2015
,
$147,000
or
93%
and
$50,000
or
66%
, respectively, of the Company’s outstanding receivable balance was with
one
grantor. See
Note 7, License Agreements and Grants
for more information.
One
customer accounted for
100%
of product sales for the
three months ended
September 30, 2016
, while
two
customers accounted for
100%
of product sales for the
nine months ended
September 30, 2016
.
100%
product sales for the
three and nine
months ended
September 30, 2015
was with a third customer.
NOTE 5. INVESTMENTS
The following tables summarize the Company’s available-for-sale investments at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVAILABLE-FOR-SALE INVESTMENTS
|
September 30, 2016
|
(in thousands)
|
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair Value
|
Certificates of deposit
|
$
|
7,011
|
|
$
|
—
|
|
$
|
—
|
|
$
|
7,011
|
|
US Treasury securities
|
8,569
|
|
11
|
|
—
|
|
8,580
|
|
US Agency securities
|
4,510
|
|
—
|
|
(3
|
)
|
4,507
|
|
Asset-backed securities
|
6,554
|
|
12
|
|
—
|
|
6,566
|
|
Corporate notes and bonds
|
34,780
|
|
8
|
|
(30
|
)
|
34,758
|
|
Total
|
$
|
61,424
|
|
$
|
31
|
|
$
|
(33
|
)
|
$
|
61,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVAILABLE-FOR-SALE INVESTMENTS
|
December 31, 2015
|
(in thousands)
|
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair Value
|
Asset-backed securities
|
$
|
2,510
|
|
$
|
—
|
|
$
|
(3
|
)
|
$
|
2,507
|
|
Corporate notes and bonds
|
9,341
|
|
1
|
|
(10
|
)
|
9,332
|
|
Total
|
$
|
11,851
|
|
$
|
1
|
|
$
|
(13
|
)
|
$
|
11,839
|
|
The following table summarizes the maturities of the Company’s available-for-sale securities at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVAILABLE-FOR-SALE INVESTMENT MATURITIES
|
(in thousands)
|
|
September 30, 2016
|
December 31, 2015
|
|
Amortized
Cost
|
Fair Value
|
Amortized
Cost
|
Fair Value
|
Due in less than 1 year
|
$
|
41,018
|
|
$
|
41,019
|
|
$
|
11,851
|
|
$
|
11,839
|
|
Due in 1-5 years
|
20,406
|
|
20,403
|
|
—
|
|
—
|
|
Total
|
$
|
61,424
|
|
$
|
61,422
|
|
$
|
11,851
|
|
$
|
11,839
|
|
Proceeds from sales of marketable securities (including principal paydowns), for the
three months ended
September 30, 2016
and
2015
were
$7,716,000
and
$0
, respectively, and for the
nine months ended
September 30, 2016
and
2015
were
$8,716,000
and
$141,000
, respectively. The Company determines gains and losses of marketable securities based on specific identification of the securities sold. There were
$6,000
realized gains from sales of marketable securities for the
three and nine
months ended
September 30, 2016
, and
no
gross realized gains or losses from sales of marketable securities for the
three and nine
months ended
September 30, 2015
. The gross proceeds associated with the realized gains for the
three and nine
months ended
September 30, 2016
were
$7,204,000
. The balance of unrealized gains reclassified out of accumulated other comprehensive income for the
three and nine
months ended
September 30, 2016
was
$16,000
.
No
balances were reclassified out of accumulated other comprehensive income for the
three and nine
months ended
September 30, 2015
.
No other-than-temporary impairments are recorded as no material investment had a fair value that remained less than its cost for more than twelve months as of
September 30, 2016
and there have been no other indicators of impairment. The Company does not intend to sell investments and it is more likely than not that we will not be required to sell investments before recovering the amortized cost.
Additional information regarding the fair value of our financial instruments is included in
Note 3, Fair Value of Financial Instruments
.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consisted of the following at
September 30, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT
|
(in thousands)
|
|
September 30,
|
December 31,
|
|
2016
|
2015
|
Computer equipment
|
$
|
2,303
|
|
$
|
1,877
|
|
Technical equipment
|
2,358
|
|
1,806
|
|
Facilities
|
3,528
|
|
1,772
|
|
Capital projects in progress
|
980
|
|
2,183
|
|
Total property and equipment
|
$
|
9,169
|
|
$
|
7,638
|
|
Accumulated depreciation - other
|
(4,367
|
)
|
(2,622
|
)
|
Net property and equipment
|
$
|
4,802
|
|
$
|
5,016
|
|
Depreciation expense (which includes amortization of capital lease assets) for the
three months ended
September 30, 2016
and
2015
was
$598,000
and
$465,000
, respectively, and for the
nine months ended
September 30, 2016
and
2015
was
$1,745,000
and
$1,194,000
, respectively.
