htgm-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37369

 

HTG Molecular Diagnostics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

86-0912294

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

3430 E. Global Loop

Tucson, AZ

85706

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (877) 289-2615

 

N/A

(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(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

HTGM

The Nasdaq Stock Market LLC

 

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.    Yes      No  

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).    Yes      No  

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 the definitions 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 he 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      No  

As of May 1, 2020, the registrant had 62,213,479 shares of common stock, $0.001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

1

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

 

1

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

 

2

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2019

 

3

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

 

5

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Consolidated Results of Operations

 

26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

34

Item 4.

 

Controls and Procedures

 

34

PART II.

 

OTHER INFORMATION

 

36

Item 1.

 

Legal Proceedings

 

36

Item 1A.

 

Risk Factors

 

36

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

68

Item 5.

 

Other Information

 

68

Item 6.

 

Exhibits

 

68

Signatures

 

71

 

 

 

i


 

PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited).

HTG Molecular Diagnostics, Inc.

Condensed Consolidated Balance Sheets 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

(Unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,403,697

 

 

$

7,619,748

 

Short-term investments available-for-sale, at fair value

 

 

21,554,318

 

 

 

25,410,222

 

Restricted cash

 

 

3,270,247

 

 

 

3,270,247

 

Accounts receivable

 

 

1,202,469

 

 

 

3,164,176

 

Inventory, net of allowance of $39,403 at both March 31, 2020 and

  December 31, 2019

 

 

1,637,898

 

 

 

1,269,667

 

Prepaid expenses and other

 

 

525,647

 

 

 

633,522

 

Total current assets

 

 

38,594,276

 

 

 

41,367,582

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

1,039,045

 

 

 

1,209,145

 

Property and equipment, net

 

 

2,169,663

 

 

 

2,240,133

 

Other non-current assets

 

 

123,086

 

 

 

302,409

 

Total assets

 

$

41,926,070

 

 

$

45,119,269

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,666,819

 

 

$

1,662,583

 

Accrued liabilities

 

 

1,195,827

 

 

 

1,870,296

 

Contract liabilities - current

 

 

409,449

 

 

 

426,014

 

NuvoGen obligation - current

 

 

1,093,592

 

 

 

1,152,233

 

MidCap Term Loan payable - current

 

 

280,000

 

 

 

 

Convertible note - current, net of debt issuance costs

 

 

2,991,031

 

 

 

2,987,667

 

Operating lease liabilities - current

 

 

696,301

 

 

 

758,932

 

Other current liabilities

 

 

36,205

 

 

 

41,134

 

Total current liabilities

 

 

8,369,224

 

 

 

8,898,859

 

NuvoGen obligation - non-current, net of discount

 

 

4,265,991

 

 

 

4,498,777

 

MidCap Term Loan payable - non-current, net of discount and debt issuance costs

 

 

6,629,972

 

 

 

6,871,545

 

Operating lease liabilities - non-current

 

 

512,718

 

 

 

636,340

 

Other non-current liabilities

 

 

234,981

 

 

 

244,114

 

Total liabilities

 

 

20,012,886

 

 

 

21,149,635

 

Commitments and Contingencies (Note 15)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value; 51,270 shares authorized as of        

   March 31, 2020 and zero shares authorized as of December 31, 2019; 51,270 shares        

   issued and outstanding as of March 31, 2020 and no shares issued and outstanding as

   of December 31, 2019

 

 

51

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized at March 31,

   2020 and December 31, 2019, 62,196,117 shares issued and outstanding at

   March 31, 2020 and 58,090,233 shares issued and outstanding at December 31, 2019

 

 

62,196

 

 

 

58,090

 

Additional paid-in-capital

 

 

197,578,248

 

 

 

194,234,151

 

Accumulated other comprehensive income (loss)

 

 

48,230

 

 

 

(4,964

)

Accumulated deficit

 

 

(175,775,541

)

 

 

(170,317,643

)

Total stockholders’ equity

 

 

21,913,184

 

 

 

23,969,634

 

Total liabilities and stockholders' equity

 

$

41,926,070

 

 

$

45,119,269

 

 

See notes to the unaudited condensed consolidated financial statements.

