Notes to Condensed Financial Statements
(Unaudited)
1. Description of Business and Significant Accounting Policies
Nanosphere, Inc. (the “Company”) develops, manufactures and markets an advanced molecular diagnostics platform, the Verigene System, that enables simple, low cost, and highly sensitive genomic and protein testing on a single platform.
Basis of Presentation
- The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and in conformity with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, unless otherwise noted herein, necessary to present fairly the results of operations, financial position and cash flows have been made. Therefore, these condensed financial statements should be read in conjunction with the Company’s most recent audited financial statements for the year ended
December 31, 2015
and notes thereto included in the Company’s Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of the results of operations expected for the full year.
The accompanying condensed 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.
Use of Estimates
- The preparation of financial statements in conformity with U.S GAAP which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes thereto. The Company’s significant estimates included in the preparation of the condensed financial statements are related to inventories, property and equipment, intangible assets, debt, preferred stock, warrants, and share-based compensation. Actual results could differ from those estimates.
Restricted Cash -
Any cash that is legally restricted from use is recorded in restricted cash on the condensed balance sheets. The new term loan facility (See Note 2) requires the Company to maintain a minimum account balance which is considered to be restricted cash. The restricted cash balance was
$5.0
million, and
$4.0
million, on
March 31, 2016
, and
December 31, 2015
, respectively. This increase in the restricted cash balance is due to the terms outlined in the amended loan agreement, and a requirement to draw down the second tranche of debt.
Deferred Financing Costs -
Costs incurred to issue debt are deferred and amortized as a component of interest expense using the effective interest method over the term of the related debt agreement. Amortization expense of deferred financing costs was
$0.2
million, and less than
$0.1
million for the three month periods ended
March 31, 2016
, and
2015
, respectively.
Fair Value of Financial Instruments
- The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values. The fair value of debt was
$18.5
million, and
$14.7
million at
March 31, 2016
and
December 31, 2015
, respectively. The carrying value of the debt was
$25.0
million and
$20.0
million as of March 31, 2016 and December 31, 2015, respectively.
Reverse Stock Split -
On April 7, 2015, the Company's Board of Directors and shareholders approved a
20
-to-1 reverse split of the Company's issued and outstanding common stock, effective at the close of business on April 8, 2015. The effect of this event has been reflected in all the share quantities and per share amounts in these financial statements. The shares of common stock authorized remained at
150
million and retained a par value of
$0.01
.
Debt, with Detachable Warrants
- The Company accounts for debt with detachable warrants in accordance with ASC 470:
Debt
and allocated proceeds received to the debt and detachable warrants based on relative fair values. The Company assessed the classification of its common stock purchase warrants as of the date of the transaction and determined that such instruments meet the criteria for equity classification. The warrants are reported on the condensed balance sheet as a component of additional paid in capital within stockholders’ equity.
The Company recorded the related issue costs and value ascribed to the warrants as a reduction of the debt. The discount is amortized utilizing the effective interest method over the term of the debt. The unamortized discount, if any, upon repayment of the notes will be expensed to interest expense. In accordance with ASC Subtopic 470-20, the Company determined the effective interest rate on the first tranche of debt was
22.0%
, and
13.2%
on the second tranche. The Company has also evaluated
its debt and warrants in accordance with the provisions of ASC 815,
Derivatives and Hedging
, including consideration of embedded derivatives requiring bifurcation.
Evaluation Equipment
- The Company monitors inventory held at customer sites for evaluation (“Evaluation Equipment”). Upon determination that such Evaluation Equipment is no longer available for sale and is to remain with the customer, Evaluation Equipment is reclassified to property plant and equipment as leased equipment, which is typically after twelve months following initial placement. During the three month periods ended March 31, 2016, the Company reclassified
$0.3
million of Evaluation Equipment to property, plant, and equipment. The Company commences depreciation on the date of transfer and such Evaluation Equipment is depreciated over a
three
year period.
Recent Accounting Pronouncements
: In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company currently in the process of evaluating the impact of adoption of ASU 2016-02 on the condensed financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” (“ASU 2016-08”). The purpose of ASU 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. The amendments in ASU 2016-08 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of ASU 2016-08 on the condensed financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The amendment is to simplify several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in ASU 2016-09 are effective for interim and annual reporting periods beginning after December 15, 2016. The Company is currently assessing the impact of ASU 2016-09 on the condensed financial statements and related disclosures.
