| Basis of Presentation and Summary of Significant Accounting Policies | 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Use of Estimates The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the Company’s financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may significantly differ from these estimates and assumptions. For the year ended December 31, 2023 and 2022 , significant estimates and assumptions include the value of lease liabilities and right-of-use lease assets. Cash, Cash Equivalents and Restricted Cash Cash and Cash Equivalents Cash and cash equivalents include cash readily available in checking, savings, money market funds and sweep accounts. The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Restricted Cash Restricted cash is held in a separate restricted bank account as the collateral for the security deposits on its executed lease agreements. The Company has classified restricted cash as noncurrent on its balance sheets. The following table provides a summary of cash, cash equivalents and restricted cash reported within the balance sheets (in thousands):
December 31,
2023 2022
Cash and cash equivalents $ 16,233 $ 74,266
Restricted cash 600 1,711
Total $ 16,833 $ 75,977 Concentration of Credit Risk Financial instruments, which potentially subject the Company to a concentration of credit risk, consist primarily of cash, cash equivalents and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Short-term Investments As of December 31, 2023 and 2022, short-term investments primarily consisted of U.S. Treasury securities, asset-backed securities and corporate debt securities. The Company classifies its investments in securities as available-for-sale because, for accounting purposes, they are not considered to be either held-to-maturity securities or trading securities. They are not considered to be held-to-maturity securities because the Company does not have the positive intent to hold those securities to maturity. They are not considered trading securities because they are not acquired with the intent of selling them within hours or days. The Company’s investments in securities are classified as current as they are available to use to fund current operations, and the Company has the ability and intent to do so. Short-term investments are carried at fair value with the unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity and recorded as interest income. Realized gains and losses are determined using the specific identification method and are included in other income (expense). The Company evaluates its investments in securities that are in an unrealized loss position quarterly to determine if those securities are other-than-temporarily impaired. If the Company intends to sell or if it is more likely than not that the Company will be required to sell those securities prior to the recovery of their book value, then those securities would be considered other-than-temporarily-impaired, and the Company would record this impairment as a loss through other income (expense). During the years ended December 31, 2023 and 2022, the Company concluded that none of its investments in securities were other-than-temporarily-impaired and thus recorded no impairment losses for its investments in securities. The following tables summarize the short-term investments held (in thousands):
December 31, 2023
Amortized Gross Estimated
U.S. treasury securities $ 149,129 $ 158 $ 149,287
Corporate debt securities 8,255 ( 3 ) 8,252
Asset-backed securities $ 169 $ - $ 169
Total $ 157,553 $ 155 $ 157,708
December 31, 2022
Amortized Gross Estimated
U.S. treasury securities $ 62,776 $ ( 244 ) $ 62,532
Corporate debt securities 102,020 ( 553 ) 101,467
Asset-backed securities $ 6,351 $ ( 40 ) $ 6,311
Total $ 171,147 $ ( 837 ) $ 170,310 The following table summarizes contractual maturities of available-for-sale securities held (in thousands):
December 31,
2023 2022
Due within one year $ 157,540 $ 155,920
Due after one but within five years 168 14,390
Total $ 157,708 $ 170,310 Property and Equipment, Net Property and equipment, net, which consists of lab equipment, computers and software, furniture and fixtures, leasehold improvements and construction in process, are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets (generally three to five years). Leasehold improvements are amortized over the remaining life of the lease or the useful life of the asset, whichever is shorter. Construction in process is not depreciated until placed into service. Repairs and maintenance costs are charged to expense as incurred. Inventory Inventory includes raw materials, which are goods to be consumed directly or indirectly in production, work in process, which are goods in the course of production, and finished goods, which are goods awaiting sale. Inventory is recorded at the lower of cost or net realizable value. Costs are based on standard costs that are adjusted regularly to reflect current conditions so that at the balance-sheet date standard costs reasonably approximate costs under a first-in, first-out basis. Standard costs include acquisition and production costs. Raw materials include inventories that may be used in research and development activities, and such items are expensed as consumed or capitalized as property and equipment and depreciated. We record write-downs of inventory for potentially excess, obsolete, or impaired goods in order to state inventory at net realizable value. Impairment of Long-lived Assets Long-lived assets consist primarily of property and equipment and right-of-use lease assets. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. During 2023, the Company identified an indicator of impairment of its long-lived assets due to a sustained decline in the trading price of the Company’s common stock over the preceding year, resulting in the Company’s market capitalization being below its net asset value. Although the Company is confident in the utility of its long-lived assets, and there have been no changes in their intended use, the implied cash flows based on the market capitalization of the Company indicated its long-lived assets may not be recoverable. In determining the fair value of its long-lived assets, the Company used a combination of discounted cash flows and observable market data. As a result of its fair value analysis, the Company recorded a $ 1.9 million impairment charge on its property and equipment as selling, general and administrative expense in the statement of operations during the year ended December 31, 2023 . No impairment was recorded during the year ended December 31, 2022 . Fair Value Measurements Certain assets and liabilities are carried at fair value under GAAP and consist primarily of cash, cash equivalents, short-term investments, restricted cash, accounts payable, accrued liabilities. The carrying amounts of cash, cash equivalents, accounts payable, and accrued liabilities approximate their fair values due to the short-term nature of these instruments. None of the Company’s non-financial assets or liabilities are recorded at fair value on a recurring basis. Leases The Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), effective January 1, 2022. ASC 842 requires the Company to recognize on the balance sheet lease liabilities and corresponding right-of-use (“ROU”) lease assets for its operating leases where the Company is the lessee. The initial impact of the adoption is discussed below in the section titled “Recent Accounting Pronouncements—Adopted.” The Company determines if an arrangement is or contains a lease at contract inception. Lease liabilities represent the Company’s obligation to make payments under its operating leases. ROU lease assets represent the Company’s right to use assets under its operating leases. The Company determines the value of lease liabilities and ROU lease assets on a lease-by-lease basis. A lease liability is recognized at the commencement date of an operating lease based on the present value of the future lease payments over the expected lease term. A corresponding ROU lease asset is recognized at the commencement date of an operating lease based on the value of the lease liability, adjusted for any lease incentives received, any initial direct costs incurred and any lease payments made at or before the lease commencement date. The Company made a policy election to not recognize lease liabilities and ROU lease assets for operating leases with an expected lease term of twelve months or less. The Company calculates the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily determined. In that case, the Company uses its incremental borrowing rate based on information available at the date of lease commencement. The incremental borrowing rate is the estimated rate of interest that the Company would pay to borrow, on a collateralized basis, an amount equal to the lease payments over the expected lease term. After lease commencement, the Company measures its operating leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the incremental borrowing rate determined at lease commencement; and (ii) the ROU lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between lease expense and amounts paid under the lease. Lease expense is recognized on a straight-line basis over the expected lease term. Any lease incentives received and any initial direct costs are amortized on a straight-line basis over the expected lease term. Variable lease payments such as those related to property taxes, insurance and common area maintenance are recognized as expense when incurred. Revenue Recognition The Company generates revenue from sales of its products, which consist of the G4 instrument, related consumable flow cell kits and services. Revenue from instrument sales is recognized generally upon customer acceptance. Revenue from consumables sales is recognized generally upon shipment to the customer. Revenue from services, which are primarily comprised of assurance-type services, is recognized over the applicable service period. Revenue is recorded net of discounts and sales taxes. The Company invoices its customers for instruments generally upon acceptance, for consumables generally on delivery, and for services generally in advance of the service period. Invoice terms are generally net 30 days. Cash received from customers in advance of revenue recognition is recorded as a contract liability. The Company’s contracts with its customers generally do not include rights of return or a significant financing component. The Company regularly enters into contracts that include a combination of products and services, which are distinct within the context of the contract and are accounted for as separate performance obligations. The transaction price is allocated to each performance obligation in proportion to its standalone selling price. Until the Company has sufficient volume of historical sales data for each performance obligation, the Company determines the standalone selling price using observable prices when available and with consideration of current market conditions which is primarily based on prices set by management, adjusted