UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2013
2015
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| o | | 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: 000-53252
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| | WaferGen Bio-systems, Inc. | |
| | (Exact Name of Registrant as Specified in its Charter) | |
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| | Nevada | | 90-0416683 | |
| | (State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) | |
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7400 Paseo Padre Parkway, Fremont, CA | | 94555 | |
| (Address of principal executive offices) | | (Zip Code) | |
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| | (510) 651-4450 | |
| | (Registrant’s telephone number, including area code) | |
Securities registered under Section 12(b) of the Exchange Act:
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| Title of each class: None | | | Name of each exchange on which registered: None |
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Securities registered under Section 12(g) of the Exchange Act:
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| Common stock, $0.001 par value per share |
| (Title of Class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer ¨ (Do(Do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of June 30, 20132015 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of voting and nonvoting common equity held by non-affiliates of the registrant was $1,428,267.$13,498,890. As of that date, 358,8614,285,362 shares of the registrant’s common stock, $0.001 par value per share, were held by non-affiliates. For purposes of this information, the outstanding shares of common stock that were held by directors and executive officers of the registrant were deemed to be shares of common stock held by affiliates at that date. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 12, 2013,23, 2016, the registrant had a total of 9,112,55918,753,615 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days after the end of the fiscal year ended December 31, 2013.2015. Portions of such proxy statement are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
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| | PART I | |
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| | PART II | | | |
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| | PART III | | | |
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FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS
Information included in this Form 10-K may contain forward-looking statements. Forward-looking statements relate to future events or our future financial performance. These forward-looking statements include but are not limited to statements we make regarding our plans for sales growth and expectations of gross margin, expenses, new product introduction, integration and potential benefits of our recent business acquisition, and our liquidity and capital needs. WeForward-looking statements can generally identify forward-looking statementsbe identified by terminologyterms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. TheseForward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only predictions.on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and future conditions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that are difficult to predict, that may be outside of our control and may cause our customers’ or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. Therefore you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those in the forward-looking statements include, among others, the following: our ability to successfully market our products; market acceptance of our new and relatively unproven technologies; our ability to raise additional capital on acceptable terms when, and in the amounts, needed to support our business; our ability to develop our research and development investments into commercially viable products; governmental, academic and corporate funding for genetic sequencing and analysis equipment and supplies; and other risks and uncertainties described in the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” andOperations,” “Business,” as well asand other sections inof this report, discuss some of the factors that could contribute to these differences.Annual Report on Form 10-K.
The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
This report also contains market data related to our business and industry. These market data include projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a result, our markets may not grow at the rates projected by these data, or at all. The failure of these markets to grow at these projected rates may have a material adverse effect on our business, results of operations, financial condition and the market price of our common stock.stock.
As used in this Annual Report on Form 10-K, unless the context otherwise requires or where otherwise indicated, the terms “WaferGen,” the “Company,” “we,” “our” and “us” refer to WaferGen Bio-systems, Inc. and its subsidiaries,, except where it is made clear that the term means only the parent company.company.
PART I
Item 1. Business
Overview
Since we commenced operations in 2003, we have beenWe are engaged in the development, of systems for gene expression quantification, genotyping and stem cell research. Since 2008, our primary focus has been on the development, manufacture and marketingsale of genomic technology solutions for single-cell analysis (“SCA”) and clinical research. Our ICELL8™ Single-Cell System is a cutting edge platform that can isolate thousands of single cells and process specific cells for analysis, including Next Generation Sequencing (“NGS”). We believe ICELL8s introduction into the rapidly growing SCA market will revolutionize biopharma, diagnostics and life science research. ICELL8 is based upon our SmartChip System, a genetic analysis platform which is also used for profiling and validating molecular biomarkersbiomarkers. SmartChip can perform massively parallel singleplex PCR for one-step target enrichment and library preparation for clinical NGS. Our Apollo 324™ system can be used to process DNA and RNA from clinical samples to NGS-ready libraries. Our SmartChip and Apollo product lines are aimed at researchers performing genetic analyses in the life sciences, and pharmaceutical drug discovery industries.
Our SmartChip products are aimed at researchers who perform genetic analysis, primarily at pharmaceutical and biotech companies, academicdrug discovery, diagnostics and private research centers and diagnostics companies involved in biomarkerclinical laboratory industries. WaferGen’s technology solutions are potent tools for the discovery and genetic research. Many scientists believe that muchvalidation of the work to seek new therapeutic solutions will be directed at understanding the expression level of keyclinically relevant segments of DNA1 (i.e. genes and other regulatory elements), as well as the changes in their sequence (i.e. mutations such as single nucleotide polymorphisms (“SNPs”)). Gene expression is fundamental to the understanding of many disease processes and hence, drug efficacy. For example, in the field of oncology (cancer treatment), greater understanding of gene expression in certain types of cancerous cells has led to the discovery of specific disease biomarkers, that will allow clinicians to provide more accurate diagnosis, prognosisclinical tests and treatment options for their patients. Increasingly, researchers are focusing their attention on studying physiological phenomena at the molecular level and are consequently committing their research budgets to acquiring research tools that help them develop personalizednew drug therapies.
We are primarily focused on marketing a flexible, open format genetic analysis system, the WaferGen SmartChip System,System. SmartChip is a micro-fabricated chip composed of thousands of massively-parallel micro wells that are physically separated from each other. We have engineered a nano-dispenser called the MultiSample Nano-Dispenser (“MSND”) that can not only dispense but also aspirate nanoliter volumes of molecular testing reagents and samples, which provides a range of high throughput capabilities including mRNA, microRNASCA, differential gene expression measurement, genotyping and lncRNA expression level measurement, as well as SNP genotyping.target enrichment for NGS testing. NGS refers to the current automated methods used to determine the order of nucleotide building blocks that make up the primary structure in Deoxyribonucleic acid (“DNA”) molecules. In August 2010, we formally launched our first generation SmartChip 5K System, which was an innovative real-time polymerase chain reactionPolymerase Chain Reaction (“real-time PCR”)2 tool enabling scientists to study thousands of genes simultaneously. PCR is an enzymatic process designed to increase the number of copies of DNA for easier detection. Real-time PCR simultaneously clusteredamplifies and quantifies (as an absolute number of copies or relative amount) a targeted DNA molecule in gene specific pathways. The results of such studies are potentially leading to the discovery and validation of clinically relevant disease signatures. We believe that the SmartChip System is well suited for the large and growing genomics markets, including for researchers seeking to confirm and expand on discoveries made with the growing use of next-generation sequencing3 (“NGS”).real time. In July 2012, we launched the SmartChip MyDesign System, which is thea second-generation real time PCR instrument with significantly upgraded capabilities. First, the new system allows customers to dispense their own assays into a SmartChip, which gives them much greater flexibility and faster experiment turnaround time. Second, we have enabled SNP genotyping on the SmartChip by validating appropriate chemistries and supplying the requisite software.
The SmartChip System’s high density, nanoliter-scale format can provide throughput levels that facilitate the development of life science and clinical research solutions at a fraction of the time and cost currently possible with existing competing systems.
Most recently, our R&D efforts have been concentrated We believe that the SmartChip System is well suited for the large and growing genomics markets, including researchers seeking to confirm and expand on discoveries made with the commercializationgrowing use of NGS. The SmartChip and MSND were adapted for NGS library preparation and the SmartChip Target Enrichment (“TE”) System. This new productSystem was launched in 2014. SmartChip TE™ is designed to perform a critical sample preparation step prior to targeted NGS. The targetedtargeted-DNA sequencing. Targeted sequencing is aimed at deciphering the nucleic acid sequence of a certain portion of the genome (the targets), for example a set of genes of interest, as opposed to the whole genome. In order to limit the sequencing to the targets of interest, scientists are using various techniques including PCR to treat the nucleic acid samples prior to sequencing. WaferGen is using its SmartChip consumable to conduct massively parallel individual PCR reactions for TE. This approach offers certain advantages over existing chemistries and platforms. Although
In October 2015 we launched the ICELL8 System for single cell isolation and individual cell genomic analysis. The ICELL8 Single-Cell System consists of a unique pairing of the SmartChip and MSND technologies with a powerful imaging station. Our CellSelect™ software bridges these advantages could help WaferGen successfully competetechnologies by automatic selection for cells of interest and provides user control over how best to process samples for downstream applications. This system-level solution for single-cell isolation results in a powerful and user-friendly research tool for discovery and clinical research. The ICELL8 System enhances single-cell research through the power of isolating thousands of cells of any type and size; controlling cell selection for down-stream processing; and, providing biological insight by investigating multiple samples on a single SmartChip. The SmartChip, along with the ability to dispense nanoliter volumes (using the MSND) into these wells, makes this an ideal platform for isolating and processing thousands of single cells for RNA-seq and/or qPCR based applications. The dispensing technology and automated imaging by the ICELL8 System ensures testing is performed only on single cells. This offers a significant advantage over capture technologies on the market which require manual methods for confirming true single cell isolation. In addition, the physical separation of wells in the highSmartChip affords better protection against cross-contamination than the emulsion-based systems that which are being pursued by potential emerging marketfuture competitors.
In January 2014, we acquired IntegenX Inc.’s product line used in connection with developing, manufacturing, marketing and selling instruments and reagents relating to library preparation for clinicalnext generation sequencing, the Company faces considerable competition, including the competing sample preparation kitsApollo 324 instrument and the PrepX™ reagents. The fully automated Apollo 324 library prep solution has been a market leader in the low to medium throughput NGS market segment with an expanding installed base, serving a diverse set of clients from NGS instrument manufacturers such as Illumina, Inc. (“Illumina”) and Life Technologies Corporation (“LIFE”).university research labs,
1 | DNA (Deoxyribonucleic acid) – A polymeric molecule consisting of deoxyribonucleotide building blocks that in a double-stranded helical form is the genetic material of most organisms. |
2 | Polymerase Chain Reaction (PCR) – PCR is an enzymatic process designed to increase the number of copies of DNA for easier detection. Real-time PCR chemistries allow for monitoring a PCR reaction throughout its phases by collecting continuous datapoints as the reaction progresses. The polymerase enzyme uses an initial sample DNA strand as a template and uses it to synthesize the a new strand, which sets in motion a chain reaction in which the DNA template is exponentially amplified, generating millions or more copies of the DNA target. Real-time PCR simultaneously amplifies and quantifies (as an absolute number of copies or relative amount) a targeted DNA molecule in real time after each amplification cycle. |
3 | Next Generation Sequencing – Sequencing is the determination of the order of nucleotide building blocks that make up the primary structure in DNA molecules. Early determination methods were discovered in the 1970s and 1980s. NGS refers to more current automated methods that rely upon sequencing-by-synthesis approaches, enabling an easier and considerably faster analysis. |
pharmaceutical and agricultural companies, to diagnostic clinical labs. We believe customers favor the Apollo 324 library prep solution for its flexibility, turnaround and hands-on time, as well as sample quantity input requirement. We intend to build upon its success with innovative new applications and protocols for this system.
WaferGen employs a business model that primarily generates revenue from the sale of instruments (i.e. the ICELL8 System, SmartChip System)Systems and Apollo 324 instruments) and a recurring revenue stream from the sale of consumables (i.e. the ICELL8 Chip and Reagent Kit, SmartChip Panel)Panels and Apollo PrepX reagents), similar to the “razor and razor blade” business model.
Wafergen, Inc. was incorporated in the state of Delaware in October 2002. On May 31, 2007, Wafergen, Inc. was acquired by WaferGen Bio-systems, Inc., a Nevada corporation. In the transactions, Wafergen, Inc. merged with a subsidiary of WaferGen Bio-systems, Inc. and became a wholly owned subsidiary of WaferGen Bio-systems, Inc.
Products
Gene Expression TechnologyGenomics Overview
Genes are segments of genomic DNA that carryencode discreet information packets of the genome that provide codes for ultimately synthesizinghelp synthesize individual biomolecules/proteins. This information is read when the two strands of DNA “unzip” and the series of bases representing a gene are copied into the related nucleicRibonucleic acid (“RNA”). RNA4. is a polymeric molecule consisting of ribonucleotide building blocks. The three major types in cells are ribosomal RNA (“rRNA”), transfer RNA (“tRNA”), and messenger RNA (“mRNA”), each of which performs an essential role in protein synthesis. “RNAi”s are small RNA molecules that help regulate by turning genes on and off. Like DNA, RNA also has four types of bases that can bond as a pair with just one typefour types of base onbases in the DNA strand allowingbased on pairing rules that allow the DNA sequence of the gene to encode a specific RNA sequence. This decoding of DNA genes into RNA is called transcription. The transcribed RNA strand then separates from the DNA strand and acts either in a regulatory fashion to modulate cellular processes or as a template for the cell’s machinery to construct functional proteins. As gene expression (including translation into functional proteins) is dependent upon RNA levels present in the cell, interrogation of RNA levels has become the most widely adopted means for quantifying this process.
One contributor to disease and dysfunction is the over- or under-expression of genes within an organism’s cells. A very complex network of genes interacts to maintain health in complex organisms such as humans. Although most cells contain an organism’s full set of genes, each cell, according to its function, expresses only a fraction of this set of genes in different quantities and at different times. The challenge for scientists is to delineate the associated genes’ expression patterns and their relationship to disease.
Although all humans contain the same set of genes, the actual sequence of each gene may vary from one individual to another. This phenomenon is commonly referred to as genetic variation and can have important medical consequences. Genetic variation affects disease susceptibility, including predisposition to cancer, diabetes, cardiovascular disease and Alzheimer’s disease. In addition, genetic variation may cause people to respond differently to the same drug treatment. One common form of genetic variation is a single-nucleotide polymorphism, or SNP. A SNP is a variation in a single “letter” in the DNA sequence between the two copies of the same gene. While in some cases a single SNP will be responsible for medically important effects, it is now believed that combinations of SNPs may contribute to the development of most common diseases. Since there are generally millions of SNPs in an individual, it is important to investigate many SNPs simultaneously in order to discover medically valuable information.
Gene expression isstudies and whole transcriptome analysis (“WTA”) are used to provide information on the more than 30,000 genes in the human genome. Life science researchers use gene expression profiling to study the differences in expression of genes in a normal versus a disease state. For example, a comparison of gene expression profile of breast cancer patients to those of normal patients will provide an indication of genes that are expressed differentially between the two populations. Such differences can lead to identifications of genes that may be indicative of a disease state. Furthermore, such differences can help physicians make treatment decisions. Researchers are conducting studies to identify single or multiple genes that play a role in a particular disease.
There are three primary technologies used to study gene expression: sequencing,NGS, microarrays and real-time PCR.
RNA SequencingSingle-Cell Analysis Overview
NGS technologies have improved at a breathtaking pace this past decade and the costs of sequencing have decreased several orders of magnitude. The decrease in the price/base has made possible applications that were considered impossible even five years ago. RNA-sequencing (“RNA-Seq”) is increasingly being used to understand gene expression differences between normal and disease states in bulk samples. Another interesting NGS-based application is the ability to perform gene expression profiling at a single cell level for 1000s of cells and use the differences in transcriptional states of the individual cells to comprehend the various cell types that exist in heterogeneous cell populations and complex tissues. Most biological measurements to date have been performed on a population of cells or tissues. Such studies lack the ability to discriminate critical events occurring at an evolving NGS techniqueindividual cell level and hence, would report results that reflect an average for the population under investigation. However, diseases such as cancer or diabetes start from a single cell that has recently emergedacquired a deleterious mutation. Furthermore, SCA has already resulted in the identification of new cell types in neuronal and immune cell populations. Identifying and understanding such rare events amidst a population of normal cells is the challenge that SmartChip-based SCA aims to solve. Existing technology such as Fluidigm’s microfluidic cartridge can process at best 400 individual cells. These individual cells are selected based on different size cutoffs that introduce size bias in selecting cells. The size bias combined with low throughput has generated a methodneed for technologies that can process thousands of cells in a cost-effective fashion and with minimal bias.
Even though RNA-Seq is becoming a mature NGS technique for evaluating global and single-cell gene expression patterns. NGS typically requires time and cost intensive library preparation, sequencing and data analysis and the results are not always quantitative. As a result,patterns, many researchers are verifyingcontinue to verify their NGS findingfindings using real-time PCR. Furthermore, subsequent to sequencing based discovery and real-time PCR validation, interrogation of the expression pattern of identified target genes in large numbers of samples requires a more timetimely and cost effective solution.
Microarrays consist of miniscule amounts of hundreds or thousands of gene sequences that are chemically attached to a surface,cost-effective solution such as a microchip, a glass slide, or a bead. When a gene is activated in a cell, cellular machinery transcribes the gene’s DNA sequence into messenger RNA (“mRNA”). To determine which genes are turned on and which are turned off inICELL8 System.
4 | RNA (Ribonucleic acid) – A polymeric molecule consisting of ribonucleotide building blocks. The three major types in cells are ribosomal RNA (rRNA), transfer RNA (tRNA), and messenger RNA (mRNA), each of which performs an essential role in protein synthesis. RNAi ‘s are small RNA molecules that help regulate turning genes on and off.
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a given cell, the mRNA molecules present in that cell are collected and labeled by attaching a fluorescent dye. The labeled mRNA is placed onto a DNA microarray slide. The mRNA that was present in the cell, together with its fluorescent tag, will then hybridize—or bind—to its complementary DNA on the microarray, which can then be measured using a scanner.
However, microarrays have limited sensitivity, accuracy and dynamic range. Consequently, one obtains only a partial view of the expression profile when utilizing microarrays due to the limited sensitivity. The overlooked genes may be important in a particular disease state. Furthermore, as a result of limitations in specificity and accuracy, the discovery of genes identified by microarray technology requires further validation using real-time PCR.Gene Expression Technology Overview
Real-time PCR represents the most sensitive and accurate method to measure gene expression. PCR is an enzymatic process in which a strand of DNA is copied multiple times, or amplified, so that it can be more readily detected and analyzed. The vast majority of PCR methods use thermal cycling, i.e., alternately heating and cooling the sample to a defined series of temperature steps. These thermal cycling steps are necessary to physically separate the strands in a DNA double helix (at high temperatures), which are then used as the template during DNA synthesis (at lower temperatures) by the DNA polymerase enzyme to selectively amplify the target DNA.
Traditional PCR merely increases the number of DNA copies for easier detection. Real-time PCR permits quantitative analysis, rather than just a qualitative yes/no as to the presence of a gene. Real-time PCR can produce an absolute measurement, such as number of copies of mRNA or microRNA per nanoliter of sample, or a relative measurement in comparison to expression of the same gene in another sample. Real-time PCR chemistries allow for the detection of amplicon amounts in the exponential phase of these reactions where the amount of product can be extrapolated to accurately determine the amount of target in the sample prior to amplification.
Traditional real-time PCR does not measure thousands of genes simultaneously (like NGS or microarray analysis), resulting in limited throughput and relatively high cost, making it unfeasible for whole genome analysis or for very high throughput studies. Thus, in practice, researchers typically first use microarray or RNA Sequencing to identify which genes are over- or under-expressed in the whole genome and then apply real-time PCR to a specific set of those genes to accurately quantify gene expression. The process is referred to as discovery and validation.
MicroRNA moleculesAlthough all humans contain the same set of genes, the actual sequence of each gene may vary from one individual to another, as well as between cells in the same individual. This phenomenon is commonly referred to as genetic variation and can have important medical consequences. Genetic variation affects disease susceptibility, including predisposition to cancer, diabetes, cardiovascular disease and Alzheimer’s disease. In addition, genetic variation may cause people to respond differently to the same drug treatment. One common form of genetic variation is a single-nucleotide polymorphism (“SNP”).
A SNP is a variation in a single “letter” at a specific position in the DNA sequence that differs from a reference sequence for a population. While in some cases a single SNP will be responsible for medically important effects, it is now believed that combinations of SNPs may contribute to the development of most common diseases. Since there are small non-protein-coding single-stranded RNA moleculesgenerally millions of 21-23 nucleotidesSNPs in length that function as negative regulators of gene expression by targeting specific mRNA molecules. This either inhibits translation or promotes mRNA degradation. We believe cancer diagnosis, prognosis, and treatment arean individual, it is important potential clinical applications of microRNA profiling.to investigate many SNPs simultaneously in order to discover medically valuable information.
Products
SmartChip System
Our SmartChip System provides a suite of gene expression and genome analysis technologies enabling both biomarker discovery and validation on a single platform with the sensitivity and accuracy of real-time PCR. WaferGen’s SmartChip Real-Time PCR System consists of two instrumentation components: a SmartChip MultiSample Nanodispenser (“MSND”)MSND for applying sample, assay and reaction mix to the SmartChip Panels, and a SmartChip Cycler for thermal cycling and collecting data from the real-time PCR assays. For large studies, our SmartChips are provided with sub-nanoliter (one-billionth of a liter) oligoneucleotide5oligonucleotide (a short nucleic acid polymer, typically with twenty or fewer bases) reagents of the customer’s choosing pre-loaded in the wells. For smaller projects, the user has the flexibility to purchase empty SmartChips and both samples and assays can be dispensed into the SmartChips at the customer’s site using the MSND. Sub-microliter (one-millionth of a liter) dispensing of samples into a 5,184-well chip enables high throughput real-time PCR amplification of pathway-based gene discovery. Our SmartChip Panels are designed with evaporation control measures that allow for the use of nanoliter volumes, thermal cycling and temperature control. Our software system also analyzes the high throughput data after the completion of the real-time PCR analysis. The user friendly, content-ready SmartChip System is designed to accept samples out of the box, incorporating many of the necessary substrates and chemicals.
The SmartChip System is engineered to deliver superior performance with the combination of high sensitivity and high throughput on a single chip, enabling scientists to broadly view gene expression patterns over a large dynamic range. The genetic analysis using the SmartChip System is expected to require one day versus what would currently takerequires only a couple of days to weeksperform genetic analyses that took several months to discoverperform utilizing traditional methods, which involved discovery of the gene expression signature with microarrays, and then verifyfollowed by verification of the signature with real time PCR utilizing existing genetic analysis systems.PCR. As more clinical studies are carried out using validated gene sets, we believe the market will require, and demand, higher throughput solutions to process large numbers of clinical samples. Today’s solutions typically allow only a few patients’ samples per chip.to be processed. We offer a throughput capability that allows hundreds of samples on a single chip.
5 | An oligonucleotide is a short nucleic acid polymer, typically with twenty or fewer bases. |
We believe our SmartChip System is also capable of achievingsaving time savings when compared to existing technologies. Research analyzing the whole genome utilizing currently available real-time PCR technology takes weeks to months due to multiple plates and hundreds of pipetting steps required. Our SmartChip System has the ability to quantitatively analyze the gene specific pathways or whole genome with the performance of real-time PCR technology in as short as a single day, and represents a significant advancement. In addition, our development of the SmartChip System seeks to allow 5,184 data points per chip, which could enable a large number of reactions to run in parallel, thus addressing unmet needs of the clinical trial market, compared to today’s leading technologies, which are limited in throughput to 96 wells, 384 wells and 1,536 wells. Competitors in the market place that offer high throughput, like the Fluidigm Biomark, which offers a maximum throughput of 9,2009,216 assays per chip, still limitslimit the validation market by offering products that can only run up to 96 assaysfixed sample and samples on a single chip.assay formats which may not be optimal for the application.
SmartChip System Capabilities
Our SmartChip System is an integrated instrument and software system capable of dispensing 100nl reactions into the 5,184-well SmartChip, thermal cycling, real-time detection and primary data analysis, and provides the following capabilities:
Open-Platform Custom Assays (MyDesign). Our SmartChip System was upgraded in 2012 to provide the capability to customize our open platform panels for gene expression and genotyping studies according to the researcher’s specific needs. The customer has the flexibility to dispense both assays and samples into the 5,184 nanowell panels in numerous configurations. The system has access to millions of predesigned PCR assays for the detection of human, mouse and rat genes. Applications include: validation of genomic next-generation sequencing, RNA-Seq and Chip-Seq data; validation of microarray results; and expansion of assay panels to better understand biological systems.
Custom SNP Genotyping Panels. Although a single SNP may be responsible for medically important effects, it is now believed that combinations of SNPs may contribute to the development of most common diseases. Our custom SNP Genotyping Panels are developed to cost-effectively investigate multiple SNP genotypes simultaneously and are customized for the required scope of the study. Genotyping clusters from single or multiple runs are visualized using our SmartChip System’s proprietary software.
SmartChip Single-Cell Isolation System
Human microRNA Panel V3. MicroRNA species haveThe ICELL8 Single-Cell System can isolate thousands of single cells and processes specific cells for analysis, including NGS. The system has demonstrated unbiased isolation, regardless of cell size, of up to 1,800 single cells, ranging from 5-100 micrometers in size on a key regulatory rolesingle chip including single cells from solid tumors, brain cells, pulmonary airway cells, and multiple cell lines. ICELL8 comprises the SmartChip and MSND, already in the functioningmarket, which have now been modified for single cell isolation and analysis. The ICELL8 Chip technology is developed for single-cell isolation through individual nanowell barcoding for cell registration and reagent optimization to enhance cell separation and viability. In addition, the CellSelect software images cells, identifies wells that contain a single cell and then directs dispensing of gene expression. To evaluate these species, our microRNA Panel V3 isreagents only to wells that contain single cells. A Poisson distribution method dispenses 1,000 to 2,000 individual cells per 5,184 nanowell chip. The MSND can also be used to quantitatively measureprocess hundreds of cells from multiple samples in the expressionsame SmartChip. We collaborated with the Broad Institute to obtain proof of concept for cell isolation processes and RNA-Seq analysis that we used to develop the most disease-relevant 1,100 human microRNA species in quadruplicate. The panel includes pre-optimized primer pairsproducts designed for SCA. In mid-2015, we signed on four early access partners for our SmartChip SCA products - Karolinska Institutet, National Jewish Hospital, Genentech and MD Anderson Cancer Center. We have collaborated with our early access partners to show that have been selected using strict bioinformatics criteria to provide single-base discrimination, high sensitivity and reproducible amplification.
Human Oncology Panel V2. Our Human Oncology Panel is used for cancer-related pathway profiling. The panel is pre-loaded with optimized real-time PCR assays in quadruplicate for eachwe can reproducibly sequence thousands of cells. Feedback on various aspects of the over 1,200 oncology-related genes.
Human Long Non-Coding RNA-1 Panels. lncRNA-1 panels are used for profilingproduct from these early access partners was overwhelmingly positive - researchers particularly like the emerging areaworkflow ease, the ability to handle multiple cell types including human patient samples such as freshly operated tumors, and the ensuing data quality. Thus, the ICELL8 single-cell system, which was commercially launched in October 2015, is the only system on the market that can span the gamut of “dark matter” RNAs, which are believedhundreds to be key regulatorsthousands of transcription, with possible relevancecells and have the ability to processes asprocess diverse as cancer progression and embryonic differentiation. The panel contains over 1,700 triplicate, pre-dispensed extensively tested PCR assays to provide lncRNA validation with precision and sensitivity.
SmartChip Target Enrichment (TE) System
The concept of the SmartChip TE System is toand Seq-Ready TE Systems use the SmartChip consumable for amplifying the targets of interest via PCR andPCR. Researchers then remove the resulting amplified material for further processing prior to sequencing. The key purported advantage of our approach is that we conduct massively parallel individual PCR reactions for target enrichment, whereas other PCR-based techniques use highly multiplexed PCR, which means that they conduct hundreds, if not thousands of PCR reactions in a single tube. By having individualseparating PCR reactions theinto individual wells, our SmartChip TE System offers a much better controlled chemo-enzymatic process that might ultimately translate into higher quality sequencing results. This should be especially important in clinical sequencing, where assays of a high sensitivity and specificity are required. We are planning to offer multiple consumable formats of different densities (number of nano-wells), so that, depending on the number of targets required for a particular study, a single samplesamples can be
dispensed over the whole chip.chip in flexible configurations. This approach has two advantages - first, it is easierenables the system to extract the amplified materialenrich targets without cross-contamination with other samples and second, we can offer a simple and cheap single-sample dispenser, thereby reducingprovides the customers’ barrierflexibility to purchase due to high capital investment.
customize targets. This system includes:
Apollo 324TMCustom Target Enrichment Library Preparation. Targets of interest can vary greatly based on the area of research and the needs of individual laboratories. The Seq-Ready TE System offers the ability to design amplicons which can be customized to enrich only specific targets identified by the researcher.
Seq-Ready TE MultiSample BRCA1/2 Panel. A pre-designed target enrichment panel containing 139 unique primer pairs targeting all of the coding regions in BRCA1 and BRCA2 genes, which are key genes identified for breast cancer research, is available as an off the shelf product.
Apollo 324 Library Preparation
In January 2014, we entered into an Asset Purchase Agreement withacquired from IntegenX Inc. (“IntegenX”), pursuant to which we acquired substantially all of the assets of its product line used in connection with developing, manufacturing, marketing and selling instruments and reagents relating to library preparation for next generation sequencing,NGS, including the Apollo 324TM instrument and the PrepXTM reagents (the “Apollo Business”). The purchase price for the Apollo Business comprised (1) a cash payment of $2.0 million, (2) a $1.25 million secured promissory note, (3) up to three earn-out payments payable, if at all, in 2015, 2016 and 2017, respectively (the “Earnout”), and (4) our assumption of certain liabilities, including obligations to perform under contracts and liabilities for certain accrued but unpaid vacation for certain employees.
The Note accrues interest at 8.0% per year and is payable in a single payment of principal and accrued interest on January 6, 2017. However if, prior to the Note’s maturity, we complete an equity offering yielding net cash proceeds of at least $15.0 million, we will be required to prepay the Note within 45 days of the closing of the equity offering. To secure our obligations under the Note, we granted IntegenX a security interest in the assets acquired from them.
The Apollo 324TM System is a compact, walk-away automation platform offering DNA, RNA-Seq, and ChIP-Seq library preparation kits for analysis on popular NGS platforms from Illumina, Inc. (“Illumina”) (GA, HiSeq and MiSeq), LIFEThermo Fisher Scientific, Inc. (“Thermo”) (Ion Proton and Ion Torrent PGM), and the Roche family of companies (“Roche”) (GS Junior GS FLX and GS FLX+). The intuitive and easy-to-use PrepXTM automation protocols and reagent kits enable the set-up of a run with as little as 15 minutes of hands-on time. The user can return in about 90 minutes for sequencer-ready DNA or ChIP-Seq libraries, or about 5 hours for RNA-seq libraries. The system offers the flexibility to start a run with a single library without wasting reagents.
We expect the Apollo Business will be highly synergistic with our existing products, especially our SmartChip TE System offerings. Serving the same customer base, the two products together address a wide spectrum of customer needs in sample preparation for NGS and enable one-stop shopping for laboratories performing targeted sequencing. The fully automated Apollo 324TM library prep solution has been a market leader in the low to medium throughput NGS market segment with an expanding installed base, serving a diverse set of clients from university research labs, pharmaceutical and agricultural companies, to diagnostic clinical labs. We believe customers favor the Apollo 324TM library prep solution for its reliability, turnaround and hands-on time, as well as sample quantity input requirement. We intend to build upon its success
The Apollo Business is highly synergistic with innovative new applications for this system, as well as with integratedour existing products, that include theespecially our SmartChip TE platform.System offerings. Serving the same customer base, the two products together address a wide spectrum of customer needs in sample preparation for NGS and enable one-stop shopping for laboratories performing targeted sequencing.
Market Applications of the SmartChip System and the ICell8 Single-Cell System
We believe the ICELL8 and SmartChip System,Systems, with itstheir advantages of higher throughput, lower cost, and superior sensitivity and genomic analysis capabilities, can address the following markets:
Biomarker Discovery and Validation. New targets for drugs can be identified through the analysis of gene profile expression (biomarkers) in diseased cells.cells via PCR or RNA-Seq. Potential applications include multiple cancers, arthritis,neurological, immunological, arthritic and lung diseases.
| • | Drug Efficacy and Optimization. Genetic analysis is being used to determine the likely toxicity (toxicogenomics) of new drugs and the likelihood of therapeutic response to a specific genetic profile (pharmacogenomics). FDADrug Efficacy and Optimization. Genetic analysis is being used to determine the likely toxicity (toxicogenomics) of new drugs and the likelihood of therapeutic response to a specific genetic profile (pharmacogenomics). Federal Drug Administration (“FDA”) guidance6 calls for drug companies to voluntarily submit pharmacogenomic data to support their drug development programs. |
Drug Response Monitoring. Patient outcomes can be improved by evaluation of a proposed drug’s potency and specificity in order to determine individualized patient dosing, thereby decreasing adverse drug reactions, and improving drug efficacy.
| • | Detection of Rare Mutations. The Cancer Genome Project is using the human genome sequence and high throughput mutation detection techniques to identify somatically acquired7 sequence variants/mutations and hence identify genes critical in the development of human cancers. |
Detection of Rare Mutations. The Cancer Genome Project is using the human genome sequence and high throughput mutation detection techniques to identify somatically acquired sequence variants/mutations (which arise in individual cells in the body outside the “germ-line” (sperm and egg) cells that created the individual, and hence not present in all of a person’s cells) and hence identify genes critical in the development of human cancers.
Clinical NGS Applications. Key discoveries enabled by Next Generation Sequencing, in addition to continued cost and workflow efficiencies, are resulting in the widespread adoption of NGS in clinical research and routine diagnostic applications. Leading areas driving clinical NGS include constitutional and complex diseases.
Biomarker Discovery and Validation: Gene expression patterns (biomarkers) related to specific diseases are becoming increasingly important in drug development. Comparison of gene expression patterns between normal and diseased patientstissues or single cells, expression profiles in the presence or absence of drugs leadscan lead to discovery of genes or a set of genes that can be used in drug development. This requires monitoring of tens, hundreds or thousands of mRNAs in large numbers. A typical genetic
6 | FDA News Release - March 22, 2005 – issued a final guidance titled “Pharmacogenomic Data Submissions.” |
7 | Mutations rising in individual cells in the body outside the “germ-line” (sperm and egg) cells that created the individual, and hence not present in all of a person’s cells. |
analysis currently involves the use of NGS or microarrays to identify genes, which are either over-expressed or under-expressed in a small subset of patients. After detailed bioinformatics analysis, a number of differentially expressed genes (two to 200) are evaluated using real-time PCR or targeted NGS in a different subset of patients (50 to 100). The differentially expressed genes in thisa patient group are then validated using a larger patient group.
This sequential process may take from many months to a few years to complete using currently available techniques. The limitation in today’s gene expression studies is the use of microarrays as a starting point for discovery, which only provides a partial glimpse of the expression profile. Real-time PCR techniques, which offer significantly increased sensitivity, are limited in throughput and are cost prohibitive for whole genome analysis. Biomarker investigation requires multiples of such analyses to confirm discovery.
Drug Efficacy and Optimization: Clinical trials are the most expensive phase for pharmaceutical drug development. The use of gene expression and genotyping is becoming critical to identify a safe drug (toxicogenomics) for the right patient population (pharmacogenomics). Once a set of genes (biomarker) is identified, they are used in numerous samples in clinical trials for pattern recognition, toxicity profiling and patient selection. Similarly, locations of SNPs involved in disease variation and metabolism are also being utilized in clinical trials to understand disease predisposition, requiring thousands of samples to be analyzed.
In its pharmacogenomic data submissions guidance referred to above, the FDA has asked for voluntary data submission utilizing these genetic approaches in clinical trials. This has created a need for reliable, high throughput, cost-effective technologies. Today’s hybridization-based techniques cannot process more than 24 samples at a time. Thus, for a clinical trial of 1,000 patients, one would need to use at least 40 chips. Established real time PCR instrument suppliers typically process 96 to 1,536 data points. Our SmartChip System has the ability to study 5,184 assays on a single chip, and thus offers a marked increase in the number of samples that can be evaluated in a single run. This format also enables investigators to interrogate the expression of a large panel of genes of interest with a limited amount of the biological sample.
Drug Response Monitoring: In addition to studying gene expression, genotyping measures genetic variation in the DNA. Sometimes it is not a single variation but the combination of these sequence differences that may lead to a disease state or a response to a specific therapy. For this reason, researchers look at patterns of these variations in a large number of healthy and affected patients in order to correlate SNPs with a specific disease. Large-scale genotyping studies are being conducted in various genome centers around the world, driven by available research funds, resulting in the greater demand for cost effective high throughput solutions.
Detection of Rare Mutations: The Cancer Genome Project’s DNA sequencing of patients’ tumors is underway and is rapidly defining cancer-causing mutations. Today, this is accomplished by using hybridization approaches which are unable to detect rare somatic mutations. Such techniques require the use of more sensitive methods like PCR and require genotyping of many samples (50 to 500). WaferGen uses allele-specific PCR with the SmartChip System to enable genotyping at multiple sites in multiple samples, as well as to provide a robust solution for detecting rare mutations. Allele-selective PCR is able to reliably detect SNPs (germ-line) as well as minority (somatic) mutations at sensitivity range of 100 to 10,000 mutations.
Clinical NGS Applications: Recent advances in sequencing technology have resulted in dramatically lower sequencing costs and highly efficient workflows, enabling NGS to be used for routine clinical applications. In combination with key discoveries of clinically relevant targets enabled by NGS, this has resulted in the need for the efficient interrogation of multiple targets simultaneously. This need has been well demonstrated for key complex diseases, such as cancer, where targeted NGS panels are now used widely. Existing methods, including Sanger sequencing and traditional PCR, are limited because of inherent challenges with multiplexing, workflows, and turnaround times for large numbers of targets.
Future Applications –- From Research to Diagnostics: NewNewly discovered biomarkers forfrom NGS, gene expression and genotyping studies are eventually expected to become essential forrapidly being adopted by practicing physicians to identify the right drug for the right patients and leadare leading to new ways of diagnosing and monitoring diseases. Biomarkers and platforms that are being used in clinical trials for a particular therapy are expected to become a standard for molecular diagnostics. This personalized medicine market requiring personalized genomic analysis is stillrapidly growing and will become a new standard in its early development.healthcare.
