UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended September 30, ~~2017~~2019



¨☐	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: 001-34180

FLUIDIGM CORPORATION

(Exact name of registrant as specified in its charter)



Delaware			77-0513190
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

7000 Shoreline Ct, Ste 100,	South San Francisco,	CA	94080
(Address of principal executive offices)			(Zip Code)

~~7000 Shoreline Court, Suite 100~~

~~South San Francisco, California 94080~~

(~~Address of principal executive offices) (Zip Code)~~

~~(650)~~ 650) 266-6000

(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	FLDM	Nasdaq Global Select 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 ý☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý☒ No ¨☐

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



Large accelerated filer	¨☐		Accelerated ~~filer~~Filer		ý
				☒
Non-accelerated filer	¨☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company		¨
					☒
Emerging ~~Growth~~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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

As of October ~~27, 2017,~~31, 2019, there were ~~38,647,687~~69,564,909 shares of the Registrant’s common stock, $0.001 par value per share, outstanding.

FLUIDIGM CORPORATION

TABLE OF CONTENTS



		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	31

	Condensed Consolidated Balance Sheets -as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018	31

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018	42

	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018	53

	Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2019 and 2018	4

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1825

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2734

Item 4.	Controls and Procedures	2834

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	2936

Item 1A.	Risk Factors	2936

Item 5.	Other Information	55

Item 6.	Exhibits	56

SIGNATURES		5857

EXHIBIT LIST		5956

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FLUIDIGM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)



	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	25,886		$	95,401
Short-term investments	36,875			—
Accounts receivable (net of allowances of $104 at September 30, 2019 and $126 at December 31, 2018)	14,014			16,651
Inventories	14,998			13,003
Prepaid expenses and other current assets	4,781			2,051
Total current assets	96,554			127,106
Property and equipment, net	8,396			8,825
Operating lease right-of-use asset, net	5,352			—
Other non-current assets	5,984			6,208
Developed technology, net	49,000			57,400
Goodwill	104,108			104,108
Total assets	$	269,394		$	303,647
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,339		$	4,027
Accrued compensation and related benefits	8,621			14,470
Operating lease liabilities, current	2,363			—
Other accrued liabilities	5,105			7,621
Deferred revenue, current	11,938			11,464
Total current liabilities	33,366			37,582
Convertible notes, net	49,853			172,058
Deferred tax liability, net	11,137			13,714
Operating lease liabilities, non-current	4,459			—
Deferred revenue, non-current	7,501			6,327
Other non-current liabilities	473			1,850
Total liabilities	106,789			231,531
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued and outstanding at September 30, 2019 and December 31, 2018	—			—
Common stock, $0.001 par value, 200,000 shares authorized at September 30, 2019 and December 31, 2018; 69,550 and 49,338 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	70			49
Additional paid-in capital	774,249			631,605
Accumulated other comprehensive loss	(758		)	(687		)
Accumulated deficit	(610,956		)	(558,851		)
Total stockholders’ equity	162,605			72,116
Total liabilities and stockholders’ equity	$	269,394		$	303,647

September 30,
2017 December 31,
2016
(Note 2)
ASSETS
Current assets:
Cash and cash equivalents $ 60,944
$ 35,045
Short-term investments 1,430
24,385
Accounts receivable (net of allowances of $391 at September 30, 2017 and $502 at December 31, 2016) 13,732
14,610
Inventories 17,746
20,114
Prepaid expenses and other current assets 2,314
2,517
Total current assets 96,166
96,671
Property and equipment, net 13,335
16,525
Other non-current assets 6,987
9,291
Developed technology, net 71,400
79,800
Goodwill 104,108
104,108
Total assets $ 291,996
$ 306,395
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 4,721
$ 3,967
Accrued compensation and related benefits 8,954
3,996
Other accrued liabilities 8,332
12,374
Deferred revenue, current 9,877
9,163
Total current liabilities 31,884
29,500
Convertible notes, net 195,166
194,951
Deferred tax liability, net 15,916
21,140
Deferred revenue, non-current 4,589
4,315
Other non-current liabilities 5,371
3,256
Total liabilities 252,926
253,162
Commitments and contingencies (see Note 7)

Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued and outstanding at September 30, 2017 and December 31, 2016 —
—
Common stock, $0.001 par value, 200,000 shares authorized at September 30, 2017 and December 31, 2016; 38,622 and 29,208 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively 39
29
Additional paid-in capital 529,500
493,441
Accumulated other comprehensive loss (731 ) (760 )
Accumulated deficit (489,738 ) (439,477 )
Total stockholders’ equity 39,070
53,233
Total liabilities and stockholders’ equity $ 291,996
$ 306,395

See accompanying ~~notes.~~notes

FLUIDIGM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Revenue:
Product revenue	$	20,576		$	17,992		$	61,383		$	68,095		$	20,666		$	24,242		$	68,728		$	66,496
Service revenue	4,133			4,152			12,620			11,085			5,630			4,721			15,875			14,143
License revenue	38			47			190			182
Grant revenue													200			—			200			—
Total revenue	24,747			22,191			74,193			79,362			26,496			28,963			84,803			80,639
Costs and expenses:
Cost of revenue:
Cost of product revenue	11,414			9,071			33,060			31,097			10,520			11,635			33,009			33,017
Cost of service revenue	1,150			1,228			3,437			3,673			1,938			1,506			5,403			4,784
Total cost of revenue													12,458			13,141			38,412			37,801
Gross profit													14,038			15,822			46,391			42,838
Operating expenses:
Research and development	7,683			9,252			23,668			29,642			7,125			7,430			23,362			22,072
Selling, general and administrative	20,102			21,123			63,653			70,444			20,729			20,020			65,687			57,812
Total costs and expenses	40,349			40,674			123,818			134,856
Total operating expenses													27,854			27,450			89,049			79,884
Loss from operations	(15,602		)	(18,483		)	(49,625		)	(55,494		)	(13,816		)	(11,628		)	(42,658		)	(37,046		)
Interest expense	(1,456		)	(1,454		)	(4,367		)	(4,361		)	(444		)	(4,019		)	(3,636		)	(9,824		)
Other income (expense), net	379			(161		)	571			(527		)
Loss on extinguishment of debt													—			—			(9,000		)	—
Other income, net													205			117			920			465
Loss before income taxes	(16,679		)	(20,098		)	(53,421		)	(60,382		)	(14,055		)	(15,530		)	(54,374		)	(46,405		)
Benefit from income taxes	735			309			3,343			2,093
Income tax benefit													1,168			780			2,269			2,167
Net loss	$	(15,944	)	$	(19,789	)	$	(50,078	)	$	(58,289	)	$	(12,887	)	$	(14,750	)	$	(52,105	)	$	(44,238	)
Net loss per share, basic and diluted	$	(0.46	)	$	(0.68	)	$	(1.61	)	$	(2.01	)	$	(0.19	)	$	(0.38	)	$	(0.79	)	$	(1.13	)
Shares used in computing net loss per share, basic and diluted	34,513			29,069			31,051			28,959			69,469			39,235			65,792			39,033

See accompanying ~~notes.~~notes

FLUIDIGM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Net loss	$	(15,944	)	$	(19,789	)	$	(50,078	)	$	(58,289	)	$	(12,887	)	$	(14,750	)	$	(52,105	)	$	(44,238	)
Other comprehensive income, net of tax:
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(85		)	(41		)	25			141			(121		)	(11		)	(122		)	59
Net change in unrealized gain (loss) on investments	2			(12		)	4			92			(14		)	1			51			(1		)
Other comprehensive (loss) income, net of tax	(83		)	(53		)	29			233
Other comprehensive income (loss), net of tax													(135		)	(10		)	(71		)	58
Comprehensive loss	$	(16,027	)	$	(19,842	)	$	(50,049	)	$	(58,056	)	$	(13,022	)	$	(14,760	)	$	(52,176	)	$	(44,180	)

See accompanying ~~notes.~~notes

FLUIDIGM CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited)

	Common Stock Shares	Common Stock Amount		Additional Paid-in Capital			Accumulated Other Comprehensive (Loss)/Income			Accumulated Deficit			Total Stockholders’ Equity
Balance as of December 31, 2018	49,338	$	49	$	631,605		$	(687	)	$	(558,851	)	$	72,116
Issuance of common stock on bond conversion	19,460	19		133,279			—			—			133,298
Issuance of restricted stock, net of shares withheld for taxes, and other	140	1		(177		)	—			—			(176		)
Issuance of common stock from option exercises	53	—		255			—			—			255
Stock-based compensation expense	—	—		2,207			—			—			2,207
Net loss	—	—		—			—			(25,465		)	(25,465		)
Other comprehensive income, net of tax	—	—		—			10			—			10
Balance as of March 31, 2019	68,991	69		767,169			(677		)	(584,316		)	182,245
Issuance of restricted stock, net of shares withheld for taxes, and other	183	—		(325		)	—			—			(325		)
Issuance of common stock from option exercises	130	—		793			—			—			793
Issuance of common stock under ESPP	96	—		641			—			—			641
Stock-based compensation expense	—	—		2,985			—			—			2,985
Net loss	—	—		—			—			(13,753		)	(13,753		)
Other comprehensive income, net of tax	—	—		—			54			—			54
Balance as of June 30, 2019	69,400	69		771,263			(623		)	(598,069		)	172,640
Issuance of restricted stock, net of shares withheld for taxes, and other	149	1		(70		)	—			—			(69		)
Issuance of common stock from option exercises	1	—		1			—			—			1
Stock-based compensation expense	—	—		3,055			—			—			3,055
Net loss	—	—		—			—			(12,887		)	(12,887		)
Other comprehensive income (loss), net of tax	—	—		—			(135		)	—			(135		)
Balance as of September 30, 2019	69,550	$	70	$	774,249		$	(758	)	$	(610,956	)	$	162,605



	Common Stock Shares	Common Stock Amount		Additional Paid-in Capital			Accumulated Other Comprehensive (Loss)/Income			Accumulated Deficit			Total Stockholders’ Equity
Balance as of December 31, 2017	38,787	$	39	$	531,666		$	(574	)	$	(500,196	)	$	30,935
Issuance of restricted stock, net of shares withheld for taxes, and other	105	—		(69		)	—			—			(69		)
Issuance of common stock from option exercises	16	—		72			—			—			72
Conversion option on convertible debt	—	—		29,292			—			—			29,292
Closing cost related to conversion option	—	—		(556		)	—			—			(556		)
Cumulative-effect of new accounting standard for Topic 606 Revenue	—	—		—			—			358			358
Stock-based compensation expense	—	—		1,747			—			—			1,747
Net loss	—	—		—			—			(13,247		)	(13,247		)
Other comprehensive income, net of tax	—	—		—			42			—			42
Balance as of March 31, 2018	38,908	39		562,152			(532		)	(513,085		)	48,574
Issuance of restricted stock, net of shares withheld for taxes, and other	125	—		(106		)	—			—			(106		)
Issuance of common stock from option exercises	3	—		7			—			—			7
Issuance of common stock under ESPP	119	—		562			—			—			562
Stock-based compensation expense	—	—		2,007			—			—			2,007
Net loss	—	—		—			—			(16,241		)	(16,241		)
Other comprehensive income, net of tax	—	—		—			28			—			28
Balance as of June 30, 2018	39,155	39		564,622			(504		)	(529,326		)	34,831
Issuance of restricted stock, net of shares withheld for taxes, and other	159	—		26			—			—			26
Issuance of common stock from option exercises	2	—		13			—			—			13
Stock-based compensation expense	—	—		2,303			—			—			2,303
Net loss	—	—		—			—			(14,750		)	(14,750		)
Other comprehensive income (loss), net of tax	—	—		—			(12		)	—			(12		)
Balance as of September 30, 2018	39,316	$	39	$	566,964		$	(516	)	$	(544,076	)	$	22,411

See accompanying notes

FLUIDIGM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2019			2018
Operating activities
Net loss	$	(50,078	)	$	(58,289	)	$	(52,105	)	$	(44,238	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	5,820			4,972			3,484			4,123
Stock-based compensation expense	7,097			11,033			8,292			6,057
Amortization of developed technology	8,400			8,400			8,400			8,400
Amortization of debt discounts, premium and issuance costs							2,130			5,715
Loss on extinguishment of debt							9,000			—
Loss on disposal of property and equipment							52			—
Other non-cash items	(535		)	592			(176		)	40
Changes in assets and liabilities:
Accounts receivable, net	751			12,073			3,195			(3,285		)
Inventories	2,102			(4,136		)	(2,316		)	(820		)
Prepaid expenses and other current assets	182			236			(1,660		)	(540		)
Other non-current assets	1,417			(84		)	322			622
Accounts payable	1,079			(1,443		)	605			2,054
Deferred revenue	908			515			1,592			2,053
Other current liabilities	687			(1,305		)	(6,664		)	2,035
Other non-current liabilities	(2,589		)	(972		)	(3,842		)	(6,779		)
Net cash used in operating activities	(24,759		)	(28,408		)	(29,691		)	(24,563		)
Investing activities
Purchases of investments	(1,450		)	(38,564		)	(52,719		)	(1,451		)
Proceeds from sales and maturities of investments	24,375			71,922
Proceeds from sale of investment in Verinata	—			2,330
Proceeds from maturities and sales of investments							16,000			6,541
Purchases of property and equipment	(1,388		)	(4,371		)	(2,031		)	(352		)
Net cash provided by investing activities	21,537			31,317
Net cash provided by (used in) investing activities							(38,750		)	4,738
Financing activities
Net proceeds from issuance of common stock	28,843			—
Payment of debt issuance costs							(128		)	(2,779		)
Proceeds from exercise of stock options	63			217			1,049			92
Proceeds from stock issuance from ESPP							641			562
Payments for taxes related to net share settlement of equity awards	(90		)	(90		)	(556		)	(167		)
Net cash provided by financing activities	28,816			127
Net cash provided by (used in) financing activities							1,006			(2,292		)
Effect of foreign exchange rate fluctuations on cash and cash equivalents	305			153			(5		)	(110		)
Net increase in cash and cash equivalents	25,899			3,189
Cash and cash equivalents at beginning of period	35,045			29,117
Cash and cash equivalents at end of period	$	60,944		$	32,306
Net decrease in cash, cash equivalents and restricted cash							(67,440		)	(22,227		)
Cash, cash equivalents and restricted cash at beginning of period							95,401			58,056
Cash, cash equivalents and restricted cash at end of period							$	27,961		$	35,829

See accompanying ~~notes.~~notes

FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business

Fluidigm Corporation (we, our, or us) was incorporated in the State of California in May 1999 to commercialize microfluidic technology initially developed at the California Institute of Technology. In July 2007, we were reincorporated in Delaware. Our headquarters are located in South San Francisco, California.

We create, manufacture, and market innovative technologies and life science tools, including preparatory and analytical instruments for ~~life sciences research. We sell instruments~~Mass Cytometry, PCR, Library Prep, Single Cell Genomics, and consumables, including integrated fluidic circuits ~~or IFCs,~~(IFCs), assays, and ~~reagents,~~reagents. Our focus is on the most pressing needs in translational and clinical research, including cancer, immunology and immunotherapy. We use proprietary CyTOF® and microfluidics technologies to develop innovative end-to-end solutions that have the flexibility required to meet the needs of translational research and the robustness to support high-impact clinical research studies. We sell our instruments to leading academic research institutions, translational research and medicine centers, cancer centers, clinical research laboratories, and biopharmaceutical, biotechnology and ~~agricultural biotechnology, or Ag-Bio, companies~~plant and ~~contract~~animal research organizations, or CROs. Our technologies and tools are directed at the analysis of deoxyribonucleic acid, or DNA, ribonucleic acid, or RNA, and proteins in a variety of different sample types, from individual cells to bulk tissue.

companies.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying ~~unaudited condensed~~ consolidated financial statements have been prepared in ~~accordance~~conformity with U.S. generally accepted accounting principles (U.S. GAAP) and ~~following~~include the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2016 has been derived from audited consolidated financial statements at that date but does not include all disclosures required by U.S. GAAP for complete financial statements. These financial statements have been prepared on the same basis as our annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statementaccounts of our ~~financial information. The results~~wholly owned subsidiaries. As of ~~operations for the three and nine months ended~~ September 30, ~~2017 are not necessarily indicative of~~2019, we had wholly owned subsidiaries in Singapore, Canada, the ~~results to be expected~~Netherlands, Japan, France, the United Kingdom, China, and Germany. All subsidiaries, except for Singapore, use their local currency as their functional currency. The Singapore subsidiary uses the ~~year ending December 31, 2017 or for any other interim period or for any other future year.~~U.S. dollar as its functional currency. All intercompany ~~accounts~~transactions and ~~transactions~~balances have been eliminated ~~upon~~in consolidation.

The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. On an ongoing basis, we evaluate our estimates, including critical accounting policies or estimates related to revenue recognition, income tax provisions, stock-based compensation, inventory valuation, allowances for doubtful accounts, and useful lives of long-lived assets. We base our estimates on historical experience and on various relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the accompanying notes in Item 8 of Part II, "Financial Statements and Supplementary Data," for the year ended December 31, 2016 included in our Annual Report on Form 10-K.

Certain prior period amounts in the condensed consolidated statements of cash flows ~~have been~~were reclassified to conform towith the current period presentation. These reclassifications were immaterial and did not affect ~~the~~ prior period total assets, total liabilities, stockholders' equity, total revenue, total costs and expenses, loss from operations or net loss.

Net Loss per Share

Our basic and diluted net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Restricted stock units, ~~and~~performance awards, options to purchase common stock, and shares associated with the potential conversion of our convertible notes are considered to be potentially dilutive common shares but have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive for all periods presented.

~~Table of Contents~~

~~FLUIDIGM CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

The following potentially dilutive common shares were excluded from the computation of diluted net loss per share for the three and nine months ended September 30, ~~2017~~2019, and ~~2016~~2018 because ~~they~~including them would have been anti-dilutive (in thousands):



	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Stock options, restricted stock units and performance awards	5,342	4,376	5,342	4,376
2018 Convertible Notes	—	19,036	—	19,036
2018 Convertible Notes potential make-whole shares	—	799	—	799
2014 Convertible Notes	916	916	916	916
Total	6,258	25,127	6,258	25,127

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Stock options, restricted stock units and performance awards 3,742
4,947
3,742
4,947
Convertible notes 3,598
3,598
3,598
3,598
Total 7,340
8,545
7,340
8,545

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, for the three and nine months ended September 30, ~~2017~~2019, are ~~summarized~~ as follows (in thousands):



	Foreign Currency Translation Adjustment				Net Unrealized Gain on Securities			Accumulated Other Comprehensive Loss
Balance at December 31, 2018	$	(687	)		$	—		$	(687	)
Other comprehensive income	8			—	2			10
Balance at March 31, 2019	(679		)		2			(677		)
Other comprehensive income (loss)	(9		)	—	63			54
Balance at June 30, 2019	(688		)		65			(623		)
Other comprehensive income (loss)	(121		)		(14		)	(135		)
Balance at September 30, 2019	$	(809	)		$	51		$	(758	)

Foreign Currency Translation Adjustment Net Unrealized Gain (Loss) on Securities Accumulated Other Comprehensive Loss
Balance at December 31, 2016 $ (758 ) $ (2 ) $ (760 )
Other comprehensive income 34
1
35
Balance at March 31, 2017 (724 ) (1 ) (725 )
Other comprehensive income 76
1
77
Balance at June 30, 2017 (648 ) —
(648 )
Other comprehensive (loss) income (85 ) $ 2
(83 )
Balance at September 30, 2017 $ (733 ) $ 2
$ (731 )
Revenue Recognition

~~De minimus amounts~~We generate revenue primarily from the sale of ~~unrealized gains~~our products and ~~losses~~services. Product revenue is derived from the sale of instruments and consumables, including IFCs, assays and reagents. Service revenue is derived from the sale of instrument service contracts, repairs, installation, training and other specialized product support services. We receive grants from various governmental entities to perform research and development activities over contractually defined periods. Revenue is generally recognized provided that the conditions under which the grants were provided have been ~~reclassified into~~met and any remaining performance obligations are perfunctory. Revenue is reported net of any sales, use and value-added taxes we collect from customers as required by government authorities.

We recognize revenue based on the ~~condensed consolidated statement~~amount of ~~operations for the three and nine months ended September 30, 2017. The tax effect of each component of other comprehensive income was immaterial for the three and nine months ended September 30, 2017.~~

~~Investment, at cost~~

~~In February 2013, Illumina, Inc. acquired Verinata Health, Inc. (Verinata), a privately-held company, for $350 million in cash and up~~consideration we expect to ~~an additional $100 million in milestone payments through December 2015. In March 2013, we received cash proceeds of $3.1 million~~receive in exchange for ~~our ownership interest in Verinata resulting in a gain of $1.8 million. During~~ the ~~third quarter of 2014,~~goods and services we ~~received cash proceeds of $0.3 million from the escrow account related~~transfer to the ~~acquisition.~~ customer. Our commercial arrangements typically include multiple distinct products and services, and we allocate revenue to these performance obligations based on their relative standalone selling prices. Standalone selling prices (SSP) are generally determined using observable data from recent transactions. In cases where sufficient data is not available, we estimate a product’s SSP using a cost plus a margin approach or by applying a discount to the product’s list price.

Product Revenue

We ~~recorded~~recognize product revenue at the point in time when control of the goods passes to the customer and we have an enforceable right to payment. This generally occurs either when the product is shipped from one of our facilities or when it arrives at the customer’s facility, based on the contractual terms. Customers generally do not have a unilateral right to return products after delivery. Invoices are generally issued at shipment and generally become due in 30 to 60 days.

We sometimes perform shipping and handling activities after control of the product passes to the customer. We have made an accounting policy election to account for these ~~amounts~~activities as ~~"Gain~~product fulfillment activities rather than as separate performance obligations.

Service Revenue

We recognize revenue from ~~sale~~repairs, installation, training and other specialized product support services at the point in time the work is completed. Installation and training services are generally billed in advance of ~~investment~~service. Repairs and other services are generally billed at the point the work is completed.

Revenue associated with instrument service contracts is recognized on a straight-line basis over the life of the agreement, which is generally one to three years. We believe this time-elapsed approach is appropriate for service contracts because we provide services on demand throughout the term of the agreement. Invoices are generally issued in ~~Verinata"~~advance of service on a monthly, quarterly, annual or multi-year basis. Payments made in advance of service are reported on our consolidated balance sheet as deferred revenue.

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Contract Costs

Incremental sales commission costs incurred to obtain instrument service contracts are capitalized and amortized to selling, general and administrative expense over the ~~consolidated statements~~life of ~~operations for~~ the contract, which is generally one to three years. As a practical expedient, we expense sales commissions associated with product support services that are delivered in less than one year ~~ended December 31, 2014. The final milestones related to~~as they are incurred. Sales commissions associated with the sale of ~~Verinata~~products are expensed as they are incurred.

Product Warranties

We generally provide a one-year warranty on our instruments. We accrue for estimated warranty obligations at the time of product shipment. We periodically review our warranty liability and record adjustments based on the terms of warranties provided to ~~Illumina were met in December 2015~~customers, and ~~accordingly, we~~historical and anticipated warranty claim experience. This expense is recorded ~~our share~~as a component of ~~these milestone payment obligations in the amount~~cost of $2.3 million in Gain from sale of investment in Verinata in the consolidated statement of operations for the year ended December 31, 2015. In January 2016, we received the payment of $2.3 million and it was recorded in net cash provided by investing activitiesproduct revenue in the condensed consolidated ~~statement~~statements of ~~cash flows.~~operations.

Significant Judgments

Applying the revenue recognition practices discussed above often requires significant judgment. Judgment is required when identifying performance obligations, estimating SSP and allocating purchasing consideration in multi-element arrangements and estimating the future amount of our warranty obligations. Moreover, significant judgment is required when interpreting commercial terms and determining when control of goods and services passes to the customer. Any material changes created by errors in judgment could have a material effect on our operating results and overall financial condition.

Goodwill, Intangible Assets, and Other Long-lived Assets ~~including Goodwill~~

Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Our intangible assets include developed technology, patents and licenses. The cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives.

Goodwill and intangible assets with indefinite lives are not subject to amortization but are tested for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. WeEvents or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge include, but are not limited to, declines in our stock price or market capitalization, declines in our market share or revenues, and an increase in our losses. Any impairment charges could have a material adverse effect on our operating results and net asset value in the quarter in which we recognize the impairment charge.

In evaluating our goodwill and intangible assets with indefinite lives for indications of impairment, we first conduct an assessment of qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we determine that it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we then conduct a two-step test for impairment of goodwill. In the first step, we compare the fair value of our reporting unit to its carrying value. If the fair value of our reporting unit exceeds its carrying value, goodwill is not considered impaired and no further analysis is required. If the carrying value of the reporting unit exceeds its fair value, then the second step of the impairment test must be performed in order to determine the implied fair value of the goodwill. If the carrying value of the goodwill exceeds its implied fair value, then an impairment loss equal to the difference would be recorded.

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~~FLUIDIGM CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

We evaluate our ~~finite lived intangible~~long-lived assets, including finite-lived intangibles, for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If any indicator of impairment exists, we assess the recoverability of the affected ~~intangible~~long-lived assets by determining whether the carrying value of the asset can be recovered through undiscounted future operating cash flows. If impairment is indicated, we estimate the asset’s fair value using future discounted cash flows associated with the use of the asset and adjust the carrying value of the asset accordingly.

~~Recent Accounting Changes and Accounting Pronouncements~~

~~Adoption of New Accounting Guidance~~

In July 2015, the FASB issued ASU 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory, which changed the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value. ASU 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We ~~adopted this standard in the first quarter of 2017. The adoption of this ASU~~ did not ~~have a material impact on our consolidated financial statements.~~

~~In March 2016, the FASB issued ASU 2016-09 Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU simplified several aspects~~recognize any impairment of long-lived assets for any of the accounting for share-based payments, including changing the threshold to qualify for equity classification up to the employees’ maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows of employee taxes paid when an employer withholds shares for tax-withholding purposes. We adopted this standard in the first quarter of 2017 by recording the cumulative impact of applying this guidance to retained earnings. We also elected to account for forfeitures as they occur, as permitted by ASU 2016-09. The adoption of this ASU did not have a material impact on our consolidated financial statements. See Note 9 for the impact on deferred tax assets.periods presented herein.

~~Recent Accounting Pronouncements~~

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09 regarding ASC (Topic 606) Revenue from Contracts with Customers. ASU 2014-09 provides principles for recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2016-12, issued in May 2016, provides narrow scope improvements and practical expedients related to ASU 2014-09. The improvements address completed contracts and contract modifications at transition, non-cash consideration, the presentation of sales taxes and other taxes collected from customers, and assessment of collectability when determining whether a transaction represents a valid contract. In July, 2015, the FASB amended ASU 2014-09 to defer the effective date by one year with early adoption permitted as of the original effective date. ASU 2014-09 and ASU 2016-12 will be effective for our fiscal year beginning January 1, 2018, with early adoption permitted.

We currently plan to adopt ASU 2014-09 in the first quarter of 2018, using the modified retrospective method. We have made significant progress toward completing our assessment of the impact of adopting ASU 2014-09 and are finalizing our implementation plan. While we have not completed our assessment of the impact of the new revenue recognition standard, we expect that this new standard will not have a material impact on our consolidated financial statements. We expect that the new revenue recognition standard’s broader definition of variable consideration will require us to estimate and record certain payments from customers. ASU 2014-09 requires that the transaction price received from customers be allocated to each separate and distinct performance obligation. We are evaluating whether our service plans contain separate and distinct performance obligations. If we determine that our service plans do not contain separate and distinct performance obligations, the fees we receive upfront for our service plans will be recognized as revenue ratably over the term of the service plan, which is our current practice. Under the modified retrospective method, periods prior to the adoption of ASU 2014-09 are not restated and the cumulative effect of initially applying the new standard is reflected in the opening balance of retained earnings as of January 1, 2018. Incremental disclosures are required for significant differences between the reported results under the new standard and those that would have been reported under the legacy standard. We will continue to monitor the effect of additional modifications, clarifications or interpretations issued by the FASB on our current conclusions.

Convertible Notes

In February ~~2016,~~2014, we closed an underwritten public offering of $201.3 million aggregate principal amount of our 2.75% Senior Convertible Notes due 2034 (2014 Notes). In March 2018, we entered into separate privately negotiated transactions with certain holders of our 2014 Notes to exchange $150.0 million in aggregate principal amount of the ~~FASB issued ASU 2016-02 Leases (Topic 842)~~2014 Notes for our new 2.75% Exchange Convertible Senior Notes due 2034 (2018 Notes). ~~This ASU requires lessees~~Following the exchange, approximately $51.3 million in aggregate principal amount of the 2014 Notes was outstanding in addition to ~~recognize a right-of-use asset and a lease liability on~~$150.0 million in aggregate principal amount of the ~~balance sheet for all leases with the exception of short-term leases. For lessees, leases will~~

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~continue~~2018 Notes. In the first quarter of 2019, the 2018 Notes were converted into 19.5 million shares of common stock and the 2018 Notes were retired. We recorded a loss of $9.0 million on the retirement of the 2018 Notes.

See Note 6 Convertible Notes and Credit Facility for the accounting treatment of the transactions and additional information about the exchange.

Recent Accounting Changes and Accounting Pronouncements

Adoption of New Accounting Guidance

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to berecognize operating leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as ~~either operating~~finance or ~~finance leases~~operating; the classification will impact the expense recognition in the income statement. ~~Lessor accounting under this ASU~~

Modified Retrospective Transition approach is ~~similar~~required, applying the new standard to all leases existing at the ~~current model but updated~~date of initial application. An entity may choose to ~~align with certain changes to~~use either (1) its effective date or (2) the ~~lessee model. Lessors will continue to classify leases~~beginning of the earliest comparative period presented in the financial statements as ~~operating, direct financing or sales-type leases. ASU 2016-02 will be effective for our fiscal year beginning~~its date of initial application. We adopted the new standard on January 1, 2019 and ~~early~~used the effective date of the standard as our date of initial application. Consequently, previously presented financial information has not been updated, and the disclosures required under the new standard have not been provided for dates and periods before January 1, 2019. For dates and periods prior to January 1, 2019, the original disclosures under ASC 840 are disclosed.

