NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and basis of presentation
Organization
GenMark Diagnostics, Inc., the Company or GenMark, was formed by Osmetech plc, or Osmetech, as a Delaware corporation in February 2010, and had no operations prior to its initial public offering, or the IPO, which was completed in June 2010. Immediately prior to the closing of the IPO, GenMark acquired all of the outstanding ordinary shares of Osmetech in a reorganization, accounted for in a manner similar to a pooling-of-interests, under the applicable laws of the United Kingdom. As a result of the reorganization, all of the issued ordinary shares in Osmetech were cancelled in consideration of (i) the issuance of common stock of GenMark to the former shareholders of Osmetech and (ii) the issuance of new shares in Osmetech to GenMark. Following the reorganization, Osmetech became a subsidiary controlled by GenMark, and the former shareholders of Osmetech received shares of GenMark. Any historical discussion of GenMark relates to Osmetech and its consolidated subsidiaries prior to the reorganization. In September 2012, GenMark placed Osmetech into liquidation to simplify its corporate structure. The liquidation of Osmetech was completed in the fourth quarter of 2013.
Segment Reporting
The Company currently 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.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes thereto. The Company’s significant estimates included in the preparation of the financial statements are related to accounts receivable, inventories, property and equipment, intangible assets, employee related compensation accruals, warranty liabilities, tax valuation accounts and stock-based compensation. Actual results could differ from those estimates.
Basis of Presentation
The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses from operations since its inception and has an accumulated deficit of
$355,270,000
at
December 31, 2016
. Management expects operating losses to continue through the foreseeable future. The Company's ability to transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support its cost structure through expanding its product offerings and consequently increasing its product revenues. Cash, cash equivalents, restricted cash, and investments at
December 31, 2016
totaled
$41,566,000
. The Company has prepared cash flow forecasts which indicate, based on the Company’s current cash resources available, that the Company will have sufficient resources to fund its business for at least the next 12 months from the date of this filing.
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and applicable regulations of the Securities and Exchange Commission, or the SEC.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
2. Summary of Significant Accounting Policies and Significant Accounts
Cash and Cash Equivalents and Marketable Securities
Cash and cash equivalents consist of cash on deposit with banks, money market instruments and certificates of deposit with original maturities of
three months
or less at the date of purchase. Marketable securities consist of certificates of deposits that mature in greater than
three months
. Marketable securities are accounted for as "available-for-sale" with the carrying amounts reported in the balance sheets stated at cost, which approximates their fair market value, with unrealized gains and losses, if any, reported as a separate component of stockholders' equity and included in comprehensive loss.
Restricted Cash
Restricted cash represents amounts designated for uses other than current operations and includes
$758,000
at
December 31, 2016
held as security for the Company’s letter of credit with Banc of California.
Fair Value of Financial Instruments
The Company uses a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value:
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•
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Level 1 — Quoted prices in active markets for identical assets or liabilities.
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•
|
Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
•
|
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.
|
The carrying amounts of financial instruments such as accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate the related fair values due to the short-term maturities of these instruments.
Receivables
Accounts receivable consist of amounts due to the Company for sales to customers and are recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts is determined based on an assessment of the collectability of specific customer accounts, the aging of accounts receivable, and a reserve for unknown items based upon the Company’s historical experience.
The allowance for doubtful accounts as of
December 31, 2016
, is as follows (in thousands):
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|
|
|
|
|
Allowance for doubtful accounts
|
Balance December 31, 2014
|
$
|
2,702
|
|
Provision for doubtful accounts
|
25
|
|
Balance December 31, 2015
|
$
|
2,727
|
|
Provision for doubtful accounts
|
13
|
|
Balance December 31, 2016
|
$
|
2,740
|
|
The Company has included
$2,702,000
in the allowance for doubtful accounts as of
December 31, 2016
and 2015 for past due amounts from its former customer, Natural Molecular Testing Corporation.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net realizable value and include direct labor, materials, and manufacturing overhead. The Company periodically reviews inventory for evidence of slow-moving or obsolete parts, and writes inventory down to net realizable value, as needed. This write-down is based on management’s review of inventories on hand, compared to estimated future usage and sales, shelf-life assumptions, and assumptions about the likelihood of obsolescence. If actual market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Inventory impairment charges establish a new cost basis for inventory and charges are not reversed subsequently to income, even if circumstances later suggest that increased carrying amounts are recoverable.
Property and Equipment-net
Property, equipment and leasehold improvements are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which are:
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|
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Machinery and laboratory equipment
|
3 – 5 years
|
Instruments
|
4 – 5 years
|
Office equipment
|
3 – 7 years
|
Leasehold improvements
|
over the shorter of the remaining life of the lease or the useful economic life of the asset
|
Property and equipment includes diagnostic instruments used for sales demonstrations or placed with customers under several types of arrangements, including performance evaluation programs, or PEPs, and reagent rental agreements. PEPs are placed with customers for evaluation periods of up to
three months
and the Company retains title to the instruments under these arrangements. Maintenance and repair costs are expensed as incurred.
Intangible Assets
Intangible assets are comprised of licenses or sublicenses to technology covered by patents owned by third parties, and are amortized on a straight-line basis over the expected useful lives of these assets, which is generally
10
years. Amortization of licenses typically begins upon the Company obtaining access to the licensed technology and is recorded in cost of revenues for licenses supporting commercialized products. The amortization of licenses to technology supporting products in development is recorded in research and development expenses.
Impairment of Long-Lived Assets
The Company assesses the recoverability of long-lived assets, including intangible assets, by periodically evaluating the carrying value whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If impairment is indicated, the Company writes down the carrying value of the asset to its estimated fair value. This fair value is primarily determined based on estimated discounted cash flows. The Company did not recognize any impairment charges during the years ended December 31, 2016 and 2015.
Revenue Recognition
The Company recognizes revenue from product sales and contract arrangements, net of discounts and sales related taxes. The Company recognizes revenue from product sales when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured.
