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, 20202021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 001-37367
_____________________________
OPGEN, INC.
(Exact name of registrant as specified in its charter)
_____________________________
Delaware |
| |||||||||||||||
Registrant’s telephone number, including area code: (240) 813-1260 | ||||||||||||||||
_____________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbols | Name of each exchange on which registered |
Common Stock | OPGN | Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered or to be registered pursuant to Section 12(b) of the Act.
19,714,34838,270,250 shares of the Company’s common stock, par value $0.01 per share, were outstanding as of August 12, 2020.11, 2021.
OPGEN, INC.
TABLE OF CONTENTS FOR FORM 10-Q
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS | 3 | ||||
PART I. | FINANCIAL INFORMATION | ||||
Item 1. | Unaudited Condensed Consolidated Financial Statements | 4 | |||
Condensed Consolidated Balance Sheets at June 30, | 4 | ||||
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, | 5 | ||||
Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, | 6 | ||||
Condensed Consolidated Statements of Cash | 7 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements | 8 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||
| Item 4. | Controls and Procedures | |||
| PART II. | OTHER INFORMATION | 38 | ||
| Item 1. | Legal Proceedings | 38 | ||
| Item 1A. | Risk Factors | 38 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||
| Item 3. | Defaults Upon Senior Securities | |||
| Item 4. | Mine Safety Disclosures | |||
| Item | 5.Other Information | |||
| Item 6.Exhibits | ||||
| SIGNATURES | ||||
2 |
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q of OpGen, Inc. contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In this quarterly report, we refer to OpGen, Inc. as the “Company,” “we,” “our” or “us.” All statements other than statements of historical facts contained herein, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” or the negative version of these words and similar expressions are intended to identify forward-looking statements.
We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II Item 1A “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances included herein may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
•
our ability to integrate the OpGen, Curetis, and Ares Genetics businesses;
•
receipt of regulatory clearance of our submitted 510(k) pre-market submission for our Acuitas AMR Gene Panel test for use with bacterial isolates;
•
the impact of COVID-19 on our business and operations;
•
our liquidity and working capital requirements, including our cash requirements over the next 12 months;
•
our use of proceeds from capital financing transactions;
•
the completion of our development efforts for our Acuitas Lighthouse Software, Unyvero UTI and IJI panels, Unyvero A30 RQ platform and ARESdb and the timing of regulatory submissions;
•
our ability to sustain or grow our customer base for our Unyvero IVD products as well as our current research use only products;
•
regulations and changes in laws or regulations applicable to our business, including regulation by the FDA and China’s NMPA;
•
anticipated trends and challenges in our business and the competition that we face;
•
the execution of our business plan and our growth strategy;
•
our expectations regarding the size of and growth in potential markets;
•
our opportunity to successfully enter into new collaborative or strategic agreements;
•
our ability to maintain compliance with the ongoing listing requirements for the Nasdaq Capital Market;
•
compliance with the U.S. and international regulations applicable to our business; and
•
our expectations regarding future revenue and expenses.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. These risks should not be construed as exhaustive and should be read in conjunction with our other disclosures, including but not limited to the risk factors described in Part II, Item 1A of this quarterly report. Other risks may be described from time to time in our filings made under the securities laws. New risks emerge from time to time. It is not possible for our management to predict all risks. All forward-looking statements in this quarterly report speak only as of the date made and are based on our current beliefs and expectations. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
NOTE REGARDING TRADEMARKS
We own various U.S. federal trademark registrations and applications and unregistered trademarks and servicemarks, including but not limited to OpGen®, Curetis®, Unyvero®, ARES® and ARES GENETICS®, Acuitas®, Acuitas Lighthouse®, AdvanDx®, QuickFISH®, and PNA FISH®. All other trademarks, servicemarks or trade names referred to in this quarterly report are the property of their respective owners. Solely for convenience, the trademarks and trade names in this quarterly report are sometimes referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies, products or services.
3 |
Part I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
OpGen, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
| June 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
| Assets | ||||||||||||||||
| Current assets | ||||||||||||||||
| Cash and cash equivalents | $ | 12,886,547 | $ | 2,708,223 | $ | 31,182,385 | $ | 13,360,463 | ||||||||
| Accounts receivable, net | 231,427 | 567,811 | 472,567 | 653,104 | ||||||||||||
| Inventory, net | 2,898,185 | 473,030 | 1,333,880 | 1,485,986 | ||||||||||||
| Note receivable | — | 2,521,479 | ||||||||||||||
| Prepaid expenses and other current assets | 810,391 | 396,760 | 2,081,549 | 1,388,090 | ||||||||||||
| Total current assets | 16,826,550 | 6,667,303 | 35,070,381 | 16,887,643 | ||||||||||||
| Property and equipment, net | 3,587,341 | 130,759 | 4,223,155 | 3,259,487 | ||||||||||||
| Finance lease right-of-use assets, net | 696,333 | 958,590 | 227,209 | 449,628 | ||||||||||||
| Operating lease right-of-use assets | 1,653,603 | 1,043,537 | 2,038,073 | 2,082,300 | ||||||||||||
| Goodwill | 7,650,642 | 600,814 | 7,790,595 | 8,024,729 | ||||||||||||
| Intangible assets, net | 15,566,528 | 817,550 | 15,662,324 | 16,580,963 | ||||||||||||
Strategic inventory | 2,995,436 | 1,686,342 | ||||||||||||||
| Other noncurrent assets | 309,347 | 203,271 | 555,190 | 779,953 | ||||||||||||
| Total assets | $ | 46,290,344 | $ | 10,421,824 | $ | 68,562,363 | $ | 49,751,045 | ||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||
| Current liabilities | ||||||||||||||||
| Accounts payable | $ | 1,745,499 | $ | 1,056,035 | $ | 1,207,113 | $ | 1,868,666 | ||||||||
| Accrued compensation and benefits | 1,730,128 | 855,994 | 1,541,898 | 2,126,511 | ||||||||||||
| Accrued liabilities | 2,514,992 | 1,046,661 | 1,137,196 | 1,437,141 | ||||||||||||
| Deferred revenue | 393,739 | 9,808 | 0— | 9,808 | ||||||||||||
| Current maturities of long-term debt | 1,378,380 | 373,599 | 0— | 699,000 | ||||||||||||
| Short-term finance lease liabilities | 432,494 | 579,030 | 116,829 | 266,470 | ||||||||||||
| Short-term operating lease liabilities | 1,271,700 | 1,017,414 | 854,233 | 964,434 | ||||||||||||
| Total current liabilities | 9,466,932 | 4,938,541 | 4,857,269 | 7,372,030 | ||||||||||||
| Long-term debt, net | 16,794,652 | 329,456 | 20,670,941 | 19,378,935 | ||||||||||||
| Long-term finance lease liabilities | 135,521 | 313,263 | 18,693 | 46,794 | ||||||||||||
| Long-term operating lease liabilities | 782,494 | 547,225 | 2,910,810 | 1,492,544 | ||||||||||||
| Derivative liabilities | 234,224 | — | 222,387 | 112,852 | ||||||||||||
| Other long-term liabilities | 147,977 | — | 146,344 | 156,635 | ||||||||||||
| Total liabilities | 27,561,800 | 6,128,485 | 28,826,444 | 28,559,790 | ||||||||||||
| Commitments (Note 9) | ||||||||||||||||
Commitments and contingencies (Note 9) | ||||||||||||||||
| Stockholders' equity | ||||||||||||||||
| Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued and outstanding at June 30, 2020 and December 31, 2019, respectively | — | — | ||||||||||||||
| Common stock, $0.01 par value; 50,000,000 shares authorized; 17,693,932 and 5,582,280 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 176,939 | 55,823 | ||||||||||||||
Preferred stock, $0.01 par value; 10,000,000 shares authorized; NaN issued and | ||||||||||||||||
outstanding at June 30, 2021 and December 31, 2020 | 0— | 0— | ||||||||||||||
Common stock, $0.01 par value; 50,000,000 shares authorized; 38,270,250 and | ||||||||||||||||
25,085,534 shares issued and outstanding at June 30, 2021 and | ||||||||||||||||
December 31, 2020, respectively | 382,703 | 250,855 | ||||||||||||||
| Additional paid-in capital | 204,154,419 | 178,779,814 | 260,027,841 | 219,129,045 | ||||||||||||
| Accumulated deficit | (185,949,915 | ) | (174,524,983 | ) | (222,672,979 | ) | (200,735,827 | ) | ||||||||
| Accumulated other comprehensive income (loss) | 347,101 | (17,315 | ) | |||||||||||||
Accumulated other comprehensive income | 1,998,354 | 2,547,182 | ||||||||||||||
| Total stockholders’ equity | 18,728,544 | 4,293,339 | 39,735,919 | 21,191,255 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 46,290,344 | $ | 10,421,824 | $ | 68,562,363 | $ | 49,751,045 | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4 |
OpGen, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
| Three months ended June 30, | Six months ended June 30, | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||
| Product sales | $ | 601,304 | $ | 504,293 | $ | 968,237 | $ | 1,024,470 | $ | 307,804 | $ | 601,304 | $ | 835,383 | $ | 968,237 | ||||||||||||||||
| Laboratory services | 25,992 | 5,250 | 25,992 | 5,250 | 266,784 | 25,992 | 450,849 | 25,992 | ||||||||||||||||||||||||
| Collaboration revenue | 561,089 | 500,000 | 811,089 | 1,000,000 | 237,027 | 561,089 | 355,099 | 811,089 | ||||||||||||||||||||||||
| Total revenue | 1,188,385 | 1,009,543 | 1,805,318 | 2,029,720 | 811,615 | 1,188,385 | 1,641,331 | 1,805,318 | ||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| Cost of products sold | 713,916 | 198,493 | 990,470 | 419,195 | 342,580 | 713,916 | 896,634 | 990,470 | ||||||||||||||||||||||||
| Cost of services | 252,655 | 251,981 | 390,321 | 396,463 | 137,934 | 252,655 | 242,918 | 390,321 | ||||||||||||||||||||||||
| Research and development | 2,979,025 | 1,153,584 | 4,196,581 | 2,929,966 | 2,859,590 | 2,979,025 | 5,673,081 | 4,196,581 | ||||||||||||||||||||||||
| General and administrative | 2,491,571 | 1,592,845 | 4,193,019 | 3,340,430 | 2,692,255 | 2,491,571 | 5,355,912 | 4,193,019 | ||||||||||||||||||||||||
| Sales and marketing | 1,044,032 | 393,567 | 1,326,309 | 765,800 | 802,549 | 1,044,032 | 1,701,801 | 1,326,309 | ||||||||||||||||||||||||
| Transaction costs | 225,000 | — | 470,322 | — | 0— | 225,000 | 0— | 470,322 | ||||||||||||||||||||||||
| Impairment of right-of-use asset | — | — | — | 520,759 | 115,218 | 0— | 170,714 | 0— | ||||||||||||||||||||||||
| Impairment of intangibles assets | — | — | 750,596 | — | 0— | 0— | 0— | 750,596 | ||||||||||||||||||||||||
| Total operating expenses | 7,706,199 | 3,590,470 | 12,317,618 | 8,372,613 | 6,950,126 | 7,706,199 | 14,041,060 | 12,317,618 | ||||||||||||||||||||||||
| Operating loss | (6,517,814 | ) | (2,580,927 | ) | (10,512,300 | ) | (6,342,893 | ) | (6,138,511 | ) | (6,517,814 | ) | (12,399,729 | ) | (10,512,300 | ) | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||||||
| Interest and other (expense) income | (5,656 | ) | 15,166 | 81,679 | (9,256 | ) | ||||||||||||||||||||||||||
Other (expense) income | ||||||||||||||||||||||||||||||||
Gain on extinguishment of debt | 259,353 | 0— | 259,353 | 0— | ||||||||||||||||||||||||||||
Warrant inducement expense | 0— | 0— | (7,755,541 | ) | 0— | |||||||||||||||||||||||||||
Interest and other income (expense) | 4,702 | (5,656 | ) | 9,627 | 81,679 | |||||||||||||||||||||||||||
| Interest expense | (1,044,891 | ) | (37,129 | ) | (1,083,158 | ) | (93,573 | ) | (1,198,169 | ) | (1,044,891 | ) | (2,363,151 | ) | (1,083,158 | ) | ||||||||||||||||
| Foreign currency transaction gains (losses) | (289,788 | ) | 9,879 | (293,664 | ) | (472 | ) | |||||||||||||||||||||||||
Foreign currency transaction (losses) gains | (915 | ) | (289,788 | ) | 426,700 | (293,664 | ) | |||||||||||||||||||||||||
| Change in fair value of derivative financial instruments | 382,511 | — | 382,511 | 67 | (13,021 | ) | 382,511 | (114,411 | ) | 382,511 | ||||||||||||||||||||||
| Total other income (expense) | (957,824 | ) | (12,084 | ) | (912,632 | ) | (103,234 | ) | ||||||||||||||||||||||||
Total other (expense) income | (948,050 | ) | (957,824 | ) | (9,537,423 | ) | (912,632 | ) | ||||||||||||||||||||||||
| Loss before income taxes | (7,475,638 | ) | (2,593,011 | ) | (11,424,932 | ) | (6,446,127 | ) | (7,086,561 | ) | (7,475,638 | ) | (21,937,152 | ) | (11,424,932 | ) | ||||||||||||||||
| Provision for income taxes | — | — | — | — | 0— | 0— | 0— | 0— | ||||||||||||||||||||||||
| Net loss | $ | (7,475,638 | ) | $ | (2,593,011 | ) | $ | (11,424,932 | ) | $ | (6,446,127 | ) | $ | (7,086,561 | ) | $ | (7,475,638 | ) | $ | (21,937,152 | ) | $ | (11,424,932 | ) | ||||||||
| Net loss available to common stockholders | $ | (7,475,638 | ) | $ | (2,593,011 | ) | $ | (11,424,932 | ) | $ | (6,446,127 | ) | $ | (7,086,561 | ) | $ | (7,475,638 | ) | $ | (21,937,152 | ) | $ | (11,424,932 | ) | ||||||||
| Net loss per common share - basic and diluted | $ | (0.49 | ) | $ | (2.94 | ) | $ | (1.00 | ) | $ | (9.54 | ) | $ | (0.19 | ) | $ | (0.49 | ) | $ | (0.65 | ) | $ | (1.00 | ) | ||||||||
| Weighted average shares outstanding - basic and diluted | 15,403,986 | 882,286 | 11,427,322 | 675,932 | 38,268,293 | 15,403,986 | 33,900,964 | 11,427,322 | ||||||||||||||||||||||||
| Net loss | $ | (7,475,638 | ) | $ | (2,593,011 | ) | $ | (11,424,932 | ) | $ | (6,446,127 | ) | $ | (7,086,561 | ) | $ | (7,475,638 | ) | $ | (21,937,152 | ) | $ | (11,424,932 | ) | ||||||||
| Other comprehensive income (loss) - foreign currency translation | 324,939 | (4,950 | ) | 364,416 | (2,124 | ) | 529,651 | 324,939 | (548,828 | ) | 364,416 | |||||||||||||||||||||
| Comprehensive loss | $ | (7,150,699 | ) | $ | (2,597,961 | ) | $ | (11,060,516 | ) | $ | (6,448,251 | ) | $ | (6,556,910 | ) | $ | (7,150,699 | ) | $ | (22,485,980 | ) | $ | (11,060,516 | ) | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
OpGen, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Amount | Additional Paid- in Capital | Accumulated Other Comprehensive (Loss) Income | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 432,286 | $ | 4,323 | — | $ | — | $ | 165,396,036 | $ | (13,093 | ) | $ | (162,078,525 | ) | $ | 3,308,741 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Public offering of common stock and warrants, net of issuance costs | 450,000 | 4,500 | — | — | 4,778,009 | — | — | 4,782,509 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | 98,033 | — | — | 98,033 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | 2,826 | — | 2,826 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (3,853,116 | ) | (3,853,116 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2019 | 882,286 | 8,823 | — | — | 170,272,078 | (10,267 | ) | (165,931,641 | ) | 4,338,993 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | 85,971 | — | — | 85,971 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | (4,950 | ) | — | (4,950 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (2,593,011 | ) | (2,593,011 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2019 | 882,286 | $ | 8,823 | — | $ | — | $ | 170,358,049 | $ | (15,217 | ) | $ | (168,524,652 | ) | $ | 1,827,003 | ||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Amount | Additional Paid- in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 5,582,280 | $ | 55,823 | — | $ | — | $ | 178,779,814 | $ | (17,315 | ) | $ | (174,524,983 | ) | $ | 4,293,339 | 5,582,280 | $ | 55,823 | 0— | $ | 0— | $ | 178,779,814 | $ | (17,315 | ) | $ | (174,524,983 | ) | $ | 4,293,339 | ||||||||||||||||||||||||||||||||
| At the market offering, net of offering costs | 2,814,934 | 28,149 | — | — | 5,449,283 | — | — | 5,477,432 | 2,814,934 | 28,149 | — | — | 5,449,283 | — | — | 5,477,432 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock warrant exercises | 4,071,000 | 40,710 | — | — | 8,101,290 | — | — | 8,142,000 | 4,071,000 | 40,710 | — | — | 8,101,290 | — | — | 8,142,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | 79,740 | — | — | 79,740 | — | — | — | — | 79,740 | — | — | 79,740 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | 39,477 | — | 39,477 | — | — | — | — | — | 39,477 | — | 39,477 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (3,949,294 | ) | (3,949,294 | ) | — | — | — | — | — | — | (3,949,294 | ) | (3,949,294 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2020 | 12,468,214 | 124,682 | — | — | 192,410,127 | 22,162 | (178,474,277 | ) | 14,082,694 | 12,468,214 | 124,682 | 0— | 0— | 192,410,127 | 22,162 | (178,474,277 | ) | 14,082,694 | ||||||||||||||||||||||||||||||||||||||||||||||
| At the market offering, net of offering costs | 2,739,442 | 27,394 | — | — | 5,870,807 | — | — | 5,898,201 | 2,739,442 | 27,394 | — | — | 5,870,807 | — | — | 5,898,201 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in business combination | 2,028,208 | 20,282 | — | 4,827,135 | — | — | 4,847,417 | 2,028,208 | 20,282 | — | 4,827,135 | — | — | 4,847,417 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Value of equity awards assumed in business combination | — | — | — | — | 136,912 | — | — | 136,912 | — | — | — | — | 136,912 | — | — | 136,912 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of RSUs | 5,166 | 52 | — | — | (52 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of RSUs | 5,166 | 52 | — | — | (52 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued to settle convertible notes | 452,902 | 4,529 | — | — | 875,903 | — | — | 880,432 | 452,902 | 4,529 | — | — | 875,903 | — | — | 880,432 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | 33,587 | — | — | 33,587 | — | — | — | — | 33,587 | — | — | 33,587 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | 324,939 | — | 324,939 | — | — | — | — | — | 324,939 | — | 324,939 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (7,475,638 | ) | (7,475,638 | — | — | — | — | — | — | (7,475,638 | ) | (7,475,638 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2020 | 17,693,932 | $ | 176,939 | — | $ | — | $ | 204,154,419 | $ | 347,101 | $ | (185,949,915 | ) | $ | 18,728,544 | 17,693,932 | $ | 176,939 | 0— | $ | 0— | $ | 204,154,419 | $ | 347,101 | $ | (185,949,915 | ) | $ | 18,728,544 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2020 | 25,085,534 | $ | 250,855 | 0— | $ | 0— | $ | 219,129,045 | $ | 2,547,182 | $ | (200,735,827 | ) | $ | 21,191,255 | |||||||||||||||||||||||||||||||||||||||||||||||||
Offering of common stock and warrants, net of issuance costs | 8,333,333 | 83,334 | — | — | 23,390,628 | — | — | 23,473,962 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inducement expense related to warrant reprice | — | — | — | — | 7,755,541 | — | — | 7,755,541 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock warrant exercises, net of issuance costs | 4,847,615 | 48,476 | — | — | 9,045,696 | — | — | 9,094,172 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from issuance of common stock warrants | — | — | — | — | 255,751 | — | — | 255,751 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation expense | — | — | — | — | 189,670 | — | — | 189,670 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | (1,078,479 | ) | — | (1,078,479 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (14,850,591 | ) | (14,850,591 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2021 | 38,266,482 | 382,665 | 0— | 0— | 259,766,331 | 1,468,703 | (215,586,418 | ) | 46,031,281 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of RSUs | 3,768 | 38 | — | — | (38 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation expense | — | — | — | — | 261,548 | — | — | 261,548 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | 529,651 | — | 529,651 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (7,086,561 | ) | (7,086,561 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2021 | 38,270,250 | $ | 382,703 | 0— | $ | 0— | $ | 260,027,841 | $ | 1,998,354 | $ | (222,672,979 | ) | $ | 39,735,919 | |||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6 |
OpGen, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Six months ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (11,424,932 | ) | $ | (6,446,127 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | 913,443 | 450,952 | ||||||
| Noncash interest expense | 810,368 | 43,371 | ||||||
| Noncash interest income | (87,233 | ) | — | |||||
| Stock compensation expense | 113,327 | 184,004 | ||||||
| Loss on sale of equipment | — | 9,904 | ||||||
| Change in fair value of derivative liabilities | (382,511 | ) | (67 | ) | ||||
| Impairment of right-of-use asset | — | 520,759 | ||||||
| Impairment of intangible assets | 750,596 | — | ||||||
| Changes in operating assets and liabilities, net of acquisition: | ||||||||
| Accounts receivable | 820,505 | (399,528 | ) | |||||
| Inventory | (373,379 | ) | (23,824 | ) | ||||
| Other assets | 662,694 | 429,558 | ||||||
