What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-03-02 · 269 added, 247 removed, 870 unchanged (37% of the section changed)

17 unchanged sentences

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date related to (i) an ineffective control environment commensurate with the Company’s financial reporting requirements, due to an insufficient number of professionals with an appropriate level of accounting and internal control knowledge, training and experience, (ii) an ineffective financial statement close process, due to an ineffective business performance review to monitor the completeness and accuracy of the financial results and an ineffective review of journal entries, and (iii) ineffective controls with respect to the review of the accounting for revenue and related accounts receivable, including maintaining effective controls to prevent or detect errors in the assessment of bad debt and revenue reserves.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to an ineffective control environment commensurate with the Company's financial reporting requirements, due to an insufficient number of professionals with an appropriate level of accounting and internal control knowledge, training and experience.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses referred to above are described in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A.

We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

The material weakness referred to above is described in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A.

We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Changes in Accounting Principles

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Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based

on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

14 unchanged sentences

The Company recognizes revenue from contracted third-party payors, net of contractual allowances, and recognizes an allowance for doubtful accounts for uncollectible patient accounts receivable.

As of December 31, 2019, the Company’s contractual allowance balance was $15.4 million and allowance for doubtful accounts balance was $9.0 million, a significant portion of which relates to revenue from services provided to patients insured by contracted third-party payors.

As of December 31, 2020, the Company’s contractual allowance balance was $21.3 million and allowance for doubtful accounts balance was $12.7 million, a portion of which relates to revenue from services provided to patients insured by contracted third-party payors.

Management accounts for denied claims as a form of variable consideration that is included as a reduction to the transaction price and recorded as an adjustment to revenue as a contractual allowance.

Management accounts for the allowance for doubtful accounts at the time revenue is recognized, with such provisions presented as bad debt expense within selling, general and administrative expenses.

The estimated denied claims and uncollectible receivables are based on historical information which require significant judgment by management in determining which historical period is used.

The principal considerations for our determination that performing procedures relating to the contractual allowances and allowance for doubtful accounts for contracted third-party payors is a critical audit matter are there was significant judgment by management in developing estimates of the contractual allowances and allowance for doubtful accounts.

This in turn led to a high degree of auditor subjectivity, judgment, and effort in performing procedures and evaluating the audit evidence obtained related to management’s estimates of the contractual allowances and allowance for doubtful accounts, including management’s judgments regarding the historical period used on which to base the estimate.

As described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, a material weakness was identified related to this matter.

The estimated denied claims and uncollectible receivables are based on historical information which require judgment by management in determining which historical period is used.

The principal considerations for our determination that performing procedures relating to the contractual allowances and allowance for doubtful accounts for contracted third-party payors is a critical audit matter are the significant judgment by management in developing estimates of the contractual allowances and allowance for doubtful accounts.

This in turn led to a high degree of auditor subjectivity, judgment, and effort in performing procedures and evaluating the audit evidence obtained related to management’s estimates of the contractual allowances and allowance for doubtful accounts, relating to management’s judgments regarding the historical period used on which to base the estimate.

As disclosed by management, a material weakness existed during the year related to this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

The procedures included, among others, (i) evaluating management’s process for developing estimates of the contractual allowances and allowance for doubtful accounts, including comparing the historical period used by management with reasonable alternative historical periods based on current and past history of denied claims and uncollectible amounts, (ii) testing the completeness and accuracy of the historical information used by management in the estimate, by testing a sample of transactions, and (iii) developing an independent expectation of denied claims and uncollectible receivables based on information through a subsequent period.

These procedures included, among others, (i) evaluating management’s process for developing estimates of the contractual allowances and allowance for doubtful accounts, including comparing the historical period used by management with reasonable alternative historical periods based on current and past history of denied claims and uncollectible amounts, (ii) testing the completeness and accuracy of the historical information used by management in the estimate, by testing a sample of transactions, and (iii) testing management’s process for developing the estimate on the data on which it is based.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 2, 2020

February 26, 2021

We have served as the Company’s auditor since 2009.

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Short-term investments 246,589 120,089

Accounts receivable, net 23,867 19,790

Accounts receivable, net of allowances for doubtful accounts of $ 12,711 and $ 9,049 as of December 31, 2020 and December 31, 2019, respectively

29,932 23,867

Inventory 5,313 4,037

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Debt, current portion 11,667 1,944

Accrued interest 128 139

Operating lease liabilities, current portion 8,171 7,914

1 unchanged sentence

Debt, noncurrent portion 21,339 32,989

Deferred rent, noncurrent portion — 153

Other noncurrent liabilities 1,830 —

Operating lease liabilities, noncurrent portion 81,293 85,748

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Additional paid-in capital 646,258 395,695

Accumulated other comprehensive income (loss) 82 ( 16 )

Accumulated other comprehensive income 11 82

Accumulated deficit ( 304,684 ) ( 260,393 )

45 unchanged sentences

Balances at December 31, 2017 23,377,315 $ 23 $ 236,184 $ ( 156,801 ) $ ( 65 ) $ 79,341

Issuance of common stock in connection with employee equity incentive plans, net 1,027,595 1 6,389 — — 6,390

Issuance of preferred stock upon exercise of warrants

210,374 — — — — —

Tax withholding upon vesting of restricted stock awards — — ( 46 ) — — ( 46 )

Stock-based compensation expense — — 9,752 — — 9,752

— — — ( 29,740 ) — ( 29,740 )

Net change in unrealized loss on investments — — — — ( 56 ) ( 56 )

Balances at December 31, 2017 23,377,315 23 236,184 ( 156,801 ) ( 65 ) 79,341

Accounting Standards Codification 606 cumulative effect adjustment upon adoption — — — 1,354 — 1,354

11 unchanged sentences

Issuance of common stock in connection with follow-on public offering, net of issuance costs 1,575,342 2 107,292 — — 107,294

1,575,342 2 107,292 — — 107,294

Tax withholding upon vesting of restricted stock awards — ( 5,288 ) ( 5,288 )

4 unchanged sentences

Balances at December 31, 2019 26,682,720 25 395,695 ( 260,393 ) 82 135,409

Issuance of common stock in connection with employee equity incentive plans 1,079,488 — 20,244 — — 20,244

Issuance of common stock in connection with follow-on public offering, net of issuance costs 1,257,142 2 206,023 — — 206,025

Tax withholding upon vesting of restricted stock awards — ( 10,009 ) ( 10,009 )

Stock-based compensation expense — — 34,305 — — 34,305

Accounting Standards Codification 326 cumulative effect adjustment upon adoption — — — ( 461 ) — ( 461 )

Net loss — — — ( 43,830 ) — ( 43,830 )

Net change in unrealized loss on investments — — — — ( 71 ) ( 71 )

Balances at December 31, 2020 29,019,350 $ 27 $ 646,258 $ ( 304,684 ) $ 11 $ 341,612

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

13 unchanged sentences

Provision for bad debt and contractual allowance 31,431 24,647 16,448

Non-cash interest expense — — 1,550

Loss on extinguishment of debt — — 3,029

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Issuance of common stock in connection with follow-on public offering, net

Proceeds from issuance of common stock 9,495 9,319 6,390

206,025 107,369 —

Proceeds from issuance of common stock in connection with employee equity incentive plans 20,244 9,495 9,319

Tax withholding upon vesting of restricted stock awards ( 10,009 ) ( 5,288 ) ( 3,877 )

Payments of deferred offering costs — — 188

Proceeds from long-term debt, net of debt discount — — 35,000

3 unchanged sentences

Net cash provided by financing activities 214,316 111,576 6,303

Net increase (decrease) in cash and cash equivalents 439 11,352 ( 43,063 )

Net increase in cash and cash equivalents 68,166 439 11,352

Cash and cash equivalents, beginning of year 20,462 20,023 8,671

6 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities $ 621 $ 88,860 $ —

Capitalized stock-based compensation $ 1,129 $ — $ —

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

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The 2019 Shares included the full exercise of the underwriters’ option to purchase an additional 205,479 shares of common stock.