The Company offers customers the choice to either purchase a system outright or to receive a system free of charge in exchange for an annual minimum purchase commitment for diagnostic test cartridges. When a system is sold, the Company generally recognizes revenue upon shipment of the unit, however, if the end user already has the instrument being purchased installed at its location, revenue is recognized when the revenue recognition terms other than delivery have been satisfied. When a system is placed free of charge under a “reagent rental” agreement, the Company retains title to the equipment and it remains capitalized on the balance sheet under property and equipment. Under reagent rental agreements, the Company’s customers pay an additional system rental fee for each test cartridge purchased which varies based on the monthly volume of test cartridges purchased. The system rental fee and diagnostic test cartridges are recognized as contingent rental payments and are included in product revenue in the Company’s consolidated financial statements.
The Company has not had significant product returns and is not contractually obligated to accept returns unless such returns are related to warranty provisions. The Company generally does not accept reagent product returns, mainly due to FDA regulations, and does not offer volume rebates or provide price protection.
The Company enters into PEP agreements pursuant to which an instrument is installed on the premises of a pre-qualified customer for the purpose of allowing the customer to evaluate the instrument’s functionality over an extended trial period. The customer is generally required to purchase a minimum quantity of reagents and, at the end of the evaluation period, must purchase or return the instrument or sign a reagent rental agreement.
Revenues related to royalties received from licenses are recognized evenly over the contractual period to which the license relates. In those cases where the Company bills shipping and handling costs to customers, the amounts billed are included in product revenue.
In 2016 and 2015, Laboratory Corporation of America, Inc. represented
27%
and
17%
, respectively, of the Company's total revenue. In 2014,
no single customer
represented more than 10% of the Company's total revenue.
Product Warranties
The Company generally offers a
one
-year warranty for its instruments sold to customers and up to a
sixty
day warranty for reagents and provides for the estimated cost of the product warranty at the time the system sale is recognized. Factors that affect the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty repairs and the cost per repair. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary.
Product warranty reserve activity for the years ended
December 31, 2016
,
2015
and
2014
is as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Beginning balance
|
$
|
118
|
|
|
$
|
195
|
|
|
$
|
226
|
|
Warranty expenses incurred
|
(421
|
)
|
|
(430
|
)
|
|
(608
|
)
|
Provisions
|
522
|
|
|
353
|
|
|
577
|
|
Ending balance
|
$
|
219
|
|
|
$
|
118
|
|
|
$
|
195
|
|
Research and Development Costs
The Company expenses all research and development costs in the periods in which they are incurred unless there is alternative future use that supports the capitalization of an asset.
Income Taxes
Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. A full valuation allowance has been recorded against the Company’s net deferred tax assets due to the uncertainty surrounding the Company’s ability to utilize these assets in the future. The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. The Company recognizes accrued interest related to uncertain tax positions as a component of income tax expense.
A tax position that is more likely than not to be realized is measured at the largest amount of tax benefit that is greater than
50%
likely of being realized upon settlement with the taxing authority that has full knowledge of all relevant information. Measurement of a tax position that meets the more likely than not threshold considers the amounts and probabilities of the outcomes that could be realized upon settlement using the facts, circumstances and information available at the reporting date.
Stock-Based Compensation
The Company recognizes stock-based compensation expense related to stock options, shares purchased under the Company's ESPP, restricted stock awards, restricted stock units and market-based stock units granted to employees and directors in exchange for services. The compensation expense is based on the fair value of the applicable award utilizing various assumptions regarding the underlying attributes of the award. The stock-based compensation expense is recorded in cost of revenues, sales and marketing, research and development, and/or general and administrative expenses based on the employee's respective function.
The estimated fair value of stock granted, net of forfeitures expected to occur during the vesting period, is amortized as compensation expense that approximates straight-line expense to reflect vesting as it occurs. The stock option expense is derived from the Black-Scholes Option Pricing Model that uses several judgment-based variables to calculate the expense. The market-based stock expense is derived from the Monte Carlo Simulation Valuation. The inputs utilized in the valuation of the stock-based awards include the following factors:
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•
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Expected Term.
Expected term represents the period that the stock-based awards are expected to be outstanding and is determined by using the simplified method.
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•
|
Expected Volatility
. Expected volatility represents the expected volatility in the Company’s stock price over the expected term of the option or market-based award and is determined by review of the Company’s and similar companies’ historical experience.
|
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•
|
Expected Dividend
. The valuation methods required a single expected dividend yield as an input. The Company assumed no dividends as it has never paid dividends and has no current plans to do so.
|
|
|
•
|
Risk-Free Interest Rate.
The risk-free interest rate is based on published U.S. Treasury rates in effect at the time of grant for periods corresponding with the expected term of the option or market-based award.
|
The compensation expense related to the grant of restricted stock awards or units is calculated as the fair market value of the stock on the grant date as further adjusted to reflect expected forfeitures.
Foreign Currency Translation
During 2015, the Company established foreign subsidiaries with currencies other than the U.S. Dollar. The assets and liabilities of the Company's entities outside the U.S. are translated into U.S. Dollars based on the foreign currency exchange rates at the end of each period, while revenues and expenses are translated at weighted average exchange rates during the applicable period. Gains or losses resulting from these foreign currency translations of the Company's assets and liabilities are recorded in accumulated comprehensive loss in the consolidated balance sheets. Foreign currency translation impacts recorded in accumulated other comprehensive loss for the year ended December 31, 2016 and 2015 was
$77,000
and
$36,000
, respectively.
Transactions in foreign currencies were recognized using the rate of exchange prevailing at the date of the transaction. Foreign exchange losses, which are included in the accompanying consolidated statements of operations, totaled
$169,000
,
$91,000
and
$9,000
for the years ended
December 31, 2016
,
2015
and
2014
, respectively, and relate primarily to transactions denominated in Euros.