| Accounts payable | (487,314 | ) | (301,376 | ) | ||||
| Accrued compensation and other liabilities | (97,586 | ) | (285,953 | ) | ||||
| Deferred revenue | (450,719 | ) | (5,831 | ) | ||||
| Net cash used in operating activities | (9,232,741 | ) | (5,824,158 | ) | ||||
| Cash flows from investing activities | ||||||||
| Acquisition of business, net of cash acquired of $1,266,849 | 1,266,849 | — | ||||||
| Note receivable | (2,200,000 | ) | — | |||||
| Purchases of property and equipment | (1,057 | ) | (24,680 | ) | ||||
| Proceeds from sale of equipment | — | 29,250 | ||||||
| Net cash (used in) provided by investing activities | (934,208 | ) | 4,570 | |||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of common stock, net of issuance costs | 11,375,633 | 4,782,509 | ||||||
| Proceeds from the exercise of common stock warrants | 8,142,000 | — | ||||||
| Proceeds from debt, net of issuance costs | 1,138,983 | 15,481 | ||||||
| Payments on debt | (206,933 | ) | (237,414 | ) | ||||
| Payments on finance lease obligations | (324,278 | ) | (235,600 | ) | ||||
| Net cash provided by financing activities | 20,125,405 | 4,324,976 | ||||||
| Effects of exchange rates on cash | 325,908 | (1,321 | ) | |||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 10,284,364 | (1,495,933 | ) | |||||
| Cash, cash equivalents and restricted cash at beginning of period | 2,893,603 | 4,737,207 | ||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 13,177,967 | $ | 3,241,274 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 94,073 | $ | 97,599 | ||||
| Supplemental disclosures of noncash investing and financing activities: | ||||||||
| Right-of-use assets acquired through finance leases | $ | — | $ | 291,936 | ||||
| Conversion of accounts payable to finance lease | $ | — | $ | 63,600 | ||||
| Shares issued in business combination | $ | 4,847,417 | $ | — | ||||
| Shares issued to settle convertible notes | $ | 880,432 | $ | — | ||||
Six months ended June 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (21,937,152 | ) | $ | (11,424,932 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 1,290,139 | 913,443 | ||||||
Noncash interest expense | 1,934,356 | 810,368 | ||||||
Noncash interest income | 0— | (87,233 | ) | |||||
Stock compensation expense | 451,218 | 113,327 | ||||||
Gain on extinguishment of debt | (259,353 | ) | 0— | |||||
Inducement expense related to warrant reprice | 7,755,541 | 0— | ||||||
Change in fair value of derivative liabilities | 114,411 | (382,511 | ) | |||||
Impairment of right-of-use asset | 170,714 | 0— | ||||||
Impairment of intangible assets | 0— | 750,596 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | 172,048 | 820,505 | ||||||
Inventory | (1,253,260 | ) | (373,379 | ) | ||||
Other assets | (303,073 | ) | 662,694 | |||||
Accounts payable | (627,285 | ) | (487,314 | ) | ||||
Accrued compensation and other liabilities | (57,706 | ) | (97,586 | ) | ||||
Deferred revenue | (9,808 | ) | (450,719 | ) | ||||
Net cash used in operating activities | (12,559,210 | ) | (9,232,741 | ) | ||||
Cash flows from investing activities | ||||||||
Acquisition of business, net of cash acquired of $1,266,849 | 0— | 1,266,849 | ||||||
Note receivable | 0— | (2,200,000 | ) | |||||
Purchases of property and equipment | (1,723,064 | ) | (1,057 | ) | ||||
Net cash used in investing activities | (1,723,064 | ) | (934,208 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of common stock, net of issuance costs | 0— | 11,375,633 | ||||||
Proceeds from issuance of common stock warrants | 255,751 | 0— | ||||||
Proceeds from issuance of common stock and pre-funded warrants in registered offering, net of selling costs | 23,473,962 | 0— | ||||||
Proceeds from the exercise of common stock warrants, net of issuance costs | 9,094,172 | 8,142,000 | ||||||
Proceeds from debt, net of issuance costs | 0— | 1,138,983 | ||||||
Payments on debt | (441,076 | ) | (206,933 | ) | ||||
Payments on finance lease obligations | (177,742 | ) | (324,278 | ) | ||||
Net cash provided by financing activities | 32,205,067 | 20,125,405 | ||||||
Effects of exchange rates on cash | (296,403 | ) | 325,908 | |||||
Net increase in cash and cash equivalents and restricted cash | 17,626,390 | 10,284,364 | ||||||
Cash and cash equivalents and restricted cash at beginning of period | 14,107,255 | 2,893,603 | ||||||
Cash and cash equivalents and restricted cash at end of period | $ | 31,733,645 | $ | 13,177,967 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 888,374 | $ | 94,073 | ||||
Supplemental disclosures of noncash investing and financing activities | ||||||||
Right-of-use assets acquired through operating leases | $ | 748,294 | $ | 0— | ||||
Shares issued in business combination | $ | 0— | $ | 4,847,417 | ||||
Shares issued to settle convertible notes | $ | 0— | $ | 880,432 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
7
OpGen, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 20202021
Note 1 – Organization
OpGen, Inc. (“OpGen” or the “Company”) was incorporated in Delaware in 2001. On April 1, 2020, OpGen completed its business combination transaction (the “Transaction”) with Curetis N.V., a public company with limited liability under the laws of the Netherlands (the “Seller” or “Curetis N.V.”), as contemplated by the Implementation Agreement, dated as of September 4, 2019 (the “Implementation Agreement”), by and among the Company, the Seller, and Crystal GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany and wholly-owned subsidiary of the Company (“Purchaser”). Pursuant to the Implementation Agreement, the Purchaser acquired all of the shares of Curetis GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany (“Curetis GmbH”), and certain other assets and liabilities of the Seller (together, “Curetis”) (see Note 4). References in this report to the “Company” include OpGen and its wholly-owned subsidiaries. The Company’s headquarters are in Gaithersburg,Rockville, Maryland and itsthe Company’s principal operations are in Gaithersburg,Rockville, Maryland; Holzgerlingen and Bodelshausen, Germany,Germany; and Vienna, Austria. The Company operates in one business segment.
OpGen Overview
OpGen is a precision medicine company harnessing the power of molecular diagnostics and informatics to help combat infectious disease. The Company is developing and commercializing molecular microbiology solutions helping to guide clinicians with more rapid and actionable information about life threatening infections to improve patient outcomes, and decrease the spread of infections caused by multidrug-resistant microorganisms, or MDROs. OpGen’s current product portfolio includes Unyvero, QuickFISH, PNA FISH, Acuitas AMR Gene Panel and Acuitas Lighthouse, and the ARES Technology Platform including ARESdb, using NGS technology and AI-powered bioinformatics solutions for antibiotic response prediction.prediction as well as the Curetis CE-IVD-marked PCR-based SARS-CoV-2 test kit.
On October 13, 2020, the Company announced its decision to discontinue the QuickFISH and PNA FISH product portfolio in its entirety by June 30, 2021 and certain licensing agreements with Life Technologies, a subsidiary of ThermoFisher, have therefore been terminated accordingly as of such date (see Note 11). The Company's FISH customers and distribution partners have been informed accordingly and last orders were received and processed in the first quarter of 2021. The discontinuance of these product lines did not qualify for discontinued operations reporting.
The focus of OpGen is on its combined broad portfolio of products, which include high impact rapid diagnostics and bioinformatics to interpret AMR genetic data. OpGen will continue to develop and seek FDA and other regulatory clearances or approvals, as applicable, for the Acuitas AMR Gene Panel (Urine)(Isolates) diagnostic test, Unyvero UTI and the Acuitas Lighthouse SoftwareIJI products. OpGen will continue to offer the FDA-cleared Unyvero LRT and LRT BAL Panels, as well as Unyvero UTI Panel and Acuitas AMR Gene Panel (Isolates) and Acuitas Lighthouse Software as well as the Unyvero UTI Panel as RUO products to hospitals, public health departments, clinical laboratories, pharmaceutical companies and contract research organizations, or CROs. OpGen will also continue to commercialize its Unyvero Panels in Europe and other global markets via distributors.
Note 2 – LiquidityGoing Concern and management’s plans
Management’s Plans
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred, and continues to incur, significant losses from operations. The Company has funded its operations primarily through external investor financing transactions,arrangements and significant actions taken by the Company, including the followingfollowing:
•
On March 9, 2021, the Company entered into a Warrant Exercise Agreement (the “Exercise Agreement”) with the institutional investor (the “Holder”) from our 2020 PIPE financing (see discussion below for a description of the 2020 PIPE). Pursuant to the Exercise Agreement, in 2019order to induce the Holder to exercise all of the remaining 4,842,615 outstanding warrants (the “Existing Warrants”) for cash, pursuant to the terms of and subject to beneficial ownership limitations contained in the Existing Warrants, the Company agreed to issue to the Holder new warrants (the “New Warrants”) to purchase 0.65 shares of common stock for each share of common stock issued upon such exercise of the remaining 4,842,615 outstanding Existing Warrants pursuant to the Exercise Agreement or an aggregate of 3,147,700 New Warrants. The terms of the New Warrants are substantially similar to those of the Existing Warrants, except that the New Warrants have an exercise price of $3.56. The New Warrants are immediately exercisable and will expire five years from the date of the Exercise Agreement. The Holder paid an aggregate of $255,751 to the Company for the purchase of the New Warrants. The Company received aggregate gross proceeds before expenses of approximately $9.65 million from the exercise of all of the remaining 4,842,615 outstanding Existing Warrants held by the Holder and the payment of the purchase price for the New Warrants (together, the “2021 Warrant Exercise”). As additional compensation, A.G.P./Alliance Global Partners will receive a cash fee equal to $200,000 upon the cash exercise in full of the New Warrants.
8
•
On February 11, 2021, the Company closed a registered direct offering (the "February 2021 Offering”) with a single U.S.-based, healthcare-focused institutional investor for the purchase of (i) 2,784,184 shares of common stock and (ii) 5,549,149 pre-funded warrants, with each pre-funded warrant exercisable for one share of common stock. The Company also issued to the investor, in a concurrent private placement, unregistered common share purchase warrants to purchase 4,166,666 shares of the Company's common stock. Each share of common stock and accompanying common warrant were sold together at a combined offering price of $3.00, and each pre-funded warrant and accompanying common warrant were sold together at a combined offering price of $2.99. The pre-funded warrants are immediately exercisable, at an exercise price of $0.01, and may be exercised at any time until all of the pre-funded warrants are exercised in full. The common warrants will have an exercise price of $3.55 per share, will be exercisable commencing on the six-month anniversary of the date of issuance, and will expire five and one-half (5.5) years from the date of issuance. The February 2021 Offering raised aggregate net proceeds of $23.5 million, and gross proceeds of $25.0 million. As of June 30, 2021, all 5,549,149 pre-funded warrants issued in the February 2021 Offering have been exercised.
•
On November 25, 2020, the Company closed a private placement (the “2020 PIPE”) with one healthcare-focused U.S. institutional investor for the purchase of (i) 2,245,400 shares of common stock, (ii) 4,842,615 warrants to purchase shares of common stock and (iii) 2,597,215 pre-funded warrants, with each pre-funded warrant exercisable for one share of common stock. Each share of common stock and accompanying common warrant were sold together at a combined offering price of $2.065, and each pre-funded warrant and accompanying common warrant were sold together at a combined offering price of $2.055. The common warrants have an exercise price of $1.94 per share, and are exercisable commencing on the six-month anniversary of the date of issuance, and will expire five and one-half (5.5) years from the date of issuance. The 2020 PIPE raised aggregate net proceeds of $9.3 million, and gross proceeds of $10.0 million. As of December 31, 2020, all 2,597,215 pre-funded warrants issued in the 2020 PIPE have been exercised.
•
On February 11, 2020, the Company entered into an At the Market Common Offering (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), which was amended and restated on November 13, 2020 to date:
To meet its capital needs, the Company is considering multiple alternatives, including, but not limited to, strategic financings or other transactions, additional equity financings, debt financings and other funding transactions, licensing and/or partnering arrangements and business combination transactions.arrangements. There can be no assurance that the Company will be able to complete any such transaction on acceptable terms or otherwise. The Company believes that current cash will be sufficient to fund operations into the early firstsecond quarter of 2020.2022. This has led management to conclude that substantial doubt about the Company’s ability to continue as a going concern exists. In the event the Company is unable to successfully raise additional capital during or before the end of the firstsecond quarter of 2021,2022, the Company will not have sufficient cash flows and liquidity to finance its business operations as currently contemplated. Accordingly, in such circumstances, the Company would be compelled to immediately reduce general and administrative expenses and delay research and development projects, pause or abort clinical trials including the purchase of scientific equipment and supplies, until it is able to obtain sufficient financing. If such sufficient financing is not received on a timely basis, the Company would then need to pursue a plan to license or sell its assets, seek to be acquired by another entity, cease operations and/or seek bankruptcy protection.
Note 3 – Summary of significant accounting policiesSignificant Accounting Policies
Basis of presentation and consolidation
The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and the standards of accounting measurement set forth in the Interim Reporting Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, although the Company believes that the disclosures made are adequate to make the information not misleading. The Company recommends that the following unaudited condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K. In the opinion of management, all adjustments that are necessary for a fair presentation of the Company’s financial position for the periods presented have been reflected. All adjustments are of a normal, recurring nature, unless otherwise stated. The interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. The December 31, 20192020 consolidated balance sheet included herein was derived from the audited consolidated financial statements, but does not include all disclosures including notes required by GAAP for complete financial statements.
The accompanying unaudited condensed consolidated financial statements include the accounts of OpGen and its wholly-owned subsidiaries as of June 30, 20202021 including Curetis GmbH and subsidiaries acquired on April 1, 2020; all intercompany transactions and balances have been eliminated.
9
Foreign currency
The Company has subsidiaries located in Holzgerlingen, Germany; Vienna, Austria; and Copenhagen, Denmark; and Bogota, Colombia,Denmark, each of which use currencies other than the U.SU.S. dollar as their functional currency. As a result, all assets and liabilities are translated into U.S. dollars based on exchange rates at the end of the reporting period. Income and expense items are translated at the average exchange rates prevailing during the reporting period. Translation adjustments are reported in accumulated other comprehensive (loss) income, a component of stockholders’ equity. Foreign currency translation adjustments are the sole component of accumulated other comprehensive (loss) income at June 30, 20202021 and 2019.
December 31, 2020.
Foreign currency transaction gains and losses, excluding gains and losses on intercompany balances where there is no current intent to settle such amounts in the foreseeable future, are included in the determination of net loss. Unless otherwise noted, all references to “$” or “dollar” refer to the United States dollar.
Use of estimates
In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the accompanying unaudited condensed consolidated financial statements, estimates are used for, but not limited to, liquidity assumptions, revenue recognition, inducement expense related to warrant reprice, stock-based compensation, allowances for doubtful accounts and inventory obsolescence, discount rates used to discount unpaid lease payments to present values, valuation of derivative financial instruments measured at fair value on a recurring basis, deferred tax assets and liabilities and related valuation allowance, determining the fair value of assets acquired and liabilities assumed in business combinations, the estimated useful lives of long-lived assets, and the recoverability of long-lived assets. Actual results could differ from those estimates.
Fair value of financial instruments
Financial instruments classified as current assets and liabilities (including cash and cash equivalent,equivalents, receivables, accounts payable, deferred revenue and short-term notes) are carried at cost, which approximates fair value, because of the short-term maturities of those instruments.
Cash and cash equivalents and restricted cash
The Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. The Company has cash and cash equivalents deposited in financial institutions in which the balances occasionally exceed the federal government agencyFederal Deposit Insurance Corporation (“FDIC”) insured limit of $250,000. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk.
At June 30, 20202021 and December 31, 2019,2020, the Company had funds totaling $291,420$551,260 and $185,380,$746,792, respectively, which are required as collateral for letters of credit benefiting its landlords and for credit card processors. These funds are reflected in other noncurrent assets on the accompanying unaudited condensed consolidated balance sheets.
10
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:
| June 30, 2020 | December 31, 2019 | June 30, 2019 | December 31, 2018 | June 30, 2021 | December 31, 2020 | June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||
| Cash and cash equivalents | $ | 12,886,547 | $ | 2,708,223 | $ | 3,055,894 | $ | 4,572,487 | $ | 31,182,385 | $ | 13,360,463 | $ | 12,886,547 | $ | 2,708,223 | ||||||||||||||||
| Restricted cash | 291,420 | 185,380 | 185,380 | 164,720 | 551,260 | 746,792 | 291,420 | 185,380 | ||||||||||||||||||||||||
| Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows | $ | 13,177,967 | $ | 2,893,603 | $ | 3,241,274 | $ | 4,737,207 | ||||||||||||||||||||||||
Total cash and cash equivalents and restricted cash in the condensed consolidated statements of cash flows | $ | 31,733,645 | $ | 14,107,255 | $ | 13,177,967 | $ | 2,893,603 | ||||||||||||||||||||||||
Accounts receivable
The Company’s accounts receivable result from revenues earned but not yet collected from customers. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within 30 to 6090 days and are stated at amounts due from customers. The Company evaluates if an allowance is necessary by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history and the customer’s current ability to pay its obligation. If amounts become uncollectible, they are charged to operations when that determination is made. The allowance for doubtful accounts was $0 and $20,753 as of June 30, 20202021 and December 31, 2019,2020, respectively.
At June 30, 2021, the Company had accounts receivable from three customers which individually represented 50%, 16% and 13% of total accounts receivable, respectively. At December 31, 2020, the Company had accounts receivable from one customer which individually represented 13%20% of total accounts receivable. At December 31, 2019, one individual customerFor the three months ended June 30, 2021, revenue earned from two customers represented 44%29% and 13% of total accounts receivable.revenues, respectively. For the three months ended June 30, 2020, revenue earned from one customer represented 38% of total revenues. For the threesix months ended June 30, 2019,2021, revenue earned from one customerthree customers represented 50%21%, 13%, and 11% of total revenues.revenues, respectively. For the six months ended June 30, 2020, revenue earned from two customers represented 22% and 14% of total revenues, respectively. For the six months ended June 30, 2019, revenue earned from one customer represented 49% of total revenues.