Competition
We believe the industry leaders in the markets in which WaferGen competes are LIFE, Fluidigm Corporation (“Fluidigm”), Illumina, Thermo, Agilent Technologies, Inc., 10X Genomics, Inc. and PerkinElmer, Inc. Other companies known to be currently serving the genetic analysis market include Affymetrix, Inc., GE Healthcare (a business segment of General Electric Company)Becton Dickinson and Company, , Bio-Rad Laboratories, Inc., Eppendorf AG, Beckman Coulter, Inc., Luminex Corporation, Cepheid, Pacific Biosciences of California, Inc., NanoString Technologies, Inc., Sequenom, Inc., RainDance Technologies, Inc., Qiagen N.V., Biometra Biomedizinische Analytik GmbH, Enzo Biochem,
Inc., Idaho Technologies,Biomerieux, Inc. and the Roche family of companies.Roche. The marketplace for gene expression technologies is highly competitive, with many of the major players already controlling significant market share, many of which have significantly greater financial, technology,technological and other resources than we do. Illumina is the leader in microarraysNGS and LIFEThermo is the market leader for real-time PCR. These two companies also have a commanding market sharePCR and is second in NGS.the NGS market. We believe gene expression is a growing market and this market is driven by the need for RNA-Seq and higher throughput real-time PCR performance for discovery, and a higher throughput platform for validation,platforms, to overcome the limitations of microarrays and real time low plex PCR technologies that are currently used for discovery and validation respectively.validation. WaferGen’s SmartChip Real Time PCR
System is presently the only platform that offers a single solution for both biomarker discovery and validation with low running costs, simplified workflow and fast results. In single-cell, Fluidigm is the established market leader and Becton Dickinson Genomics is integrating FAC-Seq with SCA. WaferGen’s ICELL8 SCA System is presently the only platform that has the ability to analyze cells of any size with unbiased cell isolation coupled with the ability to choose and analyze specific cells utilizing automated imaging. Our competitors could compete with us by developing new products similar to our SmartChip System.or the ICELL8 Systems. Even though we believe that we have created a unique solution, this does not mean that our competitors will not develop effective products to compete with our products.
Sales and Marketing
In July 2012,During 2014 and 2015, we announced the launch of an open format product offering forramped up our SmartChip System which allows customers to dispense their own assays and samples into SmartChipsinvestment in a variety of configurations, thus enabling an easy and rapid design of new experiments. We decided to invest in scientific resources focused on a strategy to engage an array of key opinion leaders in our target market, enabling the profiling and validation of high-value genomic targets. We also started investing in our sales and marketing activities at that time.to service the academic and medical research market, pharmaceutical and biotech companies and clinical testing laboratories. By the end of 2015, we had a direct sales force of more than a dozen employees in the United States and Europe, plus select distribution partners in other regions of the world.
WithDespite the advent of next-generation sequencing into the life science marketplace in 2007, thereincreased investment, WaferGen still has been a dramatic increase in the amount of genomic content that is available to researchers beyond what other genomic technologies have generated. However, there is an equally dramatic and rapidly growing unmet need to validate and confirm the results of this sequencing information to find clinically relevant biomarkers. In particular, the data from RNA sequencing experiments, in which researchers are evaluating gene expression levels, is well suited to the high throughput validation of the SmartChip platform. This ability to accurately make quantitative genome measurements is an integral tool in enabling researchers to verify the results coming from next-generation sequencers. Once verified, this content creates a larger, longer term opportunity for us as we significantly increase the ability of researchers to validate high value genomic targets for their ultimate use in developing new and improved drugs and diagnostic tests.
However, WaferGen has very limited sales and marketing resources.resources compared to some of our competitors. We will need to make substantial investments intoincrease investment in our sales and marketing infrastructure in order to be competitive in the marketplace (see “Risk Factors” below).
marketplace.
Seasonality
We do not have sufficient product history to determine seasonality with a high degree of confidence. We expect that customers’ purchasing patterns will not show significant seasonal variation, although demand for our products may be highest in the fourth quarter of the calendar year as pharmaceutical and academic customers typically spend unused budget allocations before the end of the fiscal year.
Sources and Availability of Raw Material and Principal Suppliers
The raw materials used in the manufacturing of our products are for the most part readily available from numerous sources.
Research and Development
Our research and development efforts are aimed at developing new products and new applications, improving existing products, improving product quality and reducing production costs. Our research and development expenses were approximately $5.40$9.28 million for the year ended December 31, 20132015 and $6.16$6.72 million for the year ended December 31, 2012.
2014.
Intellectual Property and Other Proprietary Rights
We are pursuing an intellectual property portfolio, including filing a number of U.S. and international patent applications and in-licensing certain patents covering products, methodologies, integration and applications. We presently have foursix patents issued and fivetwelve pending in the U.S. with respect to our SmartChip products and technologies, and a number of pending SmartChip-related patent applications worldwide. We also have one U.S. patent pending with respect to our Apollo 324TM products and technologies. In addition to our patents, we rely on trade secrets, know-how, and copyright and trademark protection. Our success may depend on our ability to protect our intellectual property rights.
Government Regulation and Environmental Matters
We are subject to a variety of federal, state and municipal environmental and safety laws based on our use of hazardous materials in both our manufacturing and research and development operations. We believe that we are in material compliance with applicable environmental laws and regulations. Compliance with environmental laws does not currently cause us to incur material costs. If we cause contamination to the environment, intentionally or unintentionally, we could be responsible for damages related to the clean-up of such contamination or individual injury caused by such contamination. We cannot predict how changes in the laws and regulations will impact how we conduct our business operations in the future or whether the costs of compliance will increase in the future.
Regulation by governmental authorities in the United States and other countries is not expected to becurrently a significant factor in the manufacturing, labeling, distribution and marketing of our products and systems. However, developments in FDA regulations, as
well as the emergence of clinical NGS applications, may result in our products becoming subject to FDA regulation, particularly if, in the future, potential clinical NGS applications cause our products to become subject to FDA medical device regulations.
Corporate History
Wafergen, Inc. was incorporated in the state of Delaware in October 2002. On May 31, 2007, Wafergen, Inc. was acquired by WaferGen Bio-systems, Inc., a Nevada corporation. In the transaction, Wafergen, Inc. merged with a subsidiary of WaferGen Bio-systems, Inc. and became a wholly owned subsidiary of WaferGen Bio-systems, Inc.
Employees
We have assembled a team of highly qualified scientists, engineers and business managers to support our product development and commercialization activities. Their efforts will continue to focus on expanding, improving and commercializing our core technologies. As of December 31, 2013,2015, we had 2854 regular employees, all53 of whom were employed full-time, compared to 3246 regular employees as of December 31, 2012, 312014, 45 of whom were employed full-time. None of our employees are represented by a labor union, and we consider our employee relations to be good. We believe that our future success will depend, in part, on our continued ability to attract, hire and retain qualified personnel.
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. This discussion highlights some of the risks that may affect future operating results. These are the risks and uncertainties we believe are most important to consider. We cannot be certain that we will successfully address these risks. If we are unable to address these risks, our business may not grow, our stock price may suffer and we may be unable to stay in business. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations.
Risks Related to Our Company and Our Business
We have generated only limited sales, have a history of operating losses and we may not be able to reach profitability.
We have a history of losses and expect to continue to incur operating and net losses for the foreseeable future. We incurred a net loss of $16.3$15.3 million for the year ended December 31, 2013.2015. As of December 31, 2013,2015, our accumulated deficit was $80.8$106.8 million. We have not achieved operating profitability on a quarterly or annual basis.
Historically, there have been limited sales of any of our products, and having sold ten systems in the fifteen months ended March 31, 2011, we experienced no system sales during the fifteen months ended June 30, 2012, and sold two MyDesign systems in the six months ended December 31, 2012. In 2013 we sold four MyDesign systems plus one high volume and eight regular TE systems.products. Our revenues were $2.2 million for the year ended December 31, 2010, $0.5 million for the year ended December 31, 2011, $0.6 million for the year ended December 31, 2012, and $1.3 million for the year ended December 31, 2013.2013, $6.0 million for the year ended December 31, 2014 and $7.2 million for the year ended December 31, 2015. We will need to significantly grow our revenues to become profitable.
We will need to raise additional capital to meet our business requirements in the future and such capital raising may be costly or difficult to obtain and could dilute current stockholders’ ownership interests.
We have incurred losses since inception and expect to continue to incur losses until we are able to significantly grow our revenues. Accordingly we willmay need additional financing to maintain and expand our business. Such financing may not be available on favorable terms, if at all. Any additional capital raised through the sale of equity or equity linked securities may dilute current stockholders’ ownership percentages and could also result in a decrease in the market value of our equity securities. The terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding.
If we are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders would receive any distribution on their shares. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—LiquidityOperations-Liquidity and Capital Resources” below.in Part II, Item 7 in this Annual Report. Further, we may not be able to continue operating if we do not generate sufficient revenues from operations, neededwe may not be able to stay in business.
In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible promissory notes and warrants, which may adversely impact our financial results.
We may not be able to continue as a going concern.
Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have a history of operating losses that are likely to continue in the future. We have included an explanatory paragraph in Note 1 of our consolidated financial statements for the year ended December 31, 2013, to the effect that our significant losses from operations and our dependence on equity and debt financing raise substantial doubt about our ability to continue as a going concern. Our accumulated deficit at December 31, 2013, was $80.8 million. Our consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
We have a limited history of commercial sales of systems and consumable products, and our success depends on our ability to develop commercially successful products and on market acceptance of our new and relatively unproven technologies.
Our future is dependent upon the success of the current and future generations of one or more of the products we sell or propose to sell, including the SmartChip System.System and Apollo instruments. We may not possess all of the resources, capability and intellectual property rights necessary to develop and commercialize all of the products or services that may result from our technologies. Our long-term viability, growth and profitability will depend upon successful testing, approval and commercialization of the SmartChip System incorporating our technology resulting from our research and development activities. Adverse or inconclusive results in the development and testing of our SmartChip Systemproducts could significantly delay or ultimately preclude commercialization of our technology. Accordingly, there is only a limited basis upon which to evaluate our business and prospects. An investor in our Company should consider the challenges, expenses, and difficulties we will face as an emerging company seeking to develop and manufacture a new product in a relatively new and rapidly changing market.
We must conduct a substantial amount Some of additional research and development before somethe factors affecting market acceptance of our products will be ready for sale.and services include:
availability, quality and price of our products and services compared to our competitors’;
the functionality of our products and services, and whether they address market requirements;
the timing of introduction of our products and services as compared to our competitors’;
the existence of product defects; and
scientists’ and customers’ opinions of our products and services and our ability to incorporate their feedback into future products and services.
Our business is dependent on our ability to improve our existing products, to develop new products that serve existing markets, and to develop new products that create new markets and applications that were previously not practical with existing systems. We currently have fewer resources available for research and development activities than many of our competitors. We may not be able to develop or launch new products in a timely manner, or at all, or they may not meet customer requirements or be of sufficient quality or at a price that enables us to compete effectively in the marketplace. Challenges frequently encountered in connection with the development or early commercialization of products and services using new and relatively unproven technologies might limit our ability to develop and successfully commercialize these products and services. In addition, weIf our research and product development efforts do not result in commercially viable products within anticipated timelines, if at all, our business and results of operations may needbe adversely affected.
We expect to enter into agreementsmake significant investments to obtain the intellectual property rights necessary to commercialize some of our products or services,research and develop Smart Chip-based solutions for single-cell genomics, which may not be available on favorable terms, or at all.
successful.
We have a limited operating historyare currently focusing our R&D efforts on the development and commercialization of Smart Chip-based solutions for investors to evaluate our business.
single-cell genomics. We have had limited operations in the genetic analysis segment of the life science industry. Since we are a company with a limited operating history developing products focused on the analysis of genetic functiondevoted, and variation, it is difficult for potential investorsexpect to evaluate our business. Our future operations and growth will likely depend on our abilitycontinue to fully develop and market our SmartChip products and services. Our proposed operations are subjectdevote, significant resources to all of the risks inherent in developing and growing a new business in light of the expenses, difficulties, complications and delays frequently encountered in connection with the development of any new business, as well as those risks that are specificsingle-cell products. Our efforts to the life science industry. In evaluatingdevelop single-cell analysis products may not be successful, may cause us investors should consider the delays, expenses, problemsto incur significant expense and uncertainties frequently encountered by companies developing markets for new products, services and technologies.may distract our management from successfully commercializing existing products. We may never overcome these obstaclesnot be able to introduce products for single-cell genomics as quickly as anticipated. Any single-cell analysis products we develop will be subject to significant research and become profitable.testing, which may be a lengthy and expensive process. There can be no guarantee that we will develop any products that would be commercially viable. If we determine that our single-cell analysis programs, or any future development programs, are unlikely to succeed, we may abandon them without any return on our investment into those programs.
Because our business depends on research and development spending levels for pharmaceutical and biotechnology companies and academic and governmental research institutions, our success and our operating results will substantially depend on these customers.
We expect that much of our revenuesrevenue in the foreseeable future will be derived primarily from products and services provided to a relatively small number of pharmaceutical and biotechnology companies and academic, governmental and other research institutions. Our success will depend upon their demand for and use of our products and services. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers. For example,
reductions in capital or operating expenditures by these customers may result in lower than expected instrumentation sales and similarly, reductions in operating expenditures by these customers could result in lower than expected sales by us.
A number of our customers and potential customers rely on government funding for their research and development expenditures. A significant or prolonged decrease in government funding for academic or scientific research may significantly impact our customers’ and potential customers’ research and development expenditures, which could have an adverse impact on future revenues and results of operations.
We expect that our results of operations will fluctuate, which could cause our stock price to decline.
Our revenue is subject to fluctuations due to the timing of sales of high-value products, and service projects, the impact of seasonal spending patterns, the timing and size of research projects our customers perform, changes in overall spending levels in the life sciences industry, the timing and amount of government grant funding programs and other unpredictable factors that may affect customer ordering patterns. Given the difficulty in predicting the timing and magnitude of sales for our products and services, we may experience quarter-to-quarter fluctuations in revenue and/or a sequential decline in quarterly revenue.
If revenue does not grow significantly, we will not be able to achieve and maintain profitability. Any significant delays in the commercial launch of our products, unfavorable sales trends in our existing product lines, or impacts from the other factors mentioned above could adversely affect our revenue growth or cause a sequential decline in quarterly revenues. Further, our net income/loss is subject to significant fluctuations due to the revaluation of derivative liabilities, driven principally by changes in the price of our stock. Due to the possibility of fluctuations in our revenue and expenses, we believe that quarterly comparisons of our results are not a good indication of our future performance. If our operating results fluctuate or do not meet the expectations of stock market analysts and investors, our stock price probably would decline.
If we lose our key personnel or are unable to attract and retain additional qualified personnel, we may be unable to achieve our goals.
We are highly dependent on our management and scientific personnel, including our chief executive officer and chief financial officer.personnel. The loss of their services could adversely impact our ability to achieve our business objectives. We compete for qualified management and scientific personnel with other life science companies, universities and research institutions, particularly those focusing on genomics. Competition for these individuals, particularly in the San Francisco Bay area, is intense, and the turnover rate can be high. Our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating existing employees. Failure to attract and retain management and scientific personnel could materially adversely affect our business, financial condition and results of operations.
Our results may be impacted by changes in foreign currency exchange rates.
Since we sell and source products in many different countries, changes in exchange rates could adversely affect our cash flows and results of operations in the future. Furthermore, reported sales and purchases made in non-U.S. currencies, when translated into U.S. dollars for financial reporting purposes, fluctuate due to exchange rate movement. We have identified material weaknesses in our internal control over financial reporting. cannot predict the effect of exchange rate fluctuations on future sales and operating results.
If we fail to correct these weaknesses or maintain an effective system of internal controls, we may not be able to accurately report our financial results or detect fraud. Consequently, investors could lose confidence in our financial reporting and this may decrease the trading price of our common stock.
We must maintain effective disclosure and internal controls to provide reliable financial reports. We have been assessing our controls to identify areas that need improvement. Based on our evaluation as of December 31, 2013,2015, we concluded that there were material weaknesses in our internaldisclosure controls and procedures were effective as of December 31, 2013. We are2015, however, we have identified material weaknesses in the process of implementing improvements to our controls, but have not yet completed implementing these changes.past and may do so again in the future. Failure to implement these changes tomaintain the improvements in our controls or any others that we identify as necessary to maintain an effective system of such controls could harm our ability to accurately report our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our common stock.
The restatementAny failure to maintain adequate disclosure and internal controls may result in restatements of our financial statements has subjectedand may cause us to additional risks and uncertainties, including the increased possibility of legal proceedings.
As a result of the restatement of our condensed consolidated financial statements for the three- and nine-month periods ended September 30, 2013, we have become subject to additional risks and uncertainties, including, among others, increased
professional fees and expenses, the increased possibility of legal proceedings theand review ofby the Securities and Exchange Commission (the “SEC”) and other regulatory bodies which could cause investors to lose confidence in our reported financial information and could subject us to civil or criminal penalties, shareholder class actions or derivative actions. We could face monetary judgments, penalties or other sanctions that could have a material adverse effect on our business, financial condition and results of operations and could cause our stock price to decline.
Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products or services or adversely impact our stock price.
Our commercial success depends in part on our non-infringement of the patents or proprietary rights of third parties and the ability to protect our own intellectual property.
Third parties may assert that we are employing their proprietary technology without authorization even if we are not. As we enter new markets, we expect that competitors will likely assert that our products infringe their intellectual property rights as part of a business strategy to impede our successful entry into those markets. Third parties such as Life Technologies Corporation, the Roche family of companies, Biometra Biomedizinische Analytik GmbH, Bio-Rad Laboratories, Inc., Eppendorf AG, Enzo Biochem, Inc., Affymetrix, Inc., Illumina, Inc., Agilent Technologies, Inc., GE Healthcare, Beckman Coulter, Inc., Sequenom, Inc., RainDance Technologies, Inc., Qiagen N.V., Idaho Technology, Inc., PerkinElmer, Inc., Fluidigm Corporation, Cepheid, Pacific Biosciences of California, Inc., the Exiqon family of companies, Luminex Corporation and others may have obtained, and may in the future obtain, patents and claim that manufacture, use and/our products or sale of our technologies, methods or products infringesactivities infringe these patents. We could incur substantial costs and divert the attention of our management and technical personnel in defending ourselves against these claims even if we are eventually successful in defending ourselves against these claims. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which effectively could block our ability to further develop, commercialize, manufacture, use and sell methods and products, and could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties, or be prohibited from making, using or selling certain methods and/or products. We may not be able to obtain these licenses at a reasonable cost, or at all. In that event, we could encounter delays in product introductions while we attempt to develop alternative methods or products. Defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing products, and the prohibition of sale of any of our products could materially affect our ability to grow and to attain profitability.
Our proprietary intellectual property rights may not adequately protect our products and technologies.
Although we have filed a number of United States and international patent applications, we presently have foursix patents issued in the United States, which do not cover all of our products and technologies. Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for our products and technologies. Patent law relating to claims in the technology fields in which we operate is uncertain, so we cannot be assured the patent rights we have, or may obtain in future, will be valuable or enforceable. We may only be able to protect products and technologies from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover them. Furthermore, the degree of future protection of our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep a competitive advantage.
The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States. The laws of some countries other than the United States do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or pharmaceuticals, which could make it difficult for us to stop the infringement of any patents we may obtain in such countries. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example:
we might not have been the first to conceive or reduce to practice one or more inventions disclosed in our pending patent applications;
we might not have been the first to file patent applications for these inventions;
others may independently develop similar or alternative products and technologies or duplicate any of our products and technologies;
it is possible that none of our pending patent applications will result in issued patents, and even if they issue as patents, they may not provide a basis for commercially viable products, and/or may not provide us with any competitive advantages, or may be challenged and invalidated by third parties;
we may not develop additional proprietary products and technologies that are patentable; and
third-party patents may have an adverse effect on our ability to continue to grow our business.
We have applied, and continue to apply, for patents covering our intellectual property (e.g., products and technologies and uses thereof), as we deem appropriate. However, we may fail to apply for patents on products and/or technologies in a timely fashion or at all.
We also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we attempt to use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, or scientific and other advisors may unintentionally or willfully disclose our information to competitors. If we were to attempt to enforce a claim that a third-party had illegally obtained and was using our trade secrets, it could be expensive and time consuming, and the outcome could be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets than courts inside the United States. Moreover, if our competitors independently develop equivalent knowledge, methods and know-how, it may be difficult for us to enforce our intellectual property and our business could be harmed.
If we are not able to defend the patent or trade secret protection position of our products and technologies, then we may not be able to exclude competitors from developing or marketing competing products, and we may not generate enough revenue from product sales to justify the cost of development of our products and to achieve or maintain profitability.
We may be unable to protect thedo not presently have significant intellectual property rights of the third parties from whom we license certain of our intellectual property or with whom we have entered into other strategic relationships, which could negatively impact our competitive advantage.
None of our intellectual property rights are currently licensed from third parties but, in the future, we may have to license intellectual property from key strategic partners. We may become reliant upon such third parties to protect their intellectual property rights to any licensed technology. Such third parties may not protect the intellectual property rights that we license from them and we may be unable defend such intellectual property rights on our own or we may have to undertake costly litigation to defend the intellectual property rights of such third parties. There can be no assurances that we will continue to have proprietary rights to any of the intellectual property that we license from such third parties or otherwise have the right to use through similar strategic relationships. Any loss or limitations on use with respect to our right to use such intellectual property licensed from third parties or otherwise obtained from third parties or with whom we have entered into strategic relationships could negatively impact our competitive advantage.
We expectface intense competition in our target markets, which could render our products and/or technologies obsolete, result in significant price reductions or substantially limit the volume of products that we sell. This would limit our ability to compete and achieve and maintain profitability. If we cannot continuously develop and commercialize new products better than our competitors, our revenue may not grow as intended.intended and we may not be able to become or remain profitable.
Future competition will likely come from existing competitors as well as other companies seeking to develop new technologies for analyzing genetic information, such as next generation sequencing. Some of our competitors have various products and/or methodologies for gene detection, expression, characterization, and/or analyses that may be competitive with our products and/or methodologies. For example, companies such as 10X Genomics, Inc., Agilent Technologies, Inc., Fluidigm Corporation, Illumina, Inc., PerkinElmer, Inc. and Thermo Fisher Scientific, Inc. have products for genetic analysis that are directly competitive with certain of our products. In addition, pharmaceutical and biotechnology companies have significant needs for genomic information and may choose to develop or acquire competing technologies to meet these needs. In the molecular diagnostics field, competition will likely come from established diagnostic companies, companies developing and marketing DNA probe tests for genetic and other diseases and other companies conducting research on new technologies to ascertain and analyze genetic information. Further, in the event that we develop new technology and products that compete with existing technology and products of well-established companies, there can be no guarantee that the marketplace will readily adopt any such new technology and products that we may introduce in the future.
The market for genetic research and molecular diagnostic products is highly competitive, with several large companies already having significant market share. Many of our competitors have significantly greater financial, technical, marketing and other resources than we do. In addition, many current and potential competitors have greater name recognition, more extensive customer bases, well developed and productive collaborative arrangements with key companies and academic researchers and access to proprietary genetic content. Established genetic research and diagnostic companies also have an installed base of instruments in several markets, including clinical and reference laboratories. In addition, theseThese companies have formed alliances with genomics companies that provide them access to genetic information that may be incorporated into their diagnostic tests. We may not be able to compete effectively with these companies.
Our manufacturing capacity may limit our ability to sell our products.
There are uncertainties inherent in expanding our manufacturing capabilities and we may not be able to increase our capacity in a timely manner. For example, manufacturing and product quality issues may arise as we increase production rates at our manufacturing facility and launch new products. As a result, we may experience difficulties in meeting customer demand, in which case we could lose customers or be required to delay new product introductions, and demand for our products could decline. Due to the intricate nature of manufacturing products, we may encounter similar or previously unknown manufacturing difficulties in the future that could significantly reduce production yields, impact our ability to launch or sell these products, or to produce them economically, prevent us from achieving expected performance levels or cause us to set prices that hinder wide adoption by customers.
If demand for our products is reduced, our manufacturing capacity could be under-utilized and some of our long-lived assets, including facilities and equipment, may be impaired, which would increase our expenses. Changes in demand for our products, and changes in our customers’ product needs, could have a variety of negative effects on our competitive position and our financial results, and, in certain cases, may reduce our revenue, increase our costs, or lower our gross margin percentage.
IfWe may lose customers or sales if we are unable to develop and maintain our manufacturing capability, we may not be able to launch or support our products in a timely manner, or at all.
We currently possess only one facility capable of manufacturing our products and servicesmeet customer demand for both sale to our customers and internal use. If a natural disaster were to significantly damage our facility or if other events were to cause our operations to fail, these events could prevent us from developing and manufacturing our products and services. If our networks or storage infrastructure were to fail for an extended period of time, it would adversely impact our ability to manufacture our products on a timely and cost-effective basis, or if we are unable to ensure the proper performance and may prevent us from achievingquality of our expected shipments in any given period.products.
We produce our products in an innovative and complicated manufacturing process which has the potential for significant variability in manufacturing yields. We may encounter difficulties in manufacturing our products and, due to the complexity of our products and our manufacturing process, we may experience delays in the manufacture of our products or fail to ensure their proper performance or quality. As we develop new and enhanced products, we must be able to resolve in a timely, cost-effective manner manufacturing issues that may arise from time to time.
If product sale quantities or the mix of products sold differs materially from our expectations, this could adversely impact our financial results. Difficulties in meeting customer, collaborator and internal demand could also cause us to lose customers or require us to delay new product introductions, which could in turn result in reduced demand for our products.
We rely on internal quality control procedures to verify our manufacturing processes. Due to the complexity of our products and manufacturing process, however, it is possible that products that do not meet all of our performance specifications may not be identified before they are shipped. If our products do not consistently meet our customers' performance expectations, demand for our products will decline. In addition, we do not maintain any backup manufacturing capabilities for the production of our products. Any interruption in our ability to continue operations at our existing manufacturing facilities could delay our ability to develop or sell our products, which could result in lost revenue and seriously harm our business, financial condition and results of operations.
Our reliance on outside manufacturers and suppliers to provide certain instruments could subject us to risks that may harm our business.
We outsource the manufacturing of our instruments to a limited number of suppliers. From time to time we may change manufacturers, and any new manufacturer engaged by us may not perform as expected. If our vendors experience shortages or delays in their manufacture of our instruments, or if we experience quality problems with our vendors, then our shipment schedules could be significantly delayed or costs significantly increased. Certain of our instruments may be manufactured or supplied by a single vendor, which could magnify the risk of shortages.
shortages or delays. If supplies from our vendors do not meet our requirements or were delayed or interrupted for any reason, we would not be able to commercialize our products successfully or in a timely fashion, and our business could be adversely impacted.
We may be adversely affected by environmental, health and safety laws, regulations and liabilities.
We are subject to a variety of federal, state and municipal environmental, health and safety laws based on our use of hazardous materials in both our manufacturing and research and development operations. These laws and regulations often require expensive compliance procedures or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations can result in substantial fines, criminal sanctions and/or operational shutdown. Furthermore, we may become liable for the investigation and cleanup of environmental contamination, whether intentional or unintentional, and we could be responsible for damages related to the clean-up of such contamination or individual injury caused by such contamination. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials as a result of such contamination. Some of these matters may require expending significant amounts for investigation, cleanup or other costs. Events such as these could negatively impact our financial position.
Our sales, marketing and technical support organization may limit our ability to sell our products.
We currently have limited resources available for sales, marketing and technical support services as compared to some of our primary competitors. In order to effectively commercialize our genetic analysis systems and other products to follow, we will need to expand our sales, marketing and technical support staff both domestically and internationally. We may not be successful in establishing or maintaining either a direct sales force or distribution arrangements to market our products and services. In addition, we compete primarily with much larger companies that have larger sales and distribution staffs and a significant installed base of products in place, and the efforts fromof a limited sales and marketing force may not be sufficient to build the market acceptance of our products required to support continued growth of our business.
Consolidation trends in both our market and many of our customers' markets have increased competition.
There has been a trend toward industry consolidation in our markets for the past several years. We expect this trend toward industry consolidation to continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in operating results and could harm our business.
In addition, there has been a trend toward consolidation in many of the customer markets we sell to, in particular the pharmaceutical industry. Consolidation in our customer markets results in increased competition for important market segments and fewer available accounts, and larger consolidated customers may be able to exert increased pricing pressure on companies in our market.
We market and sell, and plan to market and sell, our products in numerous international markets. If we are unable to manage our international operations effectively, our business, financial condition and results of operations could be adversely affected.
We market and sell, and plan to market and sell, our products in a number of foreign countries, including Canada, European Union countries, Japan, China and other East Asian countries, and we are therefore subject to risks from failure to comply with foreign laws and regulations that differ from those under which we operate in the U.S. as well as U.S. rules and regulations that govern foreign activities such as the U.S. Foreign Corrupt Practices Act. In addition, we may be adversely affected by other risks associated with operating in foreign countries. Economic uncertainty in some of the geographic regions in which we operate, including developing regions, could result in the disruption of commerce and negatively impact cash flows from our operations in those areas.
Risks inherent in international operations include, but are not limited to, the following:
changes in general economic and political conditions in the countries in which we operate;
unexpected adverse changes in foreign and U.S. laws or regulatory requirements, including those with respect to permitting, export duties and quotas;
changes by foreign governments in their support of genetic analysis research;
trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make us less competitive in some countries;
differing local preferences and expectations for laboratory equipment and supplies;
differing approaches to genetic analysis research at pharmaceutical and biotech companies, academic and private research centers and other diagnostic companies;
fluctuations in exchange rates, which may affect demand for our products and may adversely affect our profitability;
difficulty of, and costs relating to compliance with, the different commercial and legal requirements of the overseas markets in which we offer and sell our products;
differing labor regulations;
difficulty in establishing, staffing and managing non-U.S. operations;
potential changes in or interpretations of tax laws;
inability to obtain, maintain or enforce intellectual property rights; and
difficulty in enforcing agreements in foreign legal systems.
Our business in foreign markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions. We may not be able to develop and implement policies and strategies that will be effective in each location where we do business, which in turn could adversely affect our business, financial condition and results of operations.
If we fail to maintain or monitor our information systems our business could be adversely affected.
We depend on information systems to control our manufacturing, customer service, distribution, website and the processes for managing inventory, fulfilling orders, responding to inquiries, contributing to our overall internal control processes, maintaining records of our property, plant and equipment, and recording and paying amounts due vendors and other creditors. If we were to experience a prolonged disruption in our information systems that involve interactions with customers and suppliers, it could result in the loss of sales and customers and/or increased costs, which could adversely affect our business.
Security breaches, including with respect to cybersecurity, and other disruptions could compromise our information and expose us to liability, which could cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information, and that of our customers, and personally identifiable information of our customers and employees. The secure maintenance of this information is important to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Any such breach could compromise our systems and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and damage to our reputation.
We may be exposed to liability due to product defects.
The risk of product liability claims is inherent in the testing, manufacturing, marketing and sale of research products for therapeutic and diagnostic development. We may seek to acquire additional insurance for clinical liability risks. We may not be able to obtain such insurance or general product liability insurance on acceptable terms or in sufficient amounts. A product liability claim or recall could negatively impact our financial position.
We may not realize the anticipated benefits of past or future acquisitions, and integration of these acquisitions may disrupt our business and management.
WeIn January 2014, we acquired certain assets related to the Apollo Business from IntegenX Inc. (“IntegenX”) substantially all of the assets of its product line used in January 2014connection with developing, manufacturing, marketing and inselling instruments and reagents relating to library preparation for next generation sequencing, including the Apollo 324 instrument and the PrepX reagents (the “Apollo Business”). In the future we may acquire additional companies, product lines, or technologies or enter into joint ventures or other strategic initiatives. We may not realize the anticipated benefits of this acquisition or any other future acquisition and any acquisition has numerous risks. These risks include the following: difficulty in assimilating the operations and personnel of the acquired company; difficulty in effectively integrating the acquired technologies or products with our current productstechnologies and technologies;products; difficulty in maintaining controls, procedures, and policies during the transition and integration; disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues; difficulty integrating the acquired company’s accounting, management information, and other administrative systems; inability to retain key technical and sales personnel of the acquired business; inability to retain key customers, vendors, and other business partners of the acquired business; inability to achieve the financial and strategic goals for the acquired and combined businesses; incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results; potential failure of the due diligence processes to identify significant issues with product quality, legal and financial liabilities, among other things; potential inability to assert that internal controls over financial reporting are effective. Mergers and acquisitions of companies are inherently risky, and ultimately, if we do not complete the integration of the acquired business successfully and in a timely manner, we may not realize the anticipated benefits of the acquisitions to the extent anticipated, which could adversely affect our business, financial condition, or results of operations.
We may pursue acquisitions and other strategic transactions, which may be very risky and may not be successful.
Our strategy envisions, if an opportunistic target is identified, future growth from acquiring and integrating similar operations and/or product lines. There can be no assurance that we will be able to identify suitable acquisition candidates and, once identified, to negotiate successfully their acquisition at a price or on terms and conditions favorable to us, or to integrate the operations of such acquired businesses with the existing operations. In addition, we compete for acquisition candidates with other entities, some of which have greater financial resources than ours. Failure to implement successfully our acquisition strategy would limit our potential growth. Furthermore, if we enter into strategic discussions with a potential acquisition candidate whose business is competitive to ours, we must be very careful to prevent the acquisition target from obtaining sensitive, proprietary information about us that it could use to our detriment if a deal is not completed.
We may consider acquisitions or strategic transactions that could result in the target’s shareholders receiving a substantial amount, or even a majority of our voting securities. If we completed such a transaction, our current shareholders would have a reduced influence on our operations, and there may be significant changes in our management and board of directors. Any acquisition we may pursue also involves the risk of diverting our management’s attention from the normal daily operations of our business. Also, there is always a risk that an acquisition may not be profitable. Any strategic transaction that we pursue may involve substantial integration costs and risks. Many resources and assets of the proposed strategic partner may be duplicative of our own resources and assets. We may assume liabilities in connection with acquisitions that we may not fully understand or which may be more significant than we anticipate. We may also anticipate that strategic transactions will provide cost savings or growth opportunities that may never be realized.
An interruption in our ability to manufacture our products or an inability to obtain key components or raw materials due to a catastrophic disaster or infrastructure could adversely affect our business.
We currently manufacture in a single location. Our manufacturing facility is located in the San Francisco Bay Area in California. This area is subject to natural disasters such as earthquakes, wildfires, or floods. If a natural disaster were to damage our facility significantly or if other events were to cause our operations to fail, we may be unable to manufacture our products, provide our services, or develop new products. In addition, if the capabilities of our suppliers and component manufacturers are limited or stopped, due to disasters, quality, regulatory, or other reasons, it could negatively impact our ability to manufacture our products.
There is no assurance that we will be able to move to new headquarters upon the termination of the lease for our current headquarters without any effect to our business.
The Company conducts its operations from leased premises. We have received written notice from the landlord for our headquarters at 7400 Paseo Padre Drive, Fremont, California, that our lease will be terminated effective April 12, 2016. We use this location as our corporate headquarters, laboratory and manufacturing facility. Effective March 1, 2016, we entered into a new lease for a facility located at 34700 Campus Drive, Fremont, California, to replace the terminated lease. If we do not vacate our present premises by April 12, 2016, we may become liable for significant damages, along with a substantial increase in rent. There is no assurance that we will be able to move into our new headquarters without any material interruption to our business.
Risks Related to Our Industry
Our success depends upon the continued emergence and growth of markets for analysis of genetic variation and biological function.
We design our products primarily for applications in the life sciences and pharmaceutical industries. The usefulness of our technology depends in part upon the availability of genetic data and its usefulness in identifying or treating disease. We are initially focusing on markets for analysis of genetic variation and biological function, namely gene expression profiling. This market is new and emerging, and may not develop as quickly as we anticipate, or reach its full potential. Other methods of analysis of genetic variation and biological function may emerge and displace the methods we are developing. Also, researchers may not seek or be able to convert raw genetic data into medically valuable information through the analysis of genetic variation and biological function. In addition, factors affecting research and development spending generally, such as changes in the regulatory environment affecting life sciences and pharmaceutical companies, and changes in government programs that provide funding to companies and research institutions, could harm our business. If useful genetic data is not available or if our target markets do not develop in a timely manner, demand for our products may grow at a slower rate than we expect, and we may not be able to achieve or sustain profitability.
We may not be able to deliver acceptable products to our customers due to the rapidly evolving nature of genetic sequence information upon which our products are based.
The genetic sequence information upon which we may rely to develop and manufacture our products is contained in a variety of public and private databases throughout the world. These databases are rapidly expanding and evolving. In addition, the accuracy of such databases and resulting genetic research is dependent on various scientific interpretations, and it is not expected that global genetic research efforts will result in standardized genetic sequence databases for particular genomes in the near future.future.
Although we have implemented ongoing internal quality control efforts to help ensure the quality and accuracy of our products, the fundamental nature of our products requires us to rely on genetic sequence databases and scientific interpretations which are continuously evolving. As a result, these variables may cause us to develop and manufacture products that incorporate sequence errors or ambiguities. The magnitude and importance of these errors depends on multiple and complex factors that would be considered in determining the appropriate actions required to remedy any inaccuracies.
Our inability to timely deliver acceptable products as a result of these factors would likely adversely affect our relationship with customers, and could negatively impact our financial condition.
We face risks associated with technological obsolescence and emergence of standardized systems for genetic analysis.
High throughput genetic analyses and quantitative detection methodologies (including, for example, PCR) are undergoing rapid evolution and technological changes. New technologies, techniques or products could emerge which might allow the packaging and analysis of genomic information at densities similar to, or even higher than, our existing or future technology. Other companies may begin to offer products that are directly competitive with, or are technologically superior to, our products. There can be no assurance that we will be able to maintain our technological advantages over emerging technologies in the future. Over time, we will need to respond to technological innovation in a rapidly changing industry. Standardization of tools and systems for genetic research is still ongoing and there can be no assurance that our products will emerge as the standard for genetic research. The emergence of competing technologies and systems as market standards for genetic research may result in our products becoming uncompetitive which would have an adverse effect on our business.
Our success depends on the continuous development of new products and our ability to manage the transition from our older products to new products.
We compete in markets that are new, intensely competitive, highly fragmented and rapidly changing, and many of our current and potential competitors have significantly greater financial, technical, marketing and other resources than we do. In addition, many current and potential competitors have greater name recognition, more extensive customer bases and access to proprietary genetic content. The continued success of our products will depend on our ability to produce products with smaller feature sizes and create greater information capacity at our current or lower costs. The successful development, manufacture and introduction of our new products is a complicated process and dependdepends on our ability to manufacture and supply enough products in sufficient quantity and quality and at acceptable cost in order to meet customer demand. If we fail to keep pace with emerging technologies or are unable to develop, manufacture and introduce new products, we will become uncompetitive, our pricing and margins will decline, and our business will suffer.