Net Loss per Common Share
Basic net loss per share is calculated by dividing loss available to stockholders of our common stock (the numerator) by the weighted average number of shares of the Company's common stock outstanding during the period (the denominator). Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted loss per share is calculated in a similar way to basic loss per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the dilutive potential shares had been issued unless the effect would be anti-dilutive.
The calculations of diluted net loss per share for the years ended
December 31, 2016
,
2015
and
2014
did not include the effects of the following stock options or other unvested equity awards which were outstanding as of the end of each year because the inclusion of these securities would have been anti-dilutive (in thousands).
|
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|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Options outstanding to purchase common stock
|
2,570
|
|
|
3,004
|
|
|
2,479
|
|
Other unvested equity awards
|
2,000
|
|
|
1,267
|
|
|
948
|
|
Total
|
4,570
|
|
|
4,271
|
|
|
3,427
|
|
Concentration of Risk
Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investment securities, and accounts receivable. We limit our exposure to credit loss by placing our cash with high credit quality financial institutions. We have established guidelines relative to diversification of our cash and investment securities and their maturities that are intended to secure safety and liquidity. The following table summarizes customers who accounted for 10% or more of net accounts receivable:
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|
December 31,
|
|
2016
|
|
2015
|
Laboratory Corporation of America, Inc.
|
33
|
%
|
|
35
|
%
|
Comprehensive Loss
The Company has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company’s comprehensive loss comprises net losses, unrealized gains and losses on available for sale securities, and foreign currency translation.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board, or the FASB, or other standard setting bodies that the Company adopts as of the specified effective date. The Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
In March 2016, the FASB issued Accounting Standards Update, or ASU, 2016-09, Improvements to Employee Share-Based Payment Accounting. This guidance simplifies how several aspects of share-based payments are accounted for and presented in the financial statements. This guidance is effective for the Company beginning January 1, 2017 and the Company will adopt this ASU in the first quarter of 2017. The Company has excess tax benefits for which a benefit could not be previously recognized of approximately
$1,979,000
. Upon adoption, the balance of the unrecognized excess tax benefits will be reversed with the impact recorded to retained earnings, including any change to the valuation allowance as a result of adoption. Due to the full valuation allowance on the Company's U.S. deferred tax assets, the Company does not expect any impact to the financial statements as a result of this adoption.
In February 2016, the FASB issued ASU 2016-02, Leases. This ASU outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of 2019, with early adoption permitted. The Company is evaluating the effects adoption will have on its consolidated financial statements. The Company expects this adoption will result in a material increase in the assets and liabilities on our consolidated balance sheets and will likely have an immaterial impact on our consolidated statements of comprehensive loss.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, an updated standard on revenue recognition. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported by companies while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The main purpose of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures of revenue, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December l5, 2017, with early adoption permitted but not earlier than the original effective date. Accordingly, the updated standard is effective for the Company in the first quarter of fiscal 2018. The Company is currently evaluating the overall impact this standard will have on our consolidated financial statements, as well as the expected timing and method of adoption. Based on our preliminary assessment, the Company does not anticipate a material impact on its financial statements. The Company is continuing this assessment, which may identify other impacts.
3. Intangible Assets, net
Intangible assets as of
December 31, 2016
and
2015
consisted of the following (in thousands):
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|
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|
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|
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|
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|
December 31, 2016
|
|
December 31, 2015
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
Licensed intellectual property
|
$
|
4,250
|
|
|
$
|
(1,580
|
)
|
|
$
|
2,670
|
|
|
$
|
3,550
|
|
|
$
|
(1,174
|
)
|
|
$
|
2,376
|
|
In March 2012, the Company entered into a license agreement with Caliper Life Sciences Inc., or Caliper, pursuant to which the Company obtained a non-exclusive license under Caliper’s microfluidics patent portfolio. In consideration for the license, the Company agreed to pay Caliper
$400,000
in up-front payments recorded as an intangible asset on the Company’s balance sheet plus certain sales-based milestone payments, as well as a royalty on the sale of certain products. As part of the agreement, the Company obtained an unconditional release from any and all claims based upon any alleged infringement of the licensed patents prior to the effective date of the agreement. The Company met sales-based milestones in March 2013, March 2014 and August 2015 triggering the payment of
$450,000
,
$550,000
, and
$800,000
, respectively, which were made after the fiscal year during which the respective milestone was achieved.
In July 2012, the Company entered into a development collaboration and license agreement with Advanced Liquid Logic, Inc., or ALL, which was acquired by Illumina, Inc. in July 2013. Under the terms of the agreement, the Company established a collaborative program to develop in-vitro diagnostic products incorporating ALL’s proprietary electrowetting technology in conjunction with the Company’s electrochemical detection technology. The Company paid ALL an upfront license payment of
$250,000
and agreed to pay up to
$1,750,000
in potential additional milestone payments. Pursuant to the agreement, as amended, the Company will be obligated to pay to ALL a royalty consisting of a low- to mid-single digit percent of net sales of designated licensed products containing ALL components. The Company met certain milestones in August 2013, June 2014 and September 2016 resulting in the payment of
$200,000
,
$350,000
and
$700,000
, respectively, to ALL.
Intellectual property licenses had a weighted average remaining amortization period of
5.40
years as of
December 31, 2016
. Amortization expense for intangible assets amounted to
$406,000
,
$294,000
and
$227,000
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. Estimated future amortization expense for these licenses is as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
Future Amortization Expense
|
2017
|
$
|
497
|
|
2018
|
497
|
|
2019
|
497
|
|
2020
|
497
|
|
2021
|
497
|
|
Thereafter
|
185
|
|
Total
|
$
|
2,670
|
|
4. Stockholders’ Equity
On June 14, 2016, the Company entered into an Equity Distribution Agreement, or the Distribution Agreement, with Canaccord Genuity Inc., as sales agent, or Canaccord, pursuant to which the Company could, at its discretion, offer and sell, from time to time, through Canaccord shares of its common stock having an aggregate offering price of up to
$30,000,000
. Under the Distribution Agreement, Canaccord could sell shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 under the Securities Act or any other method permitted by law, including in privately negotiated transactions.