2. Liquidity, Capital Resources and Recent Developments
Liquidity and Capital Resources
As of
March 31, 2016
, the Company has incurred net losses of
$459.1
million since inception, and has funded those losses primarily through the sale and issuance of equity securities and secondarily through the issuance of debt. While the Company is currently in the commercialization stage of operations, the Company has not yet achieved profitability and anticipates that it will continue to incur net losses in the foreseeable future. The Company had cash and cash equivalents of
$18.4
million, of which
$5.0
million is restricted cash as of
March 31, 2016
and net cash used in operating activities of
$5.3
million for the three month period ended
March 31, 2016
.
The Company's current and anticipated cash resources will likely be insufficient to support currently forecasted operations within one year after the date that the financial statements are issued, and therefore, the Company will need additional debt or equity financing in the future to execute its business plan and to be able to continue as a going concern. Capital outlays and operating expenditures that would otherwise increase over the next twelve months as the Company expands its infrastructure, manufacturing capacity and research and development activities to support commercialization of its products may need to be curtailed which may not be advantageous for the Company's business operations. Many of the aspects of the Company’s forecasts involve management’s judgments and estimates that include factors that could be beyond the Company's control and actual results could differ. These and other factors could cause the Company's forecasted plans to be unsuccessful which could have a material adverse effect on the Company's operating results, financial condition, and liquidity and causes substantial doubt about the Company’s ability to continue as a going concern.
Term Loan Facility with NSPH Funding LLC and SWK Funding LLC
On May 14, 2015, (the "Closing Date") the Company entered into a Loan and Security Agreement ("Loan Agreement") with NSPH Funding LLC, an affiliate of Life Sciences Alternative Funding, LLC, and SWK Funding LLC, as lenders (together, the “Lenders”) providing for the Lenders to advance term loans in an aggregate amount of up to
$30.0
million (the “Loan”) to the Company. NSPH Funding LLC also agreed to act as agent under the loan facility (the “Collateral Agent”).
The Company immediately drew down
$20.0
million of the Loan and an additional
$5.0
million on February 5, 2016. In connection with the additional draw down, the minimum account balance in the Company’s accounts that are subject to a control agreement in favor of the Collateral Agent, increased to
$5.0
million.
The Loan Agreement requires that the Company maintain, as of the last day of each fiscal quarter of the Company beginning in the first fiscal quarter of 2016, a minimum adjusted cash flow (the “Cash Flow Requirement”) which requirement increases each quarter. For example, in the first fiscal quarter of 2016, the Company must maintain negative adjusted cash flow of not less than
$6.5
million. The Cash Flow Requirement requires that the Company achieve a positive adjusted cash flow of
$0.2 million
by the last day of the quarter that begins on October 1, 2017. If the Company fails to satisfy the required Cash Flow Requirement for any two out of three successive quarters, the date on which the first amortization payment is due under the Loan Agreement would accelerate to the next following payment date, and the minimum quarterly amortization rate would increase to approximately
$3.3 million
, resulting in a final, accelerated maturity for the term loan by the end of the sixth fiscal quarter thereafter. The Company met the Cash Flow Requirement for the fiscal quarter ended March 31, 2016.
The Company also will receive another advance in an amount up to
$5,000,000
if: (i) the Company submits a 510(k) premarket notification submission to the FDA concerning its diagnostic tests of its next generation product platform (currently in development) before September 30, 2016; (ii) the Company also achieves the applicable Cash Flow Requirement for each fiscal quarter during the applicable draw period; and (iii) if the Company has satisfied both of the foregoing tests, it has submitted its draw request on or before November 15, 2016.
Substantially all assets of the Company serve as collateral to the Loan Agreement. The Loan Agreement restricts our ability to pay cash dividends and certain other payments. The Loan agreement also provides that a material adverse change in the Company’s financial condition could trigger an event of default. If an event of default occurs all amounts owing under the Loan Agreement would become immediately due and payable and the Collateral Agent, could move against the collateral, including the Company’s cash and cash equivalents. While the Company does not believe that such an event of default has occurred, the Lenders may take a contrary position. If an event of default were to occur, such actions by the Collateral Agent would have an immediate and substantial negative effect on the Company’s ability to continue as a going concern, as it would essentially eliminate its cash reserves. The Company has not been notified of an event of default as of the date of issuance of these financial statements. As there is a more than remote likelihood that the Lenders may be entitled to declare an event of default under this clause in the next twelve months, the principal due subsequent to March 31, 2016 have been presented as a current liability.