Inventory
Inventories are valued using the first-in, first-out method and stated at the lower of cost or net realizable value and consist of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Raw materials and supplies | $ | 1,177,089 | $ | 315,542 | ||||
| Work-in-process | 169,303 | 35,080 | ||||||
| Finished goods | 1,551,793 | 122,408 | ||||||
| Total | $ | 2,898,185 | $ | 473,030 | ||||
June 30, 2021 | December 31, 2020 | |||||||
Raw materials and supplies | $ | 810,800 | $ | 773,021 | ||||
Work-in-process | 67,058 | 87,159 | ||||||
Finished goods | 3,451,458 | 2,312,148 | ||||||
Total | $ | 4,329,316 | $ | 3,172,328 | ||||
Inventory includes Unyvero instrument systems, Unyvero cartridges, reagents and components for Unyvero, Acuitas, QuickFISH and PNA FISH products, Curetis SARS-CoV-2 test kits, and reagents and supplies used for the Company’s laboratory services. Inventory reserves for obsolescence and expirations were $202,403$91,066 and $92,454$288,378 at June 30, 20202021 and December 31, 2019,2020, respectively.
The Company reviews inventory quantities on hand and analyzes the provision for excess and obsolete inventory based primarily on product expiration dating and its estimated sales forecast, which is based on sales history and anticipated future demand. The Company’s estimates of future product demand may not be accurate, and it may understate or overstate the provision required for excess and obsolete inventory. Accordingly, any significant unanticipated changes in demand could have a significant impact on the value of the Company’s inventory and results of operations.
The Company classifies finished goods inventory it does not expect to sell or use in clinical studies within 12 months of the unaudited condensed consolidated balance sheets date as strategic inventory, a non-current asset.
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Long-lived assets
Property and equipment
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which we can identify assets. If such assets are considered to be impaired, impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets. As ofDuring the three and six months ended June 30, 20202021 and 2019,2020, the Company determined that its property and equipment waswere not impaired.
Leases
The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use the underlying asset for the term of the lease and the lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date of the underlying lease arrangement to determine the present value of lease payments. The ROU asset also includes any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company’s lease agreements generally do not contain any material variable lease payments, residual value guarantees or restrictive covenants.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while expense for financing leases is recognized as depreciation expense and interest expense using the acceleratedeffective interest method of recognition. The Company has made certain accounting policy elections whereby the Company (i) does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12 months or less) and (ii) combines lease and non-lease elements of our operating leases.
ROU Assets
assets
ROU assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which the Company can identify assets. If such assets are considered to be impaired, impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets. In conjunction with adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC 842”), During the three and six months ended June 30, 2021, the Company determined that the ROU asset associated with its Woburn, MassachusettsSan Diego, California office lease may not be recoverable. As a result, the Company recorded an impairment charge of $520,759$115,218 and $ 170,714 during the three and six months ended June 30, 2019.2021, respectively.
Intangible assets and goodwill
Intangible assets and goodwill as of June 30, 20202021 consist of finite-lived and indefinite-lived intangible assets and goodwill.
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Finite-lived and indefinite-lived intangible assets
Intangible assets include trademarks, developed technology, In-Process Research & Development, software and customer relationships and consisted of the following as of June 30, 20202021 and December 31, 2019:2020:
| June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||||
| Subsidiary | Cost | Accumulated Amortization | Impairment | Net Balance | Accumulated Amortization | Net Balance | ||||||||||||||||||||||
| Trademarks and tradenames | AdvanDx | $ | 461,000 | $ | (217,413 | ) | $ | (243,587 | ) | $ | — | $ | (205,887 | ) | $ | 255,113 | ||||||||||||
| Developed technology | AdvanDx | 458,000 | (308,526 | ) | (149,474 | ) | — | (292,170 | ) | 165,830 | ||||||||||||||||||
| Customer relationships | AdvanDx | 1,094,000 | (736,465 | ) | (357,535 | ) | — | (697,393 | ) | 396,607 | ||||||||||||||||||
| Trademarks and tradenames | Curetis | 1,790,546 | (44,765 | ) | — | 1,745,781 | — | — | ||||||||||||||||||||
| Distributor relationships | Curetis | 2,392,120 | (39,869 | ) | — | 2,352,251 | — | — | ||||||||||||||||||||
| A50 - Developed technology | Curetis | 381,808 | (13,636 | ) | — | 368,172 | — | — | ||||||||||||||||||||
| Ares - Developed technology | Curetis | 5,413,160 | (96,663 | ) | — | 5,316,497 | — | — | ||||||||||||||||||||
| A30 - In-Process Research & Development | Curetis | 5,783,827 | — | — | 5,783,827 | — | — | |||||||||||||||||||||
| $ | 17,774,461 | $ | (1,457,337 | ) | $ | (750,596 | ) | $ | 15,566,528 | $ | (1,195,450 | ) | $ | 817,550 | ||||||||||||||
June 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||
Subsidiary | Cost | Accumulated Amortization | Effect of Foreign Exchange Rates | Net Balance | Accumulated Amortization | Impairment | Effect of Foreign Exchange Rates | Net Balance | ||||||||||||||||||||||||||||
Trademarks and tradenames | AdvanDx | $ | 461,000 | $ | 0— | $ | 0— | $ | 0— | $ | (217,413 | ) | $ | (243,587 | ) | $ | 0— | $ | 0— | |||||||||||||||||
Developed technology | AdvanDx | 458,000 | 0— | 0— | 0— | (308,526 | ) | (149,474 | ) | 0— | 0— | |||||||||||||||||||||||||
Customer relationships | AdvanDx | 1,094,000 | 0— | 0— | 0— | (736,465 | ) | (357,535 | ) | 0— | 0— | |||||||||||||||||||||||||
Trademarks and tradenames | Curetis | 1,768,000 | (237,532 | ) | 132,238 | 1,662,706 | (147,161 | ) | 0— | 194,119 | 1,814,958 | |||||||||||||||||||||||||
Distributor relationships | Curetis | 2,362,000 | (211,560 | ) | 176,665 | 2,327,105 | (131,070 | ) | 0— | 259,336 | 2,490,266 | |||||||||||||||||||||||||
A50 - Developed technology | Curetis | 349,000 | (66,991 | ) | 26,104 | 308,113 | (41,504 | ) | 0— | 38,319 | 345,815 | |||||||||||||||||||||||||
Ares - Developed technology | Curetis | 5,333,000 | (511,768 | ) | 398,879 | 5,220,111 | (317,060 | ) | 0— | 585,536 | 5,601,476 | |||||||||||||||||||||||||
A30 - In-Process Research & Development | Curetis | 5,706,000 | 0— | 438,289 | 6,144,289 | 0— | 0— | 622,448 | 6,328,448 | |||||||||||||||||||||||||||
$ | 17,531,000 | $ | (1,027,851 | ) | $ | 1,172,175 | $ | 15,662,324 | $ | (1,899,199 | ) | $ | (750,596 | ) | $ | 1,699,758 | $ | 16,580,963 | ||||||||||||||||||
Identifiable intangible assets will be amortized on a straight-line basis over their estimated useful lives. The estimated useful lives of the intangibles are:
Estimated Useful Life | |||
Trademarks and tradenames | 10 years | ||
Customer/distributor relationships | 15 years | ||
A50 – Developed technology | 7 years | ||
Ares – Developed technology | 14 years | ||
A30 – Acquired in-process research & development | Indefinite |
Acquired IPR&D represents the fair value assigned to those research and development projects that were acquired in a business combination for which the related products have not received regulatory approval and have no alternative future use. IPR&D is capitalized at its fair value as an indefinite-lived intangible asset, and any development costs incurred after the acquisition are expensed as incurred. Upon achieving regulatory approval or commercial viability for the related product, the indefinite-lived intangible asset is accounted for as a finite-lived asset and is amortized on a straight-line basis over theits estimated useful life. If the project is not completed or is terminated or abandoned, the Company may have an impairment related to the IPR&D which is charged to expense. Indefinite-lived intangible assets are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may be impaired. Impairment is calculated as the excess of the asset’s carrying value over its fair value.
The Company reviews the useful lives of intangible assets when events or changes in circumstances occur which may potentially impact the estimated useful life of the intangible assets.
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Total amortization expense of intangible assets was $192,709$204,800 and $66,954$192,709 for the three months ended June 30, 20202021 and 2019,2020, respectively. Total amortization expense of intangible assets was $259,663$402,642 and $133,908$259,663 for the six months ended June 30, 20202021 and 2019,2020, respectively. Expected future amortization of intangible assets is as follows.follows:
| Year Ending December 31, | ||||||
| 2020 (Six months) | $ | 389,865 | ||||
| 2021 | 779,730 | |||||
| 2022 | 779,730 | |||||
| 2023 | 779,730 | |||||
| 2024 | 779,730 | |||||
| 2025 | 779,730 | |||||
| Thereafter | 5,494,186 | |||||
| Total | $ | 9,782,701 | ||||
|
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If any indicators were present, the Company would test for recoverability by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash flows do not exceed the carrying amount (i.e., the asset is not recoverable), the Company would perform the next step, which is to determine the fair value of the asset and record an impairment loss, if any.
In accordance with ASC 360-10, Property, Plant and Equipment, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. During the six months ended June 30, 2021, the Company determined that its finite-lived intangible assets were not impaired. During the six months ended June 30, 2020, events and circumstances indicated the Company’s FISH intangible assets might be impaired. These circumstances included decreased product sales related to the COVID-19 pandemic and the loss of significant customers. Management’s updated estimate of undiscounted cash flows indicated that such carrying amounts were no longer expected to be recovered and that the FISH intangible assets were impaired. The Company’s analysis determined that the fair value of the assets was $0 and the Company recorded an impairment loss of $750,596.
Goodwill
Goodwill represents the excess of the purchase price paid when the Company acquired AdvanDx, Inc. in July 2015 and Curetis in April 2020, over the fair values of the acquired tangible or intangible assets and assumed liabilities. Goodwill is not tax deductible in any relevant jurisdictions. The Company’s goodwill balance as of June 30, 20202021 and December 31, 20192020 was $7,650,642$7,790,595 and $600,814,$8,024,729, respectively.
The changes in the carrying amount of goodwill as of June 30, 2020,2021, and since December 31, 2019,2020, were as follows:
| Balance as of December 31, 2019 | $ | 600,814 | ||
| Acquisition of Curetis | 7,046,535 | |||
| Changes in currency translation | 3,293 | |||
| Balance as of June 30, 2020 | $ | 7,650,642 |
Balance as of December 31, 2020 |
| $ | 8,024,729 | |
Changes in currency translation | (234,134 | ) | ||
Balance as of June 30, 2021 | $ | 7,790,595 |
The Company conducts an impairment test of goodwill on an annual basis, and will also conduct tests if events occur or circumstances change that would, more likely than not, reduce the Company’s fair value below its net equity value. During the six months ended June 30, 20202021 and 2019,2020, the Company determined that its goodwill was not impaired.
Revenue recognition
The Company derives revenues from (i) the sale of QuickFISH and PNA FISH diagnostic test products, Unyvero Application cartridges, Unyvero Systems, SARS-CoV-2 tests, Acuitas AMR Gene Panel (Isolates) RUO test products, (ii) providing laboratory services, and (iii) providing collaboration services including funded software arrangements, and license arrangements.
The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract transaction price to the performance obligations and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation.
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The Company recognizes revenues upon the satisfaction of its performance obligation (upon transfer of control of promised goods or services to our customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.
The Company defers incremental costs of obtaining a customer contract and amortizes the deferred costs over the period that the goods and services are transferred to the customer. The Company had no material incremental costs to obtain customer contracts in any period presented.
Deferred revenue results from amounts billed in advance to customers or cash received from customers in advance of services being provided.
Research and development costs
Research and development costs are expensed as incurred. Research and development costs primarily consist of salaries and related expenses for personnel, other resources, laboratory supplies, and fees paid to consultants and outside service partners.
Government grant agreements and research incentives
From time to time, the Company may enter into arrangements with governmental entities for the purposes of obtaining funding for research and development activities. The Company recognizes funding from grants and research incentives received from Austrian government agencies in the condensed consolidated statements of operations and comprehensive loss in the period during which the related qualifying expenses are incurred, provided that the conditions under which the grants or incentives were provided have been met. For grants under funding agreements and for proceeds under research incentive programs, the Company recognizes grant and incentive income in an amount equal to the estimated qualifying expenses incurred in each period multiplied by the applicable reimbursement percentage. The Company classifies government grants received under these arrangements as a reduction to the related research and development expense incurred. The Company analyzes each arrangement on a case-by-case basis. For the three months ended June 30, 2021, the Company recognized $154,850 as a reduction of research and development expense related to government grant arrangements. For the six months ended June 30, 2021, the Company recognized $374,072 as a reduction of research and development expense related to government grant arrangements. There were no grant proceeds recognized for the three and six months ended June 30, 2020. The Company had earned but not yet received $727,659 and $413,530 related to these agreements and incentives included in prepaid expenses and other current assets, as of June 30, 2021 and December 31, 2020, respectively.
Stock-based compensation
Stock-based compensation expense is recognized at fair value. The fair value of stock-based compensation to employees and directors is estimated, on the date of grant, using the Black-Scholes model. The resulting fair value is recognized ratably over the requisite service period, which is generally the vesting period of the option. For all time-vesting awards granted, expense is amortized using the straight-line attribution method. The Company accounts for forfeitures as they occur.
Option valuation models, including the Black-Scholes model, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant-date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.
15
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred income tax assets to the amount expected to be realized.
Tax benefits are initially recognized in the condensed consolidated financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially, and subsequently, measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts.
The Company had federal net operating loss (“NOL”) carryforwards of $188,282,298$196,511,928 and $188,282,298 at December 31, 2019.2020 and 2019, respectively. Despite the NOL carryforwards, which begin to expire in 2022, the Company may have future tax liability due to alternative minimum tax or state tax requirements. Also, use of the NOL carryforwards may be subject to an annual limitation as provided by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). To date, the Company has not performed a formal study to determine if any of its remaining NOL and credit attributes might be further limited due to the ownership change rules of Section 382 or Section 383 of the Code. The Company will continue to monitor this matter going forward. There can be no assurance that the NOL carryforwards will ever be fully utilized.
The Company also has foreign NOL carryforwards of $160,540,528 at December 31, 2020 from its foreign subsidiaries. $138,576,755 of those foreign NOL carryforwards are from the Company’s operations in Germany. Despite the NOL carryforwards, the Company may have a current and future tax liability due to the nuances of German tax law around the use of NOL’s within a consolidated group. There is no assurance that these foreign NOL carryforwards will ever be fully utilized.
Loss per share
Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period.
For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options and stock purchase warrants using the treasury stock method, and convertible preferred stock and convertible debt using the if-converted method.
For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive. The number of anti-dilutive shares, consisting of (i) common stock options, (ii) stock purchase warrants, and (iii) restricted stock units representing the right to acquire shares of common stock which have been excluded from the computation of diluted loss per share, was 1.211.0 million shares and 0.21.1 million shares as of June 30, 20202021 and 2019,2020, respectively.
Adopted accounting pronouncements
In February 2016,December 2019, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC 842”), No. 2019-12, Simplifying the Accounting for Income Taxes, which amendedremoves certain exceptions related to the existingapproach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, the recognition of deferred tax liabilities for outside basis differences and clarifies the accounting standards for leases. The new standard requires lessees to recordtransactions that result in a right-of-use (“ROU”) asset and a corresponding lease liability onstep-up in the balance sheet (with the exceptiontax basis of short-term leases), whereas under previous accounting standards, the Company’s lease portfolio consisting of operating leases were not recognized on its consolidated balance sheets. The new standard required expanded disclosures regarding leasing arrangements. The new standard was effective for the Company beginning January 1, 2019.
goodwill. The Company adopted this guidance effective January 1, 2019 using the modified retrospective transition method and the following practical expedients:
Additionally, the Company made ongoing accounting policy elections whereby the Company (i) does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12 months or less) and (ii) combines lease and non-lease elements of our operating leases.
Upon adoption of the new guidanceASU 2019-12 on January 1, 2019, the Company recorded an operating lease ROU asset2021. The impact of approximately $2.2 million (net of existing deferred rent) and recognized a lease liability of approximately $2.5 million.
Prior to the adoption of ASC 842, deferred rent was recorded and amortized to the extent the total minimum rental payments allocated to the period on a straight-line basis exceeded or were less than the cash payments required.
The Company adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("adopting ASU 2016-13"), as of January 1, 2020. ASU 2016-13 requires an entity to measure and recognize expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities with unrealized losses, the standard requires allowances to be recorded through net income instead of directly reducing the amortized cost of the investment under the previous other-than-temporary impairment model. The adoption of this standard2019-12 did not have a material impact on ourthe Company’s condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new guidance under ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The impact of adopting ASU 2020-04 did not have a material impact on the Company’s condensed consolidated financial statements.
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Recently issued accounting standards
The Company has evaluated all other issued and unadopted ASUs and believes the adoption of these standards will not have a material impact on its results of operations, financial position or cash flows.
Note 4 – Business Combination
On April 1, 2020, the Company completed its business combination transaction with Curetis N.V., a public company with limited liability under the laws of the Netherlands, as contemplated by the Implementation Agreement, dated as of September 4, 2019, by and among the Company, the Seller, and Crystal GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany and wholly-owned subsidiary of the Company. Pursuant to the Implementation Agreement, the Purchaser acquired all of the shares of Curetis GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany, and certain other assets and liabilities of the Seller, as further described below, and paid, as the sole consideration, 2,028,208 shares of the Company’s common stock to the Seller, and reserved for future issuance (a) 134,356 shares of Common Stock, in connection with its assumption of the Seller’s 2016 Stock Option Plan, as amended (the “Seller Stock Option Plan”), and the outstanding awards thereunder, and (b) 500,000 shares of common stock to be issued upon the conversion, if any, of certain convertible notes issued by the Seller.
At the closing, the Company assumed all of the liabilities of the Seller solely and exclusively related to the acquired business, which is providing innovative solutions, through development of proprietary platforms, diagnostic content, applied bioinformatics, lab services, research services and commercial collaborations and agreements, for molecular microbiology, diagnostics designed to address the global challenge of detecting severe infectious diseases and identifying antibiotic resistances in hospitalized patient.patients. Pursuant to the Implementation Agreement, the Company also assumed and adopted the Seller Stock Option Plan as an Amended and Restated Stock Option Plan of the Company. In connection with the foregoing, the Company assumed all awards thereunder that were outstanding as of the Closing Date and converted such awards into options to purchase shares of the Company’s Common Stock pursuant to the terms of the applicable award. In addition, the Company assumed, at the closing, all of the outstanding convertible notes issued by Seller in favor of YA II PN, LTD, pursuant to the previously disclosed Assignment of the Agreement for the Issuance of and Subscription to Notes Convertible into Shares, dated February 24, 2020, and entered into pursuant to the Implementation Agreement.
Curetis’ assets and liabilities were measured and recognized at their fair values as of the transaction date and combined with the assets, liabilities, and results of operations of OpGen after the consummation of the business combination. The allocation of the purchase price to acquired assets and assumed liabilities based on their underlying fair values requires the extensive use of significant estimates and management’s judgment. The allocation of the purchase price is preliminaryfinal at this time, and will remain as such until management completes valuations and other studies in order to finalize the valuation of the net assets acquired. These provisional estimates will be adjusted upon the availability of further information regarding events or circumstances which exist at the acquisition date and such adjustments may be significant.time.