The Company began sales under the Distribution Agreement in August 2016 pursuant to an effective shelf registration statement on Form S-3 previously filed with the SEC. During the three months ended September 30, 2016, the Company sold
3.3 million
shares of common stock, at an average per share price of
$9.04
, for aggregate gross proceeds of
$30,000,000
. The Company incurred
$1,143,000
in related transaction costs, comprising commissions paid to Canaccord of
3.0%
of the aggregate gross proceeds from each sale of shares occurring pursuant to the Distribution Agreement, or
$900,000
, and
$243,000
in additional miscellaneous expenses.
5. Stock-Based Compensation
In 2010, the Company adopted the 2010 Equity Incentive Plan, or the 2010 Plan, which provides for the grant of incentive and nonstatutory stock options, restricted stock, stock appreciation rights, restricted stock units, restricted stock bonuses and other stock-based awards. Employee participation in the 2010 Plan is at the discretion of the compensation committee of the board of directors of the Company. All stock options granted under the 2010 Plan are exercisable at a price equal to the closing quoted market price of the Company’s shares on the NASDAQ Global Market on the date of grant and generally vest over a period of between
one
and
four
years.
The Company estimates potential forfeitures of stock-based award grants and adjusts compensation cost recorded accordingly. The estimate of forfeitures is based on historical forfeiture experience and is adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of evaluation and will also impact the amount of stock compensation expense to be recognized in future periods.
Stock options are generally exercisable for a period up to
10 years
after grant and are forfeited if employment is terminated before the options vest. As of
December 31, 2016
, there were
79,455
shares available for future grant of awards under the 2010 Plan.
The following table summarizes stock option activity during the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
Number of
shares
|
|
Weighted
average
exercise price
|
Outstanding at December 31, 2015
|
3,004,011
|
|
|
$
|
9.74
|
|
Granted
|
5,000
|
|
|
$
|
4.70
|
|
Exercised
|
(98,941
|
)
|
|
$
|
7.20
|
|
Forfeitures
|
(340,520
|
)
|
|
$
|
11.96
|
|
Outstanding at December 31, 2016
|
2,569,550
|
|
|
$
|
9.53
|
|
Vested and expected to vest at December 31, 2016
|
2,490,256
|
|
|
$
|
9.45
|
|
Exercisable at December 31, 2016
|
1,937,739
|
|
|
$
|
8.75
|
|
The weighted average fair value of options granted during the years ended
December 31, 2016
,
2015
and
2014
was
$2.27
,
$6.02
and
$7.45
per share, respectively. Options that were exercisable as of
December 31, 2016
had a remaining weighted average contractual term of
5.67
years and an aggregate intrinsic value of
$7,036,000
. As of
December 31, 2016
, there was
$3,323,000
of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of
1.57
years. The intrinsic value of options exercised during the years ended
December 31, 2016
,
2015
and
2014
was
$896,000
,
$938,000
and
$584,000
, respectively. As of
December 31, 2016
, there were
2,569,550
stock options outstanding, which had a remaining weighted average contractual term of
6.20
years and an aggregate intrinsic value of
$7,532,000
.
Valuation of Stock-Based Awards
The assumptions used in the valuation of stock-based awards for the years ended
December 31, 2016
,
2015
and
2014
, are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Expected volatility (%)
|
51
|
%
|
|
49
|
%
|
|
69
|
%
|
Expected life (years)
|
5.90
|
|
|
6.06
|
|
|
6.08
|
|
Risk free rate (%)
|
1.35
|
%
|
|
1.67
|
%
|
|
1.82
|
%
|
Expected dividend yield (%)
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Restricted Stock Awards and Units
In March 2013, the Company transitioned to granting restricted stock units under the 2010 Plan in lieu of granting restricted stock awards. The Company’s restricted stock activity for the year ended
December 31, 2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
|
Restricted Stock Units
|
|
Number
of
shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Number
of
shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Unvested at December 31, 2015
|
32,837
|
|
|
$
|
5.00
|
|
|
934,977
|
|
|
$
|
12.66
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
1,580,273
|
|
|
$
|
5.80
|
|
Vested
|
(32,369
|
)
|
|
$
|
4.91
|
|
|
(444,365
|
)
|
|
$
|
11.79
|
|
Forfeitures
|
(312
|
)
|
|
$
|
11.19
|
|
|
(304,762
|
)
|
|
$
|
7.65
|
|
Unvested at December 31, 2016
|
156
|
|
|
$
|
11.19
|
|
|
1,766,123
|
|
|
$
|
7.18
|
|
Restricted stock awards or units may be granted at the discretion of the compensation committee of the board of directors under the 2010 Plan in connection with the hiring or retention of personnel and are subject to certain conditions. Restrictions expire at certain dates after the grant date in accordance with specific provisions in the applicable award agreement.
As of
December 31, 2016
, there was
$1,000
of unrecognized compensation cost related to restricted stock awards, which is expected to be recognized over a weighted average-period of
0.04
years. The total fair value of restricted stock awards that vested during the years ended
December 31, 2016
,
2015
and
2014
was
$190,000
,
$580,000
and
$3,466,000
, respectively.
As of
December 31, 2016
, there was
$8,509,000
of unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted average period of
2.80
years. The total fair value of restricted stock units that vested during the years ended
December 31, 2016
,
2015
and
2014
was
$3,192,000
, $
4,457,000
and
$2,121,000
, respectively.
