qtnt-10q_20151231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended December 31, 2015

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.)

 

 

Pentlands Science Park

Bush Loan, Penicuik, Midlothian

EH26 0PZ, United Kingdom

 

Not Applicable

(Address of principal executive offices)

 

(Zip Code)

001-44-131-445-6159

(Registrant’s telephone number, including area code)

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

 

Large accelerated filer ¨

 

Accelerated filer ¨

  

Non-accelerated filer x

(Do not check if a smaller
reporting company)

 

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

As of February 10, 2016 there were 25,408,950 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

  

 

- 17 -

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

 

- 29 -

 

 

Item 4. Controls and Procedures

  

 

- 30 -

 

 

PART II – OTHER INFORMATION

  

 

- 30 -

 

 

Item 1. Legal Proceedings

  

 

- 30 -

 

 

Item 1A. Risk Factors

  

 

- 30 -

 

 

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

  

 

- 30 -

 

 

Item 3. Defaults Upon Senior Securities

  

 

- 30 -

 

 

Item 4. Mine Safety Disclosures

  

 

- 30 -

 

 

Item 5. Other Information

  

 

- 30 -

 

 

Item 6. Exhibits

  

 

- 30 -

 

 

Signatures

 

 

- 31 -

 

 

 

 

- 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 Final 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 development, regulatory approval and commercialization of MosaiQTM;

 

·

the design of blood grouping and disease screening capabilities of MosaiQTM and the benefits of MosaiQTM for both customers and patients;

 

·

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

 

·

our expected profit margins for MosaiQTM;

 

·

the size of the market for MosaiQTM ;

 

·

the regulation of MosaiQTM 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 conventional reagent 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 anticipated cash needs and our expected sources of funding, including the achievement of product development milestones, 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, 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, 2015, 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 -


 

Where you can find more information

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You can inspect, read and copy these reports, proxy statements and other information at the Securities and Exchange Commission’s Public Reference Room, which is located at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information regarding the operation of the Securities and Exchange Commission’s Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission also maintains a website at www.sec.gov that makes available reports, proxy statements and other information regarding issuers that file electronically.

We make available free of charge at www.quotientbd.com (in the “Investors” section) copies of materials we file with, or furnish to, the Securities and Exchange Commission. By referring to our corporate website, www.quotientbd.com, we do not incorporate any such website or its contents into this Quarterly Report on Form 10-Q.

 

 

- 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)

 

 

 

December 31,

2015

 

 

March 31,

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,061

 

 

$

37,525

 

Trade accounts receivable, net

 

 

1,479

 

 

 

1,808

 

Inventories

 

 

7,812

 

 

 

4,608

 

Prepaid expenses and other current assets

 

 

6,305

 

 

 

5,580

 

Total current assets

 

 

39,657

 

 

 

49,521

 

Property and equipment, net

 

 

48,944

 

 

 

29,733

 

Intangible assets, net

 

 

952

 

 

 

950

 

Total assets

 

$

89,553

 

 

$

80,204

 

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,241

 

 

$

7,238

 

Accrued compensation and benefits

 

 

1,777

 

 

 

2,565

 

Accrued expenses and other current liabilities

 

 

3,992

 

 

 

8,787

 

Financial liability in respect of share warrants

 

 

 

 

 

31,011

 

Current portion of long-term debt

 

 

 

 

 

4,500

 

Current portion of lease incentive

 

 

426

 

 

 

435

 

Current portion of capital lease obligation

 

 

168

 

 

 

239

 

Total current liabilities

 

 

15,604

 

 

 

54,775

 

Long-term debt, less current portion

 

 

28,689

 

 

 

9,853

 

Lease incentive, less current portion

 

 

1,383

 

 

 

1,740

 

Capital lease obligation, less current portion

 

 

1,794

 

 

 

276

 

7% Cumulative redeemable preference shares

 

 

15,963

 

 

 

15,175

 

Total liabilities

 

 

63,433

 

 

 

81,819

 

