7. Redeemable convertible preferred stock

The Company had authorized 47,015,449 shares of preferred stock, $0.001 par value per share, of which 3,972,415 shares were designated Series A‑1 redeemable convertible preferred stock (Series A‑1 Preferred Stock), 10,492,027 shares were designated Series A‑2 Preferred Stock, 2,000,000 shares were designated Series A‑3 Preferred Stock, 6,186,594 shares were designated Series B Preferred Stock, 9,247,089 shares were designated as Series C Preferred Stock, 544,332 shares were designated Series C‑1 redeemable convertible preferred stock (Series C‑1 Preferred Stock), 12,459,090 shares were designated Series D Preferred Stock and 2,113,902 were designated Series D‑1 redeemable convertible preferred stock (Series D‑1 Preferred Stock) as of immediately prior to the completion of the IPO.

In February 2016, the Company issued 1,300,000 shares of Series A‑3 Preferred Stock to a vendor (Note 8) upon the exercise of Series A‑3 Preferred Stock warrants at a purchase price of $0.001 per share. The fair value of the settled warrant was $3.9 million at the time of exercise which was reclassified from Preferred Stock Warrant Liability to Series A Preferred Stock.

In March 2016, the Company issued 12,420,262 shares of Series D Preferred Stock at a purchase price of $3.67 per share. The issuance resulted in cash proceeds of $45.4 million, net of issuance costs.

In June and July 2016, the Company issued 397,530 shares of Series B Preferred Stock upon exercise of Series B Preferred Stock warrants, which included 312,500 shares of Series B Preferred Stock at a purchase price of $0.001 per share, 8,330 shares of Series B Preferred Stock at purchase price of $2.00 per share, and 76,700 shares of Series B Preferred Stock upon a cashless exercise of a warrant. The fair value of the settled warrants was $1.4 million at the time of exercise which was reclassified from Preferred Stock Warrant Liability to Series B Preferred Stock.

In January 2017, the Company issued 700,000 shares of Series A‑3 Preferred Stock to a vendor (Note 8) upon the exercise of Series A‑3 Preferred Stock warrants at a purchase price of $0.001 per share. The fair value of the settled warrant was $2.1 million at the time of exercise which was reclassified from Preferred Stock Warrant Liability to Series A Preferred Stock.

In June 2017, the Company issued 2,113,902 shares of Series D‑1 Preferred Stock at a purchase price of $4.021 per share. The issuance resulted in cash proceeds of $8.4 million, net of issuance costs.

In November 2017, the Company issued 31,283 shares of Series C Preferred Stock upon exercise of Series C Preferred Stock warrants, which included 8,474 shares of Series C Preferred Stock at a purchase price of $3.3299 per share, and 22,809 shares of Series C Preferred Stock upon a cashless exercise of a warrant. The fair value of the settled warrants was $0.1 million at the time of exercise which was reclassified from Preferred Stock Warrant Liability to Series C Preferred Stock.

The Company had a Stock Purchase Agreement (SPA) with bioMérieux, a related party, which required the Company to issue additional shares of Series C Preferred Stock if certain milestones were met in exchange for $10.0 million in gross proceeds. The milestones were related to activities under a Joint Development and License Agreement (JDLA) (Note 12). bioMérieux also purchased Series C Preferred Stock when the JDLA was entered into in 2012. When the SPA was entered into, the Company evaluated whether the requirement to issue additional shares (‘Tranche Feature") required separate accounting. The Company determined that the Tranche Feature was not legally detachable and therefore was an embedded feature in the Series C Preferred Stock that bioMérieux purchased.

During the year ended December 31, 2015, the Company amended the terms of the SPA which restructured the equity milestone from one payment of $10.0 million to three separate payments ($5.0 million; $3.0 million and $2.0 million) based on components of the initial technical milestones. No other terms of the Series C Preferred Stock changed. The Company achieved the first milestone in January 2015 at which time bioMérieux purchased 1,501,546 shares of Series C Preferred Stock at a price of $3.3299 for total gross proceeds of $5.0 million. The Company also achieved the second milestone in May 2015 at which time bioMérieux purchased 600,618 shares of Series C Preferred Stock at a price of $3.3299 for total gross proceeds of $2.0 million. In December 2016, the Company further amended the JDLA and SPA which cancelled the third and final milestone (Note 12).