The Company issued market-based stock units in February 2015 and February 2016, which may result in the recipient receiving shares of stock equal to up to
200%
of the target number of units granted. The vesting and issuance of Company stock depends on the Company's stock performance as compared to the NASDAQ Composite Index over the three-year period following the grant. As of
December 31, 2016
, there was
$781,000
of unrecognized stock-based compensation expense related to these awards, which is expected to be recognized over a weighted average period of
1.75
years. The total fair value of market-stock units that vested during the years ended
December 31, 2016
and
2015
was $
2,433,000
and
$29,000
, respectively. The Company’s market-based stock unit activity for the year ended
December 31, 2016
was as follows:
|
|
|
|
|
|
|
Market-Based Stock Units
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Unvested at December 31, 2015
|
136,730
|
|
|
18.07
|
Units granted
|
335,253
|
|
|
4.94
|
Vested
|
(192,941
|
)
|
|
8.01
|
Cancelled
|
(56,269)
|
|
|
9.81
|
Unvested at December 31, 2016
|
222,773
|
|
|
7.34
|
The fair value of these market-based stock units was estimated on the date of grant using the Monte Carlo Simulation Valuation Model, which estimates the potential outcome of achieving the market condition based on simulated future stock prices, with the following assumptions for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Expected volatility
|
49
|
%
|
|
45
|
%
|
Risk-free interest rate
|
0.90
|
%
|
|
1.10
|
%
|
Expected dividend
|
—
|
%
|
|
—
|
%
|
Weighted average fair value
|
$
|
4.94
|
|
|
$
|
18.07
|
|
The Company granted
43,200
performance-based restricted stock units in March 2014 with a grant date fair value of
$12.30
per share. The vesting and issuance of Company stock pursuant to these awards depends on obtaining regulatory clearance of a designated number of ePlex products within a defined time. Stock-based compensation expense for performance-based awards is recognized when it is probable that the applicable performance criteria will be satisfied. The probability of achieving the relevant performance criteria is evaluated on a quarterly basis. On
December 31, 2014
,
10,800
units were earned and vested with a total fair value of
$147,000
. On each of
December 31, 2016
and
2015
,
10,800
units were forfeited and cancelled as the related performance metrics were not achieved by such dates. As of
December 31, 2016
, there was
$133,000
in unrecognized stock-based compensation expense related to the remaining unvested awards.
Employee Stock Purchase Plan
Following the adoption of the ESPP by the Company’s board of directors in March 2013, the Company's stockholders approved the ESPP in May 2013 at the Company's Annual Meeting of Stockholders. A total of
650,000
shares of the Company’s common stock are reserved for issuance under the ESPP, which permits eligible employees to purchase common stock at a discount through payroll deductions.
The price at which stock is purchased under the ESPP is equal to
85%
of the fair market value of the common stock on the first or the last day of the offering period, whichever is lower. Generally, each offering under the ESPP will be for a period of
six months
as determined by the Company's board of directors; provided that no offering period may exceed
27 months
. Employees may invest up to
10%
of their gross compensation through payroll deductions. In no event may an employee purchase more than
1,500
shares of common stock during any six-month offering period. As of
December 31, 2016
, there were
267,839
shares of common stock available for issuance under the ESPP. The ESPP is a compensatory plan as defined by the authoritative guidance for stock compensation. As a result, stock-based compensation expense related to the ESPP, calculated using the Black-Scholes model at the beginning of each six-month offering period, has been recorded during the year ended
December 31, 2016
.
A summary of ESPP activity for the years ended
December 31, 2016
and
2015
is as follows (in thousands, except share, and per share data):
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
2015
|
Shares issued
|
138,058
|
|
122,245
|
|
Weighted average fair value of shares issued
|
$
|
6.67
|
|
$
|
7.22
|
|
Employee purchases
|
$
|
921
|
|
$
|
884
|
|
Stock-Based Compensation Expense Recognition
Stock-based compensation was recognized in the consolidated statements of comprehensive loss as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Cost of revenue
|
$
|
258
|
|
|
$
|
209
|
|
|
$
|
73
|
|
Sales and marketing
|
2,329
|
|
|
3,050
|
|
|
1,848
|
|
Research and development
|
2,482
|
|
|
2,498
|
|
|
1,194
|
|
General and administrative
|
4,167
|
|
|
4,238
|
|
|
2,681
|
|
Stock-based compensation expense
|
$
|
9,236
|
|
|
$
|
9,995
|
|
|
$
|
5,796
|
|
No
stock-based compensation was capitalized during the periods presented, and there was
no
unrecognized tax benefit related to stock-based compensation for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
6. Income Taxes
The Company's income (loss) before provision (benefit) for income taxes for the years ended December 31, 2016, 2015, and 2014, respectively, was generated in the following jurisdictions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Domestic
|
$
|
(50,651
|
)
|
|
$
|
(42,221
|
)
|
|
$
|
(37,766
|
)
|
Foreign
|
150
|
|
|
64
|
|
|
(1,070
|
)
|
Worldwide Income (Loss)
|
$
|
(50,501
|
)
|
|
$
|
(42,157
|
)
|
|
$
|
(38,836
|
)
|
The components of income tax expense (benefit) were as follows for the years ended
December 31, 2016
,
2015
, and
2014
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Current expense:
|
|
|
|
|
|
U.S. federal
|
$
|
(10
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
31
|
|
|
25
|
|
|
(573
|
)
|
Foreign (non-U.S. entities)
|
70
|
|
|
20
|
|
|
—
|
|
Total current expense (benefit)
|
$
|
91
|
|
|
$
|
45
|
|
|
$
|
(573
|
)
|
Deferred expense (benefit):
|
|
|
|
|
|
U.S. Federal
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
1
|
|
|
—
|
|
|
—
|
|
Total deferred expense (benefit)
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The components of net deferred income taxes consisted of the following at
December 31, 2016
and
2015
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
Deferred income tax assets:
|
|
|
|
NOL and credit carryforwards
|
$
|
74,375
|
|
|
$
|
59,907
|
|
Compensation accruals
|
4,660
|
|
|
3,952
|
|
Accruals and reserves
|
3,437
|
|
|
2,201
|
|
State tax provision
|
8
|
|
|
8
|
|
Inventory adjustments
|
996
|
|
|
559
|
|
Intangible assets
