opgn-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 2019

or

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

For the transition period from            to           

Commission File Number 001-37367

 

OPGEN, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

06-1614015

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

identification no.)

 

 

 

708 Quince Orchard Road, Suite 205, Gaithersburg, MD

 

20878

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code: (240) 813-1260

 

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 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 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      No  

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

Trading Symbols

Name of each exchange on which registered

Common Stock

OPGN

Nasdaq Capital Market

Common Warrants

OPGNW

Nasdaq Capital Market

17,645,720 shares of the Company’s common stock, par value $0.01 per share, were outstanding as of May 10, 2019.

 

 

 

 


 

OPGEN, INC.

TABLE OF CONTENTS FOR FORM 10-Q

 

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

 

3

 

 

 

 

 

PART I.

 

FINANCIAL INFORMATION

 

4

 

 

 

 

Item 1.

 

Unaudited Condensed Consolidated Financial Statements

 

4

 

 

Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018

 

4

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2019 and 2018

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018

 

6

 

 

Condensed Consolidated Statements of Cash Flow for the three months ended March 31, 2019 and 2018

 

7

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

 

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

26

Item 4.

 

Controls and Procedures

 

26

 

 

 

 

PART II.

 

OTHER INFORMATION

 

26

 

 

 

 

Item 1.

 

Legal Proceedings

 

26

Item 1A.

 

Risk Factors

 

27

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

27

Item 3.

 

Defaults Upon Senior Securities

 

27

Item 4.

 

Mine Safety Disclosures

 

27

Item 5

 

Other Information

 

27

Item 6.

 

Exhibits

 

28

 

 

 

 

SIGNATURES

 

29

 

2


 

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q of OpGen, Inc. contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In this quarterly report, we refer to OpGen, Inc. as the “Company,” “we,” “our” or “us.” All statements other than statements of historical facts contained herein, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” or the negative version of these words and similar expressions are intended to identify forward-looking statements.

We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II Item 1A “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances included herein may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

 

the completion of our development efforts for the Acuitas AMR Gene Panel tests and Acuitas Lighthouse Software, and the timing of regulatory submissions;

 

our ability to sustain or grow our customer base for our current research use only and rapid pathogen ID testing products;

 

our liquidity and working capital requirements, including our cash requirements over the next 12 months;

 

our ability to maintain compliance with the ongoing listing requirements for the Nasdaq Capital Market;

 

regulations and changes in laws or regulations applicable to our business, including regulation by the FDA;

 

anticipated trends and challenges in our business and the competition that we face;

 

the execution of our business plan and our growth strategy;

 

our expectations regarding the size of and growth in potential markets;

 

our opportunity to successfully enter into new collaborative or strategic agreements;

 

compliance with the U.S. and international regulations applicable to our business; and

 

our expectations regarding future revenue and expenses.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. These risks should not be construed as exhaustive and should be read in conjunction with our other disclosures, including but not limited to the risk factors described in Part II, Item 1A of this quarterly report. Other risks may be described from time to time in our filings made under the securities laws. New risks emerge from time to time. It is not possible for our management to predict all risks. All forward-looking statements in this quarterly report speak only as of the date made and are based on our current beliefs and expectations. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

NOTE REGARDING TRADEMARKS

We own various U.S. federal trademark registrations and applications and unregistered trademarks and servicemarks, including OpGen®, Acuitas®, Acuitas Lighthouse®, AdvanDx®, QuickFISH®, and PNA FISH®. All other trademarks, servicemarks or trade names referred to in this quarterly report are the property of their respective owners. Solely for convenience, the trademarks and trade names in this quarterly report are sometimes referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies, products or services.

 

3


 

Part I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

OpGen, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,011,508

 

 

$

4,572,487

 

Accounts receivable, net

 

 

813,260

 

 

 

373,858

 

Inventory, net

 

 

498,852

 

 

 

543,747

 

Prepaid expenses and other current assets

 

 

162,178

 

 

 

292,918

 

Total current assets

 

 

7,485,798

 

 

 

5,783,010

 

Property and equipment, net

 

 

248,167

 

 

 

1,221,827

 

Finance lease right-of-use assets, net

 

 

961,418

 

 

 

 

Operating lease right-of-use assets

 

 

1,546,155

 

 

 

 

Goodwill

 

 

600,814

 

 

 

600,814

 

Intangible assets, net

 

 

1,018,412

 

 

 

1,085,366

 

Other noncurrent assets

 

 

230,310

 

 

 

259,346

 

Total assets

 

$

12,091,074

 

 

$

8,950,363

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,528,814

 

 

$

1,623,751

 

Accrued compensation and benefits

 

 

1,223,083

 

 

 

1,041,573

 

Accrued liabilities

 

 

950,156

 

 

 

902,019

 

Deferred revenue

 

 

9,993

 

 

 

15,824

 

Short-term notes payable

 

 

347,778

 

 

 

398,595

 

Short-term finance lease liabilities

 

 

492,300

 

 

 

399,345

 

Short-term operating lease liabilities

 

 

930,887

 

 

 

 

Total current liabilities

 

 

5,483,011

 

 

 

4,381,107

 

Deferred rent

 

 

 

 

 

162,919

 

Note payable

 

 

494,285

 

 

 

660,340

 

Warrant liability

 

 

 

 

 

67

 

Long-term finance lease liabilities

 

 

452,089

 

 

 

437,189

 

Long-term operating lease liabilities

 

 

1,322,696

 

 

 

 

Total liabilities

 

 

7,752,081

 

 

 

5,641,622

 

Commitments (Note 9)

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 50,000,000 shares authorized; 17,645,720 and