Commitments and contingencies

 

 

 

 

 

 

Shareholders' equity (deficit)

 

 

 

 

 

 

 

 

Ordinary shares (nil par value) 20,964,405 and 17,020,574 issued and outstanding

   at December 31, 2015 and March 31, 2015 respectively;

 

 

119,078

 

 

 

84,525

 

Additional paid in (distribution in excess of) capital

 

 

11,040

 

 

 

(6,684

)

Accumulated other comprehensive loss

 

 

(5,279

)

 

 

(5,102

)

Accumulated deficit

 

 

(98,719

)

 

 

(74,354

)

Total shareholders' equity (deficit)

 

 

26,120

 

 

 

(1,615

)

Total liabilities and shareholders' equity (deficit)

 

$

89,553

 

 

$

80,204

 

 

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

 

 

Nine months ended

 

 

 

December 31

 

 

December 31

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

4,354

 

 

$

3,962

 

 

$

13,477

 

 

$

13,756

 

Other revenues

 

 

 

 

 

100

 

 

 

 

 

 

750

 

Total revenue

 

 

4,354

 

 

 

4,062

 

 

 

13,477

 

 

 

14,506

 

Cost of revenue

 

 

(2,225

)

 

 

(2,204

)

 

 

(7,100

)

 

 

(7,361

)

Gross profit

 

 

2,129

 

 

 

1,858

 

 

 

6,377

 

 

 

7,145

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

(918

)

 

 

(789

)

 

 

(2,350

)

 

 

(2,095

)

Research and development, net of government grants

 

 

(6,931

)

 

 

(4,453

)

 

 

(22,122

)

 

 

(13,573

)

General and administrative expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation expense in respect of share options and

   management equity incentives

 

 

(566

)

 

 

(305

)

 

 

(1,380

)

 

 

(814

)

Other general and administrative expenses

 

 

(6,493

)

 

 

(3,638

)

 

 

(16,768

)

 

 

(10,617

)

Total general and administrative expense

 

 

(7,059

)

 

 

(3,943

)

 

 

(18,148

)

 

 

(11,431

)

Total operating expense

 

 

(14,908

)

 

 

(9,185

)

 

 

(42,620

)

 

 

(27,099

)

Operating loss

 

 

(12,779

)

 

 

(7,327

)

 

 

(36,243

)

 

 

(19,954

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,134

)

 

 

(541

)

 

 

(2,992

)

 

 

(1,613

)

Change in financial liability for share warrants

 

 

3,830

 

 

 

(34,565

)

 

 

15,857

 

 

 

(33,581

)

Other, net

 

 

305

 

 

 

130

 

 

 

(987

)

 

 

(1,490

)

Other income (expense), net

 

 

3,001

 

 

 

(34,976

)

 

 

11,878

 

 

 

(36,684

)

Loss before income taxes

 

 

(9,778

)

 

 

(42,303

)

 

 

(24,365

)

 

 

(56,638

)

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(9,778

)

 

$

(42,303

)

 

$

(24,365

)

 

$

(56,638

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of effective portion of foreign currency cash flow

   hedges

 

$

(89

)

 

$

(35

)

 

$

120

 

 

$

(288

)

Foreign currency loss

 

 

(1,491

)

 

 

(1,219

)

 

 

(297

)

 

 

(2,711

)

Other comprehensive loss, net

 

 

(1,580

)

 

 

(1,254

)

 

 

(177

)

 

 

(2,999

)

Comprehensive loss

 

$

(11,358

)

 

$

(43,557

)

 

$

(24,542

)

 

$

(59,637

)

Net loss available to ordinary shareholders - basic and diluted

 

$

(9,778

)

 

$

(42,303

)

 

$

(24,365

)

 

$

(56,638

)

Loss per share - basic and diluted

 

$

(0.48

)

 

$

(2.80

)

 

$

(1.33

)

 

$

(3.95

)

Weighted-average shares outstanding - basic and diluted

 

 

20,398,132

 