The new standard provides several optional practical expedients in transition. We elected the ‘package of practical expedients,’ which permits us to not reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.

On adoption, we recognized $9.2 million of lease liabilities, based on the present value of the current minimum lease payments over the lease term, discounted using our collateralized incremental borrowing rate, with corresponding ROU assets of $7.4 million. The difference between the initial lease liability and ROU asset is ~~permitted.~~attributable to deferred rent. There was no impact to retained earnings from the adoption of ASC 842.

The new standard also provides certain accounting elections for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities for leases with an initial lease term of one year or less. We have also elected to not separate lease and nonlease components for our building leases. The nonlease components are generally variable in nature and are expected to represent most of our variable lease costs. Variable costs are expensed as incurred. We have taken a portfolio approach for our vehicle leases by country.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15 Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) which establishes new guidance on the accounting for costs incurred to implement a cloud computing arrangement that is considered a service arrangement. The new guidance requires the capitalization of such costs, aligning it with the accounting for costs associated with developing or obtaining internal-use software. The new guidance is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the accounting, transition, and disclosure requirements of the standard. We have not yet determined whether we will elect early adoption of the standard and cannot currently estimate the financial statement impact of ~~adoption.~~

In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash, a consensus of the FASB’s Emerging Issues Task Force, amending the presentation of restricted cash within the statement of cash flows. The new guidance requires that restricted cash be included within cash and cash equivalents on the statement of cash flows. ASU 2016-18 will be effective for our fiscal year beginning January 1, 2018, with early adoption ~~permitted. We currently expect the adoption of this ASU will not have a material impact~~ on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU eliminates the requirement for an entity to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an entity performs its annual, or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recording an impairment charge for the amount by which the carrying amount exceeds the fair value. The ASU will be effective for annual and interim goodwill impairment testing performed for our fiscal year beginning January 1, 2020, with early adoption permitted. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements.

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The FASB issued two ASUs related to financial instruments – credit losses. The ASUs issued were: (1) in June 2016, ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and (2) in November 2018, ASU 2018-19 Codification Improvements to Topic 326, Financial Instruments—Credit Losses. ASU 2016-13 is intended to improve financial reporting by requiring more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leasing standard. These ASUs are effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption ~~of this~~permitted. We are evaluating the effect that ASU 2016‑13 and ~~cannot estimate the~~ASU 2018-19 will have on our consolidated financial ~~statement impact of adoption.~~

statements and related disclosures.

3. Revenue

Disaggregation of Revenues

The following table disaggregates our revenue for the three and nine months ended September 30, 2019, and 2018, respectively, by geographic area and by product, service and grant (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Geographic Markets:
Americas	$	11,112	$	13,654	$	35,203	$	37,008
Europe	9,092		8,783		28,465		26,365
Asia-Pacific	6,292		6,526		21,135		17,266
Total revenue	$	26,496	$	28,963	$	84,803	$	80,639

Product, Service and Grant:
Instruments	$	9,159	$	13,890	$	34,200	$	31,831
Consumables	11,507		10,352		34,528		34,665
Product revenue	20,666		24,242		68,728		66,496
Service	5,630		4,721		15,875		14,143
Grant	200		—		200		—
Total revenue	$	26,496	$	28,963	$	84,803	$	80,639

Performance Obligations

We reported $17.8 million of deferred revenue on our December 31, 2018 consolidated balance sheet. During the nine months ended September 30, 2019, $9.0 million of the opening balance was recognized as revenue and $10.6 million of net additional advance payments were received from customers, primarily associated with instrument service contracts. At September 30, 2019, we reported $19.4 million of deferred revenue.

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following table summarizes the expected timing of revenue recognition for unfulfilled performance obligations associated with instrument service contracts that were partially completed at September 30, 2019 (in thousands):



	Expected Revenue ⁽¹⁾
2019 (remainder of the year)	$	3,417
2020	8,425
2021	5,052
Thereafter	4,110
	$	21,004

_______

⁽¹⁾Expected revenue includes both billed amounts included in deferred revenue and unbilled amounts that are not reflected in our consolidated financial statements and are subject to change if our customers decide to cancel or modify their contracts. Purchase orders for instrument service contracts can generally be canceled before the service period begins without penalty.

We apply the practical expedient that permits us to not disclose information about unsatisfied performance obligations that are expected to be delivered within one year.

Contract Costs

We reported $0.4 million of capitalized commission costs from instrument service contracts at September 30, 2019 and December 31, 2018 in the condensed consolidated balance sheets.

4. Goodwill and Intangible Assets, net

In connection with our acquisition of DVS Sciences, Inc. (DVS) in February 2014, we recognized goodwill of $104.1 million. Intangible assets include developed technology related to the DVS acquisition and other intangible assets and are included in other non-current assets.

Intangible assets, net, were as follows (in thousands):



	September 30, 2019
	Gross Amount		Accumulated Amortization			Net		Weighted-Average Amortization Period
Developed technology	$	112,000	$	(63,000	)	$	49,000	10.0 years
Patents and licenses	$	11,274	$	(7,640	)	$	3,634	7.8 years



	December 31, 2018
	Gross Amount		Accumulated Amortization			Net		Weighted-Average Amortization Period
Developed technology	$	112,000	$	(54,600	)	$	57,400	10.0 years
Patents and licenses	$	11,274	$	(6,861	)	$	4,413	7.8 years

Amortization of intangibles was $3.0 million and $3.1 million for the three months ended September 30, 2019, and 2018, respectively. Amortization of intangibles was $9.2 million and $9.3 million for the nine months ended September 30, 2019, and 2018, respectively.

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Based on the carrying value of intangible assets, net, as of September 30, 2019, the annual amortization expense is expected to be as follows (in thousands):



Fiscal Year	Developed Technology Amortization Expense		Patents and Licenses Amortization Expense		Total
2019 (remainder of the year)	$	2,800	$	260	$	3,060
2020	11,200		1,042		12,242
2021	11,200		887		12,087
2022	11,200		804		12,004
2023	11,200		634		11,834
Thereafter	1,400		7		1,407
Total	$	49,000	$	3,634	$	52,634

5. Balance Sheet Details

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash consisted of the following (in thousands):



	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	25,886	$	95,401
Restricted cash	2,075		—
Cash, cash equivalents and restricted cash	$	27,961	$	95,401

Short-term restricted cash of approximately $1.1 million is included in prepaid expenses and other current assets, and $1.0 million of non-current restricted cash is included in other non-current assets in the condensed consolidated balance sheet.

Inventories

Inventories consisted of the following (in thousands):



	September 30, 2019		December 31, 2018
Raw materials	$	7,504	$	5,996
Work-in-process	319		650
Finished goods	7,175		6,357
Total inventories, net	$	14,998	$	13,003

Property and Equipment, net

Property and equipment, net, consisted of the following (in thousands):



	September 30, 2019			December 31, 2018
Computer equipment and software	$	3,898		$	4,201
Laboratory and manufacturing equipment	18,935			18,780
Leasehold improvements	7,663			7,173
Office furniture and fixtures	1,860			1,506
Property and equipment, gross	32,356			31,660
Less accumulated depreciation and amortization	(23,967		)	(22,855		)
Construction-in-progress	7			20
Property and equipment, net	$	8,396		$	8,825

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Warranty

We accrue for estimated warranty obligations once revenue is recognized. Management periodically reviews the estimated fair value of its warranty liability and records adjustments based on the terms of warranties provided to customers, as well as historical and anticipated warranty claim experience. Activity for our warranty accrual for the three and nine months ended September 30, 2019, and 2018, which is included in other accrued liabilities, is summarized below (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Beginning balance	$	1,091		$	608		$	863		$	699
Accrual for warranties	255			458			912			1,195
Warranty costs incurred	(239		)	(325		)	(668		)	(1,153		)
Ending balance	$	1,107		$	741		$	1,107		$	741

6. Convertible Notes and Credit Facility

2014 Senior Convertible Notes (2014 Notes)

OnIn February 4, 2014, we closed an underwritten public offering of $201.3 million aggregate principal amount of our 2.75% Senior Convertible Notes due 2034 ~~(Notes)~~(2014 Notes), pursuant to an underwriting agreement dated January 29, 2014. The 2014 Notes accrue interest at a rate of 2.75% per year, payable semi-annually in arrears on February 1 and August 1 of each year. Interest on the 2014 Notes accrued from February 4, 2014. The 2014 Notes will mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the 2014 Notes.

The initial conversion rate of the 2014 Notes is 17.8750 shares of our common stock, par value $0.001 per share, per $1,000 principal amount of 2014 Notes (which is equivalent to an initial conversion price of approximately $55.94 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified ~~events.~~ events, including upon a conversion in connection with a fundamental change, as defined in the indenture governing the 2014 Notes or, subject to certain conditions, redemption of the 2014 Notes by the Company.

Holders may surrender their 2014 Notes for conversion at any time prior to the stated maturity date. On or after February 6, 2018, and prior to February 6, 2021, we may redeem any or all of the 2014 Notes in cash if the closing price of our common stock exceeds 130% of the conversion price for a specified number of days, and on or after February 6, 2021, we may redeem any or all of the 2014 Notes in cash without any such condition. The redemption price of the 2014 Notes will equal 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest. Holders may require us to repurchase all or a portion of their 2014 Notes on each of February 6, 2021, February 6, 2024, and February 6, 2029, at a repurchase price in cash equal to 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest. If we undergo a fundamental change, as defined in the ~~terms of~~indenture governing the 2014 Notes, holders may require us to repurchase the 2014 Notes in whole or in part for cash at a repurchase price equal to 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest.

In February 2014, we received $195.2 million, net of underwriting discounts, from the issuance of the 2014 Notes and incurred approximately $1.1 million in offering-related expenses. The underwriting discount of $6.0 million and the debt issuance costs of $1.1 million were recorded as offsets to the proceeds.

2018 Senior Convertible Notes (2018 Notes)

In ~~February~~March 2018, we entered into separate privately negotiated transactions with certain holders of our 2014 ~~we used $113.2~~Notes to exchange $150.0 million in aggregate principal amount of the ~~net proceeds to fund~~2014 Notes for new convertible notes (2018 Notes). The 2018 Notes were subsequently retired in the ~~cash portion~~first quarter of 2019 as discussed below.

As of the ~~consideration payable by us in connection with our acquisition~~closing of ~~DVS Sciences, Inc. (now Fluidigm Sciences Inc.). Interest expense related~~the 2018 Notes on March 12, 2018, the estimated fair value was $145.5 million. The difference between the $150.0 million aggregate principal amount of the 2018 Notes and its fair value was amortized over the expected term of the 2018 Notes using the effective interest method through the first note holder put date of February 6, 2023.

We accounted for the exchange transaction as an extinguishment of debt due to the Notes was approximately $1.5 million for both the three months ended September 30, 2017 and 2016, respectively. Interest expense related to the Notes was $4.4 million approximately for both the nine months ended September 30, 2017 and 2016, respectively. Approximately $2.8 million of interest under the Notes became due and was paid during eachsignificance of the ~~nine months ended September 30, 2017 and 2016, respectively.~~

~~The carrying values~~change in value of the ~~components~~embedded conversion option, resulting in a $0.1 million gain. The gain on extinguishment of the 2014 Notes ~~are~~exchanged was calculated as ~~follows (in thousands):~~the difference between the reacquisition price (i.e., the fair value of the principal amount of 2018 Notes) and the net carrying value of the 2014 Notes exchanged, net of unamortized debt discount and debt issuance cost write-offs.

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The 2018 Notes accrued interest at a rate of 2.75%, payable semi-annually in arrears on February 1 and August 1 of each year. Interest on the 2018 Notes accrued from February 1, 2018. The 2018 Notes were set to mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the indenture governing the 2018 Notes. The initial conversion rate of the 2018 Notes was 126.9438 shares of our common stock, par value $0.001 per share, per $1,000 principal amount of the 2018 Notes (which is equivalent to an initial conversion price of approximately $7.88 per share). The conversion rate was subject to adjustment upon the occurrence of certain specified events. One of those specified events was that Holders who converted their 2018 Notes voluntarily prior to our exercise of the Issuer's Conversion Option were entitled, under certain circumstances, to a make-whole premium in the form of an increase in the conversion rate determined by reference to a make-whole table set forth in the indenture governing the 2018 Notes. Any time prior to the maturity of the 2018 Notes, we had the ability to convert the 2018 Notes, in whole but not in part, into cash, shares of our common stock, or combination thereof, if the closing price of our common stock equaled or exceeded 110% of the conversion price then in effect for a specified number of days (Issuer’s Conversion Option). On or after February 6, 2022, we would have been able to elect to redeem all or any portion of the 2018 Notes at a redemption price equal to 100% of the accreted principal amount of the 2018 Notes on the redemption date of the 2018 Notes, plus accrued and unpaid interest.

Holders of the 2018 Notes had the right, at their option, to require us to purchase all or a portion of the 2018 Notes (i) on February 6, 2023, February 6, 2026, and February 6, 2029, or (ii) in the event of a fundamental change, as defined in the indenture governing the 2018 Notes, in each case, at a repurchase price equal to 100% of the accreted principal amount (i.e., up to 120% of the outstanding principal amount) of the 2018 Notes on the fundamental change repurchase date, plus accrued and unpaid interest.

As the 2018 Notes were convertible, at our election, into cash, shares of our common stock, or a combination of cash and shares of our common stock, we accounted for the 2018 Notes under the cash conversion guidance in ASC 470, whereby the embedded conversion option in the 2018 Notes was separated and accounted for in equity. The embedded conversion option value was calculated as the difference between (i) the total fair value of the 2018 Notes and (ii) the fair value of a similar debt instrument excluding the embedded conversion option. We determined an embedded conversion option value of $29.3 million, which was recorded in additional paid-in-capital and reduced the carrying value of the 2018 Notes. The resulting discount on the 2018 Notes was amortized over the expected term of the 2018 Notes, using the effective interest method through the first note holder put date, of February 6, 2023.

Offering-related costs for the 2018 Notes were approximately $2.8 million and were paid in the first and second quarters of 2018. Offering-related costs of $2.2 million were capitalized as debt issuance costs, recorded as an offset to the carrying value of the 2018 Notes, and are amortized over the expected term of the 2018 Notes using the effective interest method through the first note holder put date of February 6, 2023. Offering-related costs of $0.6 million were accounted for as equity issuance costs, recorded as an offset to additional paid-in capital, and are not subject to amortization. Offering-related costs were allocated between debt and equity in the same proportion as the allocation of the 2018 Notes between debt and equity.

In the first quarter of 2019, we received notices from holders of the 2018 Notes electing to voluntarily convert approximately $138.1 million in aggregate principal amount of the 2018 Notes. In February 2019, we notified U.S. Bank National Association (the Trustee) of our intention to exercise our Issuer’s Conversion Option with respect to the remaining approximately $11.9 million in aggregate principal amount of 2018 Notes. In total, $150.0 million of the 2018 Notes were converted into 19.5 million shares of our common stock and the bonds were retired. We recognized a loss of $9.0 million, which represents the difference between the fair value of the bonds retired and their carrying costs. The net impact on equity was $133.3 million and represents the fair value of the bonds retired.

September 30, 2017 December 31, 2016
Principal amount of Notes $ 201,250
$ 201,250
Unamortized debt discount (5,148 ) (5,330 )
Unamortized debt issuance cost (936 ) (969 )
Net carrying value of convertible notes $ 195,166
$ 194,951

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~4. Intangible Assets, net~~

~~Intangible assets include developed technology related to~~The carrying values of the ~~DVS acquisition~~components of the 2014 Notes and ~~other intangible assets included in Other non-current assets. Intangible assets, net were~~the 2018 Notes are as follows (in thousands):



	September 30, 2019			December 31, 2018
2.75% 2014 Notes due 2034
Principal amount	$	51,250		$	51,250
Unamortized debt discount	(1,182		)	(1,232		)
Unamortized debt issuance cost	(215		)	(224		)
	$	49,853		$	49,794
2.75% 2018 Notes due 2034
Principal amount	$	—		$	149,999
Premium accretion	—			3,755
Unamortized debt discount	—			(29,558		)
Unamortized debt issuance cost	—			(1,932		)
	$	—		$	122,264
	$	49,853		$	172,058

September 30, 2017
Gross Amount Accumulated Amortization Net Weighted-Average Amortization Period
Developed technology $ 112,000
$ (40,600 ) $ 71,400
10.0 years
Patents and licenses 11,274
(5,420 ) 5,854
7.9 years
Total intangible assets, net $ 123,274
$ (46,020 ) $ 77,254

2018 Revolving Credit Facility

In August 2018, the Company entered into a revolving credit facility with Silicon Valley Bank (the Revolving Credit Facility) in an aggregate principal amount of up to the lesser of (i) $15.0 million (Maximum Amount) or (ii) the sum of (a) 85% of our eligible receivables and (b) 50% of our eligible inventory, in each case, subject to certain limitations (Borrowing Base), provided that the amount of eligible inventory that may be counted towards the Borrowing Base shall be subject to a cap as set forth in the Revolving Credit Facility. Subject to the level of this borrowing base, the Company may make and repay borrowings from time to time until the maturity of the revolving credit facility. As of September 30, 2019, availability under the revolving credit facility was $9.0 million. There were 0 borrowings outstanding under the Revolving Credit Facility at September 30, 2019.

The Revolving Credit Facility matures on August 2, 2020 and is collateralized by substantially all the Company’s property, other than intellectual property. Loans under the Revolving Credit Facility will bear interest, at the greater of (i) prime rate plus 0.50% or (ii) 5.50%. Interest on any outstanding loans is due and payable monthly and the principal balance is due at maturity though loans can be prepaid at any time without penalty. In addition, the Company pays a quarterly unused revolving line facility fee of .75% per annum on the average unused facility.

December 31, 2016
Gross Amount Accumulated Amortization Net Weighted-Average Amortization Period
Developed technology $ 112,000
$ (32,200 ) $ 79,800
10.0 years
Patents and licenses 11,224
(4,533 ) 6,691
7.9 years
Total intangible assets, net $ 123,224
$ (36,733 ) $ 86,491

Subject to certain exceptions, the Company must pay a prepayment fee equal to (i) 2.00% of the Maximum Amount if it prepays all advances and terminates the Loan Agreement prior to August 2, 2019, or (ii) 1.00% of the Maximum Amount if it prepays all advances and terminates the Loan Agreement on or after August 2, 2019, and prior to the maturity date.

InThe Company incurred approximately $335,000 of debt issuance costs in connection with the ~~acquisition~~facility, including $225,000 in commitment fees. Half of ~~DVS in February 2014, we acquired developed technology with a gross fair value~~the commitment fee was paid at the inception of ~~$112.0 million. These acquired intangible assets~~the facility and the remainder paid on August 2, 2019. Debt issuance costs were capitalized and are being amortized to ~~cost of product revenue~~interest expense over ~~their useful~~the life of ~~ten years. Related amortization~~the Revolving Credit Facility.

The Revolving Credit Facility contains customary affirmative and negative covenants which, unless waived by the bank, limit the Company’s ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets, enter into affiliate transactions, undergo a change of control, or engage in merger and acquisition activity, including merging or consolidating with a third party. The Revolving Credit Facility also contains customary events of default, subject to customary cure periods for certain defaults, that include, among other things, non-payment defaults, covenant defaults, material judgment defaults, bankruptcy and insolvency defaults, cross-defaults to certain other material indebtedness, and defaults due to inaccuracy of representation and warranties. Upon an event of default, the ~~three~~lender may declare all or a portion of the outstanding obligations payable by the Company to be immediately due and ~~nine months ended~~payable and exercise other rights and remedies provided for under the Revolving Credit Facility. During the existence of an event of default, interest on the obligations under the Revolving Credit Facility could be increased to 5.0% above the otherwise applicable rate of interest. The Company was in compliance with all the terms and conditions of the Revolving Credit Facility at September 30, ~~2017 was $2.8 million and $8.4 million, respectively. Related amortization for the three and nine months ended September 30, 2016 was $2.8 million and $8.4 million, respectively.~~2019.

~~Based on the carrying value of intangible assets as of September 30, 2017, the annual amortization expense for intangible assets is expected to be as follows (in thousands):~~

Fiscal Year Amortization Expense
2017 (remainder of the year) $ 3,100
2018 12,334
2019 12,243
2020 12,243
2021 12,087
Thereafter 25,247
$ 77,254

~~5. Balance Sheet Details~~

~~Inventories~~

~~Inventories consist of the following (in thousands):~~

September 30, 2017 December 31, 2016
Raw materials $ 8,336
$ 8,919
Work-in-process 1,316
1,742
Finished goods 8,094
9,453
Total inventories, net $ 17,746
$ 20,114

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~Property~~7. Leases

We have operating leases for buildings, equipment and ~~Equipment, net~~vehicles. Existing leases have remaining terms of less than 1 year to 8 years. Some leases contain options to extend the lease, usually for up to 5 years, and termination options.

~~Property and equipment,~~Operating lease right-of-use assets, net, consisted of the following (in thousands):



	September 30, 2019
	Gross Amount		Accumulated Amortization			Net
Operating lease right-of-use buildings	$	6,041	$	(971	)	$	5,070
Operating lease right-of-use equipment	68		(26		)	42
Operating lease right-of-use vehicles	344		(104		)	240
Total	$	6,453	$	(1,101	)	$	5,352

September 30, 2017 December 31, 2016
Computer equipment and software $ 5,831
$ 5,497
Laboratory and manufacturing equipment 25,051
23,670
Leasehold improvements 8,304
8,747
Office furniture and fixtures 2,119
2,084
Property and equipment, gross 41,305
39,998
Less accumulated depreciation and amortization (28,002 ) (24,084 )
Construction-in-progress 32
611
Property and equipment, net $ 13,335
$ 16,525

~~Warranty~~

In the first half of 2019, we entered into a new operating lease for our corporate headquarters in South San Francisco, California which is expected to commence in early 2020. The lease term is approximately 10 years. We ~~accrue for estimated warranty obligations at the time~~expect to recognize a right-of-use asset and lease liability of ~~product shipment. Management periodically reviews the estimated fair value of its warranty liability and records adjustments~~approximately $47.4 million, based on ~~the terms~~our current incremental collateralized borrowing rate, as a result of ~~warranties provided~~this lease.



(in thousands)	Nine Months Ended September 30, 2019
Operating lease cost (including variable costs)	$	4,660
Variable costs including non-lease component	$	2,051

Supplemental information:
Cash paid for amounts included in the measurement of operating lease liabilities (included in net cash used in operating activities)
Operating cash flows from operating leases	$	3,068

	September 30, 2019
Weighted average remaining lease term (in years)	4.6

Weighted average discount rate	5.1		%

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Future minimum lease payments and minimum sublease income under non-cancelable operating leases as of September 30, 2019, were as follows (in thousands):



Fiscal Year	Minimum Lease Payments for Operating Leases			Minimum Sublease Income			Net Amount
2019 (remainder of the year)	$	996		$	(132	)	$	864
2020	1,956			(131		)	1,825
2021	1,267			—			1,267
2022	932			—			932
2023	720			—			720
Thereafter	1,800			—			1,800
Total future minimum payments (income)	$	7,671		$	(263	)	$	7,408
Less: imputed interest	(849		)
Total	$	6,822

September 30, 2019
Operating lease liabilities, current	$	2,363
Operating lease liabilities, non-current	4,459
Total	$	6,822

Disclosures related to ~~customers, historical~~periods prior to adoption of ASC 842

Operating lease rent expense, net of amortization of lease incentives and ~~anticipated warranty claim experience. Activity for our warranty accrual~~sublease income was $1.2 million and $3.6 million for the three and nine months ended September 30, ~~2017~~2018, respectively for the prior year comparative periods before the adoption of ASC 842.

As of December 31, 2018, future minimum lease payment obligations and ~~2016, which is included in other accrued liabilities, is summarized below~~minimum sublease income, net of expenses, under noncancelable operating leases before the adoption of ASC 842 were disclosed as follows (in thousands):



Fiscal Year	Minimum Lease Payments for Operating Leases		Minimum Sublease Income			Net Amount
2019	$	4,184	$	(520	)	$	3,664
2020	2,213		(164		)	2,049
2021	1,245		—			1,245
2022	827		—			827
2023	552		—			552
Thereafter	1,241		—			1,241
Total future minimum payments (income)	$	10,262	$	(684	)	$	9,578

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Beginning balance $ 706
$ 1,046
$ 1,023
$ 1,076
Accrual for current period warranties 287
200
474
488
Warranty costs incurred (300 ) (360 ) (804 ) (678 )
Ending balance $ 693
$ 886
$ 693
$ 886

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

8. Fair Value of Financial Instruments

The following tables summarize our cash and available-for-sale securities by significant category within the fair value hierarchy (in thousands):


	September 30, 2017												September 30, 2019
	Carrying Amount		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Cash- Restricted
Assets:
Cash	$	14,474	$	—	$	—	$	14,474	$	14,474	$	—
Cash-non-restricted													$	14,053	$	—	$	—	$	14,053	$	14,053	$	—	$	—
Cash-restricted													2,075		—		—		2,075		—		—		2,075
Total cash													$	16,128	$	—	$	—	$	16,128	$	14,053	$	—	$	2,075
Available-for-sale:
Level I:
Money market funds	21,085		—		—		21,085		21,085		—		$	11,833	$	—	$	—	$	11,833	$	11,833	$	—	$	—
U.S. treasury securities	14,297		1		—		14,298		14,298		—		36,825		50		—		36,875		—		36,875		—
Subtotal	35,382		1		—		35,383		35,383		—		$	48,658	$	50	$	—	$	48,708	$	11,833	$	36,875	$	—
Level II:
U.S. government and agency securities	12,516		1		—		12,517		11,087		1,430
Total	$	62,372	$	2	$	—	$	62,374	$	60,944	$	1,430	$	64,786	$	50	$	—	$	64,836	$	25,886	$	36,875	$	2,075



	December 31, 2018
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities
Assets:
Cash	$	17,685	$	—	$	—	$	17,685	$	17,685	$	—
Available-for-sale:
Level I:
Money market funds	$	77,716	$	—	$	—	$	77,716	$	77,716	$	—
U.S. treasury securities	—		—		—		—		—		—
Subtotal	$	77,716	$	—	$	—	$	77,716	$	77,716	$	—
Total	$	95,401	$	—	$	—	$	95,401	$	95,401	$	—

~~Table of Contents~~

~~FLUIDIGM CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

December 31, 2016
Carrying Amount
Gross
Unrealized
Gain

Gross
Unrealized
Loss
Fair Value Cash and Cash Equivalents Short-Term Marketable Securities
Assets:
Cash $ 13,984
$ —
$ —
$ 13,984
$ 13,984
$ —
Available-for-sale:
Level I:
Money market funds 21,061
—
—
21,061
21,061
—
Level II:
U.S. government and agency securities 24,388
1
(4 ) 24,385
—
24,385
Total $ 59,433
$ 1
$ (4 ) $ 59,430
$ 35,045
$ 24,385

There were no transfers between Level I and Level II measurements during the nine months ended September 30, ~~2017~~2019, and ~~2016,~~December 31, 2018, and there were no changes in the valuation techniques used.

~~The contractual maturity periods of $1.4 million of our marketable debt securities are within one year from September 30, 2017.~~

None of our available-for-sale securities have been in a continuous loss position for more than 12 months. We concluded that the declines in market value of our available-for-sale securities investment portfolio were temporary in nature and did not consider any of our investments to be other-than-temporarily impaired.

Convertible Notes

The estimated fair value of the ~~Convertible~~2014 and 2018 Notes is based on a market approach ~~(See Note 3). The estimated fair value was approximately $147.2 million and $139.7 million (par value $201.3 million) as of September 30, 2017 and December 31, 2016, respectively,~~ and represents a Level II valuation. When determining the estimated fair value of our long-term debt, we used a commonly accepted valuation methodology and market-based risk measurements that are indirectly observable, such as credit risk.

The following table summarizes the par value, carrying value and the estimated fair value of the 2014 and 2018 Notes at September 30, 2019 and December 31, 2018, respectively (in thousands):



	September 30, 2019						December 31, 2018
	Par Value		Carrying Value		Fair Value		Par Value		Carrying Value		Fair Value
2014 Notes	$	51,250	$	49,853	$	49,713	$	51,250	$	49,794	$	43,665
2018 Notes	—		—		—		149,999		122,264		171,843
Total	$	51,250	$	49,853	$	49,713	$	201,249	$	172,058	$	215,508

~~7. Commitments and Contingencies~~

~~Operating Leases~~

We have entered into various long-term non-cancelable operating lease agreements for equipment and facilities expiring at various times through 2026. We leased office space under non-cancelable leases in the United States, Canada, Singapore, Japan, China, France and United Kingdom, with various expiration dates through March 2026. Certain facility leases also contain rent escalation clauses. Our lease payments are expensed on a straight-line basis over the life of the leases. Rental expense under operating leases, net of amortization of lease incentives and sublease income for the three and nine months ended September 30, 2017 was $1.2 million and $3.8 million, respectively. Rental expense, net of amortization of lease incentive and sublease income for the three and nine months ended September 30, 2016 was $1.5 million and $4.9 million, respectively.

~~Future minimum lease payments and minimum sublease income under non-cancelable operating leases as of September 30, 2017 are as follows (in thousands):~~

Fiscal Year Minimum Lease Payments Minimum Sublease Income
2017 (remainder of the year) $ 1,123
$ (264 )
2018 4,229
(741 )
2019 4,132
(523 )
2020 2,158
(181 )
2021 1,265
—
Thereafter 2,815
—
Total $ 15,722
$ (1,709 )

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~Indemnifications~~9. Shareholders’ Equity

Conversion of 2018 Notes

In the first quarter of 2019, we issued 19,460,260 shares of our common stock in connection with the conversion of our 2018 Notes (see Note 6). As a result of this issuance of common stock, we recorded a total of $133.3 million of equity, which is equivalent to the fair value of the bonds retired.