The rights, preferences, and privileges of Series A‑1, A‑2, A‑3, B, C, C‑1, D, and D‑1 Preferred Stock were as follows:

Conversion

Shares of Series A‑1, A‑2, A‑3, B, C, C‑1, D, and D‑1 Preferred Stock were convertible into common stock on a 3.214‑for-one basis, adjustable for certain dilutive events. Conversion was at the option of the preferred stockholders, although conversion was automatic upon the earlier of the consummation of an initial public offering, resulting in gross proceeds to the Company of at least $40.0 million and for a minimum per-share amount of $5.00 per share, or the approval of a Preferred Majority, defined as 60% of the outstanding shares of Series A‑1, A‑2, B, C, D, and D‑1 Preferred Stock voting as a single class.

Dividends

Holders of the Series A‑1, A‑2, B, C, and C‑1 Preferred Stock were entitled to receive, before any cash was paid out or set aside for any common stock, cumulative dividends in arrears at the annual rate of $0.08, $0.08, $0.16, $0.2664, and $0.2664 per share, respectively, subject to adjustment for stock splits, stock dividends, combinations and reorganizations. Holders of Series D, and D‑1 Preferred Stock were entitled to receive non-cumulative dividends at the rate of $0.2936, and $0.3217 per share, respectively, subject to adjustment for stock splits, when and if declared by the Board of Directors of the Company. The cumulative accrued dividends as of immediately prior to the completion of the IPO were $3.3 million, $7.8 million, $5.7 million, $9.5 million, and $0.7 million for Series A‑1, A‑2, B, C and C‑1 Preferred Stock, respectively. Holders of Series A‑3 Preferred Stock were not entitled to receive any preferred stock dividends. Upon full payment of preferred dividends, additional dividends would have been shared among all preferred stock holders and common stock holders on a pro rata basis.

Liquidation preference

Holders of the Series A‑1, A‑2, A‑3, B, C, C‑1, D, and D‑1 Preferred Stock had preference in the event of a liquidation or dissolution of the Company equal to $1.0416667, $1.0416667, $2.00, $2.00, $3.3299, $3.3299, $3.67, and $4.021 per share, respectively, plus any accrued but unpaid dividends. In any liquidation event, Series D and D‑1 Preferred Stock holders would receive first priority in liquidation payments. In the event that the amounts available for distribution were insufficient to pay the full amounts, the assets would be distributed ratably among Series D, and D‑1 Preferred Stock holders in proportion to their aggregate liquidation preference amounts until such amounts were paid full. Series B, C, and C‑1 Preferred Stock holders would receive next priority in liquidation payments after Series D Preferred Stock holders. In the event that the amounts available for distribution were insufficient to pay the full amounts, the assets would be distributed ratably among B, C, and C‑1 Preferred Stock holders in proportion to their aggregate liquidation preference amounts. Series A‑1, A‑2, and A‑3 Preferred Stock holders would receive next priority in liquidation preference after Series B, C, and C‑1 Preferred Stock holders. In the event that the amounts available for distribution after payment were insufficient to pay the full amounts, the assets would be distributed ratably among A‑1, A‑2, and A‑3 Preferred Stock holders in proportion to their aggregate liquidation preference amounts. Any remaining amounts would be distributed to holders of common stock on a pro rata basis. However, if the holders of any series of preferred stock would receive a greater liquidation preference if they were converted into shares of common stock immediately prior to the liquidation event, then these shares would receive consideration equal to the amount that would be received if the shares had been converted in common stock in lieu of the applicable liquidation preference.

Voting rights

Holders of the Series A‑1, A‑2, A‑3, B, C, D and D‑1 Preferred Stock (Voting Preferred) were entitled to vote as a single class with the holders of common stock, and had one vote for each equivalent common share into which the preferred stock was convertible. A Preferred Majority vote was required in order to amend the Certificate of Incorporation or By-Laws, reclassify common stock or establish another class of stock, create or authorize additional shares of preferred stock, effect a sale, liquidation, or merger of the Company, repurchase or redeem any capital stock, or engage in any action which would adversely affect the holders of the preferred stock.

The holders of the Series A‑1, A‑2 and B Preferred Stock could elect three members to the Board of Directors, voting as a single class. The holders of the Series C Preferred Stock could elect one member to the Board of Directors. The holders of the Voting Preferred could elect one member to the Board of Directors, voting as a single class.

Holders of Series C‑1 Preferred Stock had no voting rights.

Prior to the issuance of Series D Preferred Stock in March 2016, a majority vote of the Series B, C and C‑1 Preferred Stock holders could elect to redeem all of the outstanding shares of Series B, C and C‑1 Preferred Stock at any time on or after November 14, 2016. The Series A‑1 and A‑2 Preferred Stockholders had the right to elect to redeem all of the outstanding shares at any time after the redemption of the Series B, C and C‑1 Preferred Stock shares was made. The preferred stockholders were entitled to the redemption in three equal annual installments.

