10-Q 1 bngo-10q_20180930.htm 10-Q bngo-10q_20180930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

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

FOR THE TRANSITION PERIOD FROM             TO

Commission file number: 001-38613

 

Bionano Genomics, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

26-1756290

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

9640 Towne Centre Drive, Suite 100,

San Diego, CA

 

 

92121

(Address of Principal Executive Offices)

 

(Zip Code)

 

(858) 888-7600

(Registrant’s Telephone Number, Including Area Code)

 

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

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

 

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

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

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

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

As of November 2, 2018, the registrant had 10,032,687 shares of Common Stock ($0.0001 par value) outstanding.

 

 

 


BIONANO GENOMICS, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

3

 

Item 1. Financial Statements

3

 

Condensed Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and December 31, 2017

3

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (Unaudited)

4

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

5

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (Unaudited)

6

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

 

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

24

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

32

 

Item 4. Controls and Procedures

32

PART II. OTHER INFORMATION

34

 

Item 1. Legal Proceedings

34

 

Item 1A. Risk Factors

34

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

34

 

Item 3. Defaults Upon Senior Securities

34

 

Item 4. Mine Safety Disclosures

34

 

Item 5. Other Information

34

 

Item 6. Exhibits

35

SIGNATURES

37

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIONANO GENOMICS, INC.

Condensed Consolidated Balance Sheets

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,657,038

 

 

$

1,021,897

 

Accounts receivable, net

 

 

4,000,924

 

 

 

3,352,214

 

Inventory

 

 

2,614,812

 

 

 

1,693,742

 

Prepaid expenses and other current assets

 

 

1,347,774

 

 

 

1,071,512

 

Total current assets

 

 

28,620,548

 

 

 

7,139,365

 

Property and equipment, net

 

 

2,049,256

 

 

 

3,005,788

 

Total assets

 

$

30,669,804

 

 

$

10,145,153

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,363,752

 

 

$

2,302,964

 

Accrued expenses

 

 

2,815,290

 

 

 

3,508,894

 

Deferred revenue

 

 

335,604

 

 

 

211,697

 

Preferred stock warrant liability

 

 

-

 

 

 

3,898,944

 

Current portion of long-term debt

 

 

-

 

 

 

6,729,752

 

Total current liabilities

 

 

5,514,646

 

 

 

16,652,251

 

Long-term debt, net of current portion

 

 

9,008,337

 

 

 

-

 

Long-term deferred revenue

 

 

144,602

 

 

 

142,929

 

Other non-current liabilities

 

 

767,197

 

 

 

567,047

 

Total liabilities

 

 

15,434,782

 

 

 

17,362,227

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.0001 par value; no shares and 418,767 shares authorized

   as of September 30, 2018 and December 31, 2017, respectively; no shares and 345,587

   shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

-

 

 

 

61,847

 

Series B convertible preferred stock, $0.0001 par value; no shares and 8,101,042 shares authorized

   as of September 30, 2018 and December 31, 2017, respectively; no shares and 8,058,170

   shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

-

 

 

 

842,845

 

Series B-1 convertible preferred stock, $0.0001 par value; no shares and 7,523,734 shares authorized

   as of September 30, 2018 and December 31, 2017, respectively; no shares and 3,437,950 shares

   issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

-

 

 

 

359,593

 

Series C convertible preferred stock, $0.0001 par value; no shares and 23,357,047 shares authorized

   as of September, 30, 2018 and December 31, 2017, respectively; no shares and 23,357,047 shares

   issues and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

-

 

 

 

5,547,841

 

Series D convertible preferred stock, $0.0001 par value; no shares and 52,835,720 shares authorized

   as of September 30, 2018 and December 31, 2017, respectively; no shares and 20,652,486 shares

   issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

-

 

 

 

4,838,379

 

3


Series D-1 convertible preferred stock, $0.0001 par value; no shares and 125,808,667 shares

   authorized as of September 30, 2018 and December 31, 2017, respectively; no shares and