10. Stock-Based Plans

Our board of directors sets the terms, conditions, and restrictions related to our Employee Stock Purchase Plan (ESPP) and the grant of stock options, restricted stock units (RSU) and performance-based awards under our other equity incentive plans. Our board of directors determines the number of shares subject to award grants and also sets vesting criteria.

In general, our RSUs vest on a quarterly basis over a period of four years from the date of grant at a rate of 25% on the first anniversary of the grant date and ratably each quarter over the remaining 12 quarters, subject to the recipient employee’s continued employment. We may grant RSU awards with different vesting terms from time to time.

Incentive stock options and non-statutory stock options granted under the 2011 Plan have a term of no more than ten years from the date of grant and an exercise price of at least 100% of the fair market value of the underlying common stock on the date of grant. If a participant owns stock representing more than 10% of the voting power of all classes of our stock on the grant date, an incentive stock option awarded to the participant will have a term of no more than five years from the date of grant and an exercise price of at least 110% of the fair market value of the underlying common stock on the date of grant. Generally, our options vest at a rate of either 25% on the first anniversary of the option grant date and ratably each month over the remaining period of 36 months, or ratably each month over 48 months. We may grant options with different vesting terms from time to time.

For performance-based share awards, our board of directors sets the performance objectives and other vesting provisions in determining the number of shares or value of performance units and performance shares that will be paid out. Such payout will be a function of the extent to which performance objectives or other vesting provisions have been achieved.

2011 Equity Incentive Plan

In January 2011, our board of directors adopted the 2011 Equity Incentive Plan (2011 Plan) under which incentive stock options, non-statutory stock options, RSUs, stock appreciation rights, performance units, and performance shares may be granted to our employees, directors, and consultants. In April 2019, our board of directors authorized, and in June 2019, our stockholders approved, the amendment and restatement of the 2011 Plan to make various changes, including increasing the number of shares reserved for issuance by approximately 5.0 million shares and extending the term of the 2011 Plan until April 2029.

2009 Equity Incentive Plan and 1999 Stock Option Plan

Our 2009 Equity Incentive Plan (2009 Plan) terminated on the date the 2011 Plan was adopted. Options granted and shares issued under the 2009 Plan that were outstanding on the date the 2011 Plan became effective remained subject to the terms of the 2009 Plan.

2017 Inducement Award Plan

In January 2017, we adopted the Fluidigm Corporation 2017 Inducement Award Plan (Inducement Plan) and reserved 2 million shares of our common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan provided for the grant of equity-based awards and its terms were substantially similar to the 2011 Plan. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the Inducement Plan could only be made to individuals not previously our employees or non-employee members of our board of directors (or following such individuals' bona fide period of non-employment), as an inducement material to the individuals' entry into employment with us or in connection with a merger or acquisition, to the extent permitted by Rule 5635(c)(3) of the Nasdaq Listing Rules. In June 2019, concurrently with the increase in shares available for grant under the 2011 Plan, the Inducement Plan was terminated such that no further grants could be made thereunder. Options granted and shares issued under the Inducement Plan that were outstanding upon such termination remain outstanding subject to their terms and the terms of the Inducement Plan.

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Valuation and Expense Information

We use the Black-Scholes option-pricing model to estimate the fair value of stock options granted under our equity incentive plans. We grant stock options at exercise prices not less than the fair value of our common stock at the date of grant. The fair value of RSUs granted to employees is valued using the fair market value of our common stock on the grant date.

Activity under the 2011 Plan, the 2009 Plan, the 1999 Plan, and the Inducement Plan is as follows:

Restricted Stock Units:



	Number of Units (in 000s)	Weighted-Average Grant Date Fair Value per Unit
Balance as of December 31, 2018	1,812	$	7.09
RSU granted	1,638	$	8.59
RSU released	(525)	$	8.30
RSU forfeited	(284)	$	7.97
Balance as of September 30, 2019	2,641	$	7.69

As of September 30, 2019, the unrecognized compensation costs related to outstanding unvested RSUs under our equity incentive plans were $17.4 million. We expect to recognize these costs over a weighted average period of 3.3 years.

Stock Options:



	Number of Options (000s)		Weighted-Average Exercise Price per Option		Weighted- Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value in (000s)
Balance as of December 31, 2018	2,385		$	7.56	7.8	$	5,991
Options granted	50		$	13.08		$	—
Options exercised	(185	)	$	5.73		$	1,147
Options forfeited	(164	)	$	9.56		$	—
Balance as of September 30, 2019	2,086		$	7.69	7.1	$	244
Vested as of September 30, 2019	1,264		$	8.71	6.4	$	190
Expected to vest as of September 30, 2019	822		$	6.13	8.2	$	54

The average grant date fair value of options granted in 2019 was $7.17. As of September 30, 2019, the unrecognized compensation costs related to outstanding unvested options under our equity incentive plans were $2.8 million. We expect to recognize these costs over a weighted average period of 2.0 years.

Performance-based Awards:

Performance Stock Units

During the nine months ended September 30, 2019, we granted 400,839 performance stock units to certain executive officers and senior level employees. The number of performance stock units ultimately earned under these awards is calculated based on the Total Shareholder Return (TSR) of our common stock as compared to the TSR of a defined group of peer companies during the three-year performance period. The percentage of performance stock units that vest will depend on our relative position at the end of the performance period and can range from 0% to 200% of the number of units granted.

Under FASB ASC Topic 718, the provisions of the performance stock unit awards related to TSR are considered a market condition, and the effects of that market condition should be reflected in the grant date fair value of the awards. We used a Monte Carlo simulation pricing model to incorporate the market condition effects at our grant date with a weighted-average fair value of $16.90 per unit.

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FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Activity under the performance stock units is as follows:



	Number of Units (in 000s)		Weighted-Average Grant Date Fair Value per Unit
Balance as of December 31, 2018	155		$	10.09
PSU granted	401		$	16.90
PSU released	—		$	—
PSU forfeited	(9	)	$	10.09
Balance as of September 30, 2019	547		$	15.09

As of September 30, 2019, the unrecognized compensation costs related to these awards were $6.2 million. We expect to recognize these costs over a weighted average period of 2.3 years.

During the three and nine months ended September 30, 2019, we also granted performance stock units to a certain employee. The number of performance stock units that ultimately vest under these awards is dependent on achieving certain discrete operational milestones between September 30, 2019 and December 31, 2020. Activity under these performance stock units is as follows:



	Number of Units (in 000s)	Weighted-Average Grant Date Fair Value per Unit
Balance as of December 31, 2018	—	$	—
PSU granted	68	$	7.05
PSU released	—	$	—
PSU forfeited	—	$	—
Balance as of September 30, 2019	68	$	7.05

Under FASB ASC Topic 718, the provisions of these performance stock units are considered to be a performance condition, and expense is only recognized when it is probable the related milestone will be achieved and the awards will vest. As of September 30, 2019, the expense recognized for these awards has been immaterial.

2017 Employee Stock Purchase Plan

Our ESPP offers U.S. and some non-U.S. employees the right to purchase shares of our common stock. Prior to June 2019, our ESPP had a six-month offering period, with a new period commencing on the first trading day on or after May 31 and November 30 of each year. Employees were eligible to participate through payroll deductions of up to 10% of their compensation. The purchase price at which shares were sold under the ESPP was 85% of the lower of the fair market value of a share of our common stock on the first day of the offering period or the last day of the offering period.

Effective in June 2019, our ESPP was amended to offer a twelve-month offering period with 2 six-month purchase periods beginning on each of May 31 and November 30. Under the updated plan, the purchase price at which shares are sold for the first purchase period is 85% of the lower of the fair market value of a share of our common stock on the first day of the offering period or the last day of the first purchase period. For the second purchase period, the purchase price at which shares are sold is 85% of the lowest of the fair value of the common stock on the first day of the offering period, the last day of the offering period or the fair value of the common stock at the beginning of the second purchase period. Employees are eligible under the amended plan to participate through payroll deductions of up to 15% of their compensation. Employees may not purchase more than $25 thousand of stock for any calendar year.

Table of Contents

FLUIDIGM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Share-based Compensation

We recognized share-based compensation expense as follows (in thousands):



	Three Months Ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Options and Restricted Stock Units	$	2,738	$	2,185	$	7,731	$	5,699
Employee Stock Purchase Plan	291		118		561		358
Total Share-based Compensation	$	3,029	$	2,303	$	8,292	$	6,057

11. Income Taxes

The Company’s quarterly provision for income taxes is based on an estimated effective annual income tax rate. The Company’s quarterly provision for income taxes also includes the tax impact of certain unusual or infrequently occurring items, if any, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.

The Company recorded a tax benefit of $1.2 million and $2.3 million for the three and nine months ended September 30, 2019, respectively. We recorded a tax benefit of $0.8 million and $2.2 million for the three and nine months ended September 30, 2018, respectively. The benefit for all periods was primarily attributable to the tax benefit from the amortization of our acquisition-related deferred tax liability, partially offset by a provision from our foreign operations.

The Company’s tax benefit for income taxes for the periods presented differs from the 21% U.S. Federal statutory rate for the three and nine months ended September 30, 2019 and 2018, respectively, primarily due to maintaining a valuation allowance for deferred tax assets, which primarily consist of net operating loss carryforwards.

Tax positions taken by the Company are subject to audits by multiple tax jurisdictions. The Company believes that it has provided adequate reserves for its uncertain tax positions for all tax years still open for assessment. The Company also believes that it does not have any tax position that will significantly increase or decrease within the next year. For the nine months ended September 30, 2019, the Company did not recognize any material interest or penalties related to uncertain tax positions.

Recording deferred tax assets is appropriate when realization of these assets is more likely than not. Assessing the realizability of deferred tax assets is dependent upon several factors including historical financial results. The deferred tax assets have been offset by valuation allowances. In the future we may release valuation allowances and recognize deferred tax assets in certain of our foreign subsidiaries depending on the achievement of future profitability in the relevant jurisdictions. Any release of valuation allowances could have the effect of decreasing the income tax provision in the period the valuation allowance is released. We continue to monitor the likelihood that we will be able to recover our deferred tax assets, including those for which a valuation allowance is recorded. There can be no assurance that we will generate profits in the future periods enabling us to fully realize our deferred tax assets. The timing of recording a valuation allowance or the reversal of such valuation allowance is subject to objective and subjective factors that cannot be readily predicted in advance.

12. Information about Geographic Areas

We operate in 1 reporting segment that develops, manufacturers and commercializes tools for life sciences research. Our chief executive officer manages our operations and evaluates our financial performance on a consolidated basis. For purposes of allocating resources and evaluating regional financial performance, our chief executive officer reviews separate sales information for the different regions of the world. Our general and administrative expenses and our research and development expenses are not allocated to any specific region. Most of our principal operations, other than manufacturing, and our decision-making functions are located at our corporate headquarters in the United States.

A summary table of our total revenue by geographic areas of our customers and by product and service for the three and nine months ended September 30, 2019 and 2018 is included in Note 3 to the condensed consolidated financial statements of this quarterly report on Form 10-Q.

Sales to customers in the United States represented $10.5 million or 40%, and $32.9 million or 39% of total revenues for the three and nine months ended September 30, 2019, respectively. Sales to customers in the United States represented $13.2 million or 46% and $35.4 million or 44% of total revenues for the three and nine months ended September 30, 2018, respectively.

Sales to customers in China represented $3.9 million or 15%, and $11.4 million or 13% of total revenues for the three and nine months ended September 30, 2019, respectively. Sales to customers in China represented $3.4 million or 12%, and $8.9 million or 11% of total revenues for the three and nine months ended September 30, 2018, respectively. Except for China, no other foreign country or jurisdiction had sales in excess of 10% of our total revenue during the three and nine months ended September 30, 2019 and 2018.

No individual customer represented more than 10% of our total revenues for the three and nine months ended September 30, 2019, and 2018, respectively.

13. Commitments and Contingencies

Indemnification

From time to time, we have entered into indemnification provisions under certain of our agreements in the ordinary course of business, typically with business partners, customers, and suppliers. Pursuant to these agreements, we may indemnify, hold harmless, and agree to reimburse the indemnified parties on a case-by-case basis for losses suffered or incurred by the indemnified parties in connection with any patent or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification provisions is generally perpetual from the time of the execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification provisions is typically not limited to a specific amount. In addition, we have entered into indemnification agreements with our officers, directors, and certain other employees. With certain exceptions, these agreements provide for indemnification for related expenses including, among others, ~~attorneys'~~attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding.

We incurred legal expenses between October 2015 and the third quarter of 2017 to defend claims by Thermo Fisher Scientific, Inc., (Thermo) against one of our employees. In December, 2015, Thermo Fisher Scientific, Inc., (Thermo) filed a complaint in the Circuit Court for the County of Kalamazoo, Michigan against one of its former employees who had recently been hired by us alleging, among other claims, misappropriation of proprietary information and breach of contractual and fiduciary obligations to Thermo while such individual was still an employee of Thermo. In November, 2016, Thermo amended its complaint to add us as a party to the litigation, making various commercial and employment-related claims and seeking damages and injunctive relief. In July 2017, we entered into a settlement agreement with Thermo. Pursuant to the terms of the settlement agreement, we agreed to pay Thermo a one-time payment of $3.0 million in exchange for a release and dismissal of all claims with prejudice upon payment of the settlement. In August 2017, we paid the settlement of $3.0 million and received an insurance recovery payment of $1.0 million related to this matter.

Contingencies

From time to time, we may be subject to various legal proceedings and claims arising in the ordinary course of business. These include disputes and lawsuits related to intellectual property, mergers and acquisitions, licensing, contract law, tax, regulatory, distribution arrangements, employee relations and other matters. Periodically, we review the status of each matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, we accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, we continue to reassess the potential liability related to pending claims and litigation and we may revise estimates.

~~8. Stock-Based Compensation~~

We recognized stock-based compensation expense of $2.3 million and $7.1 million during the three and nine months ended September 30, 2017, respectively. We recognized stock-based compensation expense of $3.6 million and $11.0 million during the three and nine months ended September 30, 2016, respectively. As of September 30, 2017, we had $4.2 million and $10.4 million of unrecognized stock-based compensation expense related to stock options and restricted stock units, respectively, which are expected to be recognized over a weighted average period of 3.1 years and 2.4 years, respectively.

~~Equity Incentive Plans (Excluding Stock Option Exchange Program)~~

During the three and nine months ended September 30, 2017, we granted certain employees options to purchase 117,430 and 936,743 shares of common stock, respectively. The options granted during the three months ended September 30, 2017 had exercise prices ranging from $3.09 to $5.44 per share and a total grant date fair value of $0.2 million. The options granted during the nine months ended September 30, 2017 had exercise prices ranging from $3.09 to $6.78 per share and a total grant date fair value of $2.8 million.

During the three and nine months ended September 30, 2017, we granted certain employees 198,949 and 817,739 restricted stock units, respectively. The restricted stock unit awards granted during the three months ended September 30, 2017 had fair market values ranging from $3.09 to $5.44 per unit and a total grant date fair value of $0.8 million. The restricted stock unit awards granted during the nine months ended September 30, 2017 had fair market values ranging from $3.09 and $6.78 per unit and a total grant date fair value of $4.7 million.

~~Table of Contents~~

~~FLUIDIGM CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~The expenses relating to these options and restricted stock units will be recognized over their respective four-year vesting periods.~~

In 2016, we granted 184,050 and 87,620 performance-based stock options and performance-based restricted stock units (each, a “performance award”), respectively, to executive officers and employees, which were accounted for as equity awards. The number of performance awards that ultimately vest depends on the achievement of certain performance criteria set by the Compensation Committee of the Company’s Board of Directors. The performance-based stock options have an exercise price per share of $7.10. We recognize stock-based compensation expense over the vesting period of the performance awards when achievement of the performance criteria becomes probable. We did not recognize any expense related to these performance awards in 2017 and 2016.

~~Stock Option Exchange Program~~

On August 23, 2017, we launched a one-time stock option exchange program (Program) pursuant to which eligible employees were able to exchange certain outstanding stock options (Eligible Options), whether vested or unvested, with an exercise price greater than $4.37 per share and greater than the closing price of a share of our common stock on the NASDAQ Global Select Market on the expiration date of the exchange offer (Offer), for restricted stock units or stock options ("New Awards") covering a lesser number of shares than were subject to the Eligible Options exchanged immediately before being cancelled in the Offer. Non-employee members of our Board of Directors were not eligible to participate in the Program. The Program expired on September 20, 2017, with a closing price of $5.13 per share.

115 employees elected to surrender Eligible Options to purchase a total of 1,204,198 shares of our common stock, representing approximately 50.02% of the total shares of common stock underlying the Eligible Options. All surrendered options were canceled effective as of the expiration date, and immediately thereafter, in exchange for such surrendered options, we issued (i) new options to purchase an aggregate of 399,117 shares of our common stock with an exercise price of $5.13; and (ii) restricted stock units representing 54,944 shares of our common stock, each, pursuant to the terms of the Offer and our 2011 Equity Incentive Plan. The new awards granted under the Program generally vest over three years.

The Program did not result in a material incremental stock-based compensation expense because the fair value of the new awards was approximately equal to the fair value of the surrendered options immediately prior to the exchange date. The original fair value of the surrendered options plus the incremental stock-based compensation expense will be recognized over the vesting periods of the New Awards.

~~2017 Employee Stock Purchase Plan~~

On August 1, 2017, our stockholders approved our 2017 Employee Stock Purchase Plan (ESPP) at the annual meeting of stockholders. Our ESPP offers U.S. and some non-U.S. employees the right to purchase shares of our common stock. Our ESPP has a six-month offering period, with a new period commencing on the first trading day on or after May 31 and November 30 of each year. Employees are eligible to participate through payroll deductions of up to 10% of their compensation and may not purchase more than $25,000 of stock for any calendar year. The purchase price at which shares are sold under the ESPP is 85% of the lower of the fair market value of a share of our common stock on the first day of the offering period or the last day of the offering period. Our first ESPP offering period began on October 1, 2017 with a shorter offering period ending on November 30, 2017.

~~9. Income Taxes~~

The benefit for income taxes for the periods presented differs from the 34% U.S. Federal statutory rate primarily due to maintaining a valuation allowance for deferred tax assets, which primarily consist of net operating loss carryforwards.

We recorded a tax benefit of $0.7 million and $3.3 million for the three and nine months ended September 30, 2017, respectively, which was primarily attributable to the amortization of our acquisition-related deferred tax liability and losses from Canadian operations, partially offset by a tax provision and discrete tax items from our other foreign operations. We recorded a tax benefit of $0.3 million and $2.1 million for the three and nine months ended September 30, 2016, respectively, which was primarily attributable to the amortization of our acquisition-related deferred tax liability, partially offset by a tax provision and discrete tax items from our other foreign operations.

~~Table of Contents~~

~~FLUIDIGM CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Upon adoption of ASU 2016-09 (see Note 2), we recorded to the opening balance of retained earnings $9.3 million in deferred tax assets for previously unrecognized excess tax benefits that existed as of January 1, 2017, and a corresponding increase of $9.3 million in valuation allowances against these deferred tax assets as substantially all of our U.S. deferred tax assets, net of deferred tax liabilities, were subject to a full valuation allowance. The net impact to retained earnings as a result of these adjustments was zero.

~~10. Information about Geographic Areas~~

We operate in one reporting segment that develops manufactures and commercializes tools for life sciences research. Our chief executive officer manages our operations and evaluates our financial performance on a consolidated basis. For purposes of allocating resources and evaluating regional financial performance, our chief executive officer reviews separate sales information for the different regions of the world. Our general and administrative expenses and our research and development expenses are not allocated to any specific region. Most of our principal operations, other than manufacturing, and our decision-making functions are located at our corporate headquarters in the United States.

~~The following table presents the total revenue by geographic area of our customers for each period presented (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
United States $ 11,154
$ 12,518
$ 34,659
$ 39,531
Europe 7,711
5,194
23,095
22,980
Asia-Pacific 4,857
3,625
13,710
13,616
Other 1,025
854
2,729
3,235
Total revenue $ 24,747
$ 22,191
$ 74,193
$ 79,362

~~No individual customer represented more than 10% of our total revenues for the three and nine months ended September 30, 2017 and 2016.~~

Revenue from sales to customers in China represented 11% of our total revenue, or $2.8 million for the three months ended September 30, 2017, and 11% of our total revenue, or $8.1 million, for the nine months ended September 30, 2017. Revenue from sales to customers in China represented 10% of our total revenue, or $2.3 million for the three months ended September 30, 2016, and 11% of our total revenue, or $8.4 million, for the nine months ended September 30, 2016. Except for China, no other foreign country or jurisdiction had sales in excess of 10% of our total revenue during the three and nine months ended September 30, 2017 and 2016.

~~11. Shareholders' Equity~~

~~Tax Benefit Preservation Plan~~

On August 1, 2017, the Tax Benefit Preservation Plan (Tax Plan) dated as of November 21, 2016 expired and all of the preferred share purchase rights distributed to the holders of our common stock pursuant to the Tax Plan expired.

~~At-The-Market Offering~~

On August 3, 2017, we entered into a Sales Agreement with Cowen and Company, LLC (Cowen) to sell shares of our common stock having aggregate sales proceeds of up to $30 million, from time to time, through an “at-the-market” equity offering program under which Cowen would act as sales agent. Under the Sales Agreement, we set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made.

On August 10, 2017, we sold 9,090,909 shares of our common stock, $0.001 par value per share, through Cowen acting as our agent, for aggregate gross proceeds of $30.0 million. Our aggregate net proceeds from such sales were approximately $28.8 million, after deducting related expenses, including commissions to Cowen of approximately $0.7 million and issuance costs of approximately $0.5 million. These sales exhausted the shares that were available for sale under the Sales Agreement.

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

Operations

The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended or(the Securities ~~Act,~~Act), and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the section entitled “Risk Factors” and this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include information concerning our possible or assumed future cash flow, revenue, sources of revenue and results of operations, cost of product revenue and product margin, operating and other expenses, unit sales and the selling prices of our products, business strategies, financing plans, expansion of our business, competitive position, industry environment, potential growth opportunities, market growth expectations, and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A, “Risk Factors,” elsewhere in this quarterly report on Form 10-Q, and in our ~~Annual Report~~annual report on Form 10-K filed with the Securities and Exchange Commission ~~or SEC.~~(SEC). Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Form 10-Q.

Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You should read this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.

“Fluidigm,” the Fluidigm logo, “Access Array,” “Advanta,” “Biomark,” “C1,” “Callisto,” ~~“Cell-ID,”~~ “CyTOF,~~” “D3,~~” “Delta Gene,” “Digital Array,” “Dynamic Array,” “EP1,” ~~“FC1,”~~ “Flex Six,” “Helios,” ~~“High-Precision 96.96 Genotyping,~~“Hyperion,” ~~"Hyperion,"~~“Imaging Mass Cytometry,” “IMC,” “Juno,” “Maxpar,” “MSL,” ~~“Nanoflex,” “Open App,”~~ “Polaris,~~” “qdPCR 37K,~~” “Script Builder,” ~~“Script Hub,”~~ “Singular,” ~~“SNP Trace”~~ and “SNP Type” are trademarks or registered trademarks of Fluidigm Corporation. Other service marks, trademarks and trade names referred to in this quarterly report on Form 10-Q are the property of their respective owners.

___________________________

InUnless the context requires otherwise, references in this Form 10-Q to “Fluidigm,” the “Company,” “we,” “us,” and “our” refer to Fluidigm Corporation and its subsidiaries.

Overview

Fluidigm is a global biotechnology tools provider with a vision to improve life through comprehensive health insight. Our innovative technologies and multi-omic tools are used by researchers to reveal meaningful insights in health and disease, identify biomarkers to inform decisions and accelerate the development of more effective therapies. We create, manufacture, and market innovative technologies and life science tools, including preparatory and analytical instruments for ~~life sciences research. We sell instruments~~Mass Cytometry, PCR, Library Prep, Single Cell Genomics, and consumables, including integrated fluidic circuits ~~or IFCs,~~(IFCs), assays, and ~~reagents, to academic institutions,~~reagents.

Our focus is on the most pressing needs in translational and clinical research, ~~laboratories,~~including cancer, immunology and ~~biopharmaceutical, biotechnology,~~immunotherapy. We use proprietary CyTOF® and ~~agricultural biotechnology, or Ag-Bio, companies~~microfluidics technologies to develop innovative end-to-end solutions that have the flexibility required to meet the needs of translational research and ~~contract~~the robustness to support high-impact clinical research organizations, or CROs. Our technologies and tools are directed at the analysis of deoxyribonucleic acid, or DNA, ribonucleic acid, or RNA, and proteins in a variety of different sample types, from individual cells to bulk tissue.

studies. We were a pioneer in the application of microfluidics to enable high-throughput and highly-multiplexed polymerase chain reactions, or PCR, for genetic analysis, as well as a field known as single-cell genomics, in which the genetic composition of individual cells is assayed. In February 2014, we purchased DVS Sciences, Inc., whose mass cytometry system enables the highly-multiplexed analysis of cellular surface and intracellular proteins in both blood and tissue.

~~Researchers have successfully employed~~sell our products to ~~help achieve breakthroughs in a variety of fields, including single-cell gene~~leading academic, government, pharmaceutical, biotechnology and ~~protein expression, gene regulation, genetic variation, cellular function~~plant and applied genetics. These breakthroughs include using our systems to help detect life-threatening mutations in cancer cells, discover cancer associated biomarkers, analyze the genetic composition of individual stem cells and assess the quality of agricultural products, such as seeds or livestock.

animal research laboratories worldwide.

We distribute our systems through our direct sales force and support organizations located in North America, Europe, and Asia-Pacific, and through distributors or sales agents in several European, Latin American, Middle Eastern, and Asia-Pacific countries. Our manufacturing operations are located in Singapore ~~Canada~~ and ~~South San Francisco, California.~~Canada. Our facility in Singapore manufactures our genomics instruments, ~~several of~~ which are assembled ~~at facilities of~~by our contract ~~manufacturers in Singapore, with testing and calibration of the assembled products performed at~~manufacturer located adjacent to our Singapore facility. All of our IFCs for commercial sale and some IFCs for our research and development purposes are also fabricated at our Singapore facility. Our mass cytometry instruments for commercial sale, as well as for internal research and development purposes, are manufactured at our facility in Canada. We also manufacture assays and reagents at our facilities in the United States. As part of our on-going efforts related to operational excellence and improving efficiencies, we are currently completing the consolidation of our mass cytometry reagent production activities into our Canadian facility.

Our total revenue for the nine months ended September 30, ~~2017~~2019 was ~~$74.2~~$84.8 million compared to ~~$79.4~~$80.6 million for the nine months ended September 30, ~~2016.~~2018. Our total revenue ~~for the twelve months ended December 31,~~ was $113.0 million in 2018, $101.9 million in 2017, and $104.4 million in ~~2016, $114.7 million in 2015, and $116.5 million in 2014.~~2016. We have incurred significant net losses since our inception in 1999 and, as of September 30, ~~2017,~~2019, our accumulated deficit was ~~$489.7~~$611.0 million.

At the end of 2016, we began reallocating our resources based on revenue contribution and growth expectations across our target markets, including a reorganization of our sales team and commercial leadership. ~~As part of this shift and due to our negative revenue growth in 2016 and 2015, we~~We implemented certain operational ~~efficiency~~efficiencies and cost-savings initiatives beginning in the first quarter of 2017 intended to align our resources with our product strategy, reduce our operating expenses, and manage our cash flows. ~~These cost efficiency initiatives include targeted workforce reductions, optimizing~~In 2017 and 2018, we grew our facilities, and reducing excess space. In addition, we may need to decrease or defer capital expenditures and development activities to further optimize our operations. Such measures may impair our ability to invest in developing, marketing and selling new and existing products. The efficiency and cost-savings initiatives are expected to reducerevenues, increased gross margins, reduced operating expenses, streamlined our manufacturing operations, and ~~enable us~~rationalized our headcount and facilities. These activities have resulted in lower net losses, improving from $76.0 million in 2016 to ~~efficiently align~~$59.0 million in 2018. We have also strengthened our ~~resources in areas providing~~balance sheet through the ~~greatest benefit, but if our efficiency~~issuance of common stock and ~~cost~~ reduction ~~efforts are unsuccessful, our cash position could be negatively impacted and we may, among other things, be required to seek other sources~~ of ~~financing.~~

Ondebt. In August ~~10,~~ 2017, we sold ~~9,090,909~~9.1 million shares of ~~our~~ common stock ~~through an “at-the-market” equity offering program,~~ for aggregate net proceeds of approximately $28.8 million; in December 2018, we sold approximately 9.4 million shares of common stock for aggregate net proceeds of $59.1 million.

In March 2018, we refinanced $150 million of our 2014 Notes with the issuance of our 2018 Notes, which effectively extended the maturity of the debt while providing us with additional financing flexibility. The 2018 Notes were subsequently converted into 19.5 million shares of our common stock during the first quarter of 2019. The conversion is described in Note 6 of our September 30, 2019 condensed consolidated financial statements.

Critical Accounting Policies, Significant Judgments and Estimates

Our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates may occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

Except ~~as otherwise~~for the adoption of ASC 842 disclosed below, there have been no material changes in our critical accounting policies and estimates in the preparation of our condensed consolidated financial statements during the ~~three and~~ nine months ended September 30, ~~2017~~2019, compared to those disclosed in our ~~Annual Report~~annual report on Form 10-K for the year ended December 31, ~~2016,~~2018, as filed with the SEC on March ~~3, 2017.~~

18, 2019.

Recent Accounting Pronouncements

Adoption of New Accounting Guidance

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize operating leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating; the classification will impact the expense recognition in the income statement.

Modified Retrospective Transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We adopted the new standard on January 1, 2019 and used the effective date of the standard as our date of initial application. Consequently, previously presented financial information has not been updated, and the disclosures required under the new standard have not been provided for dates and periods before January 1, 2019. For dates and periods prior to January 1, 2019, the original disclosures under ASC 840 are disclosed.

