10-Q 1 htgm-10q_20210331.htm 10-Q htgm-10q_20210331.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, 2021

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 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  

As of May 7, 2021, the registrant had 6,272,722 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, 2021 and December 31, 2020

 

1

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020

 

2

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021 and 2020

 

3

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2021 and 2020

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

 

5

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

Item 2.

 

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

 

23

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4.

 

Controls and Procedures

 

30

PART II.

 

OTHER INFORMATION

 

32

Item 1.

 

Legal Proceedings

 

32

Item 1A.

 

Risk Factors

 

32

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

67

Item 5.

 

Other Information

 

67

Item 6.

 

Exhibits

 

68

Signatures

 

70

 

 

 

i


 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited).

 

HTG Molecular Diagnostics, Inc.

Condensed Consolidated Balance Sheets 

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

(Unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,777,687

 

 

$

22,397,812

 

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

 

 

8,987,844

 

 

 

6,298,075

 

Accounts receivable

 

 

1,250,048

 

 

 

1,588,767

 

Inventory, net of allowance of $23,654 at March 31, 2021 and $26,052 at

  December 31, 2020

 

 

1,602,874

 

 

 

1,492,126

 

Prepaid expenses and other

 

 

1,530,203

 

 

 

1,094,273

 

Total current assets

 

 

35,148,656

 

 

 

32,871,053

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

349,074

 

 

 

1,009,097

 

Property and equipment, net

 

 

1,124,258

 

 

 

1,227,402

 

Other non-current assets

 

 

5,853

 

 

 

90,356

 

Total assets

 

$

36,627,841

 

 

$

35,197,908

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,352,837

 

 

$

1,348,762

 

Accrued liabilities

 

 

1,114,810

 

 

 

1,459,878

 

Contract liabilities – current

 

 

493,869

 

 

 

185,083

 

NuvoGen obligation – current

 

 

479,403

 

 

 

512,729

 

Current portion of long-term debt

 

 

4,501,741

 

 

 

3,022,139

 

Operating lease liabilities – current

 

 

373,946

 

 

 

685,220

 

Other current liabilities

 

 

20,293

 

 

 

22,563

 

Total current liabilities

 

 

8,336,899

 

 

 

7,236,374

 

NuvoGen obligation - non-current, net of discount

 

 

4,354,839

 

 

 

4,479,396

 

Long-term debt, net of current portion, discount and debt issuance costs

 

 

7,046,617

 

 

 

8,568,308

 

Operating lease liabilities - non-current

 

 

 

 

 

368,682

 

Other non-current liabilities

 

 

49,424

 

 

 

60,488

 

Total liabilities

 

 

19,787,779

 

 

 

20,713,248

 

Commitments and Contingencies (Note 15)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value; 23,770 shares authorized, issued and outstanding at March 31, 2021 and December 31, 2020

 

 

24

 

 

 

24

 

Common stock, $0.001 par value; 26,666,667 shares authorized at March 31,

   2021 and December 31, 2020, 6,259,257 shares issued and outstanding at

  March 31, 2021 and 5,199,997 shares issued and outstanding at December 31, 2020

 

 

6,259

 

 

 

5,200

 

Additional paid-in-capital

 

 

212,866,206

 

 

 

205,661,999

 

Accumulated other comprehensive income

 

 

3,741

 

 

 

5,298

 

Accumulated deficit

 

 

(196,036,168

)

 

 

(191,187,861

)

Total stockholders’ equity

 

 

16,840,062

 

 

 

14,484,660

 

Total liabilities and stockholders' equity

 

$

36,627,841

 

 

$

35,197,908

 

 

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,

 

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

Product and product-related services

 

$

1,435,146

 

 

$

1,988,137

 

Collaborative development services

 

 

 

 

 

237,337

 

Total revenue

 

 

1,435,146

 

 

 

2,225,474

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of product and product-related services revenue

 

 

785,200

 

 

 

1,015,492

 

Selling, general and administrative

 

 

3,859,619

 

 

 

4,675,263

 

Research and development

 

 

1,372,040

 

 

 

1,926,275

 

Total operating expenses

 

 

6,016,859

 

 

 

7,617,030

 

Operating loss

 

 

(4,581,713

)

 

 

(5,391,556

)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(270,357

)

 

 

(225,330

)

Interest income

 

 

6,212

 

 

 

141,896

 

Other income

 

 

 

 

 

22,268

 

Total other expense

 

 

(264,145

)

 

 

(61,166

)

Net loss before income taxes

 

 

(4,845,858

)

 

 

(5,452,722

)

Provision for income taxes

 

 

(2,449

)