Total proceeds received from the offering were $ 107.3 million, net of issuance costs.

Total proceeds received from the offering were $ 107.3 million, after deducting discounts and issuance costs.

On August 21, 2020, the Company issued and sold an aggregate of 1,257,142 shares (the "Shares") of common stock, in a public offering at a price of $ 175.00 per share.

The Shares included the full exercise of the underwriters’ option to purchase an additional 163,975 shares of common stock.

Total proceeds received from the offering were $ 206.8 million, after deducting discounts and issuance costs.

Revision of Prior Period Financial Statements

In 2019, and as previously disclosed in the Company’s Quarterly Report on Form 10-Q for the three and nine-months ended September 30, 2019, the Company identified errors in its historical accounting for revenues, contractual allowances, allowance for doubtful accounts and certain other items.

The identified errors impacted the Company's accompanying 2017 annual financial statements, 2018 unaudited quarterly and annual financial statements and its 2019 unaudited first and second quarter financial statements.

The identified errors impacted the Company's accompanying 2018 unaudited quarterly and annual financial statements and its 2019 unaudited first and second quarter financial statements.

In accordance with SEC Staff Accounting Bulletin No.

1 unchanged sentence

108,"Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements;" the Company evaluated the errors and determined that the related impacts were not material to any prior annual or interim period, but that correcting the cumulative impact of such errors would be significant to our results of operations for the three and nine months ended September 30, 2019 and the year-ended December 31, 2019.

Accordingly, the Company has revised the accompanying 2018 and 2017 annual consolidated financial statements to correct for such immaterial errors.

Accordingly, the Company has revised the accompanying 2018 annual consolidated financial statements to correct for such immaterial errors.

A summary of the impact of the revisions to our previously issued annual financial statements is included in Note 14, Revision of Prior Period Financial Statements.

11 unchanged sentences

For all non-functional currency balances, the remeasurement of such balances to functional currency results in a foreign exchange transaction gain or loss, which is recorded in the consolidated statements of operations.

Risks and Uncertainties

As a result of the COVID-19 pandemic, the Company has experienced significant business disruptions, restrictions on its ability to travel, reduction in access to customers due to diverted resources at hospitals, and shortened business hours as governments institute prolonged shelter-in-place and/or self-quarantine mandates.

Governmental mandates related to the COVID-19 pandemic have impacted, and is expected to continue to impact, Company personnel and personnel at third-party manufacturing facilities in the United States and other countries, and the availability or cost of materials, which could disrupt our supply chain and reduce margins.

For instance, on or about March 16, 2020, the Health Officers of the counties of San Francisco (where the Company's headquarters is located), Santa Clara, San Mateo, Marin, Contra Costa and Alameda, where many employees are located, issued mandatory shelter-in-place orders and all employees transitioned to a remote work environment.

The Company is also subject to orders in Southern California that temporarily shut down its manufacturing and distribution facilities in Cypress, California.

For a limited number of employees who continue to support essential operations, including those at our manufacturing facilities, the Company has instituted protective equipment policies and, to the degree practical, social distancing measures to protect the safety of its employees.

While the Company has continued to deliver its Zio service by operating with remote employees and essential employees on site, an extended implementation of these governmental mandates could further impact the Company's ability to effectively provide its Zio service, and could impede progress of all ongoing initiatives.

Appropriate social distancing techniques and other measures at the Company's facilities have been implemented for the limited number of employees who have returned to work to support essential operations, and will not return until the risk to employee health has meaningfully diminishe d .

While hospital systems and healthcare facilities shift their focus and resources to treating COVID-19 patients and combating the spread of the coronavirus, the Company has adapted its service to meet the immediate needs of physicians, customers, and patients and significantly increased the utilization of its home enrollment service which allows patients to receive and wear the single-use Zio device without going to a healthcare facility.

Given the disruption in demand and an uncertain length of time to recovery, the Company adjusted its operating plan in the second quarter of 2020 by taking steps to reduce operating spend.

These steps included eliminating or delaying spending on non-essential programs, reducing spend on travel and consulting, implementing a hiring freeze, furloughing approximately 5 % of employees, conducting a layoff of approximately 2 % of employees and implementing temporary pay reductions for our salaried workforce.

From May 2020 to July 2020, the Company’s Chief Executive Officer, other named executive officers and other senior executives agreed to temporary base salary reductions and the Board of Directors agreed to a reduction in its fees until business and economic conditions improve.

The Company also increased it’s bad debt reserve in anticipation of a potential increase in uncollectible co-payments from patients using the Zio Service.

In August 2020, the Company reinstated furloughed employees, removed pay reductions for its salaried employees, and resumed hiring for most positions.

The Company is continuously reviewing its liquidity and anticipated capital requirements in light of the significant uncertainty created by the COVID-19 pandemic.

The Company believes it will have adequate liquidity over the next 12 months to operate its business and to meet its cash requirements.

As of December 31, 2020, the Company is in compliance with its financial covenants in its debt agreement.

On March 27, 2020, as a result of the COVID-19 pandemic, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") to support businesses during the COVID-19 pandemic, including deferment of the employer portion of certain payroll taxes, refundable payroll tax credits, and technical amendments to tax depreciation methods for qualified improvement property.

The primary provisions of the CARES Act which are potentially applicable to us include:

• certain amendments to the limitations on the deductibility of interest contained in Section 163(j) of the Internal Revenue Code of 1986, as amended, for taxable years beginning in 2019 and 2020;

• an allowance of net operating loss carrybacks for taxable years beginning in 2018 and before 2021.

The Company did not qualify for the Paycheck Protection Program under the CARES Act due to the number of employees in our organization.

The CARES Act did not have material impact on the Company’s overall consolidated financial statements.

The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change.

This impact is having a material, adverse impact on liquidity, capital resources, operations and business and those of the third parties on which the

Company relies, and could worsen over time.

The extent to which the COVID-19 pandemic impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions to contain the COVID-19 pandemic or treat its impact, among others.

The full extent of potential delays or impacts on the business, financial condition, cash flows and results of operations remains unknown.

Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing the Company’s ability to raise additional capital through equity, equity-linked or debt financings, which could negatively impact short-term and long-term liquidity and the ability to operate on a timely basis, or at all.

Furthermore, capital markets and economies worldwide have been negatively impacted by the COVID-19 pandemic, which may result in a period of regional, national, and global economic slowdown or regional, national, or global recessions that could curtail or delay demand for the Zio service as well as increase the risk of customer defaults or delays in payments.

COVID-19 and the current financial, economic, and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to the Company's performance, financial condition, volume of business, results of operations, and cash flows.

Reimbursement

Government payors may change their coverage and reimbursement policies, as well as payment amounts, in a way that would prevent or limit reimbursement for the Zio service, which would significantly harm the Company.

Government and other third-party payors require the Company to report the service for which it is seeking reimbursement by using a Current Procedural Terminology (CPT), code-set maintained by the American Medical Association (AMA).

For Zio XT, the Company had historically utilized temporary CPT codes (or Category III CPT codes), used for newly introduced technologies and specific to our category of diagnostic monitoring.

The process to convert Category III CPT codes to Category I CPT codes is governed by the AMA and CMS.

On October 25, 2019, the AMA’s CPT Editorial Panel established two new Category I CPT codes which are applicable to the Zio service and took effect on January 1, 2021.

In August 2020, CMS published the Calendar Year 2021 Medicare Physician Fee Schedule Proposed Rule which proposed reimbursement for the Category I CPT codes that were higher than their associated Category III CPT codes.

