UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended
Commission
File No.
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
(Address of principal executive offices)
Registrant’s
Telephone Number, Including Area Code:
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| Nasdaq
Capital Market |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☒ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
As of November 5, 2020, there were shares of the Registrant’s common stock outstanding.
INDEX
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share amounts)
| September 30, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Other current liabilities | ||||||||
| Current portion of long-term notes payable | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Common stock warrant liability | ||||||||
| Operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Long-term notes payable | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 14) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock - shares authorized, shares issued and outstanding at September 30, 2020 and December 31, 2019 | ||||||||
| Common stock – $ par value; shares authorized; and shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 3 |
POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share amounts)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net revenues | ||||||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Services | ||||||||||||||||
| Total net revenues | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Products | ||||||||||||||||
| Services | ||||||||||||||||
| Total cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Restructuring and other charges | ||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Change in fair value of common stock warrant liability | ||||||||||||||||
| Interest (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Other income, net | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 4 |
POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income/(loss): | ||||||||||||||||
| Unrealized gain on available-for-sale securities | ||||||||||||||||
| Reclassification of realized gains included in net loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands, except share and per share amounts)
| For the Three and Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Number | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||
| Balance – December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of common stock, net of issuance
costs of $ | ||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Stock option exercises | ||||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||
| Shares withheld for tax withholding | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other comprehensive loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance – March 31, 2020 | ( | ) | ||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Purchase of ESPP shares | ||||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||
| Shares withheld for tax withholding | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Forfeiture of restricted stock awards | ( | ) | ||||||||||||||||||||||
| Other comprehensive loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance – June 30, 2020 | ( | ) | ||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Stock option exercises | ||||||||||||||||||||||||
| Vesting of restricted stock units | ( | ) | ||||||||||||||||||||||
| Shares withheld for tax withholding | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance – September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| For the Three and Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Number | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||
| Balance – December 31, 2018 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Stock option exercises | ||||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||
| Shares withheld for tax withholding | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other comprehensive income | – | |||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance – March 31, 2019 | ( | ) | ||||||||||||||||||||||
| Proceeds received from issuance of common
stock, net of issuance costs of $ | ||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Stock option exercises | ||||||||||||||||||||||||
| Purchase of ESPP shares | ||||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||
| Shares withheld for tax withholding | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other comprehensive income | – | |||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Balance – June 30, 2019 | ( | ) | ||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||
| Issuance of restricted stock awards | ( | ) | ||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||
| Other comprehensive loss | – | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance – September 30, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 6 |
POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation expense | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of debt discount | ||||||||
| Change in fair value of common stock warrant liability | ( | ) | ||||||
| Change in fair value of contingent consideration | ( | ) | ||||||
| Loss on abandonment and disposal of property and equipment | ||||||||
| Other non-cash adjustments | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Other current liabilities | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other long-term liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of available-for-sale securities | ( | ) | ( | ) | ||||
| Proceeds from maturities of available-for-sale securities | ||||||||
| Proceeds from sale of available-for-sale securities | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net proceeds from the sale of common stock and warrants | ||||||||
| Proceeds from stock options exercised | ||||||||
| Proceeds from ESPP purchase | ||||||||
| Cash paid for tax withholdings related to net share settlement | ( | ) | ( | ) | ||||
| Payment of contingent consideration liability | ( | ) | ||||||
| Principal payments on financing leases | ( | ) | ( | ) | ||||
| Proceeds from term note payable and financing arrangements | ||||||||
| Principal payments on term note payable and financing arrangements | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Unpaid liability for acquisition of property and equipment | $ | $ | ||||||
| Reclassification of stock-based compensation expense that was previously classified as a liability to paid-in capital | $ | $ | ||||||
| Unpaid tax liability related to net share settlement | $ | $ | ||||||
| Allocation of proceeds from sale of common stock and warrants to warrant liability | $ | $ | ||||||
| Property and equipment acquired through finance lease | $ | $ | ||||||
| Property and equipment acquired through financing arrangement | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 7 |
POLARITYTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. PRINCIPAL BUSINESS ACTIVITY AND BASIS OF PRESENTATION
PolarityTE, Inc. (together with its subsidiaries, the “Company”) is a biotechnology company developing and commercializing regenerative tissue products and biomaterials.
The accompanying interim condensed consolidated financial statements of the Company are unaudited, but in the opinion of management, reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. Accordingly, they do not include all information and notes required by generally accepted accounting principles for complete financial statements. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire fiscal year. The balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (U.S. GAAP) for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2019 filed with the Securities and Exchange Commission on Form 10-K on March 12, 2020.