 

 

15,101,441

 

 

 

18,284,708

 

 

 

14,352,476

 

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

 

 

- 4 -


 

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

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

 

 

 

Ordinary shares

 

 

Additional paid in (Distribution

in excess of)

 

 

Accumulated

Other Comprehensive

 

 

Accumulated

 

 

Total Shareholders'

Equity

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

Loss

 

 

Deficit

 

 

(Deficit)

 

Balances, March 31, 2015

 

 

17,020,574

 

 

$

84,525

 

 

$

(6,684

)

 

$

(5,102

)

 

$

(74,354

)

 

$

(1,615

)

Issue of shares upon exercise of incentive share

   options and vesting of RSUs

 

 

21,112

 

 

 

40

 

 

 

 

 

 

 

 

 

 

 

 

40

 

Issue of shares upon exercise of warrants

 

 

3,922,719

 

 

 

34,513

 

 

 

15,154

 

 

 

 

 

 

 

 

 

49,667

 

Issue of warrants

 

 

 

 

 

 

 

 

1,190

 

 

 

 

 

 

 

 

 

1,190

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,365

)

 

 

(24,365

)

Change in the fair value of the effective portion

   of foreign currency cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

120

 

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

(297

)

 

 

 

 

 

(297

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(177

)

 

 

 

 

 

(177

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,380

 

 

 

 

 

 

 

 

 

1,380

 

Balances, December 31, 2015

 

 

20,964,405

 

 

$

119,078

 

 

$

11,040

 

 

$

(5,279

)

 

$

(98,719

)

 

$

26,120

 

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)

 

 

 

Nine months ended

December 31,

 

 

 

2015

 

 

2014

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(24,365

)

 

$

(56,638

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,573

 

 

 

938

 

Share-based compensation

 

 

1,380

 

 

 

814

 

Amortization of lease incentive

 

 

(327

)

 

 

(345

)

Amortization of deferred debt issue costs

 

 

1,250

 

 

 

587

 

Accrued preference share dividends

 

 

788

 

 

 

 

Change in financial liability for share warrants

 

 

(15,857

)

 

 

33,581

 

Net change in assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable, net

 

 

307

 

 

 

161

 

Inventories

 

 

(3,249

)

 

 

(365

)

Accounts payable and accrued liabilities

 

 

(2,675

)

 

 

4,109

 

Accrued compensation and benefits

 

 

(803

)

 

 

(320

)

Other assets

 

 

(725

)

 

 

(731

)

Net cash used in operating activities

 

 

(42,703

)

 

 

(18,209

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(19,832

)

 

 

(13,429

)

Purchase of intangible assets

 

 

(64

)

 

 

(203

)

Net cash used in investing activities

 

 

(19,896

)

 

 

(13,632

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from finance leases

 

 

55

 

 

 

304

 

Proceeds from drawdown of new debt, net of costs

 

 

14,297

 

 

 

 

Proceeds from issuance of ordinary shares

 

 

34,553

 

 

 

59,329

 

Net cash generated from financing activities

 

 

48,905

 

 

 

59,633

 

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

230

 

 

 

(1,934

)

Change in cash and cash equivalents

 

 

(13,464

)

 

 

25,858

 

Beginning cash and cash equivalents

 

 

37,525

 

 

 

7,192

 

Ending cash and cash equivalents

 

$

24,061

 

 

$

33,050

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

 

 

$

 

Interest paid

 

$

1,463

 

 

$

346

 

 