Following a comment period through October 2020, CMS published its Calendar Year 2021 Medicare Physician Fee Schedule Final Rule (the “Final Rule”) in December 2020.

In the Final Rule, CMS chose not to finalize national pricing for four of the eight Category I CPT codes, 93241, 93243, 93245 and 93247 which include the CPT codes that the Company will primarily use to seek reimbursement for Zio XT.

Determinations of which products or services will be reimbursed under Medicare can be developed at the national level through a national coverage determination (“NCD”) by CMS, or at the local level through a local coverage determination, or an LCD, by one or more of the regional Medicare Administrative Contractors ("MACs") who are private contractors that process and pay claims on behalf of CMS for different regions.

In the absence of a specific NCD, as is the case with Zio XT historically and for Calendar Year 2021 following the Final Rule, the MAC with jurisdiction over a specific geographic region will have the discretion to make an LCD.

The Company is seeking to establish LCD pricing with one or more MACs to establish pricing for 2021 and will be subject to LCD pricing until such time CMS establishes a NCD.

On January 29, 2021, Novitas Solutions, the MAC which covers the region where the Company's IDTF in Houston, Texas is located and where almost all Medicare services for Zio XT are processed, published rates for 2021 that were significantly below our historical Medicare rates for Zio XT.

The Company believes that the published rates by Novitas on January 29, 2021, are cross walked from CPT codes 93224 and 93226, which are existing CPT codes for external continuous electrocardiographic recording up to 48 hours, while the Zio service is capable of continuous monitoring for up to 14 days.

The Company is the process of negotiating with Novitas to establish higher pricing for the Category I CPT Codes but can offer no assurances as to the timing or outcome of those discussions.

If the published rates by Novitas remain unchanged or are not significantly improved for the CPT codes listed above thereby allowing us to obtain adequate Medicare reimbursement for the Zio service in the future, the Company may be unable to provide the Zio service or would experience a significant loss of revenue, either of which would have a material adverse effect on our cash flows, results of operations, and financial condition.

The Company is currently holding a majority of Zio XT claims due to the CPT code transition.

Claims are being held due to a combination of negotiations with payors and administrative delays with payors.

The Company expects the level of held claims to remain high through the end of the first quarter of 2021 and potentially beyond.

The high level of held claims will delay most first quarter 2021 cash flows into the second quarter of 2021 or potentially beyond, and may impact the timing and accounting for various income statement items, particularly revenue recognition and bad debt expense.

The Company has adequate balance sheet liquidity to manage through these delays in cash flow timing.

Further, a reduction in coverage by Medicare could cause some commercial third-party payors to implement similar reductions in their coverage or level of reimbursement of the Zio service.

Given the evolving nature of the healthcare industry and on-going healthcare cost reforms, the Company will continue to be subject to changes in the level of Medicare coverage for its products, and unfavorable coverage determinations at the national or local level could adversely affect its results of operations.

If published rates by Novitas are not increased to above the cost of revenue for the Zio service, and the Company is unable to achieve a level of revenues adequate to support its cost structure, this would raise substantial doubts about the Company's ability to continue as a going concern.

Use of Estimates

1 unchanged sentence

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, contractual allowances for revenue, allowance for doubtful accounts, the useful lives of property and equipment, the recoverability of long-lived assets including the estimated usage of the printed circuit board assemblies (“PCBAs”), the incremental borrowing rate for operating leases, accounting for income taxes, the fair value of the Company’s common stock and stock-based compensation.

The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events.

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, contractual allowances, allowance for doubtful accounts, the useful lives of property and equipment, the recoverability of long-lived assets including the estimated usage of the printed circuit board assemblies (“PCBAs”), the incremental borrowing rate for operating leases, accounting for income taxes, and various inputs used in estimating stock-based compensation.

Certain of these estimates are impacted by uncertainties surrounding COVID-19 such as revenue recognition, contractual allowances for revenue, allowance for doubtful accounts, and stock based compensation.

The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that management believes are reasonable under the circumstances, including assumptions as to future events.

Actual results may differ from those estimates.

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All investments are carried at fair value based upon quoted market prices.

Unrealized gains and losses on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive loss.

The cost of available-for-sale securities sold is based on the specific-identification method.

Realized gains and losses are included in earnings, and are derived for specific-identification method for determining the costs of investments sold.

The Company periodically assesses its portfolio of debt investments for impairment.

For debt securities in an unrealized loss position, this assessment first takes into account the intent to sell, or whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis.

If either of these criteria are met, the debt security’s amortized cost basis is written down to fair value through interest and other, net.

For debt securities in an unrealized loss position that do not meet the aforementioned criteria, the Company assesses whether the decline in fair value has resulted from credit losses or other factors.

The Company evaluates expected credit losses by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions.

Expected credit losses on available-for-sale debt securities are recognized in other income, net in the condensed consolidated statements of operations, and any remaining unrealized losses, net of taxes, are reported as a component of accumulated other comprehensive loss.

The Company did not recognize any credit losses on its available-for-sale securities during the year ended December 31, 2020 and there were no impairment charges for unrealized losses in the periods presented.

The cost of available-for-sale securities sold is based on the specific-identification method and realized gains and losses are included in earnings.

Amortization of premiums and accretion of discounts are reported as a component of other income, net.

Accounts Receivable, Allowance for Doubtful Accounts and Contractual Allowance

Accounts Receivable, Allowance for Doubtful Accounts and Contractual Allowances

Accounts receivable includes amounts due to the Company from healthcare institutions, third-party payors, and government payors and their related patients, as a result of the Company's normal business activities.

Accounts receivable is reported on the consolidated balance sheets net of an estimated allowance for doubtful accounts and a contractual allowance.

The Company establishes an allowance for doubtful accounts for estimated uncollectible receivables based on its historical experience and recognizes the provision as a component of selling, general and administrative expenses.

Accounts receivable is reported on the consolidated balance sheets net of an estimated allowance for doubtful accounts and contractual allowances.

The Company establishes an allowance for doubtful accounts for estimated uncollectible receivables based on its assessment of the collectability of customer accounts and recognizes the provision as a component of selling, general and administrative expenses.

The Company records a provision for contractual allowances based on the estimated differences between contracted amounts and expected collection rates.

Such provisions are based on the Company's historical experience and are reported as a reduction of revenue.

The Company regularly reviews the allowances by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

The following table presents the changes in the allowance for doubtful accounts (in thousands):

2 unchanged sentences

Balance, beginning of year $ 9,049 $ 7,296 $ 4,486

adoption of ASC 326 461 — —

provision for doubtful accounts 10,515 9,129 7,353

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The Company does not require collateral.

The Company records an allowance for doubtful accounts when it becomes probable that a receivable will not be collected.

The Company records an allowance for doubtful accounts based on the assessment of the collectability of customer accounts, considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

Centers for Medicare and Medicaid Services (“CMS”), accounted for approximately 27 %, 27 % and 27 % of the Company’s revenue for the years ended December 31, 2020, 2019 and 2018, respectively.

CMS accounted for 20 % and 20 % of accounts receivable as of December 31, 2020 and 2019, respectively.

While the Company has not experienced manufacturing supply disruptions to date, the Company relies on single-source vendors for the supply of its disposable housings, instruments and other materials used to manufacture the Zio monitor and the adhesive that binds the Zio monitor to a patient’s body.

The Company relies on single-source vendors to supply some of its disposable housings, instruments and other materials used to manufacture the Zio monitor and the adhesive that binds the Zio monitor to a patient’s body.

These components and materials are critical, and there could be a considerable delay in finding alternative sources of supply.

Inventory is stated at the lower of cost or net realizable value, cost being determined on a standard cost basis for material costs and on actual cost basis for labor and overhead, which approximates actual cost on a first in, first out (“FIFO”) basis, and market being determined as the lower of cost or net realizable value.

A global semiconductor supply shortage is having wide-ranging effects across multiple industries.

The supply shortage has impacted multiple suppliers that provide the printed circuit board assemblies to the Company.

The semiconductor supply shortage may have an impact on the Company until global supply is sufficient for global demand.

Inventory owned by the Company is valued at cost, on the first in, first out (“FIFO”) basis, or the lower of cost or net realizable value.

The Company records write-downs of inventory that is obsolete or in excess of anticipated demand.

11 unchanged sentences

Capitalized internal-use software is amortized, and recognized as cost of revenue, on a straight-line basis over the estimated useful life, which is up to five years .

The Company evaluates the useful lives of these assets on an annual basis, and tests for impairment whenever events or changes in

circumstances occur that could impact the recoverability of these assets.

The Company evaluates the useful lives of these assets on an annual basis, and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Capitalized internal-use software costs are classified as a component of property and equipment.

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Revenue Recognition

Revenue policy under ASC 606

The Company adopted Accounting Standard Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), on January 1, 2018 and used the modified retrospective approach.

Upon adoption, the Company recognized the cumulative effect of $ 1.4 million as an adjustment to decrease the opening balance of the Company’s accumulated deficit.

This adjustment did not have a material impact on the Company’s consolidated financial statements.

Prior periods were not retrospectively adjusted.

The Company recognized revenue in prior years in accordance with Accounting Standard Codification Topic 954-605, Health Care Entities - Revenue Recognition and Accounting Standard Codification Topic 605, Revenue Recognition .

The Company’s revenue is generated primarily from the provision of its cardiac rhythm monitoring service, the Zio XT service.

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The Company has concluded that the Zio XT service is one performance obligation on the basis that the customer cannot benefit from each component of the service on its own or together with other resources that are readily available to the customer.

The Zio AT mobile cardiac telemetry monitor, a wearable patch-based biosensor, offers what the Zio XT offers plus the additional capability of transmissions during the wear period to assist physicians in diagnosing and treating the small percentage of the population requiring more timely action.

During the wear period, physicians will receive notifications if there are significant events that meet predetermined arrhythmia detection criteria.

The Zio AT service revenue is recognized over the prescription period and delivery of an electronic Zio Report with two performance obligations.

The Company recognizes as revenue the amount of consideration to which it expects to be entitled in exchange for performing the service.

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Separate contractual arrangements exist between the Company and third-party payors that establish amounts the third-party payor will pay on behalf of a patient for covered services rendered.

A small part of the Company’s transactions are covered by third-party payors with whom there is no contractual agreement or not an established amount the third-party payor will pay.

A small portion of the Company’s transactions are covered by third-party payors with whom there is no contractual agreement or an established amount the third-party payor will pay.

In determining the collectability and transaction price for its service, the Company considers factors such as insurance claims which are adjudicated as allowable under the applicable policy and payment history from both payors and patient out-of-pocket costs, payor coverage, whether there is a contract between the payor or healthcare institution and the Company, historical amount received for the service, and any current developments or changes that could impact reimbursement and healthcare institution payments.

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• Non-contracted third-party payors – Non-contracted commercial and government payors often reimburse out-of-network rates provided under the relevant CPT codes on a case-by-case basis.

The transaction price used for determining revenue recognition is based on factors including an average of the Company’s historical collection experience for its non-contracted services.

The transaction price used

for determining revenue recognition is based on factors including an average of the Company’s historical collection experience for its non-contracted services.

This rate is reviewed at least quarterly.

4 unchanged sentences

For contracted and CMS portfolios, the Company recognizes revenue, net of contractual allowances, and recognizes an allowance for doubtful accounts for uncollectible patient accounts receivable.

The transaction price is determined based on negotiated rates, and the Company has historical experience collecting substantially all of these contracted rates.

The transaction price is determined based on negotiated rates, and the Company has historical experience of collecting substantially all of these contracted rates.

These contracts also impose a number of obligations regarding billing and other matters, and the Company’s noncompliance with a material term of such contracts may result in a denial of the claim.

The Company accounts for denied claims as a form of variable consideration that is included as a reduction to the transaction price recognized as revenue.

The Company estimates the denied claims which require judgment by management.

The Company estimates the denied claims which require management judgment.

The estimated denied claims are based on historical information and judgement includes the historical period utilized.

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Contracted payors may require that we bill patient co-payments and deductibles and from time to time we may not be able to collect such amounts due to credit risk.

The Company provides for estimates of uncollectible patient accounts receivable, based upon historical experience and judgment includes the historical period utilized, at the time revenue is recognized, with such provisions presented as bad debt expense within the selling, general and administrative line item of the consolidated statement of operations.

The Company provides for estimates of uncollectible patient accounts receivable, based upon historical experience where judgment includes the historical period utilized, at the time revenue is recognized, with such provisions presented as bad debt expense within the selling, general and administrative line item of the consolidated statement of operations.

Adjustments to these estimates for actual experience are also recorded as an adjustment to bad debt expense.

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As such, the Company is not providing an implicit price concession but, rather, has chosen to accept the risk of default, and any subsequent uncollected amounts are recorded as bad debt expense.

Revenue policy under ASC 605

The Company’s devices, cardiac rhythm monitors, have a wear period for up to 14 days for the Zio XT service or 30 days for the Zio Event Card.

The Company’s services, consisting of the delivery of reports containing analysis of data captured by the physical device to the prescribing physician, are generally billable at the start of the wear period or when reports are issued to physicians, depending on the service provided.

For the Zio XT service, the Company recognizes the revenue at the time that a report is delivered to a physician.

For the Zio Event Card, the Company recognizes revenue on a straight-line basis over the applicable wear period, as the event monitoring results are delivered to physicians.

For all services performed, the Company considers whether or not the following revenue recognition criteria are met:

persuasive evidence of an arrangement exists and delivery has occurred or services have been rendered.

For services performed for customers which the Company invoices directly, additional revenue recognition criteria include that the price is fixed and determinable and collectability is reasonably assured;

for customers in which the Company submits claims to third-party commercial and governmental payors for reimbursement, the Company recognizes revenue only when a reasonable estimate of reimbursement can be made.The assessment of whether a reasonable estimate of reimbursement can be made requires significant judgment by management.

Where management’s judgment indicates a reasonable estimate of reimbursement can be made, revenue is recognized upon delivery of the patient report for the Zio XT service and straight-line for the Zio Event Card.

Some patients have out-of-pocket costs for amounts not covered by their insurance carrier, and the Company bills the patient directly for these amounts in the form of co-payments and co-insurance in accordance with their insurance carrier and health plans.

Some payors may not cover the Company’s service as ordered by the prescribing physician under their reimbursement policies.

In the absence of an agreement with the patient or other clearly enforceable legal right to demand payment from the patient, the related revenue is recognized upon the earlier of notification of the payor benefits allowed or when payment is received, until the Company has the ability to make a reasonable estimate.

Once a reasonable estimate can be made, revenue is recognized upon delivery of the service.

During 2017, the Company recognized revenue on an accrual basis from certain non-contracted payors as a reasonable estimate was able to be made, primarily based on the consistency of historical payments.

The Company recognizes revenue related to billings for CMS and commercial payors on an accrual basis, net of contractual allowances, when a reasonable estimate of reimbursement can be made.

These contractual allowances represent the difference between the list price (the billing rate) and the reimbursement rate for each payor.

Upon ultimate collection from CMS and commercial payors, the amount is compared to the previous estimates and the contractual allowance is adjusted accordingly.

Until a contract has been negotiated with a commercial payor, the Company’s services may or may not be covered by these entities’ existing reimbursement policies.

In addition, patients do not enter into direct agreements with the Company that commit them to pay any portion of the cost of the service in the event that their insurance declines to reimburse the Company.

In the absence of an agreement with the patient or other clearly enforceable legal right to demand payment from the

patient, the related revenue is recognized only upon the earlier of notification of the payor benefits allowed or when payment is received, until the Company has the ability to make a reasonable estimate.

Disaggregation of Revenue

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The Company believes these categories aggregate the payor types by nature, amount, timing and uncertainty of its revenue streams.

Disaggregated revenue by payor type and major service line for the years ended December 31, 2019 and December 31, 2018 was as follows (in thousands):

Year Ended December 31,

Disaggregated revenue by payor type and major service line for the years ended December 31, 2020 and December 31, 2019 were as follows (in thousands):

Year Ended December 31,

2020 2019 2018

Contracted third-party payors $ 135,939 $ 101,845 $ 56,949

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Cost of Revenue

Cost of revenue includes direct labor, material costs, equipment and infrastructure expenses, amortization of internal-use software, allocated overhead, and shipping and handling.

Direct labor includes payroll and personnel-related costs including stock-based compensation involved in manufacturing, data analysis, and customer service.

Cost of revenue includes direct labor, material costs, overhead, data analysis, customer care, equipment and infrastructure expenses, amortization of internal-use software, and shipping and handling.

Direct labor includes payroll and personnel-related costs involved in manufacturing.

Material costs include both the disposable costs of the device and amortization of the PCBAs.

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The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained.

Recognized income tax positions are measured at the largest amount that has a greater than greater than 50% likelihood of being realized.

Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized.

Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

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The Company measures its stock-based awards made to employees based on the estimated fair values of the awards as of the grant date.

The fair value of stock options is determined using the Black-Scholes option pricing model.

The fair value of market condition awards is determined using the Monte-Carlo option pricing model and the fair value of stock options is determined using the Black-Scholes option pricing model.

Stock-based compensation expense is recognized over the requisite service period using the straight-line method and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest.

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Recently Adopted Accounting Guidance

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-2, Leases (“Topic 842”), which requires lessees to recognize lease liabilities and corresponding right-of-use assets on the consolidated balance sheet for all leases.

For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset and, for operating leases, the lessee would recognize a straight-line lease expense.

As of December 31, 2019, the Company does not have any finance leases.

Topic 842 also changes the definition of a lease and expands the disclosure requirements of lease arrangements.

The Company has no embedded leases with suppliers.

Upon adoption of Topic 842 on January 1, 2019 using the modified retrospective method, the Company recognized right-of-use assets of $10.2 million and lease liabilities of $10.0 million.

There was no cumulative-effect adjustment recorded on January 1, 2019.

The Company adopted the following practical expedients allowed under Topic 842:

The package of three practical expedients, which allows entities to make an election that allows them not to reassess (1) whether existing or expired contracts contain embedded leases under Topic 842, (2) lease classification of existing or expiring leases, and (3) indirect costs for existing or expired leases;

Combining lease and non-lease components practical expedient, which allows lessees, as an accounting policy election by class of underlying asset, to choose not to separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component;

Comparative reporting practical expedient, which allows entities to initially apply Topic 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

For further details, refer to Note 6.

Commitments and Contingencies.

Recent Accounting Standards or Updates Not Yet Effective

In June 2016, the FASB issued ASU No.

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It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

The Company will adopt this standard in the first quarter of fiscal 2020 and is evaluating the impact of adopting this amendment to its consolidated financial statements.

The Company adopted ASC 326 on January 1, 2020, using the modified retrospective transition method through a non-cash $ 0.5 million cumulative-effect increase to accumulated deficit and the allowance for doubtful accounts.

The Company considered the current and expected future economic and market conditions surrounding the novel COVID-19 pandemic and recorded additional reserves that were not individually material to the estimate.

Actual results may differ from these estimates.

In August 2018, the FASB issued ASU No.

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This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement.

This new standard becomes effective for the Company in the first quarter of fiscal year 2020, with early adoption permitted.

This new standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

The Company is evaluating the impact of adopting this amendment to its consolidated financial statements.

The Company adopted ASU No.

2018-15 on January 1, 2020, using the prospective transition method.

The impact of adoption on the Company's consolidated financial statements was not material.

In December 2019, the FASB issued ASU No.

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Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes.

ASU 2019-12 will be effective for us beginning January 1, 2021, and early adoption is permitted.

The Company is currently evaluating the impact of adoption on our consolidated financial statements.

The Company elected to early adopt ASU 2019-12 effective as of January 1, 2020, and the impact of adoption on the Company's condensed consolidated financial statements was not material.

In May 2014, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (Topic 606).

Areas of revenue recognition affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures.

The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services.

ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than were required under previous GAAP.

In addition, Topic 606 requires more detailed disclosures to enable users of financial statements to understand the nature, timing and uncertainty of revenue and cash flows arising from a review of historical accounting policies and practices to identify potential differences in applying Topic 606.

The Company adopted this standard on January 1, 2018 and used the modified retrospective approach.

Upon adoption, the Company recognized the cumulative effect of $ 1.4 million as an adjustment to decrease the opening balance of the Company’s accumulated deficit.

This adjustment did not have a material impact on the Company’s consolidated financial statements.

Prior periods were not retrospectively adjusted.

The following table presents the impact of adoption of ASU 2014-09 on the Consolidated Statement of Operations and the Consolidated Balance Sheet (in thousands):

Year Ended December 31, 2018

Consolidated Statement of Operations Impact:

As Reported Without the adoption of Topic 606 Impact

Revenue $ 147,293 $ 145,320 $ 1,973

Sales, General & Administrative Expense $ 131,582 $ 132,603 $ ( 1,021 )

Net Loss $ ( 48,280 ) $ ( 51,274 ) $ 2,994

Year Ended December 31, 2018

Consolidated Balance Sheet Impact:

As Reported Without the adoption of Topic 606 Impact

Accounts Receivable, net $ 21,977 $ 17,629 $ 4,348

Accumulated Deficit $ ( 203,515 ) $ ( 207,863 ) $ 4,348

In February 2016, the Financing Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (“Topic 842”), which requires lessees to recognize lease liabilities and corresponding right-of-use assets on the consolidated balance sheet for all leases.

For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset and, for operating leases, the lessee would recognize a straight-line lease expense.

Topic 842 also changes the definition of a lease and expands the disclosure requirements of lease arrangements.

The Company has no embedded leases with suppliers.

Upon adoption of Topic 842 on January 1, 2019 using the modified retrospective method, the Company recognized right-of-use assets of $ 10.2 million and lease liabilities of $ 10.0 million.

There was no cumulative-effect adjustment recorded on January 1, 2019.

The Company adopted the following practical expedients allowed under Topic 842:

• The package of three practical expedients, which allows entities to make an election that allows them not to reassess (1) whether existing or expired contracts contain embedded leases under Topic 842, (2) lease classification of existing or expiring leases, and (3) indirect costs for existing or expired leases

• Combining lease and non-lease components practical expedient, which allows lessees, as an accounting policy election by class of underlying asset, to choose not to separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component

• Comparative reporting practical expedient, which allows entities to initially apply Topic 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption

Cash Equivalents and Investments

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Short-term investments 120,089

Long-term investments 8,030

Total cash equivalents and available-for-sale investments $ 142,016

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Available-for-sale securities held as of December 31, 2020 had a weighted average maturity of 92 days.

At December 31, 2019, one investment was in an unrealized loss position and no investments have been in an unrealized loss position for more than one year.

At December 31, 2020, six investments were in an unrealized loss position and no investments have been in an unrealized loss position for more than one year.

Fair Value Measurements

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The fair value of the Company’s outstanding interest-bearing obligations is estimated using the net present value of the future payments, discounted at an interest rate that is consistent with market interest rates, which is a Level 2 input.