 

 

(5,176

)

Net loss

 

$

(4,848,307

)

 

$

(5,457,898

)

Net loss per share, basic and diluted

 

$

(0.80

)

 

$

(1.27

)

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

 

 

6,040,752

 

 

 

4,304,529

 

 

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,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(4,848,307

)

 

$

(5,457,898

)

Other comprehensive income (loss), net of tax effect:

 

 

 

 

 

 

 

 

Unrealized gain on short-term investments

 

 

 

 

 

47,697

 

Foreign currency translation adjustment

 

 

(1,557

)

 

 

5,497

 

Total other comprehensive income (loss)

 

 

(1,557

)

 

 

53,194

 

Comprehensive loss

 

$

(4,849,864

)

 

$

(5,404,704

)

 

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, 2021

 

 

23,770

 

 

$

24

 

 

 

5,199,997

 

 

$

5,200

 

 

$

205,661,999

 

 

$

5,298

 

 

$

(191,187,861

)

 

$

14,484,660

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

337,823

 

 

 

 

 

 

 

 

 

337,823

 

Release of restricted stock awards

 

 

 

 

 

 

 

 

1,390

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Net share settlement of restricted stock award

 

 

 

 

 

 

 

 

(250

)

 

 

 

 

 

(1,197

)

 

 

 

 

 

 

 

 

(1,197

)

Employee stock purchase plan expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,115

 

 

 

 

 

 

 

 

 

13,115

 

Issuance of common stock from ATM offering, net of commissions of approximately $0.2 million

 

 

 

 

 

 

 

 

1,058,045

 

 

 

1,058

 

 

 

6,854,140

 

 

 

 

 

 

 

 

 

6,855,198

 

Exercise of stock options

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

326

 

 

 

 

 

 

 

 

 

326

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,848,307

)

 

 

(4,848,307

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,557

)

 

 

 

 

 

(1,557

)

Balance at March 31, 2021

 

 

23,770

 

 

$

24

 

 

 

6,259,257

 

 

$

6,259

 

 

$

212,866,206

 

 

$

3,741

 

 

$

(196,036,168

)

 

$

16,840,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

 

-

 

 

$

-

 

 

 

3,872,682

 

 

$

3,873

 

 

$

194,288,368

 

 

$

(4,964

)

 

$

(170,317,643

)

 

$

23,969,634

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

415,256

 

 

 

 

 

 

 

 

 

415,256

 

Release of restricted stock awards

 

 

 

 

 

 

 

 

2,396

 

 

 

2

 

 

 

34

 

 

 

 

 

 

 

 

 

36

 

Net share settlement of restricted stock award

 

 

 

 

 

 

 

 

(751

)

 

 

(1

)

 

 

(7,051

)

 

 

 

 

 

 

 

 

(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 approximately $0.2 million

 

 

 

 

 

 

 

 

293,271

 

 

 

293

 

 

 

2,435,619

 

 

 

 

 

 

 

 

 

2,435,912

 

Issuance of Series A convertible preferred stock in private placement, net of issuance costs of $37,000

 

 

10,170

 

 

 

10

 

 

 

 

 

 

 

 

 

562,945

 

 

 

 

 

 

 

 

 

562,955

 

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

 

 

41,100

 

 

 

41

 

 

 

 

 

 

 

 

 

2,424,859

 

 

 

 

 

 

 

 

 

2,424,900

 

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

 

 

 

 

 

 

 

 

(274,000

)

 

 

(274

)

 

 

(2,424,626

)

 

 

 

 

 

 

 

 

(2,424,900

)

Exercise of pre-funded warrants

 

 

 

 

 

 

 

 

211,784

 

 

 

212

 

 

 

31,556

 

 

 

 

 

 

 

 

 

31,768

 

Issuance of common stock in connection with LP Purchase Agreement

 

 

 

 

 

 

 

 

41,026

 

 

 

41

 

 

 

(41

)

 

 

 

 

 

 

 

 

 

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

 

 

 

4,146,408

 

 

$

4,146

 

 

$

197,636,298

 

 

$

48,230

 

 

$

(175,775,541

)

 

$

21,913,184

 

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,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(4,848,307

)

 

$

(5,457,898

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

197,951

 

 

 

348,633

 

Accretion of discount on NuvoGen obligation

 

 

(3,106

)

 

 

(3,430

)

Provision for excess inventory

 

 

4,836

 

 

 

6,947

 

Amortization of QNAH Convertible Note issuance costs

 

 

 

 

 

3,364

 

Amortization of MidCap Credit Facility discount and issuance costs

 

 

 

 

 

42,441

 