   8,645,720 shares issued and outstanding at March 31, 2019 and

   December 31, 2018, respectively

 

 

176,457

 

 

 

86,457

 

Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued and

   outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

170,104,444

 

 

 

165,313,902

 

Accumulated other comprehensive loss

 

 

(10,267

)

 

 

(13,093

)

Accumulated deficit

 

 

(165,931,641

)

 

 

(162,078,525

)

Total stockholders’ equity

 

 

4,338,993

 

 

 

3,308,741

 

Total liabilities and stockholders’ equity

 

$

12,091,074

 

 

$

8,950,363

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

OpGen, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

2018

 

 

Revenue

 

 

 

 

 

 

 

 

 

Product sales

 

$

520,177

 

 

$

633,496

 

 

Laboratory services

 

 

 

 

 

8,690

 

 

Collaboration revenue

 

 

500,000

 

 

 

204,040

 

 

Total revenue

 

 

1,020,177

 

 

 

846,226

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Cost of products sold

 

 

220,702

 

 

 

342,832

 

 

Cost of services

 

 

144,482

 

 

 

168,553

 

 

Research and development

 

 

1,776,382

 

 

 

1,230,429

 

 

General and administrative

 

 

1,747,585

 

 

 

1,790,522

 

 

Sales and marketing

 

 

372,233

 

 

 

329,773

 

 

Impairment of right-of-use asset

 

 

520,759

 

 

 

 

 

Total operating expenses

 

 

4,782,143

 

 

 

3,862,109

 

 

Operating loss

 

 

(3,761,966

)

 

 

(3,015,883

)

 

Other (expense) income

 

 

 

 

 

 

 

 

 

Other (expense) income

 

 

(24,422

)

 

 

5,298

 

 

Interest expense

 

 

(56,444

)

 

 

(57,846

)

 

Foreign currency transaction (losses) gains

 

 

(10,351

)

 

 

12,181

 

 

Change in fair value of derivative financial instruments

 

 

67

 

 

 

8,166

 

 

Total other expense

 

 

(91,150

)

 

 

(32,201

)

 

Loss before income taxes

 

 

(3,853,116

)

 

 

(3,048,084

)

 

Provision for income taxes

 

 

 

 

 

 

 

Net loss

 

 

(3,853,116

)

 

 

(3,048,084

)

 

Net loss available to common stockholders

 

$

(3,853,116

)

 

$

(3,048,084

)

 

Net loss per common share - basic and diluted

 

$

(0.41

)

 

$

(0.75

)

 

Weighted average shares outstanding - basic and diluted

 

 

9,345,720

 

 

 

4,055,715

 

 

Net loss

 

$

(3,853,116

)

 

$

(3,048,084

)

 

Other comprehensive gain (loss) - foreign currency translations

 

 

2,826

 

 

 

(12,579

)

 

Comprehensive loss

 

$

(3,850,290

)

 

$

(3,060,663

)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5


 

OpGen, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

 

 

Amount

 

 

Number of

Shares

 

 

Amount

 

 

Paid-

in Capital

 

 

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Total

 

Balances at December 31, 2017

 

 

2,265,320

 

 

$

22,653

 

 

 

 

 

 

 

 

$

150,114,671

 

 

$

(25,900

)

 

$

(148,710,427

)

 

$

1,400,997

 

Public offering of common stock and warrants, net of issuance costs

 

 

3,019,230

 

 

 

30,192

 

 

 

 

 

 

 

 

 

10,691,208

 

 

 

 

 

 

 

 

 

10,721,400

 

Issuance of RSUs

 

 

5,400

 

 

 

54

 

 

 

 

 

 

 

 

 

(54

)

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

238,190

 

 

 

 

 

 

 

 

 

238,190

 

Stock cancellation

 

 

(31

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,579

)

 

 

 

 

 

(12,579

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,048,084

)

 

 

(3,048,084

)

Balances at March 31, 2018

 

 

5,289,919

 

 

$

52,899

 

 

 

 

 

 

 

 

$

161,044,015

 

 

$

(38,479

)

 

$

(151,758,511

)

 

$

9,299,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

 

 

8,645,720

 

 

$

86,457

 

 

 

 

 

 

 

 

$

165,313,902

 

 

$

(13,093

)

 

$

(162,078,525

)

 

$

3,308,741

 

Public offering of common stock and warrants, net of issuance costs

 

 

9,000,000

 

 

 

90,000

 

 

 

 

 

 

 

 

 

4,692,509

 

 

 

 

 

 

 

 

 

4,782,509

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

98,033

 

 

 

 

 

 

 

 

 

98,033

 

Foreign currency translations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,826

 

 

 

 

 

 

2,826

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,853,116

)

 

 

(3,853,116

)

Balances at March 31, 2019

 

 

17,645,720

 

 

$

176,457

 

 

 

 

 

 

 

 

$

170,104,444

 

 

$

(10,267

)

 

$

(165,931,641

)

 

$

4,338,993

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 

 

6


 

 

 

OpGen, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(3,853,116

)

 

$

(3,048,084

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

223,115

 

 

 

156,335

 

Noncash interest expense

 

 

29,265

 

 

 

49,133

 

Stock compensation expense

 

 

98,033

 

 

 

238,190

 

Loss (gain) on sale of equipment

 

 

24,439

 

 

 

(5,253

)

Change in fair value of warrant liability

 

 

(67

)

 

 

(8,166

)

Impairment of right-of-use asset

 

 

520,759

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(440,475

)

 

 

218,746

 

Inventory

 

 

44,545

 

 

 

24,882

 

Other assets

 

 

285,070

 

 

 

80,197

 

Accounts payable

 

 

(31,531

)

 

 

(63,048

)