17
The components of the purchase price and net assets acquired are as follows:
Purchase Price
| Number of shares issued to Curetis N.V | 2,028,208 | 2,028,208 | |||||
| Multiplied by the market value per share of OpGen's common stock (i) | $ | 2.39 | $ | 2.39 | |||
| Total fair value of common stock issued to Curetis N.V shareholders | 4,847,417 | 4,847,417 | |||||
| Fair value of replacement stock awards related to precombination service (ii) | 136,912 | 136,912 | |||||
| Fair value of convertible notes assumed (iii) | 1,323,750 | 1,323,750 | |||||
| Fair value of EIB debt assumed (iv) | 15,784,892 | 15,784,892 | |||||
| Funds advanced to Curetis GmbH under Interim Facility | 4,808,712 | 4,808,712 | |||||
| Cash, cash equivalents, and restricted cash acquired | (1,266,849 | ||||||
Cash and cash equivalents and restricted cash acquired | (1,266,849 | ) | |||||
| $ | 25,634,834 | $ | 25,634,834 | ||||
(i) | The price per share of OpGen’s common stock was based on the closing price as reported on the Nasdaq Capital Market on April 1, 2020. |
(ii) | The fair value of the stock options assumed was determined using the Black-Scholes option pricing model. |
(iii) | To derive the fair value of the convertible notes, the Company estimated the fair value of the convertible notes with and without the derivative liability using a scenario analysis and Monte Carlo simulation. |
(iv) | The fair value of the EIB debt is determined using a discounted cash flow analysis with current applicable rates for similar instruments. |
Net Assets Acquired
| Asset acquired | ||||
| Receivables | $ | 482,876 | ||
| Inventory | 2,022,577 | |||
| Property and equipment | 3,802,431 | |||
| Right of use assets | 1,090,812 | |||
| Other current assets | 585,500 | |||
| Finite-lived intangible assets | ||||
| Trade names/trademarks | 1,768,000 | |||
| Customer/distributor relationships | 2,362,000 | |||
| A50 - Developed technology | 377,000 | |||
| Ares - Developed technology | 5,345,000 | |||
| Indefinite-lived intangible assets | ||||
| A30 - In-process research & development | 5,711,000 | |||
| Goodwill | 7,046,535 | |||
| Liabilities assumed | ||||
| Accounts payable | (1,168,839 | ) | ||
| Accrued expenses and other current liabilities | (2,016,946 | ) | ||
| Derivative liabilities | (615,831 | ) | ||
| Lease liabilities | (1,108,193 | ) | ||
| Other long–term liabilities | (49,088 | ) | ||
| Net assets acquired | $ | 25,634,834 | ||
Assets acquired | |||
Receivables | $ | 482,876 | |
Inventory | 2,022,577 | ||
Property and equipment | 3,802,431 | ||
Right of use assets | 1,090,812 | ||
Other current assets | 925,364 | ||
Finite-lived intangible assets | |||
Trade names/trademarks | 1,768,000 | ||
Customer/distributor relationships | 2,362,000 | ||
A50 - Developed technology | 349,000 | ||
Ares - Developed technology | 5,333,000 | ||
Indefinite-lived intangible assets | |||
A30 - In-process research & development | 5,706,000 | ||
Goodwill | 6,688,652 | ||
Liabilities assumed | |||
Accounts payable | (1,168,839 | ) | |
Accrued expenses and other current liabilities | (1,953,927 | ) | |
Derivative liabilities | (615,831 | ) | |
Lease liabilities | (1,108,193 | ) | |
Other long-term liabilities | (49,088 | ) | |
Net assets acquired | $ | 25,634,834 |
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The fair value of identifiable intangible assets has been determined using the income approach, which involves significant unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, required rate of return and tax rate, as well as an estimated royalty rate in the case of the trade names/trademarks intangibles. The trade names/trademarks intangibles are valued using a relief-from-royalty method. The customer/distributor relationships are valued using the with and without method. The developed technology intangibles are valued using a multi-period earnings method.
The Company determined the fair value of an IPR&D asset resulting from the acquisition of Curetis using the multi-period earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the IPR&D, less charges representing the required return on other assets to sustain those cash flows.
The weighted-average amortization periods for finite-lived intangible assets acquired are 15 years for customer/distributor relationships, 10 years for developed technology and 10 years for trade names/trademarks.
The total consideration paid in the acquisition exceeded the estimated fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, resulting in approximately $7.0$6.7 million of goodwill. Goodwill, primarily related to expected synergies gained from combining operations, sales growth from future product offerings and customers, together with certain intangible assets that do not qualify for separate recognition, including assembled workforce, is not tax deductible in all relevant taxing jurisdictions.
The following unaudited pro forma financial information summarizes the results of operations for the periods indicated as if the Transaction had been completed as of January 1, 2019.2020. Pro forma information primarily reflects adjustments relating to the amortization of intangibles acquired and elimination of interest expense due under the interim facility. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of January 1, 20192020 or that may be obtained in the future:future.
Unaudited pro forma results | Three months ended June 30, | Six months ended June 30, | ||||||||||
| 2019 | 2020 | 2019 | ||||||||||
| Revenues | $ | 1,441,739 | $ | 2,835,532 | $ | 3,267,164 | ||||||
| Net loss | (8,545,303 | ) | (14,734,370 | ) | (18,381,421 | ) | ||||||
| Net loss per share | (9.69 | ) | (1.29 | ) | (27.19 | ) | ||||||
Unaudited pro forma results |
| Six months ended June 30, 2020 | ||
Revenues | $ | 2,835,532 | ||
Net loss | (14,734,370 | ) | ||
Net loss per share | (1.29 | ) | ||
Note 5 – Revenue from contracts with customers
Disaggregated revenue
The Company provides diagnostic test products, laboratory services to hospitals, clinical laboratories and other healthcare provider customers, and enters into collaboration agreements with government agencies and healthcare providers. The revenues by type of service consist of the following:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Product sales | $ | 601,304 | $ | 504,293 | $ | 968,237 | $ | 1,024,470 | ||||||||
| Laboratory services | 25,992 | 5,250 | 25,992 | 5,250 | ||||||||||||
| Collaboration revenue | 561,089 | 500,000 | 811,089 | 1,000,000 | ||||||||||||
| Total revenue | $ | 1,188,385 | $ | 1,009,543 | $ | 1,805,318 | $ | 2,029,720 | ||||||||
Three Months Ended June 30, | Six Months Ended June 30, |
| ||||||||||||||
2021 | 2020 | 2021 | 2020 |
| ||||||||||||
Product sales | $ | 307,804 | $ | 601,304 | $ | 835,383 | $ | 968,237 |
| |||||||
Laboratory services | 266,784 | 25,992 | 450,849 | 25,992 |
| |||||||||||
Collaboration revenue | 237,027 | 561,089 | 355,099 | 811,089 |
| |||||||||||
Total revenue | $ | 811,615 | $ | 1,188,385 | $ | 1,641,331 | $ | 1,805,318 |
| |||||||
Revenues by geography are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, |
| ||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 |
| ||||||||||||||||||||||||
| Domestic | $ | 302,676 | $ | 985,426 | $ | 893,125 | $ | 1,941,522 | $ | 305,617 | $ | 302,676 | $ | 649,624 | $ | 893,125 |
| |||||||||||||||
| International | 885,709 | 24,117 | 912,193 | 88,198 | 505,998 | 885,709 | 991,707 | 912,193 |
| |||||||||||||||||||||||
| Total revenue | $ | 1,188,385 | $ | 1,009,543 | $ | 1,805,318 | $ | 2,029,720 | $ | 811,615 | $ | 1,188,385 | $ | 1,641,331 | $ | 1,805,318 |
| |||||||||||||||
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Deferred revenue
Changes in deferred revenue for the period were as follows:
| Balance at December 31, 2019 | $ | 9,808 | ||
| Acquired deferrals from Curetis, net of amounts recognized in the current period | 378,556 | |||
| Revenue recognized in the current period from the amounts in the beginning balance | — | |||
| Effect of foreign exchange rates | 5,375 | |||
| Balance at June 30, 2020 | $ | 393,739 |
Balance at December 31, 2020 | $ | 9,808 | ||
New deferrals, net of amounts recognized in the current period | 0— | |||
Amounts returned to customers | (9,808 | ) | ||
Effect of foreign exchange rates | 0— | |||
Balance at June 30, 2021 | $ | 0— |
Contract assets
The Company had approximately $70,000 ofdid not have any contract assets as of June 30, 2020,2021, which are generated when contractual billing schedules differ from revenue recognition timing. The Company had noapproximately $18,000 of contract assets as of December 31, 2019.2020. Contract assets represent a conditional right to consideration for satisfied performance obligations that becomes a billed receivable when the conditions are satisfied.
Unsatisfied performance obligations
The Company had no unsatisfied performance obligations related to its contracts with customers at June 30, 20202021 and December 31, 2019.2020.
Note 6 – Fair value measurements
The Company classifies its financial instruments using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
•
Level 1 - defined as observable inputs such as quoted prices in active markets;
•
Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
•
Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions such as expected revenue growth and discount factors applied to cash flow projections.
For the six months ended June 30, 2020,2021, the Company has not transferred any assets between fair value measurement levels.
Financial assets and liabilities measured at fair value on a recurring basis
The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the hierarchy.
In June 2019, Curetis drew down a third tranche of EUR 5.0 million from the EIB (European(“European Investment Bank)Bank”). In return for EIB waiving the condition precedent of a minimum cumulative equity capital raised of EUR 15 million to disburse this EUR 5.0 million tranche, the parties agreed on a 2.1% participation percentage interest (PPI)(“PPI”). Upon maturity of the tranche, EIB would be entitled to an additional payment that is equity-linked and equivalent to 2.1% of the then total valuation of Curetis N.V. On July 9, 2020, the Company negotiated an amendment to the EIB debt financing facility (see Note 13).facility. As part of the amendment, the parties adjusted the PPI percentage applicable to the previous EIB tranche of EUR 5.0 million, which was funded in June 2019 from its original 2.1% PPI in Curetis N.V.’s's equity value upon maturity to a new 0.3% PPI in OpGen’sOpGen's equity value upon maturity between mid-2024 and mid-2025. This right constitutes an embedded derivative, which is separated and measured at fair value with changes being accounted for through profit or loss. The Company determines the fair value of the derivative using a Monte Carlo simulation model. Using this model, level 3 unobservable inputs include estimated discount rates and estimated risk-free interest rates.
The Company’s convertible debt with YA II PN, LTD (see Note 7) includes a conversion feature which constitutes an embedded derivative, which is separated and measured at fair value with subsequent changes being accounted for through profit or loss. The Company determines the fair value of the derivative using a Monte Carlo simulation model. Using this model, level 3 unobservable inputs include estimated volatility rates and estimated risk-free interest rates.
20
The fair value of level 3 liabilities measured at fair value on a recurring basis for the sixthree months ended June 30, 20202021 was as follows.follows:
| Description | Balance at December 31, 2019 | Acquired from Curetis | Change in Fair Value | Effect of Foreign Exchange Rates | Balance at June 30, 2020 | Balance at December 31, 2020 | Change in Fair Value | Effect of Foreign Exchange Rates | Balance at June 30, 2021 | ||||||||||||||||||||||||||
| Participation percentage interest liability | $ | — | $ | 173,373 | $ | (113,230 | ) | $ | 904 | $ | 61,047 | $ | 112,852 | $ | 114,411 | $ | (4,876 | ) | $ | 222,387 | |||||||||||||||
| Embedded conversion option liability | — | 442,458 | (269,281 | ) | — | 173,177 | |||||||||||||||||||||||||||||
| Total revenue | $ | — | $ | 615,831 | $ | (382,511 | ) | $ | 904 | $ | 234,224 | ||||||||||||||||||||||||
Total | $ | 112,852 | $ | 114,411 | $ | (4,876 | ) | $ | 222,387 | ||||||||||||||||||||||||||
Financial assets and liabilities carried at fair value on a non-recurring basis
The Company does not have any financial assets and liabilities measured at fair value on a non-recurring basis.
Non-financial assets and liabilities carried at fair value on a recurring basis
The Company does not have any non-financial assets and liabilities measured at fair value on a recurring basis.
Non-financial assets and liabilities carried at fair value on a non-recurring basis
The Company measures its long-lived assets, including property and equipment and intangible assets (including goodwill), at fair value on a non-recurring basis when a triggering event requires such evaluation. During the three months ended June 30, 2021, the Company recorded impairment expense of $115,218 related to its ROU assets. During the six months ended June 30, 2021, the Company recorded impairment expense of $170,714 related to its ROU assets. During the three and six months ended June 30, 2020, the Company recorded impairment expense of $0 and $750,596 related to its intangible assets, respectively (see Note 3).
Note 7 – Debt
The following table summarizes the Company’s long-term debt and short-term borrowings as of June 30, 20202021 and December 31, 2019:
2020:
| June 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
| EIB | $ | 23,059,717 | $ | — | $ | 25,754,951 | $ | 25,936,928 | ||||||||
| Yorkville | 559,900 | — | ||||||||||||||
| PPP | 1,138,983 | — | 0— | 259,353 | ||||||||||||
| MGHIF | 497,347 | 662,789 | 0— | 331,904 | ||||||||||||
| Insurance financings | — | 40,266 | 0— | 107,742 | ||||||||||||
| Total debt obligations | 25,255,947 | 703,055 | 25,754,951 | 26,635,927 | ||||||||||||
| Unamortized debt discount | (7,082,915 | ) | — | (5,084,010 | ) | (6,557,992 | ) | |||||||||
| Carrying value of debt | 18,173,032 | 703,055 | 20,670,941 | 20,077,935 | ||||||||||||
| Less current portion | (1,378,380 | ) | (373,599 | ) | 0— | (699,000 | ) | |||||||||
| Long-term debt | $ | 16,794,652 | $ | 329,456 | $ | 20,670,941 | $ | 19,378,935 | ||||||||
MGHIF financing
In July 2015, the Company entered into a Purchase Agreement with MGHIF, pursuant to which MGHIF purchased 2,273 shares of common stock of the Company at $2,200 per share for gross proceeds of $5.0 million. Pursuant to the Purchase Agreement, the Company also issued to MGHIF an 8% Senior Secured Promissory Note (the “MGHIF Note”) in the principal amount of $1.0 million with a two-year maturity date from the date of issuance. The Company’s obligations under the MGHIF Note arewere secured by a lien on all of OpGen’s assets excluding the assets of Curetis GmbH, Curetis USA, and Ares Genetics.
On June 28, 2017, the MGHIF Note was amended and restated, and the maturity date of the MGHIF Note was extended by one year to July 14, 2018. As consideration for the agreement to extend the maturity date, the Company issued an amended and restated secured promissory note to MGHIF that (1) increased the interest rate to ten percent (10%) per annum and (2) provided for the issuance of common stock warrants to purchase 656 shares of its common stock to MGHIF.
On June 11, 2018, the Company executed an Allonge to the MGHIF Note. The Allonge provided that accrued and unpaid interest of $285,512 due as of July 14, 2018, the original maturity date, be paid through the issuance of shares of OpGen’s common stock in a private placement transaction. In addition, the Allonge revised and extended the maturity date for payment of the MGHIF Note to six semi-annual payments of $166,667 plus accrued and unpaid interest beginning on January 2, 2019 and ending on July 1, 2021. The Allonge to2019. During the six months ended June 30, 2021, the Company made the final payment under the MGHIF Note and the lien on the Company’s assets was treated as a debt modification and, as such, the unamortized issuance costs of approximately $7,000 as of June 11, 2018 is deferred and amortized as incremental expense over the term of the MGHIF Note. released.
21
On July 30, 2018, the Company issued 7,212 shares of common stock to MGHIF in a private placement transaction in payment of the $285,512 of accrued and unpaid interest due as of July 14, 2018 under the MGHIF Note.
Yorkville Convertible Notes
The Company agreed to assume, as a condition to closing the Transactionsbusiness combination with Curetis, all of the outstanding convertible notes (the “Convertible Notes”) issued by Curetis N.V. in favor of YA II PN, LTD (“Yorkville”), pursuant to that certain Agreement for the Issuance of and Subscription to Notes Convertible into Shares and Share Subscription Warrants, dated October 2, 2018, by and between Curetis N.V. and Yorkville.
On February 24, 2020, the Company entered into an Assignment of the Agreement for the Issuance of and Subscription to Notes Convertible into Shares (the “Assignment Agreement”) with Curetis N.V. and Yorkville. Pursuant to the Assignment Agreement, upon assumption of the Convertible Notes by the Company, the Convertible Notes ceased to be convertible into shares of Curetis N.V. and are instead convertible into shares of the Company’s common stock, par value $0.01. The Assignment Agreement provided that an amount of 500,000 shares of the Company’s common stock that comprise a portion of the consideration payable by the Company under the Implementation Agreement be reserved for issuance under the Convertible Notes. On June 17, 2020, the Company registered for resale an additional 450,000 shares of Company common stock issuable upon conversion of the Convertible Notes.
Each Convertible Note has a maturity of 12 months from its date of issuance. The Company has the right to extend such maturity by an additional 12-month period, while paying a cash fee equal to 5% of the principal amount of the relevant Convertible Notes. Subject to certain limitations, the maturity period can be extended up to four times.
The Convertible Notes do not accrue interest, except in the case of an event of default under the Convertible Notes, in which case the Convertible Notes shall accrue default interest at a rate of 15% per annum until the earlier of the date that the event of default is cured or the date on which the Convertible Notes have been fully converted or redeemed.
The Convertible Notes may be converted at any time until they are fully redeemed. Upon conversion of one or more Convertible Notes into shares of the Company’s common stock, the number of Company shares will be calculated by dividing the aggregate principal amount of the relevant Convertible Notes by 93% of the lowest daily volume weighted average price of the Company common stock on the Nasdaq Capital Market over the 10 trading days prior to the conversion date.
The Convertible Notes may be freely transferred, except to retail investors, and subject to compliance with applicable securities laws. The Convertible Notes contain anti-dilution protection, which protects the holder of the security from equity dilution resulting from later issues of shares at a lower price or value than that provided for in the security. The protection in the Convertible Notes takes the form of tying the conversion price of the Convertible Notes to the prevailing market price of the underlying shares of Company common stock so that changes to the share price due to share issuances, share splits or other potentially dilutive events will result in a corresponding change in the number of shares of Company common stock issuable upon conversion of a Convertible Note.
At closing of the Transaction, an aggregate amount of €1.3 million of unconverted Convertible Notes was assumed by the Company. The Convertible Notes were measured and recognized at fair value at the acquisition date. The fair value of the Convertible Notes as of the closing of the Transaction was approximately $1.3 million. The resulting debt discount will bewas amortized over the life of the Convertible Notes as an increase in interest expense. During the three monthsyear ended June 30,December 31, 2020, the Company issued 452,902763,905 shares of common stock in satisfaction of approximately $880,000$1,451,000 of Convertible Notes. As of December 31, 2020, all notes have been converted.
EIB Loan Facility
In 2016, Curetis entered into a contract for an up to €25 million senior, unsecured loan financing facility from the European Investment Bank (“EIB”). The financing is in the first growth capital loan under the European Growth Finance Facility (“EGFF”), launched in November 2016. It is backed by a guarantee from the European Fund for Strategic Investment (“EFSI”),. EFSI is an essential pillar of the Investment Plan for Europe (“IPE”), under which the EIB and the European Commission are working as strategic partners to support investments and bring back jobs and growth to Europe.
The funding can be drawn in up to five tranches within 36 months, under the EIB amendment, and each tranche is to be repaid upon maturity five years after draw-down.
In April 2017, Curetis drew down a first tranche of €10 million from this facility. This tranche has a floating interest rate of EURIBOR plus 4% payable after each 12-month-period from the draw-down-date and another additional 6% interest per annum that is deferred and payable at maturity together with the principal. In June 2018, another tranche of €3 million was drawn down. The terms and conditions are analogous to the first one.
In June 2019, Curetis drew down a third tranche of €5 million from the EIB. In line with all prior tranches, the majority of interest is also deferred into the bullet repayment structure upon maturity. In return for EIB waiving the condition precedent of a minimum cumulative equity capital raised of €15 million to disburse this €5 million tranche, the parties agreed on a 2.1% participation percentage interest (“PPI”).PPI. Upon maturity of the tranche, not before approximately mid-2024 (and no later than mid-2025) EIB would be entitled to an additional payment that is equity-linked and equivalent to 2.1% of the then total valuation of Curetis N.V. As part of the amendment between the Company and EIB on July 9, 2020, (see note 13) the parties adjusted the PPI percentage applicable to the previous EIB tranche of €5 million, which was funded in June 2019 from its original 2.1% PPI in Curetis N.V.’s equity value upon maturity to a new 0.3% PPI in OpGen’s equity value upon maturity. This right constitutes an embedded derivative, which is separated and measured at fair value with changes being accounted for through income or loss.