2. LIQUIDITY AND NEED FOR ADDITIONAL CAPITAL
The
Company has experienced recurring losses and cash outflows from operating activities. As of September 30, 2020, the Company had
an accumulated deficit of $
On
April 10, 2019, the Company completed an underwritten offering providing for the issuance and sale of shares of the Company’s common stock,
par value $
per share, at an offering price of $per share, for net proceeds of approximately
$
On
December 5, 2019, the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”), with Keystone
Capital Partners, LLC (“Keystone”), pursuant to which Keystone has agreed to purchase from the Company up to $
On
February 14, 2020, the Company completed an underwritten offering of shares of its common stock and warrants
to purchase
The
Company entered into a promissory note for $
In the second quarter of 2020 the Company took steps to reduce cash burn by reducing payroll expense, adopting a salary and wage reduction, and reducing discretionary spending across the organization to minimal levels.
| 8 |
The Company does not expect existing cash as of September 30, 2020 to be sufficient to fund the Company’s operations for at least twelve months from the date of filing. The Company will seek additional capital through equity offerings or debt financing. However, such financing may not be available in the future on favorable terms, if at all. If adequate financing is not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its product development programs, or be unable to continue operations over a longer term. These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and settle its liabilities in the normal course of business. The Company has incurred recurring losses and negative cash flows, has not yet generated material revenue from operations, and will require additional funds to maintain its operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern within one year after these condensed consolidated financial statements are issued. No adjustments have been made to these consolidated financial statements as a result of these uncertainties.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities or the disclosure of gain or loss contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Among the more significant estimates included in these financial statements is the extent of progress toward completion of contracts, stock-based compensation, valuation of common stock warrant liability, and the valuation allowances for deferred tax benefits. Actual results could differ from those estimates.
Cash and cash equivalents. Cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase.
Leases. The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Finance leases are reported in the condensed consolidated balance sheet in property and equipment and other current and long-term liabilities. The short-term portion of operating lease obligations are included in other current liabilities. The classification of the Company’s leases as operating or finance leases along with the initial measurement and recognition of the associated ROU assets and lease liabilities is performed at the lease commencement date. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The ROU asset is based on the measurement of the lease liability and also includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options. Rent expense for the Company’s operating leases is recognized on a straight-line basis over the lease term. Amortization expense for the ROU asset associated with its finance leases is recognized on a straight-line basis over the term of the lease and interest expense associated with its finance leases is recognized on the balance of the lease liability using the effective interest method based on the estimated incremental borrowing rate.
The Company has lease agreements with lease and non-lease components. As allowed under ASC 842, the Company has elected not to separate lease and non-lease components for any leases involving real estate and office equipment classes of assets and, as a result, accounts for the lease and non-lease components as a single lease component. The Company has also elected not to apply the recognition requirement of ASC 842 to leases with a term of 12 months or less for all classes of assets.
| 9 |
Revenue Recognition. Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company records product revenues primarily from the sale of its regenerative tissue products. The Company sells its products to healthcare providers (customers), primarily through direct sales representatives. Product revenues consist of a single performance obligation that the Company satisfies at a point in time. In general, the Company recognizes product revenue upon delivery to the customer.
The Company records service revenues from the sale of its preclinical research services and contract services. Preclinical research services include delivery of preclinical studies and other research services to unrelated third parties. These customer contracts generally consist of a single performance obligation that the Company satisfies over time using an input method based on costs incurred to date relative to the total costs expected to be required to satisfy the performance obligation. The Company believes that this method provides an appropriate measure of the transfer of services over the term of the performance obligation based on the remaining services needed to satisfy the obligation. This requires the Company to make reasonable estimates of the extent of progress toward completion of the contract. As a result, unbilled receivables and deferred revenue are recognized based on payment timing and work completed. Generally, a portion of the payment is due upfront and the remainder upon completion of the contract, with most contracts completing in less than a year. Contract services include research and laboratory testing services to unrelated third parties on a contract basis. These customer contracts generally consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes revenue upon delivery of testing results to the customer.
For
the three months ended September 30, 2020 revenue from two hospital systems accounted for
For
the three months ended September 30, 2020 revenue from 32 facilities controlled by a single company accounted for
Research and Development Expenses. Costs incurred for research and development are expensed as incurred. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities pursuant to executory contractual arrangements with third party research organizations are deferred and recognized as an expense as the related goods are delivered or the related services are performed.
Accruals for Research and Development Expenses and Clinical Trials. As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the timing of various aspects of the expenses. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period.
Common Stock Warrant Liability. The Company accounts for common stock warrants issued as freestanding instruments in accordance with applicable accounting guidance as either liabilities or as equity instruments depending on the specific terms of the warrant agreement. The Company’s warrants under certain change of control situations, could require settlement in cash, which require the warrants to be recorded as liabilities. Warrants classified as liabilities are remeasured each period until settled or until classified as equity.
| 10 |
The fair value of options issued is estimated at the date of grant using a Black-Scholes option-pricing model. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of the grant. The volatility factor is determined based on the Company’s historical stock prices. Forfeitures are recognized as they occur.
