You should read the following in conjunction with the "Selected Consolidated
Financial Data" and the consolidated financial statements of GenMark and the
related notes thereto that appear elsewhere in this Annual Report. In addition
to historical information, the following discussion and analysis includes
forward looking information that involves risks, uncertainties, and assumptions.
Actual results and the timing of events could differ materially from those
anticipated by these forward looking statements as a result of many factors,
including those discussed under the heading "Risk Factors" included elsewhere in
this Annual Report. See also "Forward Looking Statements" included elsewhere in
this filing.
Overview
GenMark is a molecular diagnostics company focused on developing and
commercializing multiplex solutions designed to enhance patient care, improve
key quality metrics, and reduce the total cost-of-care. We currently develop and
commercialize high-value, simple to perform, clinically relevant multiplex
molecular tests based on our proprietary eSensor electrochemical detection
technology.
Since inception, we have incurred net losses from operations each year, and we
expect to continue to incur losses for the foreseeable future. Our net losses
for the years ended December 31, 2020, 2019, and 2018 were approximately $18.6
million, $47.4 million, and $50.5 million, respectively. As of December 31,
2020, we had an accumulated deficit of $532.9 million. Our operations to date
have been funded principally through sales of capital stock, borrowings, and
cash from operations.
Our Products and Technology
We offer our ePlex sample-to-answer instrument and Respiratory Pathogen ("RP")
Panel, Respiratory Pathogen Panel 2 ("RP2"), Blood Culture Identification
Gram-Positive ("BCID-GP") Panel, Blood Culture Identification Gram-Negative
("BCID-GN") Panel, and Blood Culture Identification Fungal Pathogen ("BCID-FP")
Panel for sale in the United States and internationally. In addition, in
response to the COVID-19 outbreak, we received Emergency Use Authorization
("EUA") from the U.S. Food and Drug Administration (the "FDA"), in March 2020
for our ePlex SARS-CoV-2 Test. We discontinued sales of our ePlex SARS-CoV-2
Test in the fourth quarter of 2020. We also received CE Mark and FDA EUA for
RP2, which is designed to provide results for SARS-CoV-2 in addition to the
other respiratory viruses contained on our ePlex RP Panel. We are also
developing our ePlex Gastrointestinal Pathogen ("GI") Panel for the detection of
pathogens associated with gastrointestinal infections. We continue to actively
evaluate the development of additional assay panels that we believe will meet
important, unmet clinical needs, which our ePlex system is uniquely positioned
to address.
We offer four FDA-cleared diagnostic tests which run on our XT-8 instrument: our
Respiratory Viral Panel; our Cystic Fibrosis Genotyping Test; our Warfarin
Sensitivity Test; and our Thrombophilia Risk Test. We also offer a Hepatitis C
("HCV") Genotyping Test and associated custom manufactured reagents, as well as
a 2C19 Genotyping Test, each of which is available for use with our XT-8
instrument for research use only ("RUO"). In addition, in August 2020 we
submitted an EUA to the FDA for our eSensor SARS-CoV-2 Test.
COVID-19 Impact
Our priorities following the COVID-19 outbreak have been, among others,
protecting the health and safety of our employees; and increasing our
manufacturing capacity for our ePlex tests including RP2, which includes the
SARS-CoV-2 pathogen target, and the SARS-CoV-2 single target test in order to
assist our customers with the current pandemic. We discontinued the sale of our
ePlex SARS-CoV-2 test in the fourth quarter of 2020. We continued to expand our
manufacturing capacity to address demand for our tests.
During the year ended December 31, 2020, portions of our workforce worked
remotely as their positions allowed. Our ability to continue to operate without
any significant negative operational impact from the COVID-19 pandemic will, in
part, depend on our ability to protect our employees and maintain our supply
chain. We continue to endeavor to follow the recommended actions of government
and health authorities to protect our employees, with particular measures in
place for employees who manufacture our products. However, the complications
resulting from the pandemic could result in unforeseen disruptions to our
workforce and supply chain (for example, the inability of a key supplier or
transportation supplier to source, transport and supply materials to us that are
necessary for continued operations) that could negatively impact our operations.
We believe the extent of the COVID-19 pandemic's impact on our operating results
and financial condition will be driven by many factors, most of which are beyond
our control and ability to forecast. Such factors include, but are not limited
to, the severity and duration of the pandemic, our ability to timely develop,
commercialize and manufacture solutions related to the pandemic, the extent and
the effectiveness of responsive actions taken by authorities of impacted
countries, the impact of these and other factors on our employees, customers and
suppliers, as well as any resulting impact of the economic uncertainty and
volatility that could affect demand for our products. Because of these and other
uncertainties, we cannot estimate the length or extent of the impact of the
pandemic on our business. For additional information on risk factors related to
the pandemic or other risks that could impact our results, please refer to "Risk
Factors" included in Part I, Item 1A of this Annual Report on Form 10-K.
                                       23
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Revenue