   66,141,257 shares issued and outstanding as of September 30, 2018 and December 31, 2017,

   respectively

 

 

-

 

 

 

31,359,632

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2018 and December 31, 2017

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value, 200,000,000 and 243,160,120 shares authorized at

   September 30, 2018 and December 31, 2017, respectively; 10,032,687 and 77,257 shares issued and

   outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

1,002

 

 

 

8

 

Additional paid-in capital

 

 

81,584,992

 

 

 

4,038,817

 

Accumulated deficit

 

 

(66,350,972

)

 

 

(54,266,036

)

Total stockholders’ equity (deficit)

 

 

15,235,022

 

 

 

(50,227,211

)

Total liabilities, convertible preferred stock, and stockholders’ equity (deficit)

 

$

30,669,804

 

 

$

10,145,153

 

 

See accompanying notes to the condensed consolidated financial statements

4


BIONANO GENOMICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

2,700,162

 

 

$

2,604,215

 

 

$

7,618,407

 

 

$

6,213,496

 

Other revenue

 

 

128,542

 

 

 

138,841

 

 

 

368,791

 

 

 

446,424

 

Total revenue

 

 

2,828,704

 

 

 

2,743,056

 

 

 

7,987,198

 

 

 

6,659,920

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

3,064,661

 

 

 

1,643,504

 

 

 

5,708,704

 

 

 

4,462,365

 

Cost of other revenue

 

 

3,671

 

 

 

46,719

 

 

 

14,507

 

 

 

71,975

 

Total cost of revenue

 

 

3,068,332

 

 

 

1,690,223

 

 

 

5,723,211

 

 

 

4,534,340

 

Operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,505,137

 

 

 

2,967,073

 

 

 

6,962,696

 

 

 

9,551,687

 

Selling, general and administrative

 

 

3,224,075

 

 

 

3,116,922

 

 

 

9,617,814

 

 

 

10,553,348

 

Total operating expense

 

 

5,729,212

 

 

 

6,083,995

 

 

 

16,580,510

 

 

 

20,105,035

 

Loss from operations

 

 

(5,968,840

)

 

 

(5,031,162

)

 

 

(14,316,523

)

 

 

(17,979,455

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(404,437

)

 

 

(145,308

)

 

 

(1,114,053

)

 

 

(431,403

)

Change in fair value of preferred stock warrants and

   expirations

 

 

1,520,159

 

 

 

154,469

 

 

 

3,991,081

 

 

 

1,108,362

 

Other expense

 

 

(75,957

)

 

 

(68,189

)

 

 

(639,137

)

 

 

(125,324

)

Total other income (expense)

 

 

1,039,765

 

 

 

(59,028

)

 

 

2,237,891

 

 

 

551,635

 

Loss before income taxes

 

 

(4,929,075

)

 

 

(5,090,190

)

 

 

(12,078,632

)

 

 

(17,427,820

)

Benefit (provision) for income taxes

 

 

2,978

 

 

 

4,738

 

 

 

(6,304

)

 

 

(17,620

)

Net loss

 

$

(4,926,097

)

 

$

(5,085,452

)

 

$

(12,084,936

)

 

$

(17,445,440

)

Net loss per share, basic and diluted

 

$

(0.63

)

 

$

(1.74

)

 

$

(1.99

)

 

$

(6.68

)

Weighted-average common shares outstanding basic

   and diluted

 

 

7,778,605

 

 

 

2,920,839

 

 

 

6,079,285

 

 

 

2,609,863

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

5


BIONANO GENOMICS, INC.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

Series A

 

Series B

 

Series B-1

 

Series C

 

Series D

 

Series D-1

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Convertible Preferred

Stock

 

Convertible Preferred

Stock

 

Convertible Preferred

Stock

 

Convertible Preferred

Stock

 

Convertible Preferred

Stock

 

Convertible Preferred

Stock

 