Series A Convertible Preferred Stock Offering
On May 14, 2015, the Company issued
$4.4
million of series A convertible preferred stock (the "Series A Preferred Stock"), which are convertible into a total of
1,168,659
shares of common stock at a conversion price of
$3.765
, and warrants to purchase shares of common stock exercisable for up to
1,168,659
additional shares of common stock, in the aggregate at exercise price of
$3.65
per share and are exercisable for a period of
5
years commencing November 14, 2015 until November 14, 2020 (the "Series A Investor Warrants"). In connection with the Series A Offering, and as partial payment of the placement agent’s fees in connection therewith, the Company issued to the placement agent and certain of its principals warrants to purchase an aggregate of
70,120
shares of common stock at an exercise price of
$4.45
per share (the “Series A Placement Agent Warrants, and together with the Series A Investor Warrants, the “Series A Warrants”) with a fair value of
$0.2
million at issuance. The Series A Warrants are exercisable for
4.5
to
5
years commencing November 14, 2015. At the time of issuance, the relative fair value of the Series A Investor Warrants was estimated at
$1.6
million using the Black-Scholes model and recorded as issuance costs. The Series A Preferred Stock is perpetual and does not have a required dividend right or voting rights and has a liquidation preference of
$0.01
per share. As of December 31, 2015, all
4,400
shares of Series A Preferred Stock had been converted into
1,168,659
shares of common stock.
Net proceeds from the Series A Offering after placement agent fees and other offering expenses were approximately
$4.0
million.
Series B Convertible Preferred Stock Offering
On June 11, 2015, the Company issued
$4.4
million of series B convertible preferred stock (the “Series B Preferred Stock”) (which are convertible into a total of
1,203,800
shares of common stock at a conversion price of
$3.655
) and warrants to purchase shares of common stock exercisable for up to
1,203,800
additional shares of common stock, in the aggregate at an exercise price of
$3.54
per share and are exercisable for a period of
5
years commencing December 11, 2015 until December 11, 2020 (the “Series B Investor Warrants”). In connection with the Series B Offering, and as partial payment of the placement agent’s fees in connection therewith, the Company issued to the placement agent and certain of its principals warrants to purchase an aggregate of
72,230
shares of common stock at an exercise price of
$3.54
per share (the “Series B Placement Agent Warrants, and together with the Series B Investor Warrants, the “Series B Warrants”) with a fair value of
$0.2
million at issuance. The Series B Warrants are exercisable for
4.5
to
5
years commencing December 11, 2015. At the time of issuance, the relative fair value of the Series B Investor Warrants was estimated at
$1.6
million using the Black-Scholes model and recorded as issuance costs. The Series B Preferred Stock is perpetual and does not have a required dividend right or voting rights and has a liquidation preference
of
$0.01
per share. As of December 31, 2015, all
4,400
shares of Series B Preferred Stock has been converted into
1,203,800
shares of common stock.
Net proceeds from the Series B Offering after placement agent fees and other offering expenses were approximately
$4.0
million.
Common Stock and Series C Convertible Preferred Stock Offering
On December 22, 2015, the Company completed a registered offering (the "Series C Offering") in which it issued
2,298,744
shares of its common stock at a price of
$0.47
per share, with each share of common stock coupled with a
5
-year warrant to purchase one share of common stock, at an exercise price of
$0.70
per share and are exercisable for a period of
5
years until December 22, 2020 (the “Series C Investor Warrants”). These securities were sold in the form of a Class A Unit but were immediately separable and were issued separately at the closing.
For certain investors who would otherwise hold more than
4.99%
of the Company’s common stock following the Series C Offering, the Company issued to such investors, in the form of Class B Units,
8,919.59044
shares of a new class of preferred stock designated Series C Convertible Preferred Stock (the “Series C Preferred Stock”) with a stated value of
$1,000
and which are convertible into
18,977,852
shares of the Company’s common stock at a conversion price equal to
$0.47
per share of common stock, together with Series C Investor Warrants to purchase up to
18,977,852
shares of the Company’s common stock. These securities were sold in the form of a Class B Unit but were immediately separable and were issued separately at the closing.