Accrued compensation and other liabilities

 

 

120,015

 

 

 

126,439

 

Deferred revenue

 

 

(5,831

)

 

 

(1,402

)

Net cash used in operating activities

 

 

(2,985,779

)

 

 

(2,232,031

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(8,493

)

 

 

 

Proceeds from sale of equipment

 

 

1,250

 

 

 

10,440

 

Net cash (used in) provided by investing activities

 

 

(7,243

)

 

 

10,440

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

4,782,509

 

 

 

 

Proceeds from issuance of units, net of selling costs

 

 

 

 

 

10,721,401

 

Payments on debt

 

 

(217,484

)

 

 

(48,424

)

Payments on finance leases

 

 

(116,538

)

 

 

(50,193

)

Net cash provided by financing activities

 

 

4,448,487

 

 

 

10,622,784

 

Effects of exchange rates on cash

 

 

4,216

 

 

 

(13,522

)

Net increase in cash, cash equivalents and restricted cash

 

 

1,459,681

 

 

 

8,387,671

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

4,737,207

 

 

 

2,090,551

 

Cash, cash equivalents and restricted cash at end of period

 

$

6,196,888

 

 

$

10,478,222

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

73,754

 

 

$

8,713

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Right-of-use assets acquired through finance leases

 

$

161,116

 

 

$

87,512

 

Conversion of accounts payable to finance lease

 

$

63,600

 

 

$

174,968

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

7


 

OpGen, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2019

 

Note 1 – Organization

OpGen, Inc. (“OpGen” or the “Company”) was incorporated in Delaware in 2001. References in this report to the “Company” include OpGen and its wholly-owned subsidiaries. The Company’s headquarters and its principal operations are in Gaithersburg, Maryland. The Company also has operations in Copenhagen, Denmark, and Bogota, Colombia. The Company operates in one business segment.

 

OpGen is a precision medicine company harnessing the power of molecular diagnostics and informatics to help combat infectious disease. The Company is developing molecular information products and services for global healthcare settings, helping to guide clinicians with more rapid and actionable information about life threatening infections, improve patient outcomes, and decrease the spread of infections caused by multidrug-resistant microorganisms, or MDROs. Its proprietary DNA tests and informatics address the rising threat of antibiotic resistance by helping physicians and other healthcare providers optimize care decisions for patients with acute infections.  

 

The Company’s molecular diagnostics and informatics products, product candidates and services combine its Acuitas molecular diagnostics and Acuitas Lighthouse informatics platform for use with its proprietary, curated MDRO knowledgebase. The Company is working to deliver products and services, some in development, to a global network of customers and partners.

 

 

The Company’s Acuitas molecular diagnostic tests provide rapid microbial identification and antibiotic resistance gene information. These products include its Acuitas antimicrobial resistance, or AMR, Gene Panel (Urine) test in development for patients at risk for complicated urinary tract infection, or cUTI, and its Acuitas AMR Gene Panel (Isolates) test in development for testing bacterial isolates, and its QuickFISH and PNA FISH FDA-cleared and CE-marked diagnostics used to rapidly detect pathogens in positive blood cultures.  Each of the Acuitas AMR Gene Panel tests is available for sale for research use only, or RUO.

 

The Company’s Acuitas Lighthouse informatics systems are cloud-based HIPAA compliant informatics offerings that combine clinical lab test results with patient and hospital information to provide analytics and actionable insights to help manage MDROs in the hospital and patient care environment. Components of the informatics systems include the Acuitas Lighthouse Knowledgebase and the Acuitas Lighthouse Software. The Acuitas Lighthouse Knowledgebase is a relational database management system and a proprietary data warehouse of genomic data matched with antibiotic susceptibility information for bacterial pathogens.  The Acuitas Lighthouse Software system includes the Acuitas Lighthouse Portal, a suite of web applications and dashboards, the Acuitas Lighthouse Prediction Engine, which is a data analysis software, and other supporting software components.  The Acuitas Lighthouse Software can be customized and made specific to a healthcare facility or collaborator, such as a pharmaceutical company. The Acuitas Lighthouse Software is not distributed commercially for antibiotic resistance prediction and is not for use in diagnostic procedures.

The Company’s operations are subject to certain risks and uncertainties. The risks include the risk that the Company will not receive 510(k) clearance for its Acuitas AMR Gene Panel tests and Acuitas Lighthouse Software on a timely basis, or at all, rapid technology changes, the need to retain key personnel, the need to protect intellectual property and the need to raise additional capital financing on terms acceptable to the Company. The Company’s success depends, in part, on its ability to develop, obtain regulatory approval for and commercialize its proprietary technology as well as raise additional capital.

 

 

Note 2 – Liquidity and management’s plans

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred, and continues to incur, significant losses from operations. The Company has funded its operations primarily through external investor financing transactions, including the following in 2018 and 2019 to date:

 

On March 29, 2019,  the Company closed a public offering (the “March 2019 Public Offering”) of 9,000,000 shares of its common stock at a public offering price of $0.60 per share. The offering raised gross proceeds of $5.4 million and net proceeds of approximately $4.8 million.

 

On October 22, 2018, the Company closed a public offering (the “October 2018 Public Offering”) of 2,220,000 shares of its common stock at a public offering price of $1.45 per share. The offering raised gross proceeds of approximately $3.2 million and net proceeds of approximately $2.8 million.

