Description of business and significant accounting policies

Description of business

The Company is a global, high-growth diagnostics company focused on developing and commercializing proprietary tests for immunology and infectious disease by leveraging the technological, product development, manufacturing, quality, regulatory, and sales and marketing capabilities it has developed over its

sixteen

year history. The Company’s proprietary T-SPOT.

test utilizes its T-SPOT technology platform to test for tuberculosis, which is the leading cause of infectious disease death worldwide.

November 6, 2018,

the Company completed the sale of its U.S. Laboratory Services Business to Quest, for gross proceeds of

$170

million in cash. This Transaction represented a strategic business shift and it had a major effect on the Company’s operations and financial results. Following the Transaction, the Company has approximately

210

employees, including sales and marketing teams on

three

continents, and a laboratory in the United Kingdom.

Discontinued operations

The Company reports the results of operations of a business that either has been disposed of or is classified as held for sale, in accordance with Accounting Standards Codification, or ASC,

360,

Property, Plant, and Equipment

, in discontinued operations, as required by ASC

205,

Presentation of Financial Statements

. The Company presents such events as discontinued operations so long as the financial results can be clearly identified and the future operations and cash flows are completely eliminated from ongoing operations. The Company’s historical results for all periods presented are restated to account for businesses reported as discontinued operations in our Consolidated Financial Statements and these Notes. Unless otherwise specified, disclosures in our Consolidated Financial Statements and these Notes relate solely to our continuing operations.

As discussed in Note

19,

Discontinued operations

, on

September 25, 2018,

the Company entered into an agreement to sell the Company’s U.S. Laboratory Services Business to Quest Diagnostics Incorporated. The Transaction represents a strategic business shift having a major effect on the Company’s operations and financial results. Accordingly, the assets and liabilities of this and the related operations have been reported in discontinued operations in the consolidated financial statements for all periods presented. The Transaction was consummated on

November 6, 2018.

Basis of presentation, accounting principles and principles of consolidation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, and include the financial statements of Oxford Immunotec Global PLC, a company incorporated in England and Wales and its wholly-owned subsidiaries, collectively referred to as the Company. All intercompany accounts and transactions have been eliminated upon consolidation.

Segment reporting

The Company operates in

one

operating segment. The Company’s chief operating decision maker, or the CODM, its chief executive officer, manages the Company’s operations on an integrated basis for the purposes of allocating resources. When evaluating the Company’s financial performance, the CODM reviews separate revenue information for the Company’s product and service offerings and for each country, while all other financial information is on a consolidated basis. While the Company’s principal operations and decision-making functions are located in both the United States and United Kingdom, the CODM makes decisions on a global basis. Accordingly, the Company has determined that it operates in a single reporting segment.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and that affect the reported amounts of revenue and expenditures during the reporting periods. Actual results could differ from those estimates and assumptions used.

Foreign currency translation

The functional currency for Oxford Immunotec Global PLC is the U.S. Dollar. The functional currency for the Company’s operating subsidiaries are the Pound Sterling for Oxford Immunotec Limited, the U.S. Dollar for Oxford Immunotec USA, Inc., Oxford Immunotec Inc. and Immunetics, Inc., or Immunetics, the Yen for Oxford Immunotec K.K., the Yuan for Oxford Immunotec (Shanghai) Medical Device Co. Ltd., the Euro for Boulder Diagnostics Europe GmbH and the Hong Kong Dollar for Oxford Immunotec Asia Limited. Revenue and expenses of foreign operations are translated into U.S. Dollars at the average rates of exchange during the year. Assets and liabilities of foreign operations are translated into U.S. Dollars at year-end rates. The Company reflects resulting foreign currency translation adjustments in accumulated other comprehensive income, which is a component of shareholders’ equity.

Realized and unrealized foreign currency transaction gains or losses, arising from exchange rate fluctuations on balances denominated in currencies other than the functional currencies, are included in “Other income (expense)” in the consolidated statements of operations unless the unrealized foreign currency transaction gains or losses relate to intercompany transactions of a long-term investment nature, then they are included in other comprehensive income.