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders'

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Deficit

 

Balance at

   January 1,

   2017

 

345,587

 

$

61,847

 

 

8,058,170

 

$

842,845

 

 

3,437,950

 

$

359,593

 

 

23,357,047

 

$

5,547,841

 

 

20,652,486

 

$

4,838,379

 

 

29,166,671

 

$

13,766,022

 

 

 

 

70,178

 

$

7

 

$

3,641,693

 

$

(30,900,672

)

$

(27,258,972

)

Issuance of

   Series D-1

   convertible

   preferred

   stock, net

   of issuance

   cost of

   $154,191

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

36,974,586

 

 

17,593,610

 

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock option

   exercises

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

7,079

 

 

1

 

 

14,294

 

 

-

 

 

14,295

 

Stock-based

   compensation

   expense

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

-

 

 

-

 

 

382,830

 

 

-

 

 

382,830

 

Net loss

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

-

 

 

-

 

 

-

 

 

(23,365,364

)

 

(23,365,364

)

Balance at

   December 31,

   2017

 

345,587

 

$

61,847

 

 

8,058,170

 

$

842,845

 

 

3,437,950

 

$

359,593

 

 

23,357,047

 

$

5,547,841

 

 

20,652,486

 

$

4,838,379

 

 

66,141,257

 

$

31,359,632

 

 

 

 

77,257

 

$

8

 

$

4,038,817

 

$

(54,266,036

)

$

(50,227,211

)

Stock option

   exercises

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

1,856

 

 

-

 

 

3,499

 

 

-

 

 

3,499

 

IPO Units

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

3,864,000

 

 

386

 

 

19,389,592

 

 

-

 

 

19,389,978

 

Conversion of

   preferred

   stock upon IPO

 

(345,587

)

 

(61,847

)

 

(8,058,170

)

 

(842,845

)

 

(3,437,950

)

 

(359,593

)

 

(23,357,047

)

 

(5,547,841

)

 

(20,652,486

)

 

(4,838,379

)

 

(66,141,257

)

 

(31,359,632

)

 

 

 

2,850,280

 

 

285

 

 

43,009,852

 

 

-

 

 

43,010,137

 

Conversion of

   convertible

   note upon IPO

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

3,239,294

 

 

323

 

 

14,898,004

 

 

-

 

 

14,898,327

 

Conversion of

   preferred stock

   warrants into

   common

   stock warrants

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

-

 

 

-

 

 

84,676

 

 

-

 

 

84,676

 

Stock-based

   compensation

   expense

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

-

 

 

-

 

 

160,551

 

 

-

 

 

160,551

 

Net loss

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

-

 

 

-

 

 

-

 

 

(12,084,936

)

 

(12,084,936

)

Balance at

   September 30,

   2018

 

-

 

$

-

 

 

-

 

$

-

 

 

-

 

$

-

 

 

-

 

$

-

 

 

-

 

$

-

 

 

-

 

$

-

 

 

 

 

10,032,687

 

$

1,002

 

$

81,584,992

 

$

(66,350,972

)

$

15,235,022

 

 

See accompanying notes to the condensed consolidated financial statements

 

 

6


BIONANO GENOMICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

  

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(12,084,936

)

 

$

(17,445,440

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

1,169,801

 

 

 

964,932

 

Change in fair value of preferred stock warrants and expirations

 

 

(3,991,081

)

 

 

(1,108,362

)

Stock-based compensation

 

 

160,551

 

 

 

241,971

 

Provision for bad debt expense

 

 

(262,000

)

 

 

-

 

Inventory write-off

 

 

1,287,000

 

 

 

364,437

 

Accretion of debt discount

 

 

121,984

 

 

 

66,241

 

Loss on debt extinguishment

 

 

342,164

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(386,710

)

 

 

(692,637

)

Inventory

 

 

(2,101,453

)

 

 

(442,849

)

Prepaid expenses and other current assets

 

 

(276,263

)