Our failure to successfully manage the transition between our older products and new products may adversely affect our financial results. As we introduce new or enhanced products, we must successfully manage the transition from older products to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories and provide sufficient supplies of new products to meet customer demands. When we introduce new or enhanced products, we face numerous risks relating to product transitions, including the inability to accurately forecast demand and difficulties in managing different sales and support requirements due to the type or complexity of the new products.
Ethical, legal and social concerns surrounding the use of genetic information could reduce demand for our products.
Genetic testing has raised ethical issues regarding privacy and the appropriate uses of the resulting information. For these reasons, governmental authorities and others may call for limits on or regulation of the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, such concerns may lead individuals to refuse to use genetics tests even if permissible. Any of these scenarios could reduce the potential markets for our products.
Our products and services, or the products and services of our customers, could become subject to regulation by the FDA or other regulatory agencies in the future.
Our products are currently labeled, promoted and sold to academic institutions, private research institutions, and pharmaceutical,
biotechnology and diagnostics companies for research purposes only, and not as diagnostic tests or medical devices. As products labeled, promoted and intended for research use only (“RUO”), they are not subject to regulation as medical devices by the FDA. Products labeled and intended for research use are not currently subject to regulation as medical devices by comparable agencies of other countries. However, the FDA or other regulators in the U.S. or elsewhere could disagree with our conclusion that our products are for research use only or deem our current marketing and promotional efforts as being inconsistent with RUO products. In addition, if we change the labeling or promotion of our products in the future to include indications for human diagnostic applications or medical uses, including treatment of diseases or medical conditions, or we have knowledge that our customers are using our products for clinical diagnostic or therapeutic purposes, our products or related applications could be subject to additional regulation as in vitro diagnostic devices, such as under the FDA’s pre- and post-market regulations for medical devices. For example, if we wish to label, promote or advertise our products for use in performing clinical diagnostics, we would first need to obtain FDA pre-market clearance or approval (depending on any product’s specific intended use and any such modified labeling claims), unless otherwise exempt from clearance or approval requirements. Obtaining FDA clearance or approval can be expensive and uncertain, and generally takes several months to years to obtain, and may require detailed and comprehensive scientific and clinical data. Notwithstanding the expense, these efforts may never result in FDA clearance or approval. Even if we were to obtain regulatory approval or clearance, it may not be for the uses we believe are important or commercially attractive.
Further, the FDA may expand its regulatory oversight of our products or the products of our customers, which could impose restrictions on our ability to market and sell our products. For example, our customers may elect to use our RUO labeled products in their own laboratory developed tests (“LDTs”), for clinical diagnostic use. However, the market for LDTs could shrink significantly if the FDA decides to actively regulate LDTs. Historically, the FDA has generally not regulated LDTs, which are currently regulated under the Clinical Laboratory Improvement Amendments (“CLIA”). However, on October 3, 2014, the FDA issued two draft guidance documents that set forth the FDA’s proposed risk-based framework for regulating LDTs, which are designed, manufactured, and used within a single laboratory. The draft guidance documents provide the anticipated details through which the FDA would propose to establish an LDT oversight framework, including premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved or cleared companion diagnostics currently on the market. The guidance documents, if and when finalized, may significantly impact the sales of our products and how customers use our products, and may require us to change our business model in order to maintain compliance with these laws.
Additionally, on November 25, 2013, the FDA issued Final Guidance “Distribution of In Vitro Diagnostic Products Labeled for Research Use Only.” The guidance emphasizes that the FDA will review the totality of the circumstances when it comes to evaluating whether equipment and testing components are properly labeled as RUO. The final guidance states that merely including a labeling statement that the product is for research purposes only will not necessarily render the device exempt from the FDA’s clearance, approval, and other regulatory requirements if the circumstances surrounding the distribution of the product indicate that the manufacturer knows its product is, or intends for its product to be, offered for clinical diagnostic uses. These circumstances may include written or verbal marketing claims or links to articles regarding a product’s performance in clinical applications and a manufacturer’s provision of technical support for clinical applications. If the FDA imposes significant changes to the regulation of LDTs, or modifies its approach to our products labeled and intended for research use only, it could reduce our revenue or increase our costs and adversely affect our business, prospects, results of operations or financial condition. In addition, if the FDA determined that our products labeled for research use only were intended, based on a review of the totality of circumstances, for use in clinical investigation or diagnosis, those products could be considered misbranded or adulterated under the Federal Food, Drug, and Cosmetic Act and subject to recall or other enforcement action.
We may be required to proactively achieve compliance with certain FDA regulations and to conform our manufacturing operations to the FDA’s good manufacturing practice regulations for medical devices, known as the Quality System Regulation (“QSR”), as part of our contracts with customers or as part of our collaborations with third parties. In addition, we may voluntarily seek to conform our manufacturing operations to QSR requirements. For clinical diagnostic products that are regulated as medical devices, the FDA enforces the QSR through pre-approved inspections and periodic unannounced inspections of registered manufacturing facilities. If we are subject to QSR requirements, the failure to comply with those requirements or take satisfactory corrective action in response to an adverse QSR inspection could result in enforcement actions, including a public warning letter or an untitled letter, a delay in approving or clearing, or a refusal to approve or clear, our products, a shutdown of manufacturing operations, a product recall, civil or criminal penalties or other sanctions, which could in turn cause our sales and business to suffer.
Risks Related to Our Organization
Even though we are not a California corporation, our common stock could still be subject to a number of key provisions of the California General Corporation Law.
Under Section 2115 of the California General Corporation Law (“CGCL”), corporations not organized under California law may still be subject to a number of key provisions of the CGCL. This determination is based on whether the corporation has significant
business contacts with California and if more than 50% of its voting securities of record are held by persons having addresses in California. In the immediate future, the majority of our business operations, revenue and payroll will be conducted in, derived from, and paid to residents of California. Therefore, depending on our ownership, we could be subject to some provisions of the CGCL. Among the more important provisions are those relating to the election and removal of directors, cumulative voting, standards of liability and indemnification of directors, distributions, dividends and repurchases of shares, stockholder meetings, approval of some corporate transactions, dissenters’ and appraisal rights, and inspection of
corporate records. If we are required to comply with these provisions, this compliance could cause us to incur additional administrative and legal expenses and divert our management’s time and attention from the operation of our business.
The requirements of being a public company may strain our resources, divert our management’s attention and affect our ability to attract and retain qualified board members.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations. We are subject to the Nasdaq Capital Market’s rules and regulations. Compliance with these rules and regulations have increased our legal and financial compliance costs, made some activities more difficult, time-consuming or costly and increased demand on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and results of operations and maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal controls over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. Although we currently employ staff to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.
Risks Related to Our Common Stock
Our stock price has been, and will likely continue tocould be volatile and investors may have difficulty selling their shares.
Our common stock is currently available for trading in the over-the-counter market and is quoted on the OTCQB Marketplace under the symbol WGBS. For the three-month period ended December 31, 2013, the daily trading volume for shares of our common stock ranged from 0 to 21,718 shares traded per day, and the average daily trading volume during such three-month period was 1,496 shares, with no shares traded on 31 of the 64 trading days. Accordingly, our investors who wish to dispose of their shares of common stock on any given trading day may not be able to do so or may be able to dispose of only a portion of their shares of common stock.
We may never be able to satisfy the qualitative or quantitative listing requirements for our common stock to be listed on an exchange. These factors may severely limit the liquidity of our common stock and may likely have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.volatile.
The market price of the common stock has fluctuated significantly since it was first quoted on the OTC Bulletin Board on June 6, 2007. Since this date, through December 31, 2013,2015, the intra-day trading price has fluctuated from a low of $1.20$0.70 to a high of $313.08.$3,130.79. The price of our common stock may continue to fluctuate significantly in response to factors, some of which are beyond our control, including the following:
actual or anticipated variations in operating results;
the limited number of holders of the common stock, and the limited liquidity available through the OTCQB Marketplace;
changes in the economic performance and/or market valuations of other life science companies;
our announcement of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
additions or departures of key personnel; and
sales or other transactions involving our capital stock.
Even with our common stock being traded on the Nasdaq Capital Market, there can be no assurance that investors will be interested in purchasing our common stock when our stockholders want to dispose of their shares or at prices that are attractive to our stockholders.
OurThere can be no assurance that we will continue to meet the requirements for our common stock may be considered “penny stock” and may be difficult to sell.trade on the Nasdaq Capital Market.
Since becoming listed on the Nasdaq Capital Market on August 22, 2014, we have been required to comply with certain Nasdaq listing requirements, including, without limitation, with respect to our corporate governance, finances and stock price. If we fail to meet any of these requirements, our shares could be delisted. In particular, Nasdaq rules include a $1.00 minimum bid price requirement.
On December 21, 2015, we received a notification letter from the Listing Qualifications Department of The SEC has adopted regulations which generally define “penny stock” Nasdaq Stock Market indicating that we were not in compliance with the $1.00 minimum bid price requirement. In accordance with Nasdaq listing rules, we have 180 calendar days, or until June 20, 2016, to be an equity security that has a marketregain compliance with minimum bid price requirement. To regain compliance,
the bid price of our common stock is currently less than $5.00 per share and therefore is designated asmust close at or above $1.00 for a “penny stock” accordingminimum of ten consecutive business days at any time before June 20, 2016. On June 20, 2016, if we meet the Nasdaq Capital Market initial listing criteria, except for the minimum bid price requirement, we may be provided with an additional 180 calendar-day compliance period. If we are not eligible for an additional compliance period at that time, Nasdaq staff will provide us with written notification that our common stock will be delisted. Upon such notice, we may appeal the Nasdaq staff’s delisting determination to SEC rules. This designation requiresa Nasdaq Listing Qualifications Panel pursuant to the procedures set forth in the applicable Nasdaq Marketplace Rules. There can be no assurance that, if we appeal any brokersuch determination of the Nasdaq staff, such appeal would be successful.
There can be no assurances that we will regain compliance with Nasdaq’s minimum bid price requirement, or, dealer selling these securitieseven if we do regain compliance, that we will be able to disclose some information concerning the transaction, obtain a written agreementmaintain our Nasdaq listing.
If our common stock were delisted from the purchaser and determine thatNasdaq Capital Market, it would likely lead to a number of negative implications, including an adverse effect on the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell the common stock and may affect the ability of investors to sell their shares. These regulations may likely have the effect of limiting the trading activityprice of our common stock, reduced liquidity in our common stock, the loss of federal preemption of state securities laws and reducinggreater difficulty in obtaining financing. In the event of a delisting, we would expect to take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of an investment in our common stock. In addition, since thestock, prevent our common stock is currently traded onfrom dropping below the OTCQB Marketplace, investors may find it difficult to obtain accurate quotations of the common stock and may experience a lack of buyers to purchase our stockNasdaq minimum bid price requirement or a lack of market makers to support the stock price.prevent future non-compliance with Nasdaq’s listing requirements.
Stockholders may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock and our preferred stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are authorized to issue an aggregate of 310,000,000 shares of capital stock consisting of 300,000,000 shares of common stock, par value $0.001 per share, of which 9,112,55918,712,631 shares were issued and outstanding as of December 31, 2013,2015, and 10,000,000 shares ofpreferred stock, par value $0.001 per share, of which 3,663 are designated as Series 1 Convertible Preferred Stock, 2,944.7080 of which were issued and outstanding. These shares of Series 1 Convertible Preferred Stock have no voting rights, a liquidation preference of $0.001 per share, and were430 (each convertible into 7,406,95110,000 shares of common stock, (subjectsubject to certain ownership caps).limitations) were issued and outstanding as of December 31, 2015. The Series 2 Convertible Preferred Stock has no voting rights. Future issuances of preferred stock will have preferences
and rights as may be determined by our board of directors at the time of issuance. Specifically, our board of directors has the authority to issue preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of common stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into common stock, which could decrease the relative voting power of the common stock or result in dilution to our existing stockholders.
In addition, as of December 31, 2013,2015, we had MTDC Notesnotes in favor of Malaysian Technology Development Corporation Sdn. Bhd. (“MTDC”) outstanding with a face value of $5.2 million which we could have settled by issuing an aggregate of 2,945,3416,550,768 shares of our common stock, and we had 450,676 outstanding restricted stock units, outstanding options to purchase an aggregate of 113,525477,438 shares of our common stock, outstanding unit warrants to purchase 647,00064,700 shares of our common stock and 323,50032,350 warrants to purchase shares of our common stock, and outstanding warrants to purchase an aggregate of 7,442,44323,032,838 shares of our common stock, 1,270,091 of which have certain anti-dilution protections againststock. The future dilutive events (including the issuance of stock at a price below their exercise price). The futurevesting or exercise of these securities will subject our existing stockholders to experience dilution of their ownership interests. We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any additional shares of our common stock may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of our common stock are then traded.
We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any additional shares of our common stock may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of our common stock are then traded.
If securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research reports about our business, our share price and trading volume could decline.
Our principal stockholdersThe trading market for our common stock depends, to some extent, on the research and reports that securities or industry analysts publish about us or our business. We do not have significant voting power and may take actions that may not beany control over these analysts. If one or more of the analysts who cover us should downgrade our shares or change their opinion of our business prospects, our share price would likely decline. If one or
more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the best interests of other stockholders.
Our officers and directors, and their affiliates (who include, for this computation, those shareholders with designee directors), control approximately 13% offinancial markets, which could cause our outstanding common stock. Additionally, our officers and directors and their affiliates hold securities that are convertible into a substantial number of shares of common stock. If our officers and directors and their affiliates converted all convertible securities held by them upshare price or trading volume to the maximum permitted by ownership caps, they would hold approximately 15% of our outstanding common stock. Pursuant to the Exchange Agreement entered into by the Company with investors (“Investors”) in connection with the August 2013 Exchange, for as long as at least 50% of the shares of Series 1 Convertible Preferred Stock issued in connection with the August 2013 Exchange and/or shares of common stock issued upon conversion thereof remain outstanding, the Company and each Investor who is a current member of the Company’s management or board of directors is required to use reasonable best efforts to ensure that (including with respect to such Investors, by voting (or consenting with respect thereto) any shares of common stock then owned by them accordingly) two individuals, as may be designated by Great Point Partners, LLC from time to time, are elected as members of the Company’s Board of Directors. William McKenzie and Robert Schueren were designated by Great Point Partners, LLC to serve as members of the Board. If all of these security holders act together, they will be able to exert significant control over our management and affairs requiring stockholder approval, including approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of all our stockholders.
decline.
Stockholders should not anticipate receiving cash dividends on our common stock.
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain future earnings to support operations and to finance expansion and therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Item 1B. Unresolved Staff Comments
None.
We do not own any real property. Our leased facilities as of December 31, 20132015, are as follows:
|
| | | | | | |
| Location | | Square Feet | | Primary Use | | Lease Terms |
| | | | | | | |
| Fremont, CA | | 19,186 sq ft | | Corporate Office, Laboratory and LabManufacturing | | Lease expiresLandlord exercised right to terminate effective April 30, 201512, 2016 |
| | | | | | | |
| Luxembourg | | 1,000560 sq ft | | Lab and Office | | Leased quarter to quarterLease expires February 18, 2018 |
| | | | | | |
| Luxembourg | | 274 sq ft | | Laboratory | | Lease expires June 30, 2017 |
Our existing facilities are not being used at full capacity and managementManagement believes that these facilities are adequate and suitable for current needs. On February 11, 2016, we received notice that the landlord for our 7400 Paseo Padre Parkway, Fremont, California facility exercised its right to terminate our lease effective April 12, 2016. Effective March 1, 2016, we entered into a new lease for a 28,866 square foot facility located at 34700 Campus Drive, Fremont, California, to replace the terminated lease. The lease provides for a term of three years, commencing on March 1, 2016 and expiring on February 28, 2019. We have the option to extend the term for an additional two years. We expect to use the newly leased space for corporate office, laboratory and manufacturing purposes.
Item 3. Legal Proceedings
From time to time we may be involved in claims arising in connection with our business. Based on information currently available, we believe that the amount, or range, of reasonably possible losses in connection with any pending actions against us, in excess of established reserves, in the aggregate, not to be material to our consolidated financial condition or cash flows. However, losses may be material to the Company’s operating results for any particular future period, depending on the level of income for such period.
Coalesce v. WaferGen. On April 24, 2012, an action entitled Coalesce Corporation (“Coalesce”) v. WaferGen Bio-systems, Inc. was filed in the Alameda County Superior Court. Coalesce, a company that had been providing marketing services between 2006 and 2010, sued us for alleged non-payment of sums due, breach of contract, misrepresentation and unjust enrichment. On September 5, 2012, Coalesce filed an amended complaint, with additional claims, for compensatory damages in excess of $500,000 and other compensation. On April 15, 2013, the case was referred to mediation. The first mediation session was held on August 7, 2013, resulting in further requests for documentation by both parties. The litigation is in the discovery stage and a trial has been set for September 15, 2014. We believe the claim to be substantially without merit, and while no assurance can be given regarding the outcome of this litigation, we believe that the resolution of this matter will not have a material adverse effect on our financial position or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Trading Information
OurSince August 22, 2014, our common stock is currentlyhas been traded on the Nasdaq Capital Market under the symbol WGBS. Prior to that, our common stock was quoted on the OTCQB Marketplace maintained by the NASD under the symbol WGBS.NASD. The transfer agent for our common stock is Continental Stock Transfer and Trust Company at 17 Battery Place, New York, NYNew York 10004.
The following table sets forth the high and low sales prices (for periods when our common stock traded on the Nasdaq Capital Market) and high and low intra-day bid information (for periods when our common stock traded on the OTCQB Marketplace) for our common stock for the fiscal quarters indicated as reported on the Nasdaq Capital Market or the OTCQB Marketplace, (previously the OTC Bulletin Board).as applicable. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, adjusted for reverse stock splits, and may not represent actual transactions.
| 2012 | | High | | Low |
| First Quarter ended March 31, 2012 | | 23.85 | | 10.93 |
| Second Quarter ended June 30, 2012 | | 14.19 | | 5.96 |
| Third Quarter ended September 30, 2012 | | 9.94 | | 4.97 |
| Fourth Quarter ended December 31, 2012 | | 7.95 | | 1.99 |
| | | | | |
| 2013 | | | | |
| First Quarter ended March 31, 2013 | | 8.95 | | 1.99 |
| Second Quarter ended June 30, 2013 | | 5.96 | | 2.98 |
| Third Quarter ended September 30, 2013 | | 3.98 | | 1.65 |
| Fourth Quarter ended December 31, 2013 | | 3.50 | | 1.20 |
|
| | | | | |
| 2014 | High | | Low |
| First Quarter ended March 31, 2014 | 30.00 |
| | 15.00 |
|
| Second Quarter ended June 30, 2014 | 20.00 |
| | 7.90 |
|
| Third Quarter ended September 30, 2014 | 25.00 |
| | 4.00 |
|
| Fourth Quarter ended December 31, 2014 | 5.25 |
| | 2.85 |
|
| 2015 | |
| | |
|
| First Quarter ended March 31, 2015 | 5.89 |
| | 2.95 |
|
| Second Quarter ended June 30, 2015 | 4.93 |
| | 2.95 |
|
| Third Quarter ended September 30, 2015 | 3.47 |
| | 0.97 |
|
| Fourth Quarter ended December 31, 2015 | 2.68 |
| | 0.70 |
|
OurParticularly prior to our listing on the Nasdaq Capital Market, our common stock ishas been thinly traded and anytraded. Any reported sale prices may not be a true market-based valuation of our common stock. On December 31, 2013,2015, the closing bid price of our common stock, as reported on the OTCQB Marketplace,Nasdaq Capital Market, was $2.00.$0.73.
As of March 12, 2014,23, 2016, there were approximately 365334 holders of record of our common stock.
Trades in our common stock may be subject to Rule 15g-9 under the Exchange Act, which imposes requirements on broker/dealers who sell securities subject to the rule to persons other than established customers and accredited investors. For transactions covered by the rule, broker/dealers must make a special suitability determination for purchasers of the securities and receive the purchaser’s written agreement to the transaction before the sale.
The SEC also has rules that regulate broker/dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 (other than securities listed on some national exchanges, provided that the current price and volume information with respect to transactions in that security is provided by the applicable exchange or system). The penny stock rules require a broker/dealer, before effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker/dealer and salesperson compensation information, must be given to the customer orally or in writing before effecting the transaction, and must be given to the customer in writing before or with the customer’s confirmation. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for shares of common stock.
Dividend Policy
We have never declared or paid dividends on shares of our common stock. We intend to retain future earnings, if any, to support the development of our business and therefore do not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information regarding our compensation plans under which equity securities are authorized for issuance to our employees as of December 31, 2013:2015:
| | | | | | | Number of | |
| | | | | | | Securities | |
| | | | | | | Remaining | |
| | | Number of | | | | Available for | |
| | | Securities to | | | | Future Issuance | |
| | | Be Issued | | | | Under Equity | |
| | | Upon | | | | Compensation | |
| | | Exercise of | | Weighted-Average | | Plans | |
| | | Outstanding | | Exercise Price of | | (Excluding | |
| | | Options, | | Outstanding | | Securities | |
| | | Warrants and | | Options, Warrants | | Reflected in | |
| | | Rights | | and Rights | | Column (a)) | |
| Plan Category | | (a) | | (b) | | (c) | |
| | | | | | | | | | | |
| Equity compensation plans approved by security holders | | | 113,525 | | $ | 35.39 | | $ | 27,793 | |
| Equity compensation plans not approved by security holders | | | — | | | — | | | — | |
| Total | | | 113,525 | | $ | 35.39 | | $ | 27,793 | |
|
| | | | | | | | | | |
| | | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
| Plan Category | | (a) | | (b) | | (c) |
| Equity compensation plans approved by security holders | | 299,172 |
| (1) | $ | 15.91 |
| | 437,444 |
|
| Equity compensation plans not approved by security holders | | 178,266 |
| (2) | $ | 3.91 |
| | — |
|
| Total | | 477,438 |
| | $ | 11.43 |
| | 437,444 |
|
| |
| (1) | Does not reflect 400,676 restricted stock units that do not have an exercise price. |
| |
| (2) | In connection with our entrance into an employment agreement in August 2014 with Michael P. Henighan, our chief financial officer, we granted Mr. Henighan certain inducement option awards. Subject to certain adjustments, Mr. Henighan’s award agreement grants him options to purchase up to 28,266 shares of our common stock at a price of $4.60 per share. In connection with our entrance into an employment agreement in May 2015 with Rolland Carlson, our chief executive officer, we granted Mr. Carlson certain inducement option awards. Subject to certain adjustments, Mr. Carlson’s award agreement grants him options to purchase up to 150,000 shares of our common stock at a price of $3.78 per share. Both options vest over three years, with one-third of the options vesting on the first anniversary of the grant date and the remaining two-thirds vesting in eight quarterly installments over the following two years, subject to the applicable employee’s continued employment with the Company through each vesting date. Does not reflect 50,000 inducement restricted stock units that do not have an exercise price that were awarded to Mr. Carlson in connection with our entrance into an employment agreement in May 2015. |
Additional information regarding our equity compensation plans is provided in Note 89 to our Consolidated Financial Statements in Part II, Item 8 in this Annual Report.
Recent Sales of Unregistered Securities
ExceptIn November 2015, we entered into an agreement with Acorn Management Partners, L.L.C. (“Acorn”) and, as described inpart of the two Current Reports on Form 8-K that we filed with the SEC on August 28, 2013, we didconsideration payable to Acorn, issued Acorn 32,468 shares of common stock.
The securities sold to Acorn were not, sell any equity securities during 2013 that were notprior to their issuance, registered under the Securities Act, or the securities laws of 1933, as amended (the “Securities Act”).any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the other sections of this Report, including Item 1 and Item 8 and the related exhibits. The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report on Form 10-K. See “Item 1A – Risk Factors.” Our actual results may differ materially.
Company Overview
Since beginning operations in 2003, we have been engaged in the development, manufacture and sale of systems for gene expression quantification, genotypinggenomic technology solutions for single-cell analysis and stem cell researchclinical research. Our ICELL8 Single-Cell System is a cutting edge platform that can isolate thousands of single cells and process specific cells for the life sciencesanalysis, including Next Generation Sequencing (“NGS”). Our SmartChip platform can be used for profiling and pharmaceutical drug discovery industries. validating molecular biomarkers, and can perform massively parallel singleplex PCR for one step target enrichment and library preparation for clinical NGS. Our Apollo 324 system can be used to process DNA and RNA from clinical samples to NGS-ready libraries. Most recently, our R&D efforts have been concentrated on the development and commercialization of the SmartChip Target Enrichment System. our single-cell products. Our products are aimed at researchers who perform genetic analysis and cell biology, primarily at pharmaceutical and biotech companies, academic and private research centers and diagnostics companies involved in biomarker research. We plan to provide new performance standards with significant savings ofin time and cost for professionals in the field of gene expression research and to facilitate biomarker discovery, toxicology and clinical research through the SmartChip products and services.
Our revenue is subject to fluctuations due to the timing of sales of high-value products and service projects, the impact of seasonal spending patterns, the timing and size of research projects our customers perform, changes in overall spending levels in the life science industry and other unpredictable factors that may affect customer ordering patterns. Any significant delays in the commercial launch or any lack or delay of commercial acceptance of new products, unfavorable sales trends in existing product lines, or impacts from the other factors mentioned above, could adversely affect our revenue growth or cause a sequential decline in quarterly revenue. Due to the possibility of fluctuations in our revenue and net income or loss, we believe that quarterly comparisons of our operating results are not a good indicationindicator of future performance.performance.
Since inception, we have incurred substantial operating losses. As of December 31, 2013,2015, our accumulated deficit was $80,838,169.approximately $106.8 million. Losses have principally occurred as a result of the substantial resources required for the research, development
and manufacturing start-up costs required to commercialize our initial products. We expect to continue to incur substantial costs for research and development activities for at least the next year as we expand and improve our core technology and its applications in the life science research market.
In May 2015, we hired a new Chief Executive Officer, the former incumbent becoming our Executive Chairman. Following this transition, the role of Chief Operating Officer was eliminated in July 2015.
We expect that the cash we have available will fund our operations into the fourth quarter of 2014.2017. We are currently considering several different financing alternatives to support our operations thereafter. If we are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders would receive any distribution on their shares. See “Liquidity and Capital Resources” below.
Recent Developments--Acquisition of Assets from IntegenX Inc.2015 Public Offering
On October 21, 2015, we completed a public offering (the “2015 Public Offering”) of 392 Class A Units and 1,108 Class B Units for $10,000 per Class A Unit or Class B Unit. Each Class A Unit consisted of 10,000 shares of our common stock and 10,000 warrants to purchase one share of our common stock. Each Class B Unit consisted of one share of Series 2 Convertible Preferred Stock, par value $0.001 per share, convertible into 10,000 shares of common stock, and 10,000 warrants to purchase shares of common stock. In January 2014,aggregate, we entered into an Asset Purchase Agreement with IntegenX Inc. (“IntegenX”), pursuant to which we acquired substantially allissued 6,170,000 shares of our common stock (inclusive of 2,250,000 shares issued upon exercise of the assetsoverallotment option granted to the underwriters), 1,108 shares of its product line usedSeries 2 Convertible Preferred Stock (each convertible into 10,000 shares of common stock, subject to certain ownership limitations) and 17,250,000 warrants to purchase shares of our common stock (inclusive of 2,250,000 warrants issued upon exercise of the overallotment option granted to the underwriters). Subject to certain ownership limitations, the warrants are exercisable at any time within five years of their issuance date at an exercise price of $1.44 per share. Our total gross proceeds from the offering were $17,250,000. After deducting underwriting discounts, commissions and offering expenses payable by us, we received aggregate net proceeds totaling approximately $15.7 million.
We retained underwriters in connection with developing, manufacturing, marketingthe 2015 Public Offering, and selling instruments and reagents relating to library preparation for next generation sequencing, including the Apollo 324TM instrument and the PrepXTM reagents (the “Apollo Business”). The purchase price for the Apollo Business comprised (1) a cash payment of $2.0 million, (2) a $1.25 million secured promissory note (the “Note”), (3) up to three Earnout payments payable, if at all, in 2015, 2016 and 2017, respectively, and (4) our assumption of certain liabilities, including obligations to perform under contracts and liabilities for certain accrued but unpaid vacation for certain employees.
The Note accrues interest at 8.0% per year and is payable in a single payment of principal and accrued interest on January 6, 2017. However if, priorpursuant to the Note’s maturity,terms of an underwriting agreement, we completepaid the underwriters an equity offering yielding net cash proceeds ofaggregate fee totaling approximately $1,283,000. In addition, we issued the underwriters 450,000 warrants at least $15.0 million, we will be required to prepay the Note within 45 days of the closing of the equity offering. To secure2015 Public Offering, each warrant entitling the holder to purchase one share of our obligations under the Note, we granted IntegenX a security interest in the assets acquired from them.common stock for $1.44 at any time within three years of their issuance date.
The Earnout contemplates three earn-out payments based on gross revenues from certain products of the Apollo Business (“Covered Revenues”). In particular:
If, in 2014, Covered Revenues exceed $4 million but are less than $6 million, we will pay IntegenX an amount equal to 15% of the amount by which the 2014 Covered Revenues exceed $4 million. If, in 2014, Covered Revenues exceed $6 million, we will pay IntegenX an amount equal to the sum of (i) $300,000 plus (ii) 20% of the amount by which the 2014 Covered Revenues exceed $6 million.
If, in 2015, Covered Revenues exceed $4 million but are less than $6 million, we will pay IntegenX an amount equal to 10% of the amount by which the 2015 Covered Revenues exceed $4 million. If, in 2015, Covered Revenues exceed $6 million but are less than $10 million, we will pay IntegenX an amount equal to the sum of (i) $200,000 plus (ii) 15% of the amount by which the 2015 Covered Revenues exceed $6 million. If, in 2015, Covered Revenues exceed $10 million, we will pay IntegenX an amount equal to (i) $800,000 plus (ii) 20% of the amount by which the 2015 Covered Revenues exceed $10 million.
If, in 2016, Covered Revenues exceed $4 million but are less than $10 million, we will pay IntegenX an amount equal to 10% of the amount by which the 2016 Covered Revenues exceed $4 million. If, in 2016, Covered Revenues exceed $10 million but are less than $15 million, we will pay IntegenX an amount equal to the sum of (i) $600,000 plus (ii) 15% of the amount by which the 2016 Covered Revenues exceed $10 million. If, in 2016, Covered Revenues exceed $15 million, we will pay IntegenX an amount equal to (i) $1.35 million plus (ii) 20% of the amount by which the 2016 Covered Revenues exceed $15 million.
Results of Operations
Year Ended December 31, 20132015 Compared to Year Ended December 31, 20122014
The following table presents selected items in our condensed consolidated statements of operations for the years ended December 31, 20132015 and 2012,2014, respectively:
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| Revenue: | | | | | | |
| Product | | $ | 846,414 | | | $ | 586,176 | |
| License and royalty | | | 458,333 | | | | — | |
| | | | | | | | | |
| Total revenue | | | 1,304,747 | | | | 586,176 | |
| | | | | | | | | |
| Cost of revenue | | | 574,195 | | | | 420,877 | |
| | | | | | | | | |
| Gross profit | | | 730,552 | | | | 165,299 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Sales and marketing | | | 2,240,116 | | | | 791,915 | |
| Research and development | | | 5,399,775 | | | | 6,161,548 | |
| General and administrative | | | 3,013,104 | | | | 2,977,812 | |
| | | | | | | | | |
| Total operating expenses | | | 10,652,995 | | | | 9,931,275 | |
| | | | | | | | | |
| Operating loss | | | (9,922,443 | ) | | | (9,765,976 | ) |
| | | | | | | | | |
| Other income and (expenses): | | | | | | | | |
| Interest income | | | 3,091 | | | | 7,420 | |
Interest expense | | | (2,880,718 | ) | | | (2,082,558 | ) |
Gain (loss) on revaluation of derivative liabilities, net | | | (506,195 | ) | | | 3,759,146 | |
Gain on settlement of derivative liability | | | 1,012,351 | | | | — | |
| Loss on extinguishment of debt | | | (4,970,410 | ) | | | — | |
| Issuance of warrants due to organic change | | | (2,553,318 | ) | | | — | |
| Gain on liquidation of subsidiary | | | 3,386,297 | | | | — | |
| Miscellaneous income (expense) | | | 171,414 | | | | (116,147 | ) |
| | | | | | | | | |
| Total other income and (expenses) | | | (6,337,488 | ) | | | 1,567,861 | |
| | | | | | | | | |
| Net loss before provision (benefit) for income taxes | | | (16,259,931 | ) | | | (8,198,115 | ) |
| | | | | | | | | |
| Provision (benefit) for income taxes | | | 6,341 | | | | (21,453 | ) |
| | | | | | | | | |
| Net loss | | | (16,266,272 | ) | | | (8,176,662 | ) |
|
| | | | | | | |
| | Year Ended December 31, |
| | 2015 |
| 2014 |
| | (in thousands) |
| Revenue: | |
| |
| Product | $ | 6,667 |
|
| $ | 5,501 |
|
| License and royalty | 500 |
|
| 500 |
|
| Total revenue | 7,167 |
|
| 6,001 |
|
| Cost of product revenue | 3,220 |
|
| 2,572 |
|
| Gross profit | 3,947 |
|
| 3,429 |
|
| Operating expenses: | |
|
| |
|
| Sales and marketing | 5,359 |
|
| 4,740 |
|
| Research and development | 9,280 |
|
| 6,717 |
|
| General and administrative | 4,400 |
|
| 4,422 |
|
| Total operating expenses | 19,039 |
|
| 15,879 |
|
| Operating loss | (15,092 | ) |
| (12,450 | ) |
| Other income and (expenses): | |
|
| |
|
| Interest expense, net | (463 | ) |
| (503 | ) |
| Contingent earn-out adjustment | 304 |
|
| 229 |
|
| Gain on revaluation of derivative liabilities, net | 122 |
|
| 2,200 |
|
| Loss on extinguishment of debt | — |
|
| (129 | ) |
| Miscellaneous expense | (54 | ) |
| (37 | ) |
| Total other income and (expenses) | (91 | ) |
| 1,760 |
|
| Net loss before provision for income taxes | (15,183 | ) |
| (10,690 | ) |
| Provision for income taxes | 132 |
|
| 3 |
|
| Net loss | $ | (15,315 | ) |
| $ | (10,693 | ) |
Product Revenue
The following table represents our product revenue for the years ended December 31, 20132015 and 2012:2014:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 846,414 | | | $ | 586,176 | | | | 44% |
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 6,667 |
| | $ | 5,501 |
| | 21 | % |
For the year ended December 31, 2013,2015, product revenue increased by $260,238,$1,166,000, or 44%21%, as compared to the year ended December 31, 2012. 2014. The increase is primarily due to an increase in sales of our target enrichment product line, launched in mid-2013, and two additional SmartChip Real-Time PCR Systems being sold, offset by decreases in the number of Real-Time PCR Chip panels sold and in the volume of other services.projects
and services, which represented 39% of product revenue in the year ended December 31, 2015, an increase of 124% over the revenue in the year ended December 31, 2014, when it represented 21% of product revenue. We also increased sales of Apollo Business, which represented 34% of our product revenue in the year ended December 31, 2015, an increase of 9% over the year ended December 31, 2014, when it represented 38% of the lower total product revenue. These increases were offset by a decrease of 20% in sales of SmartChip Systems, which represented 27% of our product revenue in the year ended December 31, 2015, compared to 41% in the year ended December 31, 2014. 2015 SmartChip Systems sales included the first two sales of ICELL8, the SmartChip Single-Cell System launched in October 2015.
License and Royalty Revenue
The following table represents our license and royalty revenue for the years ended December 31, 20132015 and 2012:2014:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 458,333 | | | $ | — | | | | N/A |
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 500 |
| | $ | 500 |
| | — | % |
For the year ended December 31, 2013,2015, license and royalty revenue was $458,333, as compared to none inunchanged from the year ended December 31, 2012. 2014. This revenue was generated by an agreement signed inat the beginning of February 2013, expected to generate revenue of $500,000 annually for three years.
This agreement terminated at the end of January 2016 and will only generate license and royalty revenue of $42,000 in the year ending December 31, 2016.
Cost of Product Revenue
The following table represents our cost of product revenue for the years ended December 31, 20132015 and 2012:2014:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 574,195 | | | $ | 420,877 | | | | 36% |
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 3,220 |
| | $ | 2,572 |
| | 25 | % |
Cost of product revenue includes the cost of products paid to third party vendors and raw materials, labor and overhead for products manufactured internally, and reserves for warranty and inventory obsolescence.
For the year ended December 31, 2013,2015, cost of product revenue increased by $153,318,$648,000, or 36%25%, as compared to the year ended December 31, 2012. 2014. The increase related primarily to thean increase in units sold, which also increased our product revenue,.
and a decrease in the reduction in the provision for excess inventory, for which the reserve was largely written back into income in the year ended December 31, 2014. This was partially offset by an increase in the percentage of revenue from consumables, which generate higher margins than system sales.
Sales and Marketing
The following table represents our sales and marketing expenses for the years ended December 31, 20132015 and 2012:2014:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 2,240,116 | | | $ | 791,915 | | | | 183% |
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 5,359 |
| | $ | 4,740 |
| | 13 | % |
Sales and marketing expenses consist primarily of compensation costs of our sales and marketing team, commissions and the costs associated with various marketing programs.
For the year ended December 31, 2013,2015, sales and marketing expenses increased by $1,448,201,$619,000, or 183%13%, as compared to the year ended December 31, 2012. 2014. The increase resulted primarily from increases in personnel costs in the United States, including
commission expense, due to an increase in headcount, and salesin Europe, mostly due to the depletion of the matching grant during the 2015 period, partially offset by a reduction in consulting fees and product marketing activities.costs.
We expect sales and marketing expenses will increase during 20142016 as we build ourproject a sales and marketing headcount at the December 31, 2015 level for the full year and activities to commercialize our products, including those acquired from IntegenX.
an increase sales-based commission expense.
Research and Development
The following table represents our research and development expenses for the years ended December 31, 20132015 and 2012:2014:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | | | | $ | 6,161,548 | | | | (12)% |
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 9,280 |
| | $ | 6,717 |
| | 38 | % |
Research and development expenses consist primarily of salaries and other personnel-related expenses, laboratory supplies and other expenses related to the design, development, testing and enhancement of our products. Research and development expenses are expensed as they are incurred.