Amortization of SVB Term Loan discount and issuance costs

 

 

123,010

 

 

 

 

Stock-based compensation expense

 

 

337,824

 

 

 

415,292

 

Employee stock purchase plan expense

 

 

13,115

 

 

 

5,379

 

Non-cash operating lease expense

 

 

151,831

 

 

 

151,726

 

Accrued interest on available-for-sale securities investments

 

 

(3,600

)

 

 

(74,101

)

Loss on abandonment and disposal of assets, net

 

 

178,925

 

 

 

49,226

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

56,997

 

 

 

1,961,707

 

Inventory

 

 

(115,584

)

 

 

(375,178

)

Prepaid expenses and other

 

 

(401,597

)

 

 

139,508

 

Deferred offering costs

 

 

 

 

 

140,320

 

Accounts payable

 

 

145,309

 

 

 

(410,806

)

Accrued liabilities

 

 

(336,973

)

 

 

(668,667

)

Contract liabilities

 

 

302,357

 

 

 

(18,794

)

Operating lease liabilities

 

 

(156,249

)

 

 

(186,220

)

Net cash used in operating activities

 

 

(4,353,261

)

 

 

(3,930,551

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(98,509

)

 

 

(25,231

)

Maturities of available-for-sale securities

 

 

6,300,000

 

 

 

8,250,000

 

Purchase of available-for-sale securities

 

 

(8,986,169

)

 

 

(4,272,298

)

Net cash provided by (used in) investing activities

 

 

(2,784,678

)

 

 

3,952,471

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from ATM Offering, net of commissions of $0.2 million

 

 

6,855,198

 

 

 

2,435,912

 

Proceeds from Series A convertible preferred stock in private placement

 

 

 

 

 

600,030

 

Payments on NuvoGen obligation

 

 

(154,777

)

 

 

(287,997

)

Proceeds from exercise of pre-funded warrants

 

 

 

 

 

31,768

 

Payments on financing leases

 

 

(6,905

)

 

 

(11,833

)

Proceeds from exercise of stock options

 

 

326

 

 

 

 

Taxes paid for net share settlement of restricted stock awards

 

 

(1,197

)

 

 

(7,052

)

Payments on Insurance Note

 

 

(165,099

)

 

 

 

Net cash provided by financing activities

 

 

6,527,546

 

 

 

2,760,828

 

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

(9,732

)

 

 

1,201

 

 

 

 

 

 

 

 

 

 

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

 

 

(620,125

)

 

 

2,783,949

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

22,397,812

 

 

 

10,889,995

 

Cash, cash equivalents and restricted cash at end of period

 

$

21,777,687

 

 

$

13,673,944

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

 

 

Fixed asset purchases payable and accrued at period end

 

$

10,738

 

 

$

289,838

 

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

 

 

 

 

 

2,424,900

 

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

 

$

146,161

 

 

$

164,005

 

Cash paid for taxes

 

 

90

 

 

 

 

 

See notes to the unaudited condensed consolidated financial statements.

 

 

5


 

 

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 sample processing and custom research use only (“RUO”) assay design services 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, 2021, approximately 41% of the Company’s revenue was generated from sales originated by customers located outside of the United States, compared with 32% for the three months ended March 31, 2020.

 

COVID-19 Pandemic

The full impact of the COVID-19 pandemic (“COVID-19”) continues to evolve as of the date of this report and management continues to actively monitor the potential impact of the global situation on its financial condition, liquidity and future results of operations, suppliers, industry and workforce. Given the ongoing evolution of COVID-19, including resurgences in many areas of the world and the global responses to curb its spread, the Company is not able to fully estimate the effects of COVID-19 on its results of operations, financial condition or liquidity.

 

The Company experienced a significant slowing of product and product-related services revenue generation beginning in March 2020 and believes that while it experienced some recovery in the later part of 2020, this impact will continue to be seen at some level at least through the first half of 2021. The extent of this impact has varied from customer to customer depending upon how they have been directly or indirectly impacted by local stay-at-home orders and other social distancing measures, prioritization by those customers as the immediate impacts of the pandemic have passed, and the workforce and supplier impacts that COVID-19 has had on each customer. The Company believes it will continued to be impacted by COVID-19 as ongoing concerns regarding the pandemic continue to disrupt the Company’s business and the businesses of its vendors, partners and customers, and as shipping and manufacturing resources are prioritized throughout the world to fight the continued spread of the pandemic.