 

 

241,032

 

Accounts payable

 

 

60,788

 

 

 

320,184

 

Accrued expenses and other liabilities

 

 

106,476

 

 

 

(518,298

)

Net cash used in operating activities

 

 

(15,853,679

)

 

 

(18,008,789

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(319,885

)

 

 

(736,063

)

Net used in investing activities

 

 

(319,885

)

 

 

(736,063

)

Financing activities:

 

 

 

 

 

 

 

 

Repayment of notes payable

 

 

(7,447,571

)

 

 

-

 

Proceeds from issuance of long-term debt, net of offering costs

 

 

9,532,957

 

 

 

-

 

Proceeds from issuance of convertible note, net of offering costs

 

 

14,329,843

 

 

 

-

 

Proceeds from issuance of preferred stock and warrants, net of

   offering costs

 

 

-

 

 

 

16,131,764

 

Proceeds from Initial Public Offering, net of offering costs

 

 

19,389,978

 

 

 

-

 

Proceeds from option exercises

 

 

3,499

 

 

 

1,500

 

Net cash provided by financing activities

 

 

35,808,706

 

 

 

16,133,264

 

Net increase (decrease) in cash and cash equivalents

 

 

19,635,142

 

 

 

(2,611,589

)

Cash and cash equivalents at beginning of period

 

 

1,021,897

 

 

 

5,249,620

 

Cash and cash equivalents at end of period

 

$

20,657,038

 

 

$

2,633,904

 

 

 

 

 

 

 

 

 

 

Supplemental schedule on non-cash transactions:

 

 

 

 

 

 

 

 

Conversion of Convertible Note into Common Stock

 

$

14,898,326

 

 

 

-

 

Conversion of Preferred Stock warrants into Common Stock and Common Stock Warrants

 

$

84,676

 

 

 

-

 

Transfer of instruments to property and equipment from inventory

 

$

106,617

 

 

 

-

 

Fair value of warrants issued with debt classified as a liability

 

$

176,813

 

 

 

-

 

Final payment fee due in connection with the repayment of debt classified

   within other long-term liabilities

 

$

400,000

 

 

 

-

 

 

See accompanying notes to the condensed consolidated financial statements

7


BIONANO GENOMICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Organization and Basis of Presentation

Description of Business

Bionano Genomics, Inc. (the “Company”) formed in January 2003 as BioNanomatrix LLC, a Delaware limited liability company. In August 2007, the Company became BioNanomatrix Inc., a Delaware corporation. In October 2011, the Company changed its name to BioNano Genomics, Inc., and in July 2018, it changed its name to Bionano Genomics, Inc.

The Company is a life sciences instrumentation company in the genome analysis space. The Company currently develops and markets the Saphyr system, a platform for ultra-sensitive and ultra-specific structural variation detection that enables researchers and clinicians to accelerate the search for new diagnostics and therapeutic targets and to streamline the study of changes in chromosomes, which is known as cytogenetics.

Initial Public Offering

In August 2018, the Company completed its initial public offering (the “IPO”), in which it sold an aggregate of 3,864,000 units (each unit consisting of one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock) at a public offering price of $6.125 per unit, which included the sale of 504,000 units pursuant to the exercise of the underwriters’ over-allotment option.   The Company received net cash proceeds of $19.4 million, after deducting underwriters' discounts and commissions of $2.2 million and other offering expenses of $2.1 million.

In addition, each of the following occurred in connection with the completion of the IPO in August 2018:

 

The conversion of all outstanding shares of convertible preferred stock into an aggregate 2,850,280 shares of common stock.

 

The automatic adjustment of preferred stock warrants into common stock warrants; the entire $84,676 balance of preferred stock warrant liability was reclassified as additional paid-in-capital.  In addition, the Company issued warrants to the IPO underwriters to purchase up to 115,920 shares of its common stock at fair value of $0.4 million.  