On adoption of the new standard, we recognized $9.2 million of lease liabilities, based on the present value of the current minimum lease payments over the lease term, discounted using our collateralized incremental borrowing rate, with corresponding ROU assets of $7.4 million. The difference between the initial lease liability and ROU asset is attributable to deferred rent. There was no impact to retained earnings from the adoption of ASC 842.

The new standard also provides certain accounting elections for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities for leases with an initial lease term of one year or less. We have also elected to not separate lease and nonlease components for our building leases. The nonlease components are generally variable in nature and are expected to represent the majority of our variable lease costs. Variable costs are expensed as incurred. We have taken a portfolio approach for our vehicle leases by country.

See Note 2 — “Summary of Significant Accounting Policies” in the notes to our condensed consolidated financial ~~statements.~~

statements in this quarterly report on Form 10-Q for recent accounting changes and pronouncements.

Results of Operations

The following table presents our historical condensed consolidated statements of operations data for the three and nine months ended September 30, ~~2017~~2019, and ~~2016,~~2018, and as a percentage of total revenue for the respective periods (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue:
Total revenue $ 24,747
100 % $ 22,191
100 % $ 74,193
100 % $ 79,362
100 %
Costs and expenses:
Cost of product revenue 11,414
46
9,071
41
33,060
45
31,097
39
Cost of service revenue 1,150
5
1,228
6
3,437
5
3,673
5
Research and development 7,683
31
9,252
42
23,668
32
29,642
37
Selling, general and administrative 20,102
81
21,123
95
63,653
86
70,444
89
Total costs and expenses 40,349
163
40,674
183
123,818
167
134,856
170
Loss from operations (15,602 ) (63 ) (18,483 ) (83 ) (49,625 ) (67 ) (55,494 ) (70 )
Interest expense (1,456 ) (6 ) (1,454 ) (5 ) (4,367 ) (6 ) (4,361 ) (5 )
Other income (expense), net 379
2
(161 ) (1 ) 571
1
(527 ) (1 )
Loss before income taxes (16,679 ) (67 ) (20,098 ) (91 ) (53,421 ) (72 ) (60,382 ) (76 )
Benefit from income taxes 735
3
309
1
3,343
5
2,093
3
Net loss $ (15,944 ) (64 )% $ (19,789 ) (89 )% $ (50,078 ) (67 )% $ (58,289 ) (73 )%



	Three Months Ended September 30,										Nine Months Ended September 30,
	2019					2018					2019					2018
Revenue	$	26,496		100	%	$	28,963		100	%	$	84,803		100	%	$	80,639		100	%
Cost of revenue	12,458			47		13,141			45		38,412			45		37,801			47
Gross profit	14,038			53		15,822			55		46,391			55		42,838			53
Operating expenses:
Research and development	7,125			27		7,430			26		23,362			28		22,072			27
Selling, general and administrative	20,729			78		20,020			69		65,687			77		57,812			72
Total operating expenses	27,854			105		27,450			95		89,049			105		79,884			99
Loss from operations	(13,816		)	(52	)	(11,628		)	(40	)	(42,658		)	(50	)	(37,046		)	(46	)
Interest expense	(444		)	(1	)	(4,019		)	(14	)	(3,636		)	(4	)	(9,824		)	(13	)
Loss on extinguishment of debt	—			—		—			—		(9,000		)	(11	)	—			—
Other income, net	205			1		117			—		920			1		465			1
Loss before income taxes	(14,055		)	(52	)	(15,530		)	(54	)	(54,374		)	(64	)	(46,405		)	(58	)
Income tax benefit	1,168			4		780			3		2,269			3		2,167			3
Net loss	$	(12,887	)	(48	)%	$	(14,750	)	(51	)%	$	(52,105	)	(61	)%	$	(44,238	)	(55	)%

Revenue

We generate revenue primarily from sales of our products and services. Our product revenue consists of sales of ~~our high-throughput genomics, single-cell genomics and mass cytometry~~ instruments and ~~consumables, including IFCs, assays,~~consumables. Consumable revenues are largely driven by the size of our installed base of instruments and ~~other reagents. Our~~the annual level of pull-through per instrument. Service revenue is linked to the sales and installed base of our instruments as our service revenue consists of post-warranty service contracts, preventive maintenance plans, instrument parts, installation and training.

We ~~also receive~~sell our instruments to leading academic research institutions, translational research and medicine centers, cancer centers, clinical research laboratories, and biopharmaceutical, biotechnology, and plant and animal research companies. No single customer represented more than 10% of our total revenue for the three and nine months ended September 30, 2019, and 2018. Total revenue from our ~~license agreements with third parties.~~ five largest customers represented 25% and 20% of our total revenue for the three months ended September 30, 2019, and 2018, respectively. Total revenue from our five largest customers represented 20% and 17% of our total revenue for the nine months ended September 30, 2019, and 2018, respectively.

The following table presents our revenue by source for the three and nine months ended September 30, ~~2017~~2019, and ~~2016~~2018 (in thousands):


	Three Months Ended September 30,				Year-Over-Year Change	Nine Months Ended September 30,					Year-Over-Year Change	Three Months Ended September 30,								Year- Over-Year Change			Nine Months Ended September 30,												Year- Over-Year Change
	2017		2016		Year-Over-Year Change	2017		2016			Year-Over-Year Change	2019				2018						2019						2018							Year- Over-Year Change
Revenue:
Instruments	$	10,518	$	9,172	15%	$	31,183	$	36,181		(14)%	$	9,159	35	%	$	13,890	48	%	Year- Over-Year Change	(34	)%		$	34,200		40	%		$	31,831		39	%		7	%
Consumables	10,058		8,820		14	30,200		31,914			(5)	11,507		43		10,352		36		11	%		34,528			41			34,665			43			—	%
Product revenue	20,576		17,992		14	61,383		68,095		—	(10)	20,666		78		24,242		84		(15	)%		68,728			81			66,496			82			3	%
Service revenue	4,133		4,152		—	12,620		11,085			14	5,630		21		4,721		16		19	%		15,875			19			14,143			18			12	%
License revenue	38		47		(19)	190		182			4
Grant revenue												200		1		—		—		NA			200			—			—			—			NA
Total revenue	$	24,747	$	22,191	12%	$	74,193	$	79,362	—	(7)%	$	26,496	100	%	$	28,963	100	%	(9	)%		$	84,803		100	%		$	80,639		100	%		5	%

The following table presents our total revenue by geographic area of our customers and as a percentage of total revenue for the three and nine months ended September 30, ~~2017~~2019, and ~~2016~~2018 (in thousands):

Three Months Ended September 30, Year-Over-Year Change Nine Months Ended September 30, Year-Over-Year Change
2017 2016 2017 2016
United States $ 11,154
45 % $ 12,518
56 % (11 )% $ 34,659
47 % $ 39,531
50 % (12 )%
Europe 7,711
31
5,194
24
48
23,095
31
22,980
28
1
Asia-Pacific 4,857
20
3,625
16
34
13,710
18
13,616
18
1
Other 1,025
4
854
4
20
2,729
4
3,235
4
(16 )
Total $ 24,747
100 % $ 22,191
100 % 12 % $ 74,193
100 % $ 79,362
100 % (7 )%



	Three Months Ended September 30,								Year-Over-Year Change		Nine Months Ended September 30,								Year-Over-Year Change
	2019				2018				Year-Over-Year Change		2019				2018				Year-Over-Year Change
Americas	$	11,112	42	%	$	13,654	47	%	(19	)%	$	35,203	41	%	$	37,008	46	%	(5	)%
EMEA	9,092		34		8,783		30		4	%	28,465		34		26,365		33		8	%
Asia-Pacific	6,292		24		6,526		23		(4	)%	21,135		25		17,266		21		22	%
Total	$	26,496	100	%	$	28,963	100	%	(9	)%	$	84,803	100	%	$	80,639	100	%	5	%

~~We sell our instruments to leading academic research institutions, clinical research laboratories,~~The Americas revenue includes revenue generated in the United States of $10.5 million and biopharmaceutical, biotechnology and Ag-Bio companies. Total revenue from our five largest customers comprised 17% and 14% of our total revenue for the three and nine months ended September 30, 2017, respectively. Total revenue from our five largest customers comprised 20% and 16% of our total revenue for the three and nine months ended September 30, 2016, respectively.

~~Total Revenue~~

~~Total revenue increased by $2.6 million, or 12%, to $24.7~~$13.2 million for the three months ended September 30, ~~2017 compared to $22.2~~2019, and 2018, respectively. The Americas revenue includes revenues generated in the United States of $32.9 million and $35.4 million for the nine months ended September 30, 2019 and 2018, respectively.

Total Revenue

Total revenue decreased by $2.5 million, or 9%, for the three months ended September 30, 2016, due to higher product revenue primarily from our mass cytometry products. Total revenue increased in all geographic areas except for the United States for the three months ended September 30, 20172019 compared to the three months ended September 30, ~~2016. Revenues in Europe and Asia-Pacific increased by $2.5 million and $1.2~~2018. The decrease was attributable to a $3.6 million, or ~~48%~~15%, decrease in product revenue, partially offset by a $0.9 million, or 19%, increase in service revenue and ~~34%, respectively,~~$0.2 million of grant revenue.

Revenue in the Americas decreased 19% for the three months ended September 30, ~~2017~~2019, compared to the three months ended September 30, ~~2016.~~2018. The ~~increases~~decrease in ~~Europe and Asia-Pacific were~~the Americas was primarily due to lower sales of mass cytometry instruments. Revenues grew 4% in EMEA driven by higher consumables and service revenues, partially offset by lower instrument revenues. Unfavorable foreign exchange rates negatively impacted EMEA revenues by 2%. The 4% decrease in Asia-Pacific revenue was driven by reduced consumable revenue, partially offset by higher service revenue. On a company-wide basis, foreign exchange had a minimal net impact on revenues for the third quarter of 2019, compared to the same period in the prior year.

Total revenue increased by $4.2 million, or 5% for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The year-on-year increase is attributable to increases in mass cytometry instrument and ~~high-throughput genomics product~~consumables sales, partially offset by lower microfluidics revenue. In the Americas, lower product sales were partially offset by higher service and grant revenue. In EMEA, consumables and mass cytometry instrument revenue grew, along with higher service revenue. This growth was partially offset by lower microfluidic instrument revenue. Unfavorable foreign exchange rates had a ~~decrease~~negative 3% impact on EMEA revenue. The 22% increase in ~~sales of our single-cell genomics products. Revenue~~Asia-Pacific revenues is due to increases in mass cytometry instruments, consumables and service revenue, partially offset by lower microfluidics sales. On a company-wide basis, weaker foreign exchange rates negatively impacted revenues by 1% for the nine months ended September 30, 2019, compared to the same period in the ~~Other area increased slightly~~prior year.

Product Revenue

Product revenue decreased by ~~$0.2~~$3.6 million, or ~~20%~~15%, for the three months ended September 30, ~~2017~~2019 compared to the three months ended September 30, ~~2016, primarily due to increases in mass cytometry product sales. Revenue in the United States~~2018. Instrument sales decreased by ~~$1.4~~$4.7 million, or ~~11%~~34%, for the three months ended September 30, ~~2017~~2019 compared to the three months ended September 30, ~~2016.~~2018. The decrease in instrument sales was ~~mainly attributable to~~driven by lower ~~genomics product sales, partially offset by an increase in~~unit sales of mass cytometry ~~products.~~

Total revenue decreased by $5.2 million, or 7%, to $74.2 million for the nine months ended September 30, 2017 compared to $79.4 million for the nine months ended September 30, 2016. The decrease was primarily due to a decrease of $6.7 million in product revenue, partially offset by a $1.5 million increase in service revenue. Revenue in the United States decreased by $4.9 million, or 12%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Revenue in the Other area decreased by $0.5 million, or 16%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decreases in the United States and the Other area were largely attributable to lower genomics instrument sales, partially offset by increased sales of our mass cytometry products. Revenues in Europe and Asia-Pacific remained relatively flat for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to increased sales of our mass cytometry products, offset by lower sales of our genomics products.

~~Product Revenue~~

~~Product~~instruments. Consumables revenue increased by ~~$2.6~~$1.2 million, or ~~14%~~11%, ~~to $20.6 million~~across our product categories for the three months ended September 30, ~~2017~~2019 compared to the three months ended September 30, ~~2016. Instrument~~2018.

Product revenue increased by ~~$1.3~~$2.2 million, or 15%, to $10.5 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase was primarily due to higher unit sales of our mass cytometry instruments and, partially offset by lower unit sales of our genomics instruments and, to a lesser extent, lower average selling prices of our genomics instruments. Consumables revenue increased by $1.2 million, or 14%, to $10.1 million, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase was primarily attributable to increased unit sales of mass cytometry reagents and high-throughput genomics IFCs, partially offset by decreased unit sales of single-cell genomics IFCs and lower average selling prices of most IFCs.

~~Product revenue decreased by $6.7 million, or 10%, to $61.4 million~~3% for the nine months ended September 30, ~~2017~~2019 compared to the ~~nine months ended September 30, 2016.~~Instrument revenue decreased by $5.0 million, or 14%, to $31.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was mainly due to lower unit sales of our genomics instruments, particularly our single-cell genomicsprior year period. Higher revenues from mass cytometry instruments and ~~to a lesser extent, lower average selling prices of our Helios, BioMark and C1 systems. The decrease~~consumables was partially offset by sales of our new imaging mass cytometry system. Consumables revenue decreased by $1.7 million, or 5%, to $30.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was mainly attributable to decreased unit sales of genomicslower microfluidics consumables ~~particularly IFCs, and to a lesser extent, lower average selling prices of most IFCs, partially offset by increased unit sales and higher average selling prices of our mass cytometry reagents.~~

sales.

We expect the average selling prices and volumes of our products to fluctuate over time based on market conditions, product mix, and currency fluctuations. We cannot provide assurance concerning future revenue growth, if any.

Service Revenue

Service revenue ~~was generally flat at $4.1~~increased by $0.9 million, or 19%, for the three months ended September 30, ~~2017~~2019 compared to ~~$4.2 million for~~ the three months ended September 30, ~~2016.~~2018. Service revenue increased by ~~$1.5~~$1.7 million, or ~~14%~~12%, for the nine months ended September 30, 2019 compared to ~~$12.6 million for~~ the nine months ended September 30, ~~2017 compared to $11.1 million~~2018. Increases in service revenues for both the ~~nine months ended September 30, 2016. The increase was mainly driven by an increase in instruments under post-warranty~~quarter and year-to-date periods reflect higher revenues from service contracts due to growth in our instrument installed base, particularly mass cytometry instruments. Revenue from post-warranty service contracts generally lags our instruments revenue by one year. Other fee-for-service offerings, including training, installation, laborplans and preventive ~~maintenance, were relatively flat for the nine months ended September 30, 2017 compared to the same period~~maintenance.

Cost of ~~2016.~~

~~License~~ Revenue,

~~All license revenue is generated in the United States. License revenue was essentially flat for the three~~ Gross Profit and ~~nine months ended September 30, 2017 compared to the same periods of 2016.~~

~~Costs of Product and Service Revenue~~

Gross Margin

The following table presents our costs of product and service revenue, gross profit and ~~product and service margins~~gross margin for the three and nine months ended September 30, ~~2017~~2019, and ~~2016~~2018 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Cost of product revenue $ 11,414
$ 9,071
$ 33,060
$ 31,097
Product margin 45 % 50 % 46 % 54 %
Cost of service revenue $ 1,150
$ 1,228
$ 3,437
$ 3,673
Service margin 72 % 70 % 73 % 67 %



	Three Months Ended September 30,						Year-Over-Year Change			Nine Months Ended September 30,						Year-Over-Year Change
	2019			2018			Year-Over-Year Change			2019			2018			Year-Over-Year Change
Cost of product revenue	$	10,520		$	11,635		(10	)%		$	33,009		$	33,017		—	%
Cost of service revenue	1,938			1,506			29	%		5,403			4,784			13	%
Total cost of revenue	$	12,458		$	13,141		(5	)%		$	38,412		$	37,801		2	%

Gross profit	$	14,038		$	15,822		(11	)%		$	46,391		$	42,838		8	%
Gross margin	53.0		%	54.6		%	(1.6	)	ppts	54.7		%	53.1		%	1.6		ppts

Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, packaging, and delivery costs. In addition, cost of product revenue includes amortization of developed technology and intangibles, royalty costs for licensed technologies included in our products, warranty, provisions for ~~slow-~~

~~moving~~slow-moving and obsolete inventory, and stock-based compensation expense. ~~Cost of service revenue includes direct labor hours, overhead, and instrument parts. Costs related to license revenue are included in research and development expense.~~

Cost of product revenue increased by $2.3 million, or 26%, to $11.4 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Overall cost of product revenue as a percentage of related revenue was 55% and 50% for the three months ended September 30, 2017 and 2016, respectively. Product margin decreased by five percentage points compared to the same period in 2016, primarily due to increased genomics unit product costs from lower production volumes, partially offset by fixed amortization of developed technology over higher revenues.

Cost of product revenue increased by $2.0 million, or 6%, to $33.1 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Overall cost of product revenue as a percentage of related revenue was 54% and 46% for the nine months ended September 30, 2017 and 2016, respectively. Product margin decreased by eight percentage points compared to the same period in 2016, primarily due to higher genomics unit product costs from lower production volumes and, to a lesser extent, higher excess and obsolete inventory expense and lower average selling prices for genomics instruments and consumables.

Cost of service revenue decreased by $0.1 million, or 6%, to $1.2 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Overall cost of service revenue as a percentage of related revenue was 28% and 30% for the three months ended September 30, 2017 and 2016, respectively. Cost of service revenue decreased by $0.2 million, or 6%, to $3.4 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Overall cost of service revenue as a percentage of related revenue was 27% and 33% for the nine months ended September 30, 2017 and 2016, respectively. The service margins increased two and six percentage points, respectively, during the three and nine months ended September 30, 2017 compared to the same periods in 2016, primarily driven by lower labor costs due to greater efficiency.

Our cost of product revenue and related product margin may fluctuate depending on the capacity utilization of our manufacturing facilities in response to market conditions and the demand for our products.

Cost of service revenue includes direct labor hours, overhead, and instrument parts. Our cost of service revenue and related service margin may fluctuate depending on the variability in material and labor costs of servicing instruments.

Gross margin decreased by 1.6 percentage points for the three months ended September 30, 2019, compared to the three months ended September 30, 2018. Lower plant utilization, lower service margins and an inventory reserve for low volume microfluidic instruments were partially offset by a more favorable product mix.

For the nine months ended September 30, 2019, gross margin increased by 1.6 percentage points compared to the nine months ended September 30, 2018. Higher capacity utilization, as well as the impact of spreading fixed depreciation and amortization over a higher revenue base, contributed to the improvement in gross margin, partially offset by higher inventory reserves.

Operating Expenses

The following table presents our operating expenses for the three and nine months ended September 30, ~~2017~~2019, and ~~2016~~2018 (in thousands):


	Three Months Ended September 30,				Year-Over-Year Change		Nine Months Ended September 30,								Year-Over-Year Change	Three Months Ended September 30,								Year-Over-Year Change		Nine Months Ended September 30,					Year-Over-Year Change
	2017		2016			2017				2016				2019				2018					2019			2018					Year-Over-Year Change
Research and development	$	7,683	$	9,252	Year-Over-Year Change	(17)%		$	23,668			$	29,642		Year-Over-Year Change		(20)%	$	7,125			$	7,430	Year-Over-Year Change			(4	)%	$	23,362	$	22,072	6	%
Selling, general and administrative	20,102		21,123		(5)		63,653				70,444				(10)	20,729				20,020				4	%	65,687			57,812		14	%
Total	$	27,785	$	30,375	(9)%		$	87,321			$	100,086			(13)%	$	27,854			$	27,450			1	%	$	89,049		$	79,884	11	%

Research and Development

Research and development expense consists primarily of ~~personnel and independent contractor~~compensation-related costs, ~~prototype~~product development and material expenses, and other allocated facilities and information technology expenses. We have made substantial investments in research and development since our inception. Our research and development efforts have focused primarily on enhancing our technologies and supporting development and commercialization of new and existing products and services.

Research and development expense decreased by ~~$1.6~~$0.3 million, or ~~17%~~4%, ~~to $7.7 million~~ for the three months ended September 30, ~~2017~~2019 compared to the three months ended September 30, ~~2016.~~ 2018, largely due to $0.7 million of lower employee compensation accruals. In 2018, we were accruing bonuses under a retention bonus program that ended in early 2019. The absence of this program accounted for the majority of the decrease of bonus accruals for research and development compared to the third quarter of 2018. Laboratory supplies and equipment costs associated with product development also fell by $0.4 million. These decreases were partially offset by higher headcount-related costs and a $0.2 million increase in stock-based compensation.

Research and development expense ~~decreased~~increased by ~~$6.0~~$1.3 million, or ~~20%~~6%, ~~to $23.7 million~~ for the nine months ended September 30, ~~2017~~2019, compared to the ~~nine months ended September 30, 2016. Decreases for both the three~~same period a year ago. Increases include approximately $1.6 million of increased headcount costs, $0.2 million of increased stock-based compensation and ~~nine month periods ended September 30, 2017~~$0.6 million of laboratory supplies and equipment costs. These cost increases were partially offset by $1.1 million of lower employee compensation accruals, primarily ~~attributable~~due to the ~~implementation~~absence of ~~our cost-savings initiatives~~a retention bonus program as discussed in the first quarter of 2017, including headcount and compensation savings of $0.9 million and $2.7 million for the three and nine month periods ended September 30, 2017, respectively. In addition, we had a decrease in product material and supplies costs of $0.6 million and $2.7 million for the three and nine month periods ended September 30, 2017, respectively, mainly due to higher-cost projects in the prior year period.

~~We expect research and development expense to decrease in 2017 compared to 2016 as we implement efficiency and cost savings initiatives in 2017.~~

previous paragraph.

Selling, General and Administrative

Selling, general and administrative expense consists primarily of personnel costs for our sales and marketing, business development, finance, legal, human resources, and general management, as well as professional services, such as legal and accounting services.

Selling, general and administrative expense ~~decreased $1.0~~increased $0.7 million, or 5%4%, ~~to $20.1 million~~ for the three months ended September 30, ~~2017~~2019, compared to the three months ended September 30, ~~2016. This decrease was primarily~~2018. Headcount-related costs contributed $1.4 million to the increase in expense for the quarter, reflecting a 10% increase in average headcount. Stock-based compensation increased $0.5 million from the year ago period, reflecting additions to the senior executive team since this time last year. These cost increases were partially offset by $1.5 million in lower employee compensation accruals. The lower accruals reflect lower variable compensation and the lack of retention bonuses recorded in the year ago period. The remaining increase in selling, general, and administrative costs is due to ~~the implementation~~a variety of ~~our cost-savings initiatives in the first quarter of 2017, including infrastructure and facilities savings of $0.9 million.~~smaller items.

Selling, general and administrative expense ~~decreased $6.8~~increased $7.9 million, or ~~10% to $63.7 million~~14%, for the nine months ended September 30, ~~2017~~2019 compared to the nine months ended September 30, ~~2016. This decrease was~~2018. Compensation-related costs contributed $4.2 million of the increase, reflecting a 10% increase in headcount, including several senior executives. Stock-based compensation increased $2.2 million, primarily due to the ~~implementation~~impact of ~~our cost-savings initiatives in~~an executive retirement and additions to the ~~first quarter of 2017, including infrastructure and facilities savings of $2.5 million. In addition, we had lower legal expenses of $1.5~~senior executive team. Business development costs increased $1.6 million, along with a ~~decrease in outside services of $1.3 million, a decrease in travel expenses of~~ $1.0 million increase in advertising and ~~a decrease in recruiting~~promotional costs. We also incurred $1.0 million of severance and other costs ~~of $0.9 million.~~associated with transferring certain operations from South San Francisco to Markham, Ontario. These ~~decreases~~cost increases were partially offset by an$1.6 million in lower employee compensation accruals, which reflect the lack of retention bonuses recorded in the year ago period and lower accruals for variable compensation. The remaining increase in ~~depreciation expenses of $1.1 million.~~

~~We expect~~ selling, general, and administrative ~~expense~~costs is due to ~~decrease in 2017 compared to 2016 as we implement efficiency and cost savings initiatives in 2017.~~a variety of smaller items.

Interest Expense, Loss on Extinguishment of Debt, and Other ~~(Income) Expense,~~Income, Net

The following table presents these items for the three and nine months ended September 30, ~~2017~~2019, and ~~2016~~2018 (in thousands):


	Three Months Ended September 30,					Year-Over-Year Change		Nine Months Ended September 30,								Year-Over-Year Change	Three Months Ended September 30,								Year-Over-Year Change		Nine Months Ended September 30,						Year-Over-Year Change
	2017			2016			2017				2016				2019				2018			��		2019			2018						Year-Over-Year Change
Interest expense	$	1,456		$	1,454	Year-Over-Year Change	—%		$	4,367			$	4,361		Year-Over-Year Change		—%	$	444			$	4,019	Year-Over-Year Change			(89	)%	$	3,636		$	9,824	(63	)%
Other (income) expense, net	(379		)	161		(335)		(571		)		527				(208)
Loss on extinguishment of debt																	—				—				NA		9,000			—			NA
Other income, net																	(205		)		(117		)		75	%	(920		)	(465		)	98	%
Total	$	1,077		$	1,615	(33)%		$	3,796			$	4,888			(22)%	$	239			$	3,902			(94	)%	$	11,716		$	9,359		25	%

OnIn February 4, 2014, we ~~closed an underwritten public offering of~~issued $201.3 million aggregate principal amount of our 2.75% ~~Senior Convertible~~2014 Notes due 2034 (2014 Notes). In March 2018, we entered into privately negotiated transactions with certain holders of our 2014 Notes to exchange $150.0 million in aggregate principal amount of the 2014 Notes for $150.0 million in aggregate principal amount of our new 2.75% Exchange Convertible Senior Notes due 2034. As the 2018 Notes were convertible, at our election, into cash, shares of our common stock, or a combination of cash and shares of our common stock, we accounted for the 2018 Notes under the cash conversion guidance in ASC 470. Because of this conversion option, along with a redemption premium, the net effective interest rate for the 2018 Notes is higher than the 2014 Notes. The effective interest rate on the 2014 Notes ~~accrue interest at a rate~~and the 2018 Notes is approximately 3.0% and 12.3%, respectively.

In the first quarter of ~~2.75% per year, payable semi-annually~~2019, we received notices from holders of the 2018 Notes electing to voluntarily convert approximately $138.1 million in ~~arrears on~~aggregate principal amount of the 2018 Notes. In February 12019, we notified the Trustee of our intention to exercise our Issuer’s Conversion Option with respect to the remaining approximately $11.9 million in aggregate principal amount of 2018 Notes. In total, $150.0 million of the 2018 Notes were converted into approximately 19.5 million shares of our common stock and ~~August 1 of each year. The Notes will mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in~~the bonds retired. In accordance with ASC 470, we recognized a loss of $9.0 million on the ~~terms~~conversion of the ~~Notes.~~debt, representing the difference between the fair value of the bonds converted and the carrying value of the bonds at the time of conversion.

Following the retirement of the 2018 Notes in the first quarter of 2019, only $51.25 million of principal of the 2014 Notes remained outstanding. Interest expense ~~was $1.5 million~~fell for ~~both~~ the three ~~months ended September 30, 2017~~ and ~~2016. Interest expense was $4.4 million for both the~~ nine months ended September 30, ~~2017 and 2016.~~

~~Other income increased by $0.5 million and $1.1 million for the three month and nine month periods ended September 30, 2017, respectively,~~2019, compared to the three ~~month~~ and nine month periods ended September 30, 2016, mainly due to the net favorable effects of foreign exchange rate changes during the three and nine month periods ended September 30, 2017 compared to the same periods in 2016.

~~Benefit from Income Taxes~~

~~We recorded a tax benefit of $0.7 million and $0.3 million for the three~~ months ended September 30, ~~2017~~2018 due to the retirement of the 2018 Notes in the first quarter of 2019.

Other income primarily consists of interest income and ~~2016, respectively. The tax benefit~~gains or losses on foreign exchange. Other income for the ~~three months ended September 30, 2017 and 2016 was primarily attributable to the amortization~~third quarter of ~~our acquisition-related deferred tax liability and losses from Canadian operations,~~2019 includes $304 thousand of interest income, partially offset by ~~a tax provision~~$99 thousand of foreign exchange losses. By comparison, other income for the third quarter of 2018 includes $120 thousand of interest income and ~~discrete tax items from our other~~$4 thousand of foreign ~~operations. We recorded a tax benefit of $3.3 million and $2.1 million~~exchange losses. Other income for the nine months ended September 30, ~~2017 and 2016, respectively. The tax benefit~~2019 includes $1,074 thousand of interest income partially offset by $179 thousand of foreign exchange losses. Other income for the nine months ended September 30, ~~2017~~2018 includes $395 thousand of interest income and ~~2016~~$55 thousand of foreign exchange gain. Higher interest income in the 2019 periods compared to the year ago periods is attributable to higher cash and investment balances; the increase in foreign exchange losses is due to the impact of a stronger U.S. dollar.

Income Tax Benefit

Our tax provision is generally driven by three components: (1) tax provision from our foreign operations, (2) tax benefits from the deduction of amortization of acquisition-related intangible assets, and (3) discrete items, such as changes to recording or releasing valuation allowances or return-to-provision true-ups. Depending on the relative value of these components, we can have either a tax benefit or expense for any given period.

We recorded a tax benefit of $1.2 million and $2.3 million for the three and nine months ended September 30, 2019, respectively. We recorded a tax benefit of $0.8 million and $2.2 million for the three and nine months ended September 30, 2018, respectively. The benefit for all periods was primarily attributable to the tax benefit from the amortization of our acquisition-related deferred tax liability, partially offset by a provision from our foreign operations.