 

 

On June 11, 2018, the Company executed an Allonge (the “Allonge”) to its Second Amended and Restated Senior Secured Promissory Note, dated June 28, 2017, with a principal amount of $1,000,000 issued to Merck Global Health Innovation Fund, LLC (“MGHIF”).  The Allonge provided that accrued and unpaid interest of $285,512 due as of July 14, 2018, the

8


 

 

original maturity date, be paid through the issuance of shares of OpGen’s common stock in a private placement transaction. In addition, the Allonge revised and extended the maturity date for payment of the Note to six semi-annual payments of $166,667 plus accrued and unpaid interest beginning on January 2, 2019 and ending on July 1, 2021. On July 30, 2018, the Company issued 144,238 shares of common stock to MGHIF in a private placement transaction for $285,512 of accrued and unpaid interest due as of July 14, 2018 under the MGHIF Note.

 

On February 6, 2018, the Company closed a public offering (the “February 2018 Public Offering”) of 2,841,152 units at $3.25 per unit, and 851,155 pre-funded units at $3.24 per pre-funded unit, raising gross proceeds of approximately $12 million and net proceeds of approximately $10.7 million.  Each unit included one share of common stock and one common warrant to purchase 0.5 share of common stock at an exercise price of $3.25 per share.  Each pre-funded unit included one pre-funded warrant to purchase one share of common stock for an exercise price of $0.01 per share, and one common warrant to purchase 0.5 share of common stock at an exercise price of $3.25 per share. The common warrants are exercisable immediately and have a five-year term from the date of issuance. The 851,155 pre-funded warrants issued in the February 2018 Public Offering were exercised during the year ended December 31, 2018. 

 

On September 13, 2016, the Company entered into the Sales Agreement (the “Sales Agreement”) with Cowen and Company LLC (“Cowen”) pursuant to which the Company could offer and sell from time to time, up to an aggregate of $25 million of shares of its common stock through Cowen, as sales agent, with initial sales limited to an aggregate of $11.5 million. During the year ended December 31, 2018, the Company sold 318,236 shares of its common stock under this at the market offering resulting in aggregate net proceeds to the Company of approximately $0.6 million, and gross proceeds of $0.6 million. The at the market offering was terminated in connection with the October 2018 Public Offering.

To meet its capital needs, the Company is considering multiple alternatives, including, but not limited to, strategic financings or other transactions, additional equity financings, debt financings and other funding transactions, licensing and/or partnering arrangements and business combination transactions. There can be no assurance that the Company will be able to complete any such transaction on acceptable terms or otherwise. The Company believes that current cash will be sufficient to fund operations into the third quarter of 2019. This has led management to conclude that substantial doubt about the Company’s ability to continue as a going concern exists.  In the event the Company is unable to successfully raise additional capital during or before the end of the third quarter of 2019, the Company will not have sufficient cash flows and liquidity to finance its business operations as currently contemplated. Accordingly, in such circumstances the Company would be compelled to immediately reduce general and administrative expenses and delay research and development projects, including the purchase of scientific equipment and supplies, until it is able to obtain sufficient financing. If such sufficient financing is not received on a timely basis, the Company would then need to pursue a plan to license or sell its assets, seek to be acquired by another entity, cease operations and/or seek bankruptcy protection.

 

 

Note 3 – Summary of significant accounting policies

Basis of presentation and consolidation

The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and the standards of accounting measurement set forth in the Interim Reporting Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, although the Company believes that the disclosures made are adequate to make the information not misleading. The Company recommends that the following unaudited condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K. In the opinion of management, all adjustments that are necessary for a fair presentation of the Company’s financial position for the periods presented have been reflected. All adjustments are of a normal, recurring nature, unless otherwise stated. The interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. The December 31, 2018 consolidated balance sheet included herein was derived from the audited consolidated financial statements, but does not include all disclosures including notes required by GAAP for complete financial statements.

The accompanying unaudited condensed consolidated financial statements include the accounts of OpGen and its wholly-owned subsidiaries; all intercompany transactions and balances have been eliminated.

9


 

Foreign currency

The Company has subsidiaries located in Copenhagen, Denmark, and Bogota, Colombia, both of which use currencies other than the U.S dollar as their functional currency. As a result, all assets and liabilities are translated into U.S. dollars based on exchange rates at the end of the reporting period. Income and expense items are translated at the average exchange rates prevailing during the reporting period. Translation adjustments are reported in accumulated other comprehensive loss, a component of stockholders’ equity. Foreign currency translation adjustments are the sole component of accumulated other comprehensive loss at March 31, 2019 and December 31, 2018.

Foreign currency transaction gains and losses, excluding gains and losses on intercompany balances where there is no current intent to settle such amounts in the foreseeable future, are included in the determination of net loss.  Unless otherwise noted, all references to “$” or “dollar” refer to the U.S. dollar.

Use of estimates

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the accompanying unaudited condensed consolidated financial statements, estimates are used for, but not limited to, liquidity assumptions, revenue recognition, share-based compensation, allowances for doubtful accounts and inventory obsolescence, discount rates used to discount unpaid lease payments to present values, valuation of derivative financial instruments measured at fair value on a recurring basis, deferred tax assets and liabilities and related valuation allowance, the estimated useful lives of long-lived assets, and the recoverability of long-lived assets. Actual results could differ from those estimates.

Fair value of financial instruments

Financial instruments classified as current assets and liabilities (including cash and cash equivalent, receivables, accounts payable, deferred revenue and short-term notes) are carried at cost, which approximates fair value, because of the short-term maturities of those instruments.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. The Company has cash and cash equivalents deposited in financial institutions in which the balances occasionally exceed the federal government agency (“FDIC”) insured limit of $250,000. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk. 