for applicable discounts. The Company then recognizes revenue for each performance obligation as that performance obligations is satisfied as discussed above. The Company has entered into instrument arrangements with certain customers, under which the Company provides the G4 instrument at no cost to the customer, other than shipping, and the customer pays for consumables at list price, or at list price plus a mark-up, as consumables are ordered, shipped and invoiced. Revenue is recognized as consumables are shipped to the customer and disclosed within consumables revenue below. The G4 instrument provided to the customer is recorded on the balance sheet as property and equipment and disclosed as instruments at customer sites under Note 6 to these financial statements. Revenue associated with any lease elements of these arrangements was not material during the years ended December 31, 2023 and 2022. For the year ended December 31, 2023, the Company recognized $ 2.5 million and $ 0.4 million of revenue related to sales of instruments and consumables products, respectively. Contract liabilities, which consists of deferred revenue, as of December 31, 2023 and 2022 were $ 0.3 million and $ 0.1 million, respectively, were recorded as other noncurrent liabilities. Deferred revenue represents the value of performance obligations that have been invoiced but for which revenue has not yet been earned. For the year ended December 31, 2023 and 2022, all of the Company’s revenue was generated within the United Sates. During the period, the Company generated approximately 35 % of revenue from its top three customers. Cost of Revenue Cost of revenue consists of the following: direct costs of the materials and labor to build products; overhead such as facilities and indirect labor that support manufacturing; shipping and handling costs; labor and direct costs to install the G4; estimated costs to satisfy customary assurance-type warranty provisions; and depreciation and service costs for instruments provided to customers under instrument arrangements described above. Research and Development Expense The Company’s research and development expense consists primarily of the following: salaries, payroll taxes, employee benefits and stock-based compensation for personnel engaged in research and development activities; fees paid to consultants; license fees paid to third parties for use of their intellectual property; laboratory supplies and development materials; allocated information technology and facilities costs; and depreciation. Research and development costs are charged to expense as incurred. Patent Costs Costs related to filing and pursuing patent applications are recorded as selling, general and administrative expenses within the Company’s statements of operations and expensed as incurred since recoverability of such expenditures is uncertain. Issuance Costs Related to Debt The Company allocates issuance costs between the individual freestanding instruments identified on the same basis as proceeds were allocated. Issuance costs associated with the issuance of debt is recorded as a direct reduction of the carrying amount of the debt liability, limited to the notional value of the debt. The Company accounts for the Silicon Valley Bank loan (see Note 8) as a liability measured at amortized cost and amortizes the related debt discount to interest expense using the effective interest method over the expected term of the debt. Issuance costs associated with the Silicon Valley Bank loan are included in long-term debt on the balance sheet. Stock-based Compensation The Company accounts for stock-based compensation by measuring and recognizing compensation expense for all stock-based awards made to employees and non-employees based on estimated grant-date fair values. The Company uses the straight-line method to recognize compensation cost over the required service period of the award, which is generally the vesting period of the award. The Company recognizes actual forfeitures by reducing the stock-based compensation in the same period that the forfeitures occur. The Company estimates the fair value of stock-based option awards to employees and non-employees using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of subjective assumptions, including the fair value of common stock, expected term, expected volatility, risk-free interest rate and expected dividend yield, which are described in greater detail below. Inputs to the Black-Scholes option pricing model are subjective and generally require the use of judgment. Changes in the assumptions can materially affect how much stock-based compensation is recognized. These inputs are as follows: • Fair value of common stock — For awards granted prior to the Initial Public Offering (the “IPO”), when there was no public market for the Company’s common stock, the grant date fair value of the Company’s common stock was determined by the Company’s board of directors based in part on valuations of the Company’s common stock prepared by a third-party valuation specialist. For awards granted after the IPO, the fair value of common stock is the closing price per share of the Company’s common stock on the grant date as reported on the Nasdaq. • Expected term —The expected term represents the average period that options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the weighted-average vesting period and the end of the contractual term). The Company uses the simplified method because the Company has concluded that its historical option exercise experience does not provide a reasonable basis to estimate expected term. • Expected volatility —The Company had no publicly available stock price information prior to its IPO and limited publicly available stock price information after its IPO; therefore, the Company used the historical volatility of the stock price of similar publicly traded companies. The historical volatility is calculated based on a period of time commensurate with the expected term. • Risk-free interest rate —The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term. • Expected dividend yield —The Company has never paid dividends and does not intend to pay dividends in the foreseeable future. Therefore, the Company used an expected dividend yield of zero. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date. The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce any provision for income taxes. The Company records uncertain tax positions on the basis of a two-step process whereby: (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position; and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company will recognize interest and penalties related to unrecognized tax benefits within income tax expense. Other Comprehensive Loss Other comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The only component of other comprehensive loss is unrealized loss on available-for-sale securities, which have been reflected in the statements of comprehensive loss and as a separate component in the statements of preferred stock and stockholders’ equity. Net Loss per Share In periods of net loss, basic net loss per share is computed by dividing net loss available to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Outstanding stock options, convertible preferred stock and shares of common stock subject to repurchase by the Company are excluded from the calculation of diluted net loss per common share for the periods presented as their effect would be anti-dilutive. Thus, for all periods presented, there is no difference in the number of shares used to calculate basic and diluted net loss per share. Segment Information Operating segments are components of a public entity that: (i) engage in business activities from which they may recognize revenues and incur expenses; (ii) have operating results that are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and (iii) have discrete financial information available. The Company views its operations and manages its business as one operating segment, and thus has one reportable segment. The Company’s long-lived assets are located in the United States. Recent Accounting Pronouncements—Adopted In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”), codified as ASC 842. ASC 842 requires the Company to recognize on the balance sheet lease liabilities and corresponding ROU lease assets for its operating leases where the Company is the lessee. The Company adopted this standard effective January 1, 2022 using the modified retrospective method by applying the new standard to all leases existing as of January 1, 2022 and not restating any prior comparative periods. The Company elected the practical expedients to carry forward its historical lease classification, not reassess whether any expired or existing contracts are or contain leases and not reassess initial direct costs for existing leases. On January 1, 2022, the Company recorded operating lease liabilities of $ 7.1 million, ROU lease assets of $ 6.4 million, and derecognized deferred rent of $ 0.7 million. The additional disclosures required by the standard have been included in the section above titled “Leases” and in Note 9. In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments , which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The new standard requires the use of forward-looking expected credit loss models based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard. The new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net loss rather than reducing the carrying amount under the prior, other-than-temporary-impairment model. The new standard was adopted by the Company using the modified retrospective approach starting January 1, 2023. The Company determined there was no cumulative-effect transition adjustment to the opening balance of accumulated deficit for recognition of credit losses upon adoption of this standard based on its assessment of the collectability of its outstanding accounts receivable and the composition and credit quality of its short-term investments. Recent Accounting Pronouncements—Not Yet Adopted In July 2023, the FASB issued ASU No 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)” pursuant to SEC Staff Accounting Bulletin No. 120, which adds interpretive guidance for public companies to consider when entering into share-based payment transactions while in possession of material non-public information. The effective date of this update is for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption to have a material impact on its financial statements. In November 2023 the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which expands disclosure requirements to require entities to disclose significant segment expenses that are regularly provided to or easily computed from information regularly provided to the chief operating decision maker. This update also requires all annual disclosures currently required by Topic 280 to be disclosed in interim periods. The new disclosure requirements are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating these new expanded disclosure requirements. |