 

1


 

HTG Molecular Diagnostics, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

Product and product-related services

 

$

1,988,137

 

 

$

2,662,505

 

Collaborative development services

 

 

237,337

 

 

 

540,320

 

Total revenue

 

 

2,225,474

 

 

 

3,202,825

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of product and product-related services revenue

 

 

1,015,492

 

 

 

2,045,527

 

Selling, general and administrative

 

 

4,675,263

 

 

 

4,400,866

 

Research and development

 

 

1,926,275

 

 

 

2,074,748

 

Total operating expenses

 

 

7,617,030

 

 

 

8,521,141

 

Operating loss

 

 

(5,391,556

)

 

 

(5,318,316

)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(225,330

)

 

 

(233,967

)

Interest income

 

 

141,896

 

 

 

181,437

 

Other income

 

 

22,268

 

 

 

 

Total other expense

 

 

(61,166

)

 

 

(52,530

)

Net loss before income taxes

 

 

(5,452,722

)

 

 

(5,370,846

)

Provision for income taxes

 

 

(5,176

)

 

 

 

Net loss

 

$

(5,457,898

)

 

$

(5,370,846

)

Net loss per share, basic and diluted

 

$

(0.08

)

 

$

(0.19

)

Shares used in computing net loss per share, basic and diluted

 

 

64,567,932

 

 

 

28,600,679

 

 

See notes to the unaudited condensed consolidated financial statements.

 

2


 

HTG Molecular Diagnostics, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(5,457,898

)

 

$

(5,370,846

)

Other comprehensive income, net of tax effect:

 

 

 

 

 

 

 

 

Unrealized gain on short-term investments

 

 

47,697

 

 

 

3,353

 

Foreign currency translation adjustment

 

 

5,497

 

 

 

6,439

 

Total other comprehensive income

 

 

53,194

 

 

 

9,792

 

Comprehensive loss

 

$

(5,404,704

)

 

$

(5,361,054

)

 

See notes to the unaudited condensed consolidated financial statements.

 

 

 

3


HTG Molecular Diagnostics, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

 

Series A Convertible Preferred Stock

 

 

Common Stock

 

 

 

 

Additional

Paid-In

 

 

 

 

Accumulated

Other

Comprehensive

 

 

 

 

Accumulated

 

 

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

Capital

 

 

 

 

Income (Loss)

 

 

 

 

Deficit

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

 

-

 

 

$

-

 

 

 

58,090,233

 

 

$

58,090

 

 

 

 

$

194,234,151

 

 

 

 

$

(4,964

)

 

 

 

$

(170,317,643

)

 

 

 

$

23,969,634

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

415,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

415,256

 

Release of restricted stock awards

 

 

 

 

 

 

 

 

35,942

 

 

 

36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36

 

Net share settlement of restricted stock award

 

 

 

 

 

 

 

 

(11,266

)

 

 

(11

)

 

 

 

 

(7,041

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,052

)

Employee stock purchase plan expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,379

 

Issuance of common stock from ATM offering, net of commissions and issuance costs of $174,000

 

 

 

 

 

 

 

 

4,399,062

 

 

 

4,399

 

 

 

 

 

2,431,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,435,912

 

Issuance of Series A convertible preferred stock in private placement, net of issuance costs of $37,075

 

 

10,170

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

562,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

562,955

 

Issuance of Series A convertible preferred stock in exchange for outstanding commons stock

 

 

41,100

 

 

 

41

 

 

 

 

 

 

 

 

 

 

 

2,424,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,424,900

 

Cancellation of common stock received in exchange for Series A convertible preferred stock

 

 

 

 

 

 

 

 

(4,110,000

)

 

 

(4,110

)

 

 

 

 

(2,420,790

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,424,900

)

Exercise of pre-funded warrants

 

 

 

 

 

 

 

 

3,176,762

 

 

 

3,177

 

 

 

 

 

28,591

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,768

 

Issuance of common stock in connection with LP Purchase Agreement

 

 

 

 

 

 

 

 

615,384

 

 

 

615

 

 

 

 

 

(615

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction costs incurred in connection with LP Purchase Agreement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(96,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(96,000

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,457,898

)

 

 

 

 

(5,457,898

)

Unrealized gain on short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

47,697

 

 

 

 

 

 

 

 

 

 

47,697

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,497

 

 

 

 

 

 

 

 