Revenue from operations includes revenue from the sale of our products and other
services. Product revenue comprises the sale of diagnostic tests and
instruments. In addition to selling our instruments, we also place our
instruments with customers through a reagent rental agreement, under which we
retain title to the instrument and customers generally commit to purchasing
minimum quantities of reagents and test cartridges over a period of one to five
years. Under our reagent rental agreements, a portion of the price charged to
customers from the sale of test cartridges is attributable to the usage fee for
the instrument. Other revenue primarily consists of freight revenue and revenue
from extended service agreements.
Cost of Revenues
Cost of revenues includes the cost of materials, direct labor, and manufacturing
overhead costs used in the manufacture of our consumable tests. Cost of revenues
also includes depreciation on revenue generating instruments that have been
placed with our customers under a reagent rental agreement, cost of instruments
sold to customers, amortization of licenses related to our products, and other
costs such as warranty, royalty, and customer and product technical support. Any
potential underutilized capacity may result in a high cost of revenues relative
to revenue, if manufacturing volumes are not able to fully absorb operating
costs. Our instruments are procured from contract manufacturers. We expect our
cost of revenues to increase as we place additional instruments and manufacture
and sell additional diagnostic panels; however, over time, we expect our cost
per unit to decrease as production volume increases, manufacturing efficiencies
are realized, improvements to procurement practices are made, product
reliability increases, and other improvements decrease costs.
Sales and Marketing Expenses
Sales and marketing expenses include costs associated with our direct sales
force, sales management, marketing, customer support, and business development
activities. These expenses primarily consist of salaries, commissions, benefits,
stock-based compensation, travel, advertising, promotions, product samples, and
trade show expenses.
Research and Development Expenses
Research and development expenses primarily include costs associated with the
development and expansion of our ePlex instrument's diagnostic test menu. These
expenses also include certain clinical study expenses incurred in preparation
for FDA clearance for these products, intellectual property prosecution and
maintenance costs, and quality assurance expenses. The expenses primarily
consist of salaries, benefits, stock-based compensation, outside design and
consulting services, laboratory supplies, costs of consumables and materials
used in product development, and clinical studies and facility costs. We expense
all research and development expenses in the periods in which they are incurred.
General and Administrative Expenses
Our general and administrative expenses include costs associated with our
executive, accounting and finance, compliance, information technology, legal,
facilities, human resources, administrative, and investor relations activities.
These expenses consist primarily of salaries, benefits, stock-based
compensation, independent auditor costs, legal fees, consultant costs, insurance
premiums, and public company expenses, such as stock transfer agent fees and
listing fees for NASDAQ.
Foreign Exchange Gains and Losses
Transactions in currencies other than our functional currency, the U.S. Dollar,
are translated at the prevailing rates on the dates of the applicable
transaction. Foreign exchange gains and losses arise from differences in
exchange rates during the period between the date a transaction denominated in a
foreign currency is consummated and the date on which it is settled or
translated.
Interest Income and Interest Expense
Interest income includes interest earned on our cash and cash equivalents and
investments. Interest expense represents interest incurred on our loan payable
and on other liabilities.
Provision for Income Taxes
We make certain estimates and judgments in determining income tax expense for
financial statement purposes. These estimates and judgments occur in the
calculation of certain tax assets and liabilities, which arise from differences
in the timing of recognition of revenue and expense for tax and financial
statement purposes.
We assess the likelihood that we will be able to recover our deferred tax
assets. We consider all available evidence, both positive and negative,
including historical levels of income, expectations and risks associated with
estimates of future taxable income, and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance. If it is
more likely than not that we will not recover our deferred tax assets, we will
increase our provision for income taxes by recording a valuation allowance
against the deferred tax assets that we estimate will not ultimately be
recoverable.
                                       24
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Our income tax returns are based on calculations and assumptions that are
subject to examination by the Internal Revenue Service and other tax
authorities. In addition, the calculation of our tax liabilities involves
dealing with uncertainties in the application of complex tax regulations. We
recognize liabilities for uncertain tax positions based on a two-step process.
The first step is to evaluate the tax position for recognition by determining if
the weight of available evidence indicates that it is more likely than not that
the position will be sustained on audit, including resolution of related appeals
or litigation processes, if any. The second step is to measure the tax benefit
as the largest amount that is more than 50% likely of being realized upon
settlement. While we believe we have appropriate support for the positions taken
on our tax returns, we regularly assess the potential outcomes of examinations
by tax authorities in determining the adequacy of our provision for income
taxes. We continually assess the likelihood and amount of potential adjustments
and adjust the income tax provision, income taxes payable, and deferred taxes in
the period in which the facts that give rise to a revision become known.
Results of Operations-Comparison of Years ended December 31, 2020, 2019, and
2018 (dollars in thousands):
                   Years Ended December 31,                    2020 vs 2019                    2019 vs 2018
               2020           2019          2018          $ Change        % Change        $ Change        % Change
Revenue     $ 171,554      $ 88,021      $ 70,759      $     83,533           95  %    $     17,262           24  %