NOTE 7. LICENSE AGREEMENTS AND GRANTS
Defense Medical Research and Development Program
In May 2012, the Company and Denver Health were notified that the Defense Medical Research and
Development Program (“DMRDP”) recommended
$2.0 million
of funding for a proposed
35
-month project. The joint proposal became the sole recipient under the Military Infectious Diseases Applied Research Award program for rapid detection of serious antibiotic-resistant infections. The project will apply the Accelerate Pheno™ system to wound infections and other serious infections secondary to trauma. The Company has invoiced a cumulative total of
$612,000
under this grant which is recorded as an offset to research and development expenses. The amounts invoiced for the
three months ended
September 30, 2016
and
2015
were
$10,000
and
$43,000
, respectively, and for the
nine months ended
September 30, 2016
and
2015
was
$54,000
were
$179,000
, respectively. The period of performance for this grant was complete as of September 30, 2016.
National Institute of Health Grant
In February 2015, the National Institute of Health awarded Denver Health and the Company a
five
year,
$5.0 million
grant to develop a fast and reliable identification and categorical susceptibility test carbepenem-resistant Enterobacteriaceae directly from whole blood. The Company completed the first subaward agreement with Denver Health for services provided as part of this grant on January 31, 2016. A second subward was obtained which continued the period of performance through January 31, 2017. The cumulative award amount under these subawards is
$818,000
. The amounts invoiced for the
three months ended
September 30, 2016
and
2015
were
$8,000
and
$467,000
, respectively, and for the
nine months ended
September 30, 2016
and
2015
were
$67,000
and
$467,000
, respectively. Amounts invoiced under this grant are recorded as an offset to research and development expenses.
Arizona Commerce Authority
In August 2012, the Company entered into a Grant Agreement (the “Grant Agreement”) with the Arizona Commerce Authority, an agency of the State of Arizona (the “Authority”), pursuant to which the Authority provided certain state and county sponsored incentives for the Company to relocate its corporate headquarters to, and expand its business within, the State of Arizona (the “Project”). Pursuant to the Grant Agreement, the Authority agreed to provide a total grant in the amount of
$1.0 million
(the “Grant”) for the use by the Company in the advancement of the Project. The Grant is payable out of an escrow account in
four
installments, upon the achievement of the following milestones:
|
|
•
|
Milestone 1 – Relocation of Company’s operations and corporate headquarters to Arizona and creation of
15
Qualified Jobs (as defined below).
|
|
|
•
|
Milestone 2 – Creation of
30
Qualified Jobs (including Qualified Jobs under Milestone 1).
|
|
|
•
|
Milestone 3 – Creation of
40
Qualified Jobs (including Qualified Jobs under Milestones 1 and 2).
|
|
|
•
|
Milestone 4 – Creation of
65
Qualified Jobs (including Qualified Jobs under Milestones 1, 2 and 3) and capital investment of at least
$4.5 million
.
|
For purposes of the Grant Agreement, a “Qualified Job” is a job that is permanent, full-time, new to Arizona, and for which the Company pays average (across all Qualified Jobs identified by the Company in its discretion) annual wages of at least
$63,000
and offers health insurance benefits and pays at least
65%
of the premiums associated with such benefits. The amount of each installment payment will be determined in accordance with a formula specified in the Grant Agreement. The Grant Agreement also contains other customary provisions, including representations, warranties and covenants of both parties. As of
September 30, 2016
, the Company has collected all of the
$1.0 million
in milestones. The full amount is recorded in long-term deferred income until the economic development provisions of the grant have been satisfied in full, as there are “claw-back” provisions which would require repayment of certain amounts received if employment levels are not sustained during the term of the arrangement. Once the “claw-back” provisions expire in January 2018, we will recognize the grant as an offset to expense. Further details are included in
Note 8, Deferred Revenue and Income
.
Arizona R&D Refundable Tax Credit Program
The Company has applied for and met the program requirements to receive a “Certificate of Qualification” from the Arizona Commerce Authority (“Authority”), which allows the Company to be eligible for a partial refund of research and development investments ("Arizona R&D Refundable Tax Credit Program"). The amounts incurred under this program are recorded as an offset to research and development expenses, and for the
nine months ended
September 30, 2016
and
2015
were
$1.2 million
and
$647,000
, respectively, and
no
amounts were incurred for the
three months ended
September 30, 2016
and
2015
. The refund for the 2014 and 2015 tax years is collected. If the amount received for this program is later determined to be incorrect or invalid, the excess may need to be repaid.