The fair value of restricted stock grants is measured based on the fair market value of the Company’s common stock on the date of grant and amortized over the vesting period of, generally, six months to three years.
Impairment of Long-Lived Assets. The Company reviews long-lived assets, including property and equipment, intangible assets, and goodwill for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of Topic 326. As a smaller reporting company, Topic 326 will now be effective for the Company beginning January 1, 2023. As such, the Company plans to adopt this ASU beginning January 1, 2023. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. The Company adopted this standard on January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.
| 11 |
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU aligns the requirements of capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Adoption of the ASU is either retrospective or prospective. The Company adopted this standard prospectively on January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.
4. FAIR VALUE
In accordance with ASC 820, Fair Value Measurements and Disclosures, financial instruments were measured at fair value using a three-level hierarchy which maximizes use of observable inputs and minimizes use of unobservable inputs:
| ● | Level 1: Observable inputs such as quoted prices in active markets for identical instruments. | |
| ● | Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the market. | |
| ● | Level 3: Significant unobservable inputs supported by little or no market activity. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, for which determination of fair value requires significant judgment or estimation. |
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There were no transfers within the hierarchy for any of the periods presented.
During the nine months ended September 30, 2020, the Company transferred all available-for-sale securities to cash accounts.
The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy (in thousands):
| September 30, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Common stock warrant liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| December 31, 2019 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Commercial paper | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| U.S. government debt securities | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The
fair value of the common stock warrant liability is estimated using a Monte Carlo simulation model, which uses certain assumptions
related to risk-free interest rates, expected volatility, and expected term. The fair value of the warrant liability was $
| 12 |
The following assumptions were used in estimating the fair value of the warrant liability as of September 30, 2020 and upon the issuance date of February 14, 2020:
| September 30, 2020 | February 14, 2020 | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Risk-free rate | % | % | ||||||
| Volatility | % | % | ||||||
| Term | ||||||||
The
contingent consideration related to the IBEX acquisition of $
5. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
During the nine months ended September 30, 2020, the Company transferred all available-for-sale securities to cash accounts.
Cash equivalents and short-term investments consisted of the following as of December 31, 2019 (in thousands):
| December 31, 2019 | ||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Market Value | |||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Commercial paper | ||||||||||||||||
| U.S. government debt securities | ||||||||||||||||
| Total cash equivalents (1) | ||||||||||||||||
| Short-term investments: | ||||||||||||||||
| Commercial paper | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Total short-term investments | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (1) |
For
the nine months ended September 30, 2020 and 2019, the Company recognized net realized gains on available-for-sale securities
of $
6. PROPERTY AND EQUIPMENT, NET
The following table presents the components of property and equipment, net (in thousands):
| September 30, 2020 | December 31, 2019 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Land and buildings | ||||||||
| Computers and software | ||||||||
| Leasehold improvements | ||||||||
| Construction in progress | ||||||||
| Furniture and equipment | ||||||||
| Total property and equipment, gross | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
| 13 |
Depreciation and amortization expense for property and equipment, including assets acquired under financing leases was as follows (in thousands):
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| General and administrative expense | $ | $ | $ | $ | ||||||||||||
| Research and development expense | ||||||||||||||||
| Total depreciation and amortization expense | $ | $ | $ | $ | ||||||||||||
7. LEASES
As of September 30, 2020, the maturities of our operating and finance lease liabilities were as follows (in thousands):
| Operating leases | Finance leases | |||||||
| 2020 (excluding the nine months ended September 30, 2020) | $ | $ | ||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Total lease payments | ||||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Total lease liabilities | $ | $ | ||||||
Supplemental balance sheet information related to leases was as follows (in thousands):
Finance leases
September 30, 2020 | December 31, 2019 | |||||||
| Finance lease right-of-use assets included within property and equipment, net | $ | $ | ||||||
| Current finance lease liabilities included within other current liabilities | $ | $ | ||||||
| Non-current finance lease liabilities included within other long-term liabilities | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
| 14 |
Operating leases
September 30, 2020 | December 31, 2019 | |||||||
| Current operating lease liabilities included within other current liabilities | $ | $ | ||||||
| Operating lease liabilities – non current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The components of lease expense were as follows (in thousands):
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Operating lease costs included within operating costs and expenses | $ | $ | $ | $ | ||||||||||||
| Finance lease costs: | ||||||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Supplemental cash flow information related to leases was as follows (in thousands):
| For the Nine Months Ended September 30, | |||||||