On July 9,10, 2020, EIB agreed to defer total interest payments of €720k due in April and June 2020 under the Company negotiated an amendment tofirst three tranches of the EIB debt financing facility for an additional €5 million tranche. This additional tranche is earmarked to co-fund R&D programs across several of the platforms and the entire product portfolio of OpGen subsidiaries Curetis and Ares Genetics as it relates to COVID-19 (see Note 13).until December 31, 2020. The Company made these interest payments in December 2020.
The EIB debt was measured and recognized at fair value as of the acquisition date. The fair value of the EIB debt was approximately $15.8 million as of the acquisition date. The resulting debt discount will beis being amortized over the life of the EIB debt as an increase to interest expense.
As of June 30, 2020,2021, the outstanding borrowings under all tranches were €20,592,710 (approximately USD $23,059,000)€21,671,955 (USD $25,754,951), including deferred interest payable at maturity of €2,592,710 (approximately USD $2,903,317)€3,671,955 (USD $4,363,751).
22
PPP
On April 22, 2020, the Company entered into a Term Note (the “Company Note”) with Silicon Valley Bank (the “Bank”) pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. The Company’s wholly-owned subsidiary, Curetis USA Inc. (“Curetis USA” and collectively with the Company, the “Borrowers”), also entered into a Term Note with the Bank (the “Subsidiary Note,” and collectively with the Company Note, the “Notes”). The Notes are dated April 22, 2020. The principal amount of the Company Note iswas $879,630, and the principal amount of the Subsidiary Note is $259,353.
In accordance with the requirements of the CARES Act, the Borrowers will useused the proceeds from the Notes in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on the Notes at the rate of 1.00% per annum. The Borrowers may apply for forgiveness of amounts due under the Notes, in an amount equal to the sum of qualified expenses under the PPP, which include payroll costs, rent obligations, and covered utility payments incurred during the eighttwenty-four weeks following disbursement under the Notes. The Borrowers intend to use the entire proceeds were used under the Notes for such qualifying expenses.
Subject to any OpGen filed for forgiveness under the PPP, the Notes mature two years following the date of issuance of the Notes and include a period forSubsidiary note during November 2020. The Company Note was forgiven in November 2020. In May 2021, the first six months during which time required payments of interest and principal are deferred. Beginning on the seventh month following the date of the Notes, the Borrowers are required to make 18 monthly payments of principal and interest. The Notes may be prepaid at any time prior to maturity with no prepayment penalties. The Notes provide for customary events of default, including, among others, those relating to breaches of their obligations under the Notes, including a failure to make payments, any bankruptcy or similar proceedings involving the Borrowers, and certain material effects on the Borrowers’ ability to repay the Notes. The Borrowers did not provide any collateral or guarantees for the Notes.Subsidiary Note was forgiven.
Total interest expense (including amortization of debt discounts and financing fees) on all debt instruments was $1,044,891$1,198,169 and $37,129$1,044,891 for the three months ended June 30, 2021 and 2020, and 2019, respectively. Total interest expense (including accretion of fair value to book value and amortization of debt discounts and financing fees) on all debt instruments was $1,083,158$2,363,151 and $93,573$1,083,158 for the six months ended June 30, 2021 and 2020, and 2019, respectively.
Note 8 – Stockholders’ equity
As of June 30, 2020,2021, the Company had 50,000,000 shares of authorized common shares and 17,693,93238,270,250 shares issued and outstanding, and 10,000,000 shares of authorized preferred shares, of which noneNaN were issued or outstanding.
Following receipt of approval from stockholders at a special meeting of stockholders held on January 17, 2018, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split of the issued and outstanding shares of common stock, at a ratio of one share for twenty-five shares, and to reduce the authorized shares of common stock from 200,000,000 to 50,000,000 shares. Additionally, following receipt of approval from stockholders at a special meeting of stockholders held on August 22, 2019, the Company filed an additional amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split of the issued and outstanding shares of common stock, at a ratio of one share for twenty shares. All share amounts and per share prices in this Quarterly Report have been adjusted to reflect the reverse stock splits.
On March 29, 2019, the Company closed the March 2019 Public Offering of 450,000 shares of its common stock at a public offering price of $12.00 per share. The offering raised gross proceeds of $5.4 million and net proceeds of approximately $4.8 million.
On October 28, 2019, the Company closed the October 2019 Public Offering of 2,590,170 units at $2.00 per unit and 2,109,830 pre-funded units at $1.99 per pre-funded unit. The offering raised gross proceeds of approximately $9.4 million and net proceeds of approximately $8.3 million. As of June 30, 2020, the 2,109,830 pre-funded warrants issued in the October 2019 Public Offering have been exercised. Additionally, duringDuring the six months ended June 30, 2021, 5,000 common warrants were exercised raising net proceeds of $10,000. During the year ended December 31, 2020, 4,071,0004,341,000 common warrants were exercised raising net proceeds of approximately $8.1$8.7 million.
In connection with the October 2019 Public Offering, the Company issued to its placement agent warrants to purchase 235,000 shares of common stock. The warrants issued to the placement agent have an exercise price of $2.60 per share and are exercisable for five years.
23
On February 11, 2020, the Company entered into an ATM Agreement with Wainwright, which we amended and restated on November 13, 2020 to add BTIG, LLC pursuant to which the Company may offer and sell from time to time in an “at the market offering,” at its option, up to an aggregate of $15.7$22.1 million of shares of the Company's common stock through Wainwright, asthe sales agent. Duringagents. The Company did not sell any shares under the 2020 ATM Offering during the three or six months ended June 30, 2021. During the year ended December 31, 2020, the Company sold 2,739,4427,521,610 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceeds to the Company of approximately $5.9$15.8 million, and gross proceeds of $6.1$16.7 million. During the six months ended June 30, 2020, the Company sold 5,554,376 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceeds to the Company of approximately $11.4 million, and gross proceeds of $11.9 million. As of June 30, 2020,2021, remaining availability under the ATM Agreement is $3.8$5.4 million.
On April 1, 2020, the Company acquired all of the shares of Curetis GmbH, and certain other assets and liabilities of Curetis N.V., as further described in Notes 1 and 4, and paid, as the sole consideration, 2,028,208 shares of the Company’s common stock to the Seller.
On November 25, 2020, the Company closed a private placement with one healthcare-focused U.S. institutional investor of (i) 2,245,400 shares of common stock together with 2,245,400 common warrants to purchase up to 2,245,400 shares of common stock and (ii) 2,597,215 pre-funded warrants, with each pre-funded warrant exercisable for one share of common stock, together with 2,597,215 common warrants to purchase up to 2,597,215 shares of common stock (the “2020 PIPE”). Each share of common stock and accompanying common warrant were sold together at a combined offering price of $2.065, and each pre-funded warrant and accompanying common warrant were sold together at a combined offering price of $2.055. The common warrants have an exercise price of $1.94 per share, and are exercisable commencing on the six month anniversary of the date of issuance, and will expire five and one half (5.5) years from the date of issuance. The 2020 PIPE raised aggregate net proceeds of $9.3 million, and gross proceeds of $10.0 million. As of December 31, 2020, all 2,597,215 pre-funded warrants issued in the 2020 PIPE have been exercised.
On February 11, 2021, the Company closed the February 2021 Offering with a single U.S.-based, healthcare-focused institutional investor for the purchase of (i) 2,784,184 shares of common stock and (ii) 5,549,149 pre-funded warrants, with each pre-funded warrant exercisable for one share of common stock. The Company also issued to the investor, in a concurrent private placement, unregistered common warrants to purchase 4,166,666 shares of the Company’s common stock. Each share of common stock and accompanying common warrant were sold together at a combined offering price of $3.00, and each pre-funded warrant and accompanying common warrant were sold together at a combined offering price of $2.99. The pre-funded warrants are immediately exercisable, at an exercise price of $0.01, and may be exercised at any time until all of the pre-funded warrants are exercised in full. The common warrants will have an exercise price of $3.55 per share, will be exercisable commencing on the six-month anniversary of the date of issuance, and will expire five and one-half (5.5) years from the date of issuance. The February 2021 Offering raised aggregate net proceeds of $23.5 million, and gross proceeds of $25.0 million. As of June 30, 2021, all pre-funded warrants issued in the February 2021 Offering have been exercised.
On March 9, 2021, the Company entered into an Exercise Agreement with the Holder from our 2020 PIPE financing. Pursuant to the Exercise Agreement, in order to induce the Holder to exercise all of the remaining 4,842,615 Existing Warrants for cash, pursuant to the terms of and subject to beneficial ownership limitations contained in the Existing Warrants, the Company agreed to issue to the Holder, New Warrants to purchase 0.65 shares of common stock for each share of common stock issued upon such exercise of the remaining 4,842,615 outstanding Existing Warrants pursuant to the Exercise Agreement or an aggregate of 3,147,700 New Warrants. The terms of the New Warrants are substantially similar to those of the Existing Warrants, except that the New Warrants have an exercise price of $3.56. The New Warrants are immediately exercisable and will expire five years from the date of the Exercise Agreement. The Holder paid an aggregate of $255,751 to the Company for the purchase of the New Warrants. The Company received aggregate gross proceeds before expenses of approximately $9.65 million from the exercise of all of the remaining 4,842,615 outstanding Existing Warrants held by the Holder and the payment of the purchase price for the New Warrants. The Company recognized approximately $7.8 million of non-cash warrant inducement expense during the six months ended June 30, 2021 related to this transaction representing the fair value of the New Warrants issued to induce the exercise. The fair values were calculated using the Black-Scholes option pricing model.
Stock options
In 2008, the Company adopted the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), pursuant to which the Company’s Board of Directors could grant either incentive or non-qualified stock options or shares of restricted stock to directors, key employees, consultants and advisors.
In April 2015, the Company adopted, and the Company’s stockholders approved, the 2015 Equity Incentive Plan (the “2015 Plan”); the 2015 Plan became effective upon the execution and delivery of the underwriting agreement for the Company’s initial public offering in May 2015. Following the effectiveness of the 2015 Plan, no further grants will be made under the 2008 Plan. The 2015 Plan provides for the granting of incentive stock options within the meaning of Section 422 of the Code to employees and the granting of non-qualified stock options to employees, non-employee directors and consultants. The 2015 Plan also provides for the grants of restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and stock payments to employees, non-employee directors and consultants.
Under the 2015 Plan, the aggregate number of shares of the common stock authorized for issuance may not exceed (1) 54,2002,710 plus (2) the sum of the number of shares subject to outstanding awards under the 2008 Plan as of the 2015 Plan’s effective date, that are subsequently forfeited or terminated for any reason before being exercised or settled, plus (3) the number of shares subject to vesting restrictions under the 2008 Plan as of the 2015 Plan’s effective date that are subsequently forfeited. In addition, the number of shares that have been authorized for issuance under the 2015 Plan will be automatically increased on the first day of each fiscal year beginning on January 1, 2016 and ending on (and including) January 1, 2025, in an amount equal to the lesser of (1) 4% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (2) another lesser amount determined by the Company’s Board of Directors. Following Board of Director approval, 1,003,421 shares were automatically added to the 2015 Plan. Shares subject to awards granted under the 2015 Plan that are forfeited or terminated before being exercised or settled, or are not delivered to the participant because such award is settled in cash, will again become available for issuance under the 2015 Plan. However, shares that have actually been issued shall not again become available unless forfeited. As of June 30, 2020, 229,5332021, 411,644 shares remain available for issuance under the 2015 Plan.
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On September 30, 2020, the Company held its 2020 Annual Meeting of Stockholders (the “Annual Meeting”). At the Annual Meeting, stockholders of the Company voted to approve, among other things, a plan under which stock options to purchase an aggregate of 1,300,000 shares of the Company’s common stock would be made by the Board of Directors of the Company outside of the stockholder-approved equity incentive plan to its executive officers and non-employee directors (the “2020 Stock Options Plan”). The 2020 Stock Options Plan which includes 223,291and the grant made thereunder were approved by the Board of Directors on August 6, 2020, subject to receipt of stockholder approval at the Annual Meeting. The aggregate number of shares automatically addedof the Company’s common stock authorized for issuance is 1,300,000 shares of common stock and all 1,300,000 stock options were issued on September 30, 2020. Shares subject to awards granted under the 20152020 Stock Options Plan on January 1, 2020.that are forfeited or terminated before being exercised will not be available for re-issuance under the 2020 Stock Options Plan.
Replacement awards
In connection with the acquisition of Curetis, the Company issued equity awards to Curetis employees (“2016 Plan”), consisting of stock options (“replacement awards”) in exchange for their Curetis equity awards. The replacement awards consisted of 134,371 stock options with a weighted average grant date fair value of $1.68. The terms of these replacement awards are substantially similar to the original Curetis equity awards. The fair value of the replacement awards for services rendered through April 1, 2020, the acquisition date, was recognized as a component of the purchase consideration, with the remaining fair value of the replacement awards related to the post-combination services recorded as stock-based compensation over the remaining vesting period.
For the three and six months ended June 30, 20202021 and 2019,2020, the Company recognized share-based compensation expense as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Cost of services | $ | 727 | $ | 524 | $ | 1,455 | $ | 562 | ||||||||
| Research and development | 12,077 | 18,333 | 26,063 | 35,460 | ||||||||||||
| General and administrative | 17,222 | 61,365 | 78,710 | 137,378 | ||||||||||||
| Sales and marketing | 3,561 | 5,749 | 7,099 | 10,604 | ||||||||||||
| $ | 33,587 | $ | 85,971 | $ | 113,327 | $ | 184,004 | |||||||||
Three Months Ended June 30, | Six Months Ended June 30, |
| ||||||||||||||
2021 | 2020 | 2021 | 2020 |
| ||||||||||||
Cost of services | $ | 2,944 | $ | 727 | $ | 4,346 | $ | 1,455 |
| |||||||
Research and development | 67,783 | 12,077 | 102,756 | 26,063 |
| |||||||||||
General and administrative | 172,790 | 17,222 | 314,781 | 78,710 |
| |||||||||||
Sales and marketing | 18,031 | 3,561 | 29,335 | 7,099 |
| |||||||||||
$ | 261,548 | $ | 33,587 | $ | 451,218 | $ | 113,327 |
| ||||||||
No income tax benefit for share-based compensation arrangements was recognized in the condensed consolidated statements of operations and comprehensive loss due to the Company’s net loss position.
The Company assumed 134,371 options under the 2016 Plan and did not grant any stockgranted 20,000 options during the three months ended June 30, 2020.2021. During the three months ended June 30, 2020, 1172021, 98,356 options were forfeited, and 362473 options expired. The Company assumed 134,371 options under the 2016 Plan and did not grant any stockgranted 355,000 options during the six months ended June 30, 2019.2021. During the six months ended June 30, 2020, 1452021, 98,376 options were forfeited, and 591473 options expired.
The Company had total stock options to acquire 143,2881,920,673 shares of common stock outstanding at June 30, 20202021 under all of its equity compensation plans.
Restricted stock units
DuringThe Company granted 80,000 restricted stock units during the three months ended June 30, 2021, and 3,768 restricted stock units vested and 21,467 were forfeited. The Company granted 360,000 restricted stock units during the six months ended June 30, 2020, 5,9242021, and 3,768 restricted stock units vested and 900 restricted stock units21,467 were forfeited. The Company had 8,151342,884 total restricted stock units outstanding at June 30, 2020.2021.
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Stock purchase warrants
At June 30, 20202021 and December 31, 2019,2020, the following warrants to purchase shares of common stock were outstanding:
| Outstanding at | ||||||||||||||||||
| Issuance | Exercise Price | Expiration | June 30, 2020 | December 31, 2019 | ||||||||||||||
| January 2010 | $ | 3,955.00 | January 2020 | — | 17 | |||||||||||||
| March 2010 | $ | 3,955.00 | March 2020 | — | 7 | |||||||||||||
| November 2011 | $ | 3,955.00 | November 2021 | 15 | 15 | |||||||||||||
| December 2011 | $ | 3,955.00 | December 2021 | 2 | 2 | |||||||||||||
| February 2015 | $ | 3,300.00 | February 2025 | 451 | 451 | |||||||||||||
| May 2015 | $ | 3,300.00 | May 2020 | — | 6,697 | |||||||||||||
| May 2016 | $ | 656.20 | May 2021 | 9,483 | 9,483 | |||||||||||||
| June 2016 | $ | 656.20 | May 2021 | 4,102 | 4,102 | |||||||||||||
| June 2017 | $ | 390.00 | June 2022 | 938 | 938 | |||||||||||||
| July 2017 | $ | 345.00 | July 2022 | 318 | 318 | |||||||||||||
| July 2017 | $ | 250.00 | July 2022 | 2,501 | 2,501 | |||||||||||||
| July 2017 | $ | 212.60 | July 2022 | 50,006 | 50,006 | |||||||||||||
| February 2018 | $ | 81.25 | February 2023 | 9,232 | 9,232 | |||||||||||||
| February 2018 | $ | 65.00 | February 2023 | 92,338 | 92,338 | |||||||||||||
| October 2019 | $ | 2.00 | October 2024 | 629,000 | 4,700,000 | |||||||||||||
| October 2019 | $ | 2.60 | October 2024 | 235,000 | 235,000 | |||||||||||||
| 1,033,386 | 5,111,107 | |||||||||||||||||
Outstanding at | ||||||||||||||||
Issuance | Exercise Price | Expiration | June 30, 2021 (1) | December 31, 2020 (1) | ||||||||||||
November 2011 | $ | 3,955.00 | November 2021 | 15 | 15 | |||||||||||
December 2011 | $ | 3,955.00 | December 2021 | 2 | 2 | |||||||||||
February 2015 | $ | 3,300.00 | February 2025 | 451 | 451 | |||||||||||
May 2016 | $ | 656.20 | May 2021 | 0— | 9,483 | |||||||||||
June 2016 | $ | 656.20 | May 2021 | 0— | 4,102 | |||||||||||
June 2017 | $ | 390.00 | June 2022 | 938 | 938 | |||||||||||
July 2017 | $ | 345.00 | July 2022 | 318 | 318 | |||||||||||
July 2017 | $ | 250.00 | July 2022 | 2,501 | 2,501 | |||||||||||
July 2017 | $ | 212.50 | July 2022 | 50,006 | 50,006 | |||||||||||
February 2018 | $ | 81.25 | February 2023 | 9,232 | 9,232 | |||||||||||
February 2018 | $ | 65.00 | February 2023 | 92,338 | 92,338 | |||||||||||
October 2019 | $ | 2.00 | October 2024 | 354,000 | 359,000 | |||||||||||
October 2019 | $ | 2.60 | October 2024 | 235,000 | 235,000 | |||||||||||
November 2020 | $ | 1.94 | May 2026 | 0— | 4,842,615 | |||||||||||
November 2020 | $ | 2.68 | May 2026 | 242,130 | 242,130 | |||||||||||
February 2021 | $ | 3.55 | August 2026 | 4,166,666 | 0— | |||||||||||
February 2021 | $ | 3.90 | August 2026 | 416,666 | 0— | |||||||||||
March 2021 | $ | 3.56 | March 2026 | 3,147,700 | 0— | |||||||||||
8,717,963 | 5,848,131 | |||||||||||||||
The warrants listed above were issued in connection with various debt, equity or development contract agreements.
(1) | Warrants to purchase fractional shares of common stock resulting from the reverse stock split on August 22, 2019 were rounded up to the next whole share of common stock on a holder by holder basis. |
Note 9 – Commitments and Contingencies
Registration and other stockholder rights
In connection with the various investment transactions, the Company entered into registration rights agreements with stockholders, pursuant to which the investors were granted certain demand registration rights and/or piggyback and/or resale registration rights in connection with subsequent registered offerings of the Company’s common stock.