In connection with the Series C Offering, and as partial payment of the placement agent’s fees in connection therewith, the Company issued to the placement agent and certain of its principals warrants to purchase an aggregate of
1,276,596
shares of common stock at an exercise price of
$0.517
per share (the "Series C Placement Agent Warrants", and together with the Series C Investor Warrants, the "Series C Warrants") with a fair value of
$0.7
million at issuance. The Series C Warrants were exercisable immediately upon issuance. At the time of issuance, the relative fair value of the Series C Investor Warrants was estimated at
$10.5
million using the Black-Scholes model and recorded as issuance costs. The Series C Preferred Stock is perpetual and does not have a required dividend right or voting rights and has a liquidation preference of
$0.01
per share. As of December 31, 2015,
487.790
shares of Series C Preferred Stock had been converted into
1,037,852
shares of common stock. As of March 31, 2016, an additional
329.0
shares of Series C Preferred stock had been converted to
700,000
of common stock.
Net proceeds from the Series C Offering of Class A Units and Class B Units after placement agent fees and other offering expenses was approximately
$1.0
million, and
$8.1
million, respectively.
The Lender Warrants, Series A Warrants, Series B Warrants and Series C Warrants can be settled in shares of our common stock by cashless exercise in lieu of payment of the exercise price at the option of the holder. The warrants contain no mandatory redemption features and no repurchase obligations requiring the transferring of assets and are for a fixed number of shares, except for customary anti-dilution adjustments.
3. Debt
The following table summarizes the Company's debt as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
NSPH Funding LLC and SWK Funding LLC
|
$
|
25,000
|
|
|
$
|
20,000
|
|
Debt discount, inclusive of issue costs
|
(4,448
|
)
|
|
(4,660
|
)
|
Debt
|
$
|
20,552
|
|
|
$
|
15,340
|
|
The following table sets forth the contractual future principal payments as of
March 31, 2016
:
|
|
|
|
|
Years Ending December 31
|
|
2016
|
$
|
—
|
|
2017
|
1,250
|
|
2018
|
4,375
|
|
2019
|
7,667
|
|
2020
|
8,333
|
|
2021
|
3,375
|
|
Total
|
$
|
25,000
|
|
4. Net Loss Per Common Share
Basic and diluted net loss, per common share have been calculated in accordance with ASC Topic 260, “Earnings Per Share”
,
for the three month periods ended
March 31, 2016
and
2015
. As the Company had a net loss in each of the periods presented, basic and diluted net loss per common share are the same.
The computation of basic net loss per common share for the three month periods ended
March 31, 2016
and
2015
excluded
324,000
and
19,500
shares of restricted stock, respectively (see Note 5). While these restricted shares of stock are included in outstanding shares on the condensed balance sheet, these restricted shares are excluded from basic net loss per common share in accordance with ASC Topic 260 due to the forfeiture provisions associated with these shares.
The computations of diluted net loss per common share for the three month periods ended
March 31, 2016
and
2015
did not include the outstanding shares of restricted stock, options to acquire common stock, common stock warrants, and convertible preferred stock, as the inclusion of these securities would have been antidilutive:
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Restricted stock
|
324,000
|
|
|
19,500
|
|
Stock options
|
619,675
|
|
|
246,618
|
|
Common stock warrants
|
26,574,802
|
|
|
6,801
|
|
Convertible preferred stock (8,384.8 preferred shares that are convertible to 17,240,000 shares of common stock)
|
17,240,000
|
|
|
—
|
|
|
44,758,477
|
|
|
272,919
|
|
5. Equity Incentive Plan
The Company’s board of directors has adopted and the shareholders have approved the Nanosphere, Inc. 2000 Equity Incentive Plan (the “2000 Plan”), the Nanosphere, Inc. 2007 Long-Term Incentive Plan (the “2007 Plan”) and the Nanosphere, Inc. 2014 Long-Term Incentive Plan (the “2014 Plan,” and together with the 2000 Plan and the 2007 Plan, the “Plans”). Upon adoption of the 2014 Plan at the Company’s annual meeting of shareholders on May 28, 2014, the 2000 Plan and 2007 Plan were terminated. The Plans authorize the compensation committee to grant stock options, share appreciation rights, restricted shares, restricted share units, unrestricted shares, incentive stock options, deferred share units and performance awards. Option awards are generally granted with an exercise price equal to or above the fair value of the Company’s common stock at the date of grant with
ten
year contractual terms. Certain options vest ratably, generally over
three
to
four
years of service, while other options cliff vest after
seven
years of service but provide for accelerated vesting contingent upon the achievement of various company-wide performance goals, such as decreasing time to market for new products and entering into corporate collaborations (as defined in the option grant agreements). For these “accelerated vesting” options,
20%
-
25%
of the granted option shares will vest upon the achievement of each of four or five milestones as defined in the option grant agreements, with any remaining unvested options vesting on the
seven
year anniversary of the option grant dates. Approximately
3%
of the options granted and outstanding contain “accelerated vesting” provisions. The fair values of the Company’s option awards granted during the three months ended
March 31, 2016
are not material.