|
645
|
|
|
361
|
|
Other
|
144
|
|
|
5
|
|
Subtotal: deferred tax assets
|
84,265
|
|
|
66,993
|
|
Valuation allowance
|
(82,481
|
)
|
|
(66,211
|
)
|
Total deferred tax assets
|
1,784
|
|
|
782
|
|
Deferred income tax liabilities:
|
|
|
|
Depreciation
|
(1,784
|
)
|
|
(782
|
)
|
Subtotal: deferred tax liabilities
|
(1,784
|
)
|
|
(782
|
)
|
Net deferred tax assets
|
$
|
—
|
|
|
$
|
—
|
|
A reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate to the loss from operations is summarized for the years ended
December 31, 2016
,
2015
, and
2014
, respectively, as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
U.S. Federal statutory income tax rate
|
34.0
|
%
|
|
34.0
|
%
|
|
34.0
|
%
|
Permanent differences
|
(0.3
|
)%
|
|
(0.1
|
)%
|
|
(0.3
|
)%
|
State taxes
|
2.3
|
%
|
|
2.4
|
%
|
|
2.6
|
%
|
Executive compensation limitation
|
(0.1
|
)%
|
|
(0.8
|
)%
|
|
(0.7
|
)%
|
Stock-based compensation
|
(3.5
|
)%
|
|
(1.4
|
)%
|
|
(1.5
|
)%
|
Other
|
(0.4
|
)%
|
|
2.1
|
%
|
|
0.3
|
%
|
Valuation allowance
|
(32.2
|
)%
|
|
(36.9
|
)%
|
|
(32.9
|
)%
|
Total tax provision
|
(0.2
|
)%
|
|
(0.7
|
)%
|
|
1.5
|
%
|
The Company had federal net operating loss (NOL) carryforwards available of approximately
$206,900,000
as of
December 31, 2016
after consideration of limitations under Section 382 of the Internal Revenue Code, or Section 382, as further described below. Additionally, the Company had state NOL carryforwards available of
$165,000,000
as of
December 31, 2016
. These federal and state NOLs may be used to offset future taxable income and will begin to expire in 2025 and 2017, respectively.
Of the
$206,900,000
and
$165,000,000
of federal and state NOL carryforwards at
December 31, 2016
,
$5,402,000
represents excess tax benefits related to equity compensation which will result in an increase in equity if and when such excess benefits are ultimately realized.
The future utilization of the Company’s NOL carryforwards to offset future taxable income may be subject to a substantial annual limitation as a result of changes in ownership by
stockholders that hold 5% or more of the Company’s common stock
. An assessment of such ownership changes under Section 382 was completed through December 31, 2016. As a result of this assessment, the Company determined that it experienced multiple ownership changes through 2016 which will limit the future utilization of NOL carryforwards. The Company has reduced its deferred tax assets related to NOL carryovers that are anticipated to expire unused as a result of ownership changes. These tax attributes have been excluded from deferred tax assets with a corresponding reduction of the valuation allowance with no net effect on income tax expense or the effective tax rate. Additionally, future ownership changes may further impact the utilization of existing NOLs.
The Company has established a full valuation allowance for its deferred tax assets due to uncertainties that preclude it from determining that it is more likely than not that the Company will be able to generate sufficient taxable income to realize
such assets. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three year period ended
December 31, 2016
. Such objective evidence limits the ability to consider other subjective evidence such as the Company's projections for future growth. Based on this evaluation, as of
December 31, 2016
, a valuation allowance of
$82,481,000
has been recorded in order to measure only the portion of the deferred tax asset that more likely than not will be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence, such as estimates of future taxable income during carryforward periods and the Company's projections for growth.
The Company applies the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than
50%
likely of being realized upon ultimate settlement. Income tax positions must meet a more likely than not recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The following table summarizes the changes to unrecognized tax benefits for the years ended
December 31, 2016
,
2015
and
2014
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Beginning balance of unrecognized tax benefits
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
382
|
|
Lapses in the statute of limitations
|
—
|
|
|
—
|
|
|
(382
|
)
|
Ending balance of unrecognized tax benefits
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
At
December 31, 2016
and
December 31, 2015
, the Company had not accrued any interest or penalties related to uncertain tax positions. The Company does not anticipate that there will be a significant change in the amount of unrecognized tax benefits over the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
The Company is subject to taxation in the United States and various state and foreign jurisdictions. The Company's Federal and state returns since inception are subject to examination due to the carryover of net operating losses. As of
December 31, 2016
, the Company’s tax years from 2011 through 2012 are subject to examination by the United Kingdom tax authorities. The statute of limitations for the assessment and collection of income taxes related to other foreign tax returns varies by country. In the foreign countries where the Company has operations, these time periods generally range from three to five years after the year for which the tax return is due or the tax is assessed.
7. Commitments and Contingencies
Leases
The Company has lease agreements for its office, manufacturing, warehousing and laboratory space and for office equipment. Rent and operating expenses charged were
$1,871,000
,
$1,233,000
and
$1,147,000
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively. Pursuant to the Company’s lease agreements, a portion of the monthly rent has been deferred. The balance deferred at
December 31, 2016
and
2015
was
$4,097,000
and
$1,445,000
, respectively.
Annual future minimum obligations for leases as of
December 31, 2016
are as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
Amount
|
2017
|
$
|
1,644
|
|
2018
|
1,792
|
|
2019
|
1,913
|
|
2020
|
1,972
|
|
2021
|
1,372
|
|
Thereafter
|
1,365
|
|
Total minimum lease payments
|
$
|
10,058
|
|
Legal Proceedings
From time to time, the Company is party to litigation and other legal proceedings in the ordinary course, and incidental to the conduct of its business. While the results of any litigation or other legal proceedings are uncertain, the Company does not believe the ultimate resolution of any pending legal matters is likely to have a material effect on its financial position or results of operations.