NOTE 8. DEFERRED REVENUE AND INCOME
Deferred revenue consists of amounts received for products or services not yet delivered or earned. Deferred income consists of amounts received for commitments not yet fulfilled. If we anticipate that the revenue or income will not be earned within the following twelve months, the amount is reported as long-term deferred income. A summary of the balances as of
September 30, 2016
and
December 31, 2015
follows:
|
|
|
|
|
|
|
|
Deferred Revenue and Income
|
(in thousands)
|
|
September 30,
|
December 31,
|
|
2016
|
2015
|
Fisher agreement
|
$
|
—
|
|
$
|
13
|
|
Products not yet delivered
|
44
|
|
114
|
|
Total current deferred revenue and income
|
$
|
44
|
|
$
|
127
|
|
|
|
|
|
|
Arizona Commerce Authority grant
|
$
|
1,000
|
|
$
|
1,000
|
|
Total long-term deferred income
|
$
|
1,000
|
|
$
|
1,000
|
|
We have received
$1.0 million
in milestone payments from the Arizona Commerce Authority under the Grant Agreement described in
Note 7, License Agreements and Grants
. As of
September 30, 2016
, no such payments have been recognized in income, and we do not anticipate recognizing such payments as income until the “claw-back” provisions under the Grant Agreement expire in January 2018.
NOTE 9. STOCK PURCHASE
In April 2012, we entered into a Securities Purchase Agreement with Abeja Ventures, LLC pursuant to which the Company agreed, among other things, to issue a warrant to purchase shares of the Company's common stock. Further details of this agreement are included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2015
, as filed with the SEC on March 9, 2016. As of
December 31, 2015
there were
571,160
shares unexercised. During the
three and nine
months ended
September 30, 2016
, warrants to purchase
143,344
shares were exercised at an exercise price of
$2.00
per share, leaving
427,816
shares unexercised at
September 30, 2016
. Proceeds from the exercise of such warrants totaling
$287,000
are recorded as common stock and contributed capital in the Condensed Consolidated Balance Sheet included in Part I,
Item 1. Financial Statements
of this report.
NOTE 10. EARNINGS PER SHARE
The financial statements show basic and diluted loss per share.
The Company’s net loss for the periods presented caused the inclusion of all outstanding warrants, restricted stocks and options to purchase our common stock to be antidilutive. As of
September 30, 2016
, and
December 31, 2015
, there were common stock options, restricted stock units and warrants exercisable for
7,439,375
and
6,778,580
shares of common stock, respectively, which were not included in diluted loss per share as the effect was antidilutive.
NOTE 11. EMPLOYEE AND CONSULTANT EQUITY-BASED COMPENSATION
The following table summarizes option activity under all plans during the
nine
-month period ending
September 30, 2016
:
|
|
|
|
|
|
Stock Option Activity
|
|
Number of Shares
|
Weighted Average Exercise Price per Share
|
Options outstanding January 1, 2016
|
6,167,170
|
|
6.91
|
|
Granted
|
998,600
|
|
13.82
|
|
Forfeited
|
(125,008
|
)
|
19.90
|
|
Exercised
|
(66,764
|
)
|
8.64
|
|
Expired
|
(2,689
|
)
|
15.85
|
|
Options Outstanding September 30, 2016
|
6,971,309
|
|
7.64
|
|
The table below summarizes the resulting weighted average inputs used to calculate the estimated fair value of options awarded for during the periods shown below:
|
|
|
|
Black-Scholes Assumptions for Options Granted
|
|
Three Months Ended
|
|
September 30, 2016
|
September 30, 2015
|
Expected term (in years)
|
6.46
|
6.37
|
Volatility
|
89%
|
91%
|
Expected dividends
|
—
|
—
|
Risk free interest rates
|
1.30%
|
1.79%
|
Weighted average fair value
|
$15.40
|
$15.94
|
The following table shows summary information for outstanding options, options that are exercisable (vested) and outstanding options that are either vested or expected to vest as of
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
Stock Option Supplemental Information
|
|
Options
Outstanding
|
Options
Exercisable
|
Options Vested and Expected to Vest
|
Number of options
|
6,971,309
|
|
4,451,559
|
|
6,837,977
|
|
Weighted average remaining contractual term (in years)
|
6.84
|
|
6.14
|
|
6.80
|
|
Weighted average exercise price
|
$
|
7.64
|
|
$
|
4.94
|
|
$
|
7.50
|
|
Weighted average fair value
|
$
|
5.90
|
|
$
|
3.72
|
|
$
|
5.79
|
|
Aggregate intrinsic value (in thousands)
|
$
|
136,748
|
|
$
|
99,339
|
|
$
|
135,135
|
|
The following table summarizes restricted stock unit activity during the
nine
-month period ending
September 30, 2016
:
|
|
|
|
|
|
Restricted Stock Unit (RSU) Activity
|
|
Number of Shares
|
Weighted Average Grant Date Fair Value per Share
|
RSUs Outstanding January 1, 2016
|
40,250
|
|
20.91
|
|
Granted
|
—
|
|
—
|
|
Forfeited
|
—
|
|
—
|
|
Vested/released
|
—
|
|
—
|
|
RSUs outstanding September 30, 2016
|
40,250
|
|
20.91
|
|
The expense recognized on Company’s Statements of Operations and Comprehensive Loss related to options is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-Based Compensation Expenses
(in thousands)
|
|
Three Months Ended
|
Six Months Ended
|
|
9/30/2016
|
9/30/2015
|
9/30/2016
|
9/30/2015
|
Research and development
|
$
|
504
|
|
$
|
406
|
|
$
|
1,168
|
|
$
|
1,842
|
|
Sales, general and administrative
|
2,166
|
|
1,404
|
|
5,423
|
|
4,153
|
|
Equity-based compensation expense
|
$
|
2,670
|
|
$
|
1,810
|
|
$
|
6,591
|
|
$
|
5,995
|
|
As of
September 30, 2016
, unrecognized equity-based compensation cost related to unvested stock options and unvested restricted stock units was
$12.0 million
and $
409,000
respectively. This is expected to be recognized over the years
2016
through
2021
.