Supply agreements
In June 2017, the Company entered into an agreement with Life Technologies Corporation, a subsidiary of Thermo Fisher Scientific (“LTC”), to supply the Company with Thermo Fisher Scientific’s QuantStudio 5 Real-Time PCR Systems (“QuantStudio 5”) to be used to run OpGen’s Acuitas AMR Gene Panel tests. Under the terms of the agreement, the Company must notify LTC of the number of QuantStudio 5s that it commits to purchase in the following quarter. As of June 30, 2020,2021, the Company had acquired twenty-four QuantStudio 5s including none during the three and six months ended June 30, 2020.2021. As of June 30, 2020,2021, the Company has not committed to acquiring additional QuantStudio 5s in the next three months.
Curetis places frame-work orders for Unyvero-SystemsUnyvero Systems and for raw materials for its cartridge manufacturing to ensure availability during commercial ramp-up-phase and also to gain volume-scale-effects with regards to purchase prices. Some of the electronic parts used for the production of Unyvero-SystemsUnyvero Systems have lead times of manyseveral months, hence it is necessary to order such systems with long-term framework-orders to ensure the demands from the market are covered. The aggregate purchase commitments over the next twelve months are approximately $3.5$2.1 million.
Contingencies
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COVID-19 Impact
On March 11,In December 2019 and early 2020, the World Health Organization declared the outbreakcoronavirus known as COVID-19 was reported to have surfaced in China. The spread of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughoutthis virus globally in early 2020 has caused business disruption domestically in the United States and in Europe, the areas in which the Company primarily operates. While the disruption is currently expected to be temporary, such disruption is ongoing and there remains considerable uncertainty around the world.
As a result, we have experienced a materialduration of this disruption. Therefore, while the Company expects that this matter will continue to impact on our business,the Company’s financial condition, or results of operations, foror cash flows, the six months ended June 30, 2020 and significant business disruptions as a resultextent of the outbreak. For example, most of our employees in the U.S. are currently working remotely from home, we have suspended all business travel,financial impact and we are unable to physically meet with future and current customers to sell and market our products. In addition, the COVID-19 pandemic has interrupted many of our clinical activities, which will delay our ability to complete clinical trials and obtain regulatory approval for new products.
We continue to monitor the impacts of COVID-19 on the global economy and on our business operations. However,duration cannot be reasonably estimated at this time, it is difficult to predict how long the potential operational impacts of COVID-19 will remain in effect or to what degree they will impact our operations and financial results. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition, as well as our ability to execute our business strategies and initiatives in their respective expected time frames. As a result, we are unable to estimate the potential impact on our business as of the date of this filing.time.
Note 10 – Leases
The following table presents the Company’s ROU assets and lease liabilities as of June 30, 20202021 and December 31, 2019:
| Lease Classification | June 30, 2020 | December 31, 2019 | ||||||
| ROU Assets: | ||||||||
| Operating | $ | 1,653,603 | $ | 1,043,537 | ||||
| Financing | 696,333 | 958,590 | ||||||
| Total ROU assets | $ | 2,349,936 | $ | 2,002,127 | ||||
| Liabilities | ||||||||
| Current: | ||||||||
| Operating | $ | 1,271,700 | $ | 1,017,414 | ||||
| Finance | 432,494 | 579,030 | ||||||
| Noncurrent: | ||||||||
| Operating | 782,494 | 547,225 | ||||||
| Finance | 135,521 | 313,263 | ||||||
| Total lease liabilities | $ | 2,622,209 | $ | 2,456,932 | ||||
2020:
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maturities of lease liabilities as of June 30, 20202021 by fiscal year are as follows:
| Maturity of Lease Liabilities | Operating | Finance | Total | |||||||||||
| 2020 | $ | 818,468 | $ | 275,332 | $ | 1,093,800 | ||||||||
| 2021 | 940,857 | 281,914 | 1,222,771 | |||||||||||
| 2022 | 199,986 | 45,374 | 245,360 | |||||||||||
| 2023 | 75,533 | 3,364 | 78,897 | |||||||||||
| 2024 | 75,533 | 280 | 75,813 | |||||||||||
| Thereafter | 44,061 | — | 44,061 | |||||||||||
| Total lease payments | 2,154,438 | 606,264 | 2,760,702 | |||||||||||
| Less: Interest | (100,244 | ) | (38,249 | ) | (138,493 | ) | ||||||||
| Present value of lease liabilities | $ | 2,054,194 | $ | 568,015 | $ | 2,622,209 | ||||||||
Maturity of Lease Liabilities | Operating | Finance | Total | |||||||||||
2021 | $ | 513,049 | $ | 92,858 | $ | 605,907 | ||||||||
2022 | 740,316 | 44,850 | 785,166 | |||||||||||
2023 | 624,916 | 3,364 | 628,280 | |||||||||||
2024 | 634,511 | 280 | 634,791 | |||||||||||
2025 | 545,576 | 0— | 545,576 | |||||||||||
Thereafter | 2,504,650 | 0— | 2,504,650 | |||||||||||
Total lease payments | 5,563,018 | 141,352 | 5,704,370 | |||||||||||
Less: Interest | (1,797,975 | ) | (5,830 | ) | (1,803,805 | ) | ||||||||
Present value of lease liabilities | $ | 3,765,043 | $ | 135,522 | $ | 3,900,565 | ||||||||
StatementCondensed consolidated statements of operations classification of lease costs as of the three and six months ended June 30, 2020,2021 and 20192020 are as follows:
| Three months ended June 30, | Six months ended June 30, | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||
| Lease Cost | Classification | 2020 | 2019 | 2020 | 2019 | Classification | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||
| Operating | Operating expenses | $ | 335,920 | $ | 218,673 | $ | 550,256 | $ | 439,595 | Operating expenses | $ | 298,331 | $ | 335,920 | $ | 646,369 | $ | 550,256 | ||||||||||||||||||
| Finance: | ||||||||||||||||||||||||||||||||||||
| Amortization | Operating expenses | 129,909 | 107,496 | 262,257 | 204,689 | Operating expenses | 111,464 | 129,909 | 222,420 | 262,257 | ||||||||||||||||||||||||||
| Interest expense | Other expenses | 15,050 | 19,297 | 33,519 | 41,778 | Other expenses | 4,491 | 15,050 | 11,350 | 33,519 | ||||||||||||||||||||||||||
| Total lease costs | $ | 480,879 | $ | 345,466 | $ | 846,032 | $ | 686,062 | $ | 414,286 | $ | 480,879 | $ | 880,139 | $ | 846,032 | ||||||||||||||||||||
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Other lease information as of June 30, 20202021 is as follows:
Other Information | Total | |||
Weighted average remaining lease term (in years) | ||||
Operating leases | 7.2 | |||
Finance leases | 0.8 | |||
Weighted average discount rate: | ||||
Operating leases | 8.7 | % | ||
Finance leases | 9.4 | % | ||
Supplemental cash flow information as of the six months ended June 30, 2020,2021 and 20192020 is as follows:
| Supplemental Cash Flow Information | 2020 | 2019 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Cash used in operating activities | ||||||||
| Operating leases | $ | 550,256 | $ | 439,595 | ||||
| Finance leases | $ | 33,519 | $ | 41,778 | ||||
| Cash used in financing activities | ||||||||
| Finance leases | $ | 324,278 | $ | 235,600 | ||||
| ROU assets obtained in exchange for lease obligations: | ||||||||
| Finance leases | $ | — | $ | 355,536 | ||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 11 – License agreements, research collaborations and development agreements
NYSDOH
In 2018, the Company announced a collaboration with the New York State Department of Health (“DOH”) and ILÚM Health Solutions, LLC (“ILÚM”), a wholly-owned subsidiary of Merck’s Healthcare Services and Solutions division, to develop a state-of-the-art research program to detect, track, and manage antimicrobial-resistant infections at healthcare institutions statewide. ILÚM has since been acquired by Infectious Disease Connect, Inc. (“IDC”), a University of Pittsburgh Medical Center (“UPMC”) Enterprise company. The Company is working together with DOH’s Wadsworth Center and ILÚMIDC to developcontinue development of an infectious disease digital health and precision medicine platform that connects healthcare institutions to DOH and uses genomic microbiology for statewide surveillance and control of antimicrobial resistance. As part of the collaboration, the Company received approximately $1.6 million over the 15-month demonstration portion of the project. The demonstration project began in early 2019 and was completed in the first quarter of 2020. TheIn April 2020, the Company began a second-year expansion phase to build on the successes and experience of the first yearfirst-year pilot phase while focusing on accomplishing the goal of this visionarythe effort to improve patient outcomes and save healthcare dollars by integrating real-time epidemiologic surveillance with rapid delivery of antibiotic resistance results to care-givers via web-based and mobile platforms. The second yearsecond-year contract includesincluded a quarterly retainer-based project fee as well as volume-dependent per test fees for a total contract value of up to $450,000 to OpGen. In April 2021, the Company extended its second-year expansion phase by another six months through September 30, 2021. The six-month extension and expansion contract includes a quarterly retainer-based project fee as well as volume-dependent per test fees for a total contract value of up to an additional $540,000. During the three months ended June 30, 20202021 and 2019,2020, the Company recognized $30,000$237,000 and $500,000$30,000 of revenue related to the contract, respectively. During the six months ended June 30, 20202021 and 2019,2020, the Company recognized $280,000$345,000 and $1,000,000$280,000 of revenue related to the contract, respectively.
Sandoz
In December 2018, Ares Genetics entered into a service frame agreement with Sandoz International GmbH (“Sandoz”), to leverage Ares Genetics’ database on the genetics of antibiotic resistance, ARESdb, and the ARES Technology Platform for Sandoz’ anti-infective portfolio.
Under the terms of the frame agreement, which has an initial term of 36 months and is currently scheduled to terminate December 13, 2021, Ares Genetics and Sandoz intend to develop a digital anti-infectives platform, combining established microbiology laboratory methods with advanced bioinformatics and artificial intelligence methods to support drug development and life-cycle management. The collaboration, in the short- to mid-term, aims to both rapidly and cost-effectively re-purpose existing antibiotics and design value-added medicines with the objective of expanding indication areas and to overcome antibiotic resistance, in particular with regards to infections with bacteria that has already developed resistance against multiple treatment options. In the longer-term, the platform is expected to enable surveillance for antimicrobial resistant pathogens to inform antimicrobial stewardship and the development of novel anti-infectives that are less prone to encounter resistance and thereby preserve antibiotics as an effective treatment option.
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The agreement covers the first phases of the collaboration with Sandoz and provides certain moderate six-figure R&D funding to Ares Genetics. No milestones or royalties were agreed to as part of this first phase of the collaboration. The agreement may be terminated by Sandoz effective immediately at any time with written notice.
Qiagen
On February 18, 2019, Ares Genetics and Qiagen GmbH, or Qiagen, entered into a strategic licensing agreement for ARESdb and AREStools, in the area of antimicrobial resistance (AMR)(“AMR”) research. The agreement has a term of 20 years and may be terminated by Qiagen for convenience with 180 days written notice.
Ares Genetics has retained the rights to use ARESdb and AREStools for AMR research, customized bioinformatics services, and for the development of specific AMR assays and applications for the Curetis Group (including Ares Genetics), as well as third parties (e.g., other diagnostics companies or partners in the pharmaceutical industry). As the Qiagen research offering is expected to also enable advanced molecular diagnostic services and products, Qiagen’s customers may obtain a diagnostic use license from Ares Genetics.
Under the terms of the original agreement, Qiagen, in exchange for a moderate six figure up-front licensing payment, has received an exclusive RUO license to develop and commercialize general bioinformatics offerings and services for AMR research use only, based on Ares Genetics’ database on the genetics of antimicrobial resistance, ARESdb, as well as on the ARES bioinformatics AMR toolbox, AREStools. Under the agreement, the parties had agreed to a mid-single digit percentage royalty rate on Qiagen net sales, which is subject to a minimum royalty rate that steps up upon certain achieved milestones, which is payable to Ares Genetics. The parties also agreed to further modest six figure milestone payments upon certain product launches. The contract was subsequently amended in May 2021 to a non-exclusive license and a flat annual license fee as well as a royalty percentage on potential future panel based products that are developed by Qiagen.
Global leading IVD corporation
On September 16, 2019, Ares Genetics entered into a multi-phase partnership with an undisclosed leading global in vitro diagnostics corporation, the Partner, to jointly develop diagnostic solutions for infectious disease testing, based on next-generation sequencing, or NGS, technology. Ares Genetics and the Partner also entered into an R&D option agreement for the first phase of the partnership. Ares Genetics received an option fee of approximately $550,000. The initial term of the R&D collaboration is 10 months, ending July 13, 2020 with payments excluding the option fee of approximately $1.2 million. The Partner may terminate, at any time and for any reason, with 30 days’ written notice.
In the first phase of the collaboration, which lasted 10 months, the parties have further enriched ARESdb with a focus on certain pathogens relevant in a first, undisclosed infectious disease indication. Additional clinical isolates of such pathogens have been sequenced by Ares Genetics at its recently established NGS laboratory in Vienna, Austria. Based on this enlarged and enriched dataset, Ares Genetics has further developed the algorithms for predictive antibiotic resistance testing for drug/pathogen combinations particularly relevant in the targeted indication to enable NGS-based infectious disease diagnostics.
Under the initial agreement, the Partner funded Ares Genetics’ R&D activities for the genotypic and phenotypic characterization of additional bacterial strains to augment ARESdb and the development of optimized algorithms for predicting antibiotic resistance. Furthermore, in return for the up-front option fee, the Partner obtained a three-month right for first negotiation for an exclusive human clinical diagnostic use license to ARESdb and the ARES Technology Platform. The option can be exercised during the term of the agreement plus three months.FISH License
The Company recognized approximately $456,000 of revenue related to the contract during the three months ended June 30, 2020.
FISH License
The Company is awas party to one license agreement with Life Technologies to acquire certain patent rights and technologies related to its FISH product line. Royalties arewere incurred upon the sale of a product or service which utilizes the licensed technology. The Company recognized net royalty expenseterminated this license agreement in October 2020 effective as of $62,500 for eachJune 30, 2021 in conjunction with its announced exit of the three months endedFISH business in June 30, 20202021. The Company paid a one-time settlement fee of $350,000 and 2019.will pay a 10% royalty on the sale of eligible products through June 2021 but is no longer subject to any minimum royalty obligations. The Company recognized net royalty expense of $0 and $62,500 for the three months ended June 30, 2021 and 2020, respectively. The Company recognized net royalty expense of $8,996 and $125,000 for each of the six months ended June 30, 2021 and 2020, and 2019. Annual future minimum royalty fees are $250,000 under this agreement.respectively.
Note 12 – Related party transactions
Prior to his departure from the Company’s Board on June 30, 2019, Dr. David Rubin served as a representative of Merck Global Health Innovation Fund, or MGHIF, an affiliate of Merck, Inc. The Company has the following relationships with Merck and its subsidiaries:
On June 11, 2018, the Company executed the Allonge to its Second Amended and Restated Senior Secured Promissory Note, dated June 28, 2017, with a principal amount of $1,000,000 issued to MGHIF. The Allonge provided that accrued and unpaid interest of $285,512 due as of July 14, 2018, the original maturity date, be paid through the issuance of shares of OpGen’s common stock in a private placement transaction. In addition, the Allonge revised and extended the maturity date for payment of the Note to six semi-annual payments of $166,667 plus accrued and unpaid interest beginning on January 2, 2019 and ending on July 1, 2021. On July 30, 2018, the Company issued 7,212 shares of common stock to MGHIF in a private placement transaction for $285,512 of accrued and unpaid interest due as of July 14, 2018 under the MGHIF Note.
On April 1, 2020, as part of the Transaction, Oliver Schacht, Ph.D., the former CEO of Curetis N.V., was appointed as the CEO of the Company, and Johannes Bacher, the former COO of Curetis N.V., was appointed as the Chief Operating OfficerCOO of the Company. Effective April 1, 2020, Mr. Schacht and Mr. Bacher were appointed as liquidators of Curetis N.V. in liquidation and Curetis GmbH was designated as Custodian of the Books for Curetis N.V. During a portion of the quarteryear ended June 30,December 31, 2020, Curetis N.V. in liquidation processed payroll for Mr. Schacht and Mr. Bacher and invoiced OpGen and Curetis GmbH, respectively, in line with their signed management agreements.
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Note 13 – Subsequent Events
On July 9, 2020, the Company negotiated an amendment to the EIB debt financing facility for an additional €5 million tranche. This additional tranche is earmarked to co-fund R&D programs across several of the platforms and the entire product portfolio of OpGen subsidiaries Curetis and Ares Genetics as it relates to COVID-19.
This additional tranche, which can be drawn down, subject to certain conditions, at Curetis’ option within nine months from the Effective Date of the amendment, will also have a five-year term to maturity from such draw-down date and will accrue interest at a rate of 10% per annum. All interest payments during that five-year term are compounded and become payable only upon maturity of the principal amount of this tranche. The EIB tranche disbursement will become available subject to typical conditions precedent including a pledge of certain Curetis IP rights as security to EIB. The parties have furthermore agreed on a 0.7% PPI. Upon maturity of the tranche, i.e. not before mid 2025 (and no later than early 2027 depending on draw-down date), EIB will be entitled to an additional payment that is equity-linked and equivalent to 0.7% of the then total equity valuation of OpGen. The parties have also adjusted the PPI percentage applicable to the previous EIB tranche of €5.0 million which was funded in June 2019 from its original 2.1% PPI in Curetis N.V.’s equity value upon maturity to a new 0.3% PPI in OpGen’s equity value upon maturity between mid-2024 and mid-2025. This adjustment follows the respective stockholder ownership interest in OpGen following the business combination with Curetis as of April 1, 2020. All other terms and conditions of the EIB financing contract with Curetis remain unchanged.
Additionally, on July 10, 2020, EIB agreed to defer total interest payments of €720k due in April and June 2020 under the first three tranches of the debt financing facility until December 31, 2020.
On July 13, 2020, the Company entered into a strategic co-promotion partnership with Menarini Silicon Biosystems (“MSB”), the pioneer of liquid biopsy and rare cell technologies, for its CELLSEARCH Circulating Endothelial Cell (“CEC”) Kit, relevant to study progression of COVID-19 disease, and other COVID-19-related products. Effective immediately, MSB’s CELLSEARCH system, CELLSEARCH CEC kit and COVID-19 related products will be marketed and promoted by OpGen to infectious disease healthcare providers and researchers in North America through its dedicated team of sales and marketing experts. The partnership will focus on promoting MSB’s CELLSEARCH system for CEC application, for the enrichment and enumeration of CEC from whole blood. CEC count is useful in studying the progression of COVID-19 and potentially in identifying patients at risk of developing more severe complications.
Both parties intend to expand the portfolio of COVID-19 products and platforms available over the coming months as they become available for sale. The OpGen commercial team will offer these products to its contacts in infectious disease hospitals, labs, research centers, along with distributors and other relevant stakeholders in the COVID-19 testing space.
Subsequent to June 30, 2020, the German Federal Ministry for Economic Affairs and Energy (“BMWi”) initiated an investigation of the OpGen business combination with Curetis with regards to its impact on the public order and security of the Federal Republic of Germany as well as national healthcare interests in the light of the current COVID-19 pandemic. OpGen has already responded to all questions currently raised by the BMWi and will remain in constructive dialogue with the BMWi with a view to completing the process as swiftly as possible.
Subsequent to June 30, 2020, the Company issued 311,003 shares of common stock to Yorkville upon the conversion of the remaining outstanding principal balance of approximately $550,000 of the Convertible Notes. Following such issuance, no Convertible Notes remain outstanding.
Subsequent to June 30, 2020, the Company sold 1,523,663 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceeds to the Company of approximately $3.6 million, and gross proceeds of $3.8 million.
Subsequent to June 30, 2020, the Company issued 185,000 shares of common stock pursuant to the exercise of outstanding warrants sold in the October 2019 Public Offering for gross proceeds of approximately $370,000. As of August 12, 2020, 444,000 common warrants related to the October 2019 Public Offering remain outstanding.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this quarterly report on Form 10-Q. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under Part II. Item 1A. “Risk Factors” of this quarterly report on Form 10-Q and Part 1. Item 1A of our annual report on Form 10-K for the year ended December 31, 2019.2020.