Total compensation cost recognized for all stock option awards was
$0.3
million, and
$0.2
million in the three month periods ended
March 31, 2016
, and 2015, respectively.
As of
March 31, 2016
, the total compensation cost not yet recognized related to the non-vested stock option awards is approximately
$0.8
million, which is expected to be recognized over the next
2.8 years
, with a weighted average term of
0.8
years. Certain milestone events are deemed probable of achievement prior to their
seven
year vesting term, and the acceleration of vesting resulting from the achievement of such milestone events has been factored into the weighted average vesting term. While the Company does not have a formally established policy, as a practice, the Company has delivered newly issued shares of its common stock upon the exercise of stock options.
A summary of option activity under the plans as of
March 31, 2016
, for the three month period ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term in years
|
|
Aggregate
Intrinsic
Value of
Options
|
Outstanding - January 1, 2016
|
|
632,204
|
|
|
$
|
20.81
|
|
|
|
|
|
Granted
|
|
4,619
|
|
|
$
|
0.69
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Expired
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Forfeited
|
|
(17,148
|
)
|
|
$
|
(63.95
|
)
|
|
|
|
|
Outstanding - March 31, 2016
|
|
619,675
|
|
|
$
|
19.46
|
|
|
8.30
|
|
$
|
572
|
|
Exercisable - March 31, 2016
|
|
152,021
|
|
|
$
|
50.00
|
|
|
5.70
|
|
$
|
25
|
|
Vested and Expected to Vest - March 31, 2016
|
|
606,851
|
|
|
$
|
19.46
|
|
|
8.30
|
|
$
|
572
|
|
No
options were exercised in the three month periods ended
March 31, 2016
, and 2015, respectively.
Included in the number of options outstanding at
March 31, 2016
are
18,034
options with a weighted average exercise price of
$120.96
per share, which have accelerated vesting provisions based on the criteria mentioned above. The total fair value of shares vested during the three months ended March 31, 2016, and 2015, was less than
$0.1
million and
$0.9
million, respectively.
A summary of the restricted shares activity under the plans as of
March 31, 2016
, for the three month period ended is presented below:
|
|
|
|
|
Restricted Stock
|
|
Number of
Shares
|
Outstanding - January 1, 2016
|
|
—
|
|
Granted
|
|
324,000
|
|
Vested
|
|
—
|
|
Forfeited
|
|
—
|
|
Outstanding - March 31, 2016
|
|
324,000
|
|
The Company recognized less than
$0.1
million, and
$0.2
million of restricted stock compensation expense during the three month periods ended March 31, 2016, and 2015, respectively.
