Summary of significant accounting policies | 2. Summary of significant accounting policies Basis of presentation and use of estimates The presentation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the valuation of deferred tax assets, stock-based compensation expense, determination of the net realizable value of inventory, and the fair value of the Company’s common stock and redeemable convertible preferred stock warrant liabilities. Actual results could differ from those estimates. The Company’s consolidated financial statements include its wholly-owned subsidiaries. All intercompany balances and accounts are eliminated in consolidation. Risks and uncertainties The Company relies on third parties for the supply and manufacture of its products, including a single-source supplier for a critical component, as well as third-party logistics providers. In instances where these parties fail to perform their obligations, the Company may be unable to find alternative suppliers to satisfactorily deliver its products to its customers on time, if at all. The Company operates in a dynamic and highly competitive industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations, or cash flows : Refer to Note 7 for discussion of our current litigation with Agilent which is set to go to trial in February 2020 and could have a material adverse effect on the Company. The Company has expended and expects to continue to expend substantial funds to complete the research and development of its production process. The Company may require additional funds to commercialize its products and may be unable to entirely fund these efforts with its current financial resources. Additional funds may not be available on acceptable terms, if at all. If adequate funds are unavailable on a timely basis from operations or additional sources of financing, the Company may have to delay the sale of the Company’s products and services which would materially and adversely affect its business, financial condition and operations. Concentration of credit risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, short-term investments and accounts receivable. Substantially all of the Company’s cash is held by one financial institution that management believes is of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company’s investment policy addresses the level of credit exposure by establishing a minimum allowable credit rating and by limiting the concentration in any one investment. The Company’s accounts receivable is derived from customers located principally in the United States and Europe. The Company maintains credit insurance for certain of its customer balances, performs ongoing credit evaluations of its customers, and maintains allowances for potential credit losses on customers’ accounts when deemed necessary. The Company does not typically require collateral from its customers. Credit losses historically have not been material. The Company continuously monitors customer payments and maintains an allowance for doubtful accounts based on its assessment of various factors including historical experience, age of the receivable balances, and other current economic conditions or other factors that may affect customers’ ability to pay. Customer concentration One customer accounted for more than 10% of total revenues as follows: Year ended September 30, 2019 2018 2017 Customer A 17 % 34 % 40 % One customer accounted for greater than 10% of net accounts receivable as follows: September 30, 2019 2018 Customer A 13 % 27 % Cash and cash equivalents Cash equivalents that are readily convertible to cash are stated at cost, which approximates fair value. The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents consist of investments in money market funds as of September 30, 2019 and 2018. Short-term investments The Company invests in various types of securities, including United States government, commercial paper, and corporate debt securities. It classifies its investments as available-for-sale income equity ( ) Accounts receivable Trade receivables include amounts billed and currently due from customers, recorded at the net invoice value and are not interest bearing. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amounts of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable. The Company re-evaluates The Company has a short order-to-invoice Fair value of financial instruments The carrying amounts of the Company’s financial instruments including cash equivalents, short term investments, and accounts receivable approximate fair value due to their relatively short maturities. The carrying amounts of the redeemable convertible preferred stock warrant liability represent their fair values. Based on the borrowings rates currently available to the Company for loans with similar terms, the carrying value of the Company’s long-term debt approximates its fair value (level 2 within the fair value hierarchy). Inventories Inventory is stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out Property and equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the remaining lease term of the respective leasehold improvements assets, if any. The Company recorded depreciation and amortization expense of $6.1 million, $5.5 million and $4.8 million for the years September 30, 2019, 2018 and 2017, respectively. Estimated lives of property and equipment are as follows: Laboratory equipment 5 Years Furniture, fixtures and other equipment 5 Years Computer equipment 3 Years Computer software 3 Year s Leasehold improvements Lesser of useful life or Maintenance and repairs are charged to expense as incurred. Betterments are capitalized and depreciated through the life of the lease. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized. Capitalized software development costs Costs associated with internal-use to improve e-commerce Capitalized software development costs were $2.3 million and $1.9 million as of September 30, 2019 and 2018, respectively. Capitalized costs are amortized from the project completion date, using the straight-line method over an estimated useful life of the assets, which is three Long-lived assets The Company reviews property and equipment and intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value Leases The Company has entered into lease agreements for its manufacturing, research and development and office facilities. These leases qualify as and are accounted for as operating leases. Rent expense is recognized on a straight-line basis over the term of the lease and, accordingly, the Company records the difference between cash rent payments and the recognition of rent expense as a prepaid rent asset or a deferred rent liability, as appropriate for each lease. Goodwill and purchased intangible assets Goodwill is evaluated for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If, based on a qualitative assessment, the Company determines it is more likely than not that goodwill is impaired, a quantitative assessment is performed to determine if the fair value of the Company’s sole reporting unit is less than its carrying value. Purchased intangible assets with finite lives are generally amortized over their estimated useful lives using the straight-line method. The Company reviews intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Impairment assessments inherently involve judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Segment information The Company has one business activity, which is manufacturing of synthetic DNA using its semiconductor-based silicon platform and operates as one reportable and operating segment. The Company’s chief operating decision-maker, its Chief Executive Officer (CEO), reviews the Company’s operating results on an aggregate basis for purposes of allocating resources and evaluating financial performance. Revenue recognition Effective October 1, 2017, the Company elected to early adopt the requirements of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers The Company’s revenue is generated through the sale of synthetic biology tools, such as synthetic genes, or clonal genes and fragments, oligonucleotides pools, or oligo pools, next generation sequencing, or NGS tools and DNA libraries. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Contracts with customers are generally in the written form of a purchase order or a quotation, which outline the promised goods and the agreed upon price. Such orders are often accompanied by a Master Supply or Distribution Agreement that establishes the terms and conditions, rights of the parties, delivery terms, and pricing. The Company assesses collectability based on a number of factors, including past transaction history and creditworthiness of the customer. For all of the Company’s contracts to date, the customer orders a specified quantity of synthetic DNA ; The transaction price is determined based on the agreed upon rates in the purchase order or master supply agreements applied to the quantity of synthetic DNA that was manufactured and shipped to the customer. The Company’s contracts include only one performance obligation – the delivery of the product to the customer. Accordingly, all of the transaction price, net of any discounts, is allocated to the one performance obligation. Therefore, upon delivery of the product, there are no remaining performance obligations. The Company’s shipping and handling activities are considered a fulfillment cost. The Company has elected to exclude all sales and value added taxes from the measurement of the transaction price. The Company has not adjusted the transaction price for significant financing since the time period between the transfer of goods and payment is less than one year. The Company recognizes revenue at a point in time when control of the products is transferred to the customer. Management applies judgment in evaluating when a customer obtains control of the promised good which is generally when the product is shipped or delivered to the customer. The Company’s customer contracts generally include a standard assurance warranty to guarantee that its products comply with agreed specifications. The Company reduces revenue by the amount of expected returns which have been insignificant. The Company has elected the practical expedient to not disclose the consideration allocated to remaining performance obligations and an explanation of when those amounts are expected to be recognized as revenue since the duration of the contracts is less than one year. Refer to Note 15 for the disaggregation of revenues by geography, by product and by industry. The Company does not have any contract assets or contract liabilities as of September 30, 2019 and 2018. For all periods presented, the Company did not recognize revenue from amounts that were included in the contract liability balance at the beginning of each period. In addition, for all periods presented, there was no revenue recognized in a reporting period from performance obligations satisfied in previous periods. Based on the nature of the Company’s contracts with customers which are recognized over a term of less than 12 months, the Company has elected