Our revenue consists primarily of revenue from the sale of test cartridges
(which we refer to as consumables), instruments, and other revenues.
Revenue increased by $83.5 million, or 95%, when comparing the years ended
December 31, 2020 and 2019, primarily driven by growth in ePlex product revenue.
For the year ended December 31, 2020, ePlex product revenue increased by $92.8
million, or 155%, to $152.6 million primarily due to increases in the sale of
RP2 and SARS-CoV-2 test consumables and instrument sales to both new and
existing customers. XT-8 product revenue decreased by $10.5 million over the
prior year period, or 39%, to $16.6 million during the year ended December 31,
2020, primarily due to XT-8 customers that converted to our ePlex system for
respiratory testing.
Revenue increased by $17.3 million, or 24%, when comparing the years ended
December 31, 2019 and 2018, primarily driven by growth in ePlex product revenue
which features a higher selling price than our XT-8 system due to the additional
technology and features of its sample-to-answer capabilities. For year ended
December 31, 2019, ePlex product revenue increased by $22.2 million, or 59%, to
$59.8 million due to new customers adopting the ePlex system for respiratory and
blood stream infection testing. ePlex product revenue represented 69% of total
product revenue during the year ended December 31, 2019. XT-8 product revenue
decreased by $5.3 million to $27.0 million during the year ended December 31,
2019, primarily due to XT-8 customers that converted in 2018 to our ePlex system
for respiratory testing.
                         Years Ended December 31,                    2020 vs 2019                   2019 vs 2018
                     2020           2019          2018          $ Change        % Change       $ Change        % Change
Cost of revenue   $ 103,610      $ 59,418      $ 51,278      $     44,192           74  %    $     8,140           16  %
Gross profit      $  67,944      $ 28,603      $ 19,481      $     39,341          138  %    $     9,122           47  %
Gross margin            39.6%         32.5%         27.5%