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 and cash flows for the interim periods presented. The March 31, 2015 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, 2015 included in the Company’s Annual Report on Form 10-K for the year then ended. The results of operations for the nine month period ended December 31, 2015 are not necessarily indicative of the results of operations that may be expected for the year ending March 31, 2016 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 $98.7 million as of December 31, 2015. At December 31, 2015 the Company had cash holdings of $24.1 million and had covenants in place with lenders to maintain cash holdings above $10 million. As explained in Note 10, on February 10, 2016 the Company completed a public equity offering to raise $36.9 million, net of underwriting fees and commissions and other offering expenses. The Company has expenditure plans over the next fifteen months that exceed its current cash holdings, raising substantial doubt about its ability to continue as a going concern. The Company expects to fund its operations from a combination of funding sources, including through the use of existing cash balances, product sales, asset sales, the achievement of product development milestones, the extension or expansion of its credit facilities and the issuance of further new equity. The Company’s Directors are confident in the availability of these funding sources and accordingly have prepared the financial statements on the going concern basis. However, there can be no assurance that the Company will be able to obtain adequate financing when necessary and the terms of any financings may not be advantageous to the Company and may result in dilution to its shareholders.  

 

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. As of December, 2015 and March 31, 2015, all cash and cash equivalents comprised readily accessible cash balances except for $307 at December 31, 2015 and $314 at March 31, 2015 held in a restricted account as security for the property rental obligations of the Company’s Swiss subsidiary.

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. Additions to the allowance for doubtful accounts are recorded as 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

- 7 -


 

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 entirely of foreign exchange contracts, are stated at their estimated fair values, based on quoted market prices for the same or similar instruments. The counterparties to the agreements relating to the Company’s derivative instruments consist of large financial institutions of high credit standing.

The Company’s main financial institutions for banking operations hold all of the Company’s cash and cash equivalents as of December 31, 2015 and at March 31, 2015. 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 December 31, 2015 and March 31, 2015. This customer represented 37% and 47% of the accounts receivable balances as of December 31, 2015 and March 31, 2015, respectively.

The Company currently sells products through its direct sales force and through third-party distributors. There was one direct customer that accounted for 10% or more of total product sales for the nine month periods ended December 31, 2015 and December 31, 2014. This customer represented 56% of total product sales for the nine month period ended December 31, 2015 and 55% for the nine month period ended December 31, 2014.

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.

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 December 31, 2015 and March 31, 2015.

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:

·

Land—not depreciated.

·

Plant, machinery and equipment—4 to 25 years;

·

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

- 8 -


 

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 nine month periods ended December 31, 2015 or December 31, 2014.

Revenue Recognition

The Company recognizes revenue from product sales when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. Customers have no right of return except in the case of damaged goods. 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.

The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services. The terms of these arrangements may include non-refundable upfront payments, milestone payments, other contingent payments and royalties on any product sales derived on collaboration. Up-front fees received in connection with collaborative agreements are deferred upon receipts, are not considered a separate unit of accounting and are recognized as revenues over the relevant performance periods. Revenues related to research and development services included in a collaboration agreement are recognized as research and services are performed over the related performance periods for each contract. A payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved.

In June 2013, the Company entered into an agreement with Ortho-Clinical Diagnostics Inc. (“OCD”) to develop a range of rare antisera products. The Company had been working on this project for more than a year before the formal agreement was signed with OCD. Under the terms of the agreement, the Company is entitled to receive milestone payments of $1,400 upon the receipt of FDA approval of the rare antisera products and two further milestones of $500 each upon the updating of the CE-mark and FDA approvals to cover use of the products on OCD’s automation platform. 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 project that the development work would be successful, these milestones are substantive and will be accounted for under the milestone method of revenue recognition. The agreement also contains one further milestone of $650 payable upon fulfillment of $250 of cumulative orders of the rare antisera products covered by the agreement. This payment represents a royalty payment and was recognized in the quarter ended June 30, 2014 when the sales target was achieved.

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.

- 9 -


 

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 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 an expense over the requisite service periods in the Company’s Condensed Consolidated Statements of Comprehensive Loss. Compensation cost related to restricted stock units with a market condition is recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. Stock-based compensation cost for restricted stock units granted to non-employees is measured when the awards vest and the expense is recognized during the period the related services are rendered.