In the future we may release valuation allowances and recognize deferred tax assets in certain of our foreign subsidiaries depending on the achievement of future profitability in the relevant jurisdictions. Any release of valuation allowances could have the effect of decreasing the income tax provision in the period the valuation allowance is released. We continue to monitor the likelihood that we will be able to recover our deferred tax assets, including those for which a valuation allowance is recorded. There can be no assurance that we will generate profits in the future periods enabling us to fully realize our deferred tax assets. The timing of recording a valuation allowance or the reversal of such valuation allowance is subject to objective and ~~discrete tax items from our other foreign operations. The increase~~subjective factors that cannot be readily predicted in benefit from income taxes for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 was mainly driven by increased losses from our Canadian operations.

advance.

Liquidity and Capital Resources

Sources of Liquidity

As of September 30, ~~2017,~~2019, our principal sources of liquidity consisted of ~~$60.9~~$25.9 million of cash and cash equivalents and ~~$1.4~~$36.9 million of short-term ~~investments. As~~investments as well as $2.1 million of ~~September 30, 2017,~~restricted cash and $9.0 million of availability under our ~~working capital excluding deferred revenue was $74.2 million.~~

Revolving Credit Facility. The following table presents our cash flow summary for each period presented (in thousands):

Nine Months Ended September 30,
2017 2016
Net cash used in operating activities $ (24,759 ) $ (28,408 )
Net cash provided by investing activities 21,537
31,317
Net cash provided by financing activities 28,816
127
Net increase in cash and cash equivalents 25,899
3,189



	Nine Months Ended September 30,
	2019			2018
Net cash used in operating activities	$	(29,691	)	$	(24,563	)
Net cash provided by (used in) investing activities	(38,750		)	4,738
Net cash provided by (used in) financing activities	1,006			(2,292		)
Effect of foreign exchange fluctuations	(5		)	(110		)
Net decrease in cash, cash equivalents and restricted cash	$	(67,440	)	$	(22,227	)

Net Cash Used in Operating Activities

We derive cash flows from operations primarily from cash collected from the sale of our products and services. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support the growth of our business. We have historically experienced negative cash flows from operating activities as we have expanded our business and built our infrastructure domestically and internationally. ~~In the first quarter of 2017, we implemented efficiency and cost-savings initiatives and we expect these initiatives to reduce our operating expenses in 2017 compared to 2016.~~

Net cash used in operating activities for the nine months ended September 30, ~~2017~~2019, was ~~$24.8~~$29.7 million and consisted of a net loss of ~~$50.1~~$52.1 million, adjusted for non-cash ~~adjustments~~items of ~~$20.8 million and net change in assets and liabilities of $4.5~~$31.2 million. Non-cash items included a loss on extinguishment of debt of $9.0 million, amortization of developed technology of $8.4 million, stock-based compensation expense of ~~$7.1~~$8.3 million, amortization of debt discounts, premium and issuance costs of $2.1 million and depreciation and amortization of ~~$5.8 million, and a gain from other non-cash items of $0.5~~$3.5 million. The net change in assets and liabilities included a decrease in ~~inventory~~current and non-current other liabilities of ~~$2.1~~$10.5 million, an increase in inventories of$2.3 million, and an increase in prepaid expenses and other current assets of $1.7 million, partially offset by a decrease in ~~other assets~~accounts receivable of $3.2 million, an increase in deferred revenue of $1.6 million, an increase in accounts payable of ~~$1.1 million, an increase in deferred revenue of $0.9~~$0.6 million, and a decrease in ~~accounts receivable~~other non-current assets of ~~$0.8 million, partially offset by a decrease in other liabilities of $1.9~~$0.3 million.

Net cash used in operating activities for the nine months ended September 30, ~~2016,~~2018, was ~~$28.4~~$24.6 million, and consisted of a net loss of ~~$58.3~~$44.2 million, adjusted for non-cash ~~adjustments~~items of ~~$25.0 million, and a net change in assets and liabilities of $4.9~~$24.3 million. Non-cash items included stock-based compensation expense of ~~$11.0~~$6.1 million, amortization of debt discounts, premium and issuance costs of $5.7 million, amortization of developed technology of $8.4 million, and depreciation and amortization of ~~$5.0 million, and a loss from other non-cash items of $0.6~~$4.1 million. The net change in assets and liabilities included ~~a decrease~~increases in accounts receivable of ~~$12.1~~$3.3 million ~~an increase in deferred revenues of $0.5 million, a decrease~~and decreases in other ~~assets~~non-current liabilities of ~~$0.2~~$6.8 million, partially offset by ~~an increase of inventory of $4.1 million, a decrease~~increases in ~~other liabilities of $2.3 million and a decrease of~~ accounts payable of ~~$1.5~~$2.1 million, deferred revenue of $2.1 million, and current liabilities of $2.0 million.

Net Cash Provided by (Used in) Investing Activities

Our primary investing activities consist of purchases, sales, and maturities of our short-term investments and to a much lesser extent, capital expenditures for manufacturing, laboratory, computer equipment and software to support our infrastructure and work force. We expect to continue to incur costs for capital expenditures for demonstration units and loaner equipment to support our sales and service efforts, and computer equipment and software to support our business operations. However, as a result of our efficiency and cost-savings initiatives, we may decrease or defer certain capital expenditures and development activities while further optimizing our organization.

Net cash ~~provided by~~used in investing activities was ~~$21.5~~$38.8 million during the nine months ended September 30, ~~2017.~~2019 and consisted of purchases of investments of $52.7 million and capital expenditures of $2.0 million, partially offset by $16.0 million of proceeds from maturing investments. Net cash provided by investing activities ~~primarily~~for nine months ended September 30, 2018 was $4.7 million and consisted of ~~$24.4 million of proceeds from sales and maturities~~net redemptions of investments of $5.1 million, partially offset by ~~purchases of investments of $1.5 million and~~ capital expenditures of ~~$1.4~~$0.4 million.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by ~~investing~~financing activities was ~~$31.3~~$1.0 million during the nine months ended September 30, 2016. Net cash provided by investing activities primarily consisted of $71.9 million of proceeds from sales and maturities of investments and proceeds from the sale of the Verinata investment of $2.3 million, partially offset by purchases of investments of $38.6 million and capital expenditures of $4.4 million.

In February 2013, Illumina, Inc. acquired Verinata Health, Inc. (Verinata) for $350 million in cash and up to an additional $100 million in milestone payments through December 2015. The final milestones related to the sale of Verinata to Illumina were met in December 2015 and, accordingly, we recorded our share of these milestone payment obligations in the amount of $2.3 million from the sale of investment in Verinata in the accompanying consolidated statement of operations for the year ended December 31, 2015. We received the $2.3 million payment in January 2016.

~~Net Cash Provided by Financing Activities~~

2019. Net cash provided by financing activities primarily consisted of $1.0 million from the exercise of stock options and $0.6 of proceeds from our ESPP program, partially offset by $0.6 million for income taxes related to net share settlement of equity awards. Net cash used in financing activities was ~~$28.8~~$2.3 million for the nine months ended September 30, ~~2017,~~2018 and consisted of $2.8 million of debt issuance costs, partially offset by net proceeds ~~of $28.8 million~~ from ~~our "at-the market"~~employee equity ~~offering in August 2017, and proceeds from exercise of stock options, offset by payments for taxes related to net share settlement for vested restricted stock units.~~

~~There were no significant financing activities for the nine months ended September 30, 2016.~~

programs.

Capital Resources

~~At September 30, 2017,~~As discussed above, in the first quarter of 2019, we received notices from holders of the 2018 Notes electing to voluntarily convert approximately $138.1 million in aggregate principal amount of the 2018 Notes. In February 2019, we notified the Trustee of our ~~working capital was $74.2~~intention to exercise our Issuer’s Conversion Option with respect to the remaining approximately $11.9 million ~~which includes cash, cash equivalents, and short-term investments~~in aggregate principal amount of ~~$62.4~~2018 Notes. In total, $150.0 million ~~and excludes deferred revenue~~ of ~~$9.9 million.~~

~~On August 3, 2017, we entered~~the 2018 Notes were converted into ~~a Sales Agreement with Cowen and Company, LLC (Cowen) to sell~~approximately 19.5 million shares of our common stock ~~having~~and the bonds retired.

We currently have outstanding $51.3 million in aggregate ~~sales proceeds of up to $30 million, from time to time, through an “at-the-market” equity offering program under which Cowen was to act as sales agent. On August 10, 2017, we sold 9,090,909 shares~~principal amount of our ~~common stock, $0.001 par value per share, through Cowen acting~~2014 Notes as ~~our agent,~~of September 30, 2019. The 2014 Notes will mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the 2014 Notes. Holders of the 2014 Notes may require us to repurchase all or a portion of their 2014 Notes on each of February 6, 2021, February 6, 2024, and February 6, 2029 at a repurchase price in cash equal to 100% of the principal amount of the Notes plus accrued and unpaid interest. If we undergo a fundamental change, as defined, holders of the 2014 Notes may require us to repurchase the 2014 Notes in whole or in part for ~~aggregate gross proceeds~~cash at a repurchase price equal to 100% of ~~$30.0 million. Our aggregate net proceeds from such sales were approximately $28.8 million, after deducting related expenses, including commissions to Cowen~~the principal amount of ~~approximately $0.7 million~~the 2014 Notes plus accrued and ~~issuance costs~~unpaid interest.

We have a Revolving Credit Facility with Silicon Valley Bank, which matures on August 2, 2020. Amounts drawn under the Revolving Credit Facility will be used for working capital and general corporate purposes. As of ~~approximately $0.5~~September 30, 2019, total availability under the Revolving Credit Facility was $9.0 million. We ~~plan to use the net proceeds from this offering for general corporate purposes and working capital. These sales exhausted the shares that were available for sale~~currently have no outstanding debt under the ~~Sales Agreement.~~

Revolving Credit Facility, and we are in compliance with all the terms and conditions of the loan agreement governing the Revolving Credit Facility. See Note 6 to the condensed consolidated financial statements included in this Form 10-Q for more information about the Revolving Credit Facility.

We believe our existing cash, cash equivalents, and short-term investments will be sufficient to meet our working capital and capital expenditure needs ~~for~~ at least ~~the next 18 months.~~through December 31, 2020. However, we may experience lower than expected cash generated from ~~operating activities~~sales of our products and services or greater than expected capital expenditures, cost of revenue, or operating expenses, and we may need to raise additional capital to fund our operations, further our research and development activities, or acquire or invest in a business.

Our future funding requirements will depend on many factors, including market acceptance of our products, the cost of our research and development activities, the cost of filing and prosecuting patent applications, the cost associated with litigation or disputes relating to intellectual property rights or otherwise, the cost and timing of regulatory clearances or approvals, if any, the cost and timing of establishing additional sales, marketing, and distribution capabilities, the cost and timing of establishing additional technical support capabilities, and the effect of competing technological and market ~~developments, and the effectiveness of our efficiency and cost reduction initiatives.~~developments. In the future, we may acquire businesses or technologies from third parties, and we may decide to raise additional capital through debt or equity financing to the extent we believe this is necessary to successfully complete these acquisitions.

If we require additional funds in the future, we may not be able to obtain such funds on acceptable terms, or at all. If we raise additional funds by issuing equity securities, our stockholders could experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce marketing, customer support, research and development, or other resources devoted to our products.

Off-Balance Sheet Arrangements

As of September 30, ~~2017,~~2019, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of the Securities and Exchange Commission's Regulation S-K.

Contractual Obligations and Commitments

Our operating lease obligations include a lease for our current headquarters and leases for manufacturing, laboratory, warehousing and office space for our foreign subsidiaries. In the first quarter of 2019, we entered into a lease for a new headquarters in California which is expected to commence in the first quarter of 2020. Please see Note 7 to the financial statements for a discussion of our lease obligations.

Other than as disclosed above, there have been no material changes during the nine months ended September 30, ~~2017~~2019 to our contractual obligations disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~Annual Report~~annual report on Form 10-K for the year ended December 31, ~~2016.~~2018.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. We do not hold or issue financial instruments for trading purposes.

Foreign Currency Exchange Risk

As we expand internationally, our results of operations and cash flows will become increasingly subject to fluctuations due to changes in foreign currency exchange rates. Our revenue is generally denominated in the local currency of the contracting party. Historically, the majority of our revenue has been denominated in U.S. dollars. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States, with a portion of expenses incurred in Singapore and Canada where our manufacturing facilities are located. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net income or loss as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. For the nine months ended September 30, ~~2017~~2019 and 2018, our gains and losses related to changes in foreign ~~currency gain~~exchange rates was ~~$0.3 million. For the nine months ended September 30, 2016 our foreign currency loss was $0.8~~less than $0.1 million. To date, we have not entered into any foreign currency hedging contracts although we may do so in the future. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates. If foreign currency exchange rates had changed by 10% during the periods presented, it would not have had a material impact on our financial position or results of operations.

Interest Rate Sensitivity

We had cash, ~~and~~ cash equivalents and short-term investments of ~~$60.9~~$62.8 million at September 30, ~~2017.~~2019. These amounts were held primarily in cash on deposit with banks, treasury bills and money market funds which are short-term. ~~We had $1.4 million in investments at September 30, 2017, held primarily in U.S. government and agency securities with contractual maturity dates that are within one year from September 30, 2017.~~ Cash and cash equivalents and investments are held for working capital purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio due to changes in interest rates. Declines in interest rates, however, will reduce future investment income. If overall interest rates had decreased by 10% during the periods presented, our interest income would not have been materially affected.

Fair Value of Financial Instruments

We do not have material exposure to market risk with respect to investments. We do not use derivative financial instruments for speculative or trading purposes. However, we may adopt specific hedging strategies in the future.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, ~~2017.~~2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits 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 by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, ~~2017,~~2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, ~~2017~~2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1. Legal ~~Proceedings.~~Proceedings

On December 21, 2015, Thermo Fisher Scientific, Inc. (“Thermo”) filed a complaint in the Circuit Court for the County of Kalamazoo of Michigan against one of its former employees who had recently been hired by us alleging, among other claims, misappropriation of proprietary information and breach of contractual and fiduciary obligations to Thermo while still an employee of Thermo. On November 23, 2016, Thermo amended its complaint to add us as a party to the litigation, making various commercial and employment-related claims and seeking damages and injunctive relief. In July 2017, we entered into a settlement agreement with Thermo. Pursuant to the terms of the settlement agreement, we agreed to pay Thermo a one-time payment of $3.0 million in exchange for a release and dismissal of all claims with prejudice upon payment of the settlement. In August 2017, we paid the settlement of $3.0 million and received an insurance recovery payment of $1.0 million related to this matter.

~~Additionally, in~~ the normal course of business, we are from time to time involved in legal proceedings or potential legal proceedings, including matters involving employment, intellectual property, or others. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of any currently pending matters would not have a material adverse effect on our business, operating results, financial condition, or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

~~ITEM~~Item 1A. ~~RISK FACTORS~~Risk Factors

We operate in a rapidly changing environment that involves numerous uncertainties and risks. The following risks and uncertainties may have a material and adverse effect on our business, financial condition, or results of operations. You should consider these risks and uncertainties carefully, together with all of the other information included or incorporated by reference in this Form 10-Q. If any ofSet forth below are the risks ~~or uncertainties~~that we ~~face were~~believe are material to ~~occur, the trading price~~our investors. Our risk factors disclosed in Part I, Item 1A, of our ~~securities could decline,~~annual report on Form 10-K for the year ended December 31, 2018 provide additional disclosure and ~~you may lose all or part of your investment.~~

are incorporated herein by reference.

Risks Related to Fluidigm’s Business and Strategy

Our financial results and revenue growth rates have varied significantly from quarter-to-quarter and year-to-year due to a number of factors, and a significant variance in our operating results or rates of growth, if any, could lead to substantial volatility in our stock price.

Our total revenue was $104.4 million in 2016, $114.7 million in 2015, and $116.5 million in 2014. The decrease in overall revenue over this period was due in significant part to decreasing sales of single-cell genomics instruments, driven by a combination of factors including changes in customer demand, increased competition, and performance issues in certain IFCs used in our C1 systems.

Our revenue, results of operations, and revenue growth rates have varied in the past and may continue to vary significantly from quarter-to-quarter or year-to-year. For example, in 2011, 2012, 2014 and 2015, we experienced higher sales in the fourth quarter than in the first quarter of the next fiscal year. Although this was not the case in the fourth quarter of 2013 compared to the first quarter of 2014, this seasonal historical trend continued in 2014 and 2015 with a decrease in revenue in the first quarters of 2015 and 2016, respectively. Sales, however, remained relatively flat in the first quarter of 2017 compared to the fourth quarter of 2016. Additionally, for the quarters ended March 31, 2015 and September 30, 2015, we experienced year-over-year revenue growth rates that were substantially lower than revenue growth rates experienced in other periods since our initial public offering, and we experienced a year-over-year decline in revenue for the nine months ended September 30, 2017, September 30, 2016, and September 30, 2015, and for the years ended December 31, 2016 and 2015. We may experience substantial variability in our product mix from period-to-period as revenue from sales of our instruments relative to sales of our consumables may fluctuate or deviate significantly from expectations. For example, our revenue declined year-over-year in 2016 compared to 2015, and in 2017 compared to 2016. In 2018, we returned to revenue growth, but we may not be able to achieve similar revenue growth in future periods. We are also increasingly dependent on our mass cytometry business, which is very capital intensive. Variability in our quarterly or annual results of operations, mix of product revenue, including any decline in our mass cytometry revenue, or variability in rates of revenue growth, if any, may lead to volatility in our stock price as research analysts and investors respond to these fluctuations. These fluctuations are due to numerous factors that are difficult to forecast, including: fluctuations in demand for our products; changes in customer budget cycles and capital spending; seasonal variations in customer operations; tendencies among some customers to defer purchase decisions to the end of the quarter; the large unit value of our systems, particularly our proteomics systems; changes in our pricing and sales policies or the pricing and sales policies of our competitors; our ability to design, manufacture, market, sell, and deliver products to our customers in a timely and cost-effective manner; fluctuations or reductions in revenue from sales of legacy instruments that may have contributed significant revenue in prior periods; quality

control or yield problems in our manufacturing operations; our ability to timely obtain adequate quantities of the materials or components used in our products, which in certain cases are purchased through sole and single source suppliers; new product introductions and enhancements by us and our competitors; unanticipated increases in costs or expenses; our complex, variable and, at times, lengthy sales cycle; global economic conditions; and fluctuations in foreign currency exchange rates. Additionally, we have certain customers who have historically placed large orders in multiple quarters during a calendar year. A significant reduction in orders from one or more of these customers could adversely affect our revenue and operating results, and if these customers defer or cancel purchases or otherwise alter their purchasing patterns, our financial results and actual results of operations could be significantly impacted. Other unknown or unpredictable factors also could harm our results.

The foregoing factors, as well as other factors, could materially and adversely affect our quarterly and annual results of operations and rates of revenue growth, if any. We have experienced significant revenue growth in the past but we may not achieve similar growth rates in future periods. You should not rely on our operating results for any prior quarterly or annual period as an indication of our future operating performance. If we are unable to ~~return to~~achieve adequate revenue growth, our operating results could suffer and our stock price could decline. In addition, a significant amount of our operating expenses are relatively fixed due to our manufacturing, research and development, and sales and general administrative efforts. Any failure to adjust spending quickly enough to compensate for a shortfall relative to our anticipated revenue could magnify the adverse impact of such shortfalls on our results of operations. We expect that our sales will continue to fluctuate on an annual and quarterly basis and that our financial results for some periods may be below those projected by securities analysts, which could significantly decrease the price of our common stock.

We have incurred losses since inception, and we may continue to incur substantial losses for the foreseeable future.

We ~~have a limited operating history and~~ have incurred significant losses in each fiscal year since our inception, including net losses of ~~$15.9~~$59.0 million, $60.5 million, and ~~$50.1~~$76.0 million during the ~~three~~years 2018, 2017, and ~~nine months ended September 30, 2017, respectively, and net losses of $76.0 million and $53.3 million for the years ended December 31,~~ 2016, ~~and 2015,~~ respectively. As of September 30, ~~2017,~~2019, we had an accumulated deficit of ~~$489.7~~$611.0 million. These losses have resulted principally from costs incurred in our research and development programs, and from our manufacturing costs and selling, general, and administrative expenses. ~~We believe that~~To date, we have funded our ~~continued investment in research~~operations primarily through equity offerings, the issuance of debt instruments, and ~~development,~~from sales ~~and marketing is essential to~~of our ~~long-term competitive position and future revenue growth.~~products.

Due to our negative revenue growth in 2016 and 2015, we implemented certain operational efficiency and cost-savings initiatives beginning in the first quarter of 2017 intended to align our resources with our product strategy, reduce our operating expenses, and manage our cash flows. These cost efficiency initiatives have included targeted workforce reductions, optimizing our facilities, and reducing excess space. Further actions such as these may be required on an ongoing basis to optimize our organization. For example, we may need to decrease or defer capital expenditures and development activities or implement further operating expense reduction measures. Such measures may impair our ability to invest in developing, marketing and selling new and existing products. Furthermore, if our efficiency and cost reduction efforts are unsuccessful, our cash position could be negatively impacted and we may, among other things, be required to seek additional sources of financing. Until we are able to generate additional revenue to support our level of operating expenses, we will continue to incur operating and net losses and negative cash flow from operations. ~~Because of the numerous risks and uncertainties associated with~~We believe that our commercialization efforts and future product development, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase our profitability.

~~If we require additional funds~~continued investment in the future, we may not be able to obtain such funds on acceptable terms, or at all. If we raise funds by issuing equity securities, our stockholders could experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we do not have, or are not able to obtain sufficient funds, we may have to delay development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We may also have to reduce marketing, customer support, research and development, ~~or other resources devoted~~sales, and marketing is essential to our ~~products.~~

~~We have significant outstanding convertible debt,~~long-term competitive position and future revenue growth and, as a result, we may incur operating losses for the foreseeable future and may be required to repay, refinance or restructure such debt before 2021. In February 2014, we closed an underwritten public offering of $201.3 million aggregate principal amount of our 2.75% Senior Convertible Notes due 2034 (Notes). The Notes accrue interest at a rate of 2.75% per year, payable semi-annually in arrears on February 1 and August 1 of each year. The Notes will mature on February 1, 2034, unless earlier converted, redeemed,

or repurchased in accordance with the terms of the Notes. Holders may require us to repurchase all or a portion of their Notes on each of February 6, 2021, February 6, 2024, and February 6, 2029 at a repurchase price in cash equal to 100% of the principal amount of the Notes plus accrued and unpaid interest. If we undergo a fundamental change, as defined in the terms of the Notes, holders may require us to repurchase the Notes in whole or in part for cash at a repurchase price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest. If we refinance the debt owed under the Notes, we may issue additional convertible notes or other debt with a later maturity date, and which could include additional company obligations and represent more dilution to existing stockholders and note holders.

never achieve profitability.

The life science markets are highly competitive and subject to rapid technological change, and we may not be able to successfully compete.

The markets for our products are characterized by rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition, new product introductions, and strong price competition. We compete with both established and development stage life science research companies that design, manufacture, and market instruments and consumables for gene expression analysis, single-cell targeted gene expression or protein expression analysis, single nucleotide polymorphism genotyping, or SNP genotyping, polymerase chain reaction, or PCR, digital PCR, other nucleic acid detection, flow cytometry, cell imaging, and additional applications using well established laboratory techniques, as well as newer technologies such as bead encoded arrays, microfluidics, nanotechnology, high-throughput DNA sequencing, microdroplets, and photolithographic arrays. Most of our current competitors have significantly greater name recognition, greater financial and human resources, broader product lines and product packages, larger sales forces, larger existing installed bases, larger intellectual property portfolios, and greater experience and scale in research and development, manufacturing, and marketing than we do. For example, companies such as 10X Genomics, Inc., Affymetrix, Inc. (now part of Thermo Fisher Scientific Inc.), Agena Bioscience, Inc., Agilent Technologies, Inc., Becton, Dickinson and Company, Bio-Rad Laboratories, Inc., Cellular Research, Inc. (now a part of Becton, Dickinson and Company), Danaher Corporation, Illumina, Inc., Life Technologies Corporation (now part of Thermo Fisher Scientific Inc.), LGC Limited, Luminex Corporation, Millipore Corporation, NanoString Technologies, Inc., PerkinElmer, Inc. (through its acquisition of Caliper Life Sciences, Inc.), RainDance Technologies, Inc. (acquisition by Bio-Rad Laboratories, Inc. pending), Roche Diagnostics Corporation, Sony Corporation, Thermo Fisher Scientific Inc., ~~and~~ WaferGen Bio-systems, Inc., Cytek Biosciences, Inc., Akoya Biosciences, Inc., Innova Biosciences Ltd., QIAGEN N.V., 1CellBio, Inc., Berkeley Lights, Inc., and Mission Bio, Inc. have products that compete in certain segments of the market in which we sell our products. In addition, we have ~~in recent quarters~~ experienced increased competition in the single-cell genomics market, including new product releases from 10X Genomics, Inc. and WaferGen Bio-systems, Inc., as well as the acquisition of Cellular Research by Becton Dickinson and Company and an announced exclusive partnership between Illumina, Inc. and Bio-Rad Laboratories, Inc. In addition, due to the release of our Hyperion imaging mass cytometry system, we now are exposed to competition from companies offering imaging-based systems, specialized reagents and/or services including Carl Zeiss Inc., Leica Biosystems, Nikon Corporation, Olympus America Inc., Roche Diagnostics Corporation, PerkinElmer, Inc., Agilent Technologies, Inc., IonPath Inc., Zellwerk GmbH, Bruker Corporation, Shimadzu Corporation, NanoString Technologies, Inc., and Neogenomics (Multiomyx).

Competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements. In light of these advantages, even if our technology is more effective than the product or service offerings of our competitors, current or potential customers might accept competitive products and services in lieu of purchasing our technology. We anticipate that we will continue to face increased competition in the future as existing companies and competitors develop new or improved products and as new companies enter the market with new technologies. Increased competition is likely to result in pricing pressures, which could reduce our profit margins and increase our sales and marketing expenses. In addition, mergers, consolidations, or other strategic transactions between two or more of our competitors, or between our competitor and one of our key customers, could change the competitive landscape and weaken our competitive position, adversely affecting our business.

Market opportunities may not develop as quickly as we expect, limiting our ability to successfully sell our products, or our product development and strategic plans may change and our entry into certain markets may be delayed, if it occurs at all.

The application of our technologies to high-throughput genomics, single-cell genomics and, particularly, mass cytometry applications are in many cases emerging market opportunities. We believe these opportunities will take several years to develop or

mature and we cannot be certain that these market opportunities will develop as we expect. The future growth of our markets and the success of our products depend on many factors beyond our control, including recognition and acceptance by the scientific community, and the growth, prevalence, and costs of competing methods of genetic and protein analysis. Additionally, our success depends on the ability of our sales organization to successfully sell our products into these new markets. ~~Our commercial organization has undergone significant changes in 2016 and 2017, and we are in the early stages of establishing sales of our products for many key applications.~~ If we are not able to successfully market and sell our products, or to achieve the revenue or

margins we expect, our operating results may be harmed and we may not recover our product development and marketing expenditures. In addition, our product development and strategic plans may change, which could delay or impede our entry into these markets.

If our products fail to achieve and sustain sufficient market acceptance, our revenue will be adversely affected.

Our success depends on our ability to develop and market products that are recognized and accepted as reliable, enabling and cost-effective. Most of our potential customers already use expensive research systems in their laboratories and may be reluctant to replace those systems. Market acceptance of our systems will depend on many factors, including our ability to convince potential customers that our systems are an attractive alternative to existing technologies. Compared to some competing technologies, our technology is relatively new, and most potential customers have limited knowledge of, or experience with, our products. Prior to adopting our systems, some potential customers may need to devote time and effort to testing and validating our systems. Any failure of our systems to meet these customer benchmarks could result in customers choosing to retain their existing systems or to purchase systems other than ours, and revenue from the sale of legacy instruments that may have contributed significant revenue in prior periods may decrease.

In addition, it is important that our systems be perceived as accurate and reliable by the scientific and medical research community as a whole. Historically, a significant part of our sales and marketing efforts has been directed at convincing industry leaders of the advantages of our systems and encouraging such leaders to publish or present the results of their evaluation of our system. If we are unable to continue to induce leading researchers to use our systems, or if such researchers are unable to achieve and publish or present significant experimental results using our systems, acceptance and adoption of our systems will be slowed and our ability to increase our revenue would be adversely affected.

We may experience development or manufacturing problems or delays that could limit the potential growth of our revenue or increase our losses.

We may encounter unforeseen situations in the manufacturing and assembly of our products that would result in delays or shortfalls in our production. For example, our production processes and assembly methods may have to change to accommodate any significant future expansion of our manufacturing capacity, which may increase our manufacturing costs, delay production of our products, reduce our product margin, and adversely impact our business. Conversely, if demand for our products shifts such that a manufacturing facility is operated below its capacity for an extended period, we may adjust our manufacturing operations to reduce fixed costs, which could lead to uncertainty and delays in manufacturing times and quality during any transition period.

Additionally, all of our ~~IFCs~~integrated fluidic circuits (IFCs) for commercial sale are manufactured at our facility in Singapore. Production of the elastomeric block that is at the core of our IFCs is a complex process requiring advanced clean rooms, sophisticated equipment, and strict adherence to procedures. Any contamination of the clean room, equipment malfunction, or failure to strictly follow procedures can significantly reduce our yield in one or more batches. We have in the past experienced variations in yields due to such factors. A drop in yield can increase our cost to manufacture our IFCs or, in more severe cases, require us to halt the manufacture of our IFCs until the problem is resolved. Identifying and resolving the cause of a drop in yield can require substantial time and resources.

Furthermore, developing an IFC for a new application may require developing a specific production process for that type of IFC. While all of our IFCs are produced using the same basic processes, significant variations may be required to ensure adequate yield of any particular type of IFC. Developing such a process can be very time consuming, and any unexpected difficulty in doing so can delay the introduction of a product.

If our manufacturing activities are adversely impacted, or if we are otherwise unable to keep up with demand for our products by successfully manufacturing, assembling, testing, and shipping our products in a timely manner, our revenue could be impaired, market acceptance for our products could be adversely affected and our customers might instead purchase our competitors’ products.