The increase in cost of revenue for the year ended December 31, 2020, compared
to the prior year was a result of the growth in ePlex product revenue, which
increased by 155% when compared to the prior year and represented 90% of total
product revenue during the period. Standard product costs increased by $39.7
million over the prior year due to increases in ePlex product revenue. Cost of
revenue also increased by $3.4 million in royalties expense, $0.9 million in
freight expense, $0.5 million in customer and product technical support expense,
and $0.4 million in instrument repair expense, all as a result of the increases
in ePlex product revenue. These increases were offset by decreases of $0.3
million attributable to the realization of manufacturing efficiencies and
improvements to overhead absorption and $0.2 million in inventory reserve
expense when compared to the prior year.
Gross profit increased by $39.3 million, or a gross margin increase of seven
percentage points during the year ended December 31, 2020, when compared to the
prior year, primarily due to the increase in revenue. The increase in gross
margin to 39.6% in the current period was attributable to continued gains in
efficiency in the manufacture of ePlex consumables as well as changes in the
composition of ePlex product revenue. ePlex instrument sales also comprised a
higher percentage of total product revenue and contributed to increased gross
profit during 2020 when compared to the prior year.
The increase in cost of revenue for the year ended December 31, 2019, when
compared to the prior year, is primarily a result of the growth in ePlex product
revenue. ePlex revenue increased by 59% when compared to the prior year and
represented 69% of total product revenue during the period. The increase in
ePlex sales resulted in increased standard product costs of $12.5 million over
the prior year as ePlex products carry higher cost profiles due to the enhanced
technology and features as compared to XT-8 and corresponding higher average
selling prices. Other cost of revenue increased due to increases of $1.1 million
in inventory reserves expense and $0.8 million from increased royalties expense
resulting from higher product revenue.
                                       25
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Gross profit increased by $9.1 million, or a gross margin increase of five
percentage points during the year ended December 31, 2019, when compared to the
prior year driven entirely by improvements to ePlex gross margin. These
increases are the result of continued production gains in the manufacture of
ePlex consumables. The increase in gross margin to 32.5% was attributable to
decreased costs of $5.8 million due to improved overhead cost absorption and the
realization of manufacturing efficiencies and $0.6 million from decreased
warranty and customer and product technical support expenses.
                                               Years Ended December 31,                               2020 vs 2019                               2019 vs 2018
                                       2020              2019              2018              $ Change             % Change              $ Change             % Change
Sales and marketing                 $ 23,164          $ 24,118          $ 21,777          $      (954)                   (4) %       $     2,341                    11  %


The decrease in sales and marketing expense for the year ended December 31,
2020, when compared to the prior year, was primarily driven by decreases of $1.2
million in evaluation kit expense resulting from the commercial launch of our
ePlex BCID Panels during the prior year, $1.2 million in travel expense, $0.3
million in bad debt expense, $0.3 million in depreciation expense, and $0.1
million in marketing expense. These decreases were partially offset by increases
of $2.2 million in personnel expense.
The increase in sales and marketing expense for the year ended December 31,
2019, when compared to the prior year, was primarily driven by increases of $1.5
million in personnel expense, $0.6 million in evaluation kits expense resulting
from new ePlex system evaluations, and $0.3 million in higher allocated facility
and information technology expense resulting from increased headcount.
                                                   Years Ended December 31,                               2020 vs 2019                               2019 vs 2018
                                           2020              2019              2018              $ Change             % Change              $ Change             % Change
General and administrative              $ 25,572          $ 19,159          $ 17,545          $     6,413                    33  %       $     1,614                     9  %


The increase in general and administrative expense for the year ended
December 31, 2020, when compared to the prior year, was primarily driven by $4.0
million in costs related to severance payments and stock-based compensation
expense resulting from the departure of our former CEO in 2020, as well as
increases of $1.0 million in legal related expenses, $0.8 million in
professional services expense, and $0.5 million in supplies expense.
The increase in general and administrative expense for the year ended
December 31, 2019, when compared to the prior year, was primarily related to
increases of $1.1 million in personnel expense, including $0.8 million in
stock-based compensation expense, and $0.5 million in higher facility and
information technology expense.
                                                 Years Ended December 31,                               2020 vs 2019                               2019 vs 2018
                                         2020              2019              2018              $ Change             % Change              $ Change             % Change
Research and development              $ 30,259          $ 27,140          $ 27,931          $     3,119                    11  %       $      (791)                   (3) %


The increase in research and development expense for the year ended December 31,
2020, when compared to the prior year, was primarily driven by increases of $2.8
million in personnel expense and $1.0 million increase in prototype materials
used by our assay development teams, partially offset by a reduction in expense
of $0.7 million related to a grant from BARDA received in the current period.
The decrease in research and development expense for the year ended December 31,
2019, when compared to the prior year, was primarily driven by a decrease of
$1.5 million in clinical study expense based upon the timing of the completed
ePlex BCID clinical studies, which was partially offset by a $0.7 million
increase in prototype materials used by our assay development teams.
                         Years Ended December 31,                   2020 vs 2019                    2019 vs 2018
                     2020          2019          2018          $ Change        % Change        $ Change        % Change
Other expense     $ (7,512)     $ (5,472)     $ (2,589)     $     (2,040)          37  %    $     (2,883)         111  %