 

 

5,497

 

Balance at March 31, 2020

 

 

51,270

 

 

$

51

 

 

 

62,196,117

 

 

$

62,196

 

 

 

 

$

197,578,248

 

 

 

 

$

48,230

 

 

 

 

$

(175,775,541

)

 

 

 

$

21,913,184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

 

-

 

 

$

-

 

 

 

28,585,449

 

 

$

28,585

 

 

 

 

$

172,086,909

 

 

 

 

$

(3,453

)

 

 

 

$

(151,019,979

)

 

 

 

$

21,092,062

 

Exercise of stock options

 

 

 

 

 

 

 

 

21,871

 

 

 

22

 

 

 

 

 

51,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51,570

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

241,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

241,233

 

Release of restricted stock awards

 

 

 

 

 

 

 

 

13,126

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

Net share settlement of restricted stock award

 

 

 

 

 

 

 

 

(3,813

)

 

 

(4

)

 

 

 

 

(9,681

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,685

)

Employee stock purchase plan expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,794

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,794

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,370,846

)

 

 

 

 

(5,370,846

)

Unrealized gain on short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,353

 

 

 

 

 

 

 

 

 

 

3,353

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,439

 

 

 

 

 

 

 

 

 

 

6,439

 

Balance at March 31, 2019

 

 

-

 

 

$

-

 

 

 

28,616,633

 

 

$

28,616

 

 

 

 

$

172,386,803

 

 

 

 

$

6,339

 

 

 

 

$

(156,390,825

)

 

 

 

$

16,030,933

 

 

See notes to the unaudited condensed consolidated financial statements.

 

 

4


HTG Molecular Diagnostics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited) 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(5,457,898

)

 

$

(5,370,846

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

348,633

 

 

 

308,984

 

Accretion of discount on NuvoGen obligation

 

 

(3,430

)

 

 

(3,414

)

Provision for excess inventory

 

 

6,947

 

 

 

24,296

 

Amortization of QNAH Convertible Note issuance costs

 

 

3,364

 

 

 

3,364

 

Amortization of MidCap Credit Facility discount and issuance costs

 

 

42,441

 

 

 

39,143

 

Stock-based compensation expense

 

 

415,292

 

 

 

241,246

 

Employee stock purchase plan expense

 

 

5,379

 

 

 

16,794

 

Amortization of operating lease right-of-use assets

 

 

151,726

 

 

 

72,923

 

Accrued interest on available-for-sale securities investments

 

 

(74,101

)

 

 

(72,698

)

Loss on abandonment of assets

 

 

49,226

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,961,707

 

 

 

1,662,828

 

Inventory

 

 

(375,178

)

 

 

103,272

 

Prepaid expenses and other

 

 

139,508

 

 

 

9,777

 

Deferred offering costs

 

 

140,320

 

 

 

 

Accounts payable

 

 

(410,806

)

 

 

(480,546

)

Accrued liabilities

 

 

(668,667

)

 

 

(1,977,373

)

Contract liabilities

 

 

(18,794

)

 

 

(55,246

)

Operating lease liabilities

 

 

(186,220

)

 

 

(115,440

)

Net cash used in operating activities

 

 

(3,930,551

)

 

 

(5,592,936

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(25,231

)

 

 

(103,316

)

Sales, redemptions and maturities of available-for-sale securities

 

 

8,250,000

 

 

 

12,800,000

 

Purchase of available-for-sale securities

 

 

(4,272,298

)

 

 

(8,099,573

)

Net cash provided by investing activities

 

 

3,952,471

 

 

 

4,597,111

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from ATM Offering, net

 

 

2,435,912

 

 

 

 

Proceeds from Series A convertible preferred stock in private placement

 

 

600,030

 

 

 

 

Proceeds from exercise of pre-funded warrants

 

 

31,768

 

 

 

 

Payments on NuvoGen obligation

 

 

(287,997

)

 

 

(463,686

)

Payments on financing leases

 

 

(11,833

)

 

 

(13,782

)

Proceeds from exercise of stock options

 

 

 

 

 

51,570

 

Taxes paid for net share settlement of restricted stock awards

 

 

(7,052

)

 

 

(9,685

)

Payment of deferred offering costs

 

 

 

 

 

(30,175

)