 

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to COVID-19. On April 21, 2020, the Company received proceeds from a loan pursuant to the Paycheck Protection Program (“PPP”) of the CARES Act (the “PPP Loan”) in the amount of $1.7 million from Silicon Valley Bank (“SVB”), as lender (see Note 8). All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application and documentation by the company of expenditures in accordance with the SBA requirements. The Company applied for full forgiveness of the PPP Loan in October 2020. However, there can be no assurance given that the Company will obtain forgiveness of the PPP Loan in whole or in part.

 

In December 2020, the Consolidated Appropriations Act (the “Appropriations Act”) was signed into law to further address the ongoing impacts of COVID-19. The Appropriations Act introduced several additional potential credits and benefits for employers to consider including, but not limited to, the ability for employers who have previously obtained a PPP Loan to potentially also qualify for Employee Retention Credits (“ERC”), initially created as part of the CARES Act. In March 2021, the American Rescue Plan of 2021 was enacted to, amongst other things, extend and expand ERC benefits through December 31, 2021. The Company qualified for certain ERC benefits during the year ended December 31, 2020 and the first quarter of 2021 and expects to continue to seek out these benefits in future periods as appropriate.

 

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

6


 

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, 2021 and for the three months ended March 31, 2021 and 2020. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The accompanying condensed consolidated financial statements reflect all 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 sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date but does not include all of the information and disclosures required by 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, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 25, 2021.

All share and per share amounts within the condensed consolidated financial statements and notes thereto have been adjusted to reflect the reverse stock split completed by the Company in November 2020 for all periods and dates presented. See Note 14 for more information about the Company’s reverse stock split.

Going Concern and Liquidity

Management has assessed the Company’s ability to continue as a going concern within one year of issuance of these financial statements. The accompanying interim unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of the assets and satisfaction of liabilities in the normal course of business. However, the Company has had recurring operating losses and negative operating cash flows since its inception and has an accumulated deficit of $196.0 million as of March 31, 2021. As of March 31, 2021, the Company had working capital of $26.8 million and long-term liabilities of $11.5 million. The Company’s liability balances consist primarily of its debt obligations, including an asset-secured Loan and Security Agreement with Silicon Valley Bank (the “SVB Term Loan”) and the PPP Loan (see Note 8), as well as an obligation to NuvoGen Research, LLC (the “NuvoGen obligation”) (see Note 10). While the Company believes that its existing resources may be sufficient to fund its planned operations and expenditures for at least the next 12 months from issuance of these condensed consolidated financial statements, potential changing circumstances, including COVID-19 uncertainties, may result in the depletion of its capital resources more rapidly than it currently anticipates, resulting in the Company not having adequate resources to fund its planned operations and expenditures for at least the next 12 months and to comply with the financial covenant in the Loan and Security Agreement for the SVB Term Loan (the “Loan Agreement”). These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

 

The Company will need to raise additional capital to fund its operations and service its 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. In addition, the Company must comply with a financial covenant in the SVB Term Loan requiring the Company to maintain unrestricted cash of not less than the greater of (i) $12.5 million and (ii) an amount equal to six times the amount of the Company’s average monthly Cash Burn (as defined in the Loan Agreement) over the trailing three months. 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 the Loan Agreement, SVB could accelerate the payment of the SVB Term Loan and ultimately foreclose on the Company’s assets.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, HTG Molecular Diagnostics France, SARL, after elimination of all intercompany transactions and balances as of March 31, 2021 and December 31, 2020.

7


 

Concentration Risks

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains the majority of its 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 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 two customers accounted for 19% and 15% of the Company’s total revenue for the three months ended March 31, 2021, compared with the Company’s top three customers accounting for 28%, 17% and 11% of the Company’s total revenue for the three months ended March 31, 2020. The largest three customers accounted for 22%, 14% and 13% of the Company’s accounts receivable as of March 31, 2021. The largest two customers accounted for approximately 9% each of the Company’s accounts receivable at December 31, 2020.

 

Two vendors accounted for 16% and 11% of the Company’s accounts payable as of March 31, 2021 primarily related to inventory purchases and legal fees incurred in defense of the Company’s intellectual property, compared to two vendors who accounted for 21% and 20% of the Company’s accounts payable as of December 31, 2020.

 

The Company currently relies on a single supplier to produce a subcomponent used in its 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.

 

 

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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 estimates include revenue recognition, stock-based compensation expense, bonus and warranty accrual, income tax valuation allowances and reserves, recovery of long‑lived assets, lease liability, inventory obsolescence and valuation of inventory, 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 COVID-19 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 consolidated financial statements included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 25, 2021.