At March 31, 2019, the Company has funds totaling $185,380, which are required as collateral for letters of credit benefiting its landlords and for credit card processors. At December 31, 2018, the Company had funds totaling $164,720, which are required as collateral for letters of credit benefiting its landlords and for credit card processors. These funds are reflected in other noncurrent assets on the accompanying unaudited condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the statements of cash flows:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

March 31, 2018

 

 

December 31, 2017

 

Cash and cash equivalents

 

$

6,011,508

 

 

$

4,572,487

 

 

$

10,291,532

 

 

$

1,847,171

 

Restricted cash

 

 

185,380

 

 

 

164,720

 

 

 

186,690

 

 

 

243,380

 

Total cash, cash equivalents and restricted cash in the condensed consolidated statement of cash flows

 

$

6,196,888

 

 

$

4,737,207

 

 

$

10,478,222

 

 

$

2,090,551

 

 

Accounts receivable

The Company’s accounts receivable result from revenues earned but not yet collected from customers. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within 30 to 60 days and are stated at amounts due from customers. The Company evaluates if an allowance is necessary by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history and the customer’s current

10


 

ability to pay its obligation. If amounts become uncollectible, they are charged to operations when that determination is made. The allowance for doubtful accounts was $18,334 and $18,332 as of March 31, 2019 and December 31, 2018, respectively.

One individual customer represented in excess of 10% of revenues for the three months ended March 31, 2019. Two individual customers represented in excess of 10% of revenues for the three months ended March 31, 2018. At March 31, 2019, one individual customer represented 61% of total accounts receivable.  At December 31, 2018, one individual customer represented 12% of total accounts receivable.

Inventory

Inventories are valued using the first-in, first-out method and stated at the lower of cost or net realizable value and consist of the following: 

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Raw materials and supplies

 

$

290,587

 

 

$

368,438

 

Work-in-process

 

 

53,165

 

 

 

58,402

 

Finished goods

 

 

155,100

 

 

 

116,907

 

Total

 

$

498,852

 

 

$

543,747

 

 

Inventory includes reagents and components for QuickFISH and PNA FISH kit products, and reagents and supplies used for the Company’s laboratory services. Inventory reserves for obsolescence and expirations were $83,591 and $71,270 at March 31, 2019 and December 31, 2018, respectively.

Long-lived assets

Property and equipment

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which we can identify assets. If such assets are considered to be impaired, impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets. During the three months ended March 31, 2019 and 2018, the Company determined that its property and equipment was not impaired.

 

Leases

 

The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use the underlying asset for the term of the lease and the lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date of the underlying lease arrangement to determine the present value of lease payments. The ROU asset also includes any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company’s lease agreements generally do not contain any material variable lease payments, residual value guarantees or restrictive covenants.

 

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while expense for financing leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. The Company has made certain accounting policy elections whereby the Company (i) does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12 months or less) and (ii) combines lease and non-lease elements of our operating leases.  

 

ROU Assets

ROU assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which the Company can identify assets. If such assets are considered to be impaired, impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets. In

11


 

conjunction with adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC 842”), the Company determined that the ROU asset associated with its Woburn, Massachusetts office lease may not be recoverable. As a result, the Company recorded an impairment charge of $520,759 during the three months ended March 31, 2019.

Intangible assets and goodwill

Intangible assets and goodwill as of March 31, 2019 consist of finite-lived intangible assets and goodwill.

Finite-lived intangible assets

Finite-lived intangible assets include trademarks, developed technology and customer relationships and consisted of the following as of March 31, 2019 and December 31, 2018:

 

 

 

 

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net Balance

 

 

Accumulated

Amortization

 

 

Net Balance

 

Trademarks and trade names

 

$

461,000

 

 

$

(171,309

)

 

$

289,691

 

 

$

(159,783

)

 

$

301,217

 

Developed technology

 

 

458,000

 

 

 

(243,102

)

 

 

214,898

 

 

 

(226,746

)

 

 

231,254

 

Customer relationships

 

 

1,094,000

 

 

 

(580,177

)

 

 

513,823

 

 

 

(541,105

)

 

 

552,895

 

 

 

$

2,013,000

 

 

$

(994,588

)

 

$

1,018,412

 

 

$

(927,634

)

 

$

1,085,366

 

 

Finite-lived intangible assets are amortized over their estimated useful lives.  The estimated useful life of trademarks is 10 years, developed technology is 7 years, and customer relationships is 7 years. The Company reviews the useful lives of intangible assets when events or changes in circumstances occur which may potentially impact the estimated useful life of the intangible assets.

Total amortization expense of intangible assets was $66,954 for each of the three months ended March 31, 2019 and 2018.

Finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If any indicators were present, the Company would test for recoverability by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash flows do not exceed the carrying amount (i.e., the asset is not recoverable), the Company would perform the next step, which is to determine the fair value of the asset and record an impairment loss, if any. During the three months ended March 31, 2019 and 2018, the Company determined that its finite-lived intangible assets were not impaired.

In accordance with ASC 360-10, Property, Plant and Equipment, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. During the fourth quarter of 2018, events and circumstances indicated the Company’s intangible assets might be impaired. However, management’s estimate of undiscounted cash flows indicated that such carrying amounts were expected to be recovered. Nonetheless, it is reasonably possible that the estimate of undiscounted cash flows may change in the near term resulting in the need to write down those assets to fair value. Management’s estimate of cash flows might change if there is an unfavorable development of sales trends. 

Goodwill

Goodwill represents the excess of the purchase price paid in a July 2015 merger transaction in which the Company acquired AdvanDx, Inc. and its subsidiary (the “Merger”) over the fair values of the acquired tangible or intangible assets and assumed liabilities. Goodwill is not tax deductible in any relevant jurisdictions. The Company’s goodwill balance as of March 31, 2019 and December 31, 2018 was $600,814.