Net cash provided by (used in) financing activities

 

 

2,760,828

 

 

 

(465,758

)

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

1,201

 

 

 

4,063

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash, cash equivalents and restricted cash

 

 

2,783,949

 

 

 

(1,457,520

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

10,889,995

 

 

 

11,702,847

 

Cash, cash equivalents and restricted cash at end of period

 

$

13,673,944

 

 

$

10,245,327

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

 

 

Fixed asset purchases payable and accrued at period end

 

$

289,838

 

 

$

13,945

 

Adoption of ASC 842, Leases

 

 

 

 

 

694,352

 

Deferred offering costs payable and accrued at period end

 

 

 

 

 

108,883

 

Issuance of Series A convertible preferred stock in exchange for outstanding common stock

 

 

2,424,900

 

 

 

 

5


 

Series A convertible preferred stock in private placement, costs payable and accrued at period end

 

 

37,075

 

 

 

 

Issuance of common stock in connection with LP Purchase Agreement

 

 

615

 

 

 

 

LP Purchase Agreement, costs payable and accrued at period end

 

 

96,000

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

164,005

 

 

$

172,032

 

Cash paid for taxes

 

 

 

 

 

 

 

See notes to the unaudited condensed consolidated financial statements.

 

 

6


 

HTG Molecular Diagnostics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

Note 1. Description of Business, Basis of Presentation and Principles of Consolidation

HTG Molecular Diagnostics, Inc. (the “Company”) is a provider of instruments, reagents and services for molecular profiling applications. The Company derives revenue from sales of its HTG EdgeSeq instrument system and integrated next-generation sequencing-based (“NGS-based”) HTG EdgeSeq assays, from services including sample processing and custom research use only (“RUO”) assay design and from collaborative development services.

 

The Company operates in one segment and its customers are located primarily in the United States and Europe. For the three months ended March 31, 2020 approximately 32% of the Company’s revenue was generated from sales originated by customers located outside of the United States, compared with 27% for the three months ended March 31, 2019. Approximately 33% and 62% of the sales to customers located outside of the United States resulted from collaborative development services revenue generated through the Master Assay Development, Commercialization and Manufacturing Agreement (the “Governing Agreement”), with QIAGEN Manchester Limited (“QML”), a wholly owned subsidiary of QIAGEN N.V. (see Note 8), for the three months ended March 31, 2020 and 2019, respectively.

 

COVID-19 Pandemic

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) originating in Wuhan, China and the risks to the international community as the virus spreads globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic.

 

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report and likewise the full impact of the pandemic on the Company’s financial condition, liquidity, and future results of operations is uncertain. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry and workforce. Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, the Company is not able to fully estimate the effects of the COVID-19 pandemic on its results of operations, financial condition or liquidity for the remainder of fiscal year 2020.

 

The Company experienced a significant slowing of product and product-related services revenue generation beginning in March 2020 and believes this period of reduced revenue will continue into at least the second quarter of 2020 due to disruptions to its customers’ businesses as a result of the pandemic. The extent of this impact is likely to vary from customer to customer depending upon how they are directly or indirectly impacted by local stay-at-home orders and other social distancing measures, priorities for the customers when the immediate impacts of the pandemic have passed, and the workforce and supplier impacts that each customer has experienced during the pandemic. The Company has also experienced limited delays in its development efforts as a result of stay-at-home orders and its efforts to prioritize the safety of its employees during this pandemic. The Company believes the COVID-19 pandemic will continue to impact its productivity, supply chains, distribution networks and other areas of its operation as the pandemic’s impact continues to disrupt the Company’s business and the businesses of its vendors, partners and customers. Although the Company cannot estimate the length and gravity of the impact of the COVID-19 pandemic at this time, the COVID-19 pandemic may have a material adverse effect on the Company’s results of operations, financial position and liquidity for the remainder of 2020.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company is currently evaluating the impact of the CARES Act but does not currently expect that these provisions will have a significant impact on the Company’s consolidated financial statements.