Restricted Cash

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash and cash equivalents

 

$

21,777,687

 

 

$

10,403,697

 

Restricted cash

 

 

 

 

 

3,270,247

 

Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows

 

$

21,777,687

 

 

$

13,673,944

 

8


 

 

 

Amounts included in restricted cash as of March 31, 2020 represented those required to be set aside in escrow under the terms of the Company’s Credit and Security Agreement (Term Loan) with MidCap Financial Trust to collateralize the payment that was due upon maturity of the Company’s subordinated convertible promissory note with QIAGEN North American Holdings, Inc. (the “QNAH Convertible Note”). The balance of restricted cash was released to the Company in June 2020 in conjunction with the extinguishment of the QNAH Convertible Note with proceeds from the SVB Term Loan (see Note 8).  

Fair Value of Financial Instruments

The carrying value of financial instruments classified as current assets and current liabilities approximate fair value due to their liquidity and short-term nature. Investments that are classified as available-for-sale are recorded at fair value, which is determined using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The carrying value of the SVB Term Loan (see Note 8) is estimated to approximate its fair value as the interest rate approximates the market rate for debt with similar terms and risk characteristics.

 

The NuvoGen obligation relates to an asset purchase transaction with a then-common stockholder of the Company (see Note 10). As of March 31, 2021, the estimated aggregate fair value of the NuvoGen obligation is approximately $4.4 million, determined using a Monte Carlo simulation with key assumptions including future revenue, volatility, discount and risk-free rates.

Recently Adopted Accounting Pronouncements

In October 2020, the FASB issued ASC Update No. 2020-10, Codification Improvements (“Update No. 2020-10”), which amended a variety of topics in the FASB Accounting Standards Codification (the “Codification”) in order to improve the consistency of the Codification and the application thereof, while leaving GAAP unchanged. Update No. 2020-10 was effective for fiscal years beginning after December 15, 2020 for public business entities. The Company’s adoption of this standard on January 1, 2021 did not have a material impact on its condensed consolidated financial statements or related footnote disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects of the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This standard was effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. The Company’s adoption of this standard on January 1, 2021 did not have a material impact on its condensed consolidated financial statements or related footnote disclosures.

New Accounting Pronouncements

The following are new FASB ASUs that had not been adopted by the Company as of March 31, 2021:

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and also simplifies the diluted earnings per share calculation in certain areas. The standard is effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within those fiscal years, beginning after December 15, 2021. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023. Early adoption is permitted and adoption must be as of the beginning of the Company’s annual fiscal year. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.      

9


 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, which was subsequently amended by ASU 2018-19, ASU 2019-10 and ASU 2020-02, and requires the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting date based on historical experience, current conditions and reasonable forecasts. The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. With the issuance of ASU 2019-10 in November 2019, the standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022. The Company will continue to assess the possible impact of this standard, but currently does not expect the adoption of this standard will have a significant impact on its consolidated financial statements, given the high credit quality of the obligors to its available-for-sale debt securities and its history of minimal bad debt expense relating to trade accounts receivable.

 

 

Note 3. Inventory

Inventory, net of allowance, consisted of the following as of the dates indicated:

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Raw materials

 

$

1,125,989

 

 

$

1,079,528

 

Work in process

 

 

228,940

 

 

 

147,455

 

Finished goods

 

 

271,599

 

 

 

291,195

 

Total gross inventory

 

 

1,626,528

 

 

 

1,518,178

 

Less inventory allowance

 

 

(23,654

)

 

 

(26,052

)

 

 

$

1,602,874

 

 

$

1,492,126

 

 

For the three months ended March 31, 2021, the Company recorded adjustments to provision for excess inventory of $4,836 compared with $6,947 for the three months ended March 31, 2020. Adjustments in these periods to the allowance for estimated shrinkage, obsolescence and excess inventory have been included in cost of product and product-related services revenue in the accompanying condensed consolidated statements of operations.

 

HTG EdgeSeq instruments at customer locations under evaluation agreements are included in finished goods inventory. Finished goods inventory under evaluation as of March 31, 2021 was $85,648 compared with $50,855 as of December 31, 2020.

 

 

Note 4. Fair Value Instruments

Financial assets and liabilities measured at fair value are classified in their entirety in the fair value hierarchy based on the lowest level input significant to the fair value measurement. The following table classifies the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020 in the fair value hierarchy:

10


 

 

 

 

March 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Asset included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market securities

 

$

21,410,606

 

 

$

 

 

$

 

 

$

21,410,606

 

Investments available-for-sale at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

 

 

 

8,987,844

 

 

 

 

 

 

8,987,844

 

Total

 

$

21,410,606

 

 

$

8,987,844

 

 

$

 

 

$

30,398,450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Asset included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents