qtnt-10q_20190630.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 June 30, 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 001-36415

 

QUOTIENT LIMITED

(Exact name of registrant as specified in its charter)

 

 

Jersey, Channel Islands

 

Not Applicable

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

B1, Business Park Terre Bonne,

Route de Crassier 13,

1262 Eysins, Switzerland

 

Not Applicable

(Address of principal executive offices)

 

(Zip Code)

011-41-22-716-9800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Ordinary Shares, nil par value

 

QTNT

 

The Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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, 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 August 2, 2019, there were 66,269,401 Ordinary Shares, nil par value, of Quotient Limited outstanding.

 

 

 


 

TABLE OF CONTENTS

 

 

  

Page

 

PART I – FINANCIAL INFORMATION

  

 

3

 

 

Item 1. Financial Statements

  

 

3

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

 

23

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

 

34

 

 

Item 4. Controls and Procedures

  

 

35

 

 

PART II – OTHER INFORMATION

  

 

35

 

 

Item 1. Legal Proceedings

  

 

35

 

 

Item 1A. Risk Factors

  

 

35

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  

 

35

 

 

Item 3. Defaults Upon Senior Securities

  

 

35

 

 

Item 4. Mine Safety Disclosures

  

 

35

 

 

Item 5. Other Information

  

 

35

 

 

Item 6. Exhibits

  

 

36

 

 

Signatures

 

 

37

 

 

 

 

- i -


 

Cautionary note regarding forward-looking statements

This Quarterly Report on Form 10-Q, and exhibits thereto, contains estimates, predictions, opinions, projections and other statements that may be interpreted as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve substantial risks and uncertainties. The forward-looking statements are contained principally in Part I, Item 2: “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and are also contained elsewhere in this Quarterly Report. Forward-looking statements can be identified by words such as “strategy,” “objective,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate,” “might,” “design” and other similar expressions, although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain, and are subject to numerous known and unknown risks and uncertainties.

Forward-looking statements include statements about:

 

the continuing development, regulatory approval and commercialization of MosaiQTM by us;

 

the design of blood grouping and disease screening capabilities of MosaiQ, the potential for the expansion of our MosaiQ technology into the larger clinical diagnostics market and the benefits of MosaiQ for both customers and patients;

 

future demand for and customer adoption of MosaiQ, the factors that we believe will drive such demand and our ability to address such demand;

 

our expected profit margins for MosaiQ;

 

the size of the market for MosaiQ;

 

the regulation of MosaiQ by the U.S. Food and Drug Administration, or the FDA, or other regulatory bodies, or any unanticipated regulatory changes or scrutiny by such regulators;

 

future plans for our conventional reagent products;

 

the status of our future relationships with customers, suppliers, and regulators relating to our products;

 

future demand for our conventional reagent products and our ability to meet such demand;

 

our ability to manage the risks associated with international operations;

 

anticipated changes, trends and challenges in our business and the transfusion diagnostics market;

 

the effects of competition;

 

the expected outcome or impact of litigation;

 

our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

 

our ability to extend the lease of our manufacturing facility located in Eysins, Switzerland

 

our anticipated cash needs, including the adequacy of our available cash and short-term investment balances relative to our forecasted cash requirements for the next twelve months, our expected sources of funding, and our estimates regarding our capital requirements and capital expenditures; and

 

our plans for executive and director compensation for the future.

You should also refer to the various factors identified in this and other reports filed by us with the Securities and Exchange Commission, or SEC, including but not limited to those discussed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2019, for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Further, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this Quarterly Report represent our views only as of the date of this Quarterly Report. Subsequent events and developments may cause our views to change. While we may elect to update these forward-looking statements at some point in the future, we undertake no obligation to publicly update any forward-looking statements, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report.

- 1 -


 

Available Information

Access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed with or furnished to the SEC, may be obtained through the investor section of our website at www.quotientbd.com as soon as reasonably practical after we electronically file or furnish these reports. We do not charge for access to and viewing of these reports. Information in the investor section and on our website is not part of this Quarterly Report on Form 10-Q or any of our other securities filings unless specifically incorporated herein by reference. In addition, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.

 

 

- 2 -


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(Expressed in thousands of U.S. Dollars — except for share data and per share data)

 

 

 

 

June 30,

2019

 

 

March 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,528

 

 

$

4,096

 

Short-term investments

 

 

84,151

 

 

 

90,729

 

Trade accounts receivable, net

 

 

4,724

 

 

 

3,348

 

Inventories

 

 

16,712

 

 

 

15,551

 

Prepaid expenses and other current assets

 

 

3,326

 

 

 

3,202

 

Total current assets

 

 

115,441

 

 

 

116,926

 

Restricted cash

 

 

9,016

 

 

 

7,507

 

Property and equipment, net

 

 

45,506

 

 

 

47,293

 

Operating lease right-of-use assets

 

 

17,615

 

 

 

 

Intangible assets, net

 

 

707

 

 

 

751

 

Deferred income taxes

 

 

592

 

 

 

605

 

Other non-current assets

 

 

4,568

 

 

 

4,688

 

Total assets

 

$

193,445

 

 

$

177,770

 

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,342

 

 

$

5,936

 

Accrued compensation and benefits

 

 

4,372

 

 

 

6,149

 

Accrued expenses and other current liabilities

 

 

9,441

 

 

 

12,458

 

Current portion of operating lease liability

 

 

2,723

 

 

 

 

Current portion of deferred lease rental benefit

 

 

 

 

 

435

 

Current portion of finance lease obligation

 

 

457

 

 

 

471

 

Total current liabilities

 

 

22,335

 

 

 

25,449

 

Long-term debt, less current portion

 

 

148,088

 

 

 

121,855

 

Operating lease liability, less current portion

 

 

16,176

 

 

 

 

Deferred lease rental benefit, less current portion

 

 

 

 

 

1,144

 

Finance lease obligation, less current portion

 

 

753

 

 

 

865

 

Defined benefit pension plan obligation

 

 

7,647

 

 

 

7,368

 

7% Cumulative redeemable preference shares

 

 

19,638

 

 

 

19,375

 

Total liabilities

 

 

214,637

 

 

 

176,056

 

Commitments and contingencies

 

 

 

 

 

 

Shareholders' equity (deficit):

 

 

 

 

 

 

 

 

Ordinary shares (nil par value) 66,212,893 and 65,900,447 issued and outstanding at

June 30, 2019 and March 31, 2019 respectively

 

 

369,021

 

 

 

368,958

 

Additional paid in capital

 

 

29,843

 

 

 

28,665

 

Accumulated other comprehensive loss

 

 

(15,823

)

 

 

(14,884

)

Accumulated deficit

 

 

(404,233

)

 

 

(381,025

)

Total shareholders' equity (deficit)

 

 

(21,192

)

 

 

1,714

 

Total liabilities and shareholders' equity (deficit)

 

$

193,445

 

 

$

177,770

 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

- 3 -


 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)

(Expressed in thousands of U.S. Dollars — except for share data and per share data)

 

 

 

 

Quarter ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

Product sales

 

$

8,169

 

 

$

7,864

 

Other revenues

 

 

 

 

 

19

 

Total revenue

 

 

8,169

 

 

 

7,883

 

Cost of revenue

 

 

(4,563

)

 

 

(4,065

)

Gross profit

 

 

3,606

 

 

 

3,818

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

(2,580

)

 

 

(2,281

)

Research and development, net of government grants

 

 

(11,653

)

 

 

(12,570

)

General and administrative expense:

 

 

 

 

 

 

 

 

Compensation expense in respect of share options and

   management equity incentives

 

 

(1,178

)

 

 

(1,347

)

Other general and administrative expenses

 

 

(6,619

)

 

 

(6,158

)

Total general and administrative expense

 

 

(7,797

)

 

 

(7,505

)

Total operating expense

 

 

(22,030

)

 

 

(22,356

)

Operating loss

 

 

(18,424

)

 

 

(18,538

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(6,086

)

 

 

(3,116

)

Other, net

 

 

952

 

 

 

(3,512

)

Other expense, net

 

 

(5,134

)

 

 

(6,628

)

Loss before income taxes

 

 

(23,558

)

 

 

(25,166

)

Provision for income taxes

 

 

(13

)

 

 

(11

)

Net loss

 

$

(23,571

)

 

$

(25,177

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Change in fair value of foreign currency

   cash flow hedges

 

$

(120

)

 

$

(332

)

Change in unrealized gain on short-term investments

 

 

147

 

 

 

26

 

Foreign currency gain (loss)

 

 

(1,014

)

 

 

357

 

Provision for pension benefit obligation

 

 

48

 

 

 

36

 

Other comprehensive income (loss), net

 

 

(939

)

 

 

87

 

Comprehensive loss

 

$

(24,510

)

 

$

(25,090

)

Net loss available to ordinary shareholders - basic and diluted

 

$

(23,571

)

 

$

(25,177

)

Loss per share - basic and diluted

 

$

(0.36

)

 

$

(0.55

)

Weighted-average shares outstanding - basic and diluted

 

 

66,078,290

 

 

 

45,796,533

 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

 

- 4 -


 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (unaudited)

(Expressed in thousands of U.S. Dollars — except for share data)

 

 

 

Ordinary shares

 

 

Additional paid in

 

 

Accumulated

Other Comprehensive

 

 

Accumulated

 

 

Total Shareholders'

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

Loss

 

 

Deficit

 

 

Equity (Deficit)

 

March 31, 2019

 

 

65,900,447

 

 

$

368,958

 

 

$

28,665

 

 

$

(14,884

)

 

$

(381,025

)

 

$

1,714

 

Issue of shares upon exercise of incentive share options and vesting of RSUs

 

 

312,446

 

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

63

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,571

)

 

 

(23,571

)

Change in the fair value of foreign currency cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

(120

)

 

 

 

 

 

(120

)

Change in unrealized gain on short-term investments

 

 

 

 

 

 

 

 

 

 

 

147

 

 

 

 

 

 

147

 

Foreign currency gain (loss) on:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term investment nature intra-entity balances

 

 

 

 

 

 

 

 

 

 

 

8,288

 

 

 

 

 

 

8,288

 

Retranslation of foreign entities

 