The carrying amount and the estimated fair value of the Company’s outstanding interest-bearing obligations at December 31, 2019 were $ 34.9 million and $ 35.2 million, respectively.

The carrying amount and the estimated fair value of the Company’s outstanding interest-bearing obligations at December 31, 2020 wer e $ 33.0 million and $ 33.9 million, r espectively.

The carrying amount and the estimated fair value of the Company’s outstanding interest-bearing obligations at December 31, 2019 were $ 34.9 million and $ 35.2 million, respectively.

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The PCBAs are used numerous times and have useful lives beyond one year.

Each time a PCBA is used in a wearable Zio XT or Zio AT monitor, or a wireless gateway is used with a Zio AT monitor a portion of the cost of the PCBA and/or gateway is recorded as a cost of revenue.

The PCBAs are recorded as other assets and were $ 7.4 million and $ 2.5 million as of December 31, 2019, and December 31, 2018, respectively.

The amortization was $ 3.6 million, $ 3.1 million and $ 2.1 million for the years ending December 31, 2019, 2018, and 2017, respectively.

Each time a PCBA is used in a wearable Zio XT monitor or Zio AT monitor, a portion of the cost of the PCBA is recorded as a cost of revenue.

Each time a wireless gateway is used with a Zio AT monitor, a portion of the gateway is recorded as a cost of revenue.

PCBAs which are recorded as other assets were $ 12.6 million a nd $ 7.4 million as of December 31, 2020, and December 31, 2019, respectively.

The amortization wa s $ 3.0 million and $ 3.6 million for the years ending December 31, 2020 and 2019 respectively.

Property and Equipment, Net

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Total property and equipment, net $ 34,247 $ 26,464

Depreciation and amortization expense for the years ended December 31, 2019, 2018 and 2017 was $ 3.4 million, $ 2.3 million, and $ 1.6 million, respectively.

Depreciation and amortization expense for the years ended December 31, 2020 and 2019 was $ 6.9 million and $ 3.4 million, respectively.

Accrued Liabilities

4 unchanged sentences

Accrued professional services fees 1,709 2,846

Accrued interest 121 128

Claims payable 4,757 2,802

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Total lease liabilities $ 89,464

Minimum future lease payments as of December 31, 2018 and under the previous lease accounting standard, which includes annual rental payments for the San Francisco Lease which commenced May 13, 2019, for the year ended December 31, 2018 are as follows (in thousands):

As of December 31, 2019, maturities of operating lease liabilities were as follows (in thousands):

Year Ended December 31:

Thereafter 87,793

Total $ 150,474

imputed interest ( 49,946 )

Total lease liabilities $ 93,662

The weighted average remaining lease term of the Company's operating leases as of December 31, 2020 was 10.59 years.

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Legal Proceedings

From time to time, the Company may become involved in legal proceedings arising from the ordinary course of its business.

Management is currently not aware of any matters that could have a material adverse effect on the financial position, results of operations or cash flows of the Company.

Collaboration Agreement

From time to time, we are involved in claims and legal proceedings or investigations, that arise in the ordinary course of business.

Such matters could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business.

These matters are subject to many uncertainties and outcomes that are not predictable.

On February 1, 2021, a putative class action lawsuit was filed in the United States District Court for the Northern District of California alleging that the Company and our former chief executive officer violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder.

The purported class includes all persons who purchased or acquired our securities between August 4, 2020 and January 28, 2021.

The complaint seeks unspecified damages purportedly sustained by the class.

The Company believes the complaint to be without merit and plans to vigorously defend itself.

Development Agreement

On September 3, 2019, the Company entered into a Development Collaboration Agreement (the “Development Agreement”) with Verily Life Sciences LLC ("Verily").

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Costs incurred by the Company in connection with the Development Agreement will be expensed as research and development expense in accordance with ASC 730, Research and Development.

The Company and Verily will develop certain next-generation atrial fibrillation (“AF”) screening, detection, or monitoring products pursuant to the Development Collaboration Agreement, which products will involve combining Verily’s technology with the Company’s technology to create an end to end system.

Under the terms of the Development Agreement, the Company paid Verily an upfront fee of $ 5.0 million.

In addition, the Company has agreed to make additional payments to Verily up to an aggregate of $ 12.75 million in milestone payments upon achievement of various development and regulatory milestones over the 24 months of the Development Agreement, which payments will be made in cash to Verily.

During the year ended December 31, 2019 the company achieved a milestone resulting in additional expense of $ 1.0 million which is included in accounts payable as of December 31, 2019.

The Company and Verily will develop certain next-generation atrial fibrillation (“AF”) screening, detection, or monitoring products pursuant to the Development Agreement, which products will involve combining Verily and the Company's technology platforms and capabilities.

Under the terms of the Development Agreement, the Company paid Verily an upfront fee of $ 5.0 million in 2019.

In addition, the Company has agreed to make additional payments to Verily up to an

aggregate of $ 12.75 million in milestone payments upon achievement of various development and regulatory milestones over the 24 months of the Development Agreement, which payments will be made in cash to Verily.

During the year ended December 31, 2019 the company achieved a milestone resulting in additional expense of $ 1.0 million which was included in accounts payable as of December 31, 2019 and paid in the first quarter of 2020.

During the year ended December 31, 2020, the Company recognized $ 7.0 million of research and development expense related to Verily milestones, of which $ 4.0 million is in included in accrued liabilities.

The Development Agreement provides each party with licenses to use certain intellectual property of the other party for development activities in the field of AF screening, detection, or monitoring.

Ownership of developed intellectual property will be allocated to the Company or Verily depending on the subject matter of the underlying developed intellectual property, and, for certain subject matter, shall be jointly owned.

During the year ended December 31, 2019, the Company recognized $ 6.0 million of research and development expense related to the Agreement.

Indemnifications

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The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions, and believes that the estimated fair value of these indemnification obligations is not material and it has not accrued any amounts for these obligations.

Pharmakon Loan Agreement

In December 2015, the Company entered into a Loan Agreement with Biopharma Secured Investments III Holdings Cayman LP (the “Pharmakon Loan Agreement”).

The Pharmakon Loan Agreement provides for up to $ 55.0 million in term loans split into two tranches as follows:

(i) the Tranche A Loans are $ 30.0 million in term loans, and (ii) the Tranche B Loans are up to $ 25.0 million in term loans.

The Tranche A Loans were drawn on December 4, 2015.

The Tranche B Loans were available to be drawn prior to December 4, 2016.

No additional draw was taken.

The Tranche A Loans bear interest at a fixed rate equal to 9.50 % per annum that is due and payable quarterly in arrears.

During the first eight calendar quarters, 50 % of the interest due and payable was added to the then outstanding principal.

In December 2015, the Company used the proceeds from the Pharmakon Loan Agreement to repay $ 4.9 million of bank debt to Silicon Valley Bank ("SVB").

The issuance costs and debt discount have been netted against the borrowed funds on the balance sheet.

On October 23, 2018, the Company repaid the principal amount of the Tranche A Loan of $ 30.0 million and related accrued interest of $ 3.3 million, using proceeds from the Third Amended and Restated SVB Loan Agreement noted below.

The Company incurred a $ 3.0 million loss in connection with the early extinguishment of the Pharmakon Loan Agreement which included a prepayment premium fee of $ 1.0 million and additional consideration related to the prepayment of $ 1.5 million.

In December 2015, the Company entered into a Second Amended and Restated Loan and Security Agreement with SVB, (the “SVB Loan Agreement”).

Under the SVB Loan Agreement, the Company may borrow, repay and reborrow under a revolving credit line, but not in excess of the maximum loan amount of $ 15.0 million, until December 4, 2018, when all outstanding principal and accrued interest becomes due and payable.

Any principal amount outstanding under the SVB Loan

Agreement shall bear interest at a floating rate per annum equal to the rate published by The Wall Street Journal as the “Prime Rate” plus 0.25 %.