The Company conducts an impairment test of goodwill on an annual basis as of October 1 of each year, and will also conduct tests if events occur or circumstances change that would, more likely than not, reduce the Company’s fair value below its net equity value. During the three months ended March 31, 2019 and 2018, the Company determined that its goodwill was not impaired.

 

Revenue recognition

 

The Company derives revenues from (i) the sale of QuickFISH and PNA FISH diagnostic test products and Acuitas AMR Gene Panel RUO test products, (ii) providing laboratory services, and (iii) providing collaboration services including funded software arrangements, and license arrangements.

 

12


 

The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract transaction price to the performance obligations and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation.

 

The Company recognizes revenues upon the satisfaction of its performance obligation (upon transfer of control of promised goods or services to our customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

 

The Company defers incremental costs of obtaining a customer contract and amortizes the deferred costs over the period that the goods and services are transferred to the customer. The Company had no material incremental costs to obtain customer contracts in any period presented.  

 

Deferred revenue results from amounts billed in advance to customers or cash received from customers in advance of services being provided.

Research and development costs

Research and development costs are expensed as incurred. Research and development costs primarily consist of salaries and related expenses for personnel, other resources, laboratory supplies, and fees paid to consultants and outside service partners.

Stock-based compensation

Stock-based compensation expense is recognized at fair value. The fair value of stock-based compensation to employees and directors is estimated, on the date of grant, using the Black-Scholes model. The resulting fair value is recognized ratably over the requisite service period, which is generally the vesting period of the option. For all time-vesting awards granted, expense is amortized using the straight-line attribution method. The Company accounts for forfeitures as they occur.

Option valuation models, including the Black-Scholes model, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant-date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred income tax assets to the amount expected to be realized.

Tax benefits are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially, and subsequently, measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts.

The Company had federal net operating loss (“NOL”) carryforwards of $178.2 million at December 31, 2018. Despite the NOL carryforwards, which begin to expire in 2022, the Company may have future tax liability due to alternative minimum tax or state tax requirements. Also, use of the NOL carryforwards may be subject to an annual limitation as provided by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). To date, the Company has not performed a formal study to determine if any of its remaining NOL and credit attributes might be further limited due to the ownership change rules of Section 382 or Section 383 of the Code. The Company will continue to monitor this matter going forward. There can be no assurance that the NOL carryforwards will ever be fully utilized.

13


 

Loss per share

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period.

For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options and stock purchase warrants using the treasury stock method, and convertible preferred stock and convertible debt using the if-converted method.

For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive. The number of anti-dilutive shares, consisting of (i) common stock options, (ii) stock purchase warrants, and (iii) restricted stock units representing the right to acquire shares of common stock which have been excluded from the computation of diluted loss per share, was 3.7 million shares as of both March 31, 2019 and 2018.

Adopted accounting pronouncements

 

There have been no developments to the Recent Accounting Pronouncements discussion included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, including the expected dates of adoption and estimated effects on the Company’s condensed consolidated financial statements, except for the following:

 

In February 2016, the FASB issued ASC 842, which amends the existing accounting standards for leases. The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. The Company adopted this guidance effective January 1, 2019 using the modified retrospective transition method and the following practical expedients:  

 

 

The Company did not reassess if any expired or existing contracts are or contain leases.

 

The Company did not reassess the classification of any expired or existing leases.

 

Additionally, the Company made ongoing accounting policy elections whereby the Company (i) does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12-months or less) and (ii) combines lease and non-lease elements of our operating leases.  

 

Upon adoption of the new guidance on January 1, 2019, the Company recorded an operating lease right of use asset of approximately $2.2 million (net of existing deferred rent) and recognized a lease liability of approximately $2.5 million.

In June 2018, the FASB issued ASU 2018-07: Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees, and as a result, the accounting for share-based payments to non-employees will be substantially aligned. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, early adoption is permitted but no earlier than an entity’s adoption date of ASC 606. The adoption of this new guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the SEC issued a final rule that amends certain disclosure requirements that were duplicative, outdated or superseded. In addition, the final rule expanded the financial reporting requirements for changes in stockholders’ equity for interim reporting periods. The Company adopted the new guidance on January 1, 2019 with no material impact to the condensed consolidated financial statements.

The Company has evaluated all other issued and unadopted ASUs and believes the adoption of these standards will not have a material impact on its results of operations, financial position or cash flows.

 

14


 

Note 4 – Revenue from contracts with customers

Disaggregated revenue

 

The Company provides diagnostic test products, laboratory services to hospitals, clinical laboratories and other healthcare provider customers, and enters into collaboration agreements with government agencies and healthcare providers. The revenues by type of service consist of the following:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Product sales

 

$

520,177

 

 

$

633,496

 

Laboratory services

 

 

 

 

 

8,690

 

Collaboration revenue

 

 

500,000

 

 

 

204,040

 

Total revenue

 

$

1,020,177

 

 

$

846,226

 

 

Deferred revenue

 

Changes in deferred revenue for the period were as follows:

 

Balance at December 31, 2018

 

 

 

 

 

 

 

$

15,824

 

Revenue recognized in the current period from the amounts in the beginning balance

 

 

 

 

 

 

 

 

(5,831

)

New deferrals, net of amounts recognized in the current period

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

 

 

 

 

 

 

$

9,993

 

 

Contract assets

 

The Company had no contract assets as of March 31, 2019, which are generated when contractual billing schedules differ from revenue recognition timing. Contract assets represent a conditional right to consideration for satisfied performance obligations that becomes a billed receivable when the conditions are satisfied.

 

Unsatisfied performance obligations

 

Remaining contract consideration for which revenue has not been recognized due to unsatisfied performance obligations was $1,075,000 at March 31, 2019, which the Company expects to recognize over the next nine months.