 

 

 

 

 

 

 

 

 

 

(9,302

)

 

 

 

 

 

(9,302

)

Provision for pension benefit obligation

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

 

 

 

48

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(939

)

 

 

 

 

 

(939

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,178

 

 

 

 

 

 

 

 

 

1,178

 

Cumulative effect of accounting changes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

363

 

 

 

363

 

June 30, 2019

 

 

66,212,893

 

 

$

369,021

 

 

$

29,843

 

 

$

(15,823

)

 

$

(404,233

)

 

$

(21,192

)

 

 

 

Ordinary shares

 

 

Additional paid in

 

 

Accumulated

Other Comprehensive

 

 

Accumulated

 

 

Total Shareholders'

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

Loss

 

 

Deficit

 

 

(Deficit)

 

March 31, 2018

 

 

45,646,424

 

 

$

253,934

 

 

$

23,708

 

 

$

(16,634

)

 

$

(275,639

)

 

$

(14,631

)

Issue of shares upon exercise of warrants

 

 

375,000

 

 

 

2,175

 

 

 

 

 

 

 

 

 

 

 

 

2,175

 

Issue of shares upon exercise of incentive share options and vesting of RSUs

 

 

43,277

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

20

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,177

)

 

 

(25,177

)

Change in the fair value of foreign currency cash

flow hedges

 

 

 

 

 

 

 

 

 

 

 

(332

)

 

 

 

 

 

(332

)

Change in unrealized gain on short-term investments

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

 

 

 

26

 

Foreign currency gain (loss) on:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term investment nature intra-

entity balances

 

 

 

 

 

 

 

 

 

 

 

3,629

 

 

 

 

 

 

3,629

 

Retranslation of foreign entities

 

 

 

 

 

 

 

 

 

 

 

(3,272

)

 

 

 

 

 

(3,272

)

Provision for pension benefit obligation

 

 

 

 

 

 

 

 

 

 

 

36

 

 

 

 

 

 

36

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

87

 

 

 

 

 

 

87

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,347

 

 

 

 

 

 

 

 

 

1,347

 

June 30, 2018

 

 

46,064,701

 

 

$

256,129

 

 

$

25,055

 

 

$

(16,547

)

 

$

(300,816

)

 

$

(36,179

)

 

The accompanying notes form an integral part of these consolidated financial statements.

 

 

- 5 -


 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Expressed in thousands of U.S. Dollars)

 

 

 

Quarter ended

June 30,

 

 

 

2019

 

 

2018

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(23,571

)

 

$

(25,177

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,038

 

 

 

3,333

 

Share-based compensation

 

 

1,178

 

 

 

1,347

 

Amortization of lease incentive

 

 

(109

)

 

 

(108

)

Swiss pension obligation

 

 

183

 

 

 

155

 

Amortization of deferred debt issue costs

 

 

2,107

 

 

 

291

 

Accrued preference share dividends

 

 

263

 

 

 

263

 

Deferred income taxes

 

 

13

 

 

 

11

 

Net change in assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable, net

 

 

(1,439

)

 

 

(141

)

Inventories

 

 

(1,160

)

 

 

(28

)

Accounts payable and accrued liabilities

 

 

(3,713

)

 

 

(5,401

)

Accrued compensation and benefits

 

 

(1,699

)

 

 

1,057

 

Other assets

 

 

(145

)

 

 

3,280

 

Net cash used in operating activities

 

 

(25,054

)

 

 

(21,118

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Increase in short-term investments

 

 

(15,000

)

 

 

 

Realization of short-term investments

 

 

21,724

 

 

 

 

Purchase of property and equipment

 

 

(1,138

)

 

 

(1,428

)

Net cash generated from (used in) investing activities

 

 

5,586

 

 

 

(1,428

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of finance leases

 

 

(94

)

 

 

(116

)

Proceeds from drawdown of new debt

 

 

25,000

 

 

 

36,000

 

Debt issuance costs and fees paid to noteholders

 

 

(874

)

 

 

(1,213

)

Proceeds from issuance of ordinary shares and warrants

 

 

63

 

 

 

2,195

 

Net cash generated from financing activities

 

 

24,095

 

 

 

36,866

 

Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash

 

 

(686

)

 

 

3,304

 

Change in cash, cash equivalents and restricted cash

 

 

3,941

 

 

 

17,624

 

Beginning cash, cash equivalents and restricted cash

 

 

11,603

 

 

 

25,205

 

Ending cash, cash equivalents and restricted cash

 

$

15,544

 

 

$

42,829

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

 

 

$

 

Interest paid

 

$

7,221

 

 

$

5,069

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

  Cash and cash equivalents

 

$

6,528

 

 

$

35,629

 

  Restricted cash

 

 

9,016

 

 

 

7,200

 

Total cash, cash equivalents and restricted cash

 

$

15,544

 

 

$

42,829

 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

- 6 -


 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of U.S. Dollars — except for share data and per share data, unless otherwise stated)

 

Note 1. Description of Business and Basis of Presentation

Description of Business

The principal activity of Quotient Limited (the “Company”) and its subsidiaries (the “Group”) is the development, manufacture and sale of products for the global transfusion diagnostics market. Products manufactured by the Group are sold to hospitals, blood banking operations and other diagnostics companies worldwide.

