Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2015 |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation |
The accompanying interim unaudited condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect the accounts of the Company as of March 31, 2015. Accordingly they do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. The accompanying interim unaudited, condensed financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and the results of its operations and cash flows, as of and for the periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the fiscal year ended December 31, 2014, included in the Company’s final prospectus supplement filed with the SEC on May 6, 2015, and related to the Company’s Registration Statement on Form S-1/A (File No. 333-201313). |
Reverse Stock Split | Reverse Stock Split |
On April 27, 2015, the Company effected a one-for-107.39 reverse stock split of its common stock. All common share and per common share information has been retroactively adjusted to reflect this reverse stock split. |
Liquidity | Liquidity |
The Company has had recurring operating losses and negative cash flows from operations since inception. The Company completed its initial public offering (“IPO”) on May 11, 2015, in which it sold a total of 3,570,000 shares of common stock at $14.00 per share for total gross proceeds of approximately $50 million. Additional proceeds of $1.3 million were subsequently received when an additional 90,076 shares of common stock were sold pursuant to the partial exercise by the underwriters of their over-allotment option at $14.00 per share. After underwriters’ fees and commissions and other expenses of the offering, the Company’s aggregate net proceeds were approximately $45.4 million. The Company expects that the net proceeds from the IPO and its pre-existing cash and cash equivalents, together with interest thereon, will be sufficient to fund its operations for at least the next 12 months. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full fiscal year or any other period. The Company expects to need to raise additional equity or debt capital at some point in the future until its revenue reaches a level sufficient to provide for self-sustaining cash flows. There can be no assurance that additional equity or debt financing will be available on acceptable terms, if at all, or that our revenue will reach a level sufficient to provide for self-sustaining cash flows. |
Use of Estimates | Use of Estimates |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include revenue recognition, stock-based compensation expense, the value of the warrant liability, the resolution of uncertain tax positions, income tax valuation allowances, recovery of long lived assets and provisions for doubtful accounts, inventory obsolescence and inventory valuation. Actual results could materially differ from those estimates. |
Accounts Receivable, net |
Accounts receivable represent valid claims against debtors and have been reported net of an allowance for doubtful accounts of $68,922 and $85,068 at March 31, 2015 and December 31, 2014, respectively. Management reviews accounts receivable to identify where collectability may not be probable based on the specific identification method. There was a bad debt recovery for $16,146 and $0 for the three months ended March 31, 2015 and 2014, respectively. |
Accounts Receivable, net | Accounts Receivable, net |
Accounts receivable represent valid claims against debtors and have been reported net of an allowance for doubtful accounts of $68,922 and $85,068 at March 31, 2015 and December 31, 2014, respectively. Management reviews accounts receivable to identify where collectability may not be probable based on the specific identification method. There was a bad debt recovery for $16,146 and $0 for the three months ended March 31, 2015 and 2014, respectively. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments |
The carrying value of financial instruments classified as current assets and current liabilities approximate fair value due to their liquidity and short-term nature. The carrying amount of the Company’s asset-secured growth capital term loan (the “Growth Term Loan”) and convertible notes were estimated using Level 3 inputs and approximates fair value since the interest rate approximates the market rate for debt securities with similar terms and risk characteristics. |
Inventory, net | Inventory, net |
Inventory, consisting of raw materials and finished goods, is stated at the lower of cost (first-in, first-out) or market. The Company reserves or writes down its inventory for estimated obsolescence, or unmarketable inventory, in an amount equal to the difference between the cost of inventory and the estimated market value, based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Inventory impairment charges establish a new cost basis for inventory and charges are not reversed subsequently to income, even if circumstances later suggest that increased carrying amounts are recoverable. |
For the three months ended March 31, 2015 the Company recorded an increase in the inventory reserve of $21,926 to adjust for estimated shrinkage and obsolescence. For the three months ended March 31, 2014 there was no change in inventory reserve balance. |
