COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

Product Liability

The Company’s business exposes it to liability risks from its potential medical diagnostic products. Product liability claims could result in the payment of significant amounts of money and divert management’s attention from running the business. The Company may not be able to maintain insurance on acceptable terms, or the insurance may not provide adequate protection in the case of a product liability claim. To the extent that product liability insurance, if available, does not cover potential claims, the Company would be required to self-insure the risks associated with such claims. The Company believes it carries reasonably adequate insurance for product liability.

Product Warranty Reserve

The Company provides its customers with the right to receive a replacement of defective or nonconforming Cue Readers for a period of up to twelve months from the date of shipment. Although no explicit warranty is provided for Cue Cartridges, the Company may choose to replace Cue Cartridges that result in cancelled tests and invalid test results. All warranties are classified as current liabilities within the accrued liabilities and other current liabilities on the balance sheet. Provisions for estimated expenses related to product warranty are made at the time products are sold. These estimates are determined based on historical information that includes test failure rates, replacement frequency, and the overall replacement cost. The Company evaluates the reserve on a quarterly basis and makes adjustments when appropriate. Changes to test failure rates and overall replacement rates could have a material impact on our estimated liability.

The following table provides a reconciliation of the change in estimated warranty liabilities:


	Amount
Balance, December 31, 2021	$	4,865
Provision for warranties	6,496
Provision for warranties related to the inventory charge (see Note 4, Inventories)	12,263
Settlements	(7,812)
Balance, June 30, 2022	$	15,812

Restructuring

Restructuring actions were taken in the second quarter of 2022 in order to reduce costs and improve operations and manufacturing efficiency. As a result of these actions, for the three and six months ended June 30, 2022, the Company recorded $1.9 million of charges, which were reported as restructuring expense in the accompanying condensed statements of operations. This was accounted for as a one-time termination benefit communicated by period end without an additional service component, so the charge represents the total amount expected to be incurred. As of June 30, 2022, $1.6 million of the charges were unpaid which is included within accrued liabilities and other current liabilities in the accompanying condensed balance sheets.

Standby Letters of Credit

During the year ended December 31, 2021, the Company was party to certain letters of credit, primarily related to a letter of credit with Comerica Bank as collateral required by one of the Company’s vendors. During the year ended

December 31, 2021, the Company entered into a Revolving Credit Agreement with a capacity of $130.0 million and all but one of the letters of credits were no longer required by the counterparties. The one letter of credit, totaling $6.0 million, was re-issued under the Revolving Credit Agreement.

In May 2021, the Company repaid the debt outstanding under the Revolving Credit Agreement and terminated the agreement in June 2021. Upon agreement with East West Bank and the other lenders to the Revolving Credit Agreement, the Company kept in place its outstanding letter of credit in the amount of $6.0 million. The letter of credit was increased to $12.0 million in July 2021. In November 2021, East West Bank issued an additional letter of credit in the amount of $0.5 million. All other obligations under the Revolving Credit Agreement have otherwise been terminated.

On June 30, 2022, these letters of credit were re-issued under the 2022 Revolving Facility Agreement. The 2022 Revolving Facility Agreement provides for a $100.0 million secured revolving credit facility, with a $20.0 million letter of credit subfacility. As of June 30, 2022, there were no revolving loans outstanding and $12.5 million aggregate face amount of letters of credit outstanding under the 2022 Revolving Facility Agreement, which reduces the availability to borrow under the revolving credit facility to $87.5 million.

Restricted Cash

In November 2021, $0.8 million of cash was restricted in relation to a customs surety on international imports which remains restricted as of June 30, 2022. The Company also has outstanding cash collateralized letters of credit with Comerica Bank related to its real estate leases totaling $0.5 million as of June 30, 2022.