 

Note 5 – MGHIF financing

 

In July 2015, in connection with the Merger, the Company entered into a Purchase Agreement with MGHIF, pursuant to which MGHIF purchased 45,454 shares of common stock of the Company at $110.00 per share for gross proceeds of $5.0 million. Pursuant to the Purchase Agreement, the Company also issued to MGHIF an 8% Senior Secured Promissory Note (the “MGHIF Note”) in the principal amount of $1.0 million with a two-year maturity date from the date of issuance. The Company’s obligations under the MGHIF Note are secured by a lien on all of the Company’s assets.

On June 28, 2017, the MGHIF Note was amended and restated, and the maturity date of the MGHIF Note was extended by one year to July 14, 2018.  As consideration for the agreement to extend the maturity date, the Company issued an amended and restated secured promissory note to MGHIF that (1) increased the interest rate to ten percent (10%) per annum and (2) provided for the issuance of common stock warrants to purchase 13,120 shares of its common stock to MGHIF. 

 

On June 11, 2018, the Company executed an Allonge to the MGHIF Note.  The Allonge provided that accrued and unpaid interest of $285,512 due as of July 14, 2018, the original maturity date, be paid through the issuance of shares of OpGen’s common stock in a private placement transaction. In addition, the Allonge revised and extended the maturity date for payment of the Note to six semi-annual payments of $166,667 plus accrued and unpaid interest beginning on January 2, 2019 and ending on July 1, 2021.

 

On July 30, 2018, the Company issued 144,238 shares of common stock to MGHIF in a private placement transaction for $285,512 of accrued and unpaid interest due as of July 14, 2018 under the MGHIF Note.

 

The Allonge to the MGHIF Note was treated as a debt modification and as such the unamortized issuance costs of approximately $7,000 as of June 11, 2018 are deferred and amortized as incremental expense over the term of the MGHIF Note. 

 

15


 

 

Note 6 – Fair value measurements

The Company classifies its financial instruments using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

 

Level 1 - defined as observable inputs such as quoted prices in active markets;

 

Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

 

Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions such as expected revenue growth and discount factors applied to cash flow projections.

For the three months ended March 31, 2019, the Company has not transferred any assets between fair value measurement levels.

Financial assets and liabilities measured at fair value on a recurring basis

The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the hierarchy.

As part of the Company’s bridge financing and amendment to the MGHIF Note, the Company issued stock purchase warrants that the Company considers to be mark-to-market liabilities due to certain put features that allow the holder to put the warrant back to the Company for cash equal to the Black-Scholes value of the warrant upon a change of control or fundamental transaction.  The Company determines the fair value of the warrant liabilities using the Black-Scholes option pricing model. Using this model, level 3 unobservable inputs include the estimated volatility of the Company’s common stock, estimated terms of the instruments, and estimated risk-free interest rates.

The following table sets forth a summary of changes in the fair value of level 3 liabilities measured at fair value on a recurring basis for the three months ended March 31, 2019:

 

Description

 

Balance at

December 31,

2018

 

 

Change in

Fair Value

 

 

Balance at

March 31, 2019

 

Warrant liability

 

$

67

 

 

$

(67

)

 

$

 

 

Financial assets and liabilities carried at fair value on a non-recurring basis

The Company does not have any financial assets and liabilities measured at fair value on a non-recurring basis.

Non-financial assets and liabilities carried at fair value on a recurring basis

The Company does not have any non-financial assets and liabilities measured at fair value on a recurring basis.

Non-financial assets and liabilities carried at fair value on a non-recurring basis

The Company measures its long-lived assets, including property and equipment and intangible assets (including goodwill), at fair value on a non-recurring basis when they are deemed to be impaired. No such fair value impairment was recognized in the three months ended March 31, 2019 and 2018.

 

 

Note 7 – Debt

As of March 31, 2019, the Company’s outstanding short-term debt consisted of approximately $333,000 due under the MGHIF Note, as well as the financing arrangements for the Company’s insurance with note balances of approximately $14,000 with a final payment scheduled for May 2019. The Company’s outstanding long-term debt as of March 31, 2019 consisted of approximately $494,000 due under the MGHIF Note (see Note 5 “MGHIF financing”). As of December 31, 2018, the Company’s outstanding short-term debt consisted of $333,000 due under the MGHIF Note, net of discounts and financing costs, as well as the financing arrangements for the Company’s insurance with note balances of approximately $65,000. The Company’s outstanding long-term debt as of December 31, 2018 consisted of approximately $660,000 due under the MGHIF Note, net of discounts and financing costs. Total principal payments of approximately $333,000 are due annually in 2019, 2020, and 2021.  

 

16


 

Total interest expense (including amortization of debt discounts and financing fees) on all debt instruments was $56,444 and $57,846 for the three months ended March 31, 2019 and 2018, respectively.

 

 

Note 8 – Stockholders’ equity

As of March 31, 2019, the Company has 50,000,000 authorized shares of common stock and 17,645,720 shares issued and outstanding, and 10,000,000 authorized shares of preferred stock, of which none were issued or outstanding.

In September 2016, the Company entered into the Sales Agreement with Cowen pursuant to which the Company could offer and sell from time to time, up to an aggregate of $25 million of shares of its common stock through Cowen, as sales agent, with initial sales limited to an aggregate of $11.5 million. During the year ended December 31, 2018, the Company sold 318,236 shares of its common stock under this at the market offering resulting in aggregate net proceeds to the Company of approximately $0.6 million, and gross proceeds of $0.6 million. In connection with the October 2018 Public Offering, the Company terminated the at the market offering.