 

While there remains uncertainty as to the ultimate impact of the COVID-19 pandemic, the Company has considered the known impacts on its business as of the date of this report and has reflected any known or expected impacts in its accompanying condensed consolidated financial statements, including consideration of potential impairment risks to its long-lived assets, potential accounts receivable collection risks and potential impacts to the Company’s overall liquidity position.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect the accounts of the Company as of March 31, 2020 and for the three months ended March 31, 2020 and 2019. Accordingly, they do not include all of the information and footnotes required

7


 

by accounting principles generally accepted in the United States of America (“US GAAP”) for complete financial statements. The accompanying condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and the results of its operations and cash flows, as of and for the periods presented. The accompanying condensed consolidated balance sheets at December 31, 2019 have been derived from the audited consolidated financial statements at that date but do not include all of the information and disclosures required by US GAAP for annual financial statements. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 25, 2020.

Liquidity

The Company believes that its existing resources will be sufficient to fund its planned operations and expenditures for at least the next 12 months from the issuance of these condensed consolidated financial statements. However, the Company will need to raise additional capital to fund its operations and service its near and long-term debt obligations until its revenue reaches a level sufficient to provide for self-sustaining cash flows. There can be no assurance that additional capital will be available on acceptable terms, or at all, or that the Company’s revenue will reach a level sufficient to provide for self-sustaining cash flows. If sufficient additional capital is not available as and when needed, the Company may have to delay, scale back or discontinue one or more product development programs, curtail its commercialization activities, significantly reduce expenses, sell assets (potentially at a discount to their fair value or carrying value), enter into relationships with third parties to develop or commercialize products or technologies that the Company otherwise would have sought to develop or commercialize independently, cease operations altogether, pursue a sale of the Company at a price that may result in a significant loss on investment for its stockholders, file for bankruptcy or seek other protection from creditors, or liquidate all assets. In addition, if the Company defaults under its term loan agreement, its lenders could foreclose on its assets, including some of its cash and cash equivalents, which are held in accounts with other financial institutions.

Principles of Consolidation

The Company formed a French subsidiary, HTG Molecular Diagnostics France SARL (“HTG France”), in November 2018. The accompanying condensed consolidated financial statements include the accounts of the Company and this wholly owned subsidiary after elimination of all intercompany transactions and balances as of March 31, 2020 and December 31, 2019.

Concentration Risks

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents, restricted cash, available-for-sale debt securities and uncollateralized accounts receivable. The Company maintains the majority of its cash and restricted cash balances in the form of cash deposits in bank checking and money market accounts in amounts in excess of federally insured limits. Management believes, based upon the quality of the financial institution, that the credit risk with regard to these deposits is not significant. The available-for-sale debt securities are comprised primarily of investments in money market funds, U.S. Treasury securities and high-quality corporate debt securities.

 

The Company sells its instrument, related consumables, sample processing services, custom RUO assay design and collaborative development services primarily to biopharmaceutical companies, academic institutions and molecular labs. The Company routinely assesses the financial strength of its customers and credit losses have been minimal to date.

 

The Company’s top three customers accounted for 28%, 17% and 11% of the Company’s total revenue for the three months ended March 31, 2020, compared with the Company’s top two customers accounting for 57% and 17% of the Company’s total revenue for the three months ended March 31, 2019. The Company’s top two customers accounted for approximately 25% and 19% of the Company’s accounts receivable as of March 31, 2020. The Company’s top two customers accounted for approximately 29% and 25% of the Company’s accounts receivable as of December 31, 2019.

 

The Company currently relies on a single supplier to supply a subcomponent used in the HTG EdgeSeq processors. A loss of this supplier could significantly delay the delivery of processors, which in turn could materially affect the Company’s ability to generate revenue.

8


 

 

 

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include revenue recognition, stock-based compensation expense, bonus accrual, income tax valuation allowances and reserves, recovery of long‑lived assets, inventory obsolescence and inventory valuation, valuation of accounts receivable and available-for-sale securities. Actual results could materially differ from those estimates, especially in light of the significant uncertainty that remains as to the full impact of the COVID-19 pandemic on the Company’s operations, as well as those of its workforce, supply chains, distribution networks and those of its customers.

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies from those previously disclosed in the Company’s Annual Report on Form 10-K, filed with the SEC on March 25, 2020.

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying condensed consolidated statements of cash flows.

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash and cash equivalents

 

$

10,403,697

 

 

$

6,975,080

 

Restricted cash - current

 

 

3,270,247

 

 

 

 

Restricted cash - non-current