Upon issuance of the Series D Preferred Stock in March 2016, the redemption rights were adjusted. A majority vote of the Series D Preferred Stockholders could elect to redeem all of the outstanding shares of Series D on or after March 18, 2019. Upon issuance of the Series D‑1 Preferred Stock in June 2017 the redemption rights were adjusted. A majority vote of the Series D and D‑1 Preferred Stockholders, voting as separate classes, could elect to redeem all of the outstanding shares of Series D and D‑1 Preferred Stock on or after June 2, 2020. Holders of the Series C‑1, C and B Preferred Stock could only redeem their shares following the redemption in full of all shares of Series D and D‑1 Preferred Stock and upon a Preferred Majority Vote. Holders of the Series A‑1 and A‑2 Preferred Stock could only redeem their shares following the redemption in full of the Series D‑1, D, C‑1, C and B Preferred Stock, and upon a Preferred Majority Vote. Series A‑3 Preferred Stock did not have redemption rights other than in certain deemed liquidation scenarios.

The redemption value of the Series A‑1, A‑2, B, C and C‑1 Preferred Stock was equal to the original issuance price of the preferred stock plus any accrued or declared but unpaid cumulative dividends. The redemption price of the Series D and D‑1 Preferred Stock was the greater of (i) the fair market value of the common stock which it was convertible into or (ii) the original issuance price plus all declared but unpaid dividends, which were non-cumulative. As of December 31, 2016, the fair market value of the Company’s common stock was less than the original issuance price of the Series D Preferred Stock.

Preferred stock was presented in mezzanine equity. The Series A‑1, A‑2, B, C, C‑1, D and D‑1 Preferred Stock were redeemable at the option of the holder at a fixed date and therefore the Company was accreting the preferred stock to its redemption value through the earliest possible redemption date for all issuances where the carrying value is less than the redemption value. The Series A‑3 Preferred Stock was redeemable only upon certain deemed liquidation scenarios which were outside of the Company’s control. The accretion included the accretion of issuance costs and cumulative preferred stock dividends. Series A‑3 Preferred Stock was not entitled to dividends. The Company assessed all terms and features of the preferred stock in order to identify any potential embedded features that would require bifurcation or any beneficial conversion features. As part of this analysis, the Company assessed the economic characteristics and risks of its preferred stock, including conversion and liquidation features, as well as dividend and voting rights. The Company determined that all features of the preferred stock were clearly and closely associated with an equity host, and although the preferred stock included conversion features, such conversion features did not require bifurcation as a derivative liability. On the date of issuance, the fair value of common stock into which the Series A‑1, A‑2, A‑3, B, C, C‑1, D and D‑1 Preferred Stock was convertible was less than the effective conversion price of the Series A‑1, A‑2, A‑3, B, C, C‑1, D and D‑1 Preferred Stock and as such, there was no intrinsic value of the conversion option at the commitment date.

Upon completion of the IPO on December 7, 2017 all outstanding shares of Preferred Stock were automatically converted into shares of common stock on a 3.214‑for-one basis, resulting in the issuance of 14,185,744 shares of common stock. Details of the shares of Preferred Stock converted to common stock upon the completion of the IPO by class of Preferred Stock is as follows:


		Shares of
		Preferred
Preferred Stock		Stock
A‑1		3,972,415
A‑2		10,427,586
A‑3		2,000,000
B		6,021,636
C		8,092,895
C‑1		544,332
D		12,420,262
D‑1		2,113,902
Total		45,593,028

Pursuant to the amended and restated certificate of incorporation filed in connection with the IPO in December 2017, the Company authorized 5,000,000 shares of preferred stock. The amended and restated certificate of incorporation authorized our board of directors, without any further stockholder action or approval, to issue these shares in one or more classes or series, to establish from time to time the number of shares to be included in each class or series and to fix the rights, preferences and privileges of the shares of each wholly unissued class or series and any of its qualifications, limitations or restrictions. There was no preferred stock issued or outstanding as of December 31, 2017.

The Company has a class of authorized preferred stock amounting to 5,000,000 shares as of December 31, 2018 and December 31, 2017. The authorized preferred stock was classified under stockholders’ equity at December 31, 2018 and December 31, 2017.

Prior to the IPO in December 2017, the Company had multiple classes of preferred stock outstanding. These shares of preferred stock were converted to shares of common stock at the time of the IPO on 1‑for‑3.214 shares basis. The reconciliation of net loss attributable to common shareholders in the consolidated statement of operations for the year ended December 31, 2017 includes an adjustment for accretion of preferred stock to redemption value.