8. Inventories
Inventory on hand as of
December 31, 2016
and 2015 comprised the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Raw materials
|
$
|
2,171
|
|
|
$
|
1,147
|
|
Work-in-process
|
1,488
|
|
|
693
|
|
Finished goods
|
2,974
|
|
|
1,214
|
|
|
$
|
6,633
|
|
|
$
|
3,054
|
|
9. Property and Equipment, net
Property and equipment comprised the following as of
December 31, 2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Property and equipment—at cost:
|
|
|
|
Plant and machinery
|
$
|
10,145
|
|
|
$
|
7,728
|
|
Instruments
|
9,869
|
|
|
8,195
|
|
Office equipment
|
1,714
|
|
|
1,526
|
|
Leasehold improvements
|
10,100
|
|
|
4,311
|
|
Total property and equipment—at cost
|
31,828
|
|
|
21,760
|
|
Less accumulated depreciation
|
(13,560
|
)
|
|
(10,364
|
)
|
Property and equipment, net
|
$
|
18,268
|
|
|
$
|
11,396
|
|
Depreciation expense was
$3,510,000
,
$3,112,000
and
$2,429,000
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. During the years ended
December 31, 2016
,
2015
and
2014
, the Company disposed of certain assets no longer in use with a net book value of
$76,000
,
$153,000
, and
$102,000
, respectively, recorded to cost of revenue, sales and marketing, research and development, or general and administrative expenses based on the asset's respective use.
10. Loan payable
As of
December 31, 2016
and
2015
, long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Term Loans
|
|
|
|
|
Term Loan A - 6.9% principal
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
Term Loan B - 6.9% principal
|
|
10,000
|
|
|
—
|
|
Final fee obligation
|
|
400
|
|
|
400
|
|
Unamortized issuance costs
|
|
(585
|
)
|
|
(883
|
)
|
Total debt, net
|
|
19,815
|
|
|
9,517
|
|
Current portion of long-term debt
|
|
(7,935
|
)
|
|
373
|
|
Long-term debt
|
|
$
|
11,880
|
|
|
$
|
9,890
|
|
Term Loans
In January 2015, the Company entered into a Loan and Security Agreement, or the LSA, with Solar Capital Partners (as successor-in-interest to General Electric Capital Corporation), and certain other financial institutions party thereto, as lenders, pursuant to which the Company obtained (a) up to
$35,000,000
in a series of term loans and (b) a revolving loan in the maximum amount of
$5,000,000
. Under the terms of the LSA, the Company may, subject to certain conditions, borrow:
•
$10,000,000
on or before March 31, 2015, or Term Loan A;
• an additional
$10,000,000
, or Term Loan B, subject to the Company’s satisfaction of regulatory requirements necessary to CE Mark its ePlex system in Europe by a specified date; and
• an additional
$15,000,000
, or Term Loan C, and together with Term Loan A and Term Loan B, the Term Loans, subject to the Company’s satisfaction of FDA 510(k) market clearance for the sale of the Company’s ePlex system in the United States by a specified date.
The Company borrowed
$10,000,000
on each of March 27, 2015 and June 10, 2016 pursuant to Term Loan A and Term Loan B, respectively. The Term Loans will accrue interest at a rate equal to (
a) the greater of 1.00% or the 3-year treasury rate in effect at the time of funding, plus (b) an applicable margin between 4.95% and 5.90% per annum.
The Company is only required to make interest payments on amounts borrowed pursuant to the Term Loans from the applicable funding date until
March 1, 2017
, or the Interest Only Period. Following the Interest Only Period, monthly installments of principal and interest under the Term Loans will be due until the original principal amount and applicable interest is fully repaid by
January 12, 2019
, or the Maturity Date. Interest expense recognized on the Term Loans for the years ended
December 31, 2016
and
2015
totaled
$1,184,000
and
$611,000
, respectively, for the stated interest and final fee accrual.
In July 2016, the Company entered into an amendment to the LSA pursuant to which the lenders reallocated certain funding commitments under the LSA between the lenders, and the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied.
Under the LSA, the Company is required to comply with certain affirmative and negative covenants, including, without limitation, delivering reports and notices relating to the Company’s financial condition and certain regulatory events and intellectual property matters, as well as limiting the creation of liens, the incurrence of indebtedness, and the making of certain investments, payments and acquisitions, other than as specifically permitted by the LSA. As of
December 31, 2016
, the Company was in compliance with all covenants under the LSA.
Revolving Loan
Pursuant to the LSA, the Company may borrow up to
$5,000,000
under the revolving loan facility. Borrowings under the revolving loan will accrue interest at a rate equal to
(a) the greater of 1.25% per annum or a base rate as determined by a three-month LIBOR-based formula, plus (b) an applicable margin between 2.95% and 3.95%
based on certain criteria as set forth in the LSA. All principal and interest outstanding under the revolving loan is due and payable on the Maturity Date. Following the funding of Term Loan A, the Company is required to pay a commitment fee equal to
0.75%
per annum of the amounts made available but unborrowed under the revolving loan. As of
December 31, 2016
, the Company had not borrowed any amounts pursuant the revolving loan facility. Interest expense recognized for the unused revolving loan facility fee for the years ended
December 31, 2016
and
2015
was
$42,000
and
$34,000
, respectively.
Debt Issuance Costs
As of
December 31, 2016
and December 31, 2015, the Company had
$585,000
and
$883,000
, respectively, of unamortized debt issuance discount, which is offset against borrowings in long-term and short-term debt.
For the twelve months ended
December 31, 2016
and
2015
, amortization of debt issuance costs was
$298,000
and
$208,000
, respectively, which was included in interest expense in the Company's unaudited condensed consolidated statements of comprehensive loss for the periods presented.