Other expense represents non-operating income and expense, including, but not
limited to, earnings on cash, cash equivalents, restricted cash, marketable
securities, exchange gains and losses of foreign currency denominated balances,
and interest expense related to debt.
The increases in other expense in each of the years ended December 31, 2020 and
2019 were primarily due to higher interest expense from borrowings from our loan
and security agreement.
                                           Years Ended December 31,                             2020 vs 2019                                 2019 vs 2018
                                     2020             2019            2018             $ Change             % Change                $ Change               % Change
Income tax expense                $     81          $   64          $  139          $        17                    27  %       $      (75)                       (54) %


                                       26

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Due to net losses incurred, we have only recorded tax provisions related to
minimum tax payments in the United States and tax liabilities generated by our
foreign subsidiaries, which have remained immaterial.
Liquidity and Capital Resources
To date, we have funded our operations primarily from the sale of our common
stock, borrowings, and cash from operations. We have incurred net losses from
continuing operations each year and have not yet achieved profitability. As of
December 31, 2020, we had $128.8 million of working capital, including $128.2
million in cash, cash equivalents, and marketable securities. We believe our
existing cash, cash equivalents, and marketable securities as of December 31,
2020 will enable us to fund our operations for at least one year from the date
this Annual Report on Form 10-K is filed with the SEC.
The following table summarizes, for the periods indicated, selected items in our
consolidated statements of cash flows (dollars in thousands):
                                                                 Years

Ended December 31,


                                                       2020                2019                2018
Net cash provided by (used in) operating
activities                                         $    6,134          $  (34,926)         $  (32,512)
Net cash provided by (used in) investing
activities                                            (96,509)             (2,172)             33,947
Net cash provided by financing activities              87,570              45,173               8,069
Effect of exchange rate changes on cash, cash
equivalents, and restricted cash                          (95)                 (1)                 28