Concentration of risks

In the year ended

December

31,

2018,

the Company had

two

product customers that represented more than

10%

of the Company’s annual revenue. The Company’s Chinese distributor, Shanghai Fosun Long

March

Medical Science Co. Ltd., or Fosun, represented approximately

27%

of annual revenue and the Company’s Japanese importer, Riken Genesis Co., Ltd. represented approximately

19%

of annual revenue. The loss of either of these product customers could have a material impact on the Company’s operating results.

Cash and cash equivalents and restricted cash

The Company considers all highly liquid investments purchased with maturities at acquisition of

three

months or less to be cash equivalents. The Company maintains its available cash balances in cash, money market funds and repurchase agreements primarily invested in U.S. government and agency securities, and bank savings accounts in the United States, United Kingdom, Germany, Japan, China and South Korea. The Company maintains deposits in government insured financial institutions in excess of government insured limits. Management believes that the Company is

not

exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Restricted cash relates to collateral for procurement cards issued by a U.S. commercial bank.

Cash, cash equivalents, and restricted cash consists of the following:

	Year ended December 31,
(in thousands)	2018		2017		2016

Cash and cash equivalents	$	192,844	$	90,332	$	59,110
Restricted cash, non-current		100		200		200
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	192,944	$	90,532	$	59,310

Accounts receivable

Accounts receivable are primarily amounts due from customers including hospitals, public health departments, commercial testing laboratories, distributors and universities in addition to government programs.

Accounts receivable are reported net of an allowance for uncollectible accounts. The process of estimating the collection of accounts receivable involves significant assumptions and judgments. Specifically, the accounts receivable allowance is based on management’s analysis of current and past due accounts, collection experience and other relevant information. The Company’s provision for uncollectible accounts is recorded as a bad debt expense and included in general and administrative expenses. Account balances are written-off against the allowance when it is probable that the receivable will

not

be recovered. Although the Company believes amounts provided are adequate, the ultimate amounts of uncollectible accounts receivable could be in excess of the amounts provided.

Inventory

Inventory consists of raw materials, work in progress and finished goods. The Company does

not

maintain work in progress balances as the nature of the manufacturing process does

not

allow for test kits to be left in a partially manufactured state. Inventory is removed at cost. Inventory is stated at the lower of cost or net realizable value. Cost is determined by the actual cost of components by batch plus estimated labor and overhead costs per unit. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company reviews the components of its inventory on a periodic basis for excess, obsolete or impaired inventory, and records a reserve for identified items.

Property and equipment

Property and equipment are stated at cost. Property and equipment financed under capital leases are initially recorded at the present value of minimum lease payments at the inception of the lease.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Property and equipment under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Depreciable lives range from

three

ten

years for laboratory equipment, office equipment and furniture and fixtures and

three

years for software.

Revenue recognition

The Company’s revenues include product and service revenues. Product revenue from diagnostic test kit sales and related accessories is recognized at a point in time based upon contractual rates. Service revenue is recorded based upon contractually established billing rates and recognized upon delivery of test results to the customer. See Note

for disaggregation of revenue by type, indication and geography.

As of

December 31, 2018,

accounts receivables related to products and services were

$9.2

million. For the year ended

December 31, 2018,

the Company had

material bad-debt expense and there were

material contract assets, contract liabilities or deferred contract costs recorded on the Consolidated Balance Sheet as of

December 31, 2018.

The Company generally expenses sales commissions when incurred because the amortization period would be less than

one

year.

Revenue expected to be recognized in any future year related to remaining performance obligations is

not

material.

Taxes assessed by governmental authorities on revenue, including sales and value added taxes, are recorded on a net basis (excluded from revenue) in the consolidated statements of operations.

Cost of revenue: cost of product and cost of service

Cost of product revenue consists primarily of costs incurred in the production process, including costs of raw materials and components, assembly labor and overhead, quality management, royalties paid under licensing agreements and packaging and delivery costs.

Cost of service revenue consists primarily of costs incurred in the operation of the Company’s diagnostic laboratory including labor and overhead, kit costs, quality management, consumables used in the testing process and packaging and delivery costs.

Shipping and handling

The Company generally bills product customers for shipping and handling and records the customer payments as product revenue. The associated costs are recorded as cost of product sold.

The Company does

not

normally bill its service customers for shipping and handling charges. Charges relating to inbound and outbound freight costs are normally incurred by the Company and recorded within cost of service.