In determining the fair value of the stock-based compensation payments in respect of share options, the Company uses the Black–Scholes model and a single option award approach, which requires the input of subjective assumptions. These assumptions include: the fair value of the underlying share, estimating the length of time employees will retain their vested stock options 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 options that will ultimately not complete their vesting requirements (forfeitures). The Company uses a barrier option pricing model to determine the grant date fair value of its multi-year performance related restricted stock unit awards. This requires the use of similar assumptions to the Black-Scholes model.

Debt Issuance Costs

On September 30, 2015, the Company elected to adopt early 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.   In view of the refinancing of the Company’s secured credit facility on August 3, 2015 (see note 4), the Company believes that it is preferable to adopt this presentation in the year of refinancing in order to reflect more accurately the assets of the Company and the substance of the financing arrangements.  Comparative financial statements of prior years have been adjusted to apply the new presentation retrospectively.   This had the effect of reducing “Prepaid expenses and other current assets” and “Other non-current assets at March 31, 2015 by $549 and $366, respectively, with a consequential reduction in “Long term debt, less current portion” of $915.   There has been no impact on the comparative Statements of comprehensive loss, Statement of changes in shareholders’ deficit or Statements of cash flows.

 

Note 3. Intangible Assets

 

 

 

December 31, 2015

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

 

Weighted

Ave.

Remaining

Useful Life

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

2,915

 

 

$

(2,915

)

 

$

 

 

 

 

Brands associated with acquired cell lines

 

 

601

 

 

 

(125

)

 

 

476

 

 

31.7 years

 

Product licenses

 

 

770

 

 

 

(294

)

 

 

476

 

 

6.2 years

 

Other intangibles

 

 

189

 

 

 

(189

)

 

 

 

 

 

 

Total

 

$

4,475

 

 

$

(3,523

)

 

$

952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

 

Weighted

Ave.

Remaining

Useful Life

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

2,923

 

 

$

(2,923

)

 

$

 

 

 

 

Brands associated with acquired cell lines

 

 

603

 

 

 

(115

)

 

 

488

 

 

32.4 years

 

Product licenses

 

 

703

 

 

 

(241

)

 

 

462

 

 

6.6 years

 

Other intangibles

 

 

190

 

 

 

(190

)

 

 

 

 

 

 

Total

 

$

4,419

 

 

$

(3,469

)

 

$

950

 

 

 

 

 

 

 

- 10 -


 

Note 4. Debt

Long-term debt comprises:

 

 

 

December 31,

2015

 

 

March 31,

2015

 

Total debt

 

$

30,000

 

 

$

15,000

 

Less current portion

 

 

 

 

 

(4,500

)

Long-term debt

 

$

30,000

 

 

$

10,500

 

Deferred debt costs, net of amortization

 

 

(299

)

 

 

(428

)

Fair value of associated share warrant, net of amortization

 

 

(1,012

)

 

 

(219

)

 

 

$

28,689

 

 

$

9,853

 

 

On August 3, 2015, the Company drew down $30,000 under a new secured credit facility agreement with MidCap Financial Trust. The facility is repayable over a four year period with no repayments until March 1, 2017 when the first of 30 equal monthly repayments is due. If the Company achieves CE Mark approvals for the MosaiQTM instrument and blood grouping consumable, the facility is repayable over a four year period with no repayments until September 1, 2017 when the first of 24 equal monthly repayments is due. The facility bears interest at LIBOR plus 6.7%. The LIBOR rate applicable is the higher of the actual market rate from time to time or 2.0%. Other expense for the nine month period ended December 31, 2015 included $0.6 million of previously deferred fees that were expensed as a result of the expansion of the credit facility.