Net increase (decrease) in cash, cash equivalents, and restricted cash

$   (2,900)         $

8,074 $ 9,532




Cash Flows from Operating Activities
Net cash provided by operating activities increased by $41.1 million for the
year ended December 31, 2020, when compared to the prior year. The increase in
cash provided by operating activities was primarily due to a decrease of $28.7
million in net loss, favorable changes in operating assets and liabilities of
$11.7 million, and an increase of $0.6 million in non-cash adjustments. The
changes in operating assets and liabilities was primarily a result of increases
in accounts payable, accrued compensation, operating lease liabilities, and
other liabilities, and a decrease in accounts receivable. These favorable
changes were partially offset by an increase in inventory.
Net cash used in operating activities increased by $2.4 million for the year
ended December 31, 2019, when compared to the prior year. The increase in cash
used in operating activities was primarily due to unfavorable changes in
operating assets and liabilities of $8.9 million, partially offset by a decrease
of $3.2 million in net loss and an increase of $3.4 million in non-cash
adjustments. The changes in operating assets and liabilities was primarily a
result of increases in accounts receivable and inventory due to the growth of
ePlex product revenue, a decrease in accrued compensation, and an increase in
prepaid expenses and other current assets. These unfavorable changes were
partially offset by an increase in accounts payable due to the timing of our
payments and an increase in other liabilities.
Cash Flows from Investing Activities
Net cash used in investing activities increased by $94.3 million for the year
ended December 31, 2020, when compared to the prior year, primarily due to
increases of $82.1 million in purchases of marketable securities and $15.7
million in purchases of property and equipment. These increases were partially
offset by a decrease of $3.4 million in the sale and maturities of marketable
securities.
Net cash used in investing activities increased by $36.1 million for the year
ended December 31, 2019, when compared to the prior year, primarily due to a
decrease of $34.2 million in the sale and maturities of marketable securities
and an increase of $2.4 million in purchases of marketable securities. The
increases in net cash used in investing activities were partially offset by a
decrease of $0.5 million in purchases of property and equipment.
Cash Flows from Financing Activities
Net cash provided by financing activities increased by $42.4 million for the
year ended December 31, 2020, when compared to the prior year, primarily due to
increases of $65.2 million in net proceeds from the issuance of common stock and
$8.6 million from stock option exercises. The increase in cash provided by
financing activities was partially offset by a decrease of $31.4 million from
net payments on borrowings under our loan and security agreement.
Net cash provided by financing activities increased by $37.1 million for the
year ended December 31, 2019, when compared to the prior year, primarily due to
increases of $24.3 million in net proceeds from borrowings under our loan and
security agreement, $12.4 million in net proceeds from the issuance of common
stock, and $0.4 million from stock option exercises.
                                       27
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We have prepared cash flow forecasts which indicate, based on our current cash
resources available, that we will have sufficient resources to fund our business
for at least the next 12 months. Factors that could affect our capital
requirements, in addition to those previously identified, include, but are not
limited to:
• the level of revenues and the rate of our revenue growth;
• changes in demand from our customers;
• the level of cost of revenues and their impact to our gross margin;
• the level of expenses required to expand our commercial (sales and marketing)
activities;
• the level of research and development investment required to develop our
diagnostic systems and test menu;
• our need to acquire or license complementary technologies;
• the costs of filing, prosecuting, defending, and enforcing patent claims and
other intellectual property rights;
• competing technological and market developments; and
• changes in regulatory policies or laws that affect our operations.
Loan and Security Agreement
On February 1, 2019 (the "Effective Date"), we entered into a Loan and Security
Agreement (the "LSA"), with Solar Capital Ltd. and certain other financial
institutions (collectively, the "Lenders"). Pursuant to the LSA and certain
subsequent amendments, the Lenders have provided us with $70.0 million in a
series of term loans, of which $50.0 million was funded on the Effective Date
and an additional $20.0 million was funded in December 2019 upon our achievement
of a designated amount of product revenues on a trailing six-month basis.
The term loans under the LSA accrue interest at a floating per annum rate in
effect from time-to-time equal to (a) the greater of 2.51% or the one-month
Intercontinental Exchange Benchmark Administration, Ltd. rate then in effect as
of the applicable payment date, plus (b) 5.90% per annum. We are only required
to make interest payments on amounts borrowed pursuant to the term loans from
the applicable funding date until  February 28, 2022 (the "Interest Only
Period"). Following the Interest Only Period, monthly installments of principal
and interest under the term loans will be due until the original principal
amount and applicable interest is fully repaid by February 1, 2023.
Pursuant to the terms of the LSA, the Lenders are granted a security interest in
(a) all of our personal property, other than intellectual property (which is