During the quarter ended March 31, 2015, the Company determined that the average period of time customers use to evaluate the Company’s equipment generally ranges from 90 to 180 days and in certain circumstances the evaluation period may need to be extended beyond that period. HTG Edge instruments at customer locations under evaluation agreements are included in finished goods inventory. Equipment that is under evaluation for purchase remains in inventory as the Company maintains title to the equipment throughout the evaluation period. If the customer has not completed the purchase of the instrument by the end of the initial evaluation period, the Company will determine whether to extend the evaluation period or have the equipment returned to the Company. However, in no case will the evaluation period exceed one year. If the customer has not purchased the equipment or entered into a reagent agreement with the Company after evaluating for one year, the cost of the equipment is written off to cost of goods sold if the customer is allowed to continue use of the equipment. |
Prior to January 1, 2015, the Company recorded equipment under evaluation more than 90 days in property and equipment and has reclassified equipment with a net book value of $210,606 at December 31, 2014 under evaluation for longer than 90 days and less than one year from property and equipment to inventory. |
Property and Equipment, net | Property and Equipment, net |
Property and equipment are stated at historical cost and depreciated over their useful lives, which range from three to five years, using the straight-line method. Leasehold improvements are amortized using the straight-line method over the lesser of the remaining lease term or the estimated useful life. Field equipment is amortized using the straight-line method over the lesser of the period of the related reagent agreement or the estimated useful life. Depreciation and leasehold improvement amortization expense was $151,493 and $107,830 for the three months ended March 31, 2015 and 2014, respectively. |
Costs incurred in the development and installation of software for internal use are expensed or capitalized, depending on whether they are incurred in the preliminary project stage (expensed), application development stage (capitalized), or post-implementation stage (expensed). Amounts capitalized following project completion are amortized on a straight-line basis over the useful life of the developed asset, which is generally three years. In addition to the amounts above, amortization expense for capitalized software costs was $0 and $ 11,687 for the three months ended March 31, 2015 and 2014, respectively. |
Stock Issuance Cost | Stock Issuance Costs |
Certain costs incurred in connection with the issuance of the Company’s Redeemable Convertible Preferred Stock (the “Preferred Stock”) have been deferred and are being accreted. Stock issuance costs are accreted to distributions in excess of capital using the effective interest method. Accretion was $24,077 and $22,481 for the three months ended March 31, 2015 and 2014, respectively. |
Deferred Financing Costs | Deferred Financing Costs |
Certain costs incurred in connection with the Growth Term Loan have been deferred and are being amortized. Debt issuance costs are amortized over the term of the Growth Term Loan using the effective interest method. Costs incurred in connection with the issuance of notes under the Company’s two note and warrant purchase agreements dated December 30, 2014 (the “Note Agreements”) in February and March 2015 have been deferred and are being amortized. These costs are being amortized over the term of the Note Agreements using the straight-line accretion method, which approximates the effective interest method in this instance. The Company has recorded approximately $132,050 and $75,131 of deferred financing costs in the accompanying balance sheet as of March 31, 2015 and December 31, 2014. Amortization was $18,615 and $0 for the three months ended March 31, 2015 and 2014. |
Deferred Offering Costs | Deferred Offering Costs |
Deferred offering costs represent legal, accounting and other direct costs related to the IPO, which was completed in May 2015. Future costs will be deferred until the completion of the initial public offering, at which time they will be reclassified to additional paid-in capital as a reduction of the proceeds. The Company has recorded approximately $1.6 million and $1.3 million of deferred offering costs as a non-current asset in the accompanying balance sheet as of March 31, 2015 and December 31, 2014, respectively. |
Deferred Revenue | Deferred Revenue |
Deferred revenue represents cash receipts for products or services to be provided in future periods. When products are delivered or services are rendered, deferred revenue is then recognized as earned. |
Revenue Recognition | Revenue Recognition |
The Company recognizes revenue from the sale of instruments, consumables and related services when the following four basic criteria are met: (1) a contract has been entered into with a customer or persuasive evidence of an arrangement exists, (2) delivery has occurred or services rendered, (3) the fee is fixed and determinable, and (4) collectability is reasonably assured. |
Sale of instruments and consumables |
Instrument product revenue is generally recognized upon installation and calibration by our field service engineers, unless the customer has specified any other acceptance criteria. The sale of instruments and related installation and calibration are considered to be one unit of accounting, as instruments are required to be professionally installed and calibrated before use. Installation generally occurs within a week of shipment. |
Consumables are considered to be separate units of accounting as they are sold separately. Consumables revenue is recognized upon transfer of ownership, which is generally upon shipment. The Company’s standard term and conditions provide that no right of return exists for instruments or consumables. |