For the year ended December 31, 2013,2015, research and development expenses decreased $761,773,increased by $2,563,000, or 12%38%, as compared to the year ended December 31, 2012.2014. The decreaseincrease resulted primarily from a significant decrease in headcount in April 2012increased activities related to the development and reductions in thecommercialization of our ICELL8 single-cell products, causing us to incur higher personnel costs of depreciation(including stock compensation costs and expensed materials,consulting fees) and facilities costs, along with fees for patent applications. This increase was partially offset by a one-time paymentreduction in activities related to the development of retention incentives.target enrichment products which are now established in the market.
We believe a substantial investment in research and development is essential in the long term to remain competitive and expand into additional markets. Accordingly, we expect our research and development expenses to remain at a high level of total expenditures for the foreseeable future,.
although we expect these expenses will decline as a percentage of revenue.
General and Administrative
The following table represents our general and administrative expenses for the years ended December 31, 20132015 and 2012:2014:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 3,013,104 | | | $ | 2,977,812 | | | | 1% |
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 4,400 |
| | $ | 4,422 |
| | — | % |
General and administrative expenses consist primarily of personnel costs for finance, human resources, business development, investor relations and general management, as well as professional fees, such as expenses for legal and accounting services.
For the year ended December 31, 2013,2015, general and administrative expenses increased $35,292, or 1%,were essentially flat, decreasing by $22,000 as compared to the year ended December 31, 2012. 2014. The increasedecrease resulted primarily from reductions in consultancy costs, as the payment of a discretionary bonusCFO and controller functions were outsourced for five months in the 2014 period, in professional fees, principally due to one-off costs in the 2014 period related to our CEO, plusacquisition of the Apollo Business, and in stock compensation expense, mainly caused by a one-time payment of retention incentiveslower expense for other employees, and higher legal fees incurred in conjunction withoptions awarded to our capital restructuring, substantiallyformer Chief Executive Officer per his employment contract. These decreases were offset by decreasesincreases in consulting fees, recruitmentpersonnel costs travelrelated to our Chief Financial Officer and lodging expensesformer Chief Operating Officer, both hired late in August 2014, and the absencecosts of a one-time expenseour Executive Chairman following the hiring of our new Chief Executive Officer in May 2015. In addition, we incurred one-off costs in the 2015 period for the recruitment of our Chief Executive Officer and severance costs related to the terminationelimination of our formerthe position of Chief Operating Officer and Chief Financial Officer.Officer. We also incurred higher investor relations costs, largely in conjunction with being Nasdaq-listed.
We expect our general and administrative expenses to remain at a similar level in 2014.2016.
Interest Income
The following table represents our interest income for the years ended December 31, 2013 and 2012:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 3,091 | | | $ | 7,420 | | | | (58)% |
Interest income is solely earned on cash balances held in interest-bearing bank accounts. For the year ended December 31, 2013, interest income decreased $4,329, or 58%, as compared to the year ended December 31, 2012. The decrease was mainly due to a decrease in the average cash invested in interest-bearing accounts. Interest income is expected to be insignificant in 2014 due to the low ratesTable of interest in the U.S.Contents
Interest Expense, net
The following table represents our interest expense, net for the years ended December 31, 20132015 and 2012:2014:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 2,880,718 | | | $ | 2,082,558 | | | | 38% |
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 463 |
| | $ | 503 |
| | (8 | )% |
For the year ended December 31, 2013,2015, net interest expense increased $798,160,decreased by $40,000, or 38%8%, as compared to the year ended December 31, 2012. 2014. The increasedecrease was primarily due to higher charges for amortizationthe absence of the 8% interest and amortization charges on a promissory note to IntegenX, which we repaid in September 2014, and a reduction in the interest expense related to our earn-out contingency. These decreases were partially offset by the higher cost of debt discount and loan origination feesamortization related to the Convertible Promissory$5,200,000 in long-term debt issued to Malaysian Technology Development Corporation Sdn. Bhd. (“MTDC”), an investor in WaferGen Biosystems (M) Sdn. Bhd. (“WGBM”), our now-dissolved Malaysian subsidiary (the “MTDC Notes”). The MTDC Notes (“CPNs”) in the aggregate principal amount of $15,275,000 issued in the May 2011 Private Placement. These wereare being amortized using the effective interestyield method, which weights the interest charges towards the latter stages of the contractual term of the debt. Interest has also been incurred since November 2013 due to the long-term debt issued to Malaysian Technology Development Corporation Sdn. Bhd. (“MTDC”), an investor in our now-dissolved Malaysian subsidiary (the “MTDC Notes”). The increase in expense was offset by a reduction in the number of days for which the CPNs were outstanding, interest of 5% being payable on the CPNs for the full year in 2012, along with the expense of amortization of debt discount and loan origination. We expect that the effective yield amortization of debt discount on the MTDC Notes is expected to be approximately $440,000 in 2016, rising each year up to $732,000 in 2019, the last full year before this debt matures. There was also an increase related to capital leases.
Contingent Earn-out Adjustment
The following table represents income recorded from our contingent earn-out adjustment for the years ended December 31, 2015 and 2014:
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 304 |
| | $ | 229 |
| | 33 | % |
Our contingent earn-out adjustment represents the impact of change in the estimated fair value of acquisition earn-outs, all of which weightsrelates to Covered Revenues from the Apollo Business acquired on January 6, 2014. The fair value of acquisition earn-out contingencies is based on expectations and other such estimates related to the specific earn-out target, all of which are subject to modification with changing circumstances until the contingency is resolved. The fair value of acquisition earn-out contingencies prior to resolution is determined using a modeling technique with significant unobservable inputs calculated using a probability-weighted approach. Key assumptions include discount rates for present value factor, which are based on industry specific weighted average cost of capital, adjusted for, among other things, time and risk, as well as forecasted annual earnings before interest, taxes, depreciation and amortization and forecasted annual revenues over the life of the earn-outs. Adjustments to the fair value of earn-outs are included in earnings, with the portion of the adjustment relating to the time value of money being recorded as interest expense, net and the non-interest portion of the change in earn-outs as a separate non-operating item in the statement of operations.
As a result of the assessment of actual and projected revenue scenarios, during the year ended December 31, 2015, we determined that revenues were expected to be below the amounts estimated at December 31, 2014, and during the year ended December 31, 2014, the Company determined that revenues were expected to be below the amounts estimated at the time of the acquisition. No amounts were payable with respect to 2015 or 2014 revenue, and the probability-weighted estimates of revenue in 2016 have been reassessed downwards, resulting in adjustments of $304,000 and $229,000 (before the interest charges towardsexpense offset) in the latter stagesyears ended December 31, 2015 and 2014, respectively. Should actual Covered Revenues in 2016 exceed our estimates, a charge will be recorded, whereas if they fall short of their contractual term,our latest estimates, additional non-operating income will result in interest expense of approximately $0.3 million in 2014, with annual expense rising to $0.7 million in 2019.be reported.
Gain (Loss) on Revaluation of Warrant Derivative Liabilities, net
The following table represents the gain (loss) on revaluation of warrant derivative liabilities, net for the years ended December 31, 20132015 and 2012:2014:
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 122 |
| | $ | 2,200 |
| | (94 | )% |
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | (506,195) | | | $ | 3,759,146 | | | | N/A |
Our derivative liabilities arise due to the cash settlement provisions in certain warrants and unit warrants and, until the time of their expiration, the variable number of shares of our common stock that may be issued upon the exercise of those warrants with certain anti-dilution protection and, until the time of their settlement in 2013, upon the exchange of Series A and Series B Convertible Preference Shares (“CPS”) of our now-dissolved Malaysian subsidiary, and under the conversion element of our CPNs.protection.
The net lossgain from revaluation of derivative liabilities for the year ended December 31, 2013,2015, was $506,195,$122,000, compared to a net gain of $3,759,146 $2,200,000 for the year ended December 31, 2012.2014. Gains and losses are directly attributable to revaluations of all of our derivativeswarrant derivative liabilities and (with the exception of Series B CPS) result primarily from a net decrease or increase, respectively, in our stock price in the period. Our closing stock price was $2.00$0.73 on December 31, 2013,2015, compared to $2.98$3.00 on December 31, 2012,2014 and $15.90$20.00 on December 31, 2011. With2013. In both the present number of warrants, at our closing stock price of $2.00 onyear ended December 31, 2013, an increase in our share price of $0.10 would generate a revaluation loss of approximately $600,000; conversely, a2015 and the year ended December 31, 2014, the gain was caused principally by the decrease in our share pricestock price. The impact of $0.10 would generate a revaluation gainchanges in parameters was significantly reduced in 2015 as there were only 118,000 warrants accounted for as liabilities at the start the year, compared to 740,000 at the start of approximately $600,000.
Future gains or losses on revaluation will result primarily from net decreases or increases, respectively, in our stock price during the reporting period. Derivative liabilities will also decrease as the remaining term of each instrument diminishes.
Gain on Settlement of Derivative Liability
2014. The following table presents the gain on settlement ofrelated derivative liability we recognized for the years endedas of December 31, 20132015, was only $4,000, so we do not expect future gains and 2012:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 1,012,351 | | | $ | — | | | | N/A |
Gain on settlement of derivative liability is a one-time non-cash credit recorded as a result of the purchase of our Series B CPS from the original investor for less than the fair value of their derivative liability on the date of purchase. No comparable credits are expected in the future.
losses to be material.
Loss on Extinguishment of Debt
The following table presents the loss on extinguishment of debt we recognized for the years ended December 31, 20132015 and 2012:2014:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 4,970,410 | | | $ | — | | | | N/A |
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | — |
| | $ | 129 |
| | (100 | )% |
Loss on extinguishment of debt in the year ended December 31, 2014, is a one-time non-cash charge recorded as a result of the CPNs being exchanged for other securities per the termsearly repayment of the Exchange Agreementa promissory note to IntegenX on August 27, 2013.September 12, 2014. No comparable costs are expected in the near future.
Issuance of Warrants due to Organic Change
The following table presents the charge for issuance of warrants that we incurred in the years endedour common stock on December 31, 2013 and 2012:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 2,553,318 | | | $ | — | | | | N/A |
The charge for issuance of warrants due to organic change is2015, we would have recorded a one-time non-cash charge recorded as a result of the warrants issued in May 2011 (the “May 2011 Warrants”) being exchanged for securities with a greater value. Per the terms of the May 2011 Warrants, holders were entitled to compensation should an Organic Change, as defined therein, occur, and the issuance of new shares in the 2013 Private Placement that occurred on August 27, 2013, met that definition. No comparable costs are expected in the foreseeable future.
Gain on Liquidation of Subsidiary
The following table presents the gain recognized on liquidation of a subsidiary for the years ended December 31, 2013 and 2012:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 3,386,297 | | | $ | — | | | | N/A |
Gain on liquidation of subsidiary is a one-time non-cash gain recorded as a result of the liquidation of our Malaysian subsidiary on November 26, 2013, principally due to the extinguishment of the $4,993,728 cost of Series C CPS recorded in permanent equity. No comparable gains are expected in the near future.
approximately $2.8 million.
Miscellaneous Income (Expense)Expense
The following table represents our miscellaneous income (expense)expense for the years ended December 31, 20132015 and 2012:2014:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 171,414 | | | $ | (116,147) | | | | N/A |
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 54 |
| | $ | 37 |
| | 46 | % |
For the year ended December 31, 2013, 2015, we recorded miscellaneous income of $171,414, compared to miscellaneous expense of $116,147$54,000, compared an expense of $37,000 for the year ended December 31, 2012.2014. Miscellaneous income andor expense is the result of net foreign currency exchange gains andor losses mainly in WaferGen Biosystems (M) Sdn. Bhd. (“WGBM”), our now-dissolved Malaysian subsidiary, principally due to revaluation of the inter-company account at each balance sheet date. Up until the final revaluation at the time of liquidation, WGBM had a net receivable on its dollar denominated balances, so if the value of the Malaysian Ringgit decreased against the dollar, income was recorded, whereas if it increased against the dollar, an expense was recorded. Foreign currency exchange gains and losses alsowhich arise on our subsidiary in Luxembourg and on U.S. expenses denominated in foreign currencies. FollowingThe principal reason for the liquidation of WGBM, miscellaneous income and expense in both years is not expected to be significantnet assets being denominated in future years.Euros, which decreased in value against the U.S. dollar.
Provision (Benefit) for Income Taxes
The following table presents the provision (benefit) for income taxes for the years ended December 31, 20132015 and 2012, respectively:
| Year Ended December 31, |
| 2013 | | | 2012 | | | % Change |
| | | | | | | | | | |
| $ | 6,341 | | | $ | (21,453) | | | | N/A |
2014:
|
| | | | | | | | | |
| Year Ended December 31, |
| 2015 | | 2014 | | % Change |
| (dollars in thousands) | | |
| $ | 132 |
| | $ | 3 |
| | 4,300 | % |
For the yearyears ended December 31,, 2013, 2015 and 2014, we recorded a net charge of $6,341 for income taxes, representing $3,191$2,000 and $3,000, respectively, for U.S. state income taxes and $3,150 for Luxembourg taxes. ForIn addition, in the year ended December 31,, 2012, 2015, we recorded a net creditcharge of $21,453$2,000 for foreign income taxes representingand $128,000 for deferred income taxes related to goodwill. We have recorded a reversal of $27,179 overprovided for Malaysia taxes in 2011 less U.S. state taxes of $5,726. Weliability to the extent that our deferred tax liabilities arise from assets with indefinite lives and have provided a full valuation allowance against the remainder of our net deferred tax assets.
Liquidity and Capital Resources
From inception throughAs of December 31, 2013, we have raised a total2015, our principal source of $3,665,991 fromliquidity was $15.2 million in cash and cash equivalents. We had working capital of $15.5 million as of December 31, 2015. Our funding has primarily been generated by the issuance of notes payable, $66,037 from the sale of Series A Preferred Stock, $1,559,942 from the sale of Series B Preferred Stock, $31,226,191,equity securities, which includes $15.7 million and $18.0 million raised, net of offering costs, from the sale of common stockin 2015 and warrants, $8,842,256, net of offering costs, from the sale of CPS of our Malaysian subsidiary, $1,842,760, net of origination fees, from a secured term loan, and $27,492,876, net of offering costs and liquidated damages for late registration, from the sale of the Series A-1 Convertible Preferred Stock, convertible promissory notes and warrants in the May 2011 Private Placement, and $13,393,162, net of offering costs, from the sale of common stock, Series 1 Convertible Preferred Stock and warrants in the 2013 Private Placement.2014, respectively. We also had, as of December 31, 2013,2015, Notes with a principal amount $5,200,000of $5.2 million owing to MTDC, an investorrepayable in our now-dissolved Malaysian subsidiary, WGBM. As of December 31, 2013, we had $10,708,646 in unrestricted cash and cash equivalents, and working capital of $9,305,827.August 2020.
Net Cash Used in Operating Activities
We experienced negative cash flow from operating activities for the years ended December 31, 20132015 and 20122014, in the amounts of $8,221,214$14,638,000 and $8,867,888,$10,288,000, respectively. The cash used in operating activities in the year ended December 31, 2013,2015, was due to cash used to fund a net loss of $16,266,272,$15,315,000, adjusted for non-cash expenses related to depreciation and amortization, stock-based compensation, net lossesgain on revaluation of warrant derivative liabilities, gain on settlement of derivative liability, interest converted to principal on CPNs, inventory provision, amortization of debt discount loss on extinguishment of debt, issuance of warrants due to organic change and gain on liquidation of subsidiarydeferred income taxes totaling $7,236,878,$2,529,000, and cash providedused by a change in working capital of $808,180.$1,852,000. The cash used in operating activities in the year ended December 31, 2012,2014, was due to cash used to fund a net loss of $8,176,662,$10,693,000, adjusted for non-cash expenses related to depreciation and amortization, stock-based compensation, net gainsloss on revaluation of warrant derivative liabilities, interest converted to principal on CPNs,long-term debt, inventory provision, and amortization of debt discount and loss on extinguishment of debt totaling $421,596,$494,000, and cash usedprovided by a change in working capital of $269,630.$899,000. The decreaseincrease of $646,674$4,350,000 in cash used in the year ended December 31, 20132015, compared to 20122014, was driven primarily by the cash provided by, and lack of cash used in, the change in working capital, offset by the increase in the net operating loss from $9,765,976$12,450,000 to $9,922,443.$15,092,000 and cash consumed in acquiring inventory and by an increase in accounts receivable.
Net Cash Used in Investing Activities
We used $91,545$308,000 and $335,000 in the years ended December 31, 2015 and 2014, respectively, to acquire property and equipment. Further, we used $2,000,000 in the year ended December 31, 2013, and $54,767 in the year ended December 31, 2012,2014, to acquire property and equipment. Further, in the year ended December 31, 2013, we transferred cash of $433,411 to WGBM’s liquidator.Apollo Business.
Net Cash Provided by Financing Activities
Net cash provided by financing activities in the year ended December 31, 2015, was $15,450,000, being $15,695,000 from the issuance of common stock, Series 2 Convertible Preferred Stock and warrants in the 2015 Public Offering, offset by $151,000 to repay capital leases and $94,000 to pay income taxes for restricted stock forfeited. Cash provided by financing activities in the year ended December 31, 2013,2014, was $13,393,162, all $16,646,000, being $17,972,000 from the issuance of common stock Series 1 Convertible Preferred Stock and warrants in the 2013 Private Placement,a public offering of equity securities, offset by the $70,000 we$1,318,000 used to acquire WGBM's Series B CPS.
There were no financing activities in the year ended December 31, 2012.repay a promissory note to IntegenX and by $8,000 to repay capital leases.
Availability of Additional Funds
We believe funds available at December 31, 2013, 2015, along with our revenue, willare sufficient to fund our operations into the fourth quarter of 2014.2017. To continue our operations thereafter, we expectit is likely that we will need to raise further capital, through the sale of additional securities or otherwise, to support our future operations.otherwise. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. In January 2014expenditures. At the present time, we paid $2 million to acquire the Apollo Business and agreed to pay the $1.25 million Note and also potentially Earnout payments based on future revenues (see Recent Developments--Acquisition of Assets from IntegenX Inc. above). This acquisition aside, we hadhave no material commitments for capital expenditure. Our future capital requirements and the adequacy of our available funds will depend on many factors, most notably our ability to successfully commercialize our new high throughput open platform SmartChip products and services.services.
While we believe we have sufficient cash to fund our operating, investing and financing activities intoin the fourth quarter of 2014,near term, we expectconsider it likely that additional capital will be needed to sustain our operations thereafter.before we achieve profitability. We mayhave no commitments to obtain any additional funds and there can be unableno assurance that we will be able to raise sufficient additional capital whenas we need it on favorable terms, or at all. The conversion of our MTDC Notes, and the sale of equity or convertible debt securities in the future, may be dilutive to our stockholders, and debt financing arrangements may require us to pledge certain assets and enter into covenants that could restrict certain business activities or our ability to incur further indebtedness, and may contain other terms that are not favorable to us or our stockholders. If we are unable to obtain additional capital as needed capital we may not be able to continue our efforts to develop and commercialize our SmartChip products and services and may be forced to significantly curtail or suspend our operations.
Principles of Consolidation
The consolidated financial statements of WaferGen Bio-systems, Inc. include the accounts of Wafergen, Inc. and WaferGen Biosystems Europe S.a.r.l., our Luxembourg subsidiary. All significant inter-company transactions and balances are eliminated in consolidation.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, result of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies and Estimates
Deferred Tax Valuation Allowance. We believe substantial uncertainties exist regarding the future realization of deferred tax assets, and, accordingly, to the extent that it does not relate to a liability related to indefinite-lived assets, a full valuation allowance is required, amounting to approximately $30,000,000$41 million at December 31, 2013.2015. In subsequent periods, if and when we generate pre-tax income, a tax expense will not be recorded to the extent that the remaining valuation allowance can be used to offset that expense. Once a consistent pattern of pre-tax income is established or other events occur that indicate that the deferred tax assets will be realized, additional portions or all of the remaining valuation allowance will be reversed back to income. Should we generate pre-tax losses in subsequent periods, a tax benefit will not be recorded and the valuation allowance will be increased.increased.
Inventory Valuation. Inventories are stated at the lower of cost and market value. We perform a detailed assessment of inventory on a regular basis, which includes, among other factors, a review of projected demand requirements, product pricing, product expiration and product lifecycle. As a result of this assessment, we record provisions for potentially excess, obsolete or impaired goods, when appropriate, in order to reduce the reported amount of inventory to its net realizable value.value. If actual demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required.required.
Warranty Reserve. Our standard warranty agreement is one year from shipment for SmartChip cyclers and dispensers.dispensers and Apollo systems. We accrue for anticipated warranty costs upon shipment of these products. Our warranty reserve is based on management’s judgment regarding anticipated rates of warranty claims and associated repair costs, and we update our assessment quarterly.
Stock-Based Compensation. We measure the fair value of all stock option and restricted stock awards to employees on the grant date, and record the fair value of these awards, net of estimated forfeitures, as compensation expense over the service period. The fair value of options is estimated using the Black-Scholes valuation model, and of restricted stock is based on our closing share price on the measurement date. Amounts expensed with respect to options were $321,140$699,000 and $379,120,$943,000, net of estimated forfeitures, for the years ended December 31, 20132015 and 2012,2014, respectively. These sums exclude the compensation expense for restricted stock awards, for which the fair value is based on our closing stock price on the grant date for directors and employees, and on the dates on which performance of services is recognized for consultants.
The weighted-average grant date fair value of options awarded in the years ended December 31, 20132015 and 2012,2014, respectively, were $3.72$2.56 and $8.21.$6.33. These fair values were estimated using the following assumptions:
| | | Year Ended December 31, | | | | | |
| | 2013 | | 2012 | | Year Ended December 31, |
| | | | | | 2015 | | 2014 |
| Risk-free interest rate | 0.71% - 1.22% | | 0.71% - 1.14% | | 1.25% - 1.44% |
| | 1.43% - 1.57% |
|
| Expected term | 4.75 Years | | 4.75 Years | | 3.55 - 4.50 Years |
| | 4.75 years |
|
| Expected volatility | 96.73% - 108.14% | | 65.02% - 103.61% | | 106.11% - 119.36% |
| | 93.89% - 105.79% |
|
| Dividend yield | 0% | | 0% | | — | % | | — | % |
Risk-Free Interest Rate. This is the U.S. Treasury rate for the day of the grant having a term equal to the expected term of the option. An increase in the risk-free interest rate will increase the fair value and the related compensation expense.expense.
Expected Term. This is the period of time over which the award is expected to remain outstanding and is based on management’s estimate, taking into consideration the vesting terms, the contractual life, and historical experience. An increase in the expected term will increase the fair value and the related compensation expense.expense.
Expected Volatility. This is a measure of the amount by which our common stock price has fluctuated or is expected to fluctuate. To the extent thatWe apply 50% weighting to our common stock had not been traded for as long as the expected remaining term of the options, we used a weighted average ofown historic volatility and 50% to the historic volatility of a group of publicly traded companies over the retrospective period corresponding to the expected remaining term of the options on the measurement date. We apply a reduced weighting to our own historic volatility in the period prior to August 27, 2013, when we were highly leveraged. The group of publicly traded companies is selected from the same industry or market index, with extra weighting attached to those companies most similar in terms of business activity, size and financial leverage. To the extent that our common stock has been traded for longer than the expected remaining term of the options, this weighted average is used to determine 50% of the volatility, with our own historic volatility used to determine the remaining 50%. An increase in the expected volatility will increase the fair value and the related compensation expense.
Dividend Yield. We have not made any dividend payments and do not plan to pay dividends in the foreseeable future. An increase in the dividend yield will decrease the fair value and the related compensation expense.expense.
Forfeiture Rate. This is a measure of the amount of awards that are expected to not vest. An increase in the estimated forfeiture rate will decrease the related compensation expense.
Warrrant Derivative Liabilities. Our derivative liabilities arise due to the cash settlement provisions in certain warrants and unit warrants and the variable number of shares of our common stock that may be issued upon the exercise of those warrants with certain anti-dilution protection and, until the time of their settlement in 2013, upon the exchange of Series A and Series B CPS of our Malaysian subsidiary, and under the conversion element of our CPNs.protection. We evaluate the liability for those warrants for which no anti-dilution adjustment is projected prior to the expiration date using the Black-Scholes valuation model,, and all other derivatives using a Monte Carlo Simulation approach, using critical assumptions provided by management reflecting conditions at the valuation dates.
There was no longer a derivative liability for the conversion element of CPNsOur warrant derivatives are revalued at December 31, 2013, its fair value having diminished to nil byeach balance sheet date, and at the time of issuance and settlement, and are estimated making assumptions regarding the Exchange Agreement on August 27, 2013. The fair value of this derivative liability at December 31, 2012, was estimated to be $274,928 using our closing stock price of $2.98 and assumptions including estimated volatility of 126.91%, a risk-free interest rate of 0.13%, a zero dividend rate and a contractual term of 1.91 years. The fair value of this derivative liability at December 31, 2011, was estimated to be $1,931,295 using our closing stock price of $15.91 and assumptions including estimated volatility of 82.82%, a risk-free interest rate of 0.18%, a zero dividend rate and a contractual term of 2.91 years.following variables:
The total fair value of the derivative liability for warrants and unit warrants at December 31, 2013, was estimated to be $9,147,507 using our closing stock price of $2.00 and assumptions including estimated volatilities of 95.39% to 118.65%, risk-free interest rates of 0.09% to 1.36%, a zero dividend rate and estimated remaining terms of 0.46 to 3.80 years. The total fair value of warrants and unit warrants issued during 2013 was estimated to be $7,962,081, the majority of which were issued on August 27, 2013, on which date fair values were estimated using a stock price of $2.00 and assumptions including estimated volatility of 84.27%, a risk-free interest rate of 1.16%, a zero dividend rate and an estimated remaining term of 4.00 years. The total fair value of this derivative liability at December 31, 2012, was estimated to be $102,695 using our closing stock price of $2.98 and assumptions including estimated volatilities of 117.58% to 131.42%, risk-free interest rates of 0.08% to 0.21%, a zero dividend rate and estimated remaining terms of 0.38 to 1.58 years. The total fair value of this derivative liability at December 31, 2011, was estimated to be $655,219 using our closing stock price of $15.91 and assumptions including estimated volatilities of 80.66% to 85.13%, risk-free interest rates of 0.16% to 0.32%, a zero dividend rate and estimated remaining terms of 1.25 to 2.39 years.
The fair value of the derivative liability for the conversion element of Series B CPS of our Malaysian subsidiary at October 11, 2013, the date on which the liability was settled, was estimated to be $1,082,351 using our closing stock price of $2.00 and assumptions including estimated volatility of 97.39%, a risk-free interest rate of 0.07%, a zero dividend rate and an estimated remaining term of 0.48 years. The fair value of this derivative liability at December 31, 2012, was estimated to be $1,210,909 using our closing stock price of $2.98 and assumptions including estimated volatility of 125.53%, a risk-free interest rate of 0.16%, a zero dividend rate and an estimated remaining term of 1.00 years. The fair value of this derivative liability at December 31, 2011, was estimated to be $1,245,101 using our closing stock price of $15.91 and assumptions including estimated volatility of 81.69%, a risk-free interest rate of 0.28%, a zero dividend rate and an estimated remaining term of 1.81 years.
The total fair value of the derivative liability for Series A CPS of our Malaysian subsidiary at November 26, 2013, the date on which the liability was settled, was estimated to be $446,602 using our closing stock price of $2.00 and assumptions including estimated volatility of 175.31%, a risk-free interest rate of 0.07%, a zero dividend rate and an estimated remaining term of 0.08 years. The total fair value of this derivative liability at December 31, 2012, was estimated to be $619,652 using our closing stock price of $2.98 and assumptions including estimated volatilities of 123.55% to 127.94%, risk-free interest
rates of 0.11% to 0.15%, a zero dividend rate and estimated remaining terms of 0.55 to 0.90 years. The total fair value of this derivative liability at December 31, 2011, was estimated to be $2,135,715 using our closing stock price of $15.91 and assumptions including estimated volatilities of 81.15% to 82.83%, risk-free interest rates of 0.28%, a zero dividend rate and estimated remaining terms of 1.55 to 1.90 years.
Risk-Free Interest Rate. This is the U.S. Treasury rate for the measurement date having a term equal to the weighted average expected remaining term of the instrument. An increase in the risk-free interest rate will increase the fair value and the associated derivative liability.
Expected Remaining Term. This is the period of time over which the instrument is expected to remain outstanding and is based on management’s estimate, taking into consideration the remaining contractual life, historical experience and the possibility of liquidation. For our convertible promissory notes, prior to their conversion, we considered a blend of expected remaining terms prior to partial conversion into our Series A-2 Convertible Preferred Stock, giving consideration to the likelihood of conversion under various scenarios, and a further blend of expected remaining terms prior to partial conversion into common stock, all based on management’s projections of when such conversions would occur within the contractual term. An increase in the expected remaining term will increase the fair value and the associated derivative liability.
Expected Volatility. This is a measure of the amount by which our common stock price has fluctuated or is expected to fluctuate. To the extent thatWe apply 50% weighting to our common stock had not been traded for as long as the expected remaining term of the instrument, we used a weighted average ofown historic volatility and 50% to the historic volatility of a group of publicly traded companies over the retrospective period corresponding to the expected remaining term of the instrument on the measurement date. We apply a reduced weighting to our own historic volatility in the period prior to August 27, 2013, when we were highly leveraged. The group of publicly traded companies is selected from the same industry or market index, with extra weighting attached to those companies most similar in terms of business activity, size and financial leverage. To the extent that our common stock has been traded for longer than the expected remaining term of the instrument, this weighted average is used to determine 50% of the volatility, with our own historic volatility used to determine the remaining 50%. An increase in the expected volatility will increase the fair value and the associated derivative liability.
Dividend Yield. We have not made any dividend payments and do not plan to pay dividends in the foreseeable future. An increase in the dividend yield will decrease the fair value and the associated derivative liability.
Contractual Obligations
In October, 2009, we signed an operating lease for 19,186 square feet of office and laboratory space for our headquarters inat 7400 Paseo Padre Parkway, Fremont, California, covering the period November 1, 2009 through April 30, 2015, with no rent payable for the first six months. Following an amendmentwhich was amended in June 2012 toand again in June 2014, extending the timingperiod of payments, the totallease until April 30, 2018. The remaining expenditure commitment as of December 31, 2015, was approximately $2.23$1.1 million, (of which $0.85 million remained as at December 31, 2013), plus maintenance fees. In February 2016, our Fremont, California landlord exercised its option to terminate the lease effective April 12, 2016. In March 2016, we entered into a new operating lease for a 28,866 square foot facility located at 34700 Campus Drive, Fremont, California, covering the period from March 1, 2016, through February 28, 2019. The expenditure commitment under this new lease, as of March 23, 2016, was approximately $2.1 million, plus maintenance fees and a proportionate share of operating expenses for the premises, including real estate taxes. In addition, we have obligations under three capital leases for equipment totaling approximately $0.4 million.
Recently Issued Accounting Pronouncements
See the “Recent Accounting Pronouncements” in Note 2 to the Consolidated Financial Statements in Part II, Item 8 for information related to the adoption of new accounting standards in 2013,2015, none of which had a material impact on our financial statements, and the future adoption of recently issued accounting pronouncements, which we do not expect will have a material impact on our financial statements.
Item 8. Financial Statements and Supplementary Data
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
WaferGen Bio-systems, Inc.
We have audited the accompanying consolidated balance sheets of WaferGen Bio-systems, Inc. and subsidiaries (collectively, the “Company”) as of December 31, 20132015 and 2012,2014, and the related consolidated statements of operations, and comprehensive loss, stockholders’ equity, (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WaferGen Bio-systems, Inc. and subsidiaries as of December 31, 20132015 and 2012,2014, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements the Company has incurred operating losses and negative cash flows from operating activities since inception. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.principles.