Letter of Credit
In September 2012, the Company provided a
$758,000
letter of credit issued by Banc of California to the landlord of its executive office facility in Carlsbad, California. This letter of credit was secured with
$758,000
of restricted cash as of
December 31, 2016
.
11. Employee benefit plan
The Company has a 401(k) tax-deferred savings plan, whereby eligible employees may contribute a percentage of their eligible compensation. The Company may make matching contributions under the 401(k) plan; however, the Company has not made any such contributions to date.
12. Other current liabilities
Other current liabilities as of
December 31, 2016
and
2015
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Accrued royalties
|
$
|
949
|
|
|
$
|
1,608
|
|
Accrued warranties
|
219
|
|
|
118
|
|
Accrued tenant improvements
|
789
|
|
|
—
|
|
Deferred revenue
|
658
|
|
|
267
|
|
Other accrued liabilities
|
1,518
|
|
|
732
|
|
Total
|
$
|
4,133
|
|
|
$
|
2,725
|
|
13. Fair value of financial instruments
The following table presents 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
December 31, 2016
and
2015
, respectively, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Quotes Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total
|
Money market funds (cash equivalents)
|
$
|
556
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
556
|
|
Corporate notes and bonds
|
—
|
|
|
18,821
|
|
|
—
|
|
|
18,821
|
|
U.S. government and agency securities
|
—
|
|
|
3,503
|
|
|
—
|
|
|
3,503
|
|
Commercial paper
|
—
|
|
|
3,283
|
|
|
—
|
|
|
3,283
|
|
|
$
|
556
|
|
|
$
|
25,607
|
|
|
$
|
—
|
|
|
$
|
26,163
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Quotes Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total
|
Money market funds (cash equivalents)
|
$
|
22,128
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,128
|
|
Corporate notes and bonds
|
—
|
|
|
8,483
|
|
|
—
|
|
|
8,483
|
|
U.S. government and agency securities
|
—
|
|
|
799
|
|
|
—
|
|
|
799
|
|
Commercial paper
|
—
|
|
|
798
|
|
|
—
|
|
|
798
|
|
|
$
|
22,128
|
|
|
$
|
10,080
|
|
|
$
|
—
|
|
|
$
|
32,208
|
|
At
December 31, 2016
, the carrying value of the financial instruments measured and classified within Level 1 was based on quoted prices and marked to market. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability.
14. Investments
The following table summarizes the Company’s available-for-sale investments at
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Corporate notes and bonds
|
$
|
18,846
|
|
|
$
|
—
|
|
|
$
|
(25
|
)
|
|
$
|
18,821
|
|
U.S. government and agency securities
|
3,506
|
|
|
—
|
|
|
(3
|
)
|
|
3,503
|
|
Commercial Paper
|
3,283
|
|
|
—
|
|
|
—
|
|
|
3,283
|
|
Total
|
$
|
25,635
|
|
|
$
|
—
|
|
|
$
|
(28
|
)
|
|
$
|
25,607
|
|
During 2013, the Company sold its preferred stock investment in ALL in connection with ALL's acquisition by Illumina, Inc., resulting in a
$1,392,000
realized gain. Additionally, in 2016 and 2015 the Company received an additional
$9,000
and
$223,000
, respectively, related to the release of escrowed proceeds.
The following table summarizes the maturities of the Company’s available-for-sale securities at
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Estimated Fair Value
|
Due in one year or less
|
$
|
25,635
|
|
|
$
|
25,607
|
|
Due after one year through two years
|
—
|
|
|
—
|
|
Total
|
$
|
25,635
|
|
|
$
|
25,607
|
|
15. Quarterly financial data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
(In thousands, except per share data)
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Total revenue
|
$
|
11,064
|
|
|
$
|
12,512
|
|
|
$
|
10,813
|
|
|
$
|
14,885
|
|
Gross profit
|
$
|
6,689
|
|
|
$
|
7,792
|
|
|
$
|
6,451
|
|
|
$
|
8,642
|
|
Loss from operations
|
$
|
(12,708
|
)
|
|
$
|
(12,588
|
)
|
|
$
|
(11,627
|
)
|
|
$
|
(12,058
|
)
|
Net loss
|
$
|
(12,958
|
)
|
|
$
|
(12,907
|
)
|
|
$
|
(12,058
|
)
|
|
$
|
(12,678
|
)
|
Per share data:
|
|
|
|
|
|
|
|
Net loss per common share—basic and diluted
|
$
|
(0.30
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
(In thousands, except per share data)
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Total revenue
|
$
|
10,107
|
|
|
$
|
7,646
|
|
|
$
|
8,472
|
|
|
$
|
13,186
|
|
Gross profit
|
$
|
6,116
|
|
|
$
|
4,360
|
|
|
$
|
5,120
|
|
|
$
|
8,498
|
|
Loss from operations
|
$
|
(10,027
|
)
|
|
$
|
(11,930
|
)
|
|
$
|
(11,117
|
)
|
|
$
|
(8,461
|
)
|
Net loss
|
$
|
(9,869
|
)
|
|
$
|
(12,152
|
)
|
|
$
|
(11,394
|
)
|
|
$
|
(8,782
|
)
|
Per share data:
|
|
|
|
|
|
|
|
Net loss per common share—basic and diluted
|
$
|
(0.24
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.21
|
)
|
16. Subsequent events
The Company has completed an evaluation of all subsequent events through the issuance date of these consolidated financial statements and the following represents subsequent events for disclosure.
On
February 27, 2017
the Company entered into a second amendment to the LSA with Solar Capital Partners and certain other financial institutions party thereto, as lenders, pursuant to which the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied. In addition, the parties agreed to extend the Interest-Only Period in respect of amounts already borrowed under Term Loan A and Term Loan B, and the amount, if any, borrowed pursuant to Term Loan C, until
June 1, 2017
. The parties also agreed that the Company has the option to further extend the Interest-Only Period until
August 1, 2017
, and subsequently to
March 1, 2018
, subject in each case to the satisfaction of certain conditions.