Basis of Presentation

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are unaudited. In accordance with those rules and regulations, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly the financial position, results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. The March 31, 2019 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The financial statements should be read in conjunction with the audited consolidated financial statements at and for the year ended March 31, 2019 included in the Company’s Annual Report on Form 10-K for the year then ended. The results of operations for the quarter ended June 30, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending March 31, 2020 and any future period.

The Company has incurred net losses and negative cash flows from operations in each year since it commenced operations in 2007 and had an accumulated deficit of $404.2 million as of June 30, 2019. At June 30, 2019 the Company had available cash holdings and short-term investments of $90.7 million. The Company’s existing available cash and short-term investment balances are adequate to meet its forecasted cash requirements for the next twelve months and accordingly the financial statements have been prepared on the going concern basis.

 

In the longer term, the Company expects to fund its operations, including the ongoing development of MosaiQ through successful field trial completion, achievement of required regulatory authorizations and commercialization, from the use of existing available cash and short-term investment balances and the issuance of new equity or debt.

 

 

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. All cash and cash equivalents comprised readily accessible cash balances. Restricted cash comprised $8.7 million and $7.2 million at June 30, 2019 and March 31, 2019, respectively, held in a cash reserve account pursuant to the indenture governing the Company’s 12% Senior Secured Notes (“the Secured Notes”) and $316 and $307 at June 30, 2019 and March 31, 2019, respectively, held in a restricted account as security for the property rental obligations of the Company’s Swiss subsidiary.

- 7 -


 

Short-term Investments

Short-term investments represent investments in a money-market fund which is valued daily and which has no minimum notice period for withdrawals. The fund is invested in a portfolio of holdings and the creditworthiness requirement for individual investment holdings is a minimum of an A rating from a leading credit-rating agency. The Company records the value of its investment in the fund based on the quoted value of the fund at the balance sheet date. Unrealized gains or losses are recorded in accumulated other comprehensive loss and are transferred to the statement of comprehensive loss when they are realized.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible trade receivables. Movements in the allowance for doubtful accounts are recorded in general and administrative expenses. The Company reviews its trade receivables to identify specific customers with known disputes or collectability issues. In addition, the Company maintains an allowance for all other receivables not included in the specific reserve by applying specific rates of projected uncollectible receivables to the various aging categories. In determining these percentages, the Company analyzes its historical collection experience, customer credit-worthiness, current economic trends and changes in customer payment terms.

Concentration of Credit Risks and Other Uncertainties

The carrying amounts for financial instruments consisting of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities. Derivative instruments, consisting of foreign exchange contracts, and short-term investments are stated at their estimated fair values, based on quoted market prices for the same or similar instruments. The counterparties to the foreign exchange contracts consist of large financial institutions of high credit standing. The short-term investments are invested in a fund which is invested in a portfolio of holdings and the creditworthiness requirement for individual investment holdings is a minimum of an A rating from a leading credit-rating agency.

The Company’s main financial institutions for banking operations hold all of the Company’s cash and cash equivalents as of June 30, 2019 and at March 31, 2019. The Company’s accounts receivable are derived from net revenue to customers and distributors located in the United States and other countries. The Company performs credit evaluations of its customers’ financial condition. The Company provides reserves for potential credit losses, but has not experienced significant losses to date. There was one customer whose accounts receivable balance represented 10% or more of total accounts receivable, net, as of June 30, 2019 and March 31, 2019. This customer represented 70% and 55% of the accounts receivable balances as of June 30, 2019 and March 31, 2019, respectively.

The Company currently sells products through its direct sales force and through third-party distributors. There was one customer that accounted for 10% or more of total product sales for the quarters ended June 30, 2019 and June 30, 2018. This customer represented 58% of total product sales for the quarter ended June 30, 2019 and 59% for the quarter ended June 30, 2018.

Fair Value of Financial Instruments

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company’s valuation techniques used to measure fair value maximized the use of observable inputs and minimized the use of unobservable inputs. The fair value hierarchy is based on the following three levels of inputs:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

See Note 6, “Commitment and Contingencies,” for information and related disclosures regarding the Company’s fair value measurements.

- 8 -


 

Inventory

Inventory is stated at the lower of standard cost (which approximates actual cost) or market, with cost determined on the first-in-first-out method. Accordingly, allocation of fixed production overheads to conversion costs is based on normal capacity of production. Abnormal amounts of idle facility expense, freight, handling costs and spoilage are expensed as incurred and not included in overhead. No stock-based compensation cost was included in inventory as of June 30, 2019 and March 31, 2019.

Property and Equipment

Property, equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets as follows:

Plant, machinery and equipment—4 to 20 years;

Leasehold improvements—the shorter of the lease term or the estimated useful life of the asset.

Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of property and equipment, are expensed as incurred.