If our research and product development efforts do not result in commercially viable products within anticipated timelines, if at all, our business and results of operations will be adversely affected.

Our business is dependent on the improvement of our existing products, our development of new products to serve existing markets, and our development of new products to create new markets and applications that were previously not practical with existing systems. We intend to devote significant personnel and financial resources to research and development activities

designed to advance the capabilities of our technology. We have developed design rules for the implementation of our technology that are frequently revised to reflect new insights we have gained about the technology. In addition, we have discovered that biological or chemical reactions sometimes behave differently when implemented on our systems rather than in a standard laboratory environment. Furthermore, many such reactions take place within the confines of single cells, which have also demonstrated unexpected behavior when grown and manipulated within microfluidic environments. As a result, research and development efforts may be required to transfer certain reactions and cell handling techniques to our systems. In the past, product development projects have been significantly delayed when we encountered unanticipated difficulties in implementing a process on our systems. We may have similar delays in the future, and we may not obtain any benefits from our research and development activities. Any delay or failure by us to develop and release new products or product enhancements would have a substantial adverse effect on our business and results of operations.

Our products could have defects or errors, which may give rise to claims against us, adversely affect market adoption of our systems, and adversely affect our business, financial condition, and results of operations.

Our systems utilize novel and complex technology and such systems may develop or contain undetected defects or errors. We cannot assure you that material performance problems, defects, or errors will not arise, and as we increase the density and integration of our systems, these risks may increase. We generally provide warranties that our systems will meet performance expectations and will be free from defects. The costs incurred in correcting any defects or errors may be substantial and could adversely affect our operating margins. For example, we have experienced a performance issue with respect to certain IFCs used in our C1 systems due to the presence of more than one cell in an IFC chamber. Although we have redesigned such C1 IFCs, we may experience additional unexpected product defects or errors that could affect our ability to adequately address these performance issues.

In manufacturing our products, including our systems, IFCs, and assays, we depend upon third parties for the supply of various components, many of which require a significant degree of technical expertise to produce. In addition, we purchase certain products from third-party suppliers for resale. If our suppliers fail to produce components to specification or provide defective products to us for resale and our quality control tests and procedures fail to detect such errors or defects, or if we or our suppliers use defective materials or workmanship in the manufacturing process, the reliability and performance of our products will be compromised.

If our products contain defects, we may experience:

a failure to achieve market acceptance or expansion of our product sales;

loss of customer orders and delay in order fulfillment;

damage to our brand reputation;

increased cost of our warranty program due to product repair or replacement;

product recalls or replacements;

inability to attract new customers;

diversion of resources from our manufacturing and research and development departments into our service department; and

legal claims against us, including product liability claims, which could be costly and time consuming to defend and result in substantial damages.

In addition, certain of our products are marketed for use with products sold by third parties. For example, certain of our systems are marketed as compatible with major next-generation DNA sequencing instruments. If such third-party products are not produced to specification, are produced in accordance with modified specifications, or are defective, they may not be compatible with our products. In such case, the reliability and performance of our products may be compromised.

The occurrence of any one or more of the foregoing could negatively affect our business, financial condition, and results of operations.

Our business depends on research and development spending levels of ~~academic, clinical, and governmental research institutions, biopharmaceutical, biotechnology, and Ag-Bio companies, and CROs,~~our customers, a reduction in which could limit our ability to sell our products and adversely affect our business.

We expect that our revenue in the foreseeable future will continue to be derived primarily from sales of our systems, IFCs, assays, and reagents to academic research institutions, translational research and medicine centers, cancer centers, clinical research laboratories ~~that use our technology to develop tests, and~~ biopharmaceutical, biotechnology, ~~Ag-Bio~~and agricultural biotechnology (Ag-Bio) companies, and ~~CROs~~contract research organizations worldwide. Our success will depend upon their demand for and use of our products. Accordingly, the spending policies of these customers could have a significant effect on the demand for our technology. These policies may be based on a wide variety of factors, including concerns regarding any future federal government budget sequestrations, the availability of resources to make purchases, the spending priorities among various types of equipment, policies regarding spending during recessionary periods, and changes in the political climate. In addition, academic, governmental, and other research institutions that fund research and development activities may be subject to stringent budgetary constraints that could result in spending reductions, reduced allocations, or budget cutbacks, which could jeopardize the ability of these customers to purchase our products. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers. For example, reductions in capital and operating expenditures by these customers may result in lower than expected sales of our systems, IFCs, assays, and reagents. These reductions and delays may result from factors that are not within our control, such as:

changes in economic conditions;

natural disasters;

changes in government programs that provide funding to research institutions and companies;

changes in the regulatory environment affecting life science and Ag-Bio companies engaged in research and commercial activities;

differences in budget cycles across various geographies and industries;

market-driven pressures on companies to consolidate operations and reduce costs;

mergers and acquisitions in the life science and Ag-Bio industries; and

other factors affecting research and development spending.

Any decrease in our customers’ budgets or expenditures, or in the size, scope, or frequency of capital or operating expenditures, could materially and adversely affect our operations or financial condition.

If one or more of our manufacturing facilities become unavailable or inoperable, we will be unable to continue manufacturing our instruments, IFCs, assays and/or reagents and, as a result, our business will be harmed until we are able to secure a new facility.

We manufacture our genomics analytical and preparatory instruments and IFCs for commercial sale at our facility in Singapore and our mass cytometry instruments for commercial sale at our facility in ~~Canada, and our~~Canada. Our assays and reagents for commercial sale have been manufactured at our headquarters in the United ~~States.~~States, however, we are consolidating our North American production activities into our Canada facility as part of our on-going efforts related to operational excellence and improving efficiencies. No other manufacturing facilities are currently available to us, particularly facilities of the size and scope of our Singapore and Canada operations. Our facilities and the equipment we use to manufacture our instruments, IFCs, assays, and reagents would be costly to replace and could require substantial lead times to repair or replace. Our facilities may be harmed or rendered inoperable by natural or man-made disasters, which may render it difficult or impossible for us to manufacture our products for some period of time. If any of our facilities become unavailable to us, we cannot provide assurances that we will be able to secure a new manufacturing facility on acceptable terms, if at all. The inability to manufacture our products, combined with our limited inventory of manufactured supplies, may result in the loss of customers or harm our reputation, and we may be unable to reestablish relationships with those customers in the future. Although we possess insurance for damage to our property and the disruption of our business, this insurance may not be sufficient to cover all of our potential losses and may not continue to

be available to us on acceptable terms, or at all. If our manufacturing capabilities are impaired, we may not be able to manufacture and ship our products in a timely manner, which would adversely impact our business.

We generate a substantial portion of our revenue internationally and ~~are subject~~our international business exposes us to ~~various~~business, regulatory, political, operational, financial, and economic risks ~~relating to such international activities, which could adversely affect our sales and operating performance. In addition, any disruption or delay in~~associated with doing business outside of the ~~shipping or off-loading of our products, whether domestically or internationally, may have an adverse effect on our financial condition and results of operations.~~

United States.

During the ~~nine months ended September 30,~~years 2018, 2017, and 2016, approximately 57%, 55%, and ~~the years ended December 31, 2016 and 2015, approximately 53%, 50%, 50% and 52%,~~49% respectively, of our product and service revenue was generated from sales to customers located outside of the United States. We believe that a significant percentage of our future revenue will continue to come from international sources as we expand our international operations and develop opportunities in other countries. Engaging in international business inherently involves a number of difficulties and risks, including:

required compliance with existing and changing foreign regulatory requirements and laws that are or may be applicable to our business in the future, such as the European Union’s General Data Protection Regulation and other data privacy requirements, labor and employment regulations, anticompetition regulations, the U.K. Bribery Act of 2010 and other anticorruption laws, and the RoHS and WEEE directives, which regulate the use of certain hazardous substances in, and require the collection, reuse, and recycling of waste from, products we manufacture;

required compliance with ~~anti-bribery~~U.S. laws such as the ~~U.S.~~ Foreign Corrupt Practices Act, and ~~U.K. Bribery Act, data privacy requirements, labor~~other U.S. federal laws and ~~anti-competition regulations;~~

regulations established by the office of Foreign Asset Control;

export requirements and import or ~~import~~trade restrictions;

laws and business practices favoring local companies;

longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;

~~unstable~~changes in social, economic, and political conditions or in laws, regulations and ~~regulatory conditions;~~

policies governing foreign trade, manufacturing, development, and investment both domestically as well as in the other countries and jurisdictions in which we operate and into which we sell our products, including as a result of the 2016 advisory referendum approving the separation of the United Kingdom from the European Union (Brexit);

potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements, and other trade barriers;

difficulties and costs of staffing and managing foreign operations; and

difficulties protecting or procuring intellectual property rights.

If one or more of these risks occurs, it could require us to dedicate significant resources to remedy, and if we are unsuccessful in finding a solution, our financial results will suffer.

~~During June 2016,~~We are subject to fluctuations in the ~~referendum by British voters to exit the European Union ("Brexit") adversely impacted global markets and resulted in a sharp decline~~exchange rate of the ~~British pound sterling against the US dollar. In February 2017, the British Parliament voted in favor of allowing the British government to begin the formal process of Brexit,~~U.S. Dollar and the United Kingdom submitted its required notice under the applicable treaties that it intended to leave the European Union in March 2017, which initiated a negotiation process between the United Kingdom and the European Union that could last up to two years. In the short-term, volatility in the British pound sterling could continue as the United Kingdom negotiates its anticipated exit from the European Union. In the longer term, any impact from Brexit on our United Kingdom operations will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations.

foreign currencies.

A majority of our product sales are currently denominated in U.S. dollars and fluctuations in the value of the U.S. dollar relative to foreign currencies could decrease demand for our products and adversely impact our financial performance. For example, if the value of the U.S. dollar increases relative to foreign currencies, our products could become more costly to the international consumer and therefore less competitive in international markets, or if the value of the U.S. dollar decreases relative to the Singapore dollar or the Canadian dollar, it would become more costly in U.S. dollars for us to manufacture our products in Singapore and/or in Canada. Additionally, our expenses are generally denominated in the currencies of the countries in which our operations are located, which is primarily in the United States, with a portion of expenses incurred in Singapore and Canada where a significant portion of our manufacturing operations are located. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net income or loss as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that

are denominated in currencies other than the functional currency of the entities in which they are recorded. For example, we experienced foreign currency gain of $0.3 million during the nine months ended September 30, 2017, and losses of $1.5 million and $1.6 million during the years ended December 31, 2016 and 2015, respectively. Fluctuations in currency exchange rates could have an adverse impact on our financial results in the future.

Any disruption or delay in the shipping or off-loading of our products, whether domestically or internationally, may have an adverse effect on our financial condition and results of operations.

We rely on shipping providers to deliver products to our customers globally. Labor, tariff, or World Trade Organization-related disputes, piracy, physical damage to shipping facilities or equipment caused by severe weather or terrorist incidents, congestion at shipping facilities, inadequate equipment to load, dock, and offload our products, energy-related tie-ups, or other factors could disrupt or delay shipping or off-loading of our products domestically and internationally. Such disruptions or delays may have an adverse effect on our financial condition and results of operations.

We are dependent on single and sole source suppliers for some of the components and materials used in our products, and the loss of any of these suppliers could harm our business.

We rely on single and sole source suppliers for certain components and materials used in our products. Additionally, several of our instruments are assembled at the facilities of contract manufacturers in Singapore. We do not have long term contracts with our suppliers of these components and materials or our assembly service providers. The loss of a single or sole source supplier of any of the following components and/or materials would require significant time and effort to locate and qualify an alternative source of supply, if at all:

The IFCs used in our microfluidic systems are fabricated using a specialized polymer, and other specialized materials, that are available from a limited number of sources. In the past, we have encountered quality issues that have reduced our manufacturing yield or required the use of additional manufacturing processes.

~~Specialized pneumatic and electronic components for our C1, Callisto, Juno, and Polaris systems are available from a limited number of sources.~~

The electron multiplier detector included in the Hyperion/~~Helios/CyTOF 2~~Helios systems and certain metal isotopes used with the Hyperion/~~Helios/CyTOF 2~~Helios systems are purchased from sole source suppliers.

~~The movement stage included in the Hyperion imaging mass cytometer system is purchased from a sole source supplier.~~

~~The nickel sampler cone used with the Hyperion/Helios/CyTOF 2 systems is purchased from single source suppliers and is available from a limited number of sources.~~

The raw materials for our Delta Gene and SNP Type assays and Access Array target-specific primers are available from a limited number of sources.

Our reliance on single and sole source suppliers and assembly service providers also subjects us to other risks that could harm our business, including the following:

we may be subject to increased component or assembly ~~costs;~~

costs and

we may not be able to obtain adequate supply or services in a timely manner or on commercially reasonable ~~terms;~~

~~our suppliers or service providers may make errors in manufacturing or assembly of components that could negatively affect the efficacy of our products or cause delays in shipment of our products; and~~

our suppliers or service providers may encounter capacity constraints or financial hardships unrelated to our demand for components or services, which could inhibit their ability to fulfill our orders and meet our requirements.

terms.

We have in the past experienced quality control and supply problems with some of our suppliers, such as manufacturing errors, and may again experience problems in the future. We may not be able to quickly establish additional or replacement suppliers, particularly for our single source components, or assembly service providers. Any interruption or delay in the supply of components or materials or assembly of our instruments, or our inability to obtain components, materials, or assembly services

from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products.

Our future success is dependent upon our ability to expand our customer base and introduce new applications.

Our customer base is primarily composed of academic research institutions, translational research and medicine centers, cancer centers, clinical research laboratories, ~~that use our technology to develop tests, and~~ biopharmaceutical, biotechnology, and Ag-Bio companies, and contract research organizations that perform analyses for research and commercial purposes. Our success will depend, in part, upon our ability to increase our market share among these customers, attract additional customers outside of these markets, and market new applications to existing and new customers as we develop such applications. Attracting new customers and introducing new applications require substantial time and expense. For example, it may be difficult to identify, engage, and market to customers who are unfamiliar with the current applications of our systems. Any failure to expand our existing customer base or launch new applications would adversely affect our ability to increase our revenue.

We may not be able to develop new products or enhance the capabilities of our existing systems to keep pace with rapidly changing technology and customer requirements, which could have a material adverse effect on our business, revenue, financial condition, and operating results.

Our success depends on our ability to develop new products and applications for our technology in existing and new markets, while improving the performance and cost-effectiveness of our systems. New technologies, techniques, or products

could emerge that might offer better combinations of price and performance than our current or future product lines and systems. Existing markets for our products, including high-throughput genomics, single-cell genomics and mass cytometry, as well as potential markets for our products such as high-throughput DNA sequencing and molecular applications, are characterized by rapid technological change and innovation. It is critical to our success for us to anticipate changes in technology and customer requirements and to successfully introduce new, enhanced, and competitive technology to meet our customers’ and prospective customers’ needs on a timely and cost-effective basis. Developing and implementing new technologies will require us to incur substantial development costs and we may not have adequate resources available to be able to successfully introduce new applications of, or enhancements to, our systems. We cannot guarantee that we will be able to maintain technological advantages over emerging technologies in the future. While we typically plan improvements to our systems, we may not be able to successfully implement these improvements. If we fail to keep pace with emerging technologies, demand for our systems will not grow and may decline, and our business, revenue, financial condition, and operating results could suffer materially. In addition, if we introduce enhanced systems but fail to manage product transitions effectively, customers may delay or forgo purchases of our systems and our operating results may be adversely affected by product obsolescence and excess inventory. Even if we successfully implement some or all of these planned improvements, we cannot guarantee that our current and potential customers will find our enhanced systems to be an attractive alternative to existing technologies, including our current products.

~~Impairment of our goodwill or other intangible assets could materially and adversely affect our business, operating results, and financial condition.~~

As of September 30, 2017, we had approximately $181.4 million of goodwill and net intangible assets, including approximately $104.1 million of goodwill and approximately $77.3 million of net intangible assets. These assets represent a significant portion of the assets recorded on our consolidated balance sheet and relate primarily to our acquisition of DVS Sciences, Inc., or DVS, in February 2014. In addition, if in the future we acquire additional businesses, technologies, or other intangible assets, a substantial portion of the value of such assets may be recorded as goodwill or intangible assets.

The carrying amounts of goodwill and intangible assets are affected whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We review goodwill and indefinite lived intangible assets for impairment at least annually and more frequently under certain circumstances. Other intangible assets that are deemed to have finite useful lives will continue to be amortized over their useful lives but must be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge include declines in our stock price or market capitalization, declines in our market share or revenues, an increase in our losses, rapid changes in technology, failure to achieve the benefits of capacity increases and utilization, significant litigation arising out of an acquisition, or other matters. In particular, these or other adverse events or changes in circumstances may affect the estimated undiscounted future operating cash flows expected to be derived from our goodwill and intangible assets. We have recently experienced substantial declines in our stock price, and continued weakness or further declines in our stock price increase the likelihood that we may be required to recognize impairment charges. Any impairment charges could have a material adverse effect on our operating results and net asset

~~value in the quarter in which we recognize the impairment charge. We cannot provide assurances that we will not in the future be required to recognize impairment charges.~~

Our business operations ~~are dependent~~depend upon the continuing efforts of our ~~new senior~~ management team and ~~the ability of our~~ other ~~new employees to learn their new roles. If~~skilled and experienced personnel, and if we are unable to retain them or to recruit and ~~retain~~train new key executives, scientists, and technical support personnel, we may be unable to achieve our goals.

Our ~~performance is substantially dependent~~success depends largely on the skills, experience, and performance of our senior management, which has substantially changed over the last year, including, for example, a change in our chief executive officer in October 2016. In addition to our chief executive officer, several otherkey members of our ~~senior~~ management team ~~have started at Fluidigm since mid-2016. As new employees gain experience in their roles, we could experience inefficiencies or a lack of business continuity due to loss of historical knowledge~~ and ~~a lack of familiarity of new employees with business processes, operating requirements, policies~~key scientific and procedures, and we may experience additional costs as new employees learn their roles and gain necessary experience. It is important to our success that these key employees quickly adapt to and excel in their new roles. If they are unable to do so, our business and financial results could be materially adversely affected. In addition, thetechnical support personnel. The loss of the services of any key member of our ~~senior~~ management team or our scientific or technical support staff might significantly delay or prevent the development of our products or achievement of other business objectives by diverting management’s attention to transition matters and identification of suitable replacements, if any, and could have a material adverse effect on our business. Our research and product development efforts could also be delayed or curtailed if we are unable to attract, train, and retain highly skilled employees, particularly, senior scientists and engineers. We do not maintain fixed term employment contracts or significant key man life insurance with any of our employees.

Additionally, to expand our research and product development efforts, we need to retain and recruit key scientists skilled in areas such as molecular and cellular biology, assay development, and manufacturing. We also need highly trained technical support personnel with the necessary scientific background and ability to understand our systems at a technical level to effectively support potential new customers and the expanding needs of current customers. Competition for these ~~personnel~~people is intense and we may face challenges in retaining and recruiting such individuals if, for example, our stock price declines, reducing the retention value of equity awards, or our business or technology is no longer perceived as leading in our field. Because of the complex and technical nature of our systems and the dynamic market in which we compete, any failure to attract and retain a sufficient number of qualified employees could materially harm our ability to develop and commercialize our technology.

Our business growth strategy involves the potential for significant acquisitions, and our operating results and prospects could be harmed if we are unable to integrate future acquisitions successfully.

We may acquire other businesses to improve our product offerings or expand into new markets. Our future acquisition strategy will depend on our ability to identify, negotiate, complete, and integrate acquisitions and, if necessary, to obtain satisfactory debt or equity financing to fund those acquisitions. Mergers and acquisitions are inherently risky, and any transaction we complete may not be successful. Any merger or acquisition we may pursue would involve numerous risks, including but not limited to the following:

difficulties in integrating and managing the operations, technologies, and products of the companies we acquire;

diversion of our management’s attention from normal daily operation of our business;

our inability to maintain the key business relationships and the reputations of the businesses we acquire;

our inability to retain key personnel of the acquired company;

uncertainty of entry into markets in which we have limited or no prior experience and in which competitors have stronger market positions;

our dependence on unfamiliar affiliates and customers of the companies we acquire;

insufficient revenue to offset our increased expenses associated with acquisitions;

our responsibility for the liabilities of the businesses we acquire, including those which we may not anticipate; and

our inability to maintain internal standards, controls, procedures, and policies.

We may be unable to secure the equity or debt funding necessary to finance future acquisitions on terms that are acceptable to us. If we finance acquisitions by issuing equity or convertible debt securities, our existing stockholders will likely experience dilution, and if we finance future acquisitions with debt funding, we will incur interest expense and may have to comply with financial covenants and secure that debt obligation with our assets.

Security breaches, loss of data, cyberattacks, and other information technology failures could disrupt our operations, damage our reputation, and adversely affect our business, operations, and financial results.

We are dependent upon our data and information technology systems for the effective operation of our business and for the secure maintenance and storage of confidential data relating to our business and third-party businesses. Our information technology systems may be damaged, disrupted or shut down due to attacks by experienced programmers or hackers who may be able to penetrate our security controls and deploy computer viruses, cyberattacks, phishing schemes, or other malicious software programs, or due to employee error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events, and our system redundancy and other disaster recovery planning may be ineffective or inadequate in preventing or responding to any of these circumstances. Any such compromise of our information technology systems could result in the unauthorized publication of our confidential business or proprietary information and unauthorized release of customer, supplier or employee data, any of which could expose us to a risk of legal claims or proceedings, liability under privacy or other laws, disruption of our operations and damage to our reputation, which could divert our management’s attention from the operation of our business and materially and adversely affect our business, revenues and competitive position. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related breaches. The cost and operational consequences of implementing further data protection measures, either as a response to specific breaches or as a result of evolving risks, could be significant. In addition, our inability to use or access our information systems at critical points in time could adversely affect the timely and efficient operation of our business. Any delayed sales, significant costs or lost customers resulting from these technology failures could adversely affect our business, operations, and financial results.

We have implemented security controls to protect our information technology infrastructure but, despite our efforts, we are not fully insulated from technology disruptions that could adversely impact us. For example, in early March 2019, we experienced a ransomware attack that infiltrated and encrypted certain of our information technology systems, including systems containing critical business data. Immediately following the attack, actions were taken to recover the compromised systems and we believe we were able to restore their operation without significant loss of business data. Based on the nature of the attack and its impact on our systems, we do not believe confidential data was lost or disclosed, but we are continuing to monitor the situation. If confidential data is later determined to have been released in the course of this event, it is possible that we could be the subject of actions by governmental authorities or claims from persons alleging they suffered damages from such a release. As of the date of this filing, we estimate the costs associated with the intrusion and remediation to be approximately $0.1 million, net of insurance proceeds received. Although we believe we have now contained the disruption, we anticipate additional work and expense in the future as we continue to respond to the attack and further enhance our security processes and initiatives.

In addition to risks affecting our own systems, we could also be negatively impacted by a data breach or cyber incident happening to a third party’s network and affecting us. Third parties with which we conduct business have access to certain portions of our sensitive data, including information pertaining to our customers and employees. In the event that these third parties do not adequately safeguard our data, security breaches could result and negatively impact our business, operations, and financial results.

Our efficiency and cost-savings initiatives could be disruptive to our operations and adversely affect our results of operations and financial condition, and we may not realize some or all of the anticipated benefits of these initiatives in the time frame anticipated or at all.

~~Beginning in the first quarter of~~Since 2017, we ~~implemented~~have been implementing efficiency and cost-savings initiatives intended to stabilize our business operations and return to growth. ~~We identified areas for cost efficiencies including~~These efficiency initiatives have included targeted workforce reductions, ~~and~~ optimizing our facilities, and reducing excess space. ~~Other initiatives~~Further actions such as these may ~~also include decreasing~~be required on an ongoing basis to optimize our organization. For example, we may need to decrease or ~~deferring~~defer capital expenditures and development ~~activities.~~activities or implement further operating

expense reduction measures. The implementation of these efficiency and cost-savings initiatives ~~including the impact of workforce reductions,~~ could impair our ability to invest in developing, marketing and selling new and existing products, be disruptive to our operations, make it difficult to attract or retain employees, result in higher than anticipated charges, divert the attention of management, result in a loss of accumulated knowledge, impact our customer and supplier relationships, and otherwise adversely affect our results of operations and financial condition. In addition, our ability to complete our efficiency and cost-savings initiatives and achieve the anticipated benefits within the expected time frame is subject to estimates and assumptions and may vary materially from our expectations, including as a result of factors that are beyond our control. Furthermore, our efforts to ~~stabilize~~grow our business and ~~return to growth~~become profitable may not be successful.

To use our products, our Biomark, EP1, and Helios/CyTOF 2 systems in particular, customers typically need to purchase specialized reagents. Any interruption in the availability of these reagents for use in our products could limit our ability to market our products.

Our products, our Biomark, EP1, and ~~Helios/CyTOF 2~~Helios systems in particular, must be used in conjunction with one or more reagents designed to produce or facilitate the particular biological or chemical reaction desired by the user. Many of these reagents are highly specialized and available to the user only from a single supplier or a limited number of suppliers. Although we sell reagents for use with certain of our products, our customers may purchase these reagents directly from third-party suppliers, and we have no control over the supply of those materials. In addition, our products are designed to work with these reagents as they are currently formulated. We have no control over the formulation of reagents sold by third-party suppliers, and the

performance of our products might be adversely affected if the formulation of these reagents is changed. If one or more of these reagents were to become unavailable or were reformulated, our ability to market and sell our products could be materially and adversely affected.

In addition, the use of a reagent for a particular process may be covered by one or more patents relating to the reagent itself, the use of the reagent for the particular process, the performance of that process, or the equipment required to perform the process. Typically, reagent suppliers, who are either the patent holders or their authorized licensees, sell the reagents along with a license or covenant not to sue with respect to such patents. The license accompanying the sale of a reagent often purports to restrict the purposes for which the reagent may be used. If a patent holder or authorized licensee were to assert against us or our customers that the license or covenant relating to a reagent precluded its use with our systems, our ability to sell and market our products could be materially and adversely affected. For example, our Biomark system involves real-time quantitative ~~PCR, or qPCR.~~polymerase chain reaction (qPCR) technology. Leading suppliers of reagents for real-time qPCR reactions include Life Technologies Corporation (now part of Thermo Fisher Scientific) and Roche Diagnostics Corporation, who are our direct competitors, and their licensees. These real-time qPCR reagents are typically sold pursuant to limited licenses or covenants not to sue with respect to patents held by these companies. We do not have any contractual supply agreements for these real-time qPCR reagents, and we cannot assure you that these reagents will continue to be available to our customers for use with our systems, or that these patent holders will not seek to enforce their patents against us, our customers, or suppliers.

If we seek to be regulated as a medical device manufacturer by the U.S. Food and Drug Administration ~~or FDA,~~ and foreign regulatory authorities, and seek approval and/or clearance for our products, the regulatory approval process would take significant time and expense and could fail to result in FDA clearance or approval for the intended uses we believe are commercially attractive. If our products were successfully approved and/or cleared, we would be subject to ongoing and extensive regulatory requirements, which would increase our costs and divert resources away from other projects. If we obtained FDA clearance or approval and we failed to comply with these requirements, our business and financial condition could be adversely impacted.

Our products are currently labeled, promoted and sold to academic research institutions, ~~life sciences~~translational research and medicine centers, cancer centers, clinical research laboratories, contract research organizations, and biopharmaceutical, biotechnology, and Ag-Bio companies ~~and CRO's for~~“for research use ~~only, or RUO,~~only” (RUO), and are not designed, ~~for,~~ or intended to be used, for clinical diagnostic tests or as medical devices as currently marketed. Before we can begin to label and market our products for use as, or in the performance of, clinical diagnostics in the United States, thereby subjecting them to FDA regulation as medical devices, we would be required to obtain premarket 510(k) clearance or premarket approval ~~(PMA)~~ from the FDA, unless an exception applies.

We may in the future register with the FDA as a medical device manufacturer and list some of our products with the FDA pursuant to an FDA Class I listing for general purpose laboratory equipment. ~~We are currently assessing whether and when to make an initial registration.~~ While this regulatory classification is exempt from certain FDA requirements, such as the need to submit a premarket notification commonly known as a 510(k), and some of the requirements of the FDA’s Quality System Regulations, or QSRs, we would be subject to ongoing FDA “general controls,” which include compliance with FDA regulations for labeling, inspections by the FDA, complaint evaluation, corrections and removals

reporting, promotional restrictions, reporting adverse events or malfunctions for our products, and general prohibitions against misbranding and adulteration.

In addition, we may in the future submit 510(k) premarket notifications to the FDA to obtain FDA clearance of certain of our products on a selected basis. It is possible, in the event we elect to submit 510(k) applications for certain of our products, that the FDA would take the position that a more burdensome premarket application, such as a premarket approval application or a de novo application is required for some of our products. If such applications were required, greater time and investment would be required to obtain FDA approval. Even if the FDA agreed that a 510(k) was appropriate, FDA clearance can be expensive and time consuming. It generally takes a significant amount of time to prepare a 510(k), including conducting appropriate testing on our products, and several months to years for the FDA to review a submission. Notwithstanding the effort and expense, FDA clearance or approval could be denied for some or all of our products. Even if we were to seek and obtain regulatory approval or clearance, it may not be for the intended uses we believe are important or commercially attractive.

If we sought and received regulatory clearance or approval for certain of our products, we would be subject to ongoing FDA obligations and continued regulatory oversight and review, including the general controls listed above and the FDA’s QSRs for our development and manufacturing operations. In addition, we would be required to obtain a new 510(k) clearance before we could introduce subsequent modifications or improvements to such products. We could also be subject to additional FDA post-marketing obligations for such products, any or all of which would increase our costs and divert resources away from other projects.If we sought and received regulatory clearance or approval and are not able to maintain regulatory compliance with

applicable laws, we could be prohibited from marketing our products for use as, or in the performance of, clinical diagnostics and/or could be subject to enforcement actions, including warning letters and adverse publicity, fines, injunctions, and civil penalties; recall or seizure of products; operating restrictions; and criminal prosecution.