Impairment of long-lived assets

The Company’s long-lived assets, including fixed assets and intangible assets which have a definite life, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

be impaired, and assesses their recoverability based upon anticipated future cash flows. If changes in circumstances lead the Company to believe that any of its long-lived assets

may

be impaired, the Company will (a) evaluate the extent to which the remaining book value of the asset (group) is recoverable by comparing the estimated undiscounted future cash flows attributable to the asset (group) in question to its carrying amount and (b) write-down the carrying amount to fair value to the extent necessary.

Business combinations

For acquisitions meeting the definition of a business combination, the Company allocates the purchase price, including any contingent consideration, to the assets acquired and the liabilities assumed at their estimated fair values as of the date of the acquisition with any excess of the purchase price paid over the estimated fair value of net assets acquired recorded as goodwill.

When determining the fair value of tangible assets acquired, the Company estimates the cost using the most appropriate valuation method with assistance from independent

third

-party specialists. When determining the fair value of intangible assets acquired, the Company uses judgment to estimate the applicable discount rate, growth rates and the timing and amount of future cash flows. The fair value of assets acquired and liabilities assumed is typically determined by management using the assistance of independent

third

-party specialists. The assumptions used in calculating the fair value of tangible and intangible assets represent the Company’s best estimates. If factors changed and the Company were to use different assumptions, valuations of tangible and intangible assets and the resulting goodwill balance related to the business combination could be materially different.

Goodwill and indefinite-lived intangible assets

Goodwill

Goodwill is

not

amortized but is reviewed for impairment at least annually in the

fourth

quarter of the year, or when events or changes in the business environment indicate that all, or a portion, of the carrying value of the reporting unit

may

longer be recoverable, using the

two

-step impairment review. Under this method, the Company compares the fair value of the goodwill to its carrying value. If the fair value is less than the carrying amount, a more detailed analysis is performed to determine if goodwill is impaired. An impairment loss, if any, is measured as the excess of the carrying value of goodwill over the fair value of goodwill. The Company also has the option to

first

assess qualitative factors to determine whether the existence of events or circumstances leads it to determine that it is more likely than

not

(that is, a likelihood of more than

50%

) that goodwill is impaired. If the Company chooses to

first

assess qualitative factors and determines that the fair value of the reporting unit more likely than

not

exceeded its carrying value, then it is

not

required to take further action to test goodwill for impairment. The Company also has the option to bypass the qualitative assessment and perform only the quantitative impairment test, which it

may

choose to do in some periods but

not

in others.

Indefinite-lived intangible assets

Indefinite-lived intangible assets are reviewed for impairment at least annually, or when events or changes in the business environment indicate the carrying value

may

be impaired. If the fair value of the intangible asset is less than the carrying amount, the Company performs a quantitative test to determine the fair value. The impairment loss, if any, is measured as the excess of the carrying value of the intangible asset over its fair value. The Company also has the option to

first

assess qualitative factors to determine whether the existence of events or circumstances leads it to determine that it is more likely than

not

(that is, a likelihood of more than

50%

) that its indefinite-lived intangible asset is impaired. If the Company chooses to

first

assess qualitative factors and determines that the fair value of the indefinite-lived intangible assets more likely than

not

exceeded their carrying value, then it is

not

required to test for impairment. The Company also has the option to bypass the qualitative assessment and perform only the quantitative impairment test, which it

may

choose to do in some periods but

not

in others.

The determinations as to whether, and, if so, the extent to which, indefinite-lived intangible assets become impaired are highly judgmental and based on significant assumptions regarding the projected future financial condition and operating results, changes in the manner of the use and development of the acquired assets, the Company’s overall business strategy, and regulatory, market and economic environment and trends.

Definite-lived intangible assets

Intangible assets include technology licenses which are capitalized and amortized over estimated useful lives (generally in the range of

five

twenty

years) using the straight-line method.

Derivative financial instruments

The Company does

not

use derivative instruments to hedge exposures to cash flow, market, interest rate or foreign currency risks.

The Company reviews the terms of the shares it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than

one

embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as other income or expense. When equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are

first

allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.

Fair value of financial instruments

The Company measures certain financial assets and liabilities at fair value based on the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. As of

December

31,

2018

and

2017,

the Company’s financial instruments consist of cash and cash equivalents, accounts receivable, prepaid expenses, and other accounts payable, accrued liabilities, and loans payable. See Note

Fair value measurement

, to the consolidated financial statements for further information on the fair value of the Company’s financial instruments.