NOTE 12. COMMITMENTS
Leases
The Company has entered into lease agreements, lease amendments, and lease extensions ("Lease Agreements") for office, laboratory and manufacturing space located in Tucson, Arizona and Europe, the last of which expires in 2018. Total rent expense, including common area charges was
$286,000
and
$208,000
for the
three months ended
September 30, 2016
and
2015
, respectively, and for the
nine months ended
September 30, 2016
and
2015
was
$826,000
and
$490,000
, respectively. Future minimum lease payments under operating lease agreements are as follows:
|
|
|
|
|
Operating Lease Obligations
(in thousands)
|
Year ending December 31:
|
|
2016
|
$
|
249
|
|
2017
|
998
|
|
2018
|
79
|
|
2019
|
—
|
|
Thereafter
|
—
|
|
Total operating lease obligations
|
$
|
1,326
|
|
Clinical Trial Agreements
The Company has entered into master agreements with clinical trial sites in which we typically pay a set amount for start-up costs and then pay for work performed. These agreements typically indemnify the clinical trial sites from any and all losses arising from third party claims as a result of the Company's negligence, willful misconduct or misrepresentation. The Company incurred clinical trial expense of
$354,000
and
$665,000
for the
three months ended
September 30, 2016
and
2015
, respectively, and
$1,778,000
and
$1,023,000
for the
nine months ended
September 30, 2016
and
2015
, respectively. The expense incurred as part of the clinical trial is included in research and development on the condensed consolidated statements of operations and comprehensive loss.
Legal Matters
On March 19, 2015, a putative securities class action lawsuit was filed against Accelerate Diagnostics, Inc., Lawrence Mehren, and Steve Reichling, Rapp v. Accelerate Diagnostics, Inc., et al., U.S. District Court, District of Arizona, 2:2015-cv-00504. The complaint alleges that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and SEC Rule 10b-5, by making false or misleading statements about our Accelerate Pheno™ system, formerly called the BACcel System. Plaintiff purports to bring the action on behalf of a class of persons who purchased or otherwise acquired our stock between March 7, 2014 and February 17, 2015. On June 9, 2015, Julia Chang was appointed Lead Plaintiff of the purported class. On June 23, 2015, Plaintiff filed an amended complaint alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b- 5, by making false or misleading statements or omissions about our ID/AST System and by allegedly employing schemes to defraud. Plaintiff sought certification of the action as a class action, compensatory damages for the class in an unspecified amount, legal fees and costs, and such other relief as the court may order. Defendants moved to dismiss the amended complaint on July 21, 2015. The Court granted the motion and dismissed the case with prejudice on January 28, 2016. On February 26, 2016, Plaintiff filed a notice of appeal with the United States Court of Appeals for the Ninth Circuit, which challenges the dismissal of the amended complaint. Chang v. Accelerate Diagnostics, Inc., et al., No. 2:15-CV-00504-SPL (9th Cir. filed Feb. 26, 2016). The appeal has been fully briefed and is pending.
NOTE 13. SEGMENTS
The Company operates as
one
operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker, who is the chief executive officer, in deciding how to allocate resources and assessing performance. The Company’s business operates in
one
operating segment because the Company’s chief operating decision maker evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis. Since the Company operates in
one
operating segment, all required financial segment information can be found in the consolidated financial statements.
NOTE 14. RELATED PARTY TRANSACTIONS
In
June 2016
, the Company recorded a net amount of
$866,000
related to the recovery of short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized these related party proceeds as an increase to contributed capital on the condensed consolidated balance sheet.