Intangible Assets and Goodwill

Intangible assets related to product licenses are recorded at cost, less accumulated amortization. Intangible assets related to technology and other intangible assets acquired in acquisitions are recorded at fair value at the date of acquisition, less accumulated amortization. Intangible assets are amortized over their estimated useful lives, on a straight-line basis as follows:

Customer relationships—5 years

Brands associated with acquired cell lines—40 years

Product licenses—10 years

Other intangibles assets—7 years

The Company reviews its intangible assets for impairment and conducts an impairment review when events or circumstances indicate the carrying value of a long-lived asset may be impaired by estimating the future undiscounted cash flows to be derived from an asset to assess whether or not a potential impairment exists. No impairment losses have been recorded in either of the quarters ended June 30, 2019 or June 30, 2018.

Revenue Recognition

Revenue is recognized in accordance with ASU 2014-09, Revenue from Contracts with Customers.

Product revenue is recognized at a point in time upon transfer of control of a product to a customer, which is generally at the time of delivery at an amount based on the transaction price. Customers have no right of return except in the case of damaged goods and the Company has not experienced any significant returns of its products. Shipping and handling costs are expensed as incurred and included in cost of product sales. In those cases where the Company bills shipping and handling costs to customers, the amounts billed are classified as revenue.

Revenue is also earned from the provision of development services to a small number of original equipment manufacturer (“OEM”) customers. These development service contracts are reviewed individually to determine the nature of the performance obligations and the associated transaction prices.  In recent years, product development revenues have been commensurate with achieving milestones specified in the respective development agreements relating to those products. These milestones may include the approval of new products by the European or U.S. regulatory authorities, which are not within the Company’s control. While there can be no assurance that this will continue to be the case, the milestones have been such that they effectively represent completion of the Company’s performance obligations under a particular part of a development program. Should the Company fail to achieve these milestones the Company would not be entitled under the terms of the development agreements to any compensation for the work undertaken to date. As a result, the milestone-related revenues have been recognized as the contractual milestones are achieved.

- 9 -


 

Pursuant to an Umbrella Supply Agreement with Ortho-Clinical Diagnostics, Inc. (“Ortho”), the Company executed a product attachment relating to the development of a range of rare antisera products. During the year ended March 31, 2019, the Company recognized a milestone of $450 related to the submission to the FDA of an application to cover use of the products on an Ortho automation platform. The Company is entitled to receive further milestone payments totaling $1,050 related to FDA submissions and approvals of the use of the products on Ortho’s automation platforms. The Company expects these remaining milestones to be achieved in the financial year ending March 31, 2020.

In January 2015, the Company entered into a supply and distribution agreement with Ortho related to the commercialization and distribution of certain MosaiQ products. Under the terms of this agreement, the Company is entitled to receive milestone payments upon CE-mark and FDA approval, as well as upon the first commercial sale of the relevant MosaiQ products by Ortho within the European Union, United States and within any country outside of these two regions. The Company has concluded that as each of these milestones require significant levels of development work to be undertaken and there was no certainty at the start of the projects that the development work would be successful, these milestones are substantive and the revenue will be recognized when the milestones are achieved.

In the quarter ended June 30, 2019, revenue recognized from performance obligations related to prior periods was not material and, at June 30, 2019, revenue expected to be recognized in future periods related to remaining performance obligations was also not material.

Research and Development

Research and development expenses consist of costs incurred for company-sponsored and collaborative research and development activities. These costs include direct and research-related overhead expenses. The Company expenses research and development costs, including the expenses for research under collaborative agreements, as such costs are incurred. Where government grants or tax credits are available, the income concerned is included as a credit against the related expense.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of comprehensive loss.

In determining fair value of the stock-based compensation payments, the Company uses the Black–Scholes model and a single option award approach for share options and a barrier option pricing model for multi-year performance based restricted share units (“MRSUs”), both of which require the input of subjective assumptions. These assumptions include: the fair value of the underlying share, estimating the length of time employees will retain their awards before exercising them (expected term), the estimated volatility of the Company’s ordinary shares price over the expected term (expected volatility), risk-free interest rate (interest rate), expected dividends and the number of shares subject to awards that will ultimately not complete their vesting requirements (forfeitures).

Share Warrants

As of June 30, 2019, the Company had one class of warrants to purchase ordinary shares outstanding, which comprised warrants that were issued in December 2013 and August 2015 in connection with the establishment or increase of the Company’s then existing secured term loan facility. None of these warrants contain or contained any obligation to transfer value and, as such, the issuance of these warrants has been recorded in additional paid in capital as part of shareholders’ equity.

Leases

 

In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU 2016-02, Leases, or ASU 2016-02, to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company adopted ASU 2016-02 on April 1, 2019, or the effective date, and used the effective date as its date of initial application.

 

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. The Company also reviews the terms of the lease in accordance with ASU 2016-02 in order to determine whether the lease concerned is a finance or an operating lease. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less.

 

- 10 -


 

For finance leases, an asset is included within property and equipment and a lease liability equal to the present value of the minimum lease payments is included in current or long-term liabilities.  Interest expense is recorded over the life of the lease at a constant rate.

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. The operating lease right-of-use assets also include any lease payments made prior to the commencement date and any initial direct costs incurred, less any lease incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The incremental borrowing rate is determined at lease commencement, or as of April 1, 2019 for operating leases existing upon adoption of ASU 2016-02. The incremental borrowing rate is subsequently reassessed upon modification to the lease arrangement. Operating lease expense is recognized on a straight-line basis over the lease term.