Total stock based compensation for stock options and restricted stock is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
2016
|
|
2015
|
Research and development
|
|
$
|
29
|
|
|
$
|
49
|
|
Selling and general
|
|
251
|
|
|
354
|
|
Total
|
|
$
|
280
|
|
|
$
|
403
|
|
6. Stockholders' Equity
On January 25, 2016, the Company received a deficiency letter from the Listing Qualifications Department of The NASDAQ Stock Market, notifying the Company that, for the last
30
consecutive business days, the closing bid price of the Company’s common stock has not been maintained at the minimum required closing bid price of at least
$1.00
per share as required for continued listing on The NASDAQ Capital Market pursuant to Listing Rule 5550(a)(2) (“Minimum Bid Price Rule”). In accordance with NASDAQ Listing Rules, the Company has been given
180
calendar days, or until July 25, 2016, to regain compliance with the Minimum Bid Price. If, at any time before July 25, 2016, the closing bid price of the Company’s common stock is at least
$1.00
for a minimum of
10
consecutive business days, NASDAQ will provide written notification to the Company that it complies with the Minimum Bid Price Rule. During this
180
calendar day period, the Company also may submit a plan to regain compliance to NASDAQ and may request up to an additional
180
calendar days to complete the plan. There can be no assurance that the Company will regain compliance or maintain the listing of its common stock on the NASDAQ Capital Market or qualify to transfer the listing of its common stock to another national securities exchange or stock market.
7. Intangible Assets
Intangible assets, consisting of purchased intellectual property, as of
March 31, 2016
and
December 31, 2015
comprise the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
Intellectual property - licenses
|
$
|
3,331
|
|
|
$
|
(1,778
|
)
|
|
$
|
1,553
|
|
|
$
|
3,331
|
|
|
$
|
(1,710
|
)
|
|
$
|
1,621
|
|
Patents
|
455
|
|
|
(264
|
)
|
|
191
|
|
|
455
|
|
|
(253
|
)
|
|
202
|
|
Total
|
$
|
3,786
|
|
|
$
|
(2,042
|
)
|
|
$
|
1,744
|
|
|
$
|
3,786
|
|
|
$
|
(1,963
|
)
|
|
$
|
1,823
|
|
The Company reviews its long-lived assets for impairment as a single asset group whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company will continue to monitor the recoverability of its long-lived assets. If results continue to decline, it could result in revisions to management’s estimates of the fair value of the asset group and may result in future charges. There were no license costs written off as of
March 31, 2016
, or December 31, 2015.
Amortization expense for intangible assets was
$0.1
million for each of the three month periods ended
March 31, 2016
, and
2015
respectively. Estimated future amortization expense is as follows (in thousands):
|
|
|
|
|
Years Ending December 31
|
|
2016 (April to December)
|
$
|
238
|
|
2017
|
301
|
|
2018
|
219
|
|
2019
|
219
|
|
Thereafter
|
767
|
|
Licenses are amortized from the date of initial use of the licensed technology and such amortization continues over the remaining life of the license. The future amortization expense reflected above is based on licenses for which the licensed technology is being used as of
March 31, 2016
.
8. Commitments and Contingencies
In November 2013, the Company exercised its renewal option on the lease at its corporate headquarters, and the lease term was extended to May 2017. Rent and operating expenses associated with the office and laboratory space were
$0.4
million for both of the three month periods ended
March 31, 2016
, and
2015
, respectively.
On January 1, 2015 the Company was leasing
40,749
square feet of space for its administrative, executive, research and development, and manufacturing functions. On February 16, 2015, the Company exercised an option under its lease
to acquire an additional
7,721
square feet of space at its corporate headquarters to expand its manufacturing facility, now leasing a total of
48,470
square feet.
With this additional space, the annual future minimum obligations, including common area maintenance (CAM), for the operating leases as of
March 31, 2016
, are as follows:
|
|
|
|
|
Years Ending December 31
|
Operating
Lease & CAM
(in thousands)
|
2016 (April to December)
|
$
|
611
|
|
2017
|
349
|
|
Total minimum lease payments
|
960
|
|
9. Restructuring Costs
In January 2015, the Company eliminated certain full time positions, and recorded a restructuring expense of
$0.5
million for severance. The Company had paid the severance through September 2015. There were
no
restructuring costs recorded for the period ended March 31, 2016.
10. Subsequent Events
From April 1, 2016 through May 16, 2016, an additional
235.0
shares of Series C Preferred Stock had been converted into
500,000
shares of common stock.