to use the practical expedient whereby costs to obtain a contract are expensed as they are incurred. Research and development Research and development expenses consist of compensation costs, employee benefits, subcontractors, research supplies, allocated facility related expenses and allocated depreciation and amortization. All research and development costs are expensed as incurred. Advertising costs Costs related to advertising and promotions are expensed to sales and marketing as incurred. Advertising and promotion expenses for the years ended September 30, 2019, 2018 and 2017, were $1.3 million, $0.9 million and $0.1 million, respectively. Government contract payments The Company recognizes payments received from its funded research and development agreement with the Defense Advanced Research Projects Agency (DARPA), when milestones are achieved and records them as a reduction of research and development expenses. In fiscal 2019 and 2018, the Company received $0.5 million and $0.3 million, respectively, in DARPA payments. There were no DARPA payments received during the year ended September 30, 2017. Redeemable convertible preferred stock warrant liability Outstanding warrants that were related to the Company’s redeemable convertible preferred stock are classified as liabilities on the balance sheet. As the warrants to purchase redeemable convertible preferred stock were exercisable into shares of convertible preferred stock, the Company had recognized a liability for the fair value of its warrants on the consolidated balance sheets upon issuance and subsequently remeasured the liability to fair value at the end of each reporting period. In connection with the closing of our Common stock warrants Warrants to purchase the Company’s common stock issued in conjunction with debt are recorded as additional paid-in-capital paid-in-capital Stock-based compensation The Company maintains performance incentive plans under which incentive and nonqualified stock options and restricted stock units are granted primarily to employees and may be granted to members of the board of directors and certain non-employee The Company recognizes stock compensation in accordance with ASC 718, Compensation—Stock Compensation The Company recognizes fair value of stock options granted to non-employees Net loss per share attributable to common stockholders The Company calculates its basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method are re-allocated to Basic and diluted net loss per share of common stock attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of employee stock-based awards and warrants. Because the Company has reported a net loss for the years ended September 30, 2019, 2018 and 2017, diluted net loss per common share is the same as the basic net loss per share for those years. The Company considered all series of its convertible preferred stock to be participating securities as they were entitled to receive noncumulative dividends prior and in preference to any dividends on shares of common stock. Due to the Company’s net losses, there was no impact on the loss per share calculation in applying the two-class method Reverse stock split In October 2018, the Company’s stockholders approved a one-for-0.101 Income taxes The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability accounts are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are currently in effect. Valuation allowances are established where necessary to reduce deferred tax assets to the amounts expected to be realized. Deferred offering costs Deferred offering costs, which consist of direct incremental legal, consulting, banking and accounting fees relating to the Company’s IPO, were initially capitalized and subsequently offset against proceeds from the IPO within stockholders’ equity. As of September 30, 2019, there were no capitalized deferred offering costs on the consolidated balance sheets. As of September 30, 2018, there was $3.7 million of deferred offering costs within other non-current Recent accounting pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) In February 2016, the FASB issued new lease accounting guidance in ASU 2016-02, Leases right-of-use The Company estimates the key change upon adoption of the standard will result in balance sheet recognition of additional lease assets and lease liabilities as of October 1, 2019, which wi ll be which the Company expects to be consistent with the future minimum lease payments disclosed in Note 7 In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and held-to-maturity debt for available-for-sale debt 20 In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments zero-coupon of ASU 2016-15 did In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash beginning-of-period end-of-period non-current September 30, 2019 2018 2017 Cash and cash equivalents 46,735 80,757 31,227 Restricted cash, non-current 579 579 202 Restricted cash, current (within prepaid expenses and other current assets) 84 201 144 Total cash, cash equivalents and restricted cash 47,398 81,537 31,573 Amounts included in restricted cash primarily related to security deposits and a letter of credit with a financial institution, both in connection with office space lease agreements. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. In May 2017, the FASB issued ASU 2017-09, Compensation Stock Compensation (Topic 718): Scope of Modification Accounting 2017-09, of ASU 2017-09 did In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Subtopic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement 2018-13 |