 

In accordance with the guidance in ASU 2016-02, components of a lease should be split into three categories: lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.). Although separation of lease and non-lease components is required, certain practical expedients are available. In particular, entities may elect a practical expedient to not separate lease and non-lease components and instead account for each lease component and the related non-lease component together as a single component. The Company has elected to account for the lease and non-lease components of each of its operating leases as a single lease component and allocate all of the contract consideration to the lease component only. The lease component results in an operating lease right-of-use asset being recorded on the balance sheet and amortized on a straight-line basis as lease expense.

The finance lease assets and operating lease right-of-use assets are assessed for impairment in accordance with the Company’s accounting policy for long-lived assets.

Derivative Financial Instruments

In the normal course of business, the Company’s financial position is routinely subjected to market risk associated with foreign currency exchange rate fluctuations. The Company’s policy is to mitigate the effect of these exchange rate fluctuations on certain foreign currency denominated business exposures. The Company has a policy that allows the use of derivative financial instruments to hedge foreign currency exchange rate fluctuations on forecasted revenue denominated in foreign currencies. The Company carries derivative financial instruments (derivatives) on the balance sheet at their fair values. The Company does not use derivatives for trading or speculative purposes. The Company does not believe that it is exposed to more than a nominal amount of credit risk in its foreign currency hedges, as counterparties are large, global and well-capitalized financial institutions. To hedge foreign currency risks, the Company uses foreign currency exchange forward contracts, where possible and prudent. These forward contracts are valued using standard valuation formulas with assumptions about future foreign currency exchange rates derived from existing exchange rates, interest rates, and other market factors.

The Company considers its most current forecast in determining the level of foreign currency denominated revenue to hedge as cash flow hedges. The Company combines these forecasts with historical trends to establish the portion of its expected volume to be hedged. The revenue and expenses are hedged and designated as cash flow hedges to protect the Company from exposures to fluctuations in foreign currency exchange rates. If the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the related hedge gains and losses on the cash flow hedge are reclassified from accumulated other comprehensive loss to the consolidated statement of comprehensive loss at that time.

Income Taxes

The Company accounts for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements, but have not been reflected in taxable income. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value. Therefore, the Company provides a valuation allowance to the extent that is more likely than not that it will generate sufficient taxable income in future periods to realize the benefit of its deferred tax assets. Deferred tax assets and liabilities are classified as noncurrent on the balance sheet.

Debt Issuance Costs and Royalty Rights

The Company follows the requirements of Accounting Standards Update 2015-03, Interest — Imputation of Interest (Subtopic 835-30) — Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset.

- 11 -


 

On October 14, 2016, June 29, 2018 and May 15, 2019, the Company issued Secured Notes, and, on December 4, 2018, the Company amended the indenture governing the Secured Notes, which amendments became effective on December 18, 2018. In connection with these issuances and this amendment, the Company entered into royalty rights agreements with the subscribers and the consenting note holders, as applicable, which, as of June 30, 2019, provided for an aggregate amount of royalties payable thereunder of 3.4% of net sales of MosaiQ instruments and consumables made in the donor testing market in the United States and the European Union. All of these royalty rights agreements are treated as sales of future revenues that meet the requirements of Accounting Standards Codification Topic 470 “Debt” (“ASC 470”) to be treated as debt. The future cash outflows under the royalty rights agreements have been combined with the issuance costs (which includes the one-time consent payment of $3.9 million paid to holders of our Secured Notes in December 2018) and interest payable to calculate the effective interest rate of the Secured Notes and will be expensed through interest expense in the consolidated statement of comprehensive loss using the effective interest rate method over the term of the Secured Notes and royalty rights agreements.

Pension Obligation

The Company maintains a pension plan covering employees in Switzerland pursuant to the requirements of Swiss pension law. Certain aspects of the plan require that it be accounted for as a defined benefit plan pursuant to Accounting Standards Codification Topic, 715 Compensation – Retirement Benefits (“ASC 715”). The Company recognizes an asset for the plan’s overfunded status or a liability for the plan’s underfunded status in its consolidated balance sheets. Additionally, the Company measures the plan’s assets and obligations that determine its funded status as of the end of the year and recognizes the change in the funded status within ‘‘Accumulated other comprehensive loss’’. The service cost component of the net periodic benefit cost is disclosed in the same line item as other employee compensation costs arising from services rendered during the period, and the other components are reported separately from the line item that includes the service cost and within interest expense, net in the consolidated statement of comprehensive loss.

The Company uses an actuarial valuation to determine its pension benefit costs and credits. The amounts calculated depend on a variety of key assumptions, including discount rates and expected return on plan assets. Details of the assumptions used to determine the net funded status are set out in the notes to the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019. The Company’s pension plan assets are assigned to their respective levels in the fair value hierarchy in accordance with the valuation principles described in the ‘‘Fair Value of Financial Instruments’’ section above.