/s/ SingerLewak LLP
San Jose, California
March 14, 201425, 2016
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except par value)
Consolidated Balance Sheets |
| | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 15,236 |
| | $ | 14,732 |
|
| Accounts receivable | 2,201 |
| | 1,481 |
|
| Inventories, net | 1,998 |
| | 813 |
|
| Prepaid expenses and other current assets | 404 |
| | 380 |
|
| Total current assets | 19,839 |
| | 17,406 |
|
| Property and equipment, net | 1,052 |
| | 869 |
|
| Goodwill | 990 |
| | 990 |
|
| Intangible assets, net | 912 |
| | 1,362 |
|
| Other assets | 80 |
| | 80 |
|
| Total assets | $ | 22,873 |
| | $ | 20,707 |
|
| Liabilities and Stockholders’ Equity | |
| | |
|
| Current liabilities: | |
| | |
|
| Accounts payable | $ | 2,029 |
| | $ | 1,494 |
|
| Accrued payroll and related costs | 1,200 |
| | 1,379 |
|
| Current portion of long-term debt | 180 |
| | 117 |
|
| Other accrued expenses | 917 |
| | 832 |
|
| Total current liabilities | 4,326 |
| | 3,822 |
|
| Long-term debt, net of discount and current portion | 2,570 |
| | 2,235 |
|
| Warrant derivative liabilities | 4 |
| | 126 |
|
| Deferred income taxes | 128 |
| | — |
|
| Other liabilities | 148 |
| | 444 |
|
| Total liabilities | 7,176 |
| | 6,627 |
|
| Commitments and contingencies (Notes 7 and 16) |
|
| |
|
|
| Stockholders’ equity: | |
| | |
|
| Preferred Stock: $0.001 par value; 10,000 shares authorized; 1.108 and 0.430 shares of Series 2 Convertible Preferred Stock issued and outstanding, respectively, at December 31, 2015; none at December 31, 2014 | 2,214 |
| | — |
|
| Common Stock: $0.001 par value; 300,000 shares authorized; 19,163 and 5,884 shares issued and outstanding at December 31, 2015 and 2014, respectively | 120,329 |
| | 105,611 |
|
| Accumulated deficit | (106,846 | ) | | (91,531 | ) |
| Total stockholders’ equity | 15,697 |
| | 14,080 |
|
| Total liabilities and stockholders’ equity | $ | 22,873 |
| | $ | 20,707 |
|
| | | December 31, 2013 | | | December 31, 2012 | |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 10,708,646 | | | $ | 6,328,753 | |
| Accounts receivable | | | 367,266 | | | | 307,759 | |
| Inventories, net | | | 292,650 | | | | 495,486 | |
| Prepaid expenses and other current assets | | | 350,540 | | | | 134,567 | |
| | | | | | | | | |
| Total current assets | | | 11,719,102 | | | | 7,266,565 | |
| | | | | | | | | |
| Property and equipment, net | | | 269,618 | | | | 874,062 | |
| Other assets | | | 42,209 | | | | 756,831 | |
| | | | | | | | | |
| Total assets | | $ | 12,030,929 | | | $ | 8,897,458 | |
| | | | | | | | | |
| Liabilities and Stockholders’ Equity (Deficit) | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 980,887 | | | $ | 474,436 | |
| Accrued payroll and related costs | | | 289,053 | | | | 235,404 | |
| Other accrued expenses | | | 1,143,335 | | | | 1,063,813 | |
| | | | | | | | | |
| Total current liabilities | | | 2,413,275 | | | | 1,773,653 | |
| | | | | | | | | |
| Long-term debt, net of current portion | | | 1,683,942 | | | | 3,393,159 | |
Derivative liabilities | | | 9,147,507 | | | | 2,208,184 | |
| | | | | | | | | |
| Total liabilities | | | 13,244,724 | | | | 7,374,996 | |
| | | | | | | | | |
| Series A and B convertible preference shares of subsidiary | | | — | | | | 1,123,406 | |
| | | | | | | | | |
| Commitments and contingencies (Notes 5 and 15) | | | — | | | | — | |
| | | | | | | | | |
| Stockholders’ equity (deficit): | | | | | | | | |
| Series C convertible preference shares of subsidiary | | | — | | | | 4,993,728 | |
| Preferred Stock: $0.001 par value; 10,000,000 shares authorized; 2,944.7080 shares of Series 1 issued and outstanding at December 31, 2013; 2,937,500 shares of Series A-1 issued and outstanding at December 31, 2012 | | | 13,595,662 | | | | 9,838,569 | |
| Common Stock: $0.001 par value; 300,000,000 shares authorized; 9,112,559 and 419,367 shares issued and outstanding at December 31, 2013 and 2012 | | | 66,028,712 | | | | 49,934,027 | |
| Accumulated deficit | | | (80,838,169 | ) | | | (64,571,897 | ) |
| Accumulated other comprehensive income | | | — | | | | 204,629 | |
| | | | | | | | | |
| Total stockholders’ equity (deficit) | | | (1,213,795 | ) | | | 399,056 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity (deficit) | | $ | 12,030,929 | | | $ | 8,897,458 | |
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
|
| | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 |
| Revenue: | | | |
| Product | $ | 6,667 |
| | $ | 5,501 |
|
| License and royalty | 500 |
| | 500 |
|
| Total revenue | 7,167 |
| | 6,001 |
|
| Cost of revenue | 3,220 |
| | 2,572 |
|
| Gross profit | 3,947 |
| | 3,429 |
|
| Operating expenses: | |
| | |
|
| Sales and marketing | 5,359 |
| | 4,740 |
|
| Research and development | 9,280 |
| | 6,717 |
|
| General and administrative | 4,400 |
| | 4,422 |
|
| Total operating expenses | 19,039 |
| | 15,879 |
|
| Operating loss | (15,092 | ) | | (12,450 | ) |
| Other income and (expenses): | |
| | |
|
| Interest expense, net | (463 | ) | | (503 | ) |
| Contingent earn-out adjustment | 304 |
| | 229 |
|
| Gain on revaluation of warrant derivative liabilities, net | 122 |
| | 2,200 |
|
| Loss on extinguishment of debt | — |
| | (129 | ) |
| Miscellaneous expense | (54 | ) | | (37 | ) |
| Total other income and (expenses) | (91 | ) | | 1,760 |
|
| Net loss before provision for income taxes | (15,183 | ) | | (10,690 | ) |
| Provision for income taxes | 132 |
| | 3 |
|
| Net loss | (15,315 | ) | | (10,693 | ) |
| Accretion on Series 2 convertible preferred stock associated with beneficial conversion feature | (4,678 | ) | | — |
|
| Net loss attributable to common stockholders | $ | (19,993 | ) | | $ | (10,693 | ) |
| Net loss per share - basic and diluted | $ | (2.58 | ) | | $ | (4.17 | ) |
| Shares used to compute net loss per share - basic and diluted | 7,735 |
| | 2,567 |
|
The accompanying notes are an integral part of these consolidated financial statements.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive LossStockholders’ Equity (In thousands)
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| Revenue: | | | | | | |
| Product | | $ | 846,414 | | | $ | 586,176 | |
| License and royalty | | | 458,333 | | | | — | |
| | | | | | | | | |
| Total revenue | | | 1,304,747 | | | | 586,176 | |
| | | | | | | | | |
| Cost of revenue | | | 574,195 | | | | 420,877 | |
| | | | | | | | | |
| Gross profit | | | 730,552 | | | | 165,299 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Sales and marketing | | | 2,240,116 | | | | 791,915 | |
| Research and development | | | 5,399,775 | | | | 6,161,548 | |
| General and administrative | | | 3,013,104 | | | | 2,977,812 | |
| | | | | | | | | |
| Total operating expenses | | | 10,652,995 | | | | 9,931,275 | |
| | | | | | | | | |
| Operating loss | | | (9,922,443 | ) | | | (9,765,976 | ) |
| | | | | | | | | |
| Other income and (expenses): | | | | | | | | |
| Interest income | | | 3,091 | | | | 7,420 | |
Interest expense | | | (2,880,718 | ) | | | (2,082,558 | ) |
Gain (loss) on revaluation of derivative liabilities, net | | | (506,195 | ) | | | 3,759,146 | |
Gain on settlement of derivative liability | | | 1,012,351 | | | | — | |
| Loss on extinguishment of debt | | | (4,970,410 | ) | | | — | |
| Issuance of warrants due to organic change | | | (2,553,318 | ) | | | — | |
| Gain on liquidation of subsidiary | | | 3,386,297 | | | | — | |
| Miscellaneous income (expense) | | | 171,414 | | | | (116,147 | ) |
| | | | | | | | | |
| Total other income and (expenses) | | | (6,337,488 | ) | | | 1,567,861 | |
| | | | | | | | | |
| Net loss before provision (benefit) for income taxes | | | (16,259,931 | ) | | | (8,198,115 | ) |
| | | | | | | | | |
| Provision (benefit) for income taxes | | | 6,341 | | | | (21,453 | ) |
| | | | | | | | | |
| Net loss | | | (16,266,272 | ) | | | (8,176,662 | ) |
| | | | | | | | | |
| Accretion on Series 1 convertible preferred stock associated with beneficial conversion feature | | | (898,623 | ) | | | — | |
| Series A-1 preferred dividend | | | (547,171 | ) | | | (801,534 | ) |
| | | | | | | | | |
| Net loss attributable to common stockholders | | $ | (17,712,066 | ) | | $ | (8,978,196 | ) |
| | | | | | | | | |
| Net loss per share - basic and diluted | | $ | (5.82 | ) | | $ | (21.42 | ) |
| | | | | | | | | |
| Shares used to compute net loss per share - basic and diluted | | | 3,045,266 | | | | 419,165 | |
| Comprehensive Loss: | | | | | | |
| | | | | | | |
| Net loss | | $ | (16,266,272 | ) | | $ | (8,176,662 | ) |
| | | | | | | | | |
| Foreign currency translation adjustments | | | (201,975 | ) | | | 142,056 | |
| | | | | | | | | |
| Total comprehensive loss | | $ | (16,468,247 | ) | | $ | (8,034,606 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Preferred Stock | | | | | | | | |
| | | Series 1 | | Series 2 | | | | Common Stock | | Accumulated | | |
| | | Shares | | Shares | | Amount | | Shares | | Amount | | Deficit | | Total |
| Balances as of January 1, 2014 | | 2.945 |
| | — |
| | $ | 13,595 |
| | 911 |
| | $ | 66,029 |
| | $ | (80,838 | ) | | $ | (1,214 | ) |
| Issuance of common stock and warrants for cash, net of offering costs of $2,424 | | — |
| | — |
| | — |
| | 4,000 |
| | 17,576 |
| | — |
| | 17,576 |
|
| Issuance of warrants to underwriters | | — |
| | — |
| | — |
| | — |
| | 396 |
| | — |
| | 396 |
|
| Conversion of Series 1 Convertible Preferred Stock into common stock | | (2.945 | ) | | — |
| | (13,595 | ) | | 741 |
| | 13,595 |
| | — |
| | — |
|
| Reclassification of warrants following change of terms to remove cash settlement provision | | — |
| | — |
| | — |
| | — |
| | 6,821 |
| | — |
| | 6,821 |
|
| Restricted stock units issued for services, net of forfeitures | | — |
| | — |
| | — |
| | 232 |
| | — |
| | — |
| | — |
|
| Stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 1,194 |
| | — |
| | 1,194 |
|
| Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (10,693 | ) | | (10,693 | ) |
| Balances as of December 31, 2014 | | — |
| | — |
| | $ | — |
| | 5,884 |
| | $ | 105,611 |
| | $ | (91,531 | ) | | $ | 14,080 |
|
| Issuance of common stock and warrants for cash, net of allocated offering costs of $1,116 | | — |
| | — |
| | — |
| | 6,170 |
| | 9,732 |
| | — |
| | 9,732 |
|
| Issuance of Series 2 Convertible Preferred Stock for cash, net of allocated offering costs of $698 | | — |
| | 1.108 |
| | 5,704 |
| | — |
| | 4,678 |
| | — |
| | 10,382 |
|
| Issuance of warrants to underwriters | | — |
| | | | — |
| | — |
| | 259 |
| | — |
| | 259 |
|
| Conversion of Series 2 Convertible Preferred Stock into common stock | | — |
| | (0.678 | ) | | (3,490 | ) | | 6,780 |
| | 3,490 |
| | — |
| | — |
|
| Accretion on Series 2 Convertible Preferred Stock associated with beneficial conversion feature | | — |
| | — |
| | — |
| | — |
| | (4,678 | ) | | — |
| | (4,678 | ) |
| Restricted stock units issued for services, net of forfeitures | | — |
| | — |
| | — |
| | 353 |
| | — |
| | — |
| | — |
|
| Restricted stock forfeited to pay income taxes on vesting | | — |
| | — |
| | — |
| | (24 | ) | | (94 | ) | | — |
| | (94 | ) |
| Stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 1,331 |
| | — |
| | 1,331 |
|
| Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (15,315 | ) | | (15,315 | ) |
| Balances as of December 31, 2015 | | — |
| | 0.430 |
| | $ | 2,214 |
| | 19,163 |
| | $ | 120,329 |
| | $ | (106,846 | ) | | $ | 15,697 |
|
The accompanying notes are an integral part of these consolidated financial statements.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Deficit)Cash Flows (In thousands)
| | | Series C | | | | | | | | | | Accumulated | | | |
| | | Convertible Preference | | | Preferred Stock | | | | | | | Other | | | |
| | | Shares of Subsidiary | | | Series A-1 | | | Series 1 | | | | | Common Stock | | Accumulated | | Comprehensive | | | |
| | | Shares | | Amount | | | Shares | | | Shares | | Amount | | | Shares | | Amount | | Deficit | | Income | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances as of January 1, 2012 | | 3,233,734 | | $ | 4,993,728 | | | 2,937,500 | | | — | | $ | 9,838,569 | | | 418,746 | | $ | 49,546,135 | | $ | (56,395,235 | ) | $ | 62,573 | | $ | 8,045,770 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Restricted stock issued for services, net of forfeitures | | — | | | — | | | — | | | — | | | — | | | 621 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | — | | | 387,892 | | | — | | | — | | | 387,892 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,176,662 | ) | | — | | | (8,176,662 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Translation adjustment | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 142,056 | | | 142,056 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances as of December 31, 2012 | | 3,233,734 | | $ | 4,993,728 | | | 2,937,500 | | | — | | $ | 9,838,569 | | | 419,367 | | $ | 49,934,027 | | $ | (64,571,897 | ) | $ | 204,629 | | $ | 399,056 | |
|
| | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 |
| Cash flows from operating activities: | | | |
| Net loss | $ | (15,315 | ) | | $ | (10,693 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
|
| Depreciation and amortization | 881 |
| | 822 |
|
| Stock-based compensation | 1,331 |
| | 1,194 |
|
| Gain on revaluation of warrant derivative liabilities, net | (122 | ) | | (2,200 | ) |
| Interest converted to principal on long-term debt | — |
| | 68 |
|
| Provision for excess and obsolete inventory | (60 | ) | | (841 | ) |
| Amortization of debt discount | 371 |
| | 334 |
|
| Loss on extinguishment of debt | — |
| | 129 |
|
| Deferred income taxes | 128 |
| | — |
|
| Change in operating assets and liabilities: | |
| | |
|
| Accounts receivable | (720 | ) | | (1,114 | ) |
| Inventories | (1,253 | ) | | 819 |
|
| Prepaid expenses and other assets | (25 | ) | | (67 | ) |
| Accounts payable | 535 |
| | 513 |
|
| Accrued payroll and related costs | (179 | ) | | 1,026 |
|
| Other accrued expenses | (210 | ) | | (278 | ) |
| Net cash used in operating activities | (14,638 | ) | | (10,288 | ) |
| Cash flows from investing activities: | |
| | |
|
| Purchase of property and equipment | (308 | ) | | (335 | ) |
| Acquisition of business | — |
| | (2,000 | ) |
| Net cash used in investing activities | (308 | ) | | (2,335 | ) |
| Cash flows from financing activities: | |
| | |
|
| Net proceeds from issuance of common stock and warrants (and Series 2 Convertible Preferred Stock in 2015 only) | 15,695 |
| | 17,972 |
|
| Repayment of capital lease obligations | (151 | ) | | (8 | ) |
| Repayment of promissory note | — |
| | (1,318 | ) |
| Payment of taxes for restricted stock forfeited | (94 | ) | | — |
|
| Net cash provided by financing activities | 15,450 |
| | 16,646 |
|
| Net increase in cash and cash equivalents | 504 |
| | 4,023 |
|
| Cash and cash equivalents at beginning of the period | 14,732 |
| | 10,709 |
|
| Cash and cash equivalents at end of the period | $ | 15,236 |
| | $ | 14,732 |
|
The accompanying notes are an integral part of these consolidated financial statements.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Deficit)Cash Flows (continued)
(In thousands)
| | | Series C | | | | | | | | | | Accumulated | | | |
| | | Convertible Preference | | | Preferred Stock | | | | | | | Other | | | |
| | | Shares of Subsidiary | | | Series A-1 | | | Series 1 | | | | | Common Stock | | Accumulated | | Comprehensive | | | |
| | | Shares | | Amount | | | Shares | | | Shares | | Amount | | | Shares | | Amount | | Deficit | | Income | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances as of January 1, 2013 | | 3,233,734 | | $ | 4,993,728 | | | 2,937,500 | | | — | | $ | 9,838,569 | | | 419,367 | | $ | 49,934,027 | | $ | (64,571,897 | ) | $ | 204,629 | | $ | 399,056 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share round-ups in reverse stock split | | — | | | — | | | — | | | — | | | — | | | 704 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Exchange of Series A-1 Convertible Preferred Stock, convertible promissory notes and warrants for common stock, Series 1 Convertible Preferred Stock and warrants | | — | | | — | | | (2,937,500 | ) | | 2,987.0168 | | | 5,188,175 | | | 1,067,317 | | | 5,150,712 | | | — | | | — | | | 10,338,887 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common stock, Series 1 Convertible Preferred Stock and warrants for cash, net of offering costs of $2,791,359 | | — | | | — | | | — | | | 646.0351 | | | 1,746,989 | | | 5,893,750 | | | 7,220,102 | | | — | | | — | | | 8,967,091 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption of Series B convertible preference shares of subsidiary | | — | | | — | | | — | | | — | | | — | | | — | | | 1,123,200 | | | — | | | — | | | 1,123,200 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Conversion of Series 1 Convertible Preferred Stock into common stock | | — | | | — | | | — | | | (688.3439 | ) | | (3,178,071 | ) | | 1,731,421 | | | 3,178,071 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Extinguishment of Series C convertible preference shares and accumulated other comprehensive income on liquidation of subsidiary | | (3,233,734 | ) | | (4,993,728 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | (2,654 | ) | | (4,996,382 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accretion on Series 1 Convertible Preferred Stock associated with beneficial conversion feature | | — | | | — | | | — | | | — | | | — | | | — | | | (898,623 | ) | | — | | | — | | | (898,623 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | — | | | 321,223 | | | — | | | — | | | 321,223 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (16,266,272 | ) | | — | | | (16,266,272 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Translation adjustment | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (201,975 | ) | | (201,975 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances as of December 31, 2013 | | — | | $ | — | | | — | | | 2,944.7080 | | $ | 13,595,662 | | �� | 9,112,559 | | $ | 66,028,712 | | $ | (80,838,169 | ) | $ | — | | $ | (1,213,795 | ) |
|
| | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 |
| Supplemental disclosures of cash flow information: | | | |
| Cash paid for interest | $ | 23 |
| | $ | 71 |
|
| Cash paid for income taxes | $ | 2 |
| | $ | 3 |
|
| Supplemental disclosure of non-cash investing and financing activities: | |
| | |
|
| Property and equipment acquired with capital leases | $ | 178 |
| | $ | 364 |
|
| Warrant derivative liabilities transferred to equity on waiver of potential cash settlement provisions | $ | — |
| | $ | 6,821 |
|
| Inventory transferred to property and equipment | $ | 158 |
| | $ | 107 |
|
| Property and equipment transferred to inventory | $ | 30 |
| | $ | — |
|
| Issuance of promissory note, net of debt discount, in business acquisition | $ | — |
| | $ | 1,100 |
|
| Initial valuation of revenue earn-out contingency in business acquisition | $ | — |
| | $ | 410 |
|
| Issuance of warrants to underwriters and placement agents | $ | 259 |
| | $ | 396 |
|
| Accretion on Series 2 convertible preferred stock associated with beneficial conversion feature | $ | 4,678 |
| | $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (16,266,272 | ) | | $ | (8,176,662 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | | 692,489 | | | | 903,291 | |
| Stock-based compensation | | | 321,223 | | | | 387,892 | |
| Loss (gain) on revaluation of derivative liabilities, net | | | 506,195 | | | | (3,759,146 | ) |
| Gain on settlement of derivative liability | | | (1,012,351 | ) | | | — | |
| Interest converted to principal on convertible promissory notes | | | 547,866 | | | | 801,645 | |
| Provision for excess and obsolete inventory | | | (77,568 | ) | | | 59,175 | |
| Amortization of debt discount | | | 2,121,593 | | | | 1,185,547 | |
| Loss on extinguishment of debt | | | 4,970,410 | | | | — | |
| Issuance of warrants due to organic change | | | 2,553,318 | | | | — | |
| Gain on liquidation of subsidiary | | | (3,386,297 | ) | | | — | |
| Change in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (60,921 | ) | | | (278,457 | ) |
| Inventories | | | 280,404 | | | | 190,299 | |
| Prepaid expenses and other assets | | | (51,532 | ) | | | 146,783 | |
| Accounts payable | | | 506,464 | | | | (298,086 | ) |
| Accrued payroll and related costs | | | 52,535 | | | | (411,506 | ) |
| Other accrued expenses | | | 81,230 | | | | 381,337 | |
| | | | | | | | | |
| Net cash used in operating activities | | | (8,221,214 | ) | | | (8,867,888 | ) |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property and equipment | | | (91,545 | ) | | | (54,767 | ) |
| Cash of former subsidiary transferred to liquidator | | | (433,411 | ) | | | — | |
| | | | | | | | | |
| Net cash used in investing activities | | | (524,956 | ) | | | (54,767 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Net proceeds from issuance of Series 1 convertible preferred stock, common stock and warrants | | | 13,393,162 | | | | — | |
Purchase of Series B convertible preference shares of former subsidiary | | | (70,000 | ) | | | — | |
| | | | | | | | | |
| Net cash provided by financing activities | | | 13,323,162 | | | | — | |
| | | | | | | | | |
| Effect of exchange rates on cash | | | (197,099 | ) | | | 134,236 | |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 4,379,893 | | | | (8,788,419 | ) |
| | | | | | | | | |
| Cash and cash equivalents at beginning of the period | | | 6,328,753 | | | | 15,117,172 | |
| | | | | | | | | |
| Cash and cash equivalents at end of the period | | $ | 10,708,646 | | | $ | 6,328,753 | |
The accompanying notes are an integral part of these consolidated financial statements.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
| Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 4,341 | | | $ | — | |
| Cash paid for income taxes | | $ | 28,559 | | | $ | 41,467 | |
Cash (received) for income taxes | | $ | (1,051 | ) | | $ | (25,539 | ) |
| | | | | | | | | |
| Supplemental disclosure of non-cash investing and financing activities: | | | | | | | | |
Exchange of convertible promissory notes for common stock and Series 1 convertible preferred stock | | $ | 6,035,360 | | | $ | — | |
Exchange of Series A-1 convertible preferred stock for common stock and Series 1 convertible preferred stock | | $ | 9,838,569 | | | $ | — | |
| Issuance of warrants classified as liabilities to placement agent | | $ | 1,147,021 | | | $ | — | |
Accretion on Series 1 convertible preferred stock associated with beneficial conversion feature | | $ | 898,623 | | | $ | — | |
| Issuance of long-term debt, net of debt discount, upon liquidation of subsidiary | | $ | 1,656,684 | | | $ | — | |
| Extinguishment of Series C convertible preference shares upon liquidation of subsidiary | | $ | 4,993,728 | | | $ | — | |
The accompanying notes are an integral part of these consolidated financial statements.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
General. WaferGen Bio-systems, Inc. and its subsidiaries (the “Company”) are engaged in the development, manufacture and sale of systems for genomic technology solutions for single-cell analysis and clinical research. The Company’s ICELL8 Single-Cell System is a cutting edge platform that can isolate thousands of single cells and process specific cells for analysis, including Next Generation Sequencing (“NGS”). The Company’s SmartChip platform can be used for gene expression quantification, genotypingprofiling and stem cell research.validating molecular biomarkers, and can perform massively parallel singleplex PCR for one-step target enrichment and library preparation for clinical NGS. The Company’s Apollo 324 system can be used to process DNA and RNA from clinical samples to NGS-ready libraries. The Company’s products are aimed at researchers who perform genetic analysis, primarily at pharmaceutical and biotech companies, academic and private research centers and diagnostics companies involved in biomarker discovery and genetic research. Through the SmartChip products,and Apollo product lines, the Company plans to provide new performance standards with significant savings in time and cost for professionals in the field of gene expression research and to facilitate biomarker discovery, toxicology, and clinical research.
Wafergen, Inc. was incorporated in the State of Delaware on October 22, 2002, and was acquired by WaferGen Bio-systems, Inc. in a reverse merger on May 31, 2007.
On January 24, 2008, the Company formed a subsidiary, WaferGen Biosystems (M) Sdn. Bhd. (“WGBM”), in Malaysia. Prior to WGBM’s liquidation on November 26, 2013, the Company owned 100% of the common stock and 17.2% (comprising shares that had been assumed by the Company) of the preference shares of this entity, with the remaining preference shares owned by Malaysian Technology Development Corporation Sdn. Bhd. (“MTDC”). See Notes 5 and 6 below.
On August 30, 2011, the Company formed a wholly owned subsidiary in Luxembourg, WaferGen Biosystems Europe S.a.r.l., to establish a presence for its marketing and research activities in Europe.
On August 27, 2013,January 6, 2014, the Company acquired substantially all of the assets of the product line of IntegenX Inc. (“IntegenX”) used in connection with developing, manufacturing, marketing and selling instruments and reagents relating to library preparation for NGS, including the Apollo 324 instrument and the PrepX reagents (the “Apollo Business”). See Note 3 below.
On June 30, 2014, the Company effected a reverse stock split of its common stock by a ratio of one-for-99.39one-for-ten (the “Reverse“2014 Reverse Split”). Every 99.39ten outstanding shares of common stock became one share of common stock. No fractional shares were issued in connection with the 2014 Reverse Split. Stockholders who were otherwise entitled to receive a fractional share of common stock received one whole share of common stock. The 2014 Reverse Split did not change the number of shares of common or preferred stock that the Company is authorized to issue, or the par value of the Company’s common or preferred stock.
The 2014 Reverse Split resulted in a proportionate adjustment to the per share exercise price and the number of shares of common stock issuable upon the exercise of outstanding warrants and stock options, as well as the number of shares of common stock eligible for issuance under the 2008 Stock Incentive Plan. All of the information in these financial statements has been presented to reflect the impact of the one-for-99.392014 Reverse Split on a retroactive basis.
On August 27, 2013,2014, the Company entered into an exchange agreementcompleted a public offering (the “Exchange Agreement”“2014 Public Offering”) of 2,000 Units (the “Units”) for $10,000 per Unit, with investors who, in May 2011, purchased (i) certain shareseach Unit consisting of Series A-1 Convertible Preferred Stock, par value $0.001 per share, (ii) certain convertible promissory notes (“CPNs”) convertible into shares of Series A-2 Convertible Preferred Stock, par value $0.001 per share, and (iii) certain warrants (the “2011 Warrants” and together with the Series A-1 Convertible Preferred Stock and the CPNs, the “2011 Securities”) to purchase shares of common stock. Pursuant to the Exchange Agreement, these investors agreed to exchange all their 2011 Securities for2,000 shares of the Company’s common stock and 2,000 warrants to purchase one share of common stock. In aggregate, the Company issued 4,000,000 shares of newly designated Series 1 Convertible Preferred Stock, par value $0.001 per share,its common stock (excluding 600,000 shares of common stock sold by certain stockholders to the underwriters) and 4,600,000 warrants to purchase shares of its common stock (the “2013 Exchange”). In the aggregate, the Company exchanged Series A-1 Convertible Preferred Stock with a liquidation preference(inclusive of $17,081,913, CPNs with a principal amount of $17,084,894 and 2011 Warrants exercisable for 565,180600,000 shares of common stock for 2,987.0168 sharessold by the Company from the full exercise of Series 1 Convertible Preferred Stock, 1,067,317 sharesthe overallotment option of our common stock and warrants exercisable for 2,369,000 shares of common stock. Thesegranted to the underwriters). Subject to certain ownership limitations, the warrants are exercisable at any time before August 27, 2018,within five years of their issuance date at an exercise price of $2.60$5.00 per share, with cashless exercise permitted.share. The total gross proceeds from the offering to the Company were $20,000,000. After deducting underwriting discounts, commissions and offering expenses payable by the Company, the aggregate net proceeds received by the Company totaled approximately $18.0 million.
The Company employedretained underwriters in connection with the 2014 Public Offering, and pursuant to the terms of an Option Pricing Modelunderwriting agreement, the Company paid the underwriters an aggregate fee totaling approximately $1,675,000. In addition, the Company issued the underwriters 120,000 warrants at the closing of the 2014 Public Offering, each warrant entitling the holder to determine the relativepurchase one share of common stock for $6.25 at any time within three years of their issuance date. The aggregate fair valuesvalue of securities surrendered in the 2013 Exchange, these warrants when they were issued on August 27, 2014, was estimated to be $396,000, using a closing stock price of $2.00$4.60 and assumptions including estimated volatility of 84.26%108.07%, a risk-free interest rate of 1.16%1.48%, a zero dividend rate and an estimated remaining term of 4.004.5 years. The relativeThis estimated fair value assigned towas recorded in offering costs.
On October 21, 2015, the CPNs was $10,422,956. The excessCompany completed a public offering (the “2015 Public Offering”) of this amount over the net carrying amount392 Class A Units and 1,108 Class B Units for $10,000 per Unit. Each Class A Unit consisted of 10,000 shares of the liabilities relating to CPNs of $5,452,546 on the exchange date was recorded as loss on extinguishment of debt of $4,970,410 within other incomeCompany’s common stock and expenses. The balance related to Series A-1 Convertible Preferred Stock was transferred to additional paid-in capital within stockholders’ equity. The exchange of10,000 warrants is further described in Note 9.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
On August 27, 2013to purchase one share of common stock, and September 30, 2013, the Company completed a private placement offering (the “2013 Private Placement”) with certain accredited investors for the sale of units at $50,000 per unit (“Unit”). Eacheach Class B Unit consisted of (1) either 25,000 sharesone share of our common stock or 9.9390Series 2 Convertible Preferred Stock (each convertible into 10,000 shares of the Series 1 Convertible Preferred StockCompany’s common stock, subject to certain ownership limitations) and (2)10,000 warrants to purchase 12,500 sharesone share of common stock. At the initial closing of the offering on August 27, 2013,In addition, the Company received gross proceeds of $13,668,500 and issued a total of 5,209,250 shares of common stock, 646.0351 shares of Series 1 Convertible Preferred Stock (convertible into a total of 1,625,000 shares of common stock) and 3,417,129 warrants. At the second and final closing of the offering on September 30, 2013, the Company received gross proceeds of $1,369,000 and issued a total of 684,500sold 2.25 million shares of common stock and 342,250 warrants.2.25 million warrants to purchase one share of common stock pursuant to the full exercise of the overallotment option granted to the underwriters.
In total,aggregate, the Company sold an aggregateissued 6.17 million shares of 5,893,750its common stock (inclusive of 2.25 million shares of common stock 646.0351sold by the Company from the full exercise of the overallotment option granted to the underwriters), 1,108 shares of Series 12 Convertible Preferred Stock and warrants to purchase 3,759,37917.25 million shares of common stock for $2.60(inclusive of 2.25 million warrants to purchase shares of common stock sold by the Company from the full exercise of the overallotment option of warrants granted to the underwriters) in the 2013 Private Placement, and received aggregate2015 Public Offering. Subject to certain ownership limitations, the warrants are exercisable at any time within five years of their issuance date at an exercise price of $1.44. The total gross proceeds of $15,037,500. from the offering to the Company were $17,250,000. After deducting underwriting discounts, commissions and offering expenses payable by the Company, the aggregate net proceeds received by the Company totaled approximately $15.7 million.
The Company incurred issuance costs in connection with the 2013 Private Placement2015 Public Offering totaling $2,791,359$1,814,000 (including the fair value of unit warrants issued to the placement agentunderwriters of $1,147,021,approximately $259,000, as discussed below). The following reflects the allocation of these proceeds to the new securities issued:
|
| | | | | | | | | | | | |
| Security / Account | | Allocated Fair Value | | Issuance Costs | | Final Allocation |
| | | | | (in thousands) |
| | |
| Common stock and warrants | | $ | 10,848 |
| | $ | (1,116 | ) | | $ | 9,732 |
|
| Series 2 Convertible Preferred Stock | | 6,402 |
| | (698 | ) | | 5,704 |
|
| Total | | $ | 17,250 |
| | $ | (1,814 | ) | | $ | 15,436 |
|
| Security / Account | | Allocated Fair Value | | | Issuance Costs | | | Final Allocation | |
| | | | | | | | | | |
| Common stock | | $ | 8,508,451 | | | $ | (2,186,972 | ) | | $ | 6,321,479 | |
| Series 1 Convertible Preferred Stock | | | 2,351,376 | | | | (604,387 | ) | | | 1,746,989 | |
| Warrants | | | 4,177,673 | | | | — | | | | 4,177,673 | |
| | | | | | | | | | | | | |
| Total | | $ | 15,037,500 | | | $ | (2,791,359 | ) | | $ | 12,246,141 | |
Subject to certain ownership limitations, the warrants are exercisable at any time within five years of the applicable issuance date at an initial exercise price of $2.60 per share with cashless exercise in the event a registration statement covering the resale of the shares of common stock underlying the warrants is not in effect within six months of the issuance of the warrants. According to the warrants’ terms, a fundamental transaction could give rise to an obligation of the Company to pay cash to its warrant holders, which prevents them from being accounted for within stockholders’ equity. Accordingly, they were recorded as liabilities on their issuance date and are revalued at each reporting date, with the change in their fair values being recorded as a gain or loss on revaluation within other income and expenses in the statement of operations.
The Company retained a placement agentunderwriters in connection with the 2013 Private Placement,2015 Public Offering, and pursuant to the terms of a placement agentan underwriting agreement, the Company paid the placement agentunderwriters an aggregate fee totaling approximately $1,339,750.$1,283,000. In addition, the Company issued the placement agent 23.34 unitunderwriters 450,000 warrants at the initial closing and 2.54 unit warrants atof the final closing. Each unit2015 Public Offering, each warrant entitlesentitling the placement agentholder to purchase a Unitone share of common stock for $50,000 with terms identical to those issued in the 2013 Private Placement, except that the warrants expire on the fifth anniversary$1.44 at any time within three years of thetheir issuance date of the unit warrant.date. The aggregate fair value of the 23.34 unitthese warrants when they were issued on August 27, 2013, October 21, 2015, was estimated to be $1,036,605,$259,000, using a closing stock price of $2.00$1.00 and assumptions including estimated volatility of 84.27%111.20%, a risk-free interest rate of 1.16%0.83%, a zero dividend rate and an estimated remaining term of 4.002.7 years. The fair value of the 2.54 unit warrants issued on September 30, 2013, was estimated to be $110,416, using a closing stock price of $1.96 and assumptions including estimated volatility of 85.06%, a risk-free interest rate of 1.01%, a zero dividend rate and an estimated remaining term of 4.00 years. The totalThis estimated fair value of $1,147,021 was includedrecorded in the 2013 Private Placement offering costs.
Management’s Plan. The Company has incurred operating losses and negative cash flows from operations since its inception. Management expects that revenues will increase as a result of current and future product releases. However, the Company also expects to incur additional expenses for the development and expansion of its products, marketing campaigns, and operating costs as it expands its operations. Therefore, the Company expects operating losses and negative cash flows from operating activities to continue for the foreseeable future. It is management’s plan to obtain additional working capital through additional financings. The Company believes that it will be successful in expanding operations, gaining market share, and raising additional funds. However, there can be no assurance that in the event the Company requires additional financing, such financing will be available at terms which are favorable, or at all. Failure to generate sufficient cash flows from operations or raise additional capital could have a material adverse effect on the Company’s ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Going Concern. The Company’s consolidated financial statements have been presented on a basis that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred operating losses and negative cash flows from operating activities since its inception and continues to face significant risks associated with the successful execution of its strategy given the current market environment for similar companies and failure to generate sufficient revenues or raise additional capital could have a material adverse effect on the Company’s ability to continue as a going concern and to achieve its intended business objectives. These facts raise substantial doubt about the Company’s ability to continue as a going concern, and there can be no assurance that the Company will be successful in its efforts to enhance its liquidity situation. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Principles of Consolidation. The consolidated financial statements include the financial statements of WaferGen Bio-systems, Inc. and its subsidiaries. All significant transactions and balances between the WaferGen Bio-systems, Inc. and its subsidiaries have been eliminated in consolidation.
Use of Estimates. Preparing financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results and outcomes could differ from these estimates and assumptions.
Cash and Cash Equivalents. The Company considers all highly liquid debt investments with a remaining maturity of three months or less when purchased to be cash and cash equivalents. Cash and cash equivalents that are restricted as to withdrawal or usage under the terms of contractual agreements, if any, are recorded as restricted cash.
Foreign Currencies. Assets and liabilities of non-U.S. subsidiaries for which the local currency is the functional currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the average rates of exchange prevailing during each reporting period. Translation adjustments resulting from this process are charged or credited to other comprehensive income (loss). Foreign exchange gains and losses for assets and liabilities of the Company’s non-U.S. subsidiaries for which the functional currency is the U.S. dollar are recorded in miscellaneous income (expense) in the Company’s consolidated statements of operations. The Company has no subsidiaries for which the local currency is the functional currency.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Fair Value of Financial Instruments. The carrying amounts of accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. See also the Company’s accounting policy for “Change in Fair Value of Derivatives.”
Concentration of Credit Risk. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The Company places its cash in commercial banks. Accounts in the United States are secured by the Federal Deposit Insurance Corporation. Accounts in Luxembourg are similarly guaranteed. The Company’s total deposits at commercial banks usually exceed the balances insured. The Company generally requires no collateral from its customers.
Accounts Receivable. An allowance for doubtful accounts will be recorded based on a combination of historical experience, aging analysis, and information on specific accounts. Account balances will be written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Inventory. Inventory is recorded at the lower of cost (first-in, first-out) or marketnet realizable value. Additionally, the Company evaluates its inventory in terms of excess and obsolete exposures and records provisions as needed.
Goodwill and Other Intangible Assets. Goodwill is tested for impairment on an annual basis in the fourth quarter and between annual tests if events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable. Impairment losses, if any, are recorded in the Statementstatement of Operationsoperations as “Impairment“impairment of goodwill.”
Purchased intangible assets other than goodwill are amortized over their estimated useful lives unless these lives are determined to be indefinite. PurchasedLong-lived intangibles are carried at cost less accumulated amortization.
amortization and are subject to review for impairment when events or circumstances indicate that the carrying value may not be recoverable (See also the Company’s accounting policy for “Impairment of Long-Lived Assets.”) Amortization is recognized over the estimated useful life of the respective asset on a straight-line basis except for customer lists, which are amortized in proportion to the present value of projected cash flows within their estimated useful lives, since this methodology more closely reflects the pattern in which economic benefits are derived.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Property and Equipment. Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows:
|
| |
| Equipment | 3 to 5 years |
| Tools and molds | 3 years |
| Leasehold improvements | 3 to 5 years, or remaining lease term if shorter |
| Furniture and fixtures | 5 years |
Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses.
Advertising Costs. Advertising costs of nil were expensed as incurred in the years ended December 31, 20132015 and 2012.2014.
Deferred Financing Costs. Costs incurred in connection with the issuance of debt are capitalized and amortized as interest expense using the effective interest method. The unamortized amounts are offset against the debt to the extent that a liability is recorded. Absent outstanding borrowings, they are included in other assets.
Impairment of Long-Lived Assets. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance of long-lived assets may not be recoverable. When factors indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted future cash flows over the remaining life of the long-lived assets in measuring whether they are recoverable. If the estimated undiscounted future cash flows do not exceed the carrying value of the asset, a loss is recorded as the excess of the asset’s carrying value over its fair value. No assets were determined to be impaired in 20132015 and 2012.2014.
Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date. Accounting for deferred tax represents the best estimate of the likely future tax consequences of events that have been recognized in the Company’s consolidated financial statements and tax returns and their future probability. A valuation allowance is recorded for loss carry-forwards and other deferred tax assets where it is more likely than not that such loss carry-forwards and deferred tax assets will not be realized. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.
Governmental Subsidies. Incentives received from governments in the form of grants are recorded as a reduction in expense in accordance with their purpose. Grants awarded for the purpose of matching specified expenditures are not recognized until a definitive agreement has been signed by both parties; thereafter income is recognized to the extent that the related expenses have been incurred. The Company recognized governmental subsidies of $311,079$164,000 (the balance of available matching funds having been fully used by March 31, 2015) and $243,778$559,000 in the years ended December 31, 20132015 and 2012,2014, respectively, which were offset against operating expenses in the statement of operations.
Revenue Recognition. The Company recognizes revenue when (i) delivery of product has occurred or services have been rendered, (ii) there is persuasive evidence of a sale arrangement, (iii) selling prices are fixed or determinable, and (iv) collectability from the customers (individual customers and distributors) is reasonably assured. Revenue consists primarily of revenue generated from the sale of the Company’s products. Revenue is recorded when the risk and rewards of ownership are transferred to the Company’s customers (individual customers and distributors). This generally occurs when the Company’s products are shipped from its facility as title has passed. Revenue is recorded net of estimated cash discounts. The Company estimates and accrues an allowance for sales returns at the time the product is sold. To date, sales returns have not been material. Distributors have a fourteen day inspection period however this period is not an acceptance provision that purports to be a trial or evaluation purpose, is not an acceptance provision that grants a right of return or exchange on the basis of subjective matters, and is not an acceptance provision based on customer-specific objective criteria. The fourteen day inspection period is an acceptance provision that is based on seller-specified objective criteria.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Revenue from multi-deliverable arrangements is recognized for each element on delivery of product or completion of service. A typical multi-deliverable arrangement would be the shipment of capital equipment to a customer, followed by the delivery of services or of expendable equipment, provided such delivery is both probable and substantially within the Company’s control. Revenue for each deliverable is allocated based on full list selling prices, although if none of the deliverables is disproportionately discounted relative to the overall discount, this allocation is approximated by using the actual selling price of each deliverable to the customer. The actual cost of revenue for each deliverable is recognized when the revenue for that deliverable is recognized.
Stock-Based Compensation. The Company measures the fair value of all stock-based awards to employees, including stock options, on the grant date and records the fair value of these awards, net of estimated forfeitures, to compensation expense over the service period. The fair value of awards to consultants is measured on the dates on which performance of services is completed, with interim valuations recorded at balance sheet dates while performance is in progress. The fair value of options is estimated using the Black-Scholes valuation model, and the fair value of restricted stock is based on the Company’s closing share price on the measurement date.
Change in Fair Value of Derivatives. The Company recognizes (or recognized until the time of their settlement) its warrants with certain cash settlement provisions or with certain anti-dilution protection the redemption option of the Series A convertible preference shares of its Malaysian subsidiary, and the conversion element of its convertible promissory notes and of the Series B convertible preference shares of its Malaysian subsidiary as derivative liabilities. Such liabilities are valued when the financial instruments are initially issued or the derivative first requires recognition and are also revalued at each reporting date, with the change in their respective fair values being recorded as a gain or loss on revaluation within other income and expenses in the statement of operations. The Company determines the fair value of those warrants for which no anti-dilution adjustment is projected prior to the expiration date using the Black-Scholes valuation model,, and all other derivative liabilities using a Monte Carlo Simulation approach, with key input variables provided by management.
Warranty Reserve. The Company’s standard warranty agreement is one year from shipment of certain products. The Company accrues for anticipated warranty costs upon shipment of these products. The Company’s warranty reserve is based on management’s judgment regarding anticipated rates of warranty claims and associated repair costs, and is updated quarterly.
Research and Development. Research and development costs are charged to operations as incurred.
Other Comprehensive Income. Other comprehensive income has arisen solely due to the cumulative translation adjustments ensuing from the Company’s accounting policy for foreign currencies.
Net Income (Loss) Per Share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is calculated by dividing net
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
income (loss) by the weighted average number of common shares outstanding plus common share equivalents from conversion of dilutive stock options, warrants, and restricted stock using the treasury method, and convertible securities using the as-converted method, except when antidilutive. In the event of a net loss, the effects of all potentially dilutive shares are excluded from the diluted net loss per share calculation as their inclusion would be antidilutive.antidilutive.