 

In the February 2018 Public Offering, the Company issued 2,841,152 units at $3.25 per unit, and 851,155 pre-funded units at $3.24 per pre-funded unit, raising gross proceeds of approximately $12 million and net proceeds of approximately $10.7 million.  Each unit included one share of common stock and one common warrant to purchase 0.5 share of common stock at an exercise price of $3.25 per share.  Each pre-funded unit included one pre-funded warrant to purchase one share of common stock for an exercise price of $0.01 per share, and one common warrant to purchase 0.5 share of common stock at an exercise price of $3.25 per share. The common warrants were exercisable immediately and have a five-year term from the date of issuance. The 851,155 pre-funded warrants issued in the February 2018 Public Offering were exercised during the year ended December 31, 2018.

In connection with the February 2018 Public Offering, the Company issued to its placement agent warrants to purchase 184,615 shares of common stock.  The warrants issued to the placement agent have an exercise price of $4.0625 per share and are exercisable for five years.

 

On October 22, 2018, the Company closed the October 2018 Public Offering of 2,220,000 shares of its common stock at a public offering price of $1.45 per share. The offering raised gross proceeds of approximately $3.2 million and net proceeds of approximately $2.8 million.

 

On March 29, 2019,  the Company closed the March 2019 Public Offering of 9,000,000 shares of its common stock at a public offering price of $0.60 per share. The offering raised gross proceeds of $5.4 million and net proceeds of approximately $4.8 million.

Stock options

In 2008, the Company adopted the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), pursuant to which the Company’s Board of Directors could grant either incentive or non-qualified stock options or shares of restricted stock to directors, key employees, consultants and advisors.

In April 2015, the Company adopted, and the Company’s stockholders approved, the 2015 Equity Incentive Plan (the “2015 Plan”); the 2015 Plan became effective upon the execution and delivery of the underwriting agreement for the Company’s initial public offering in May 2015. Following the effectiveness of the 2015 Plan, no further grants will be made under the 2008 Plan. The 2015 Plan provides for the granting of incentive stock options within the meaning of Section 422 of the Code to employees and the granting of non-qualified stock options to employees, non-employee directors and consultants. The 2015 Plan also provides for the grants of restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and stock payments to employees, non-employee directors and consultants.

Under the 2015 Plan, the aggregate number of shares of the common stock authorized for issuance may not exceed (1) 54,200 plus (2) the sum of the number of shares subject to outstanding awards under the 2008 Plan as of the 2015 Plan’s effective date, that are subsequently forfeited or terminated for any reason before being exercised or settled, plus (3) the number of shares subject to vesting restrictions under the 2008 Plan as of the 2015 Plan’s effective date that are subsequently forfeited. In addition, the number of shares that have been authorized for issuance under the 2015 Plan will be automatically increased on the first day of each fiscal year beginning on January 1, 2016 and ending on (and including) January 1, 2025, in an amount equal to the lesser of (1) 4% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (2) another lesser amount determined by the Company’s Board of Directors. Shares subject to awards granted under the 2015 Plan that are forfeited or terminated before being exercised or settled, or are not delivered to the participant because such award is settled in cash, will again become available for issuance under the 2015 Plan. However, shares that have actually been issued shall not again become available unless forfeited. As of March 31, 2019, 396,696 shares remain available for issuance under the 2015 Plan, which includes 345,828 shares automatically added to the 2015 Plan on January 1, 2019.

17


 

For the three months ended March 31, 2019 and 2018, the Company recognized share-based compensation expense as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cost of services

 

$

38

 

 

$

2,390

 

Research and development

 

 

17,127

 

 

 

69,471

 

General and administrative

 

 

76,013

 

 

 

152,182

 

Sales and marketing

 

 

4,855

 

 

 

14,147

 

 

 

$

98,033

 

 

$

238,190

 

 

No income tax benefit for share-based compensation arrangements was recognized in the condensed consolidated statements of operations and comprehensive loss due to the Company’s net loss position.

The Company did not grant any stock options during the three months ended March 31, 2019. During the three months ended March 31, 2019, no options were forfeited and 5 options expired. The Company had total stock options to acquire 211,554 shares of common stock outstanding at March 31, 2019.

Restricted stock units

During the three months ended March 31, 2019, no restricted stock units vested and no restricted stock units were forfeited. The Company had 250 total restricted stock units outstanding at March 31, 2019.

Stock purchase warrants

At March 31, 2019 and December 31, 2018, the following warrants to purchase shares of common stock were outstanding:

 

 

 

 

 

 

 

 

 

Outstanding at

 

Issuance

 

Exercise

Price

 

 

Expiration

 

March 31, 2019

 

 

December 31, 2018

 

November 2009

 

$

197.75

 

 

November 2019

 

 

270

 

 

 

270

 

January 2010

 

$

197.75

 

 

January 2020

 

 

270

 

 

 

270

 

March 2010

 

$

197.75

 

 

March 2020

 

 

55

 

 

 

55

 

November 2011

 

$

197.75

 

 

November 2021

 

 

212

 

 

 

212

 

December 2011

 

$

197.75

 

 

December 2021

 

 

27

 

 

 

27

 

March 2012

 

$

2,747.50

 

 

March 2019

 

 

 

 

 

165

 

February 2015

 

$

165.00

 

 

February 2025

 

 

9,001

 

 

 

9,001

 

May 2015

 

$

165.00

 

 

May 2020

 

 

138,310

 

 

 

138,310

 

May 2016

 

$

32.81

 

 

May 2021

 

 

189,577

 

 

 

189,577

 

June 2016

 

$

32.81

 

 

May 2021

 

 

82,035

 

 

 

82,035

 

June 2017

 

$

19.50