Research and development expenses

Research and development expenses include all costs associated with the development of the Company’s technology platforms and potential future products including new diagnostic tests that utilize the Company’s technology platforms and are charged to expense as incurred. Research and development expenses include direct costs and an allocation of indirect costs, including amortization, depreciation, rent, supplies, insurance and repairs and maintenance.

Share-based compensation

The Company accounts for share-based compensation arrangements with employees, officers and directors by recognizing compensation expense based on the grant date fair value of share-based transactions in the consolidated financial statements.

Share-based compensation for options is based on the fair value of the underlying option calculated using the Black-Scholes option-pricing model on the date of grant for share options and recognized as expense on a straight-line basis over the requisite service period. Determining the appropriate fair value model and related assumptions requires judgment, including estimating share price volatility, expected term and forfeiture rates. The expected volatility rates are estimated based on the Company’s actual volatility and the actual volatility of comparable public companies over a historical period equal in length to the expected term. The expected terms represent the average time that options are expected to be outstanding based on the midpoint between the vesting date and the end of the contractual term of the award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has

not

paid dividends and does

not

anticipate paying cash dividends in the foreseeable future and, accordingly, uses an expected dividend yield of zero. The risk-free interest rate is based on the rate of U.S. Treasury securities with maturities consistent with the estimated expected term of the awards.

Certain employees have been granted restricted share units, or RSUs, and restricted shares. The fair value of RSUs and restricted shares are calculated based on the closing sale price of the Company’s ordinary shares on the date of grant.

The cumulative expense recognized for share-based transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit for a period represents the movement in cumulative expense recognized as of the beginning and end of that period.

expense is recognized for awards that do

not

ultimately vest.

Where the terms of an equity award are modified, the minimum expense recognized is the expense as if the terms had

not

been modified if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based compensation, or is otherwise beneficial to the employee as measured at the date of modification.

Where a share-based compensation award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense

not

yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

Upon exercise, share options are redeemed for newly issued ordinary shares.

Income taxes

The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company’s assets and liabilities and its financial statement reported amounts. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company adheres to the accounting guidance for uncertainties in income taxes, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken, or expected to be taken, in a tax return. The Company accrues for the estimated amount of taxes for uncertain tax positions if it is more likely than

not

that the Company would be required to pay such additional taxes. An uncertain tax position will

not

be recognized if it has less than a

50%

likelihood of being sustained. Interest and penalties are recognized as a component of income tax expense.

Basic and diluted net income (loss) per ordinary share

Basic income (loss) per ordinary share are calculated by dividing the net income (loss) by the weighted-average number of ordinary shares outstanding during the period. Diluted income per ordinary share is calculated by dividing net income by the weighted-average number of ordinary shares outstanding during the period plus the dilutive effect of outstanding instruments such as share options, RSUs and restricted shares. Diluted loss per ordinary share is the same as basic loss per ordinary share, as the effect of utilizing the fully diluted share count including share options, RSUs and restricted shares would reduce the net loss per ordinary share.

Recently Adopted Accounting Pronouncements

May 2014,

the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU,

2014

09,

Revenue from Contracts with Customers

, or ASU

2014

09,

which converges the FASB and the International Accounting Standards Board standards on revenue recognition. Under ASU

2014

09,

a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In addition, ASU

2014

requires certain additional disclosures around the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments to the standard, including clarification on accounting for licenses of intellectual property, identifying performance obligations and other technical corrections. The Company adopted ASU

2014

January 1, 2018,

using the modified retrospective approach. The adoption of ASU

2014

did

not

have a material impact on the Company’s financial position, results of operations, equity or cash flows as of the adoption date or for the year ended

December 31, 2018.

The Company has included the disclosures required by ASU

2014

above and in Note

Revenue

to the Consolidated Financial Statements.

August 2016,

the FASB issued ASU

2016

15,

Classification of Certain Cash Receipts and Cash Payments

, or ASU

2016

15.

ASU

2016

is intended to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted ASU

2016

retrospectively as of

January 1, 2018.

The adoption of ASU

2016

has

not

had a material impact on the Company’s statement of cash flows.

October 2016,

the FASB issued ASU

2016

16,

Income Taxes

, or ASU

2016

16.