In addition, we could decide to seek similar regulatory clearance or approval for certain of our products in countries outside of the United States. Sales of such products outside the United States will likely be subject to foreign regulatory requirements, which can vary greatly from country to country. As a result, the time required to obtain clearances or approvals outside the United States may differ from that required to obtain FDA clearance or approval and we may not be able to obtain foreign regulatory approvals on a timely basis or at all. Clearance or approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA. In Europe, we would need to comply with the Medical Device Directive 93/42 EEC and/or the In Vitro Diagnostics Directive 98/79/EC, which are required to market medical devices in the European Union. These directives are being replaced by Medical Device Regulation 2017/745 and In Vitro Diagnostic Regulation 2017/746, with official entry into force in May 26, 2017 and date of applications of May 26, 2020 and May 26, 2022 respectively. This will increase the difficulty of regulatory approvals in Europe in the future. In addition, the FDA regulates exports of medical devices. Failure to comply with these regulatory requirements or obtain and maintain required approvals, clearances and certifications could impair our ability to commercialize our products for diagnostic use outside of the United States.

Our products could become subject to regulation as medical devices by the FDA or other regulatory agencies before we have obtained regulatory clearance or approval to market our products for diagnostic purposes, which would adversely impact our ability to market and sell our products and harm our business.

As products that are currently labeled, promoted and intended ~~for RUO,~~“for research use only” (RUO), our products are not currently subject to regulation as medical devices by the FDA or comparable agencies of other countries. However, the FDA or comparable agencies of other countries could disagree with our conclusion that our products are currently intended for research use only or deem our current sales, marketing and promotional efforts as being inconsistent with research use only products. For example, our customers may independently elect to use our research use only labeled products in their own laboratory developed tests ~~or LDTs,~~(LDTs) for clinical diagnostic use. The FDA has historically exercised enforcement discretion in not enforcing the medical device regulations against laboratories offering LDTs. However, on October 3, 2014, the FDA issued two draft guidance documents that set forth the FDA’s proposed risk-based framework for regulating LDTs, which are designed, manufactured, and used within a single laboratory. The draft guidance documents provide the anticipated details through which the FDA would propose to establish an LDT oversight framework, including premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved or cleared companion diagnostic tests currently on the market. In January 2017, the FDA announced that it would not issue final guidance on the oversight of LDTs and LDT manufacturers, but would seek further public discussion on an appropriate oversight approach, and give Congress an opportunity to develop a legislative solution. Any future legislative or administrative rule making or oversight of LDTs and LDT manufacturers, if and when finalized, may impact the sales of our products and how customers use our products, and may require us to change our business model in order to maintain compliance with these laws. We cannot predict how these various efforts will be resolved, how Congress or the FDA will regulate LDTs in the future, or how that regulatory system will impact our business.

Additionally, on November 25, 2013, the FDA issued Final Guidance “Distribution of In Vitro Diagnostic Products Labeled for Research Use Only.” The guidance emphasizes that the FDA will review the totality of the circumstances when it comes to evaluating whether equipment and testing components are properly labeled as RUO. The final guidance states that merely including a labeling statement that the product is for research purposes only will not necessarily render the device exempt from the FDA’s clearance, approval, and other regulatory requirements if the circumstances surrounding the distribution, ~~of the product~~marketing and promotional practices indicate that the manufacturer knows its ~~product is,~~products are, or intends for its ~~product~~products to be, used for clinical diagnostic purposes. These circumstances may include written or verbal sales and marketing claims or links to articles regarding a product’s performance in clinical applications and a manufacturer’s provision of technical support for clinical applications.

If the FDA modifies its approach to our products labeled and intended ~~for~~as RUO, or otherwise determines our products or related applications should be subject to additional regulation as in vitro diagnostic devices based upon customers’ use of our products for clinical diagnostic or therapeutic purposes, before we have obtained regulatory clearance or approval to market our products for diagnostic purposes, our ability to market and sell our products could be impeded and our business, prospects, results of operations and financial condition may be adversely affected. In addition, if the FDA determines that our products labeled ~~for~~as RUO were intended, based on a review of the totality of circumstances, for use in clinical investigation or diagnosis, those products could be considered misbranded or adulterated under the Federal Food, Drug, and Cosmetic Act and subject to recall and/or other enforcement action.

Compliance or the failure to comply with current and future regulations affecting our products and business operations worldwide, such as environmental regulations enacted in the European Union, could cause us significant expense and adversely impact our business.

We are subject to many federal, state, local, and foreign regulations relating to various aspects of our business operations. Governmental entities at all levels are continuously enacting new regulations, and it is difficult to identify all applicable regulations and anticipate how such regulations will be implemented and enforced. We continue to evaluate the necessary steps for compliance with applicable regulations. To comply with applicable regulations, we have and will continue to incur significant expense and allocate valuable internal resources to manage compliance-related issues. In addition, such regulations could restrict our ability to expand or equip our facilities, or could require us to acquire costly equipment or to incur other significant expenses to comply with the regulations. For example, the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment Directive, or RoHS, and the Waste Electrical and Electronic Equipment Directive, or WEEE, enacted in the European Union, regulate the use of certain hazardous substances in, and require the collection, reuse, and recycling of waste from, products we manufacture. Certain of our products sold in these countries are subject to WEEE ~~requirements may become subject to~~and RoHS. These and similar regulations that have been or are in the process of being enacted in other countries may require us to redesign our products, use different types of materials in certain components, or source alternative components to ensure compliance with applicable standards, and may reduce the availability of parts and components used in our products by negatively impacting our suppliers’ ability to source parts and components in a timely and cost-effective manner.

Any such redesigns, required use of alternative materials, or limited availability of parts and components used in our products may detrimentally impact the performance of our products, add greater testing lead times for product introductions, reduce our product margins, or limit the markets for our products, and if we fail to comply with any present and future regulations, we could be subject to future fines, penalties, and restrictions, such as the suspension of manufacturing of our products or a prohibition on the sale of products we manufacture. Any of the foregoing could adversely affect our business, financial condition, or results of operations.

If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be impaired, which could adversely affect our business and our stock price.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses.

Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant management time on compliance-related issues. We currently do not have an internal audit group, and we continue to evaluate our need for additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we do not comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market

price of our stock could decline and we could be subject to sanctions or investigations by the ~~NASDAQ~~Nasdaq Global Select Market ~~or NASDAQ,~~(Nasdaq), the SEC, or other regulatory authorities, which would require additional financial and management resources.

Impairment of our goodwill or other intangible assets could materially and adversely affect our business, operating results, and financial condition.

As of December 31, 2018, we had approximately $165.9 million of goodwill and net intangible assets, including approximately $104.1 million of goodwill and $61.8 million of net intangible assets. These assets represent a significant portion of the assets recorded on our consolidated balance sheet and relate primarily to our acquisition of DVS Sciences, Inc., or DVS, in February 2014. In addition, if in the future we acquire additional businesses, technologies, or other intangible assets, a substantial portion of the value of such assets may be recorded as goodwill or intangible assets.

The carrying amounts of goodwill and intangible assets are affected whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We review goodwill and indefinite lived intangible assets for impairment at least annually and more frequently under certain circumstances. Other intangible assets that are deemed to have finite useful lives will continue to be amortized over their useful lives but must be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge include declines in our stock price or market capitalization, declines in our market share or revenues, an increase in our losses, rapid changes in technology, failure to achieve the benefits of capacity increases and utilization, significant litigation arising out of an acquisition, or other matters. In particular, these or other adverse events or changes in circumstances may affect the estimated undiscounted future operating cash flows expected to be derived from our goodwill and intangible assets. Any impairment charges could have a material adverse effect on our operating results and net asset value in the quarter in which we recognize the impairment charge. We cannot provide assurances that we will not in the future be required to recognize impairment charges.

Our future capital needs are uncertain and we may need to raise additional funds in the future, which may cause dilution to stockholders or may be upon terms that are not favorable to us.

We believe that our existing cash and cash equivalents and availability under the Revolving Credit Facility will be sufficient to meet our anticipated cash requirements ~~for~~through at least ~~the next 18 months.~~December 31, 2020. We have continued to experience losses and, if that trend continues, we may need to seek additional sources of financing. In addition, we may need to raise substantial additional capital for various purposes, including:

expanding the commercialization of our products;

funding our operations;

furthering our research and development; and

acquiring other businesses or assets and licensing technologies.

Our future funding requirements will depend on many factors, including:

market acceptance of our products;

the cost of our research and development activities;

the cost of filing and prosecuting patent applications;

the cost of defending any litigation including intellectual property, employment, contractual or other litigation;

the cost and timing of regulatory clearances or approvals, if any;

the cost and timing of establishing additional sales, marketing, and distribution capabilities;

the cost and timing of establishing additional technical support capabilities;

fluctuations in cash demands (e.g., due to interest or principal payments or payouts under existing cash compensation plans);

variability in sales and timing of related cash collections;

the effectiveness of our recent efficiency and cost-savings initiatives;

the effect of competing technological and market developments; and

the extent to which we acquire or invest in businesses, products, and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

To the extent we draw on our Revolving Credit Facility or otherwise incur additional indebtedness, the risks described above could increase. Further, if we increase our indebtedness, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and we cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing in addition to the Revolving Credit Facility, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we do not have or are unable to raise adequate funds, we may have to liquidate some or all of our assets, delay development or commercialization of our products, or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce marketing, customer support, research and development, or other resources devoted to our products, or cease operations. Any of these factors could harm our operating results.

If we fail to comply with the covenants and other obligations under our credit facility, the lenders may be able to accelerate amounts owed under the facilities and may foreclose upon the assets securing our obligations.

In August 2018, we entered into the Revolving Credit Facility, which provides for secured revolving loans in an aggregate amount of up to $15.0 million. The Revolving Credit Facility is secured by substantially all of our assets, other than intellectual property. The Revolving Credit Facility contains customary affirmative and negative covenants which, unless waived by the bank, limit our ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets, enter into affiliate transactions, undergo a change of control, or engage in merger and acquisition activity, including merging or consolidating with a third party. If we fail to comply with the covenants and our other obligations under the Revolving Credit Facility, the lenders would be able to accelerate the required repayment of amounts due under the Revolving Credit Facility and, if they are not repaid, could foreclose upon the assets securing our obligations under the Revolving Credit Facility.

We are subject to risks related to taxation in multiple jurisdictions and if taxing authorities disagree with our interpretations of existing tax laws or regulations, our effective income tax rate could be adversely affected and we could have additional tax liability.

We are subject to income taxes in both the United States and certain foreign jurisdictions. Significant judgments based on interpretations of existing tax laws or regulations are required in determining the provision for income taxes. For example, we have made certain interpretations of existing tax laws or regulations based upon the operations of our business internationally and we have implemented intercompany agreements based upon these interpretations and related transfer pricing analyses. If the U.S. Internal Revenue Service or other taxing authorities disagree with the positions, our effective income tax rate could be adversely affected and we could have additional tax liability, including interest and penalties. We recently completed a review of our European corporate structure and tax positions and, based upon our existing business operations, we restructured our European intercompany transactions, which increased our income tax liability. From time to time, we may review our corporate structure and tax positions in other international jurisdictions and such review may result in additional changes to how we structure our international business operations, which may adversely impact our effective income tax rate. Our effective income tax rate could also be adversely affected by changes in the mix of earnings in tax jurisdictions with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in existing tax laws or tax rates, changes in the level of non-deductible expenses (including share-based compensation), changes in our future levels of research and development spending, mergers and acquisitions, or the result of examinations by various tax authorities. Legislation commonly referred to as the 2017 Tax Cuts and Jobs Act was enacted in the United States on December 22, 2017 and introduced a number of changes to U.S. federal income tax, the consequences to us of which have not yet been fully determined and which could have material impact on the value of our deferred tax assets, could result in significant one-time charges in the current or future taxable years, and could increase our future U.S. tax expense. Payment of additional amounts as a result of changes in applicable tax law or upon final adjudication of any disputes could have a material impact on our results of operations and financial position.

Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes and other tax benefits may be limited.

Section 382 of the Internal Revenue Code of 1986, as amended, referred to as the “Code,” imposes an annual limitation on the amount of taxable income that may be offset if a corporation experiences an “ownership change” as defined in Section 382 of the Code. An ownership change occurs when a company’s “five-percent shareholders” (as defined in Section 382 of the Code)

collectively increase their ownership in the company by more than 50 percentage points (by value) over a rolling three-year period. Additionally, various states have similar limitations on the use of state net operating losses, referred to as our NOLs, following an ownership change.

If we experience an ownership change, our ability to use our NOLs, any loss or deduction attributable to a “net unrealized built-in loss” and other tax attributes, which we refer to as tax benefits, could be substantially limited, and the timing of the usage of the tax benefits could be substantially delayed, which could significantly impair the value of the tax benefits. There is no assurance that we will be able to fully utilize the tax benefits and we could be required to record an additional valuation allowance related to the amount of the tax benefits that may not be realized, which could adversely impact our results of operations.

We believe that these tax benefits are a valuable asset for us. However, legislation commonly known as the 2017 Tax Cuts and Jobs Act includes a decrease in the U.S. federal corporate income tax rate from 35% to 21%, and our tax benefits were revalued at the newly enacted rate. We do not expect this to have a material impact on our financial statements because we currently maintain a full valuation allowance on our U.S. deferred tax assets; however, this reduction in the U.S. federal corporate income tax rate results in a corresponding reduction in the value of our tax benefits. On November 21, 2016, our board of directors approved a tax benefit preservation plan, or Tax Benefit Preservation Plan, in an effort to protect our tax benefits during the effective period of the tax benefit preservation plan. Our board of directors elected to let the Tax Benefit Preservation Plan expire in August 2017 based on its determination, in consultation with our management and tax advisors, that our NOLs were not at material risk of limitation based on an ownership change pursuant to Section 382. Our board of directors will continue to monitor our NOLs, however, and could elect to adopt a similar plan if it believes a potential risk exists that our NOLs could be limited. Any future tax benefit preservation plan could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, us or a large block of our common stock.

Adverse conditions in the global economy and disruption of financial markets may significantly harm our revenue, profitability, and results of operations.

The global credit and financial markets have in recent years experienced volatility and disruptions, including diminished liquidity and credit availability, increased concerns about inflation and deflation, and the downgrade of U.S. debt and exposure risks on other sovereign debts, decreased consumer confidence, lower economic growth, volatile energy costs, increased unemployment rates, and uncertainty about economic stability. In addition, certain geopolitical events, including the prolonged shutdown of the United States government and the ongoing negotiation of the United Kingdom’s withdrawal from the European Union, have caused significant economic, market, political and regulatory uncertainty in some of our markets. Volatility and disruption of financial markets could limit our customers’ ability to obtain adequate financing or credit to purchase and pay for our products in a timely manner or to maintain operations, which could result in a decrease in sales volume that could harm our results of operations. General concerns about the fundamental soundness of domestic and international economies may also cause our customers to reduce their purchases. Changes in governmental banking, monetary, and fiscal policies to address liquidity and increase credit availability may not be effective. Significant government investment and allocation of resources to assist the economic recovery of sectors which do not include our customers may reduce the resources available for government grants and related funding for life science, Ag-Bio, and clinical research and development. Continuation or further deterioration of these financial and macroeconomic conditions could significantly harm our sales, profitability, and results of operations.

~~If we are unable to integrate future acquisitions successfully, our operating results and prospects could be harmed.~~

In addition to our acquisition of DVS, we may make additional acquisitions to improve our product offerings or expand into new markets. Our future acquisition strategy will depend on our ability to identify, negotiate, complete, and integrate acquisitions and, if necessary, to obtain satisfactory debt or equity financing to fund those acquisitions. Mergers and acquisitions are inherently risky, and any transaction we complete may not be successful. Our acquisition of DVS was our first acquisition of another company. Any merger or acquisition we may pursue would involve numerous risks, including but not limited to the following:

~~difficulties in integrating and managing the operations, technologies, and products of the companies we acquire;~~

~~diversion of our management’s attention from normal daily operation of our business;~~

~~our inability to maintain the key business relationships and the reputations of the businesses we acquire;~~

~~our inability to retain key personnel of the acquired company;~~

~~uncertainty of entry into markets in which we have limited or no prior experience and in which competitors have stronger market positions;~~

~~our dependence on unfamiliar affiliates and customers of the companies we acquire;~~

~~insufficient revenue to offset our increased expenses associated with acquisitions;~~

~~our responsibility for the liabilities of the businesses we acquire, including those which we may not anticipate; and~~

~~our inability to maintain internal standards, controls, procedures, and policies.~~

If we are unable to expand our direct sales and marketing force or distribution capabilities to adequately address our customers’ needs, our business may be adversely affected.

We may not be able to market, sell, and, distribute our products effectively enough to support our planned growth. We sell our products primarily through our own sales force and through distributors in certain territories. Our future sales will depend in large part on our ability to continue to develop and substantially expand our direct sales force and to increase the scope of our marketing efforts. Our products are technically complex and used for highly specialized applications. As a result, we believe it is necessary to continue to develop a direct sales force that includes people with specific scientific backgrounds and expertise, and a marketing group with technical sophistication. Competition for such employees is intense. In addition, we have experienced significant changes in our

sales organization in recent quarters due to reorganizations and changes in leadership. We may not be able to attract and retain personnel or be able to build an efficient and effective sales and marketing force, which would negatively impact sales of our products and reduce our revenue and profitability.

In addition, we may continue to enlist one or more sales representatives and distributors to assist with sales, distribution, and customer support globally or in certain regions of the world. If we do seek to enter into such arrangements, we may not be successful in attracting desirable sales representatives and distributors, or we may not be able to enter into such arrangements on favorable terms. If our sales and marketing efforts, or those of any third-party sales representatives and distributors, are not

successful, our technologies and products may not gain market acceptance, which would materially and adversely impact our business operations.

If we seek to implement a company-wide ~~implementation of an~~ enterprise resource planning ~~or ERP,~~(ERP) system, such implementation could adversely affect our business and results of operations or the effectiveness of internal control over financial reporting.

We have considered implementing a company-wide ERP system to handle the business and financial processes within our operations and corporate functions. ERP implementations are complex and time-consuming projects that involve substantial expenditures on system software and implementation activities that can continue for several years. ERP implementations also require transformation of business and financial processes in order to reap the benefits of the ERP system. If we decide to implement a company-wide ERP system, our business and results of operations could be adversely affected if we experience operating problems and/or cost overruns during the ERP implementation process, or if the ERP system and the associated process changes do not give rise to the benefits that we expect. If we do not effectively implement the ERP system as planned or if the system does not operate as intended, our business, results of operations, and internal controls over financial reporting could be adversely affected.

Changes in accounting principles, or interpretations thereof, could have a significant impact on our financial position and results of operations.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, referred to as U.S. GAAP. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions. Additionally, the adoption of new or revised accounting principles may require that we make significant changes to our systems, processes and controls.

For example, the U.S.-based Financial Accounting Standards Board ~~referred to as FASB,~~(FASB) is currently working together with the International Accounting Standards Board, referred to IASB, on several projects to further align accounting principles and facilitate more comparable financial reporting between companies who are required to follow U.S. GAAP under SEC regulations and those who are required to follow International Financial Reporting Standards outside of the United States. These efforts by the FASB and IASB may result in different accounting principles under U.S. GAAP that may result in materially different financial results for us in areas including, but not limited to, principles for recognizing revenue and lease accounting. Additionally, significant changes to U.S. GAAP resulting from the FASB’s and IASB’s efforts may require that we change how we process, analyze and report financial information and that we change financial reporting controls. Additionally, the FASB issued new guidance ~~relating to~~ (ASU 2014-09) Revenue from Contracts with Customers (Topic 606) which supersedes nearly all existing U.S. GAAP revenue recognition guidance. The new guidance ~~will be~~was effective for our fiscal year 2018. ~~The new revenue guidance may be applied retrospectively~~We adopted ASU 2014-09 in the first quarter of 2018 using the modified retrospective method. Under the modified retrospective method, periods prior to ~~each prior period presented or retrospectively with~~the adoption of ASU 2014-09 are not restated and the cumulative effect ~~recognized~~of initially applying the new standard is reflected in the opening balance of retained earnings as of January 1, 2018. To date, the ~~date of adoption. While we have~~adoption has not ~~completed our assessment of the new revenue guidance, we currently expect that this new guidance will not have~~had a material impact on our consolidated financial statements. ~~As we complete~~Additional disclosures are required for significant differences between the ~~evaluation~~reported results under the new standard and those that would have been reported under the legacy standard, which required us to make certain changes to our business processes and controls to support revenue recognition and disclosure under the new standard.

The FASB also issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The core principle is that lessees should recognize the assets and liabilities arising from leases on the balance sheet. Under the new standard, lessees will be required to recognize lease assets and liabilities for all leases, with certain exceptions, on their balance sheets. We adopted ASU 2016-02 as of January 1, 2019. The adoption of this ~~new guidance, new information may arise that could change~~standard had a material impact on our ~~current understanding of the impact to revenue and expense recognized. Additionally, we will~~consolidated financial statements. We continue to ~~monitor industry activities~~identify the appropriate changes to our business processes, systems, and ~~any additional guidance provided by regulators, standards setters, or~~controls to support the ~~accounting profession~~new lease standard and ~~adjust our assessment and implementation plans accordingly.~~

the required disclosures under the new standard.

It is not clear if or when these and other potential changes in accounting principles may become effective, whether we have the proper systems and controls in place to accommodate such changes and the impact that any such changes may have on our financial position and results of operations.

We have a significant amount of outstanding indebtedness, and our financial condition and results of operations could be adversely affected if we do not efficiently manage our liabilities.

~~Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes~~We have significant outstanding convertible debt, and ~~other tax benefits~~ may be ~~limited.~~required to repay, refinance or restructure a portion of such debt before 2021. As of June 30, 2019, we had outstanding $51.3 million aggregate principal amount of our 2014 Notes. The 2014

~~Section~~ ~~382~~

Notes will mature on February 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the ~~Internal Revenue Code~~2014 Notes. Holders of ~~1986, as amended, referred~~the 2014 Notes may require us to asrepurchase all or a portion of their 2014 Notes on each of February 6, 2021, February 6, 2024, and February 6, 2029 at a repurchase price in cash equal to 100% of the ~~“Code,” imposes an annual limitation on the~~principal amount of ~~taxable income that may be offset if~~the Notes plus accrued and unpaid interest. If we undergo a ~~corporation experiences an “ownership change”~~fundamental change, as defined in ~~Section 382~~the terms of each of the ~~Code. An ownership change occurs when a company’s “five-percent shareholders” (as defined in Section 382~~applicable series of Notes, holders of the ~~Code) collectively increase their ownership~~2014 Notes may require us to repurchase the 2014 Notes in whole or in part for cash at a repurchase price equal to 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest. If we refinance the debt owed under the 2014 Notes, we may issue additional convertible notes or other debt, which could include additional company byobligations and represent more ~~than 50 percentage points (by value) over~~dilution to existing stockholders and noteholders.

This significant amount of debt has important risks to us and our investors, including:

requiring a ~~rolling three-year period. Additionally, various states have similar limitations~~portion of our cash flow from operations to make interest payments on this debt;

increasing our vulnerability to general adverse economic and industry conditions;

reducing the ~~use of state net operating losses, referred~~cash flow available to asfund capital expenditures and other corporate purposes and to grow our ~~NOL's, following an ownership change~~.business;

limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and

If ~~we experience an ownership change,~~limiting our ability to ~~use~~borrow additional funds as needed or take advantage of business opportunities as they arise.

In addition, to the extent we draw on our ~~NOLs, any loss~~Revolving Credit Facility or ~~deduction attributable~~otherwise incur additional indebtedness, the risks described above could increase. Further, if we increase our indebtedness, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to ~~a “net unrealized built-in loss” and other tax attributes, which we refer to as tax benefits, could be substantially limited, and the timing~~repay all of the ~~usage of the tax benefits could be substantially delayed, which could significantly impair the value of the tax benefits. There is no assurance that~~outstanding debt as it becomes due, and we ~~will~~may not be able to ~~fully utilize the tax benefits and we could be required~~borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to ~~record an additional valuation allowance related to the amount of the tax benefits that may not be realized, which could adversely impact~~refinance our ~~results of operations.~~

We believe that these tax benefits are a valuable asset for us. On November 21, 2016, our board of directors approved a tax benefit preservation plan, or Tax Benefit Preservation Plan, in an effort to protect our tax benefits during the effective period of the tax benefit preservation plan. Our board of directors elected to let the Tax Benefit Preservation Plan expire in August 2017 based on its determination, in consultation with our management and tax advisors, that our NOLs were not at material risk of limitation based on an ownership change pursuant to Section 382. Our board of directors will continue to monitor our NOLs, however, and could elect to adopt a similar plan if it believes a potential risk exists that our NOLs could be limited. ~~Any future~~ ~~tax benefit preservation plan could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, us or a large block of our common stock.~~ The value of our tax benefits reflects the currently prescribed Federal corporate income tax rate. A reduction in the corporate income tax rate would cause a reduction to our deferred tax assets and the related valuation allowance.

debt.

Risks Related to Intellectual Property

Our ability to protect our intellectual property and proprietary technology through patents and other means is uncertain.

Our commercial success depends in part on our ability to protect our intellectual property and proprietary technologies. We rely on patent protection, where appropriate and available, as well as a combination of copyright, trade secret, and trademark laws, and nondisclosure, confidentiality, and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We apply for patents covering our products and technologies and uses thereof, as we deem appropriate. However, we may fail to apply for patents on important products and technologies in a timely fashion or at all. Our pending U.S. and foreign patent applications may not issue as patents or may not issue in a form that will be sufficient to protect our proprietary technology and gain or keep our competitive advantage. Any patents we have obtained or do obtain may be subject to re-examination, reissue, opposition, or other administrative proceeding, or may be challenged in litigation, and such challenges could result in a determination that the patent is invalid or unenforceable. In addition, competitors may be able to design alternative methods or devices that avoid infringement of our patents. Both the patent application process and the process of managing patent disputes can be time consuming and expensive.

Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example:

We might not have been the first to make the inventions covered by each of our pending patent applications;

We might not have been the first to file patent applications for these inventions;

The patents of others may have an adverse effect on our business; and

Others may independently develop similar or alternative products and technologies or duplicate any of our products and technologies.

To the extent our intellectual property, including licensed intellectual property, offers inadequate protection, or is found to be invalid or unenforceable, our competitive position and our business could be adversely affected.

We may be involved in lawsuits to protect or enforce our patents and proprietary rights, to determine the scope, coverage and validity of others’ proprietary rights, or to defend against third party claims of intellectual property infringement, any of which could be time-intensive and costly and may adversely impact our business or stock price.

Litigation may be necessary for us to enforce our patent and proprietary rights, determine the scope, coverage, and validity of others’ proprietary rights, and/or defend against third party claims of intellectual property infringement against us as well as against our suppliers, distributors, customers, and other entities with whom we do business. Litigation could result in substantial legal fees and could adversely affect the scope of our patent protection. The outcome of any litigation or other proceeding is inherently uncertain and might not be favorable to us, and we might not be able to obtain licenses to technology that we require. Even if such licenses are obtainable, they may not be available at a reasonable cost. We could therefore incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our product margins or financial position. Further, we could encounter delays in product introductions, or interruptions in product sales, as we develop alternative methods or products.

As we move into new markets and applications for our products, incumbent participants in such markets may assert their patents and other proprietary rights against us as a means of impeding our entry into such markets or as a means to extract substantial license and royalty payments from us. Our commercial success may depend in part on our non-infringement of the patents or proprietary rights of third parties. Numerous significant intellectual property issues have been litigated, and will likely continue to be litigated, between existing and new participants in our existing and targeted markets. For example, some of our products provide for the testing and analysis of genetic material, and patent rights relating to genetic materials remain a developing area of patent law. A recent U.S. Supreme Court decision held, among other things, that claims to isolated genomic

DNA occurring in nature are not patent eligible, while claims relating to synthetic DNA may be patent eligible. We expect the ruling will result in additional litigation in our industry. In addition, third parties may assert that we are employing their proprietary technology without authorization, and if they are successful in making such claims, we may be forced to enter into license agreements, pay additional royalties or license fees, or enter into settlements that include monetary obligations or restrictions on our business.

Our customers have been sued for various claims of intellectual property infringement in the past, and we expect that our customers will be involved in additional litigation in the future. In particular, our customers may become subject to lawsuits claiming that their use of our products infringes third-party patent rights, and we could become subject to claims that we contributed to or induced our customer’s infringement. In addition, our agreements with some of our suppliers, distributors, customers, and other entities with whom we do business may require us to defend or indemnify these parties to the extent they become involved in infringement claims against us, including the claims described above. We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our business relationships. If we are required or agree to defend or indemnify any of these third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results, or financial condition.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees’ former employers or other institutions or third parties with whom such employees may have been previously affiliated.

Many of our employees were previously employed at universities or other life science or Ag-Bio companies, including our competitors or potential competitors. In the future, we may become subject to claims that our employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or other third parties or institutions with whom our employees may have been previously affiliated. Litigation may be necessary to defend against these claims. For example, we were a defendant in litigation brought against us and one of our non-executive employees by Thermo Fisher Scientific Inc. (Thermo) alleging, among other claims, misappropriation of proprietary information and breach of contractual and fiduciary obligations. While we resolved our dispute with Thermo in July 2017, if we fail in defending against similar claims brought in the future we could be subject to injunctive relief against us. A loss of key research personnel work product could hamper or prevent our ability to commercialize certain potential products or a loss of or inability to hire key marketing, sales or research and development personnel could adversely affect our future product development, sales and revenues, any of which could severely harm our business. Even if we are successful in defending against any similar claims brought in the future, litigation could result in substantial costs and be a distraction to management.

We depend on certain technologies that are licensed to us. We do not control these technologies and any loss of our rights to them could prevent us from selling our products, which would have an adverse effect on our business.