The Company may borrow up to 80 % of its eligible accounts receivable, up to the maximum of $ 15.0 million.

In August 2016, the Company obtained a $ 3.1 million standby letter of credit pursuant to the SVB Loan Agreement in connection with a lease for its San Francisco office.

In December 2015, the Company entered into a Second Amended and Restated Loan and Security Agreement ("Loan Agreement") with Silicon Valley Bank ("SVB").

Under the SVB Loan Agreement, the Company could borrow, repay and reborrow under a revolving credit line, but not in excess of the maximum loan amount of $ 15.0 million, until December 4, 2018, when all outstanding principal and accrued interest became due and payable.

Any principal amount outstanding under the SVB Loan Agreement shall bear interest at a floating rate per annum equal to the rate published by The Wall Street Journal as the “Prime Rate” plus 0.25 %.

The Company could borrow up to 80 % of its eligible accounts receivable, up to the maximum of $ 15.0 million.

In October 2018, the Company entered into the Third Amended and Restated Loan and Security Agreement with SVB (“Third Amended and Restated SVB Loan Agreement”).

This Agreement amends and restates the Second Amended and Restated Loan and Security Agreement between the Company and SVB dated December 4, 2015, as amended by the First Loan Modification Agreement between the Company and SVB dated August 22, 2016.

Pursuant to the Third Amended and Restated SVB Loan Agreement, the Company obtained a term loan (“SVB Term Loan”) for $ 35.0 million.

Total proceeds from the SVB Term Loan were used to pay off the loan agreement with Biopharma Secured Investments III Holdings Cayman LP (“Pharmakon”), totaling $ 35.8 million.

The Company will make interest-only payments through October 31, 2020, followed by 36 monthly payments of principal plus interest on the SVB Term Loan.

The Company made interest-only payments through October 31, 2020, followed by 36 monthly payments of principal plus interest on the SVB Term Loan.

Interest charged on the SVB Term Loan will be the greater of (a) a floating rate based on the “Prime Rate” published by The Wall Street Journal minus 0.75 %, or (b) 4.25 %.

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The Company may borrow up to 75 % of eligible accounts receivable, up to the maximum of $ 25.0 million.

As of December 31, 2019, the Company was eligible to borrow up to $ 5.6 million and no amount was outstanding under the revolving credit line.

As of December 31, 2020 we were eligible to borrow up to $ 7.7 million and no amount was outstanding under the revolving credit line.

The Third Amended and Restated Loan Agreement requires the Company to maintain a minimum consolidated liquidity ratio or minimum adjusted Earnings Before Interest, Tax, Depreciation, and Amortization during the term of the loan facility.

In addition, the SVB Loan Agreement contains customary affirmative and negative covenants and events of default.

The SVB Loan Agreement also includes financial covenants requiring the Company to maintain a minimum liquidity ratio and asset based threshold.

The Company was in compliance with financial loan covenants as of December 31, 2019.

The Company was in compliance with loan covenants as of December 31, 2020.

The obligations under the Third Amended and Restated Loan Agreement are collateralized by substantially all assets of the Company.

California HealthCare Foundation Note

In November 2012, the Company entered into a Note Purchase Agreement and Promissory Note with the California HealthCare Foundation (the “CHCF Note”), through which the Company borrowed $ 1.5 million.

The CHCF Note accrued simple interest of 2.0 %.

The accrued interest and the principal was to mature in November 2016.

In partial consideration for the issuance of the CHCF Note, the Company issued warrants to purchase 22,807 shares of the Company’s Series D convertible preferred stock.

In June 2015, the Company amended the CHCF Note to extend the maturity date to May 2018.

The CHCF Note was subordinate to other debt.

In May 2018, the Company repaid the principal amount of $ 1.5 million and related $ 0.2 million in accrued interest on the CHCF Note.

Future minimum payments

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Year Ending December 31,

2021 $ 12,860

Amount representing interest ( 2,077 )

4 unchanged sentences

Total $ 33,006

On December 22, 2017, the U.S.

government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act).

The Tax Act reduced the U.S.

statutory corporate tax rate to 21%, effective January 1, 2018.

Consequently, we recorded a decrease to our federal deferred tax assets of $ 22.0 million, which was fully offset by a reduction in our valuation allowance for the year ended December 31, 2017.

The following table presents components of the Company’s provision for income taxes as for the period presented (in thousands):

2 unchanged sentences

Federal $ — $ — $ —

State 181 — —

Foreign 59 68 80

42 unchanged sentences

Year Ended December 31, 2020 $ 88,433 $ 35,370 $ — $ 123,803

As of December 31, 2019, the Company had approximately $ 259.9 million of federal and $ 153.8 million of state net operating loss carryforwards available to offset future taxable income which expires in varying amounts beginning in 2027 and

2019 respectively.

The Tax Act changed the federal rules governing net operating loss carryforwards.

For net operating loss carryforwards arising in tax years beginning after December 31, 2017, the Tax Act limits a taxpayer’s ability to utilize such carryforwards to 80% of taxable income.

In addition, net operating loss carryforwards arising in tax years ending after December 31, 2017 can be carried forward indefinitely, but carryback is generally prohibited.

Net operating loss carryforwards generated before January 1, 2018 will not be subject to the Tax Act’s taxable income limitation and will continue to have a twenty-year carryforward period.

As of December 31, 2019, the Company had tax credit carryforwards of approximately $ 5.1 million, and $ 2.7 million available to reduce future taxable income, if any, for both federal and state purposes, respectively.

As of December 31, 2020, the Company had approximately $ 368.2 million of federal and $ 218.7 million of state net operating loss carryforwards available to offset future taxable income which expires in varying amounts beginning in 2027 and 2020 respectively.

As of December 31, 2020, the Company had research tax credit carryforwards of approximately $ 6.9 million, and $ 3.1 million available to reduce future taxable income, if any, for both federal and state purposes, respectively.

The federal tax credit carryforwards expire beginning in 2028 and the state tax credits can be carried forward indefinitely.

1 unchanged sentence

In the event the Company should experience an ownership change, as defined, utilization of its net operating loss carryforwards and tax credits could be limited.

Effective January 1, 2019, the Company adopted ASC 740-10 (formerly known as FIN 48), Accounting for Income Taxes, guidance that addresses the recognition, measurement, and disclosure of uncertain tax positions.

Total unrecognized income tax benefits was $ 2.3 million and $ 1.8 million at December 31, 2020 and 2019, respectively.

The Company does not anticipate the total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months.

A reconciliation of the Company’s unrecognized tax benefit amount is as follows (in thousands):

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Increases in balance related to prior year tax positions — — 75

Decreases in balances related to prior year tax position — — ( 1 )

Decreases in balance related to prior year tax positions ( 28 ) — —

Balance at end of year $ 2,302 $ 1,842 $ 1,459

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and UK jurisdictions.

All of the Company's tax years are open to examination by the US federal, state and foreign tax authorities.

All of the Company's tax years are open to examination by the US federal and state tax authorities.

The UK is open to examination for tax years starting 2017 and forward.

The Company currently has no federal, state or foreign tax examinations in progress, nor has it had any federal or state examinations since inception.

Stockholders’ Equity

The Company’s amended and restated certificate of incorporation dated October 25, 2016, authorizes the Company to issue 100,000,000 shares of common stock with a par value of $ 0.001 per share and 5,000,000 shares of preferred stock with a par value of $ 0.001 per share.

The Company’s amended and restated certificate of incorporation dated October 25, 2016, as amended, authorizes the Company to issue 100,000,000 shares of common stock with a par value of $ 0.001 per share and 5,000,000 shares of preferred stock with a par value of $ 0.001 per share.