Overview
OpGen is a precision medicine company harnessing the power of molecular diagnostics and informatics to help combat infectious disease. Along with our subsidiaries, Curetis GmbH and Ares Genetics GmbH, we are developing and commercializing molecular microbiology solutions helping to guide clinicians with more rapid and actionable information about life threatening infections to improve patient outcomes and decrease the spread of infections caused by multidrug-resistant microorganisms, or MDROs. Our current product portfolio includes Unyvero, QuickFISH, PNA FISH,Curetis’ SARS-CoV-2 products, Acuitas AMR Gene Panel, Acuitas®Acuitas Lighthouse, and the ARES Technology Platform including ARESdb, using NGS technology and AI-powered bioinformatics solutions for antibiotic response prediction. On October 13, 2020, the Company announced its decision to exit the FISH business in its entirety by June 30, 2021 and the Company's license agreement with Life Technologies, a subsidiary of ThermoFisher, will be terminated as of such date.
On April 1, 2020, wethe Company completed oura business combination transaction (the “Transaction”) with Curetis N.V., a public company with limited liability under the laws of the Netherlands (the “Seller” or “Curetis N.V.”), as contemplated by the Implementation Agreement, dated as of September 4, 2019 (the “Implementation Agreement”), by and among the Company, the Seller, and Crystal GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany and wholly-owned subsidiary of the Company (“Purchaser”). Pursuant to the Implementation Agreement, the Purchaser acquired all of the shares of Curetis GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany (“Curetis GmbH”), and certain other assets and liabilities of the Seller (together, “Curetis”). Curetis is an early commercial-stage molecular diagnostics (MDx) company focused on rapid infectious disease testing for hospitalized patients with the aim to improve the treatment of hospitalized, critically ill patients with suspected microbial infection and has developed the innovative Unyvero molecular diagnostic solution for comprehensive infectious disease testing. The Transaction was designed principally to leverage each company’s existing research and development and relationships with hospitals and clinical laboratories to accelerate the sales of both companiescompanies’ products and services.
The focus of OpGen is on its combined broad portfolio of products, which includeincludes high impact rapid diagnostics and bioinformatics to interpret AMR genetic data. The Company currently expects to focus on the following products for lower respiratory infection, and urinary tract infection and invasive joint infection:
| · | The Unyvero Lower Respiratory Tract, or LRT, test is the first FDA cleared test that can be used for the detection of more than 90% of common causative agents of hospitalized pneumonia. According to the National Center for Health Statistics (2018), pneumonia is a leading cause of admissions to the hospital and is associated with substantial morbidity and mortality. The Unyvero LRT |
| · | The Unyvero Urinary Tract Infection, or UTI, test which is CE-IVD marked in Europe is currently being made available to laboratories in the U.S. as a research use only or RUO kit. The test detects a broad range of pathogens as well as antimicrobial resistance markers directly from native urine |
| · | The Unyvero Invasive Joint Infection, or IJI, test, which is a variant developed for the U.S. market based on the CE-IVD-marked European Unyvero ITI test, has also been selected for analytical and clinical performance evaluation including clinical trials towards a future U.S. FDA submission. Microbial diagnosis of IJI is difficult because of challenges in sample collection, usually at surgery, and patients being on prior antibiotic therapy which minimizes the chances of recovering viable bacteria. We believe that Unyvero IJI could be useful in identifying pathogens as well as their AMR markers to help guide optimal antibiotic treatment for these patients. |
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| · | The Acuitas AMR Gene Panel |
| · | We are also developing novel bioinformatics tools and solutions to accompany or augment our current and potential future IVD products and may seek regulatory clearance for such bioinformatics tools and solutions to the extent they would be required either as part of our portfolio of IVD products or even as a standalone bioinformatics product. |
OpGen has extensive offerings of additional in vitro diagnostic tests including CE-markedCE-IVD-marked Unyvero tests for hospitalized pneumonia patients, implant and tissue infections, intra-abdominal infections, complicated urinary tract infections, and blood stream infections, and the QuickFISH and PNA FISH FDA-cleared and CE-marked diagnostics used to rapidly detect pathogensinfections. Our portfolio furthermore includes a CE-IVD-marked PCR based rapid test kit for SARS-CoV-2 detection in positive blood cultures,combination with our PCR compatible universal lysis buffer (PULB) which we believe have an establishedalso market position in the United States.as a stand-alone RUO reagent.
OpGen’s combined AMR informaticsbioinformatics offerings, once all such products are cleared for marketing, if ever, will offer important new tools to clinicians treating patients with AMR infections. OpGen hasWe have collaborated with Merck, Inc. to establish the Acuitas Lighthouse Knowledgebase, which is currently commercially available in the United States for RUO. The Acuitas Lighthouse Knowledgebase includes approximately 15,000 bacterial isolates from the Merck SMART surveillance network of 192 hospitals in 52 countries and other sources. Ares Genetics’ ARESdb is a comprehensive database of genetic and phenotypic information. ARESdb was originally designed based on the SIEMENS microbiology strain collection covering resistant pathogens and its development has significantly expanded, also by transferring data from the Acuitas Lighthouse®Lighthouse into ARESdb.ARESdb to now cover approximately 55,000 bacterial isolates that have been sequenced using NGS technology and tested for susceptibility with applicable antibiotics from a range of over 100 antimicrobial drugs. In September 2019, Ares Genetics signed a technology evaluation agreement with an undisclosed global IVD corporation. In the collaboration, Ares Genetics further enriched ARESdb with a focus on certain pathogens relevant in a first, undisclosed infectious disease indication. Following the successful completion of this collaborative R&D project, the IVD partner exercised its option for a 90-day period of exclusive negotiations with Ares Genetics for a potential exclusive license to ARESdb in the field of human clinical diagnostics. Following the lapse of such 90-day period without any commercial deal being signed, Ares Genetics is now in multiple, nonexclusive parallel discussions with several interested parties and such discussions are ongoing.
In addition to potential future licensing and partnering, OpGen’s subsidiary Ares Genetics intends to independently utilize the proprietary biomarker content in these databases, as well as to build an independent business in NGS and AI based offerings for AMR research and diagnostics in collaboration with its current and potential future partners in the life science, pharmaceutical and diagnostics industries. Ares Genetics has recently signed up Siemens Technology Accelerator and AGES (Austrian Agency for Health and Food Safety) as new customers, as well as entered into another technology assessment and feasibility project with another undisclosed major global IVD corporation.corporation, which was also successfully completed.
The Unyvero A50 tests for up to 130 diagnostic targets (pathogens and resistance genes) in under five hours with approximately two minutes of hands-on time. The system was first CE markedCE-IVD-marked in 2012 and was FDA cleared in 2018 along with the LRT test through thea De Novo process. As of June 30, 2020, there is an installed base of about 170 Unyvero A50 Analyzers globally.request. The Unyvero A30 RQ is a new device designed to address the low tolow-to mid-plex testing market for 5-30 DNA targets and to provide results in 45approximately 30 to 90 minutes with 2-5 minutes of hands onhands-on time. The Unyvero A30 RQ has a small laboratorybenchtop footprint and has an attractive cost of goods profile. Curetis has been following a partnering strategy for the Unyvero A30 RQ.
OpGen
The Company has extensive partner and distribution relationships to help accelerate the establishment of a global infectious disease diagnostic testing and informatics business. Partners include A. Menarini Diagnostics for pan-European distribution to currently 11 countries; MGI/BGI for NGS-based molecular microbiology applications in China;countries and Beijing Clear Biotech Co. Ltd. for Unyvero A50 product distribution in China. OpGen hasWe have a network currently consisting of 26over 20 distributors covering 45more than 40 countries. With the discontinuation of our FISH products business in Europe, we have reduced our network of distributors to only those distributors actively commercializing our Unyvero line of products or CE-IVD-marked SARS-CoV-2 test kits.
OpGen will continue to develop and seek FDA and other regulatory clearances or approvals, as applicable, for the Acuitas AMR Gene Panel (Urine)(Isolate) diagnostic test, Unyvero UTI and the Acuitas Lighthouse SoftwareIJI products. OpGen will continue to offer the FDA-cleared Unyvero LRT and LRT BAL Panels, as well as Unyvero UTI Panel and Acuitas AMR Gene Panel (Isolates) and Acuitas Lighthouse Software as well as the Unyvero UTI Panel as RUO products to hospitals, public health departments, clinical laboratories, pharmaceutical companies and contract research organizations (CROs)(“CROs”).
Our headquarters are in Gaithersburg,Rockville, Maryland, and our principal operations are in Gaithersburg,Rockville, Maryland and Holzgerlingen and Bodelshausen, both in Germany. We also have operations in Vienna, Austria. We operate in one business segment.
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Recent developments
COVID-19 Impact
On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. COVID-19 has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption in the financial markets.
As a result, we have experienced a material impact on our business, financial condition or results of operations for the three and six months ended June 30, 20202021, and significant business disruptions as a result of the outbreak. For example, mostsome of our employees are currently still working remotely from home, we have suspended allcontinued to suspend most business travel, and we are still unable to physically meet with future and current customers to sell and market our products. In addition, the COVID-19 pandemic has interrupted many of our clinical activities, which willhas and may further delay our ability to complete clinical trials and obtain regulatory approval for new products.
We continue to monitor the impacts of COVID-19 on the global economy and on our business operations. However, at this time, it is difficult to predict how long the potential operational impacts of COVID-19 will remain in effect or to what degree they will impact our operations and financial results. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition, as well as our ability to execute our business strategies and initiatives in their respective expected time frames.
Financings
Since inception, we have incurred, and continue to incur, significant losses from operations. We have funded our operations primarily through external investor financing arrangements. During 2019,2020, we raised net proceeds of approximately $13.1$33.8 million. On February 11, 2020, we entered into an ATM Agreement with Wainwright, pursuant to which we may offer and sell from time to time in an “at2021, the market offering,” at its option, up to an aggregate of $15.7 million of shares of our common stock through Wainwright, as sales agent. DuringCompany closed the three months ended June 30, 2020, we sold 2,739,442 shares of its common stock under the 2020 ATMFebruary 2021 Offering resulting in aggregateraising net proceeds to us of approximately $5.9$23.5 million, and gross proceeds of $6.1$25.0 million. DuringOn March 9, 2021, the six months ended June 30,Company entered into the Exercise Agreement to induce the warrant holders from our 2020 we sold 5,554,376 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceedsPIPE to us of approximately $11.4 million, and gross proceeds of $11.9 million. Additionally, during the six months ended June 30, 2020, approximately 4.1 million commonexercise their warrants issued in our October 2019 Public Offering were exercised raising netthe 2020 PIPE. The Company received aggregate gross proceeds before expenses of approximately $8.1 million. See Note 2 (“Liquidity$9.65 million from the exercise of all of the remaining 4,842,615 outstanding Existing Warrants held by the Holder and management’s plan”) to the Notes to Unaudited Condensed Consolidated Financial Statements included in this quarterly report on Form 10-Qpayment of the purchase price for additional information.the New Warrants.
Results of operations for the three months ended June 30, 20202021 and 20192020
The results of operations for the three months ended June 30 2019 herein exclude results from operations of Curetis and its subsidiaries for the three months ended June 30, 2019.
Revenues
| Three months ended June 30, | Three months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| Product sales | $ | 601,304 | $ | 504,293 | $ | 307,804 | $ | 601,304 | ||||||||
| Laboratory services | 25,992 | 5,250 | 266,784 | 25,992 | ||||||||||||
| Collaboration revenue | 561,089 | 500,000 | 237,027 | 561,089 | ||||||||||||
| Total revenue | $ | 1,188,385 | $ | 1,009,543 | $ | 811,615 | $ | 1,188,385 | ||||||||
Total revenue for the three months ended June 30, 2020 increased2021 decreased approximately 18%32% when compared to the same period in 2019,2020, with a change in the mix of revenue, as follows:
| · | Product Sales: |
| · | Laboratory Services: an increase in revenue of approximately |
| · | Collaboration Revenue: |
Operating expenses
| Three months ended June 30, | Three months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| Cost of products sold | $ | 713,916 | $ | 198,493 | $ | 342,580 | $ | 713,916 | ||||||||
| Cost of services | 252,655 | 251,981 | 137,934 | 252,655 | ||||||||||||
| Research and development | 2,979,025 | 1,153,584 | 2,859,590 | 2,979,025 | ||||||||||||
| General and administrative | 2,491,571 | 1,592,845 | 2,692,255 | 2,491,571 | ||||||||||||
| Sales and marketing | 1,044,032 | 393,567 | 802,549 | 1,044,032 | ||||||||||||
| Transaction costs | 225,000 | — | — | 225,000 | ||||||||||||
| Impairment of right-of-use asset | 115,218 | — | ||||||||||||||
| Total operating expenses | $ | 7,706,199 | $ | 3,590,470 | $ | 6,950,126 | $ | 7,706,199 | ||||||||
Our total operating expenses for the three months ended June 30, 2020 increased2021 decreased approximately 115%10% when compared to the same period in 2019.2020. Operating expenses changed as follows:
| · | Costs of products sold: cost of products sold for the three months ended June 30, |
| · | Costs of services: cost of services for the three months ended June 30, |
| · | Research and development: research and development expenses for the three months ended June 30, |
| · | General and administrative: general and administrative expenses for the three months ended June 30, |
| · | Sales and marketing: sales and marketing expenses for the three months ended June 30, |
| · | Transaction costs: transaction costs for the three months ended June 30, 2020 represent one-time costs incurred as part of the business combination with Curetis; and |
| · | Impairment of right-of-use asset: impairment of right-of-use asset for the three months ended June 30, 2021 represents the impairment of our San Diego, California ROU asset. |
Other expense
| Three months ended June 30, | Three months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| Gain on extinguishment of debt | $ | 259,353 | $ | — | ||||||||||||
| Interest expense | $ | (1,044,891 | ) | $ | (37,129 | ) | (1,198,169 | ) | (1,044,891 | ) | ||||||
| Foreign currency transaction (losses) gains | (289,788 | ) | 9,879 | |||||||||||||
| Other (expense) income | (5,656 | ) | 15,166 | |||||||||||||
| Foreign currency transaction losses | (915 | ) | (289,788 | ) | ||||||||||||
| Other income (expense) | 4,702 | (5,656 | ) | |||||||||||||
| Change in fair value of derivative financial instruments | 382,511 | — | (13,021 | ) | 382,511 | |||||||||||
| Total other expense | $ | (957,824 | ) | $ | (12,084 | ) | $ | (948,050 | ) | $ | (957,824 | ) | ||||
Our total other expense for the three months ended June 30, 20202021 remained relatively flat when compared to the same period in 2019 increased primarily due to an increase in interest expense associated with the debt assumed as part of the Transaction with Curetis.2020.
Results of operations for the six months ended June 30, 20202021 and 20192020
The results of operations for the six months ended June 30, 2020 and 2019 herein exclude results from operations of Curetis and its subsidiaries for the three months ended March 31, 2020 and the six months ended June 30, 2019.2020.
Revenues
| Six months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| Product sales | $ | 968,237 | $ | 1,024,470 | $ | 835,383 | $ | 968,237 | ||||||||
| Laboratory services | 25,992 | 5,250 | 450,849 | 25,992 | ||||||||||||
| Collaboration revenue | 811,089 | 1,000,000 | 355,099 | 811,089 | ||||||||||||
| Total revenue | $ | 1,805,318 | $ | 2,029,720 | $ | 1,641,331 | $ | 1,805,318 | ||||||||
Total revenue for the six months ended June 30, 20202021 decreased approximately 11%9% when compared to the same period in 2019,2020, with a change in the mix of revenue, as follows:
| · | Product Sales: a decrease in revenue of approximately |
| · | Laboratory Services: an increase in revenue |
| · | Collaboration Revenue: a decrease in revenue of approximately |
Operating expenses
| Six months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| Cost of products sold | $ | 990,470 | $ | 419,195 | $ | 896,634 | $ | 990,470 | ||||||||
| Cost of services | 390,321 | 396,463 | 242,918 | 390,321 | ||||||||||||
| Research and development | 4,196,581 | 2,929,966 | 5,673,081 | 4,196,581 | ||||||||||||
| General and administrative | 4,193,019 | 3,340,430 | 5,355,912 | 4,193,019 | ||||||||||||
| Sales and marketing | 1,326,309 | 765,800 | 1,701,801 | 1,326,309 | ||||||||||||
| Transaction costs | 470,322 | — | — | 470,322 | ||||||||||||
| Impairment of intangible assets | 750,596 | — | — | 750,596 | ||||||||||||
| Impairment of right-of-use asset | — | 520,759 | 170,714 | — | ||||||||||||
| Total operating expenses | $ | 12,317,618 | $ | 8,372,613 | $ | 14,041,060 | $ | 12,317,618 | ||||||||
Our total operating expenses for the six months ended June 30, 20202021 increased approximately 47%14% when compared to the same period in 2019.2020. Operating expenses changed as follows:
| · | Costs of products sold: cost of products sold for the six months ended June 30, |
| · | Costs of services: cost of services for the six months ended June 30, |
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| · | Research and development: research and development expenses for the six months ended June 30, |
| · | General and administrative: general and administrative expenses for the six months ended June 30, |
| · | Sales and marketing: sales and marketing expenses for the six months ended June 30, |
| · | Transaction costs: transaction costs for the six months ended June 30, 2020 represent one-time costs incurred as part of the business combination with Curetis; |
| · | Impairment of intangible assets: impairment of intangible assets for the six months ended June 30, 2020 represents the write down of intangible assets acquired from AdvanDx in 2015; and |
| · | Impairment of right-of-use asset: impairment of right-of-use asset for the six months ended June 30, |
Other income (expense)expense
| Six months ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Interest expense | $ | (1,083,158 | ) | $ | (93,573 | ) | ||
| Foreign currency transaction losses | (293,664 | ) | (472 | ) | ||||
| Other income (expense) | 81,679 | (9,256 | ) | |||||
| Change in fair value of derivative financial instruments | 382,511 | 67 | ||||||
| Total other income (expense) | $ | (912,632 | ) | $ | (103,234 | ) | ||
| Six months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Warrant inducement expense | $ | (7,755,541 | ) | $ | — | |||
| Gain on extinguishment of debt | 259,353 | — | ||||||
| Interest expense | (2,363,151 | ) | (1,083,158 | ) | ||||
| Foreign currency transaction gains (losses) | 426,700 | (293,664 | ) | |||||
| Other income | 9,627 | 81,679 | ||||||
| Change in fair value of derivative financial instruments | (114,411 | ) | 382,511 | |||||
| Total other expense | $ | (9,537,423 | ) | $ | (912,632 | ) | ||
Our total other expense for the six months ended June 30, 20202021 increased when compared to the same period in 2019 increased2020 primarily due to warrant inducement expense related to our 2021 Warrant Exercise and an increase in interest expense associated with the debt assumed as part of the Transaction with Curetis.
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Liquidity and capital resources
As of June 30, 2020,2021, we had cash and cash equivalents of $12.9$31.2 million compared to $2.7$13.4 million at December 31, 2019.2020. We have funded itsour operations primarily through external investor financing arrangements and have raised funds in 2021 and 2020, and 2019, including:
During the three monthsyear ended June 30,December 31, 2020, we sold 2,739,4427,521,610 shares of common stock under the 2020 ATM Offering resulting in aggregate net proceeds to us of approximately $5.9$15.8 million, and gross proceeds of $6.1$16.7 million. During the six months ended June 30, 2020, we sold 5,554,376 shares of common stock under the 2020 ATM Offering resulting in aggregate net proceeds to us of approximately $11.4 million, and gross proceeds of $11.9 million.
During the six monthsyear ended June 30,December 31, 2020, approximately 4.14.3 million common warrants issued in our October 2019 Public Offering were exercised for net proceeds of approximately $8.1$8.7 million.
On October 28, 2019,November 25, 2020, we closed the October 2019 Public Offering2020 PIPE of 2,590,170 units at $2.00 per unit(i) 2,245,400 shares of common stock, (ii) 4,842,615 warrants to purchase shares of common stock and 2,109,830(iii) 2,597,215 pre-funded units at $1.99 per pre-funded unit.warrants. The offering raised gross proceeds of approximately $9.4$10.0 million and net proceeds of approximately $8.3$9.3 million.