We rely on licenses in order to be able to use various proprietary technologies that are material to our business, including our core IFC, multi-layer soft lithography, and mass cytometry technologies. In some cases, we do not control the prosecution, maintenance, or filing of the patents to which we hold licenses, or the enforcement of these patents against third parties. Additionally, our business and product development plans anticipate and may substantially depend on future in-license agreements with additional third parties, some of which are currently in the early discussion phase. For example, Fluidigm Canada Inc., or Fluidigm Canada, an Ontario corporation and ~~wholly-owned~~wholly owned subsidiary of Fluidigm Sciences, was party to an interim license agreement, now expired, with Nodality, Inc., or Nodality, under which Nodality granted Fluidigm Canada a worldwide, non-exclusive, research use only, royalty bearing license to certain cytometric reagents, instruments, and other products. While we were able to secure a license under a new license agreement with Nodality, we cannot provide assurances that we will always be able to obtain suitable license rights to technologies or intellectual property of other third parties on acceptable terms, if at all.

In-licensed intellectual property rights that are fundamental to the business being operated present numerous risks and limitations. For example, all or a portion of the license rights granted may be limited for research use only, and in the event we attempt to expand into diagnostic applications, we would be required to negotiate additional rights, which may not be available to us on commercially reasonable terms, if at all.

Our rights to use the technology we license are also subject to the negotiation and continuation of those licenses. Certain of our licenses contain provisions that allow the licensor to terminate the license upon specific conditions. Our rights under the licenses are subject to our continued compliance with the terms of the license, including the payment of royalties due under the

license. Because of the complexity of our products and the patents we have licensed, determining the scope of the license and related royalty obligation can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license. If a licensor believed we were not paying the royalties due under the license or were otherwise not in compliance with the terms of the license, the licensor might attempt to revoke the license. If such an attempt were successful and the license is terminated, we might be barred from marketing, producing, and selling some or all of our products, which would have an adverse effect on our business. Potential disputes between us and one of our existing licensors concerning the terms or conditions of the applicable license agreement could result, among other risks, in substantial management distraction; increased expenses associated with litigation or efforts to resolve disputes; substantial customer uncertainty concerning the direction of our product lines; potential infringement claims against us and/or our customers, which could include efforts by a licensor to enjoin sales of our products; customer requests for indemnification by us; and, in the event of an adverse determination, our inability to operate our business as currently operated. Termination of material license agreements could prevent us from manufacturing and selling our products unless we can negotiate new license terms or develop or acquire alternative intellectual property rights that cover or enable similar functionality. Any of these factors would be expected to have a material adverse effect on our business, operating results, and financial condition and could result in a substantial decline in our stock price.

We are subject to certain manufacturing restrictions related to licensed technologies that were developed with the financial assistance of U.S. governmental grants.

We are subject to certain U.S. government regulations because we have licensed technologies that were developed with U.S. government grants. In accordance with these regulations, these licenses provide that products embodying the technologies are subject to domestic manufacturing requirements. If this domestic manufacturing requirement is not met, the government agency that funded the relevant grant is entitled to exercise specified rights, referred to as “march-in rights,” which if exercised would allow the government agency to require the licensors or us to grant a non-exclusive, partially exclusive, or exclusive license in any field of use to a third party designated by such agency. All of our microfluidic systems revenue is dependent upon the availability of our IFCs, which incorporate technology developed with U.S. government grants. Our genomics instruments, including microfluidic systems, and IFCs are manufactured at our facility in Singapore. The federal regulations allow the funding government agency to grant, at the request of the licensors of such technology, a waiver of the domestic manufacturing requirement. Waivers may be requested prior to any government notification. We have assisted the licensors of these technologies with the analysis of the domestic manufacturing requirement, and, in December 2008, the sole licensor subject to the requirement applied for a waiver of the domestic manufacturing requirement with respect to the relevant patents licensed to us by this licensor. In July 2009, the funding government agency granted the requested waiver of the domestic manufacturing requirement for a three-year period commencing in July 2009. In June 2012, the licensor requested a continued waiver of the domestic manufacturing requirement with respect to the relevant patents, but the government agency has not yet taken any action in response to this request. If the government agency does not grant the requested waiver or the government fails to grant additional

waivers of such requirement that may be sought in the future, then the U.S. government could exercise its march-in rights with respect to the relevant patents licensed to us. In addition, the license agreement under which the relevant patents are licensed to us contains provisions that obligate us to comply with this domestic manufacturing requirement. We are not currently manufacturing instruments and IFCs in the United States that incorporate the relevant licensed technology. If our lack of compliance with this provision constituted a material breach of the license agreement, the license of the relevant patents could be terminated or we could be compelled to relocate our manufacturing of microfluidic systems and IFCs to the United States to avoid or cure a material breach of the license agreement. Any of the exercise of march-in rights, the termination of our license of the relevant patents or the relocation of our manufacturing of microfluidic systems and IFCs to the United States could materially adversely affect our business, operations and financial condition.

We may be subject to information technology failures, including data protection breaches and cyber-attacks, that could disrupt our operations, damage our reputation and adversely affect our business, operations, and financial results.

We rely on our information technology systems for the effective operation of our business and for the secure maintenance and storage of confidential data relating to our business and third party businesses. Although we have implemented security controls to protect our information technology systems, experienced programmers or hackers may be able to penetrate our security controls, and develop and deploy viruses, worms, and other malicious software programs that compromise our confidential information or that of third parties and cause a disruption or failure of our information technology systems. Any such compromise of our information technology systems could result in the unauthorized publication of our confidential business or proprietary information, result in the unauthorized release of customer, supplier or employee data, result in a violation of privacy or other laws, expose us to a risk of litigation, or damage our reputation. The cost and operational consequences of implementing further data protection measures either as a response to specific breaches or as a result of evolving risks, could be significant. In addition, our inability to use or access our information systems at critical points in time could adversely affect the timely and efficient operation of our business. Any delayed sales, significant costs or lost customers resulting from these technology failures could adversely affect our business, operations, and financial results.

Third parties with which we conduct business have access to certain portions of our sensitive data. In the event that these third parties do not properly safeguard our data that they hold, security breaches could result and negatively impact our business, operations, and financial results.

We are subject to certain obligations and restrictions relating to technologies developed in cooperation with Canadian government agencies.

Some of our Canadian research and development is funded in part through government grants and by government agencies. The intellectual property developed through these projects is subject to rights and restrictions in favor of government agencies and Canadians generally. In most cases the government agency retains the right to use intellectual property developed through the project for non-commercial purposes and to publish the results of research conducted in connection with the project. This may increase the risk of public disclosure of information relating to our intellectual property, including confidential information, and may reduce its competitive advantage in commercializing intellectual property developed through these projects. In certain projects, we have also agreed to use commercially reasonable efforts to commercialize intellectual property in Canada, or more specifically in the province of Ontario, for the economic benefit of Canada and the province of Ontario. These restrictions will limit our choice of business and manufacturing locations, business partners and corporate structure and may, in certain circumstances, restrict our ability to achieve maximum profitability and cost efficiency from the intellectual property generated by these projects. In one instance, a dispute with the applicable government funded entity may require mediation, which could lead to unanticipated delays in our commercialization efforts to that project. One of our Canadian government funded projects is also subject to certain limited “march-in” rights in favor of the government of the Province of Ontario, under which we may be required to grant a license to our intellectual property, including background intellectual property developed outside the scope of the project, to a responsible applicant on reasonable terms in circumstances where the government determines that such a license is necessary in order to alleviate emergency or extraordinary health or safety needs or for public use. In addition, we must provide reasonable assistance to the government in obtaining similar licenses from third parties required in connection with the use of its intellectual property. Instances in which the government of the Province of Ontario has exercised similar “march-in” rights are rare; however, the exercise of such rights could materially adversely affect our business, operations and financial condition.

~~Risks Related to Our Common Stock~~

Our stock price may fluctuate significantly, particularly if holders of substantial amounts of our stock attempt to sell, and holders may have difficulty selling their shares based on current trading volumes of our stock. In addition, numerous other factors could result in substantial volatility in the trading price of our stock.

Our stock is currently traded on NASDAQ, but we can provide no assurance that we will be able to maintain an active trading market on NASDAQ or any other exchange in the future. The trading volume of our stock tends to be low relative to our total outstanding shares, and we have several stockholders who hold substantial blocks of our stock. As of September 30, 2017, we had 38,622,226 shares of common stock outstanding, and stockholders holding at least 5% of our stock, individually or with affiliated persons or entities, collectively beneficially owned or controlled approximately 58.2% of such shares and one stockholder beneficially owned 29.7% of our outstanding common stock. Sales of large numbers of shares by any of our large stockholders could adversely affect our trading price, particularly given our relatively small historic trading volumes. If stockholders holding shares of our common stock sell, indicate an intention to sell, or if it is perceived that they will sell, substantial amounts of their common stock in the public market, the trading price of our common stock could decline. Moreover, if there is no active trading market or if the volume of trading is limited, holders of our common stock may have difficulty selling their shares. In addition, the concentration of ownership of our outstanding common stock (approximately 58.2% held by our top three stockholders) means that a relatively small number of stockholders have significant control over the outcomes of stockholder voting.

In addition, the trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include:

~~actual or anticipated quarterly variation in our results of operations or the results of our competitors;~~

announcements or communications by us or our competitors relating to, among other things, new commercial products, technological advances, significant contracts, commercial relationships, capital commitments, acquisitions or sales of businesses, and/or misperceptions in or speculation by the market regarding such announcements or communications;

~~issuance of new or changed securities analysts’ reports or recommendations for our stock;~~

~~developments or disputes concerning our intellectual property or other proprietary rights;~~

~~commencement of, or our involvement in, litigation;~~

~~market conditions in the life science, Ag-Bio, and CRO sectors;~~

~~failure to complete significant sales;~~

~~manufacturing disruptions that could occur if we were unable to successfully expand our production in our current or an alternative facility;~~

~~any future sales of our common stock or other securities in connection with raising additional capital or otherwise;~~

~~any major change to the composition of our board of directors or management; and~~

~~general economic conditions and slow or negative growth of our markets.~~

The stock market in general, and market prices for the securities of technology-based companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock regardless of our operating performance. In several recent situations where the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

~~If securities or industry analysts publish unfavorable research about our business or cease to cover our business, our stock price and/or trading volume could decline.~~

The trading market for our common stock may rely, in part, on the research and reports that equity research analysts publish about us and our business. We do not have any control of the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

~~Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management, including provisions that:~~

~~authorize our board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock;~~

~~require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;~~

~~specify that special meetings of our stockholders can be called only by our board of directors, the chairman of the board, the chief executive officer or the president;~~

establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;

~~establish that our board of directors is divided into three classes, Class I, Class II, and Class III, with each class serving staggered three year terms;~~

~~provide that our directors may be removed only for cause;~~

~~provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;~~

~~specify that no stockholder is permitted to cumulate votes at any election of directors; and~~

~~require a super-majority of votes to amend certain of the above-mentioned provisions.~~

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.

~~We have never paid cash dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.~~

We have paid no cash dividends on any of our classes of capital stock to date and currently intend to retain our future earnings to fund the development and growth of our business. In addition, we may become subject to covenants under future debt arrangements that place restrictions on our ability to pay dividends. As a result, capital appreciation, if any, of our common stock will be stockholders’ sole source of gain for the foreseeable future.

~~Risks Related to Our Outstanding 2.75% Senior Convertible Notes due 2034~~

~~Our outstanding 2.75% senior convertible notes due 2034 are effectively subordinated to our secured debt and any liabilities of our subsidiaries.~~

~~Our outstanding 2.75% senior convertible notes due 2034, which we refer to as our “notes”, rank:~~

~~senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the notes;~~

~~equal in right of payment to all of our liabilities that are not so subordinated;~~

~~effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and~~

~~structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.~~

In February 2014, we completed our offering of notes with an aggregate outstanding principal amount of $201.3 million. In the event of our bankruptcy, liquidation, reorganization, or other winding up, our assets that secure debt ranking senior in right of payment to the notes will be available to pay obligations on the notes only after the secured debt has been repaid in full from these assets, and the assets of our subsidiaries will be available to pay obligations on the notes only after all claims senior to the notes have been repaid in full. There may not be sufficient assets remaining to pay amounts due on any or all of the notes then outstanding. The indenture governing the notes does not prohibit us from incurring additional senior debt or secured debt, nor does it prohibit our subsidiaries from incurring additional liabilities.

~~The notes are our obligations only and some of our operations are conducted through, and a portion of our consolidated assets are held by, our subsidiaries.~~

The notes are our obligations exclusively and are not guaranteed by any of our operating subsidiaries. A portion of our consolidated assets is held by our subsidiaries. Accordingly, our ability to service our debt, including the notes, depends in part on the results of operations of our subsidiaries and upon the ability of such subsidiaries to provide us with cash, whether in the form of dividends, loans, or otherwise, to pay amounts due on our obligations, including the notes. Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to make payments on the notes or to make any funds available for that purpose. In addition, dividends, loans, or other distributions to us from such subsidiaries may be subject to contractual and other restrictions and are subject to other business and tax considerations.

~~Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the notes.~~

We expect that many investors in, and potential purchasers of, the notes will employ, or seek to employ, a convertible arbitrage strategy with respect to the notes. Investors would typically implement such a strategy by selling short the common stock underlying the notes and dynamically adjusting their short position while continuing to hold the notes. Investors may also implement this type of strategy by entering into swaps on our common stock in lieu of or in addition to short selling the common stock. As a result, any specific rules regulating equity swaps or short selling of securities or other governmental action that interferes with the ability of market participants to effect short sales or equity swaps with respect to our common stock could adversely affect the ability of investors in, or potential purchasers of, the notes to conduct the convertible arbitrage strategy that we believe they will employ, or seek to employ, with respect to the notes. This could, in turn, adversely affect the trading price and liquidity of the notes.

The SEC and other regulatory and self-regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt additional rules and take other actions, that may impact those engaging in short selling activity involving equity securities (including our common stock). Such rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc. and the national securities exchanges of a “Limit Up-Limit Down” program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods following specific market declines, and the implementation of certain regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Although the direction and magnitude of the effect that Regulation SHO, FINRA, securities exchange rule changes, and implementation of the Dodd-Frank Act may have on the trading price and the liquidity of the notes will depend on a variety of factors, many of which cannot be determined at the date of this report, past regulatory actions (such as certain emergency orders issued by the SEC in 2008 prohibiting short sales of stock of certain financial services companies) have had a significant impact

on the trading prices and liquidity of convertible debt instruments. Any governmental or regulatory action that restricts the ability of investors in, or potential purchasers of, the notes to effect short sales of our common stock, borrow our common stock, or enter into swaps on our common stock or increases the costs of implementing an arbitrage strategy could adversely affect the trading price and the liquidity of the notes.

~~Volatility in the market price and trading volume of our common stock could adversely impact the trading price of the notes.~~

The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated to the operating performance of companies. The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this report, or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political instability. The market price of our common stock could also decline as a result of sales of a large number of shares of our common stock in the market, particularly sales by our directors, executive officers, employees, and significant stockholders, and the perception that these sales could occur may also depress the market price of our common stock. A decrease in the market price of our common stock would likely adversely impact the trading price of the notes. The market price of our common stock could also be affected by possible sales of our common stock by investors who view the notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock. This trading activity could, in turn, affect the trading price of the notes.

~~We may still incur substantially more debt or take other actions which would intensify the risks discussed above.~~

We are not restricted under the terms of the indenture governing the notes from incurring additional debt, securing existing or future debt, recapitalizing our debt, or taking a number of other actions that are not limited by the terms of the indenture governing the notes that could have the effect of diminishing our ability to make payments on the notes when due. Any failure by us or any of our significant subsidiaries to make any payment at maturity of indebtedness for borrowed money in excess of $15 million or the acceleration of any such indebtedness in excess of $15 million would, subject to the terms of the indenture governing the notes, constitute a default under the indenture. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the notes when required.

We may not have the ability to raise the funds necessary to repurchase the notes upon specified dates or upon a fundamental change, and our future debt may contain limitations on our ability to repurchase the notes.

Holders of the notes have the right to require us to repurchase all or a portion of their notes on certain dates or upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of notes surrendered therefor.

In addition, our ability to repurchase the notes may be limited by law, regulatory authority, or agreements governing our future indebtedness. Our failure to repurchase notes at a time when the repurchase is required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes when required.

Holders of notes are not entitled to any rights with respect to our common stock, but they are subject to all changes made with respect to them to the extent our conversion obligation includes shares of our common stock.

Holders of notes are not entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock) prior to the conversion date with respect to any notes they surrender for conversion, but they are subject to all changes affecting our common stock. For example, if an amendment is proposed to our certificate of incorporation or bylaws requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the conversion date with respect to any notes surrendered for conversion, then the holder surrendering such notes will not be entitled to vote on the amendment, although such holder will nevertheless be subject to any changes affecting our common stock.

~~We have made only limited covenants in the indenture governing the notes, and these limited covenants may not protect a noteholder's investment.~~

~~The indenture governing the notes does not:~~

require us to maintain any financial ratios or specific levels of net worth, revenues, income, cash flows, or liquidity and, accordingly, does not protect holders of the notes in the event that we experience adverse changes in our financial condition or results of operations;

~~limit our subsidiaries’ ability to guarantee or incur indebtedness that would rank structurally senior to the notes;~~

~~limit our ability to incur additional indebtedness, including secured indebtedness;~~

~~restrict our subsidiaries’ ability to issue securities that would be senior to our equity interests in our subsidiaries and therefore would be structurally senior to the notes;~~

~~restrict our ability to repurchase our securities;~~

~~restrict our ability to pledge our assets or those of our subsidiaries; or~~

~~restrict our ability to make investments or pay dividends or make other payments in respect of our common stock or our other indebtedness.~~

Furthermore, the indenture governing the notes contains only limited protections in the event of a change of control. We could engage in many types of transactions, such as acquisitions, refinancings, or certain recapitalizations, that could substantially affect our capital structure and the value of the notes and our common stock but may not constitute a “fundamental change” that permits holders to require us to repurchase their notes or a “make-whole fundamental change” that permits holders to convert their notes at an increased conversion rate. For these reasons, the limited covenants in the indenture governing the notes may not protect a noteholder's investment in the notes.

The increase in the conversion rate for notes converted in connection with a make-whole fundamental change or provisional redemption may not adequately compensate noteholders for any lost value of the notes as a result of such transaction or redemption.

If a make-whole fundamental change occurs prior to February 6, 2021 or upon our issuance of a notice of provisional redemption, under certain circumstances, we will increase the conversion rate by a number of additional shares of our common stock for notes converted in connection with such events. The increase in the conversion rate for notes converted in connection with such events may not adequately compensate noteholders for any lost value of the notes as a result of such transaction or redemption. In addition, if the price of our common stock in the transaction is greater than $180.00 per share or less than $39.96 per share (in each case, subject to adjustment), no additional shares will be added to the conversion rate. Moreover, in no event will the conversion rate per $1,000 principal amount of notes as a result of this adjustment exceed 25.0250 shares of common stock, subject to adjustment.

Our obligation to increase the conversion rate for notes converted in connection with such events could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness and equitable remedies.

~~The conversion rate of the notes may not be adjusted for all dilutive events.~~

The conversion rate of the notes is subject to adjustment for certain events, including, but not limited to, the issuance of certain stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, cash dividends and certain issuer tender or exchange offers. However, the conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash, that may adversely affect the trading price of the notes or our common stock. An event that adversely affects the value of the notes may occur, and that event may not result in an adjustment to the conversion rate.

~~Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be obligated to offer to repurchase the notes.~~

Upon the occurrence of a fundamental change, a holder of notes has the right to require us to repurchase the notes. However, the fundamental change provisions will not afford protection to holders of notes in the event of other transactions that could adversely affect the notes. For example, transactions such as leveraged recapitalizations, refinancings, restructurings, or acquisitions initiated by us may not constitute a fundamental change requiring us to repurchase the notes. In the event of any such transaction, the holders would not have the right to require us to repurchase the notes, even though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting the holders of notes.

In addition, absent the occurrence of a fundamental change or a make-whole fundamental change as described under changes in the composition of our board of directors will not provide holders with the right to require us to repurchase the notes or to an increase in the conversion rate upon conversion.

~~We cannot assure noteholders that an active trading market will develop or be maintained for the notes.~~

We do not intend to apply to list our outstanding convertible notes on any securities exchange or to arrange for quotation on any automated dealer quotation system. In addition, the liquidity of the trading market in the notes and the market price quoted for the notes may be adversely affected by changes in the overall market for this type of security and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, we cannot assure noteholders that an active trading market will develop or be maintained for the notes. If an active trading market does not develop or is not maintained, the market price and liquidity of the notes may be adversely affected. In that case, noteholders may not be able to sell the notes at a particular time or at a favorable price.

~~Any adverse rating of the notes may cause their trading price to fall.~~

We do not intend to seek a rating on the notes. However, if a rating service were to rate the notes and if such rating service were to lower its rating on the notes below the rating initially assigned to the notes or otherwise announces its intention to put the notes on credit watch, the trading price of the notes could decline.

~~Holders of notes may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the notes even though they do not receive a corresponding cash distribution.~~

The conversion rate of the notes is subject to adjustment in certain circumstances, including the payment of cash dividends. If the conversion rate is adjusted as a result of a distribution that is taxable to our common stockholders, such as a cash dividend, a noteholder may be deemed to have received a dividend subject to U.S. federal income tax without the receipt of any cash. In addition, a failure to adjust (or to adjust adequately) the conversion rate after an event that increases a noteholder's proportionate interest in us could be treated as a deemed taxable dividend to you. If a make-whole fundamental change occurs prior to February 6, 2021 or we provide notice of a provisional redemption, under some circumstances, we will increase the conversion rate for notes converted in connection with the make-whole fundamental change or provisional redemption. Such increase may also be treated as a distribution subject to U.S. federal income tax as a dividend. For a non-U.S. holder, any deemed dividend would be subject to U.S. federal withholding tax at a 30% rate, or such lower rate as may be specified by an applicable treaty, which may be set off against subsequent payments on the notes.

~~Any conversions of the notes will dilute the ownership interest of our existing stockholders, including holders who had previously converted their notes.~~

Any conversion of some or all of the notes will dilute the ownership interests of our existing stockholders. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the notes may encourage short selling by market participants because the conversion of the notes could depress the price of our common stock.

Item 5. Other ~~Information.~~

Information

None.

Item 6. ~~Exhibits.~~Exhibits

The documents listed in the Exhibit List, which follows below, are incorporated by reference or are filed with this quarterly report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).

EXHIBIT LIST

Exhibit
Number
Description
Incorporated by
Reference From
Form

Incorporated
by Reference
From
Exhibit
Number

Date
Filed

1.1 Sales Agreement, dated as of August 3, 2017, between Fluidigm Corporation and Cowen and Company, LLC. 8-K 1.1 8/3/2017

3.1 Eighth Amended and Restated Certificate of Incorporation of Fluidigm Corporation filed on February 15, 2011. 10-K 3.1 3/28/2011

3.2 Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock. 8-K 3.1 11/22/2016

3.3 Certificate of Elimination. 8-K 3.1 8/2/2017

4.1 Specimen Common Stock Certificate of Fluidigm Corporation. S-8 4.1 8/3/2017

10.1^*
Fluidigm Corporation 2017 Employee Stock Purchase Plan. 8-K 10.1 8/2/2017

10.2^*
Amendments to the Fluidigm Corporation 2011 Equity Incentive Plan, 2009 Equity Incentive Plan, and 1999 Stock Option Plan and the DVS Sciences, Inc. 2010 Equity Incentive Plan. 8-K 10.2 8/2/2017

10.3 Eighth Amendment to Lease Agreement between ARE-San Francisco No. 17, LLC and Fluidigm Corporation, dated August 2, 2017. 8-K 10.1 8/3/2017

10.4* Fluidigm Corporation Change of Control and Severance Plan 8-K 10.1 8/23/2017

10.5* Endorsement Split-Dollar Life Insurance Agreement Filed herewith

31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer    Filed herewith

31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer    Filed herewith

32.1(1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer    Furnished herewith

32.2(1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer    Furnished herewith

101.INS XBRL Instance Document    Filed herewith

101.SCH XBRL Taxonomy Extension Schema Document    Filed herewith

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document    Filed herewith

101.LAB XBRL Taxonomy Extension Label Linkbase Document    Filed herewith

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document    Filed herewith

101.DEF XBRL Taxonomy Extension Definition Linkbase Document    Filed herewith

^{* Indicates a management contract or compensatory plan.}



Exhibit Number	Description	Incorporated by Reference From Form	Incorporated by Reference From Exhibit Number	Date Filed


10.1	Tenth Amendment to Lease Agreement between ARE-San Francisco No. 17, LLC and Fluidigm Corporation, dated August 14, 2019.	Filed herewith

31.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer.	Filed herewith

31.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer.	Filed herewith

32.1(1)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer.	Furnished herewith

32.2(1)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer.	Furnished herewith

101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	Filed herewith

101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith



(1)		In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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.



		FLUIDIGM CORPORATION

Dated:	November 7, ~~2017~~2019
		By:	/s/ Stephen Christopher Linthwaite
			Stephen Christopher Linthwaite
			President and Chief Executive Officer

Dated:	November 7, ~~2017~~2019
		By:	/s/ Vikram Jog
			Vikram Jog
			Chief Financial Officer

~~EXHIBIT LIST~~

Exhibit
Number
Description
Incorporated by
Reference From
Form

Incorporated
by Reference
From
Exhibit
Number

Date
Filed

1.1
Sales Agreement, dated as of August 3, 2017, between Fluidigm Corporation and Cowen and Company, LLC.
8-K 1.1 8/3/2017

3.1
Eighth Amended and Restated Certificate of Incorporation of Fluidigm Corporation filed on February 15, 2011.
10-K 3.1 3/28/2011

3.2
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock.
8-K 3.1 11/22/2016

3.3
Certificate of Elimination.
8-K 3.1 8/2/2017

4.1
Specimen Common Stock Certificate of Fluidigm Corporation.
S-8 4.1 8/3/2017

10.1^*

Fluidigm Corporation 2017 Employee Stock Purchase Plan.
8-K 10.1 8/2/2017

10.2^*

Amendments to the Fluidigm Corporation 2011 Equity Incentive Plan, 2009 Equity Incentive Plan, and 1999 Stock Option Plan and the DVS Sciences, Inc. 2010 Equity Incentive Plan.
8-K 10.2 8/2/2017

10.3
Eighth Amendment to Lease Agreement between ARE-San Francisco No. 17, LLC and Fluidigm Corporation, dated August 2, 2017.
8-K 10.1 8/3/2017

10.4*
Fluidigm Corporation Change of Control and Severance Plan
8-K 10.1 8/23/2017

10.5*
Endorsement Split-Dollar Life Insurance Agreement
Filed herewith

31.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer
   Filed herewith

31.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer
   Filed herewith

32.1(1)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer
   Furnished herewith

32.2(1)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer
   Furnished herewith

101.INS XBRL Instance Document    Filed herewith

101.SCH XBRL Taxonomy Extension Schema Document    Filed herewith

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document    Filed herewith

101.LAB XBRL Taxonomy Extension Label Linkbase Document    Filed herewith

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document    Filed herewith

101.DEF XBRL Taxonomy Extension Definition Linkbase Document    Filed herewith

^*~~Indicates a management contract or compensatory plan.~~



~~(1)~~		In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.



	September 30, 2017			December 31, 2016
				(Note 2)
ASSETS
Current assets:
Cash and cash equivalents	$	60,944		$	35,045
Short-term investments	1,430			24,385
Accounts receivable (net of allowances of $391 at September 30, 2017 and $502 at December 31, 2016)	13,732			14,610
Inventories	17,746			20,114
Prepaid expenses and other current assets	2,314			2,517
Total current assets	96,166			96,671
Property and equipment, net	13,335			16,525
Other non-current assets	6,987			9,291
Developed technology, net	71,400			79,800
Goodwill	104,108			104,108
Total assets	$	291,996		$	306,395
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,721		$	3,967
Accrued compensation and related benefits	8,954			3,996
Other accrued liabilities	8,332			12,374
Deferred revenue, current	9,877			9,163
Total current liabilities	31,884			29,500
Convertible notes, net	195,166			194,951
Deferred tax liability, net	15,916			21,140
Deferred revenue, non-current	4,589			4,315
Other non-current liabilities	5,371			3,256
Total liabilities	252,926			253,162
Commitments and contingencies (see Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued and outstanding at September 30, 2017 and December 31, 2016	—			—
Common stock, $0.001 par value, 200,000 shares authorized at September 30, 2017 and December 31, 2016; 38,622 and 29,208 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	39			29
Additional paid-in capital	529,500			493,441
Accumulated other comprehensive loss	(731		)	(760		)
Accumulated deficit	(489,738		)	(439,477		)
Total stockholders’ equity	39,070			53,233
Total liabilities and stockholders’ equity	$	291,996		$	306,395



	Foreign Currency Translation Adjustment			Net Unrealized Gain (Loss) on Securities			Accumulated Other Comprehensive Loss
Balance at December 31, 2016	$	(758	)	$	(2	)	$	(760	)
Other comprehensive income	34			1			35
Balance at March 31, 2017	(724		)	(1		)	(725		)
Other comprehensive income	76			1			77
Balance at June 30, 2017	(648		)	—			(648		)
Other comprehensive (loss) income	(85		)	$	2		(83		)
Balance at September 30, 2017	$	(733	)	$	2		$	(731	)



	September 30, 2017			December 31, 2016
Principal amount of Notes	$	201,250		$	201,250
Unamortized debt discount	(5,148		)	(5,330		)
Unamortized debt issuance cost	(936		)	(969		)
Net carrying value of convertible notes	$	195,166		$	194,951



Fiscal Year	Amortization Expense
2017 (remainder of the year)	$	3,100
2018	12,334
2019	12,243
2020	12,243
2021	12,087
Thereafter	25,247
	$	77,254



Fiscal Year	Minimum Lease Payments		Minimum Sublease Income
2017 (remainder of the year)	$	1,123	$	(264	)
2018	4,229		(741		)
2019	4,132		(523		)
2020	2,158		(181		)
2021	1,265		—
Thereafter	2,815		—
Total	$	15,722	$	(1,709	)