The guidance requires companies to recognize the income tax effects of intercompany sales and transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period in which the transfer occurs. The Company adopted ASU

2016

retrospectively as of

January 1, 2018.

The adoption of ASU

2016

has

not

had a material impact on the Company’s financial position, results of operations or related disclosures.

November 2016,

the FASB issued ASU

2016

18,

Statement of Cash Flows (Topic

230

): Restricted Cash

, or ASU

2016

18.

ASU

2016

requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company adopted ASU

2016

retrospectively as of

January 1, 2018.

The adoption of ASU

2016

has

not

had a material impact on the Company’s statement of cash flows.

January 2017,

the FASB issued ASU

2017

01,

Business Combinations

, or ASU

2017

01.

ASU

2017

clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted ASU

2017

prospectively as of

January 1, 2018.

The adoption of ASU

2017

has

not

had a material impact on the Company’s financial position, results of operations or related disclosures.

May 2017,

the FASB issued ASU

2017

09,

Scope of Modification Accounting

, or ASU

2017

09.

ASU

2017

provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting of a share-based payment award. The guidance should be applied prospectively to an award modified on or after the adoption date. The Company adopted ASU

2017

prospectively as of

January 1, 2018.

The adoption of ASU

2017

has

not

had a material impact on the Company’s financial position, results of operations or related disclosures.

Recently Issued Accounting Pronouncements

February 2016,

the FASB issued ASU

2016

02,

Leases

, or ASU

2016

02.

ASU

2016

requires lessees to reflect all leases with terms longer than

months on their balance sheets. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB has subsequently issued amendments to the guidance, including the addition of an optional transition method. The Company’s process of evaluating the impact of ASU

2016

has included reviewing all forms of leases and performing a completeness assessment over the lease population. The Company will adopt ASU

2016

02,

effective as of

January 1, 2019

and will apply the alternative adoption approach at the adoption date and will recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings. The Company will take advantage of the transition package of practical expedients permitted within ASU

2016

02,

which among other things, will allow it to carryforward historical lease classifications. The Company will make an accounting policy election that will keep leases with an initial term of

months or less and that do

not

include an option to purchase the underlying asset that the Company is reasonably certain to exercise off of the balance sheet and will result in recognizing those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. As a result of adopting ASU

2016

02,

the Company expects to recognize right-of-use assets of about

$7.7

million and corresponding liabilities of about

$8.6

million for its existing lease portfolio on its consolidated balance sheets, with

material impact to the Company’s consolidated statements of operations or consolidated statements of cash flows. For the

first

quarter of

2019,

the Company will provide additional disclosures in the notes to its condensed consolidated financial statements regarding its leasing portfolio, including key judgments and assumptions and the discount rates used in calculating the Company’s right-of-use assets and corresponding liabilities.

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments-Credit Losses

, or ASU

2016

13.

ASU

2016

requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. Under current U.S. GAAP, a company only considered past events and current conditions in measuring an incurred loss. Under ASU

2016

13,

the information that a company must consider is broadened in developing an expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss. The new guidance will be effective for the Company for annual and interim periods beginning after

December 15, 2019.

Early adoption is permitted for annual and interim periods beginning after

December 15, 2018.

The guidance is applied using a modified retrospective, or prospective approach, depending on a specific amendment. The Company does

not

expect that the application of ASU

2016

will have a material impact on the presentation of its results of operations, financial position or disclosures.

January 2017,

the FASB issued ASU

2017

04,

Intangibles – Goodwill and Other

, or ASU

2017

04.

ASU

2017

simplifies subsequent measurement of goodwill by eliminating Step

from the goodwill impairment test. The new guidance will be applied on a prospective basis. ASU

2017

will be effective for the Company for annual or any interim goodwill impairment tests in fiscal years beginning after

December 15, 2019.

Early adoption is permitted for interim or annual goodwill impairment tests. The Company is currently evaluating ASU

2017

04.

June 2018,

the FASB issued ASU

2018

07,

Improvements to Nonemployee Share-Based Payment Accounting

, or ASU

2018

07.

ASU

2018

simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU

2018

will be effective for the Company for fiscal years beginning after

December 15, 2018,

including interim periods within that fiscal year. Early adoption is permitted. The Company is currently evaluating ASU

2018

07.