On April 14, 2016, the Compensation Committee (the “Committee”) of the Company’s Board of Directors awarded shares of restricted common stock (the “Executive Stock Awards”) to Michael McGarrity, the Company’s President and Chief Executive Officer, Kenneth Bahk, the Company’s Chief Strategy Officer, and Farzana Moinuddin, the Company’s Acting Principal Financial Officer and Chief Accounting Officer, and Secretary, in the amounts of
225,000
,
50,000
, and
10,000
shares, respectively. The Executive Stock Awards were issued on April 20, 2016 and shall vest and become exercisable in twelve, equal, quarterly installments over a
three years
period on January 1, April 1, July 1 and October 1 each year commencing July 1, 2016, subject to continued employment, forfeiture and cancellation upon a termination for cause, and acceleration upon a change in control of the Company.
On May 15, 2016, the Company, Luminex Corporation, a Delaware corporation (“Luminex”), and Commodore Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of Luminex (“Merger Subsidiary”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Luminex has agreed that it will commence a cash tender offer (the “Offer”) to acquire all of the shares of the Company’s common stock, par value
$0.01
per share (“Common Stock”) for a purchase price of
$1.35
per share, net to the holders thereof, in cash (the “Offer Price”), without interest, subject to the terms and conditions of the Merger Agreement.
The Merger Agreement may be terminated under certain circumstances, including in specified circumstances in connection with superior proposals. Upon the termination of the Merger Agreement, under specified circumstances, the Company will be required to pay Luminex a termination fee of
$2,250,000
.
Luminex has agreed to commence the Offer as promptly as reasonably practicable from the date of the Merger Agreement (but in no event later than fifteen (
15
) business days from the date of the Merger Agreement). The consummation of the Offer will be conditioned on (i) at least a majority of the issued and outstanding shares of the Common Stock as of the merger date having been validly tendered into and not withdrawn from the Offer, and (ii) other customary conditions. The Merger Agreement provides that, as soon as practicable (but not more than three (
3
) business days) following the consummation of the Offer, Merger Subsidiary will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Luminex. The Merger will be governed by Section 251(h) of the General Corporation Law of the State of Delaware (“DGCL”), with no stockholder vote required to consummate the Merger. The Merger Agreement also provides for the waiver of the non-compete covenants in the employment agreements of Michael McGarrity, the Company’s President and Chief Executive Officer, and Kenneth Bahk, the Company’s Chief Strategy Officer.
For a complete description of the terms and conditions of the Merger Agreement, please see the Company’s Current Report on Form 8-K as filed with the SEC on May 16, 2016. A copy of the Merger Agreement is filed as Exhibit 2.1 to this Quarterly Report on Form 10-Q.
11. Supplemental Financial Information
|
|
|
|
|
|
|
|
|
|
Inventories (in thousands):
|
|
March 31, 2016
|
|
December 31, 2015
|
Raw materials
|
|
$
|
2,785
|
|
|
$
|
3,183
|
|
Work-in-process
|
|
439
|
|
|
234
|
|
Finished goods
|
|
2,607
|
|
|
2,644
|
|
Inventories
|
|
$
|
5,831
|
|
|
$
|
6,061
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable (in thousands):
|
|
March 31, 2016
|
|
December 31, 2015
|
Accounts receivable
|
|
$
|
4,446
|
|
|
$
|
4,467
|
|
Allowance for doubtful accounts
|
|
(198
|
)
|
|
(201
|
)
|
Accounts receivable - net
|
|
$
|
4,248
|
|
|
$
|
4,266
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment (in thousands):
|
|
March 31, 2016
|
|
December 31, 2015
|
Property and equipment - at cost
|
|
$
|
22,062
|
|
|
$
|
23,135
|
|
Less accumulated depreciation
|
|
(16,966
|
)
|
|
(16,636
|
)
|
Construction-in-Progress
|
|
3,803
|
|
|
2,396
|
|
Property and equipment - net
|
|
$
|
8,899
|
|
|
$
|
8,895
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities (in thousands):
|
|
March 31, 2016
|
|
December 31, 2015
|
Accrued clinical trial expenses
|
|
$
|
704
|
|
|
$
|
236
|
|
Accrued license fees
|
|
—
|
|
|
—
|
|
All other
|
|
2,651
|
|
|
3,077
|
|
Other current liabilities
|
|
$
|
3,355
|
|
|
$
|
3,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
Product Reporting:
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
Instruments
|
|
$
|
538
|
|
|
$
|
703
|
|
Consumables
|
|
6,051
|
|
|
3,915
|
|
Total revenues
|
|
$
|
6,589
|
|
|
$
|
4,618
|
|