subject to a negative pledge), but including our rights to payment in respect of
intellectual property, and (b) the stock of all of our subsidiaries; provided
that if the pledge of 100% of the voting shares of our non-U.S. subsidiaries
would result in adverse tax consequences, such pledge shall be limited to 65% of
the voting stock and 100% of the non-voting stock of each of our non-U.S.
subsidiaries.
The LSA contains customary affirmative and negative covenants, including,
without limitation, delivering reports and notices relating to our financial
condition and certain regulatory events and intellectual property matters, as
well as limiting the creation of liens, the incurrence of indebtedness, and the
making of certain investments, payments and acquisitions, other than as
specifically permitted by the LSA. The LSA also contains customary events of
default (subject, in certain instances, to specified cure periods), including,
but not limited to, the failure to make payments of interest or premium when
due, the failure to comply with certain covenants and agreements specified in
the LSA, and the occurrence of a material adverse change, certain regulatory
events, or certain insolvency events. Upon the occurrence of an event of
default, the Lenders may declare all outstanding principal and accrued but
unpaid interest under the LSA immediately due and payable and may exercise the
other rights and remedies as set forth in the LSA.
Equity Distribution Agreement
On August 5, 2019, we entered into an Equity Distribution Agreement (the
"Distribution Agreement") with Canaccord Genuity LLC ("Canaccord"), pursuant to
which we may offer and sell, from time to time, shares of our common stock
having an aggregate offering price of up to $35.0 million. Under the
Distribution Agreement, Canaccord may sell shares by any method deemed to be an
"at-the-market" offering as defined in Rule 415 under the U.S. Securities Act of
1933, as amended, or any other method permitted by law, including in privately
negotiated transactions. We are not obligated to sell any shares under the
Distribution Agreement. Canaccord is entitled to a commission of 3% of the
aggregate gross proceeds from each sale of shares occurring pursuant to the
Distribution Agreement. During the twelve months ended December 31, 2020, we
sold 363,120 shares of common stock under the Distribution Agreement at a
weighted average price per share of $6.13 resulting in aggregate gross proceeds
of $2.2 million. We incurred $67,000 in commissions paid to Canaccord in
connection with such sales. As of December 31, 2020, the Company may issue up to
an additional $19.7 million of its common stock under the Distribution
Agreement.
                                       28
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Biomedical Advanced Research and Development Authority Funding
In March 2020, we were awarded $0.7 million from the Biomedical Advanced
Research and Development Authority ("BARDA"), part of the Department of Health
and Human Services Office of the Assistant Secretary for Preparedness and
Response, to develop and pursue FDA EUA of a diagnostic panel that incorporates
the new SARS-CoV-2 viral target into our existing ePlex RP Panel. The full $0.7
million was received in September 2020. In June 2020, we submitted our RP2 Panel
to the FDA for EUA. In October 2020, our RP2 Panel received EUA from the FDA.
Underwriting Agreement
On May 6, 2020, the Company entered into an Underwriting Agreement (the
"Underwriting Agreement") with Cowen and Company, LLC and William Blair &
Company, LLC acting as joint book-running managers and as representatives of the
underwriters named therein (collectively, the "Underwriters") relating to the
issuance and sale of 7,253,886 shares of common stock and an option, exercisable
by the Underwriters for 30 days, to purchase up to an additional 1,088,082
shares of common stock (the "Offering"). The Offering closed on May 11, 2020 and
the Company sold 8,341,968 shares of common stock, including the full exercise
of the Underwriters' option, at a public offering price of $9.65 per share
before underwriting discounts and commissions. The Company raised $75.4 million
in net proceeds from the Offering, after deducting underwriters discounts and
commissions and offering expenses.
Letter of Credit
The Company has provided an aggregate of $1.6 million in letters of credit to
the landlords of certain of its leased facilities and maintains $42,000 in
required minimum account balances with the financial institutions issuing such
letters of credit. As a result, the Company maintains $1.6 million of restricted
cash in connection with these lease agreements as of December 31, 2020.
If we require additional capital, we cannot be certain that it will be available
when needed or that our actual cash requirements will not be greater than
anticipated. If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders could
be significantly diluted, and these newly issued securities may have rights,
preferences, or privileges senior to those of existing stockholders. If we raise
additional funds through collaborations and licensing arrangements, we may be
required to relinquish significant rights to our technologies or products, or
grant licenses on terms that are not favorable to us.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as defined in Item 304(a)(4)(ii) of
Regulation S-K. The Company has provided $1.6 million in letters of credit to
the landlords of certain of its leased facilities, which is recorded as
restricted cash on our consolidated balance sheets.
Impact of Inflation
The effect of inflation and changing prices on our operations was not
significant during the periods presented.
Contractual Obligations
As of December 31, 2020, we had the following contractual obligations (in
thousands):