 

The conversion of an aggregate of $14.9 million of outstanding convertible promissory notes and accrued interest into an aggregate of 3,239,294 shares of common stock.

Each unit offered in the IPO consisted of one share of common stock and one warrant to purchase one share common stock. Each warrant to purchase common stock contained in the unit entitled the holder to purchase one share of common stock at an initial exercise price of $6.125 per share (100% of the offering price per unit), subject to adjustment. The warrants and shares of common stock traded together as units for 30 days following the IPO.  After 30 days of trading, the units automatically separated and the common stock and warrants began trading separately.  

The units, common stock, and warrants are listed on the Nasdaq Stock Market LLC under the symbols “BNGOU,” “BNGO” and “BNGOW,” respectively.

Reverse Stock Splits

  On July 16, 2018, the Company effected a one-for-21.4 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s redeemable convertible preferred stock, and on August 15, 2018, the Company effected an additional one-for-two reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s redeemable convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect these reverse stock splits and adjustments of the preferred stock conversion ratios.

 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, certain information and

8


note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto as of and for the year ended December 31, 2017 included in the Company’s final prospectus dated August 21, 2018 included in its Registration Statement on Form S-1 (File No. 333-225970), as filed with the Securities and Exchange Commission pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.

The unaudited interim condensed consolidated financial statements included in this report have been prepared on the same basis as the Company's audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations, cash flows, and statement of convertible preferred stock and stockholders' deficit for the periods presented. The condensed consolidated balance sheet as of December 31, 2017, presented herein, has been derived from the Company’s audited consolidated financial statements as of and for the year-ended December 31, 2017.  The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expense, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

In the accompanying condensed consolidated statements of operations, subtotal categories for cost of revenue and operating expenses have been inserted.

 

2.  Summary of Significant Accounting Policies

Accounts Receivable

The Company extends credit to its customers in the normal course of business based upon an evaluation of each customer’s credit history, financial condition, and other factors. Estimates of allowances for doubtful accounts are determined by evaluating individual customer circumstances, historical payment patterns, length of time past due, and economic and other factors. Bad debt expense is recorded as necessary to maintain an appropriate level of allowance for doubtful accounts in selling, general and administrative expense.

The following table reflects the activity related to the Company’s allowance for doubtful accounts:

 

 

September 30,

2018

 

 

December 31,

2017

 

Accounts receivable

 

$

4,000,924

 

 

$

3,614,214

 

Provision

 

 

 

 

 

(262,000

)

Accounts receivable, net

 

$

4,000,924

 

 

$

3,352,214

 

 

For the nine months ended September 30, 2018 and the year ended December 31, 2017, Ultravision Technology Ltd. represented 16% and 21% and BioStar Company represented 0% and 15%, respectively, of the Company’s accounts receivable balance.                     

Inventory

Inventory is stated at the lower of cost or net realizable value, on a first-in, first-out basis. Inventory includes raw materials and finished goods that may be used in the research and development process and such items are expensed as consumed or expired. Provisions for slow-moving, excess, and obsolete inventories are estimated based on product life cycles, historical experience, and usage forecasts.

The components of inventories are as follows (unaudited):

 

 

 

September 30,

2018

 

 

December 31,

2017

 

Materials and supplies

 

$

242,783

 

 

$

203,085

 

Finished Goods

 

 

2,372,029

 

 

 

1,490,657

 

Total

 

$

2,614,812

 

 

$

1,693,742

 

 

During the year ended December 31, 2017, in connection with the market launch of the Company’s next generation product, the Saphyr system, the Company determined that its first generation Irys instruments on hand had net realizable

9


values below carrying value. Accordingly, the Company recorded a charge of $0.4 million included in cost of product revenue to write-down these instruments to net realizable value of $1.3 million.

After considering the weight of evidence that accumulated during the three months ended September 2018, including the strategic shift towards minimal selling efforts of the Irys instruments, the Company determined that the Irys instruments on hand had net realizable values below their carrying value.  Accordingly, the Company recorded a charge of $1.3 million included in cost of product revenue to write-down these instruments to $0 net realizable value.  