Reclassification. Certain reclassifications have been made to prior periods’ data to conform to the current presentation. These reclassifications had no effect on reported net losses.
Recent Accounting Pronouncements.
In March 2013,May 2014, the FASB issued ASU 2013-05, “Foreign Currency Matters2014-09, “Revenue from Contracts with Customers (Topic 830): Parent’s Accounting606)” (“ASU 2014-09”). ASU 2014-09 will replace most of the existing revenue recognition guidance within U.S. GAAP. The core principle of this guidance is that an entity should recognize revenue for the Cumulative Translation Adjustment upon Derecognitiontransfer of Certain Subsidiariesgoods or Groupsservices to customers in an amount that it expects to be entitled to receive for those goods or services. In doing so, companies will be required to make certain judgments and estimates, including identifying contract performance obligations, estimating the amount of Assetsvariable consideration to include in the transaction price and allocating the transaction price among separate performance obligations. Further, ASU 2014-09 will require companies to make additional disclosures. ASU 2014-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those years, and will become effective for the Company beginning on January 1, 2017, with early adoption not permitted. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective date” (“ASU 2015-14”),which permits deferral of the effective date of ASU 2014-09 by one year, so the Company may delay adopting the standard until January 1, 2018. ASU 2014-09 allows for two methods of adoption, a Foreign Entityfull retrospective method or a modified retrospective approach with the cumulative effect recognized at the date of initial application. The Company is in the process of determining both the timing and the method of adoption and its impact on the Company’s consolidated financial condition and results of operations.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Topic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 will add guidance to U.S. GAAP that is presently available only in auditing standards, and provide clarification of such guidance. Further, an assessment of going concern will be required at each interim reporting period (in addition to the existing auditing guideline of an Investment inannual assessment), and will require a Foreign Entity” (“ASU 2013-05”)look-forward period of one year from the date of issuance (as opposed to the existing auditing guideline of one year from the balance sheet date). ASU 2013-05 clarifies2014-15 is effective for annual periods ending after December 15, 2016, with early adoption permitted, and will become effective for the circumstances under whichCompany for the cumulative translation adjustment arising from the consolidationyear ending December 31, 2016, and for each interim period thereafter. The adoption of entities for which the functional currencythis standard is not the U.S. dollar should be released into net income. The Company adopted this guidance effective January 1, 2013, and its adoption did notexpected to have a material impact on the Company’s consolidated financial condition or results of operations.
In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires issuance costs related to a recognized debt liability to be presented in the balance sheet as an offset against the recorded liability, similar to debt discounts. Such issuance costs were previously recorded as assets. The recognition and measurement guidance for debt issuance costs are unchanged. ASU 2015-03 is effective for annual periods beginning after December 15, 2015, and interim periods within those years, with early adoption permitted. In August 2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)” (“ASU 2015-15”). ASU 2015-15 notes that the SEC would permit the issuance costs related to a line-of-credit being deferred and the unamortized portion being presented as an asset, regardless of whether there are outstanding borrowings. The Company releasedadopted ASU 2015-03 effective January 1, 2015 and ASU 2015-15 effective July 1, 2015 and, since it has no debt issuance costs recorded for any period that will be presented after the balanceformer date, neither adoption had any impact on the Company’s consolidated financial condition or results of accumulated other comprehensive incomeoperations.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of $2,654 into operationsInventory” (“ASU 2015-
11”). ASU 2015-11 requires inventory that is recorded using the first-in, first-out (FIFO) or average cost method to be measured at the lower of cost and net realizable value (defined as the estimated selling prices in the year endedordinary course of business, less reasonably predictable costs of completion, disposal and transportation), as opposed to the previous requirement to measure such inventory at the lower of cost and market value. ASU 2015-11 is effective for annual periods beginning after December 31, 2013, as15, 2016, and interim periods within those years, with early adoption permitted. The Company adopted this standard effective July 1, 2015, and its adoption did not have a resultsignificant impact on the Company’s consolidated financial condition or results of operations. In September 2015, the liquidationFASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). ASU 2015-16 requires that, in the event of WGBM (see Notes 1 and 6).a business acquisition, the
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer will need to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU 2015-16 is effective for annual periods beginning after December 15, 2015, with early adoption permitted only with respect to periods for which financial statements have not been issued. The Company adopted this standard effective October 1, 2015, and its adoption had no impact on the Company’s consolidated financial condition or results of operations.
In September 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position (superseding the previous requirement that they be apportioned between current and noncurrent). ASU 2015-17 is effective for annual periods beginning after December 15, 2016, with early adoption permitted. The Company adopted this standard effective October 1, 2015, and its adoption had no impact on the Company’s consolidated financial condition or results of operations.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires the recognition of lease assets (representing the value of the right to use the property over the lease term) and lease liabilities (representing the present value of future liabilities) by lessees for those leases presently classified as operating leases (superseding the previous requirement that they be expensed over the lease term, without recognition of assets and liabilities). ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, and will become effective for the Company beginning on January 1, 2019. The Company is in the process of determining the impact on the Company’s consolidated financial condition and results of operations.
NOTE 3. Acquisitions
On January 6, 2014, the Company acquired the Apollo Business (see Note 1). Since that date the results of its operations have been included in the consolidated financial statements. As a result of the acquisition, the Company can now offer a wide spectrum of products for sample preparation for NGS to laboratories performing targeted sequencing. The Company expects to achieve significant synergies, especially in its sales and marketing efforts, since the SmartChip and Apollo products and services serve the same customer base. The total purchase price for the Apollo Business is summarized as follows:
|
| | | |
| | (in thousands) |
|
| Cash | $ | 2,000 |
|
| Promissory note (see Note 7) | 1,100 |
|
| Contingent earn-out payments | 410 |
|
| | |
| Total | $ | 3,510 |
|
The contingent consideration arrangement requires the Company to pay IntegenX a percentage of revenues, on a sliding scale up to 20%, should certain revenue targets be achieved in 2014, 2015 and 2016. The Company estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model based on key assumptions including annual revenues ranging from $4.0 million to $9.9 million and a discount rate of 14%. This is measured as a Level 3 fair value liability (see Note 12).
In connection with the Apollo Business acquisition, the Company allocated the total purchase consideration to the net assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the acquisition date.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following table summarizes the allocation of the purchase price to the fair value of the respective assets and liabilities acquired:
|
| | | |
| | (in thousands) |
|
| Inventory | $ | 606 |
|
| Property and equipment | 118 |
|
| Intangible assets: | |
| Customer lists and trademarks | 1,500 |
|
| Purchased technology | 360 |
|
Goodwill (1) | 990 |
|
| Total assets | 3,574 |
|
| Liabilities – accrued vacation | (64 | ) |
| Total purchase price | $ | 3,510 |
|
__________
| |
| (1) | Goodwill, which represents the excess of the purchase price over the fair value of tangible and identified intangible assets acquired, is attributable primarily to expected synergies and the assembled workforce. All of the goodwill is expected to be deductible for income tax purposes except to the extent that it arose due to an over-estimate of contingent earn-out payments. |
NOTE 4. Inventories
Inventories, net of provisions for potentially excess, obsolete or impaired goods, consisted of the following at December 31, 20132015 and 2012:2014:
|
| | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | (in thousands) |
| Raw materials | $ | 630 |
| | $ | 55 |
|
| Work in process | 288 |
| | 251 |
|
| Finished goods | 1,080 |
| | 507 |
|
| Inventories, net | $ | 1,998 |
| | $ | 813 |
|
| | | December 31, 2013 | | | December 31, 2012 | |
| | | | | | | |
| Raw materials | | $ | 125,068 | | | $ | 158,316 | |
| | | | | | | | | |
| Work in process | | | 46,974 | | | | 179,314 | |
| | | | | | | | | |
| Finished goods | | | 120,608 | | | | 157,856 | |
| | | | | | | | | |
| Inventories, net | | $ | 292,650 | | | $ | 495,486 | |
NOTE 4.5. Property and Equipment
Property and equipment consisted of the following at December 31, 20132015 and 2012:2014:
| | | | | December 31, 2013 | | | December 31, 2012 | | December 31, 2015 | | December 31, 2014 |
| | | | | | | | (in thousands) |
| Equipment | | $ | 2,161,715 | | | $ | 2,883,447 | | $ | 3,484 |
| | $ | 3,081 |
|
| Tools and molds | | | 11,543 | | | | 24,620 | | 27 |
| | 11 |
|
| Leasehold improvements | | | 82,848 | | | | 111,356 | | 92 |
| | 86 |
|
| Furniture and fixtures | | | 93,518 | | | | 148,261 | | 95 |
| | 95 |
|
| | | | | | | | | | |
| Total property and equipment | | | 2,349,624 | | | | 3,167,684 | | 3,698 |
| | 3,273 |
|
| | | | | | | | | | |
| Less accumulated depreciation and amortization | | | (2,080,006 | ) | | | (2,293,622 | ) | (2,646 | ) | | (2,404 | ) |
| | | | | | | | | | |
| Property and equipment, net | | $ | 269,618 | | | $ | 874,062 | | $ | 1,052 |
| | $ | 869 |
|
Depreciation and amortization expense related to property and equipment totaled $692,489$431,000 and $903,291$324,000 for the years ended December 31, 20132015 and 2012,2014, respectively.
Equipment includes the following amounts under leases at December 31, 2015 and 2014:
|
| | | | | | | |
| | December 31, 2015 | | December 31, 2014 |
| | (in thousands) |
| Cost | $ | 598 |
| | $ | 455 |
|
| Accumulated depreciation | (180 | ) | | — |
|
| Total | $ | 418 |
| | $ | 455 |
|
NOTE 6. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill in the year ended December 31, 2015, were as follows:
|
| | | |
| | (in thousands) |
|
| Balance at January 1, 2015 | $ | 990 |
|
| Additions | — |
|
| Balance at December 31, 2015 | $ | 990 |
|
Other intangible assets as of December 31, 2015, consist of:
|
| | | | | | | | | | | |
| | Gross Carrying Amount | | Accumulated Amortization | | Intangible Assets |
| | | | (in thousands) |
| | |
| Purchased technology | $ | 360 |
| | $ | 200 |
| | $ | 160 |
|
| Customer lists and trademarks | 1,500 |
| | 748 |
| | 752 |
|
| Total as of December 31, 2015 | $ | 1,860 |
| | $ | 948 |
| | $ | 912 |
|
The estimated future amortization expenses by fiscal year are as follows:
|
| | | |
| Year ending December 31, | (in thousands) |
|
| 2016 | $ | 421 |
|
| 2017 | 314 |
|
| 2018 | 148 |
|
| 2019 | 29 |
|
| Total amortization | $ | 912 |
|
Intangible asset amortization expense for the years ended December 31, 2015 and 2014, was $450,000 and $498,000, respectively.
NOTE 5.7. Long Term Obligations
On May 27, 2011, the Company sold CPNs (see Note 1) in the aggregate principal amount of $15,275,000, convertible into an aggregate of approximately 2,679,824 shares of Series A-2 Convertible Preferred Stock at a price of $5.70 per share, with each 9.939 shares being convertible into one share of common stock. The CPNs were sold along with convertible preferred stock and warrants for aggregate gross proceeds of $30,550,000, which after deducting issuance costs of $2,524,963 left net proceeds of $28,025,037. Interest on the CPNs accrued at a rate of 5% per annum, and could either be paid on the last day of each fiscal quarter, or added to the principal amount of the notes, at the Company’s option.
Using the relative fair value of the securities issued, the Company initially allocated the gross proceeds of $30,550,000 as follows:
| Security | | Allocated Fair Value | | | Issuance Costs | | | Interest Expense | | | Net Allocation | |
| | | | | | | | | | | | | |
| Series A-1 Convertible Preferred Stock | | $ | 10,724,991 | | | $ | (886,422 | ) | | $ | — | | | $ | 9,838,569 | |
| Convertible promissory notes | | | 10,072,592 | | | | (832,502 | ) | | | 2,255,074 | | | | 11,495,164 | |
| Warrants | | | 9,752,417 | | | | (806,039 | ) | | | — | | | | 8,946,378 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 30,550,000 | | | $ | (2,524,963 | ) | | $ | 2,255,074 | | | $ | 30,280,111 | |
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The debt discount (which included the discount associated with the embedded conversion derivative) related to the debt element of the convertible promissory notes of $14,442,497 was, prior to the 2013 Exchange (see Note 1), being amortized as non-cash interest expense using the effective yield method over the 3.5 year contractual term of the CPNs. The $832,502 in issuance costs allocated to the CPNs was recorded as a deferred financing cost, which was also being amortized as a non-cash interest expense using the effective yield method over the 3.5 year contractual term of the promissory notes.
The Company valued the derivative liability for the conversion element of the CPNs using a Monte Carlo Simulation approach, using assumptions provided by management reflecting conditions at the valuation dates.
The fair value of this derivative liability had diminished to nil by the time of the 2013 Exchange. At December 31, 2012, the fair value was estimated to be $274,928, using a closing stock price of $2.98 and assumptions including an estimated volatility of 126.91%, a risk-free interest rate of 0.13%, a zero dividend rate and a contractual term of 1.91 years. The fair value of this derivative liability at December 31, 2011, was estimated to be $1,931,295. The decrease in the fair value of this derivative liability of $274,928 and $1,656,367 during the years ended December 31, 2013 and 2012, respectively, was recorded as a revaluation gain (see Note 11).
The balance of the CPNs comprises the following at December 31, 2013 and 2012:
| | | December 31, 2013 | | | December 31, 2012 | |
| | | | | | | |
| Convertible Promissory Notes Payable: | | | | | | |
| Face value | | $ | 15,275,000 | | | $ | 15,275,000 | |
| Interest added to principal | | | 1,809,894 | | | | 1,262,028 | |
| Stated value | | | 17,084,894 | | | | 16,537,028 | |
Debt discount – conversion element, net of accumulated amortization of $3,392,963 and $1,298,628 respectively | | | 11,049,534 | | | | 13,143,869 | |
| | | | | | | | | |
| Notes payable, net of debt discount, prior to exchange | | | 6,035,360 | | | | 3,393,159 | |
| | | | | | | | | |
| Amount extinguished in 2013 Exchange | | | (6,035,360 | ) | | | — | |
| | | | | | | | | |
| Notes payable, net of debt discount | | $ | — | | | $ | 3,393,159 | |
The Company recorded a loss on early extinguishment of debt of $4,970,410 as a result of the 2013 Exchange (see Note 1).
On August 15, 2013, the Company issued WGBMWaferGen Biosystems (M) Sdn. Bhd. (“WGBM”), a wholly owned subsidiary in Malaysia, notes with a face value of $6.6 million, maturing on August 15, 2020 (the “Malaysian Notes”), in consideration of WGBM’s cancellation of the Company’s obligations under a term loan owing to WGBM which, as of that date, had an outstanding loan balance of approximately $5.3 million. Under the terms of an agreement between the Company, WGBM and MTDC (see Notes 1 and 6)Malaysian Technology Development Corporation (“MTDC”, a major investor in WGBM’s preference shares), upon liquidation of WGBM (which occurred on November 26, 2013), the Malaysian Notes would bewere divided into increments of $100,000 each, of whichsuch that the Company would receive 14received notes with an aggregate principal amount of $1.4 million and MTDC the remaining 52received notes with an aggregate principal amount of $5.2 million (the “MTDC Notes”).
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The MTDC Notes were recorded using an effective interest rate of 17.39% and are summarized as follows:follows at December 31, 2015 and 2014:
| | | | December 31, 2013 | | | November 26, 2013 | | | | | | |
| | | | | | | | December 31, 2015 | | December 31, 2014 |
| MTDC Notes Payable: | | | | | | | (in thousands) |
| Face value | | $ | 5,200,000 | | | $ | 5,200,000 | | $ | 5,200 |
| | $ | 5,200 |
|
| Debt discount, net of accumulated amortization of $27,258 and nil at December 31 and November 26, 2013, respectively | | | 3,516,058 | | | | 3,543,316 | | |
| | | | | | | | | | |
| Debt discount, net of accumulated amortization of $710 and $339 at December 31, 2015 and 2014, respectively | | 2,833 |
| | 3,204 |
|
| Notes payable, net of debt discount | | $ | 1,683,942 | | | $ | 1,656,684 | | $ | 2,367 |
| | $ | 1,996 |
|
At any time prior to theirthe MTDC Notes’ maturity date, the Company may issue MTDC shares of the Company’s common stock with a value, based on the average closing price in the preceding 30 days, equal to the face value of the MTDC Notes. Based on an average closing price of $0.7938 in the 30 days preceding December 31, 2015, the MTDC Notes could have been settled by issuing 6,551,000 shares of the Company’s common stock.
As part of the consideration for the Apollo Business (see Notes 1 and 3), the Company issued a $1.25 million secured promissory note to IntegenX (the “IntegenX Note”), due on January 6, 2017 (the “Maturity Date”). The IntegenX Note earned simple interest at 8% per annum over its three year term, payable on the Maturity Date. It was repayable early without premium or penalty at the Company’s option at any time and it had to be repaid within 45 days of the closing of an equity offering yielding the Company net cash proceeds of at least $15,000,000. Such an equity offering closed on August 27, 2014 (see Note 1) and the IntegenX Note was repaid on September 12, 2014.
The IntegenX Note was recorded using an effective interest rate of 11.60% and is summarized as follows at December 31 and January 6, 2014:
|
| | | | | | | |
| | December 31, 2014 | | January 6, 2014 |
| IntegenX Notes Payable: | (in thousands) |
| Face value | $ | 1,250 |
| | $ | 1,250 |
|
| Interest added to principal | 68 |
| | — |
|
| Stated value | 1,318 |
| | 1,250 |
|
| Debt discount, net of accumulated amortization of $21 and nil at September 12 and January 6, 2014, respectively | 129 |
| | 150 |
|
| Notes payable, net of debt discount, prior to repayment | 1,189 |
| | 1,100 |
|
| Loss on extinguishment of debt | 129 |
| | — |
|
| Balance repaid to IntegenX | (1,318 | ) | | — |
|
| Notes payable, net of debt discount | $ | — |
| | $ | 1,100 |
|
The Company leases itsrecorded a loss on early extinguishment of debt of $129,000 as a result of the repayment of the IntegenX Note on September 12, 2014.
As of December 31, 2015, the Company leased office space for use in its operations under a non-cancellablethree operating leaseleases that expires inwere not cancellable by the Company and had expiration dates between June 2017 and April 2015.2018 (See Note 18, Subsequent Events). The Company also leases equipment under three capital leases that expire between December 2017 and May 2018.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Aggregate future minimum obligations for leases in effect as of December 31, 20132015, are as follows:
| | | Operating Leases | |
| | | | | |
| Year ending December 31, | | | | |
| 2014 | | $ | 635,340 | |
| 2015 | | | 218,175 | |
| | | | | |
| Total minimum obligations | | $ | 853,515 | |
|
| | | | | | | |
| | Operating Leases | | Capital Leases |
| Year ending December 31, | (in thousands) |
| 2016 | 477 |
| | 192 |
|
| 2017 | 486 |
| | 183 |
|
| 2018 | 162 |
| | 25 |
|
| Total minimum obligations | $ | 1,125 |
| | 400 |
|
| Amounts representing interest | |
| | (17 | ) |
| Present value of future minimum payments | |
| | 383 |
|
| Current portion of long term obligations | |
| | (180 | ) |
| Long term obligations, less current portion | |
| | $ | 203 |
|
Rent expense totaled $604,558$535,000 and $597,261$366,000 for the years ended December 31, 20132015 and 2012,2014, respectively.
NOTE 6. Convertible Preference Shares of Subsidiary
Prior to its dissolution in November 2013, in 2008, the Company’s former Malaysian subsidiary, WGBM, issued Series A Convertible Preference Shares (“CPS”) to MTDC (see Notes 1 and 5), a venture capital and development firm in Malaysia, in a private placement under a Share Subscription and Shareholders’ Agreement dated May 8, 2008, at the U.S. dollar equivalent of $2.25 per share. In 2009 and 2010, WGBM issued Series B CPS to Expedient Equity Ventures Sdn. Bhd. (“EEV”) and Prima Mahawangsa Sdn. Bhd. (“PMSB”), both venture capital and development firms in Malaysia, in a private placement under a Share Subscription Agreement dated April 3, 2009, (“Series B SSA”) at the U.S. dollar equivalent of $2.25 per share. In 2009, WGBM issued Series B CPS to Kumpulan Modal Perdana Sdn. Bhd. (“KMP”), a venture capital and development firm in Malaysia, in a private placement under a Share Subscription Agreement dated July 1, 2009, at the U.S. dollar equivalent of $2.25 per share.
In 2010, both EEV and KMP exercised their option (see Paragraph (b) below) to sell to the Company their holdings of 222,222 and 188,057 Series B CPS, respectively, in exchange for shares of the Company’s common stock.
In October 2013 the Company purchased PMSB’s 444,444 Series B CPS for $70,000.
These transactions, along with the issuance of Series C CPS in 2011 (see below), were summarized as follows immediately prior to the liquidation of WGBM on November 26, 2013:
| Class | | Number | | Initial | | Issuance | | Gross | | Issuance | | Exchange | | Net Cash | | Date if | | CPS | |
| of CPS | | of CPS | | Investor | | Date | | Proceeds | | (Costs) | | Gain (loss) | | Proceeds | | Exchanged | | Outstanding | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Series A | | 444,444 | | MTDC | | 07/18/2008 | | $ | 1,000,000 | | $ | (30,000 | ) | $ | — | | $ | 970,000 | | — | | 444,444 | |
| Series A | | 444,444 | | MTDC | | 11/27/2008 | | | 1,000,000 | | | (30,000 | ) | | — | | | 970,000 | | — | | 444,444 | |
| Series B | | 111,111 | | EEV | | 06/08/2009 | | | 250,000 | | | (19,393 | ) | | (18,029 | ) | | 212,578 | | 08/17/2010 | | — | |
| Series B | | 111,111 | | EEV | | 03/09/2010 | | | 250,000 | | | (8,929 | ) | | (3,005 | ) | | 238,066 | | 08/17/2010 | | — | |
| Series B | | 222,222 | | PMSB | | 09/23/2009 | | | 500,000 | | | (7,500 | ) | | — | | | 492,500 | | 10/11/2013 | | — | |
| Series B | | 222,222 | | PMSB | | 05/13/2010 | | | 500,000 | | | (5,000 | ) | | — | | | 495,000 | | 10/11/2013 | | — | |
| Series B | | 188,057 | | KMP | | 09/18/2009 | | | 423,128 | | | (11,319 | ) | | — | | | 411,809 | | 09/29/2010 | | — | |
| | | | | | | | | | | | | | | | | | | | | | �� | | |
| Subtotal | | 1,743,611 | | | | | | | 3,923,128 | | | (112,141 | ) | | (21,034 | ) | | 3,789,953 | | | | 888,888 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Series C | | 3,233,734 | | MTDC | | 03/10/2011 | | | 5,000,000 | | | (6,272 | ) | | 58,575 | | | 5,052,303 | | — | | 3,233,734 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 4,977,345 | | | | | | $ | 8,923,128 | | $ | (118,413 | ) | $ | 37,541 | | $ | 8,842,256 | | | | 4,122,622 | |
Under the terms of a Deed of Adherence dated April 3, 2009 (and under the Series C SSA, as defined below), certain rights of the holders of the Series A CPS were modified. In addition, under the terms of the Series B SSA, the use of funds raised through the issuance of both Series A and Series B CPS was restricted, requiring at least 60% of the total to be utilized for the Company’s operations in Malaysia.
Following these modifications, the rights of the holders of Series A and B CPS included, but were not limited to, the right:
| (a) | to put to the Company their CPS (or ordinary shares in WGBM received on conversion of those CPS under paragraph (c) below) at any time during the year 2011 that the share price of the Company’s common stock is below $223.63 in order to redeem for cash (or, at the holder’s option, shares of Company common stock of equivalent |
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
value) the amount originally invested in USD plus a premium of 8%, compounded annually, with yearly rests (each year’s accrued interest would be forfeited in the event of redemption prior to the anniversary of the initial investment) (the “Redemption Option,” since amended for Series A and expired for Series B, see below);
| (b) | to cause the Company to exchange their CPS for common stock of the Company at an exchange rate of US$223.63 per share of common stock, provided, in the case of Series B CPS, that commencing on August 1, 2010, if during the 10-day trading period immediately prior to the holder’s exercise notice the average closing price of the Company’s common stock is less than US$263.09, then the holder may exchange CPS at an exchange rate equal to 85% of such 10-day average closing price. This option, previously exercised by EEV and KMP, has expired for MTDC’s Series A CPS and expires on April 3, 2014, for PMSB’s Series B CPS (the “Conversion Option); |
| (c) | to convert their CPS into ordinary shares of the subsidiary, WGBM, at any time, at a conversion rate of three ordinary shares per $100 invested in CPS; |
| (d) | to cause the subsidiary, WGBM, to redeem the CPS in whole or in part at any time after December 31, 2011, for the principal paid plus a premium of 20% per annum, not compounding, from funds legally available for distribution (which is determined based on stock par value, premiums paid and retained earnings) (the “WGBM Redemption Right”); |
| (e) | of first offer on any transfers or new issuance of subsidiary shares; and |
| (f) | for each of Series A and Series B CPS, to appoint one of the seven directors of the subsidiary (see below also). |
Since the Conversion Option afforded holders of Series B CPS the right to receive a variable number of shares of the Company’s common stock, this feature was not indexed to the Company’s equity and was therefore accounted for as a derivative liability, with the estimated fair value being calculated at each reporting date using a Monte Carlo Simulation approach, using key input variables provided by management, with changes in fair value recorded as gains or losses on revaluation in non-operating income (expense).
On December 31, 2011, the Series B CPS Redemption Option lapsed. The value of the derivative liability for the conversion element increased significantly as a result.
On October 11, 2013, the Company purchased the remaining Series B CPS for $70,000. Series B CPS derivative liability fair values at October 11, 2013 and December 31, 2012, were estimated to be $1,082,351 and $1,210,909, respectively, using a closing stock price of $2.00 and $2.98, respectively, and based on the following assumptions:
| | October 11, 2013 | | December 31, 2012 | |
| | | | | |
| Risk-free interest rate | | | | |
| Expected remaining term | | | | |
| Expected volatility | | | | |
| Dividend yield | | | | |
Series B CPS derivative liability fair value at December 31, 2011, was estimated to be $1,245,101. The net decrease in the fair value of this derivative liability of $128,558 and $34,192 during the period ended October 11, 2013 and the year ended December 31, 2012, respectively, was recorded as a revaluation gain (see Note 11). The difference between the fair value of the derivative liability and the amount for which it was settled on October 11, 2013, was recorded as a gain on settlement of derivative liability of $1,012,351.
On December 9, 2011, the terms of the Series A CPS were amended by a Letter Agreement with MTDC (the “MTDCLA”) to extend the period during which MTDC could exercise the Redemption Option from December 31, 2011 to April 3, 2014. In addition, the holder’s option to elect to receive shares of Company common stock of equivalent value (see above) was amended to give the Company the option, upon the exercise of the Redemption Option, to pay in shares of its common stock at an Applicable Stock Price (“ASP”), calculated as 85% of the average closing price of that stock during the 10-day trading period immediately prior to MTDC’s exercise notice. Further, the ASP is subject to a ceiling of $154.05 and a floor of $9.94. The amendment that allowed the Company to settle the Redemption Option in a variable number of shares caused the Redemption Option to no longer be considered indexed to the Company’s equity. As a result, the Company recognized the
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Redemption Option as an embedded derivative requiring bifurcation and the host instrument (the Series A CPS absent the Redemption Option) as part of temporary equity.
The Series A CPS derivative liability fair values at November 26, 2013, the date on which WGBM was liquidated, and December 31, 2012, were estimated to be $446,602 and $619,652, respectively, using a closing stock price of $2.00 and $2.98, respectively, and based on the following assumptions:
| | November 26, 2013 | | December 31, 2012 | |
| | | | | |
| Risk-free interest rate | | | | |
| Expected remaining term | | | | |
| Expected volatility | | | | |
| Dividend yield | | | | |
Series A CPS derivative liability fair value at December 31, 2011, was estimated to be $2,135,715. The net decrease in the fair value of this derivative liability of $173,050 and $1,516,063 during the period ended November 26, 2013 and the year ended December 31, 2012, respectively, was recorded as a revaluation gain (see Note 11). The fair value of this derivative liability on November 26, 2013, was considered in the determination of the gain on liquidation of subsidiary.
On March 10, 2011, WGBM issued 3,233,734 Series C CPS to MTDC in a private placement at the U.S. dollar equivalent of $1.5462 per share, representing the first subscription under a Share Subscription Agreement dated December 14, 2010, (“Series C SSA”) to sell 3,233,734 Series C CPS at an initial closing and, should MTDC so elect within 36 months of the initial closing, to sell 1,077,911 shares of Series C CPS at a subsequent closing at the U.S. dollar equivalent of US$2.3193 per share. Each 99.39 Series C CPS issued at the initial closing would convert into one share of the Company on April 3, 2014 (this was extended from December 20, 2011, by the MTDCLA), and each 99.39 Series C CPS issued at the subsequent closing would convert into one share of the Company on the anniversary of that closing, but the Series C was convertible at any earlier date following each closing at MTDC’s option. MTDC could also elect to convert their Series C CPS into ordinary shares of the subsidiary, WGBM, at any time, at a conversion rate of one ordinary share per 100 CPS. MTDC could appoint one of the seven directors of the subsidiary (in addition to the director they could appoint as the holder of Series A CPS), and an additional independent director could be jointly appointed by MTDC and the Company.
The net sum of $4,993,728 received on issuance of Series C CPS was recorded in stockholders’ equity; this sum was considered in the determination of the gain on liquidation of subsidiary on November 26, 2013.
WGBM was authorized to issue 200,000,000 preference shares with a par value of RM0.01. There were 4,977,345 preference shares (including 854,723 Series B CPS held by the Company) issued and outstanding at November 26, 2013, and December 31, 2012. Due to the liquidation of WGBM, no shares remained authorized, issued or outstanding as of December 31, 2013.
NOTE 7.8. Preferred Stock
The Company has 10,000,000 shares of preferred stock authorized. Effective August 27, 2013, the Company designated 3,663 shares of its authorized preferred stock as Series 1 Convertible Preferred Stock. The Series 1 Convertible Preferred Stock hashad no voting rights, and holders arewere entitled to a liquidation preference equal to $0.001 per share.share. Each share of Series 1 Convertible Preferred Stock iswas convertible into 2,515.3436251.53436 shares of common stock, subject to an ownership cap whereby conversion may not occur to the extent the holder would own more than 9.98% of the common stock following conversion.
On August 27, 2013, the Company issued 2,987.0168 shares of Series 1 Convertible Preferred Stock in conjunction with the Exchange Agreement (see Note 1) and sold 646.03512,987 shares of Series 1 Convertible Preferred Stock in theexchange for previously-issued securities and sold 646 shares of Series 1 Convertible Preferred Stock in a private placement. As of December 31, 2013, Private Placement (see Note 1). Of these 3,633.0519688 shares 688.3439 haveof Series 1 Convertible Preferred Stock had been converted into 1,731,421173,000 shares of common stock, and 2,944.7080 remain outstanding as ofin the year ended December 31, 2013.2014, all the remaining 2,945 shares of Series 1 Convertible Preferred Stock were converted into 741,000 shares of common stock. The Company subsequently retired all of the Series 1 Convertible Preferred Stock, none of which remains issued and outstanding and none will be issued in the future.
Effective October 20, 2015, the Company designated 1,108 shares of its authorized preferred stock as Series 2 Convertible Preferred Stock. Each share of Series 2 Convertible Preferred Stock was convertible into 10,000 shares of common stock, subject to an ownership cap whereby conversion may not occur to the extent the holder would own more than 9.98% of the common stock following conversion. The Series 2 Convertible Preferred Stock has no voting rights and is on a par with common stock on an as-converted basis with respect to dividend rights and distributions of assets in the event of liquidation, without regard to the ownership cap.
On October 21, 2015, the Company sold 1,108 shares of Series 2 Convertible Preferred Stock in the 2015 Public Offering (see Note 1). The Company recognized a beneficial conversion feature calculated as the number of potential conversion shares multiplied by the excess of the market price of the common stock on the issuance date over the price per conversion share based on the valuation allocated to the Series 12 Convertible Preferred Stock. Since this preferred stock was immediately convertible and not redeemable, this non-contingent beneficial conversion feature of $898,623$4,678,000 was recorded as a one-time accretion expense.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Effective May 26, 2011, the Company designated 4,500,000December 31, 2015, 678 shares asof Series A-12 Convertible Preferred Stock had been converted into 6,780,000 shares of common stock and 4,500,000430 shares asof Series A-22 Convertible Preferred Stock (together, the “Series A Preferred Stock”). Each 9.939 shares of Series A Preferred Stock was convertible into one share of common stock, subject to an ownership cap, and entitled the holder to receive dividends, as, when and if declared by the Company’s Board of Directors, at an annual rate of 5% of the stated value per share of the respective series. Such dividends accrued, compounding quarterly, and accumulated on each share of Series A Preferred Stock from the date of issuance, whether or not declared, until November 27, 2014, when the right to further dividends would cease. The Series A Preferred Stock had no voting rights, and in the event of liquidation ranked senior to common stock. After giving effect to the 2013 Exchange, the Company retired the Series A-1 Preferred Shares that were exchanged for common stock and Series 1 preferred stock and no Series A Preferred Shares remained issued and outstanding and none will be issued in the future.outstanding.
Effective May 27, 2011, the Company sold an aggregate of 2,937,499.97 shares of Series A-1 Convertible Preferred Stock with a stated value of $5.20 per share. The Company recorded the allocated valuation of $10,724,991 (see Note 5), less allocated issuance costs of $886,422, as Series A-1 Convertible Preferred Stock within permanent equity.
As of August 27, 2013, $1,806,913 of undeclared dividends had been accrued with respect to the outstanding Series A-1 Convertible Preferred Stock, of which $547,171 and $801,534 related to the years ended December 31, 2013 and 2012, respectively.
NOTE 8.9. Stock Awards
The Company has awards outstanding under three plans - the 2003 Incentive Stock Plan (the “2003 Plan”), the 2007 Stock Option Plan (the “2007 Plan”) and the 2008 Stock Incentive Plan (the “2008 Plan”) (collectively, the “Plans”). In addition, there are 178,000 inducement options and 50,000 inducement restricted stock units outstanding that were awarded to executive officers on August 27, 2014 and May 12, 2015, not covered by the Plans, with the same standard terms as non-qualified stock options or restricted stock units awarded under the 2008 Plan. Under the 2003 Plan and 2007 Plan, incentive stock options, nonqualifiednon-qualified stock options, restricted stock and restricted stock units could be granted. Awards vested over varying periods, as specified by the Company’s Board of Directors for each grant,, and are exercisable for a maximum period of ten years after date of grant. Both of
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
these plans have been frozen, resulting in no further shares being available for grant.
The Company presently issues most of its awards under the 2008 Plan, initially adopted by the Company’s stockholders on June 5, 2008, and subsequently amended to authorize the issuance of additional shares of the Company’s common stock. This includes amendments adopted by the Company’s stockholders on May 29, 2014, which increased the total number of shares authorized for issuance from 15,000 to 315,000, and on November 17, 2014, which further increased the total number of shares authorized for issuance from 315,000 to 1,215,000. The purpose of the 2008 Plan is to provide an incentive to retain the employment of directors, officers, consultants, advisors and employees of the Company, to attract new personnel whose training, experience and ability are considered valuable, to encourage the sense of proprietorship, and to stimulate the active interest of such persons in the Company’s development and financial success.
Under the 2008 Plan, the Company is authorized to issue incentive stock options, non-qualified stock options, restricted stock and restricted stock units, although no more than 50% of the authorized shares may be granted pursuant to awards of restricted stock and restricted stock units. Awards that expire or are canceled generally become available for issuance again under the 2008 Plan. The number of shares of the Company’s common stock available under the 2008 Plan iswill be subject to adjustment in the event of a stock split, stock dividend or other extraordinary dividend, or other similar change in the Company’s common stock or capital structure. Awards may vest over varying periods, as specified by the Company’s Board of Directors for each grant, and have a maximum term of seven years from the grant date. The 2008 Plan is administered by the Company’s Board of Directors.
Directors. The Company has issued both options and restricted stock (including restricted stock units), mostly under the Plans. Restricted stock grants afford the recipient the opportunity to receive shares of common stock, subject to certain terms, whereas options give them the right to purchase common stock at a set price. Both the Company’s options and restricted stock issued to employees generally have vesting restrictions that are eliminated over a four-year period,three or four years, although vesting may be over a shorter period, or may occur on the grant date, depending on the terms of each individual award.award.
The weighted average grant date fair value of options awarded in the years ended December 31, 2013 and 2012, was $3.72 and $8.21, respectively. These fair values were estimated using the following assumptions (see also Note 10):
| | Year Ended December 31, | |
| | 2013 | | 2012 | |
| | | | | |
| Risk-free interest rate | 0.71% - 1.22% | | 0.71% - 1.14% | |
| Expected term | 4.75 Years | | 4.75 Years | |
| Expected volatility | 96.73% - 108.14% | | 65.02% - 103.61% | |
| Dividend yield | 0% | | 0% | |
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
A summary of stock option and restricted stock transactions in the two years ended December 31, 2015, is as follows:
| | | | | | Stock Options | | | Restricted Stock | | |
| | | | | | | | | Weighted | | | | | | Weighted | | | | | | | | | | | |
| | | Shares | | | Number of | | | Average | | | Number of | | | Average | | | | Stock Options | | Restricted Stock |
| | | Available | | | Options | | | Exercise | | | Options | | | Grant-Date | | Shares Available For Grant | | Number of Options Outstanding | | Weighted Average Exercise Price | | Number of Awards Outstanding | | Weighted Average Grant-Date Fair Value |
| | | For Grant | | | Outstanding | | | Price | | | Outstanding | | | Fair Value | | (In thousands, except per share amounts) |
| | | | | | | | | | | | | | | | | |
| Balance at January 1, 2012 | | | 103,723 | | | | 43,283 | | | $ | 138.93 | | | | 48 | | | $ | 124.24 | | |
| Balance at January 1, 2014 | | 3 |
| | 12 |
| | $ | 353.92 |
| | — |
| | $ | — |
|
| 2008 Plan Amendments | | 1,200 |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
| Granted | | | (98,451 | ) | | | 97,836 | | | $ | 11.57 | | | | 615 | | | $ | 13.76 | | (321 | ) | | 179 |
| | $ | 8.79 |
| | 242 |
| | $ | 4.80 |
|
| Vested | | | — | | | | — | | | $ | — | | | | (591 | ) | | $ | 22.72 | | — |
| | — |
| | $ | — |
| | (7 | ) | | $ | 14.00 |
|
| Forfeited | | | 14,801 | | | | (14,801 | ) | | $ | 58.89 | | | | — | | | $ | — | | 11 |
| | (1 | ) | | $ | 80.10 |
| | (10 | ) | | $ | 4.57 |
|
| Canceled | | | 9,430 | | | | (11,422 | ) | | $ | 130.43 | | | | — | | | $ | — | | 2 |
| | (2 | ) | | $ | 204.66 |
| | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2012 | | | 29,503 | | | | 114,896 | | | $ | 41.67 | | | | 72 | | | $ | 13.91 | | |
| Balance at December 31, 2014 | | 895 |
| | 188 |
| | $ | 27.35 |
| | 225 |
| | $ | 4.54 |
|
| Granted | | | (18,861 | ) | | | 18,861 | | | $ | 4.95 | | | | — | | | $ | — | | (562 | ) | | 361 |
| | $ | 3.43 |
| | 400 |
| | $ | 3.54 |
|
| Vested | | | — | | | | — | | | $ | — | | | | (72 | ) | | $ | 13.91 | | — |
| | — |
| | $ | — |
| | (95 | ) | | $ | 4.21 |
|
| Forfeited | | | 12,471 | | | | (12,471 | ) | | $ | 10.67 | | | | — | | | $ | — | | 104 |
| | (71 | ) | | $ | 4.62 |
| | (79 | ) | | $ | 4.28 |
|
| Canceled | | | 4,680 | | | | (7,761 | ) | | $ | 93.78 | | | | — | | | $ | — | | 1 |
| | (1 | ) | | $ | 765.96 |
| | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2013 | | | 27,793 | | | | 113,525 | | | $ | 35.39 | | | | — | | | $ | — | | |
| Balance at December 31, 2015 | | 438 |
| | 477 |
| | $ | 11.43 |
| | 451 |
| | $ | 3.77 |
|
The following table summarizes information concerning outstanding options as of December 31, 2013:2015:
| | | | | | Weighted | | | | | | |
| | | | | | Average | | Weighted | | | | |
| | | | | | Remaining | | Average | | Aggregate | | |
| | | Number of | | | Contractual | | Exercise | | Intrinsic | | | | | | | | | | |
| Options | | Shares | | | Life (in Years) | | Price | | Value | | | Number of Shares | | Weighted Average Remaining Contractual Life (in Years) | | Weighted Average Exercise Price | | Aggregate Intrinsic Value |
| | | | | | | | | | | | | | | (in thousands) |
| | | | (in thousands) |
|
| Outstanding | | | 113,525 | | | | 5.03 | | $ | | 35.39 | | $ | | 644 | | | 477 |
| | 5.95 | | $ | 11.43 |
| | $ | — |
|
| Vested and expected to vest | | | 109,069 | | | | 5.01 | | $ | | 36.40 | | $ | | 644 | | | 457 |
| | 5.93 | | $ | 11.77 |
| | $ | — |
|
| Exercisable | | | 77,482 | | | | 4.81 | | $ | | 46.12 | | $ | | 644 | | | 311 |
| | 5.76 | | $ | 15.48 |
| | $ | — |
|
The aggregate intrinsic value in the preceding table represents the total pre-tax value (i.e., the difference between the Company’s stock price and the exercise price) of stock options outstanding as of December 31, 2013,2015, based on ourthe Company’s common stock
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
closing price of $2.00,$0.73, which would have been received by the option holders had all their in-the-money options been exercised as of that date.
The weighted average grant date fair value of options awarded in the years ended December 31, 2015 and 2014, was $2.56 and $6.33, respectively. These fair values were estimated using the following assumptions (see also Note 12):
|
| | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 |
| Risk-free interest rate | 1.25% - 1.44% |
| | 1.43% - 1.57% |
|
| Expected term | 3.55 - 4.50 Years |
| | 4.75 years |
|
| Expected volatility | 106.11% - 119.36% |
| | 93.89% - 105.79% |
|
| Dividend yield | — | % | | — | % |
The grant date fair value of options vested in the years ended December 31, 20132015 and 2012,2014, was $396,304$677,000 and $334,650,$899,000, respectively. No options were exercised during the two years ended December 31, 2013.2015. The total fair value of restricted stock vested in the years ended December 31, 2015 and 2014, was $292,000 and $19,000, respectively.
The amounts expensed for stock-based compensation totaled $321,223$1,331,000 and $387,892$1,194,000 for the years ended December 31, 20132015 and 2012,2014, respectively.
At December 31, 2013,2015, the total stock-based compensation cost not yet recognized, net of estimated forfeitures, was $240,992.$1,444,000. This cost is expected to be recognized over an estimated weighted average amortization period of 1.472.10 years. No amounts related to stock-based compensation costs have been capitalized. The tax benefit and the resulting effect on cash flows from operating and financing activities related to stock-based compensation costs were not recognized as the Company currently provides a full valuation allowance for all of its deferred taxes.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 9.10. Warrants
A summary of outstanding common stock warrants as of December 31, 2013,2015, is as follows:
| Securities Into Which | | Total Warrants | | Warrants Recorded | | Exercise | | Expiration |
| Warrants are Convertible | | Outstanding | | as Liabilities | | Price | | Date |
| | | | | | | | | |
| Common stock | | 6,128,379 | | 6,128,379 | | $2.60 | | August and September 2018 |
| Common stock | | 717,905 | | 717,905 | | $4.04 | | June and August 2014 |
| Common stock | | 552,186 | | 552,186 | | $4.22 | | December 2014 and January 2015 |
| Common stock | | 7,740 | | — | | $77.52 | | June and August 2014 |
| Common stock | | 1,022 | | — | | $83.49 | | December 2014 and January 2015 |
| Common stock | | 960 | | — | | $145.90 | | December 2015 |
| Common stock | | 2,047 | | — | | $149.09 | | July 2015 |
| Common stock | | 30,192 | | — | | $154.05 | | July 2015 |
| Common stock | | 2,012 | | — | | $298.17 | | December 2014 and November 2015 |
| | | | | | | | | |
| Total | | 7,442,443 | | 7,398,470 | | | | |
|
| | | | | | | | | | | | |
| Securities Into Which | | Total Warrants | | Warrants Recorded | | Exercise | | Expiration |
| Warrants are Convertible | | Outstanding | | as Liabilities | | Price | | Date |
| | | (in thousands, except per share amounts) | | |
| Common stock | | 17,250 |
| | — |
| | $ | 1.44 |
| | October 2020 |
| Common stock | | 450 |
| | — |
| | $ | 1.44 |
| | October 2018 |
| Common stock | | 4,600 |
| | — |
| | $ | 5.00 |
| | August 2019 |
| Common stock | | 120 |
| | — |
| | $ | 6.25 |
| | August 2017 |
| Common stock | | 613 |
| | 111 |
| | $ | 26.00 |
| | August and September 2018 |
| |
|
| |
|
| |
|
| |
|
| Total | | 23,033 |
| | 111 |
| | |
| | |
In addition, there are 25.88 unit warrants outstanding which expire in August and September 2018, 0.35 of which are recorded as liabilities, each entitling the holder to purchase, for $50,000, 25,0002,500 shares of common stock and 12,5001,250 warrants to purchase one share of common stock at an exercise price of $2.60,$26.00, expiring in August and September 2018 (see Note 1).
The warrants expiring in August and September 2018 comprise 2,369,000 warrants issued in the 2013 Exchange and 3,417,129 and 342,250 issued in the initial and final closing, respectively, of the 2013 Private Placement (see Note 1).
The 2,369,000 warrants issued in the 2013 Exchange were to directly compensate holders of warrants issued in May 2011. Those warrants included the right to receive consideration for the unexercised portion of the warrant, based on a Black-Scholes model set forth in the warrants, in the event of certain substantial changes in ownership or trading status of the Company. Such a change in ownership occurred on August 27, 2013. The Company recorded a one-time expense of $2,553,318 representing the excess of the fair value of the new warrants over those they replaced. The total fair value of the 2,369,000 new warrants was estimated to be $2,637,387 utilizing a Black-Scholes model, the exercise price of $2.60, a stock price of $2.00 and assumptions including estimated volatility of 84.26%, risk-free interest rate of 1.16%, a zero dividend rate and expected remaining term of 4.00 years. The total fair value of the 565,180 warrants exchanged was estimated to be $84,069 utilizing a Black-Scholes model, the exercise price of $61.62, a stock price of $2.00 and assumptions including estimated volatility of 119.54%, risk-free interest rate of 0.46%, a zero dividend rate and expected remaining term of 2.20 years.2018.
The warrants expiring in JuneOctober 2020 and August 2014October 2018 were originally issued to investors and underwriters, respectively, in Junethe 2015 Public Offering, and August 2009 with an exercise price of $198.78 and entitled the holders thereof to purchase an aggregate of 17,609 shares. As a result of anti-dilution adjustments with respect to such warrants pursuant to their terms, such warrants, as of May 27, 2011, had an exercise price of $77.52 and entitled the holders thereof to purchase an aggregate of 45,152 shares. In connection with the May 2011 Private Placement, members of management with warrants to purchase a total of 7,740 shares (after giving effect to prior anti-dilution adjustments) waived their right to further anti-dilution adjustments. As a result of anti-dilution adjustments with respect to the remaining 37,412 warrants pursuant to their terms, such warrants, as of December 31, 2013, had an exercise price of $4.04 and entitled the holders thereof to purchase an aggregate of 717,905 shares.
The warrants expiring in DecemberAugust 2019 and August 2017 were issued to investors and underwriters, respectively, in the 2014 and January 2015 were originally issued in December 2009 and January 2010 with an exercise price of $248.48 and entitled the holders thereof to purchase an aggregate of 9,722 shares. As a result of anti-dilution adjustments with respect to such warrants pursuant to their terms, such warrants, as of May 27, 2011, had an exercise price of $83.49 and entitled the holders thereof to purchase an aggregate of 28,934 shares. In connection with the May 2011 Private Placement, members of management with warrants to purchase a total of 1,022 shares (after giving effect to prior anti-dilution adjustments) waived their right to further anti-dilution adjustments. As a result of anti-dilution adjustments with respect to the remaining 27,912 warrants pursuant to their terms, such warrants, as of December 31, 2013, had an exercise price of $4.22 and entitled the holders thereof to purchase an aggregate of 552,186 shares.Public Offering (see Note 1).
The Company records warrants and unit warrants with certain anti-dilution protection or certain cash settlement provisions as liabilities, with the estimated fair value of those warrants for which no anti-dilution adjustment is projected prior to the expiration date being calculated using the Black-Scholes valuation model, with all others being calculated using a Monte
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
date being calculated using the Black-Scholes valuation model, with all others being calculated using a Monte Carlo Simulation approach, using key input variables provided by management, at each reporting date. Changes in fair value are recorded as gains or losses on revaluation in non-operating income (expense).
On March 31, 2014, the Company amended the terms of 413,000 warrants and 22.54 unit warrants expiring in August and September 2018 to eliminate certain potential cash settlement provisions such that the liability was settled, having received consent from their holders. The fair value of the securities settled and reclassified as equity on March 31, 2014, was estimated to be $6,109,000. On June 30, 2014, the Company similarly amended the terms of a further 89,000 warrants and 2.99 unit warrants such that the liability was settled, having received consent from their holders after March 31, 2014. The fair value of the securities settled and reclassified as equity on June 30, 2014, was estimated to be $712,000. There have been no such reclassifications since June 30, 2014.
The aggregate fair value of suchthose warrants atand unit warrants accounted for as liabilities as of December 31, 20132015 and 2012,2014 (including warrants which have subsequently expired), was estimated to be $9,147,507$4,000 and $102,695,$126,000, respectively, using a closing stock price of $2.00$0.73 and $2.98,$3.00, respectively, and, other than those warrants with a de minimis value on the valuation date, based on the following assumptions:
| | December 31, 2013 | | December 31, 2012 | |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | |
| December 31, 2015 | | December 31, 2014 |
| Risk-free interest rate | 1.16% - 1.18% |
| | 1.18% - 1.20% |
|
| Expected remaining term | 2.39 - 2.47 Years |
| | 3.29 - 3.37 Years |
|
| Expected volatility | 108.49% - 108.51% |
| | 118.75% - 118.93% |
|
| Dividend yield | — | % | | — | % |
The aggregate fair value of such warrants at December 31, 2011, was estimated to be $655,219, and the aggregate fair value of warrants and unit warrants issued during the year ended December 31, 2013, was estimated to be $7,962,081 on their issuance dates.$9,147,000. During the year ended December 31, 2013, to the extent that it did not arise from new issuances, the increase in the fair value of the warrant derivative liability of $1,082,731 was recorded as a revaluation loss and during the year ended December 31, 2012,2015, the decrease in the fair value of the warrant derivative liability of $552,524$122,000 was recorded as a revaluation gain, and during the year ended December 31, 2014, to the extent that it did not arise from settlements, the decrease in the fair value of the warrant derivative liability of $2,200,000 was recorded as a revaluation gain (see Note 11)12).
NOTE 10.11. Benefit Plan
The Company has a 401(k) plan that allows eligible U.S. employees to contribute up to 50 percent of their annual compensation to the plan, subject to certain limitations. Each employee directs their contributions, which vest immediately, across a series of mutual funds. The Company’sCompany made no matching contributions totaled $696 and nil in the years ended December 31, 20132015 and 2012, respectively,2014, and the costs of administering the 401(k) plan are not significant.
NOTE 11.12. Fair Value of Financial Instruments
Fair value measurements are determined under a three-level hierarchy for fair value measurements that prioritizes the inputs to valuation techniques used to measure fair value, distinguishing between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”).
Fair value is the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company primarily uses prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). The Company also considers the impact of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity to identify transactions that are not orderly.
The highest priority is given to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Securities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The three hierarchy levels are defined as follows:
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following tables present the Company’s liabilities that are measured at fair value on a recurring basis at December 31, 201331, 2015 and 2012:2014:
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
December 31, 2013 | | | | | | | | | | | | |
| Financial Liabilities: | | | | | | | | | | | | |
| Warrant derivative liabilities | | $ | — | | | $ | — | | | $ | 9,147,507 | | | $ | 9,147,507 | |
| | | | | | | | | | | | | | | | | |
| Total liabilities | | $ | — | | | $ | — | | | $ | 9,147,507 | | | $ | 9,147,507 | |
|
| | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| December 31, 2015 | | | (in thousands) | | |
| Recurring Financial Liabilities: | | | | | | | |
| Warrant derivative liabilities | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | 4 |
|
| Contingent earn-out payments | — |
| | — |
| | 44 |
| | 44 |
|
| Total liabilities | $ | — |
| | $ | — |
| | $ | 48 |
| | $ | 48 |
|
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
December 31, 2012 | | | | | | | | | | | | |
| Financial Liabilities: | | | | | | | | | | | | |
| Warrant derivative liabilities | | $ | — | | | $ | — | | | $ | 102,695 | | | $ | 102,695 | |
| | | | | | | | | | | | | | | | | |
| Conversion element of promissory notes | | | — | | | | — | | | | 274,928 | | | | 274,928 | |
| | | | | | | | | | | | | | | | | |
| Conversion element of Series B CPS | | | — | | | | — | | | | 1,210,909 | | | | 1,210,909 | |
| | | | | | | | | | | | | | | | | |
| Series A CPS derivative liabilities | | | — | | | | — | | | | 619,652 | | | | 619,652 | |
| | | | | | | | | | | | | | | | | |
| Total liabilities | | $ | — | | | $ | — | | | $ | 2,208,184 | | | $ | 2,208,184 | |
|
| | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| December 31, 2014 | | | (in thousands) | | |
| Recurring Financial Liabilities: | | | | | | | |
| Warrant derivative liabilities | $ | — |
| | $ | — |
| | $ | 126 |
| | $ | 126 |
|
| Contingent earn-out payments | — |
| | — |
| | 279 |
| | 279 |
|
| Total liabilities | $ | — |
| | $ | — |
| | $ | 405 |
| | $ | 405 |
|
The following tables present a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31,, 2013 2015 and 2012:
| | | | | | Conversion | | | | | | | | | | |
| | | | | | Element of | | | Conversion | | | | | | | |
| | | Warrant | | | Promissory | | | Element of | | | Series A CPS | | | | |
| | | Derivatives | | | Notes | | | Series B CPS | | | Derivatives | | | Total | |
| | | | | | | | | | | | | | | | |
| Balance at January 1, 2013 | | $ | 102,695 | | | $ | 274,928 | | | $ | 1,210,909 | | | $ | 619,652 | | | $ | 2,208,184 | |
| Issuances | | | 7,962,081 | | | | — | | | | — | | | | — | | | | 7,962,081 | |
| Revaluation (gains) losses included in other income and expenses | | | 1,082,731 | | | | (274,928 | ) | | | (128,558 | ) | | | (173,050 | ) | | | 506,195 | |
| Settlements | | | — | | | | — | | | | (1,082,351 | ) | | | (446,602 | ) | | | (1,528,953 | ) |
| Balance at December 31, 2013 | | $ | 9,147,507 | | | $ | — | | | $ | — | | | $ | — | | | $ | 9,147,507 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total gains (losses) included in other income and expenses attributable to liabilities still held as of December 31, 2013 | | $ | (1,082,732 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (1,082,732 | ) |
| | | | | | Conversion | | | | | | | | | | |
| | | | | | Element of | | | Conversion | | | | | | | |
| | | Warrant | | | Promissory | | | Element of | | | Series A CPS | | | | |
| | | Derivatives | | | Notes | | | Series B CPS | | | Derivatives | | | Total | |
| | | | | | | | | | | | | | | | |
| Balance at January 1, 2012 | | $ | 655,219 | | | $ | 1,931,295 | | | $ | 1,245,101 | | | $ | 2,135,715 | | | $ | 5,967,330 | |
| Issuances | | | — | | | | — | | | | — | | | | — | | | | — | |
| Revaluation (gains) losses included in other income and expenses | | | (552,524 | ) | | | (1,656,367 | ) | | | (34,192 | ) | | | (1,516,063 | ) | | | (3,759,146 | ) |
| Settlements | | | — | | | | — | | | | — | | | | — | | | | — | |
| Balance at December 31, 2012 | | $ | 102,695 | | | $ | 274,928 | | | $ | 1,210,909 | | | $ | 619,652 | | | $ | 2,208,184 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total gains (losses) included in other income and expenses attributable to liabilities still held as of December 31, 2012 | | $ | 552,524 | | | $ | 1,656,367 | | | $ | 34,192 | | | $ | 1,516,063 | | | $ | 3,759,146 | |
Assumptions used in evaluating the warrant derivative liabilities, the conversion element of the promissory notes, the conversion element of the Series B CPS and the Series A CPS derivative liabilities are discussed in Notes 9, 5, 6 and 6, respectively. The principal assumptions used, and their impact on valuations, are as follows:
2014:
53 |
| | | | | | | | | | | |
| | Warrant Derivatives | | Contingent Earn-out Payments | | Total |
| | | (in thousands) | |
| Balance at January 1, 2015 | $ | 126 |
| | $ | 279 |
| | $ | 405 |
|
| Issuances | — |
| | — |
| | — |
|
| Gain on revaluation of warrant derivative liabilities, net | (122 | ) | | — |
| | (122 | ) |
| Change in undiscounted contingent earn-out liability | — |
| | (304 | ) | | (304 | ) |
| Change in contingent earn-out adjustment included in interest expense | — |
| | 69 |
| | 69 |
|
| Settlements | — |
| | — |
| | — |
|
| Balance at December 31, 2015 | $ | 4 |
| | $ | 44 |
| | $ | 48 |
|
| Total gains included in other income and expenses attributable to liabilities still held as of December 31, 2015 | $ | 122 |
| | $ | 235 |
| | $ | 357 |
|
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
|
| | | | | | | | | | | |
| | Warrant Derivatives | | Contingent Earn-out Payments | | Total |
| | | (in thousands) | |
| Balance at January 1, 2014 | $ | 9,147 |
| | $ | — |
| | $ | 9,147 |
|
| Issuances | — |
| | 410 |
| | 410 |
|
| Gain on revaluation of warrant derivative liabilities, net | (2,200 | ) | | — |
| | (2,200 | ) |
| Change in undiscounted contingent earn-out liability | — |
| | (229 | ) | | (229 | ) |
| Change in contingent earn-out adjustment included in interest expense | — |
| | 98 |
| | 98 |
|
| Settlements | (6,821 | ) | | — |
| | (6,821 | ) |
| Balance at December 31, 2014 | $ | 126 |
| | $ | 279 |
| | $ | 405 |
|
| Total gains included in other income and expenses attributable to liabilities still held as of December 31, 2014 | $ | 1,240 |
| | $ | 131 |
| | $ | 1,371 |
|
The liability for contingent earn-out payments arises from the Company’s requirement to pay IntegenX a percentage of revenues of the Apollo Business acquired from IntegenX in January 2014 (see Notes 1 and 3), on a sliding scale up to 20%, should certain revenue targets be achieved in 2014, 2015 and 2016. The fair value of the acquisition earn-out contingencies is determined using a modeling technique based on significant unobservable inputs calculated using a probability-weighted revenue approach. At December 31, 2015, the Company estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model based on key assumptions including future annual revenues ranging from $3.1 million to $5.0 million and a discount rate of 14%. At December 31, 2014, the Company estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model based on key assumptions including future annual revenues ranging from $3.4 million to $7.7 million and a discount rate of 14%.
Assumptions used in evaluating the warrant derivative liabilities are discussed in Note 10. The principal assumptions used, and their impact on valuations, are as follows:
Risk-Free Interest Rate. This is the U.S. Treasury rate for the measurement date having a term equal to the weighted average expected remaining term of the instrument. An increase in the risk-free interest rate will increase the fair value and the associated derivative liability.
Expected Remaining Term. This is the period of time over which the instrument is expected to remain outstanding and is based on management’s estimate, taking into consideration the remaining contractual life, historical experience and the possibility of liquidation. For the convertible promissory notes, the Company considered a blend of expected remaining terms prior to partial conversion into Series A-2 Convertible Preferred Stock, giving consideration to the likelihood of conversion under various scenarios, and a further blend of expected remaining terms prior to partial conversion into common stock, all based on management’s projections of when such conversions would occur within the contractual term. An increase in the expected remaining term will increase the fair value and the associated derivative liability.
Expected Volatility. This is a measure of the amount by which the Company’s common stock price has fluctuated or is expected to fluctuate. ToThe Company applies equal weighting to the extent that Company’s common stock had not been traded for as long as the expected remaining term of the instrument, the Company used a weighted average ofown historic volatility and the historic volatility of a group of publicly traded companies over the retrospective period corresponding to the expected remaining term of the instrument on the measurement date. The Company applies a reduced weighting to its own historic volatility in the period prior to August 27, 2013, when it was highly leveraged. The group of publicly traded companies is selected from the same industry or market index, with extra weighting attached to those companies most similar in terms of business activity, size and financial leverage. To the extent that the Company’s common stock has been traded for longer than the expected remaining term of the instrument, equal weighting is applied to this weighted average and to the Company’s own historic volatility over the same term to determine expected volatility. An increase in the expected volatility will increase the fair value and the associated derivative liability.
Dividend Yield. The Company has not made any dividend payments and does not plan to pay dividends in the foreseeable future. An increase in the dividend yield will decrease the fair value and the associated derivative liability.
There were no transfers between Level 1, Level 2 and Level 3 of the fair value hierarchy during the years ended December 31, 2015 or 2014.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 12.13. Segment Information, Geographic Data, and Significant Customers
Operating segments are defined as component of the Company’s business for which separate financial information is available that is evaluated by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company presently has only one operating segment.
Revenue by geographic areas for the years ended December 31, 20132015 and 2012,2014, are as follows:
| | | | | Year Ended December 31, | | Year Ended December 31, |
| | | 2013 | | | 2012 | | 2015 | | 2014 |
| | | | | | | | (in thousands) |
| United States | | $ | 105,251 | | | $ | 495,547 | | $ | 4,835 |
| | $ | 3,559 |
|
| International: | | | | | | | | | |
| | |
|
| Canada | | | 165,329 | | | | — | | 157 |
| | 234 |
|
Asia Pacific(1) | | | 979,437 | | | | 43,470 | | 1,562 |
| | 1,287 |
|
| Europe | | | 54,730 | | | | 47,159 | | 613 |
| | 921 |
|
| | | | | | | | | | |
| Total revenue | | $ | 1,304,747 | | | $ | 586,176 | | $ | 7,167 |
| | $ | 6,001 |
|
__________
(1) Sales to Asia Pacific in 2013 included approximately $647,000 to Japan and $330,000 to China.
| |
| (1) | Sales to Asia Pacific included approximately $910,000 and $457,000 to China in 2015 and 2014, respectively, and $505,000 and $665,000 to Japan in 2015 and 2014, respectively. |
Revenues are attributed to geographical areas based on where the Company’s products are shipped.
One customer accounted for more than 10% of total revenues during either of the years ended December 31, 2015 or 2014. This customer accounted for 14% and 4% of revenue in the years ended December 31, 2015 and 2014, respectively.
Long-lived assets by geographic areas as of December 31, 20132015 and 2012,2014, are as follows:
| | | | | 2013 | | | 2012 | | 2015 | | 2014 |
| | | | | | | | (in thousands) |
| United States | | $ | 250,295 | | | $ | 690,454 | | $ | 922 |
| | $ | 856 |
|
| Malaysia | | | — | | | | 183,608 | | |
| Europe | | | 19,323 | | | | — | | 130 |
| | 13 |
|
| | | | | | | | | | |
| | — |
|
| Total long-lived assets | | $ | 269,618 | | | $ | 874,062 | | $ | 1,052 |
| | $ | 869 |
|
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Customers accounting for more than 10% of either total revenues during the years ended December 31, 2013 or 2012, or accounts receivable as at December 31, 2013 or 2012, are tabulated as follows:
| | | Revenues, Year Ended December 31, | | | Accounts Receivable, December 31, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer A | | $ | 458,333 | | | | 35 | % | | $ | — | | | | — | | | $ | — | | | | — | | | $ | — | | | | — | |
| Customer B | | $ | 191,271 | | | | 15 | % | | $ | — | | | | — | | | $ | 65,600 | | | | 18 | % | | $ | — | | | | — | |
| Customer C | | $ | 188,552 | | | | 14 | % | | $ | — | | | | — | | | $ | 19,646 | | | | 5 | % | | $ | — | | | | — | |
| Customer D | | $ | 162,779 | | | | 12 | % | | $ | — | | | | — | | | $ | 170,071 | | | | 46 | % | | $ | — | | | | — | |
| Customer E | | $ | 138,328 | | | | 11 | % | | $ | — | | | | — | | | $ | 17,808 | | | | 5 | % | | $ | — | | | | — | |
| Customer F | | $ | 13,486 | | | | 1 | % | | $ | 146,000 | | | | 25 | % | | $ | 7,625 | | | | 2 | % | | $ | 140,000 | | | | 45 | % |
| Customer G | | $ | — | | | | — | | | $ | 131,465 | | | | 22 | % | | $ | — | | | | — | | | $ | — | | | | — | |
| Customer H | | $ | 9,939 | | | | 1 | % | | $ | 124,473 | | | | 21 | % | | $ | — | | | | — | | | $ | 150,145 | | | | 49 | % |
NOTE 13.14. Net Income (Loss) Per Share
Basic and diluted net income (loss) per share are shown on the Statements of Operations.
No adjustment has been made to the net loss for charges gains, losses andrelated to MTDC Notes or accretion related to Series A and B CPS, MTDC Notes, Series A-12 Convertible Preferred Stock, and CPNs, as the effect would be anti-dilutive due to the net loss.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following outstanding stock options, warrants and unit warrants (on an as-converted into common stock basis) and shares issuable or contingently issuable upon conversion of restricted stock, Series 1 convertible preferred stock, Series A, B and C CPS,2 Convertible Preferred Stock and MTDC Notes Series A-1 convertible preferred stock and CPNs were excluded from the computation of diluted net loss per share attributable to holders of common stock as they had antidilutive effects for the years ended December 31, 20132015 and 2012:
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| Common share equivalents issuable upon exercise of common stock options | | | 611 | | | | 1,218 | |
| | | | | | | | | |
| Common share equivalents issuable upon exercise of common stock warrants | | | 591,842 | | | | — | |
| | | | | | | | | |
| Common share equivalents issuable upon exercise of unit warrants | | | 128,980 | | | | — | |
| | | | | | | | | |
| Shares issuable upon vesting of restricted stock | | | — | | | | 188 | |
| | | | | | | | | |
Shares issuable upon conversion of Series 1 Convertible Preferred Stock | | | 2,912,306 | | | | — | |
| | | | | | | | | |
| Shares issuable upon conversion of Series A CPS | | | 266,507 | | | | 279,699 | |
| | | | | | | | | |
| Shares issuable upon conversion of Series B CPS | | | 470,189 | | | | 394,564 | |
| | | | | | | | | |
| Shares issuable upon conversion of Series C CPS | | | 29,327 | | | | 32,536 | |
| | | | | | | | | |
| Shares issuable upon settlement of MTDC Notes | | | 290,499 | | | | — | |
| | | | | | | | | |
Shares issuable upon conversion of Series A-1 Convertible Preferred Stock | | | 211,812 | | | | 312,094 | |
| | | | | | | | | |
| Shares issuable upon conversion of convertible promissory notes | | | 193,372 | | | | 284,832 | |
| | | | | | | | | |
| Total common share equivalents excluded from denominator for diluted earnings per share computation | | | 5,095,445 | | | | 1,305,131 | |
2014:
55 |
| | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 |
| | (in thousands) |
| Common share equivalents issuable upon exercise of common stock options | — |
| | 22 |
|
| Common share equivalents issuable upon exercise of common stock warrants | 1,629 |
| | 1,031 |
|
| Shares issuable upon vesting of restricted stock | 392 |
| | 79 |
|
| Shares issuable upon conversion of Series 1 Convertible Preferred Stock | — |
| | 478 |
|
| Shares issuable upon conversion of Series 2 Convertible Preferred Stock | 1,359 |
| | — |
|
| Shares issuable upon settlement of MTDC Notes | 6,551 |
| | 1,529 |
|
| Total common share equivalents excluded from denominator for diluted earnings per share computation | 9,931 |
| | 3,139 |
|
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 14.15. Income Taxes
The Company’s net loss before provision for income taxes comprises the following for the years ended December 31, 2015 and 2014:
|
| | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 |
| | (in thousands) |
| U.S | $ | (14,250 | ) | | $ | (10,375 | ) |
| Foreign | (933 | ) | | (315 | ) |
| Net loss before provision for income taxes | $ | (15,183 | ) | | $ | (10,690 | ) |
The provision for income taxes consists of the following for the years ended December 31, 20132015 and 2012:2014:
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| Current: | | | | | | |
| Federal | | $ | — | | | $ | — | |
| State | | | 3,191 | | | | 5,726 | |
| Foreign | | | 3,150 | | | | (27,179 | ) |
| | | | | | | | | |
| Total Current | | $ | 6,341 | | | $ | (21,453 | ) |
| | | | | | | | | |
| Deferred: | | | | | | | | |
| Federal | | $ | — | | | $ | — | |
| State | | | — | | | | — | |
| Foreign | | | — | | | | — | |
| | | | | | | | | |
| Total Deferred | | $ | — | | | $ | — | |
| | | | | | | | | |
| Provision for income taxes | | $ | 6,341 | | | $ | (21,453 | ) |
|
| | | | | | | |
| | Year Ended December 31, |
| | 2015 | | 2014 |
| | (in thousands) |
| Current: | | | |
| Federal | $ | — |
| | $ | — |
|
| State | 2 |
| | 3 |
|
| Foreign | 2 |
| | — |
|
| Total Current | $ | 4 |
| | $ | 3 |
|
| Deferred: | |
| | |
|
| Federal | $ | 106 |
| | $ | — |
|
| State | 22 |
| | — |
|
| Foreign | — |
| | — |
|
| Total Deferred | $ | 128 |
| | $ | — |
|
| Provision for income taxes | $ | 132 |
| | $ | 3 |
|
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
A reconciliation of the provision for income taxes with the expected provision for income taxes computed by applying the federal statutory income tax rate of 34% to the net loss before provision for income taxes for the years ended December 31, 20132015 and 2012:2014:
| | | | | Year Ended December 31, | | Year Ended December 31, |
| | | 2013 | | | 2012 | | 2015 | | 2014 |
| | | | | | | | (in thousands) |
| Provision for income taxes at federal statutory rate | | $ | (5,528,377 | ) | | $ | (2,787,359 | ) | $ | (5,162 | ) | | $ | (3,635 | ) |
| Federal research and development tax credits | | | (100,535 | ) | | | (94,794 | ) | (195 | ) | | (153 | ) |
| Derivative revaluations and settlements | | (42 | ) | | (748 | ) |
| Deferred tax on indefinite-lived assets | | 79 |
| | — |
|
| Expenses not deductible, income not taxable and other | | | 3,205,545 | | | | (473,203 | ) | 12 |
| | (9 | ) |
| Foreign loss taxed at lower rates | | | 170,813 | | | | 164,828 | | 315 |
| | 107 |
|
| Change in federal valuation allowance | | | 2,258,895 | | | | 3,169,075 | | 5,125 |
| | 4,441 |
|
| | | | | | | | | | |
| Provision for income taxes | | $ | 6,341 | | | $ | (21,453 | ) | $ | 132 |
| | $ | 3 |
|
The components of the deferred tax assets and liabilities as of December 31, 20132015 and 2012,2014, are as follows:
| | | | | December 31, | | December 31, |
| | | December 31, | | | December 31, | | 2015 | | 2014 |
| | | 2013 | | | 2012 | | (in thousands) |
| Deferred tax assets: | | | | | | | | | |
| Net operating loss carry-forwards | | $ | 28,412,473 | | | $ | 25,034,778 | | $ | 37,719 |
| | $ | 32,741 |
|
| Capitalized start-up cost and research and development cost | | | 526,919 | | | | 607,983 | | |
| Capitalized research and development cost | | 347 |
| | 446 |
|
| Goodwill and intangible assets | | 281 |
| | 133 |
|
| Research and development tax credit | | | 1,559,952 | | | | 1,389,625 | | 2,149 |
| | 1,820 |
|
| Depreciation on property and equipment | | | 27,536 | | | | (156,361 | ) | 20 |
| | 52 |
|
| Stock-based compensation | | | 454,125 | | | | 405,742 | | 1,069 |
| | 812 |
|
| Reserves and accruals | | | (636,673 | ) | | | 719,909 | | 722 |
| | 725 |
|
| | | | | | | | | | |
| Total deferred tax asset | | | 30,344,332 | | | | 28,001,676 | | |
| | | | | | | | | | |
| Total deferred tax assets | | 42,307 |
| | 36,729 |
|
| Valuation allowance | | | (30,344,332 | ) | | | (28,001,676 | ) | (41,235 | ) | | (35,453 | ) |
| | | | | | | | | | |
| Net deferred tax assets | | $ | — | | | $ | — | | |
| Deferred tax assets net of valuation allowance | | 1,072 |
| | 1,276 |
|
| Deferred tax liabilities: | | |
| | |
|
| Contingent earn-out | | (128 | ) | | — |
|
| Discount on debt issuance | | (1,072 | ) | | (1,276 | ) |
| Total deferred tax liabilities | | (1,200 | ) | | (1,276 | ) |
| Net deferred tax liability | | $ | (128 | ) | | $ | — |
|
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Management believes that, based on a number of factors, it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, to the extent that they are not exceeded by a deferred tax liability related to indefinite-lived assets, the Company has provided a full valuation allowance against its net deferred tax assets. At December 31, 2013,2015, the Company had federal and state net operating loss carry-forwards (“NOLs”) of approximately $73.6$97.9 million and $58.3$76.0 million, respectively, and foreign operating loss carry-forwards of approximately $0.6$1.9 million. The federal and state NOLs will expire in various periods from 2026 through 2033.2035.
At December 31, 2013,2015, the Company had research and development tax credits of approximately $0.9$1.3 million and $1.0$1.3 million available to offset future income taxes, if any, for federal and California state purposes, respectively. These federal tax credits will expire in various periods from 2027 through 20332035 and the California state tax credits can be carried forward indefinitely.
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Utilization of NOLs and tax credit carry-forwards is subject to substantial limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 (“IRC”) Sections 382 and 383, respectively, and similar state provisions. On August 27, 2013,The Company has determined that there was a substantial ownership change on August 27, 2013, resulting in forfeitures in 2013. On August 27, 2014 and October 21, 2015, there were further substantial ownership changes due to the 2013 Exchange2014 Public Offering and 2013 Private Placement2015 Public Offering (see Note 1), resulting in further forfeitures in 2013.2014 and 2015. The annual limitation may result in the expiration of further NOLs and tax credits before utilization. The Company has not yet evaluated the impact of the IRC Sections 382 and 383 limitations on its recorded NOLs and tax credits in 2013, 2014 and 2015, nor has it determined whether there have been any other substantial ownership changes in 2011 or prior years, so the recognized amount of deferred tax assets (and(and related 100% valuation allowance) has not been adjusted, although management estimates that a significant majority of the recorded NOLs and tax credits have already been effected and will need to be written off.off. This has no impact on the income tax expense (benefit) due to the provision of a full valuation allowance against all net deferred tax assets.assets.
The net valuation allowance increased by approximately $2.3$5.8 million and $3.3$5.1 million during the years ended December 31, 20132015 and 2012,2014, respectively, primarily due to the generation of net operating loss and credit carry-forwards.
The Company files U.S. federal and various state income tax returns. There are no prior year tax returns under audit by taxing authorities, and management is not aware of any impending audits. As a result of the Company’s NOL carry-forwards, all tax years from 2006 through 20132015 remain subject to federal and state tax examination.
The Company has established tax reserves for uncertain tax positions totaling $810,000$1,116,000 and $721,000$945,000 as of December 31, 20132015 and 2012,2014, respectively. A reconciliation of the change in unrecognized tax benefits is as follows:
| | | | | Year Ended December 31, |
| | | Year Ended December 31, | | 2015 | | 2014 |
| | | 2013 | | | 2012 | | (in thousands) |
| Beginning Balance | | $ | 721,000 | | | $ | 645,000 | | $ | 945 |
| | $ | 810 |
|
| Additions based on tax positions related to the current year | | | 89,000 | | | | 76,000 | | 171 |
| | 135 |
|
| | | | | | | | | | |
| Ending Balance | | $ | 810,000 | | | $ | 721,000 | | $ | 1,116 |
| | $ | 945 |
|
All of the unrecognized tax benefits are recognized in the Company’s financial statements as a reduction in the Company’s deferred tax assets. Accordingly, the Company has not accrued any interest or penalties related to unrecognized tax benefits. Because the Company has a full valuation allowance against its deferred tax assets, there will be no income tax effect of releasing the unrecognized tax benefits. The Company expects no significant changes to its uncertain tax positions in the next 12 months.
NOTE 15.16. Contingencies
From time to time the Company may be involved in claims arising in connection with its business. Based on information currently available, the Company believes that the amount, or range, of reasonably possible losses in connection with any pending actions against it including the matter described below, in excess of established reserves, in the aggregate, not to be material to its consolidated financial condition or cash flows. However, losses may be material to the Company’s operating results for any particular future period, depending on the level of income or loss for such period.
Coalesce v. WaferGen. On April 24, 2012, an action entitled Coalesce Corporation (“Coalesce”) v. WaferGen Bio-systems, Inc. was filed in the Alameda County Superior Court. Coalesce, a company that had been providing marketing services between 2006 and 2010, sued the Company for alleged non-payment of sums due, breach of contract, misrepresentation and unjust enrichment. On September 5, 2012, Coalesce filed an amended complaint, with additional claims, for compensatory damages in excess of $500,000 and other compensation. On April 15, 2013, the case was referred to mediation. The first mediation session was held on August 7, 2013, resulting in further requests for documentation by both parties. The litigation is in the discovery stage and a trial has been set for September 15, 2014. The Company believes the claim to be substantially
WAFERGEN BIO-SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
without merit, and while no assurance can be given regarding the outcome of this litigation, management believes that the resolution of this matter will not have a material adverse effect on the Company’s financial position and results of operations. Related legal costs are being expensed as incurred.
NOTE 16.17. Quarterly Financial Data (Unaudited)
Selected summarized quarterly financial information for fiscal 20132015 and 20122014 is as follows:
| | | Year Ended December 31, 2013 | |
| | | First | | | Second | | | Third | | | Fourth | |
| | | | | | | | | | | | | |
| Revenue | | $ | 178,487 | | | $ | 246,248 | | | $ | 389,547 | | | $ | 490,465 | |
| Gross profit | | $ | 112,899 | | | $ | 169,468 | | | $ | 196,733 | | | $ | 251,452 | |
| Net gains (losses) on derivative revaluations | | $ | (593,717 | ) | | $ | 115,237 | | | $ | 623,613 | | | $ | (651,328 | ) |
| Non-recurring gains, credits and (charges) related to restructuring | | $ | — | | | $ | — | | | $ | (7,523,728 | ) | | $ | 4,398,648 | |
| Net income (loss) | | $ | (3,781,510 | ) | | $ | (3,163,155 | ) | | $ | (10,808,332 | ) | | $ | 1,486,725 | |
| Net income (loss) attributable to common stockholders | | $ | (3,988,194 | ) | | $ | (5,862,322 | ) | | $ | (12,246,825 | ) | | $ | 4,385,275 | |
| Net income (loss) per share – basic | | $ | (9.51 | ) | | $ | (13.98 | ) | | $ | (4.34 | ) | | $ | 0.52 | |
| Net income (loss) per share – diluted | | $ | (9.51 | ) | | $ | (13.98 | ) | | $ | (4.34 | ) | | $ | 0.25 | |
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | First | | Second | | Third | | Fourth |
| | (in thousands, except per share amounts) |
| Revenue | $ | 1,146 |
| | $ | 1,610 |
| | $ | 2,010 |
| | $ | 2,401 |
|
| Gross profit | $ | 732 |
| | $ | 934 |
| | $ | 1,162 |
| | $ | 1,119 |
|
| Net gains (losses) on derivative revaluations | $ | (64 | ) | | $ | 104 |
| | $ | 68 |
| | $ | 318 |
|
| Non-recurring gains, credits and (charges) related to restructuring | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Net loss | $ | (4,806 | ) | | $ | (3,821 | ) | | $ | (3,476 | ) | | $ | (3,212 | ) |
| Net loss attributable to common stockholders | $ | (4,806 | ) | | $ | (3,821 | ) | | $ | (3,476 | ) | | $ | (7,890 | ) |
| Net loss per share – basic and diluted | $ | (0.85 | ) | | $ | (0.67 | ) | | $ | (0.61 | ) | | $ | (0.57 | ) |
| | | Year Ended December 31, 2012 | |
| | | First | | | Second | | | Third | | | Fourth | |
| | | | | | | | | | | | | |
| Revenue | | $ | 73,233 | | | $ | 20,158 | | | $ | 176,608 | | | $ | 316,177 | |
| Gross profit (loss) | | $ | (17,172 | ) | | $ | 9,568 | | | $ | 32,281 | | | $ | 140,622 | |
Net gains (losses) on derivative revaluations | | $ | 1,076,721 | | | $ | 1,485,470 | | | $ | (385,209 | ) | | $ | 1,582,164 | |
| Net income (loss) | | $ | (2,904,695 | ) | | $ | (1,269,630 | ) | | $ | (2,967,580 | ) | | $ | (1,034,757 | ) |
| Net income (loss) attributable to common stockholders | | $ | (3,101,360 | ) | | $ | (1,468,754 | ) | | $ | (3,169,192 | ) | | $ | (1,238,890 | ) |
| Net income (loss) per share – basic and diluted | | $ | (7.40 | ) | | $ | (3.50 | ) | | $ | (7.56 | ) | | $ | (2.95 | ) |
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2014 |
| | First | | Second | | Third | | Fourth |
| | (in thousands, except per share amounts) |
| Revenue | $ | 1,405 |
| | $ | 1,734 |
| | $ | 1,250 |
| | $ | 1,612 |
|
| Gross profit | $ | 799 |
| | $ | 975 |
| | $ | 876 |
| | $ | 779 |
|
| Net gains (losses) on derivative revaluations | $ | 216 |
| | $ | 1,158 |
| | $ | 589 |
| | $ | 466 |
|
| Non-recurring gains, credits and (charges) related to restructuring | $ | — |
| | $ | — |
| | $ | (129 | ) | | $ | — |
|
| Net loss | $ | (2,546 | ) | | $ | (2,103 | ) | | $ | (2,781 | ) | | $ | (3,263 | ) |
| Net loss attributable to common stockholders | $ | (2,546 | ) | | $ | (2,103 | ) | | $ | (2,781 | ) | | $ | (3,263 | ) |
| Net loss per share – basic and diluted | $ | (2.79 | ) | | $ | (2.28 | ) | | $ | (1.02 | ) | | $ | (0.58 | ) |
NOTE 17.18. Subsequent Events
On January 6, 2014,February 11, 2016, the Company purchased substantially allreceived written notice from the landlord for its headquarters located at 7400 Paseo Padre Parkway, Fremont, California, that the Company’s lease will be terminated effective April 12, 2016 (see Note 7). Effective March 1, 2016, the Company entered into a new lease for 28,866 square feet facility located at 34700 Campus Drive, Fremont, California, to replace the terminated lease. The new lease provides for a term of the assets of the product line used in connection with developing, manufacturing, marketing and selling instruments and reagents relating to library preparation for next generation sequencing, including the Apollo 324TM instrument and the PrepXTM reagents from IntegenX Inc. (the “Apollo Business”). The purchase price comprised (1) a cash payment of $2.0 million, (2) a $1.25 million secured promissory note which accrues interest at 8% and is repayable after three years, (earlier in certain circumstances), (3) up to three earn-out payments basedcommencing on revenues in 2014, 2015March 1, 2016 and 2016, respectively, and (4) the assumption of certain liabilities, including accrued but unpaid vacation for those employees who joined the Company. The acquisition was consummated in order to acquire a synergistic businessexpiring on February 28, 2019, with an established revenue stream from a customer base inoption to extend the same market space as the Company’s products and services.term for an additional two years.
These Financial Statements do not include a summaryAs of the total purchase priceDecember 31, 2015, aggregate future minimum obligations for the Apollo Business, a summary of the fair values of the major classes of assets acquired and liabilities assumed, or the revenue, net loss and net loss per share, on a pro forma basis,all operating leases in effect in March 2016 are as though the business combination had occurred as of the beginning of the prior annual reporting period, as the initial accounting for the business combination has not yet been completed.follows:
|
| | | | | | | |
| | As Disclosed in Note 7 | | As Updated for New Lease |
| Year ending December 31, | (in thousands) |
| 2016 | 477 |
| | 664 |
|
| 2017 | 486 |
| | 771 |
|
| 2018 | 162 |
| | 776 |
|
| 2019 | — |
| | 130 |
|
| Total minimum obligations | $ | 1,125 |
| | $ | 2,341 |
|
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
As of the end of the period covered by this Report, management performed, with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are those designed to ensure that information required to be disclosed in the report we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Based on the evaluation and the identification of the material weaknesses in internal control over financial reporting described below, our principal executive officer and principal financial officer concluded that, as of December 31, 2013,2015, the Company’s disclosure controls and procedures were not effective.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by the Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles (GAAP). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our principal executive officer and principal financial officer, an assessment, including testing of the effectiveness, of our internal control over financial reporting as of December 31, 2013.2015. Management’s assessment of internal control over financial reporting was conducted using the criteria of the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework while utilizing the additional guidance contained in COSO’s Internal Control over Financial Reporting – Guidance for Smaller Public Companies.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such Based on that there is a reasonable possibilityassessment, our management has concluded that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with management’s assessment of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002, we identified the following material weaknesses in our internal control over financial reportingwas effective as of December 31, 2013:
| 1) | We had not designed or otherwise maintained adequate controls to ensure that we identify all of the clauses in warrant agreements which could cause such warrants to require liability classification; and |
| 2) | There was an operating deficiency in the calculation of the weighted average number of shares outstanding in a manual spreadsheet, and in the subsequent review process, which failed to detect and correct the error. |
Because of the material weaknesses noted above, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2013, based on the criteria of COSO in Internal Control – Integrated Framework.
2015.
Attestation Report of Registered Public Accounting Firm
This Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Report.
Changes in Internal Control over Financial Reporting
There waswere no material changechanges in the Company’sour internal control over financial reporting during the quarter ended December 31, 2013,2015, that hashave materially affected, or isare reasonably likely to materially affect, the Company’sour internal control over financial reporting.reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information with respect to this item is incorporated by reference from our definitive proxy statement to be filed with the Commission within 120 days of the end of the fiscal year ended December 31, 2013.2015.
Item 11. Executive Compensation
Information with respect to this item is incorporated by reference from our definitive proxy statement to be filed with the Commission within 120 days of the end of the fiscal year ended December 31, 2013.2015.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to this item is incorporated by reference from our definitive proxy statement to be filed with the Commission within 120 days of the end of the fiscal year ended December 31, 2013.2015.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information with respect to this item is incorporated by reference from our definitive proxy statement to be filed with the Commission within 120 days of the end of the fiscal year ended December 31, 2013.2015.
Item 14. Principal Accounting Fees and Services
Information with respect to this item is incorporated by reference from our definitive proxy statement to be filed with the Commission within 120 days of the end of the fiscal year ended December 31, 2013.2015.
PART IV
Item 15. Exhibits and Financial Statement Schedules
Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
Exhibits
The following documents are being filed with this Annual Report on Form 10-K.
| |
| (1) | Financial Statements (see “Financial Statements and Supplementary Data” at Item 8 and incorporated herein by reference). |
| |
| (2) | Financial Statement Schedules (Schedules to the Financial Statements have been omitted because the information required to be set forth therein is not applicable or is shown in the accompanying Financial Statements or notes thereto). |
| |
| (3) | Exhibits (The Exhibits required to be filed as a part of this Annual Report on Form 10-K are listed in the Exhibit Index). |
In reviewing the agreements included as exhibits to this Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov. See “Available Information.”
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | |
| | | WAFERGEN BIO-SYSTEMS, INC. | |
| | | By: | /s/ IVAN TRIFUNOVICHROLLAND CARLSON | |
| Date: | March 14, 201425, 2016 | | Ivan TrifunovichRolland Carlson | |
| | | Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | |
| SIGNATURE | | TITLE | | DATE |
/s/ IVAN TRIFUNOVICH
/s/ ROLLAND CARLSON | | | | |
| Rolland Carlson | | Ivan TrifunovichChief Executive Officer and President
(principal executive officer) | | President, Chief Executive Officer (principal
executive officer) and Director
| | March 14, 201425, 2016 |
/s/ JOHN HARLANDMICHAEL P. HENIGHAN | | | | |
| Michael P. Henighan | | John HarlandChief Financial Officer
(principal financial officer and principal accounting officer) | | Chief Financial Officer (principal financial officer
and principal accounting officer)
| | March 14, 201425, 2016 |
/s/ ALNOOR SHIVJIIVAN TRIFUNOVICH | | | | |
Alnoor Shivji
Ivan Trifunovich | | Executive Chairman of the Board | | March 14, 201425, 2016 |
| /s/ DR. R. DEAN HAUTAMAKI | | | | |
Dr. R. Dean Hautamaki | | Director | | March 14, 201425, 2016 |
| /s/ MAKOTO KANESHIRO | | | | |
Makoto Kaneshiro | | Director | | March 14, 201425, 2016 |
| /s/ JOEL KANTER | | | | |
Joel Kanter | | Director | | March 14, 201425, 2016 |
| /s/ WILLIAM McKENZIE | | | | |
William McKenzie | | Director | | March 14, 201425, 2016 |
| /s/ ROBERT SCHUEREN | | | | |
| Robert Schueren | | Director | | March 14, 201425, 2016 |
| | | | | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | | Filed Herewith | | Form | | Period Ending | | Exhibit | | Filing Date |
| | | | | | | | | | | | | |
| 2.1 | | Asset Purchase Agreement dated January 6, 2014 by and between Wafergen, Inc. and IntegenX Inc. | | | | S-1/A | | | | 2.1 | | 1/27/2014 |
| | | | | | | | | | | | | |
| 3.1 | | Amended and Restated Articles of Incorporation of WaferGen Bio-systems, Inc., dated January 31, 2007 | | | | 8-K | | | | 3.1 | | 2/1/2007 |
| | | | | | | | | | | | | |
| 3.2 | | Certificate of Amendment to the Amended and Restated Articles of Incorporation of the Company | | | | 8-K | | | | 3.1 | | 8/28/2013 |
| | | | | | | | | | | | | |
| 3.3 | | Certificate of Designation of the Series 1 Convertible Preferred Stock | | | | 8-K | | | | 3.2 | | 8/28/2013 |
| | | | | | | | | | | | | |
| 3.4 | | Certificate of Withdrawal of Certificate of Designation of the Series A-1 Convertible Preferred Stock and the Series A-2 Convertible Preferred Stock | | | | 8-K | | | | 3.3 | | 8/28/2013 |
| | | | | | | | | | | | | |
| 3.5 | | Bylaws of WaferGen Bio-systems, Inc. | | | | SB-2 | | | | 3.2 | | 8/9/2006 |
| | | | | | | | | | | | | |
| 3.6 | | First Amendment to Bylaws of WaferGen Bio-systems, Inc. | | | | 8-K | | | | 3.2 | | 6/1/2011 |
| | | | | | | | | | | | | |
| 3.7 | | Second Amendment to Bylaws of WaferGen Bio-systems, Inc. | | | | 8-K | | | | 3.2 | | 10/19/2011 |
| | | | | | | | | | | | | |
| 4.1 | | Form of Warrants to purchase shares of Common Stock of the Company, issued June 16, 2009, to investors in the Company’s 2009 private placement offering of units of securities | | | | 10-Q | | 6/30/2009 | | 10.6 | | 8/14/2009 |
| | | | | | | | | | | | | |
| 4.2 | | Form of Warrant to purchase shares of Common Stock of the Company, issued to Spencer Trask Ventures, Inc. and certain related parties in connection with the Company’s 2009 private placement offering of units of securities | | | | 10-Q | | 6/30/2009 | | 10.8 | | 8/14/2009 |
| | | | | | | | | | | | | |
| 4.3 | | Form of Warrants to purchase shares of Common Stock of the Company, issued December 23, 2009, to investors in the Company’s December 2009 and January 2010 private placement offering of units of securities | | | | S-1 | | | | 10.59 | | 3/2/2010 |
| | | | | | | | | | | | | |
| 4.4 | | Form of Warrants to purchase shares of Common Stock of the Company, issued July 7, 2010, to investors in the Company’s July 2010 offering of units of securities | | | | 8-K | | | | 4.1 | | 7/8/2010 |
| | | | | | | | | | | | | |
| 4.5 | | Form of Warrant to purchase shares of Common Stock of the Company, issued July 7, 2010, to placement agents and certain related parties in connection with the Company’s July 2010 offering of units of securities | | | | 10-Q | | 6/30/2010 | | 10.3 | | 8/16/2010 |
| | | | | | | | | | | | | |
| 4.6 | | Warrant to purchase shares of Common Stock of the Company, issued December 7, 2010, to Oxford Finance Corporation | | | | 8-K | | | | 10.2 | | 12/13/2010 |
| | | | | | | | | | | | | |
| 4.7 | | Form of Warrants to purchase shares of Common Stock of the Company, issued August 27, 2013, to investors in the Company’s August 2013 exchange offering | | | | 8-K | | | | 4.1 | | 8/28/2013 |
| | | | | | | | | | | | | |
| 4.8 | | Form of Warrants to purchase shares of Common Stock of the Company, issued August 27, 2013, to investors in the Company’s August and September 2013 private placement offering of units of securities | | | | 8-K | | | | 4.1 | | 8/28/2013 |
| | | | | | | | | | | | | |
| 4.9 | | Form of Warrant to purchase shares of Common Stock of the Company, issued August 27, 2013, to the placement agent and certain related parties in connection with the Company’s August and September 2013 private placement offering of units of securities | | | | 8-K | | | | 4.2 | | 8/28/2013 |
| | | | | | | | | | | | | |
| 4.10 | | Form of Promissory Note in favor of WaferGen Biosystems (M) Sdn. Bhd. dated August 15, 2013 | | | | S-1 | | | | 4.10 | | 10/9/2013 |
| | | | | | | | | | | | | |
| 10.1 † | | WaferGen Bio-systems, Inc. 2008 Stock Incentive Plan | | | | 8-K | | | | 10.1 | | 7/3/2008 |
| | | | | | | | | | | | | |
| 10.2 † | | Form of Non-Qualified Stock Option award under 2008 Stock Incentive Plan | | | | 10-K | | 12/31/2008 | | 10.35 | | 3/27/2009 |
| | | | | | | | | | | | | |
| 10.3 | | Share Subscription Agreement and Shareholders’ Agreement dated May 8, 2008, by and among WaferGen Bio-systems, Inc., Malaysian Technology Development Corporation Sdn. Bhd. and WaferGen Biosystems (M) Sdn. Bhd. | | | | 10-Q | | 9/30/2008 | | 10.1 | | 11/14/2008 |
| | | | | | | | | | | | | |
| 10.4 | | Put Agreement dated May 28, 2008, by and among WaferGen Bio-systems, Inc. and Holders of the Series A Redeemable Convertible Preference Shares in WaferGen Biosystems (M) Sdn. Bhd. | | | | 10-Q | | 9/30/2008 | | 10.2 | | 11/14/2008 |
| | | | | | | | | | | | | |
| 10.5 | | Share Subscription Agreement dated April 3, 2009, by and among WaferGen Bio-systems, Inc., WaferGen Biosystems (M) Sdn. Bhd., Prima Mahawangsa Sdn. Bhd. and Expedient Equity Ventures Sdn. Bhd. | | | | 8-K | | | | 10.1 | | 4/14/2009 |
| | | | | | | | | | | | | |
| 10.6 | | Put Agreement dated April 3, 2009, by and among WaferGen Bio-systems, Inc. and Holders of Series B Redeemable Convertible Preference Shares in WaferGen Biosystems (M) Sdn. Bhd. | | | | 8-K | | | | 10.2 | | 4/14/2009 |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | |
| | | | | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | | Filed Herewith | | Form | | Period Ending | | Exhibit | | Filing Date |
| 2.1 | | Asset Purchase Agreement dated January 6, 2014 by and between Wafergen, Inc. and IntegenX Inc. | | | | S-1/A | | | | 2.1 |
| | 1/27/2014 |
| 3.1 | | Amended and Restated Articles of Incorporation of WaferGen Bio-systems, Inc., as such articles have been amended, restated, supplemented or otherwise modified | | | | 10-Q | | 9/30/2015 | | 3.1 |
| | 11/12/2015 |
| 3.2 | | Certificate of Designation of the Series 2 Convertible Preferred Stock | | | | 8-K | | | | 3.1 |
| | 10/21/2015 |
| 3.3 | | Amended and Restated Bylaws of WaferGen Bio-systems, Inc. | | | | 8-K | | | | 3.1 |
| | 11/18/2014 |
| 4.1 | | Form of Warrant to purchase shares of Common Stock of the Company, issued August 27, 2013, to investors in the Company’s August 2013 exchange offering | | | | 8-K | | | | 4.1 |
| | 8/28/2013 |
| 4.2 | | Form of Warrant to purchase shares of Common Stock of the Company issued to investors in the Company’s August and September 2013 private placement offering of units of securities | | | | 8-K | | | | 4.1 |
| | 8/28/2013 |
| 4.3 | | Form of Warrant to purchase shares of Common Stock of the Company issued to the placement agent and certain related parties in connection with the Company’s August and September 2013 private placement offering of units of securities | | | | 8-K | | | | 4.2 |
| | 8/28/2013 |
| 4.4 | | Form of Promissory Note in favor of WaferGen Biosystems (M) Sdn. Bhd. dated August 15, 2013 | | | | S-1 | | | | 4.10 |
| | 10/9/2013 |
| 4.5 | | Form of Amendment to Common Stock Purchase Warrant (Exchange Transaction) issued August 27, 2013, to investors in the Company’s August 2013 exchange offering | | | | S-1 | | | | 4.11 |
| | 5/28/2014 |
| 4.6 | | Form of Amendment to Common Stock Purchase Warrant (Private Placement Transaction) issued to investors in the Company’s August and September 2013 private placement offering of units of securities | | | | S-1 | | | | 4.12 |
| | 5/28/2014 |
| 4.7 | | Form of Amendment to Common Stock Purchase Warrant (Placement Agent Warrants) issued to the placement agent and certain related parties in connection with the Company’s August and September 2013 private placement offering of units of securities | | | | S-1 | | | | 4.13 |
| | 5/28/2014 |
| 4.8 | | Form of Warrant to purchase shares of Common Stock of the Company, issued August 27, 2014, to investors in the Company’s August 2014 public offering | | | | S-1/A | | | | 4.15 |
| | 8/19/2014 |
| 4.9 | | Form of Underwriter Warrant to purchase shares of Common Stock of the Company, issued August 27, 2014, to underwriters and certain related parties in the Company’s August 2014 public offering | | | | S-1/A | | | | 4.16 |
| | 7/18/2014 |
| 4.10 | | Form of Warrant to purchase shares of Common Stock of the Company, issued October 21, 2015, to underwriters in the Company’s October 2015 public offering | | | | 10-Q | | 9/30/2015 | | 4.1 |
| | 11/12/2015 |
64
66
|
| | | | | | | | | | | | | |
| | | | | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | | Filed Herewith | | Form | | Period Ending | | Exhibit | | Filing Date |
| 4.11 | | Warrant Agreement dated October 21, 2015, by and between the Company and Continental Stock Transfer & Trust Company, relating to warrants to purchase shares of Common Stock of the Company issued to investors in the Company’s October 2015 public offering | | | | 10-Q | | 9/30/2015 | | 4.2 |
| | 11/12/2015 |
| 4.12 | | Form of Common Stock Certificate | | | | S-1/A | | | | 4.14 |
| | 7/18/2014 |
| 10.1 † | | Form of Non-Qualified Stock Option award under 2008 Stock Incentive Plan | | | | 10-K | | 12/31/2008 | | 10.35 |
| | 3/27/2009 |
| 10.2 † | | Form of RSU award under 2008 Stock Incentive Plan | | X | | | | | | | | |
| 10.3 † | | Form of Incentive Stock Option award under 2008 Stock Incentive Plan | | X | | | | | | | | |
| 10.4 | | Lease Agreement by and between the Company and LBA Realty Fund III-Company VII, LLC dated October 22, 2009 | | | | 10-Q | | 9/30/2009 | | 10.6 |
| | 11/13/2009 |
| 10.5 † | | Executive Employment Agreement, dated as of March 8, 2012, by and between the Company and Ivan Trifunovich | | | | 8-K | | | | 10.1 |
| | 3/9/2012 |
| 10.6 | | Amendment dated as of June 26, 2012, to Lease Agreement by and between the Company and LBA Realty Fund III-Company VII, LLC dated October 22, 2009 | | | | 10-Q | | 9/30/2012 | | 10.1 |
| | 11/9/2012 |
| 10.7 | | Exchange Agreement dated August 27, 2013 | | | | 8-K | | | | 10.1 |
| | 8/27/2013 |
| 10.8 | | Form of Registration Rights Agreement dated August 27, 2013, by and among the parties to the Securities Purchase Agreement dated August 27, 2013 | | | | 8-K | | | | 10.2 |
| | 8/27/2013 |
| 10.9 | | Agreement dated October 25, 2013, by and among WaferGen Biosystems (M) Sdn. Bhd., WaferGen Bio-systems, Inc. and Malaysian Technology Development Corporation Sdn. Bhd. | | | | S-1 | | | | 10.30 |
| | 10/31/2013 |
| 10.10 | | Amendment dated as of June 27, 2014, to Lease Agreement by and between the Company and LBA Realty Fund III-Company VII, LLC dated October 22, 2009 | | | | S-1 | | | | 10.17 |
| | 7/18/2014 |
| 10.11 | | Letter Agreement, dated as of July 17, 2014, by and among certain affiliates of Great Point Partners, LLC and the Company | | | | S-1 | | | | 10.18 |
| | 7/18/2014 |
| 10.12 † | | Executive Employment Agreement, dated as of August 12, 2014, by and between the Company and Michael Henighan | | | | 8-K | | | | 10.1 |
| | 8/18/2014 |
| 10.13 † | | Executive Employment Agreement, dated as of August 13, 2014, by and between the Company and Keith Warner | | | | 8-K | | | | 10.2 |
| | 8/18/2014 |
| 10.14 † | | Nonstatutory Stock Option issued August 27, 2014, to Keith Warner | | | | 10-Q | | 9/30/2014 | | 10.4 |
| | 11/12/2014 |
| 10.15 † | | Nonstatutory Stock Option issued August 27, 2014, to Michael P. Henighan | | | | 10-Q | | 9/30/2014 | | 10.5 |
| | 11/12/2014 |
| 10.16 † | | WaferGen Bio-systems, Inc. 2008 Stock Incentive Plan, as amended | | | | DEF-14A | | | | Appendix B |
| | 10/8/2014 |
| 10.17 † | | Carlson Employment Agreement, effective as of May 11, 2015, between the Company and Rolland Carlson | | | | 8-K | | | | 10.1 |
| | 5/11/2015 |
| | | | | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | | Filed Herewith | | Form | | Period Ending | | Exhibit | | Filing Date |
| | | | | | | | | | | | | |
| 10.7 | | Deed of Adherence to the Share Subscription and Shareholders’ Agreement dated May 8, 2008, by and among WaferGen Bio-systems, Inc., WaferGen Biosystems (M) Sdn. Bhd., Prima Mahawangsa Sdn. Bhd., Expedient Equity Ventures Sdn. Bhd. and Malaysian Technology Development Corporation Sdn. Bhd. | | | | 10-Q | | 3/31/2009 | | 10.4 | | 5/12/2009 |
| | | | | | | | | | | | | |
| 10.8 | | Registration Rights Agreement, dated June 16, 2009, between WaferGen Bio-systems, Inc., and the investors party thereto in connection with the Company’s 2009 private placement offering of units of securities | | | | 10-Q | | 6/30/2009 | | 10.7 | | 8/14/2009 |
| | | | | | | | | | | | | |
| 10.9 | | Share Subscription Agreement dated July 1, 2009, by and among WaferGen Bio-systems, Inc., WaferGen Biosystems (M) Sdn. Bhd. and Kumpalan Modal Perdana Sdn. Bhd. | | | | 10-Q | | 9/30/2009 | | 10.1 | | 11/13/2009 |
| | | | | | | | | | | | | |
| 10.10 | | Put Agreement dated July 1, 2009, by and among WaferGen Bio-systems, Inc. and Holders of Series B Redeemable Convertible Preference Shares in WaferGen Biosystems (M) Sdn. Bhd. | | | | 10-Q | | 9/30/2009 | | 10.2 | | 11/13/2009 |
| | | | | | | | | | | | | |
| 10.11 | | Deed of Adherence dated July 1, 2009, to the Share Subscription and Shareholders’ Agreement dated May 8, 2008, and the Share Subscription Agreement dated April 3, 2009, by and among WaferGen Bio-systems, Inc., WaferGen Biosystems (M) Sdn. Bhd., Prima Mahawangsa Sdn. Bhd., Expedient Equity Ventures Sdn. Bhd., Malaysian Technology Development Corporation Sdn. Bhd. and Kumpalan Modal Perdana Sdn. Bhd. | | | | 10-Q | | 9/30/2009 | | 10.4 | | 11/13/2009 |
| | | | | | | | | | | | | |
| 10.12 | | Lease Agreement by and between Wafergen, Inc. and LBA Realty Fund III-Company VII, LLC dated October 22, 2009 | | | | 10-Q | | 9/30/2009 | | 10.6 | | 11/13/2009 |
| | | | | | | | | | | | | |
| 10.13 | | Registration Rights Agreement, dated December 23, 2009, between WaferGen Bio-systems, Inc., and the investors party thereto in connection with the Company’s December 2009 and January 2010 private placement offering of units of securities | | | | S-1 | | | | 10.60 | | 3/2/2010 |
| | | | | | | | | | | | | |
| 10.14 | | Share Subscription Agreement dated December 14, 2010, by and among WaferGen Bio-systems, Inc., WaferGen Biosystems (M) Sdn. Bhd. and Malaysian Technology Development Corporation Sdn. Bhd. | | | | 8-K | | | | 10.1 | | 12/15/2010 |
| | | | | | | | | | | | | |
| 10.15 | | Put Agreement dated December 14, 2010, by and among WaferGen Bio-systems, Inc. and Malaysian Technology Development Corporation Sdn. Bhd. | | | | 8-K | | | | 10.2 | | 12/15/2010 |
| | | | | | | | | | | | | |
| 10.16 | | Amended and Restated Shareholders’ Agreement dated December 14, 2010, by and among WaferGen Bio-systems, Inc., WaferGen Biosystems (M) Sdn. Bhd., Malaysian Technology Development Corporation Sdn. Bhd. and Prima Mahawangsa Sdn. Bhd. | | | | 8-K | | | | 10.3 | | 12/15/2010 |
| | | | | | | | | | | | | |
| 10. 17 † | | Employment Separation Agreement, dated October 19, 2011 by and among Alnoor Shivji and WaferGen Bio-systems, Inc. | | | | 10-Q | | 9/30/2011 | | 10.7 | | 11/21/2011 |
| | | | | | | | | | | | | |
| 10.18 | | Letter Agreement Regarding Extension of Time to Exercise Put Option and Related Matters, entered into on December 9, 2011, by and among WaferGen Bio-systems, Inc., WaferGen Biosystems (M) Sdn Bhd and Malaysian Technology Development Corporation Sdn Bhd. | | | | 8-K | | | | 10.1 | | 12/15/2011 |
| | | | | | | | | | | | | |
| 10.19 † | | WaferGen Bio-systems, Inc. 2008 Stock Incentive Plan, as amended | | | | 8-K | | | | 10.1 | | 1/5/2012 |
| | | | | | | | | | | | | |
| 10.20 † | | Executive Employment Agreement, dated as of March 8, 2012, by and between Ivan Trifunovich and WaferGen Bio-systems, Inc. | | | | 8-K | | | | 10.1 | | 3/9/2012 |
| | | | | | | | | | | | | |
| 10.21 † | | Employment Separation Agreement, dated March 26, 2012, by and between Mona Chadha and WaferGen Bio-systems, Inc. | | | | 10-Q | | 6/30/2012 | | 10.1 | | 8/10/2012 |
| | | | | | | | | | | | | |
| 10.22 † | | Employment Separation Agreement, dated March 26, 2012, by and between Donald Huffman and WaferGen Bio-systems, Inc. | | | | 10-Q | | 6/30/2012 | | 10.2 | | 8/10/2012 |
| | | | | | | | | | | | | |
| 10.23 | | Amendment dated as of June 26, 2012, to Lease Agreement by and between WaferGen, Inc. and LBA Realty Fund III-Company VII, LLC dated October 22, 2009 | | | | 10-Q | | 9/30/2012 | | 10.1 | | 11/9/2012 |
| | | | | | | | | | | | | |
| 10.24 † | | Severance Benefits Agreement, dated January 10, 2013, by and between John Harland and WaferGen Bio-systems, Inc. | | | | 8-K | | | | 10.1 | | 1/14/2013 |
| | | | | | | | | | | | | |
| 10.25 | | Exchange Agreement dated August 27, 2013 | | | | 8-K | | | | 10.1 | | 8/27/2013 |
| | | | | | | | | | | | | |
| 10.26 | | Registration Rights Agreement dated August 27, 2013, by and among the parties to the Exchange Agreement dated August 27, 2013 | | | | 8-K | | | | 10.2 | | 8/27/2013 |
|
| | | | | | | | | | | | | |
| | | | | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | | Filed Herewith | | Form | | Period Ending | | Exhibit | | Filing Date |
| 10.18 † | | Amendment to Executive Employment Agreement, effective as of May 11, 2015, between the Company and Ivan Trifunovich | | | | 8-K | | | | 10.1 |
| | 5/11/2015 |
| 10.19 † | | Nonstatutory Stock Option issued May 12, 2015, to Rolland Carlson | | | | 10-Q | | 6/30/2015 | | 10.3 |
| | 8/7/2015 |
| 10.20 † | | Restricted Stock Unit Award issued May 12, 2015, to Rolland Carlson | | | | 10-Q | | 6/30/2015 | | 10.4 |
| | 8/7/2015 |
| 10.21 | | Lease Agreement, effective as of March 1, 2016, between Wafergen, Inc. and John Arrillaga, as trustee of the John Arrillaga Survivor’s Trust and Richard T. Peery, as trustee of the Richard T. Peery Separate Property Trust | | | | 8-K | | | | 10.1 |
| | 3/9/2016 |
| 21.1 | | Subsidiaries of the Registrant | | X | | | | | | |
| | |
| 23.1 | | Consent of Independent Registered Public Accounting Firm | | X | | | | | | |
| | |
| 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of principal executive officer | | X | | | | | | | | |
| 31.2 | | Rule 13a-14(a)/15d-14(a) Certification of principal financial officer | | X | | | | | | | | |
| 32.1 | | Section 1350 Certification of principal executive officer (This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.) | | X | | | | | | | | |
| 32.2 | | Section 1350 Certification of principal financial officer (This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.) | | X | | | | | | | | |
| 101 § | | The following financial information from the Company’s Annual Report on Form 10-K for the period ended December 31, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets at December 31, 2015 and 2014, (ii) the Consolidated Statements of Operations for the years ended December 31, 2015 and 2014, (iii) the Consolidated Statements of Stockholders’ Equity for the two years ended December 31, 2015, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014, and (v) Notes to Consolidated Financial Statements | | X | | | | | | | | |
| | | | | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | | Filed Herewith | | Form | | Period Ending | | Exhibit | | Filing Date |
| | | | | | | | | | | | | |
| 10.27 | | Form of Securities Purchase Agreement dated August 27, 2013, by and among WaferGen Bio-systems, Inc. and the investors signatory thereto | | | | 8-K | | | | 10.1 | | 8/27/2013 |
| | | | | | | | | | | | | |
| 10.28 | | Form of Registration Rights Agreement dated August 27, 2013, by and among the parties to the Securities Purchase Agreement dated August 27, 2013 | | | | 8-K | | | | 10.2 | | 8/27/2013 |
| | | | | | | | | | | | | |
| 10.29 | | Agreement dated October 25, 2013, by and among WaferGen Biosystems (M) Sdn. Bhd., WaferGen Bio-systems, Inc. and Malaysian Technology Development Corporation Sdn. Bhd. | | | | S-1 | | | | 10.30 | | 10/31/2013 |
| | | | | | | | | | | | | |
| 10.30 | | Secured Promissory Note dated January 6, 2014 issued by Wafergen Inc. to IntegenX Inc. | | | | 8-K | | | | 10.2 | | 1/6/2014 |
| | | | | | | | | | | | | |
| 10.31 | | Security Agreement dated January 6, 2014 by and between Wafergen, Inc. and IntegenX Inc. | | | | 8-K | | | | 10.3 | | 1/6/2014 |
| | | | | | | | | | | | | |
| 21.1 | | Subsidiaries of the Registrant | | X | | | | | | | | |
| | | | | | | | | | | | | |
| 23.1 | | Consent of Independent Registered Public Accounting Firm | | X | | | | | | | | |
| | | | | | | | | | | | | |
| 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of principal executive officer | | X | | | | | | | | |
| | | | | | | | | | | | | |
| 31.2 | | Rule 13a-14(a)/15d-14(a) Certification of principal financial officer | | X | | | | | | | | |
| | | | | | | | | | | | | |
| 32.1 | | Section 1350 Certification of principal executive officer (This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.) | | X | | | | | | | | |
| | | | | | | | | | | | | |
| 32.2 | | Section 1350 Certification of principal financial officer (This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.) | | X | | | | | | | | |
| | | | | | | | | | | | | |
101 § | | The following financial information from the Company’s Annual Report on Form 10-K for the period ended December 31, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets at December 31, 2013 and 2012, (ii) the Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2013 and 2012, (iii) the Consolidated Statements of Stockholders’ Equity for the two years ended December 31, 2013, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012, and (v) Notes to Consolidated Financial Statements | | X | | | | | | | | |
† | |
| † | Indicates a management contract or compensatory plan or arrangement. |
| | |
§ | | Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings. |