Payments due by period


                                     Less than 1                                                 More than 5
                                        year              1-3 years           4-5 years             years               Total

Operating lease obligations(1) $ 3,293 $ 6,924 $ 5,168 $ 9,491 $ 24,876 Supplier payment obligations(2) 7,801

               8,822                   -                    -             16,623
Debt obligations(3)                      5,969              78,583                   -                    -             84,552
Other contractual obligations               63                 117                  88                    -                268
Total obligations                   $   17,126          $   94,446          $    5,256          $     9,491          $ 126,319

(1) We enter into leases in the ordinary course of business with respect to our facilities.

Our lease agreements have fixed payment terms based on the passage of time. Certain

facility leases require payment of maintenance expenses and real estate taxes. Our future

operating lease obligations could change if we terminate certain contracts or if we enter

into additional leases.

(2) We enter into supplier contracts in the ordinary course of our business. Certain supplier

agreements require us to purchase minimum quantities of goods or services on an annual

basis.

(3) Our contractual obligations under the LSA consist of principal payments, interest, and

fees due to the Lenders.


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Critical Accounting Policies and Estimates
Revenue
We recognize revenue from operations through the sale of products and other
services. Product revenue comprises the sale of diagnostic tests and
instruments. Other revenue primarily consists of freight revenue and revenue
from extended service agreements.
Revenue is recognized when control of products and services is transferred to
the customer in an amount that reflects the consideration that we expect to
receive from the customer in exchange for those products and services. This
process involves identifying the contract with the customer, determining the
performance obligations in the contract, determining the contract price,
allocating the contract price to the distinct performance obligations in the
contract, and recognizing revenue when the performance obligations have been
satisfied. A performance obligation is considered distinct from other
obligations in a contract when it provides a benefit to the customer either on
its own or together with other resources that are readily available to the
customer and is separately identified in the contract. We consider a performance
obligation satisfied once we have transferred control of a good or service to
the customer, meaning the customer has the ability to use and obtain the benefit
of the good or service. We recognize revenue for satisfied performance
obligations only when we determine there are no uncertainties regarding payment
terms or transfer of control.
Revenue from product sales is recognized generally upon shipment to the end
customer, which is when control of the product is deemed to be transferred.
Invoicing typically occurs upon shipment and the term between invoicing and when
payment is due is not significant. Revenue from instrument services is
recognized as the services are rendered, typically evenly over the contract
term.
Revenue is recorded net of discounts and sales taxes collected on behalf of
governmental authorities. Employee sales commissions are recorded as sales and
marketing expense when incurred or amortized over the estimated contract term
when resulting from new contract acquisition efforts.
We allocate contract price to each performance obligation in proportion to its
stand-alone selling price. The stand-alone selling price is determined by our
best estimate of stand-alone selling price using average selling prices over a
rolling 12-month period along with a specific assessment of any unique
circumstances of the contract. For those products for which there is limited
sales history, we make price determinations based on similar product sales data.
Inventory
We value inventories at the lower of cost or net realizable value on a
part-by-part basis and provide an inventory reserve for estimated obsolescence
and excess inventory based upon historical turnover, assumptions about future
demand for our products, and market conditions. We determine excess and obsolete
inventories based on an estimate of the future demand for our products within a
specified time horizon, which is generally twelve months. The estimates we use
for demand are also used for near-term capacity planning and inventory
purchasing and are consistent with our revenue forecasts. If our actual demand
is less than our forecast demand, we may be required to take additional excess
inventory charges, which would decrease gross margin and adversely impact net
operating results in the future.
Stock-Based Compensation
We generally grant employees and non-employee directors stock-based awards,
which typically comprise stock options, restricted stock units, and/or
market-based stock units, in connection with their employment or service. We
grant stock options with an exercise price equal to the closing price of our
common stock on the NASDAQ Global Market on the applicable grant date. We use
the Black-Scholes option-pricing model as the method for determining the
estimated fair value of stock options, the Monte Carlo Simulation Valuation
Model as the method for determining the estimated fair value of our market-based
stock units, and we use the grant date fair value of our common stock for
valuing restricted stock units. The estimated fair value of stock-based awards
exchanged for employee and non-employee director services are expensed over the
requisite service period. The stock-based compensation expense related to shares
issued under our 2013 Employee Stock Purchase Plan, or ESPP, is also estimated
using the Black-Scholes option-pricing model. These models require the use of
highly subjective and complex assumptions which determine the fair value of
stock-based awards, including the stock award's expected term and the price
volatility of the underlying stock. These assumptions include:
•Expected Term-expected term represents the period that our stock-based awards
are expected to be outstanding and is determined by using the simplified method.
•Expected Volatility-expected volatility represents the expected volatility in
our stock price over the expected term of the stock option or award.
•Expected Dividend-the pricing models require a single expected dividend yield
as an input. We assumed no dividends as we have never paid dividends and have no
plans to do so.
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•Risk-Free Interest Rate-the risk-free interest rates used in the models are
based on published government rates in effect at the time of grant for periods
corresponding with the expected term of the option or award.
Recent Accounting Pronouncements
For a summary of recent accounting pronouncements applicable to our consolidated
financial statements, see Note 1, "Summary of Significant Accounting Policies
and Significant Accounts" to the Consolidated Financial Statements in Part II,
Item 8 of this Annual Report.

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