On February 11, 2021, we closed the February 2021 Offering for the purchase of (i) 2,784,184 shares of common stock, (ii) 5,549,149 pre-funded warrants, and (iii) unregistered common share purchase warrants to purchase 4,166,666 shares. The February 2021 Offering raised aggregate net proceeds of $23.5 million, and gross proceeds of $25.0 million.
On March 29, 2019,9, 2021, we closed the March 2019 Public Offering2021 Warrant Exercise resulting in the issuance of 450,0004,842,615 shares of our common stock at a public offering price of $12.00 per share. The offering raisedand raising gross proceeds of $5.4approximately $9.65 million and net proceeds of approximately $4.8$9.3 million.
To meet itsour capital needs, we are considering multiple alternatives, including, but not limited to, additional equity financings, debt financings and other funding transactions, and licensing and/or partnering arrangements and business combination transactions.arrangements. There can be no assurance that we will be able to complete any such transaction on acceptable terms or otherwise. We believe that current cash on hand will be sufficient to fund operations into the early firstsecond quarter of 2021.2022. This has led management to conclude that there is substantial doubt about our ability to continue as a going concern. In the event we are unable to successfully raise additional capital during or before the end of the firstsecond quarter of 2021,2022, we will not have sufficient cash flows and liquidity to finance our business operations as currently contemplated. Accordingly, in such circumstances we would be compelled to immediately reduce general and administrative expenses and delay research and development projects, including the purchase of scientific equipment and supplies, until it iswe are able to obtain sufficient financing. If such sufficient financing is not received on a timely basis, we would then need to pursue a plan to license or sell itsour assets, seek to be acquired by another entity, cease operations and/or seek bankruptcy protection.
Sources and uses of cash
Our principal source of liquidity is from financing activities, including issuances of equity and debt securities. The following table summarizes the net cash and cash equivalents provided by (used in) operating activities, investing activities and financing activities for the periods indicated:
| Six months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| Net cash used in operating activities | $ | (9,232,741 | ) | $ | (5,824,158 | ) | $ | (12,559,210 | ) | $ | (9,232,741 | ) | ||||
| Net cash (used in) provided by investing activities | (934,208 | ) | 4,570 | |||||||||||||
| Net cash used in investing activities | (1,723,064 | ) | (934,208 | ) | ||||||||||||
| Net cash provided by financing activities | 20,125,405 | 4,324,976 | 32,205,067 | 20,125,405 | ||||||||||||
Net cash used in operating activities
Net cash used in operating activities for the six months ended June 30, 2021 consists primarily of our net loss of $21.9 million, reduced by certain noncash items, including inducement expense related to warrant repricing of $7.8 million, depreciation and amortization expense of $1.3 million, noncash interest expense of $1.9 million, and share-based compensation expense of $0.5 million. Net cash used in operating activities for the six months ended June 30, 2020 consists primarily of our net loss of $11.4 million, reduced by certain noncash items, including impairment of intangible assets of $0.7 million, depreciation and amortization expense of $0.9 million, non-cash interest expense of $0.8 million, and share-based compensation expense of $0.1 million.
Net cash used in operatinginvesting activities
Net cash used in investing activities for the six months ended June 30, 2019 consists primarily2021 consisted of our net lossthe purchase of $6.4 million, reduced by certain noncash items, including impairment of ROU asset of $0.5 million, depreciationproperty and amortization expense of $0.5 million, and stock-based compensation expense of $0.2 million.
Net cash (used in) provided by investing activities
equipment. Net cash used in investing activities for the six months ended June 30, 2020 consisted primarily of funds provided to Curetis GmbH as part of the Interim Facility offset by the acquisition of Curetis net of cash acquired of $1.3 million.
Net cash provided by investingfinancing activities
Net cash provided by financing activities for the six months ended June 30, 20192021 of $32.2 million consisted primarily of the purchase of property and equipment offset bynet proceeds from the saleFebruary 2021 Offering and exercises of equipment.
Net cash provided by financing activities
common stock warrants, net of payments on debt and insurance financings. Net cash provided by financing activities for the six months ended June 30, 2020 of $20.1 million consisted primarily of the net proceeds from the 2020 ATM Offering, exercises of common stock warrants, and issuance of debt. Net cash provided by financing activities for the six months ended June 30, 2019 of $4.3 million consisted primarily of the net proceeds from the March 2019 Public Offering.
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Critical accounting policies and use of estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In our unaudited condensed consolidated financial statements, estimates are used for, but not limited to, liquidity assumptions, revenue recognition, warrant inducement, share-based compensation, allowances for doubtful accounts and inventory obsolescence, valuation of derivative financial instruments measured at fair value on a recurring basis, deferred tax assets and liabilities and related valuation allowance, estimated useful lives of long-lived assets, and the recoverability of long-lived assets. Actual results could differ from those estimates.
A summary of our significant accounting policies is included in Note 3 “Summary of significant accounting policies” to the accompanying unaudited condensed consolidated financial statements. Certain of our accounting policies are considered critical, as these policies require significant, difficult or complex judgments by management, often requiring the use of estimates about the effects of matters that are inherently uncertain. Our critical policies are summarized in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Recently issued accounting pronouncements
See Note 3 “Summary of significant accounting policies” in this Form 10-Q for a full description of recent accounting pronouncements, including the respective expected dates of adoption and effects on our unaudited condensed consolidated financial statements.
Off-balance sheet arrangements
As of June 30, 20202021 and December 31, 2019,2020, we did not have any off-balance sheet arrangements.
JOBS Act
On April 5, 2012,
Prior to December 31, 2020, the JOBS ActCompany was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can(“EGC”) as defined in the Jumpstart Our Business Startups Act, (JOBS Act), and elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies until the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words,Company is no longer an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to useEGC, including using the extended transition period for complying with new or revised accounting standards under Section 102(b)(1)standards. As of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, the Company’s financial statements may not be comparable to companies that comply with public company effective dates.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” the Company intends to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. The Company will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which it has total annual gross revenues of $1.07 billion or more; (ii) December 31, 2020; (iii) the date on which2020, the Company has issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which the Company is deemed to bebecome a large acceleratednon-accelerated filer under the rules of the SEC.SEC and is no longer classified as an EGC.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of June 30, 2020.2021. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Changes in Internal Control over Financial Reporting
On April 1, 2020, OpGen completed its business combination transaction of Curetis. The Company has not yet completed an assessment of the design and/or operating effectiveness of Curetis’ internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 20202021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Reference is made to the Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by the following:2020.
We have a history of losses, and we expect to incur losses for the next several years. The report of our independent registered public accounting firm on our financial statements for the years ended December 31, 2019 and 2018 contain explanatory language that substantial doubt exists about our ability to continue as a going concern.
We have incurred substantial losses since our inception, and we expect to continue to incur additional losses for the next several years. For the years ended December 31, 2019 and 2018, we had net losses of $12.4 million and $13.4 million, respectively. From our inception through June 30, 2020, we had an accumulated deficit of $185.9 million. The reports of our independent registered public accounting firm on our financial statements for the years ended December 31, 2019 and 2018 each contain explanatory language that substantial doubt exists about our ability to continue as a going concern. We completed a number of financings in 2019 and 2020 to date, including the October 2019 Public Offering, March 2019 Public Offering, and 2020 ATM Offering. The net proceeds from such financings were approximately $32.6 million. We believe we can fund our operations into the first quarter of 2021, but cannot assure you that we can continue to raise the capital necessary to fund our business.
We need to raise equity capital to support our business. If we cannot do so successfully, we will not be able to continue as a going concern.
We need to raise equity capital to support our business. If we cannot do so successfully, we will not be able to continue as a going concern. To meet our capital needs, we are considering multiple alternatives, including, but not limited to, the 2020 ATM Offering, additional equity financings, debt financings, convertible note issuances, and other funding transactions, licensing and/or partnering arrangements and business combination transactions.
For example, in July 2015, in connection with our acquisition of our subsidiary, AdvanDx, MGHIF made investments in the Company, including the $1 million MGHIF Note, secured by a security interest in substantially all of our assets, including our intellectual property assets. The debt is due to be paid in six semi-annual payments of $166,667, which began on January 2, 2019 and will end on July 1, 2021. Such secured creditor rights could negatively impact our ability to raise money in the future. If we default on payments under the MGHIF Note, MGHIF has the rights of a secured creditor. If those rights are exercised, it could have a material adverse effect on our financial condition.
Further, in 2016, Curetis entered into a contract for an up to €25 million senior, unsecured loan financing facility from the European Investment Bank (“EIB”), which we assumed in connection with our acquisition of Curetis. As of June 30, 2020, €18.0 million plus deferred interest in the amount of approximately €3.4 million was outstanding under the contract.
We believe that additional equity financings are the most likely source of capital going forward. There can be no assurance that we will be able to complete any such financing transaction on acceptable terms or otherwise.
We believe that current cash on hand will be sufficient to fund operations into the early first quarter of 2021. In the event we are unable to successfully raise additional capital during or before the first quarter of 2021, we will not have sufficient cash flows and liquidity to finance our business operations as currently contemplated. Accordingly, in such circumstances we would be compelled to immediately reduce general and administrative expenses and delay research and development projects, including the purchase of scientific equipment and supplies, until we are able to obtain sufficient financing. If such sufficient financing is not received timely, we would then need to pursue a plan to license or sell assets, seek to be acquired by another entity, cease operations and/or seek bankruptcy protection.
The COVID-19 pandemic has adversely impact our business, financial condition and results of operations.
The COVID-19 pandemic has impacted the global economy and has impacted our operations in the United States and abroad, including by negatively impacting our sales and revenue. As a result, our total revenues have decreased significantly, and we have implemented certain operational changes in order to address the evolving challenges presented by the global pandemic. We have experienced significant reductions in the demand for certain of our products, particularly due to the decline in elective medical procedures and medical treatment unrelated to COVID-19, which negatively impacted our revenues in the first half of fiscal year 2020. As the pandemic continues, we expect to continue to experience weakened demand for these products as a result of the reduction in elective and non-essential procedures, lower utilization of routine testing and related specimen collection, reduced spend by customers and reduced demand from research laboratories.
Healthcare providers, including our strategic partners, are focused almost exclusively on dealing with COVID-19, and may be unable to continue to participate in our clinical activities. For example, some clinical trial sites have imposed restrictions on site visits by sponsors and CROs, the initiation of new trials, and new patient enrollment to protect both site staff and patients from possible COVID-19 exposure and to focus medical resources on patients suffering from COVID-19. The pandemic will therefore likely delay enrollment in and completion of our clinical trials due to prioritization of hospital resources toward the outbreak, and some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Moreover, due to site and participant availability during the pandemic and in the interest of patient safety, many of our partners have paused new subject enrollment for most clinical trials.
For ongoing trials, we have seen an increasing number of clinical trial sites imposing restrictions on patient visits to limit risks of possible COVID-19 exposure, and we may experience issues with participant compliance with clinical trial protocols as a result of quarantines, travel restrictions and interruptions to healthcare services. The current pressures on medical systems and the prioritization of healthcare resources toward the COVID-19 pandemic have also resulted in interruptions in data collection and submissions for certain clinical trials and delayed starts for certain planned studies. Further, health regulatory agencies globally may also experience disruptions in their operations as a result of the COVID-19 pandemic. The FDA and comparable foreign regulatory agencies may have slower response times or be under-resourced, which could significantly delay the FDA’s ability to timely review and process any submissions we or our partners have filed or may file.
As a result of the outbreak, we and certain of our suppliers may also be affected and could experience closures and labor shortages, which could disrupt activities. We could therefore face difficulty sourcing key components necessary to produce our product candidates, which may negatively affect our clinical development activities. Even if we are able to find alternate sources for some of these components, they may cost more, which could affect our results of operations and financial position.
At this point in time, there remains significant uncertainty relating to the potential effect of the novel coronavirus on our business and results of operations. As coronavirus becomes more widespread, each day manufacturing closures and travel restrictions may remain or worsen, all of which would have a negative impact on our ability to operate our business, financial condition and results of operations.
Moreover, we have transitioned a significant subset of our office-based employee population to a remote work environment in an effort to mitigate the spread of COVID-19, which may exacerbate certain risks to our business, including cybersecurity attacks and risk of phishing due to an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers). Additionally, we may find that remote work arrangements are not as efficient as physical operations. Specifically, due to ongoing travel and immigration issues related to the ongoing COVID-19 pandemic, our Chief Executive Officer is required to work from Germany. His ability to oversee and manage the Company from outside of the United States may further exacerbate risks to our results of operations and financial position.
We and our wholly-owned subsidiary, Curetis USA, accepted loans under the CARES Act pursuant to the Paycheck Protection Program, or the PPP, which loan may not be forgiven or may subject us to challenges and investigations regarding qualification for the loan.
We have secured loans under the CARES Act Paycheck Protection Program (“PPP”) in the aggregate amount of approximately $1.1 million. We intend to use such funds for the intended purposes to maintain our employee base and pay rent and utility expenses. There has been significant negative publicity regarding the receipt of PPP loans by publicly traded companies, and there is a risk that our receipt of PPP loans will be closely scrutinized and additional requirements will be imposed on us by the lender and the Small Business Association, or the SBA.
The PPP loan application required us to certify, among other things, that the current economic uncertainty made the PPP loan request necessary to support our ongoing operations. While we made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP loan and that our receipt of the PPP loans is consistent with the broad objectives of the PPP of the CARES Act, the certification described above does not contain any objective criteria and is subject to interpretation.
In addition, the SBA previously stated that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the PPP has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good faith belief that we satisfied all eligibility requirements for the PPP loans, we are found to have been ineligible to receive the PPP loans or in violation of any of the laws or governmental regulations that apply to us in connection with the PPP loans, including the False Claims Act, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP loans. In the event that we seek forgiveness of all or a portion of the PPP loans, we will also be required to make certain certifications which will be subject to audit and review by governmental entities and could subject us to significant penalties and liabilities if found to be inaccurate, including under the False Claims Act. In addition, our receipt of the PPP loans may result in adverse publicity and damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Any of these events could harm our business, results of operations and financial condition.
Customer demand for and our ability to sell and market our products may be adversely affected by the COVID-19 pandemic and the legislative and regulatory responses thereto.
U.S. state and local governments as well as many governments around the world have imposed orders, restrictions and recommendations resulting in closures of businesses, work stoppages, travel restrictions, social distancing practices and cancellations of gatherings and events. Such orders, restrictions and recommendations, combined with fears of the spreading of COVID-19, has and may continue to cause certain of our customers to delay, cancel or reduce orders of our products and makes it difficult to facilitate meetings with current and potential customers, as our sales personnel often rely on in-person meetings and interaction with our customers. COVID-19 related restrictions have thus harmed our sales efforts, and continued restrictions could have a negative impact on our sales and results of operations. We are unable to accurately predict how these factors will reduce our sales going forward and when these orders, restrictions and recommendations will be relaxed or lifted. There can be no assurances that our customers and distributors will resume purchases of our products upon termination of these governmental orders, restrictions and recommendations, particularly if there remains any continued community outbreak of COVID-19. A prolonged economic contraction or recession may also result in our customers seeking to reduce their costs and expenditures, which could result in lower demand for our products. If our sales decline, or if such lost sales are not recoverable in the future, our revenues, business and results of operations will be significantly adversely affected.
It is not possible to predict the future of the emerging COVID-19 global pandemic or the development of potential tests or treatments. No assurance can be given that our products will aid in the testing or the treatment of this virus.
We offer products for the testing for SARS-CoV-2, the causal pathogen of COVID-19. We may offer other products for testing or treatment of coronavirus. There can be no assurance that the existing test or any such future tests will be broadly adopted for use. We are among many companies that are trying to develop tests for coronavirus, most of whom have far greater resources than us. If one of these companies develops an effective test, our development of such tests may not significantly increase our revenues and results of operations.
We incurred significant indebtedness as a result of the combination with Curetis, which could have a material adverse effect on our financial condition.
On April 1, 2020, we assumed the indebtedness of Curetis N.V. and Curetis. As of June 30, 2020, we owed indebtedness of approximately $550,000 to Yorkville under the Convertible Notes with maturity in June 2021 and owed indebtedness of $20.2 million of principal (plus interest of $3.8 million) under a loan provided by the European Investment Bank with maturities in 2022, 2023, and 2024. In addition, we have secured indebtedness to MGHIF under the MGHIF Note. OpGen may not be able to generate sufficient cash to service all of its indebtedness and may be forced to take other actions to satisfy its obligations under indebtedness that may not be successful. The inability in the future to repay such indebtedness when due would have a material adverse effect on us.
We have incurred significant transaction costs as a result of the business combination transaction with Curetis, which could have a material adverse effect on our financial condition.
We have incurred significant one-time transaction costs related to the business combination with Curetis. These transaction costs include legal and accounting fees and expenses and filing fees, printing expenses, banking advisory fees, and other related charges. Additional costs will be incurred in connection with integrating the two companies’ businesses. Costs in connection with the transaction and integration may be higher than expected. These costs could adversely affect our financial condition, operating results or prospects.
The business combination transaction with Curetis significantly changed the business and operations of OpGen. We may face challenges integrating the businesses.
Following the consummation of the combination with Curetis, we will continue as the operating entity and both the size and geographic scope of our business will significantly increase. Most of the Curetis business is currently conducted in Europe, Asia and other countries outside of the United States, and many of the Curetis employees are located outside of the United States. In addition, the majority of the initial board of directors consist of individuals appointed by Curetis N.V., and we expect that the focus of our business may shift to Curetis operations. We may face challenges integrating such geographically diverse businesses and implementing a smooth transition of business focus and governance in a timely or efficient manner, especially while the global COVID-19 pandemic is continuing. In particular, if the effort we devote to the integration of our businesses diverts more management time or other resources from carrying out our operations than we originally planned, our ability to maintain and increase revenues as well as manage our costs could be impaired. Furthermore, our capacity to expand other parts of our existing businesses may be impaired. We also cannot assure you that our combination with Curetis will function as we anticipate, or that significant synergies will result from the business combination. Any of the above could have a material adverse effect on our business.
Management and the board of directors of OpGen changed upon the consummation of our acquisition of the Curetis businesses. We cannot assure you that this will not have a material impact on our business.
Oliver Schacht, Ph.D., the prior chief executive officer of Curetis N.V., became the chief executive officer at the closing of our acquisition of the Curetis business. Pursuant to the acquisition, four members of our board of directors following the closing were appointed by Curetis N.V. and two by OpGen. Any new members of management or new directors are likely to have different backgrounds, experiences and perspectives from those individuals who previously served as executive officers or directors and, thus, may have different views on the issues that will determine our future. Additionally, the ability of our new directors to quickly expand their knowledge of our operations will be critical to their ability to make informed decisions about our business and strategies, particularly given the competitive environment in which we operate. As a result, our future strategy and plans may differ materially from those of the past.
The acquisition of the Curetis businesses may not lead to the growth and success of the combined business that we believe will occur.
Although we believe the combination of the OpGen and Curetis businesses provides a significant commercial opportunity for growth, we may not realize all of the synergies that we anticipate and may not be successful in implementing our commercialization strategy. Our combined business will be subject to all of the risks and uncertainties inherent in the pursuit of growth in our industry and we may not be able to successfully sell our products, obtain the regulatory clearances and approvals we apply for or, or realize the anticipated benefits from our distribution, collaboration and other commercial partners. If we are not able to grow our business as a commercial enterprise, our financial condition will be negatively impacted.
Integrating the businesses of OpGen and Curetis may disrupt or have a negative impact on OpGen.
We could have difficulty integrating the assets, personnel and business of OpGen and Curetis. The proposed transaction was complex and we have devoted and will need to continue to devote significant time and resources to integrating the businesses. Risks that could impact us negatively include:
If we are not successful in addressing these risks effectively, our business could be severely impaired.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| * | Filed or furnished herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OPGEN, INC. | |||
| By: | /s/ Timothy C. Dec | ||
| Timothy C. Dec | |||
| Chief Financial Officer | |||
| Date: | August | ||
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