At December 31, 2015, the outstanding debt is repayable as follows:

 

Within 1 year

 

$

 

Between 1 and 2 years

 

 

10,000

 

Between 2 and 3 years

 

 

12,000

 

Between 3 and 4 years

 

 

8,000

 

Total debt

 

$

30,000

 

 

 

Note 5. Consolidated Balance Sheet Detail

Inventory

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

 

 

 

December 31,

2015

 

 

March 31,

2015

 

Raw materials

 

$

4,137

 

 

$

1,180

 

Work in progress

 

 

2,532

 

 

 

2,071

 

Finished goods

 

 

1,143

 

 

 

1,357

 

Total inventories

 

$

7,812

 

 

$

4,608

 

 

Property and equipment

The following table summarizes property and equipment by categories for the dates presented:

 

 

 

December 31,

2015

 

 

March 31,

2015

 

Land

 

$

1,525

 

 

$

 

Plant and Machinery

 

 

35,886

 

 

 

21,688

 

Leasehold improvements

 

 

16,350

 

 

 

11,412

 

Total property and equipment

 

 

53,761

 

 

 

33,100

 

Less: accumulated depreciation

 

 

(4,817

)

 

 

(3,367

)

Total property and equipment, net

 

$

48,944

 

 

$

29,733

 

 

Depreciation expenses were $643 and $316 in the quarters ended December 31, 2015 and December 31, 2014 respectively and $1,510 and $873 in the nine month periods ended December 31, 2015 and December 31, 2014 respectively.

- 11 -


 

Accrued compensation and benefits

Accrued compensation and benefits consist of the following:

 

 

 

December 31,

2015

 

 

March 31,

2015

 

Salary and related benefits

 

$

59

 

 

$

300

 

Accrued vacation

 

 

267

 

 

 

165

 

Accrued payroll taxes

 

 

551

 

 

 

302

 

Accrued incentive payments

 

 

900

 

 

 

1,798

 

Total accrued compensation and benefits

 

$

1,777

 

 

$

2,565

 

 

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

 

December 31,

2015

 

 

March 31,

2015

 

Accrued legal and professional fees

 

$

182

 

 

$

3,758

 

Accrued interest

 

 

225

 

 

 

112

 

Goods received not invoiced

 

 

933

 

 

 

787

 

Accrued capital expenditure

 

 

230

 

 

 

972

 

Accrued development expenditure

 

 

1,786

 

 

 

2,110

 

Other accrued expenses

 

 

636

 

 

 

1,048

 

Total accrued expenses and other current liabilities

 

$

3,992

 

 

$

8,787

 

 

 

Note 6. Commitments and Contingencies

Government Grant

In 2008, the Company was awarded research and development grant funding from Scottish Enterprise amounting to £1,791, for the development of MosaiQTM. The total grant claimed to December 31, 2015 is £1,790. Regular meetings are held to update Scottish Enterprise with the status of the project and while the terms of the grant award provide for full repayment of the grant in certain circumstances, the Company does not consider that any repayment is likely.

Hedging arrangements

The Company’s subsidiary in the United Kingdom (“UK”) has entered into twelve forward exchange contracts to sell $500 and purchase pounds sterling at £1:$1.50 in each calendar month through December 2016 as a hedge of its U.S. dollar denominated revenues. The fair value of foreign currency forward contracts has been determined by calculating the present value of future cash flows, estimated using market-based observable inputs including forward and spot exchange rates and interest rate curves obtained from third party market price quotations.

Share warrants

As part of its initial public offering in April 2014 the Company issued 5 million warrants each to acquire 0.8 of an ordinary share for a price of $8.80 per whole share (“IPO warrants”). During the period from the initial public offering to October 26, 2015 when the warrants expired, 4,981,052 of these warrants were exercised and the remaining 18,948 expired on October 26, 2015. As of March 31, 2015, the financial statements included a financial liability of $31,011 in respect of these warrants which was equal to the market price of the outstanding warrants at that date. As of December 31, 2015 no financial liability in respect of the IPO warrants was included in the financial statements.  

- 12 -


 

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy:

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

 

 

$

 

 

$

 

 

$

 

Total assets measured at fair value

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

 

 

$

79

 

 

$

 

 

$

79

 

Fair value of share warrants

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$

 

 

$

79

 

 

$

 

 

$

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

 

 

$

 

 

$

 

 

$

 

Total assets measured at fair value

 

$

 

 

$

 

 

$