Adoption of New Accounting Standards

 

In February 2016, the FASB issued ASU 2016-02, Leases that requires lessees to recognize a right-of-use asset and a lease liability on their balance sheet for all leases with lease terms greater than 12 months but recognize expenses in their income statements in a manner similar to the previous guidance. ASU 2016-02 also requires new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The Company’s process of evaluating the impact of ASU 2016-02 has included reviewing all forms of leases and performing a completeness assessment over the lease population. The Company also performed detailed analysis to determine the appropriate incremental borrowing rates used to discount outstanding lease payments.  

The Company adopted ASU 2016-02 on April 1, 2019. In adopting this standard the Company applied the package of practical expedients in ASU 2016-02 which allow an entity to not reassess whether any expired or existing contracts are or contain leases, lease classification of any expired or existing leases and the accounting for any initial direct costs on any expired or existing leases. The Company also elected the additional transitional approach prescribed under ASU 2018-11 to allow the Company to apply the new standard from the date of adoption, rather than adjusting comparative periods, and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

 

The results for the quarter to June 30, 2019 reflect the adoption of ASU 2016-02 guidance while the results for the quarter to June 30, 2018 and the year to March 31, 2019 were prepared under the guidance of the previous leasing standard (Accounting Standard Codification 840).  The adoption of ASU 2016-02 has not had a material impact on the Company’s consolidated statements of comprehensive loss or consolidated statements of cash flows. The adoption of ASU 2016-02 resulted in the following impact on its consolidated balance sheet:

 

 

(i)

no change in the carrying values of assets or liabilities related to the Company’s finance leases,

 

(ii)

the recording of right-of-use assets and corresponding lease liabilities related to the Company’s operating leases, adjusted for existing balances of accrued rent liabilities and deferred lease rental benefit, and

 

(iii)

adjustments to reclassify the deferred gain on a sales and leaseback transaction to accumulated deficit as of the transition date.


- 12 -


 

 

The cumulative effect of adopting ASU 2016-02 to all leases that had commenced at or prior to April 1, 2019 was as follows:

 

Balance sheet captions impacted by ASU 2016-02

 

31 March 2019 (prior to adoption of ASU 2016-02)

 

 

Effect of the adoption of ASU 2016-02

 

 

March 31, 2019 (As adjusted)

 

Operating lease right-of use assets (1)

 

$

 

 

$

18,478

 

 

$

18,478

 

Current portion of operating lease liability (2)

 

 

 

 

 

3,130

 

 

 

3,130

 

Operating lease liability less current portion (3)

 

 

 

 

 

16,564

 

 

 

16,564

 

Current portion of deferred lease rental benefit (4)

 

 

435

 

 

 

(435

)

 

 

 

Deferred lease rental benefit, less current portion (5)

 

 

1,144

 

 

 

(1,144

)

 

 

 

Accumulated deficit (6)

 

 

(381,025

)

 

 

363

 

 

 

(380,662

)

 

(1)

Recognition of operating lease right-of-use assets and adjusted for the accrued rent and deferred lease rental benefit reclassifications referred to in footnotes (4) and (5) below.

(2)

Recognition of current portion of operating lease liabilities.

(3)

Recognition of the long-term portion of operating lease liabilities.

(4)

Current portion of deferred gain on sale and lease back transaction transferred to accumulated deficit and reclassification of current portion of deferred lease rental benefit to operating lease right-of-use assets.

(5)

Long-term portion of deferred gain on sale and lease back transaction transferred to accumulated deficit and reclassification of accrued rent to operating lease right-of-use assets.

(6)

Transfer of deferred gain on sale and leaseback transaction to accumulated deficit.

 

The Company has included additional disclosures in Note 12 to its condensed consolidated financial statements regarding its leasing portfolio.

 

In the condensed consolidated statement of cash flows the non-cash amortization of deferred lease rental benefit in the quarter ended June 30, 2018 has been retitled as amortization of lease incentive.

Recent Accounting Pronouncements Not Yet Adopted

 

In August 2018, the FASB issued ASU 2018-14, “Compensation Retirement Benefits - Defined Benefit Plans -General (Subtopic 715-20)” or ASU 2018-14. ASU 2018-14 removes the requirements to disclose the amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year and other disclosure requirements. In addition, the ASU adds the requirement to disclose an explanation for any significant gains and losses related to changes in the benefit obligation for the period. The ASU is effective for fiscal years ending after December 15, 2020 and will be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company continues to evaluate the impact that adoption of this guidance will have on its consolidated financial statements and related disclosures, but does not expect it to have a material impact.

 

Note 3. Intangible Assets

 

 

June 30, 2019

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

 

Weighted

Average

Remaining

Useful Life

 

Customer relationships

 

$

2,499

 

 

$

(2,499

)

 

$

 

 

 

 

Brands associated with acquired cell lines

 

 

515

 

 

 

(151

)

 

 

364

 

 

28.3 years

 

Product licenses

 

 

867

 

 

 

(524

)

 

 

343

 

 

4.0 years

 

Other intangibles

 

 

162

 

 

 

(162

)

 

 

 

 

 

 

Total

 

$

4,043

 

 

$

(3,336

)

 

$

707

 

 

16.5 years

 

- 13 -


 

 

 

 

March 31, 2019

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

 

Weighted

Average

Remaining

Useful Life

 

Customer relationships

 

$

2,564

 

 