    

Revenue Recognition

Product Revenue

Product revenue represents the sale of the Company’s instruments and consumables to third parties. Timing of revenue recognition on instrument sales is based upon when delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured.

The majority of the Company’s instruments contain embedded operating systems and other software which is included in the purchase price of the instrument. The software is deemed incidental to the system as a whole as it is not sold or marketed separately and its production costs are minor compared to those of the hardware system. Hardware and software elements are both delivered when ownership is transferred to the customer. Hardware upgrades, which are made available to customers for purchase, are recognized as revenue when delivered and all revenue recognition criteria noted above have been met.

Installation services for direct sale customers are performed at the same time or shortly after the product is delivered and require only a minimal effort to complete. The Company believes installation is a perfunctory service and is not material to its obligations in the contract.

Other Revenue

Other revenue includes revenue from extended service contracts and other services that may be performed. Revenue for extended warranty contracts is recognized ratably over the service period. Revenue for other services is generally recognized based on proportional performance of the contract, when the Company’s ability to complete project requirements is reasonably assured. Deferred revenue represents amounts received in advance for on-going service arrangements. Most of these services are completed in a short period of time from the receipt of the customer’s order. When significant risk exists in the Company’s ability to fulfill project requirements, revenue is recognized upon completion of the contract.

Multiple Element Arrangements

The Company regularly enters into contracts where revenue is derived from multiple deliverables, including products or services. These contracts typically include an instrument, consumables, and extended service contracts. Revenue recognition for contracts with multiple deliverables is based on the individual units of accounting determined to exist in the contract. A delivered item is considered a separate unit of accounting when the delivered item has value to the customer on a stand-alone basis. Items are considered to have stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone basis.

For transactions with multiple deliverables, consideration is allocated at the inception of the contract to all deliverables based on their relative selling price. The relative selling price for each deliverable is determined using vendor-specific objective evidence (“VSOE”) of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence exists, the Company uses its best estimate of the selling price using average selling prices over an appropriate period coupled with an assessment of current market conditions. If the product or service has no history of sales or if the sales volume is not sufficient, the Company considers its approved standard prices adjusted for applicable discounts.

In order to establish VSOE of selling price, the Company must regularly sell the product or service on a standalone basis with a substantial majority priced within a relatively narrow range. In cases where there is not a sufficient number of standalone sales and VSOE of selling price cannot be determined, then the Company utilizes third-party evidence to establish selling price.

10


Distributor Transactions

In certain markets, the Company sells products and provides services to customers through distributors that specialize in life sciences products. In cases where the product is delivered to a distributor, revenue recognition generally occurs when title transfers to the distributor. The terms of sales transactions through distributors are generally consistent with the terms of direct sales to customers and do not contain return rights. Distributor sales transactions typically differ from direct customer sales as they do not require the Company’s services to install the instrument at the end customer or perform the services for the customer that are beyond the standard warranty in the first year following the sale. These transactions are accounted for in accordance with the Company’s revenue recognition policy described herein.

Offering Costs

The offering costs associated with the IPO consist of legal, accounting and filing fees. The Company had $4,659,369 of IPO costs as of September 30, 2018. These costs have been recorded as a reduction of the gross proceeds from the IPO in stockholder’s equity. Included in these costs is the fair value, valued at $382,347 as of the date of the IPO, of warrants to purchase 115,290 shares of common stock issued to the underwriters as partial compensation for services retendered in connection with the IPO. The warrants are exercisable for common stock at a price of $9.1875 per share at any time beginning on August 20, 2019 through and including August 20, 2023, the expiration date.

Convertible Preferred Stock Warrants

The Company previously accounted for outstanding warrants to purchase shares of convertible preferred stock as liabilities in the balance sheets under preferred stock warrant liability. The convertible preferred stock warrants were subject to remeasurement at each reporting period, with changes in fair value recorded as change in fair value of warrants and expirations in the condensed consolidated statements of operations. In connection with the IPO, all outstanding warrants previously exercisable for shares of preferred stock either expired or were adjusted to exercisable for shares of common stock.  As of September 30, 2018, there were no outstanding warrants to purchase shares of convertible preferred stock due to this adjustment.

 

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company and its chief operating decision-maker, the Chief Executive Officer, views the Company’s operations and manages its business in one operating segment.

 

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities which include outstanding stock options under the Company’s equity incentive plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares) (unaudited):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Common Stock Options

 

 

415,137

 

 

 

420,678

 

 

 

415,137

 

 

 

420,678

 

Warrants

 

 

4,015,013

 

 

 

855,206

 

 

 

4,015,013

 

 

 

855,206

 

Total

 

 

4,430,150

 

 

 

1,275,884

 

 

 

4,430,150

 

 

 

1,275,884

 

 

11


Recent Accounting Pronouncements

On April 5, 2012, the Jump-Start Our Business Startups Act (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an emerging growth company. As an emerging growth company, the Company may elect to adopt new or revised accounting standards when they become effective for non-public companies, which typically is later than when public companies must adopt the standards. The Company has elected to take advantage of the extended transition period afforded by the JOBS Act and, as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for emerging growth companies, which are the dates included below.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards. ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). The guidance is effective for reporting periods beginning after December 15, 2018, and interim periods beginning after December 15, 2019. The Company has evaluated this new guidance and does not expect the adoption to have a material impact on the financial statements.

In February 2015, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the FASB Accounting Standards Codification and creates Topic 842, “Leases.” The new topic supersedes Topic 840, “Leases,” and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. The guidance is effective for reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. ASU 2016-02 mandates a modified retrospective transition method. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements which allows entities the option to adopt this standard prospectively with a cumulative-effect adjustment to opening equity and include required disclosures for prior period. The Company anticipates implementing the standard by taking advantage of the alternative transition method and will apply the transition approach as of the beginning of the period of adoption and will not be restating comparative periods.  The Company is in the process of evaluating the impact of adoption of the ASU on the financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). This guidance changes how entities measure equity investments that do not result in consolidation and are not accounted for under the equity method. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. A practicability exception will be available for equity investments that do not have readily determinable fair values, however; the exception requires the Company to consider relevant transactions that can be reasonably known to identify any observable price changes that would impact the fair value. This guidance also changes certain disclosure requirements and other aspects of current GAAP. This guidance is effective for the Company for the year ending December 31, 2019 and for interim periods effective the three months ending March 31, 2020. Early adoption is permitted. The Company is currently evaluating the requirements of ASU 2016-01 and has not yet determined whether the adoption of the standard will have a material impact on the financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for certain cash receipts and cash payments. The standard is effective for annual reporting periods beginning after December 15, 2018 and interim periods reporting within fiscal years beginning after December 15, 2019, with early adoption permitted. The Company does not believe the adoption of this guidance will have a material impact on the financial statements.

 

12


3. Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

 

 

 

 

 

 

 

Fair Value Measurement Using

 

 

 

September 30,

 

 

Quoted Prices

in Active

Markets for

Identical Assets

 

 

Significant

Other

Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

 

 

2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,657,038

 

 

$

20,657,038

 

 

$

 

 

$

 

Total assets

 

$

20,657,038

 

 

$

20,657,038

 

 

$

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock warrant liability

 

$

 

 

$

 

 

$

 

 

$

 

Total liabilities

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

December 31,

 

 

Quoted Prices

in Active

Markets for

Identical Assets

 

 

Significant

Other

Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

 

 

2017

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,021,897

 

 

$

1,021,897

 

 

$

 

 

$

 

Total assets

 

$

1,021,897

 

 

$

1,021,897

 

 

$

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock warrant liability

 

$

3,898,944