When a contract involves multiple elements, the items included in the arrangement (deliverables) are evaluated to determine whether they represent separate units of accounting. The Company performs this evaluation at the inception of an arrangement and as each item is delivered in the arrangement. Generally, the Company accounts for a deliverable (or a group of deliverables) separately if the delivered item has stand-alone value to the customer, the customer is given a general right of return relative to the delivered item, and delivery or performance of the undelivered item or service is probable and substantially in the Company’s control. When multiple elements can be separated into separate units of accounting, arrangement consideration is allocated at the inception of the arrangement, based on each deliverables’ relative selling price. All revenue from contracts determined not to have separate units of accounting is recognized based on consideration of the most substantive delivery factor of all the elements in the contract. |
The Company provides instruments to certain customers under a reagent agreement. Under these agreements, the Company installs instruments in the customer’s facility without a fee and the customer agrees to purchase consumable products at a stated price over the term of the agreement; in some instances the agreements do not contain a minimum purchase requirement. Terms range from several months to multiple years and may automatically renew in several month or multiple year increments unless either party notifies the other in advance that the agreement will not renew. This represents a multiple element arrangement and because all consideration under the reagent agreement is contingent on the sale of consumables, no consideration has been allocated to the instrument and no revenue has been recognized upon installation of the instrument. The cost of the instrument under the agreement is expected to be recovered in the fees charged for consumables, to the extent sold, over the term of the agreement. Revenue is recognized as consumables are shipped. |
In reagent rental agreements, the Company retains title to the instrument and title is transferred to the customer at no additional charge at the conclusion of the initial arrangement. Because the pattern of revenue from the arrangement cannot be reasonably estimated, the cost of the instrument is amortized on a straight-line basis over the term of the arrangement, unless there is no minimum consumable product purchase in which case the instrument would be expensed as cost of goods sold. Cost to maintain the instrument while title remains with the Company is charged to cost of sales as incurred. |
Service Revenue |
For contracts related to custom panel design services and sample processing, the Company utilizes a proportional performance revenue recognition model, under which revenue is recognized as performance occurs based on the relative outputs of the performance that have occurred up to that point in time under the respective agreement. The Company includes all applicable costs incurred related to custom panel design services, including research and development costs and general and administrative expenses, in cost of revenue. |
The Company also provides contract research services under cost plus fixed fee government contracts. Revenue is recognized under government contracts using the percentage-of-completion method of accounting. Under the percentage-of-completion method, contract research revenue is recognized as the work progresses and services are rendered and costs are incurred. The fixed fee is recognized in proportion to costs incurred compared to total estimated costs. The Company includes all applicable costs incurred from government contracts, including general and administrative expenses on government contracts, in cost of revenue. |
Anticipated losses, if any, on contracts are charged to earnings as soon as they are identified. Anticipated losses cover all costs allocable to contracts. Revenue arising from claims or change orders is recorded either as income or as an offset against a potential loss only when the amount of the claim can be estimated and its realization is probable. |
Other Revenue |
Other revenue includes license and grant revenue. |
License revenue is generated from the licensing of the Company’s internally developed intellectual property to third parties. The revenue may be generated by nonrefundable up-front payments and license fees, milestone and other contingent payments, or royalties based on sales of commercialized products. Licensing fees are recognized on a straight-line basis over the term of the license agreement for agreements requiring specific continuing performance obligations with deferral of all or a portion of these fees. If it cannot be concluded that a license fee is fixed or determinable at the outset of an arrangement, amounts are recognized as income as payments from third parties become due. No licensing fees were included in other revenue for the three months ended March 31, 2015 and 2014. |
Grant revenue is earned when expenditures relating to the projects under these awards are incurred. |
Concentration Risks | Concentration Risks |
Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and uncollateralized accounts receivable. The Company maintains the majority of its cash balances in the form of cash deposits in bank checking and money market accounts in amounts in excess of federally insured limits. Management believes, based upon the quality of the financial institution, that the credit risk with regard to these deposits is not significant. |
The Company sells its instruments, consumables, sample processing services, custom panel design services and contract research services primarily to biopharmaceutical companies, academic institutions and molecular labs. The Company routinely assesses the financial strength of its customers and credit losses have been minimal to date. |
Approximately 25%, 23% and 21% of the Company’s revenue was derived from three customers for the three months ended March 31, 2015 and 19%, 12% and 10% were derived from three customers for the three months ended March 31, 2014. Three customers accounted for approximately 27%, 23% and 14% of the Company’s net accounts receivable as of March 31, 2015. The Company derived 23% and 29% of its total revenue from grants and contracts, primarily from one organization during the 3 month periods ended March 31, 2015 and 2014, respectively. |
The Company currently relies on a single vendor to manufacture its HTG Edge processor and reader and additional single suppliers to supply subcomponents used in the processor. A loss of any of these suppliers could significantly delay the delivery of HTG Edge systems, which in turn would materially affect the Company’s ability to generate revenue. |
New Accounting Pronouncements | New Accounting Pronouncements |
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. |
The revised revenue standard is effective for public entities for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The FASB issued exposure drafts to change certain aspects of and delay the effective date of ASU 2014-09 by one year, but these drafts have not yet been approved. The Company is currently evaluating the impact of our pending adoption of ASU 2014-09 on our financial statements and has not yet determined the method by which we will adopt the standard. |
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Going Concern (“ASU 2014-15”). ASU 2014-15 provides GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The standard will be effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not believe the adoption of this standard will have a significant impact on the Company’s financial statements. |
In April 2015, the FASB issued an accounting standards update entitled “ASU 2015-03, Interest – Imputation of Interest: Simplifying the presentation of Debt Issuance Costs”. The standard requires entities to present debt issuance costs on the balance sheet as a direct deduction from the related debt liability rather than as an asset, and the amortization is reported as interest expense. The result of application of this guidance would be to reduce the deferred financing costs balance, with a corresponding reduction to the long term liabilities to which the debt issuance costs relate in the condensed balance sheets. The standard does not affect recognition and measurement of debt issuance costs. The Company expects to adopt ASU 2015-03 on January 1, 2016. |
Subsequent Events | Subsequent Events |
The Company has evaluated events occurring subsequent to the end of the period and determined that, other than as disclosed below, there were no other material events that require recognition or disclosure in the financial statements. |
In April 2015, the Company issued $1.5 million of convertible notes pursuant to the Note Agreements. |
On May 11, 2015, the Company completed its IPO, whereby the Company sold a total of 3,570,000 shares of common stock at $14.00 per share for total gross proceeds of approximately $50 million. An additional 90,076 shares were subsequently sold pursuant to the partial exercise by the underwriters of their over-allotment option resulting in additional gross proceeds of approximately $1.3 million. After underwriters’ fees and commissions and other expenses of the offering, the Company’s aggregate net proceeds were approximately $45.4 million. |
In connection with the initial closing of the IPO on May 11, 2015: |
· | the Company issued 710,060 shares of its Series D preferred stock upon the exercise of outstanding warrants, for which it received aggregate cash consideration of approximately $1,750 for such exercises; |
· | all outstanding shares of the Company’s convertible preferred stock were converted into 2,134,192 shares of common stock; |
· | the Company issued 374,632 shares of its common stock to the holders of the Company’s previously outstanding Series D preferred stock and Series E preferred stock in connection with the conversion of such shares into shares of the Company’s common stock as payment for accrued dividends on such shares; |
· | an aggregate of $4.5 million in outstanding principal and accrued interest under convertible promissory notes automatically converted into 324,591 shares of the Company’s common stock at a conversion price of $14.00 per share; |
· | the Company’s Series C-2 preferred stock warrants and Convertible Note Warrants (See Note 9 and Note 10) converted to 1,488 and 144,772 warrants for common shares, respectively; and |
· | the Company reserved 938,858 shares of common stock for future issuance under its 2014 equity incentive plan (including 12,752 shares of common stock reserved under our 2011 plan). In addition, the Company reserved 110,820 shares of common stock for future issuance under its 2014 employee stock purchase plan. |
The remaining notes under the first note Agreement and those available under the second Note Agreement were terminated in connection with the IPO. |