$

(2,564

)

 

$

 

 

 

 

Brands associated with acquired cell lines

 

 

529

 

 

 

(153

)

 

 

376

 

 

28.4 years

 

Product licenses

 

 

890

 

 

 

(515

)

 

 

375

 

 

4.2 years

 

Other intangibles

 

 

167

 

 

 

(167

)

 

 

 

 

 

 

Total

 

$

4,150

 

 

$

(3,399

)

 

$

751

 

 

16.3 years

 

 

 

Note 4. Debt

Long-term debt comprises:

 

 

June 30,

2019

 

 

March 31,

2019

 

Total debt

 

$

145,000

 

 

$

120,000

 

Less current portion

 

 

 

 

 

 

Long-term debt

 

$

145,000

 

 

$

120,000

 

Deferred debt costs and royalty liability, net of amortization

 

 

3,088

 

 

 

1,855

 

 

 

$

148,088

 

 

$

121,855

 

 

The Company’s debt at June 30, 2019 comprises the Secured Notes. On October 14, 2016, the Company completed the private placement of up to $120 million aggregate principal amount of the Secured Notes and entered into an indenture governing the Secured Notes with the guarantors party thereto and U.S. Bank National Association, a national banking association, as trustee and collateral agent. The Company issued $84 million aggregate principal amount of the Secured Notes on October 14, 2016 and an additional $36 million aggregate principal amount of the Secured Notes on June 29, 2018. On December 18, 2018, the Company also completed certain amendments to the indenture governing the Secured Notes. The amendments included an increase to the aggregate principal amount of Secured Notes that can be issued under the indenture from $120 million to up to $145 million following the European CE Marking of the Company’s initial MosaiQ IH Microarray. On April 30, 2019, the Company was notified that it had received the European CE Marking of the initial MosaiQ IH Microarray and, on May 15, 2019, the Company issued the additional $25 million of Secured Notes.

The obligations of the Company under the indenture and the Secured Notes are unconditionally guaranteed on a secured basis by the guarantors, which include all the Company’s subsidiaries, and the indenture governing the Secured Notes contains customary events of default. The Company and its subsidiaries must also comply with certain customary affirmative and negative covenants, including a requirement to maintain six-months of interest in a cash reserve account maintained with the collateral agent. Upon the occurrence of a Change of Control, subject to certain conditions, or certain Asset Sales (each, as defined in the indenture), holders of the Secured Notes may require the Company to repurchase for cash all or part of their Secured Notes at a repurchase price equal to 101% or 100%, respectively, of the principal amount of the Secured Notes to be repurchased, plus accrued and unpaid interest to the date of repurchase.

The Company paid $8.7 million of the total proceeds of the three issuances into the cash reserve account maintained with the collateral agent under the terms of the indenture, $1.5 million of which related to the third issuance on May 15, 2019.

Interest on the Secured Notes accrues at a rate of 12% per annum and is payable semi-annually on April 15 and October 15 of each year commencing on April 15, 2017. Commencing on April 15, 2021, the Company will also pay an installment of principal of the Secured Notes on each April 15 and October 15 until April 15, 2024 pursuant to a fixed amortization schedule.

- 14 -


 

In connection with the three issuances of the Secured Notes as well as the amendment of the related indenture, the Company has entered into royalty rights agreements, pursuant to which the Company has agreed to pay 3.4% of the aggregate net sales of MosaiQ instruments and consumables made in the donor testing market in the United States and the European Union. The royalties will be payable beginning on the date that the Company or its affiliates makes its first sale of MosaiQ consumables in the donor testing market in the European Union or the United States and will end on the last day of the calendar quarter in which the eighth anniversary of the first sale date occurs. The royalty rights agreements are treated as sales of future revenues that meet the requirements of Accounting Standards Codification Topic 470 “Debt” to be treated as debt. The estimated future cash outflows under the royalty rights agreements have been combined with the Secured Notes issuance costs and interest payable to calculate the effective interest rate of the Secured Notes and will be expensed through interest expenses using the effective interest rate method over the term of the Secured Notes and such royalty rights agreements. Estimating the future cash outflows under the royalty rights agreements requires the Company to make certain estimates and assumptions about future sales of MosaiQ products. These estimates of the magnitude and timing of MosaiQ sales are subject to significant variability due to the current status of development of MosaiQ products, and thus are subject to significant uncertainty. Therefore, the estimates are likely to change as the Company gains experience of marketing MosaiQ, which may result in future adjustments to the accretion of the interest expense and amortized cost based carrying value of the Secured Notes.

At June 30, 2019, the outstanding debt was repayable as follows:

 

Within 1 year

 

$

 

Between 1 and 2 years

 

 

12,083

 

Between 2 and 3 years

 

 

30,208

 

Between 3 and 4 years

 

 

48,334

 

Between 4 and 5 years

 

 

54,375

 

Total debt

 

$

145,000

 

 

 

Note 5. Consolidated Balance Sheet Detail

Inventory

The following table summarizes inventory by category for the dates presented:

 

 

June 30,

2019

 

 

March 31,

2019

 

Raw materials

 

$

8,944

 

 

$

8,216

 

Work in progress

 

$

5,859