The holders of common stock are entitled to receive dividends whenever funds and assets are legally available and when declared by the board of directors, subject to the prior rights of holders of all series of convertible preferred stock outstanding.

3 unchanged sentences

Unvested restricted stock units 1,114,159 886,030

Common stock warrants issued and outstanding — 4,857

Shares available for grant under future stock plans 8,016,517 6,709,235

43 unchanged sentences

Awards forfeited 124,478

Awards withheld for tax purposes 56,710

Balance at December 31, 2018 4,717,292

10 unchanged sentences

During the year ended December 31, 2020, 595,915 restricted stock units ("RSUs") were granted, 235,915 RSUs vested, and 131,871 RSUs were forfeited.

The following table summarizes stock option activity under the 2006 and 2016 Plans, including grants to nonemployees:

The following table summarizes stock option activity under the 2006 and 2016 Equity Incentive Plans:

Options Outstanding

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During the years ended December 31, 2019, and 2018, the Company granted options with a weighted-average grant date fair value of $ 38.29 and $ 32.38 per share, respectively.

The Company did no t grant any options during the year ended December 31, 2020.

The aggregate intrinsic value of options exercised was $ 109.2 million, $ 36.9 million and $ 52.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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Non-vested as of December 31, 2019 886,030 $ 77.92 1.39 $ 60,330

Granted 595,915 $ 104.09

Vested ( 235,915 ) $ 69.01

Forfeited ( 131,871 ) $ 59.85

Non-vested as of December 31, 2020 1,114,159 $ 94.25 1.38 $ 264,290

Stock-Based Compensation

Employee Stock-Based Compensation

The Company estimates the fair value of stock options using the Black-Scholes option valuation model.

The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards.

The fair value of employee stock options was estimated using the weighted average assumptions below.

Each of these inputs is subjective and its determination generally requires significant judgment.

Year Ended December 31

2019 2018 2017

Employee Options Valuation

The fair value of employee and director stock options was estimated at the date of grant using the Black-Scholes option pricing model with the weighted average assumptions below.

Year Ended Year ended December 31,

Expected term (in years) 6.1 6.1

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Dividend yield — % — %

Fair Value of Common Stock — Prior to the completion of the Company’s IPO, the fair value of the shares of the Company’s common stock underlying the stock options had historically been determined by the Company’s board of directors.

Because there had been no public market for the Company’s common stock, its board of directors determined the fair value of the Company’s common stock at the time of grant of the option by considering a number of objective and subjective factors, including valuations of comparable companies, sales of the Company’s convertible preferred stock, the Company’s operating and financial performance, the lack of liquidity of the Company’s capital stock, and the general and industry-specific economic outlooks.

For stock options granted after the completion of the IPO, the Company’s Board of Directors determined the fair value of each share of underlying common stock based on the closing price of the Company’s common stock as reported on the date of grant.

The Company did not grant stock options during the year ended December 31, 2020.

Market-based RSU Valuation

The fair value of market based RSUs was estimated at the date of grant using the Monte-Carlo option pricing model with the assumptions below.

Additional details on the Company's market based RSUs are included below.

Expected term (in years) 0.74

Expected volatility 63.0 %

Risk-free interest rate 0.17 %

Dividend yield — %

Fair Value of Common Stock — The Company’s Board of Directors determined the fair value of each share of underlying common stock based on the closing price of the Company’s common stock as reported on the date of grant.

Expected Term —The expected term represents the period that the share-based awards are expected to be outstanding.

As the Company has very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock-option grants the Company has elected to use the “simplified method” as prescribed by authoritative guidance to compute expected term.

Expected Volatility —Since the Company does not have sufficient trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded companies over a period equal to the expected term of the stock option grants.

expected term of the stock option grants.

When selecting comparable publicly traded companies in a similar industry on which it has based its expected stock price volatility, the Company selected companies with comparable characteristics to it, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards.

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The Company will continue to use judgment in evaluating the expected volatility, expected terms and forfeiture rates utilized for the Company’s stock-based compensation calculations on a prospective basis.

The following table summarizes the total stock-based compensation expense included in the statements of operations for all periods presented (in thousands):

The following table summarizes the total stock-based compensation expense included in the statements of operations and comprehensive loss for all periods presented (in thousands):

Year Ended December 31

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As of December 31, 2020, there was total unamortized compensation costs of $ 3.9 million, net of estimated forfeitures, related to unvested stock options, which the Company expects to recognize over a period of approximately 1.1 years $ 61.4 million, net of estimated forfeitures, related to unrecognized RSU expense, which the Company expects to recognize over a period of 2.2 years, and $ 1.9 million unrecognized ESPP expense, which the Company will recognize over 0.9 years.

Performance based RSUs "PRSU"

In February 2019, the Company granted PRSUs to key executives of the Company.

The performance equity program has a 2 -year performance period measuring target revenue compound annual growth rate (“CAGR”) achievement for fiscal year 2020 compared to fiscal year 2018.

There is a minimum performance threshold of 75 % to earn 50 % of target, and a maximum threshold of 125 % achieved to earn 200 % of target.

The exact number of earned shares will be determined based on linear interpolation using the actual revenue CAGR as it falls between the minimum and maximum thresholds outlined above.

The fair value of the PRSUs will be up to $ 18.5 million, depending on the actual achievement relative to the performance target.

Based on management’s assessment at December 31, 2019 of the Company’s achievement of its performance targets, the Company has determined that it is probable that the performance targets will be achieved.

As of December 31, 2019, management believes that it will achieve its performance targets at the 134 % level, and has recognized cumulative stock-based compensation expense of $ 4.8 million, for the year ended December 31, 2019.

Performance based RSUs ("PRSU") and Market-based RSUs

The Company grants PRSUs to key executives of the Company.

PRSUs can be earned in accordance with the performance equity program for each respective grant

In February 2019, the company granted PRSU's ("2019 awards") to be earned based on the compound annual growth rate ("CAGR") of fiscal year 2020's revenue compared to fiscal year 2018's revenue.

Due to the impact of the COVID-19 pandemic, management determined that the Company’s achievement of its performance targets described above, was not probable in the first quarter of fiscal year 2020.

PRSU expense of $ 4.8 million recognized in fiscal year 2019 related to the 2019 awards was reversed in the first quarter of fiscal year 2020.

On June 19, 2020, the Company modified the terms of the 2019 awards to vest based on the Company’s average stock price.

The modification impacted all active recipients of the 2019 awards, a total of ten recipients.

The total incremental compensation cost resulting from the modification of $ 13.6 million will be recognized ratably through March of 2021.

The Company recognized $ 10.2 million of compensation cost for the year ended December 31, 2020 in connection with the 2019 awards.

February 2020 Awards

In February 2020, the company granted PRSU's ("February 2020 awards") for fiscal year 2022's annual unit volume CAGR compared to fiscal year 2019's annual unit volume CAGR, measuring a minimum performance threshold of 19.7 % to earn 50 % of target, and a maximum threshold of 29 % achieved to earn 200 % of target.

A total of 133,834 PRSU shares were granted with grant date fair value of $ 11.0 million.

The 2020 awards also include a service-based component.

Compensation cost in connection with the probable number of shares that will vest will be recognized ratably through March of 2021.

During the year ended December 31, 2020, the Company determined that it was probable that the February 2020 Awards would vest and recognized $ 1.4 million of compensation cost in connection with the February 2020 awards.

Non employee Stock-Based Compensation

On July 3, 2020, the Company’s Chief Financial Officer (“CFO”) resigned and entered into a Consulting and Professional Services Agreement (“CPSA”) with the Company to provide consulting services through July 2, 2021.

Pursuant to the original terms of the awards, the CFO will continue to vest in outstanding awards as long as services are provided to the Company under the CPSA as a non-employee consultant.

In accordance with ASC 718, the Company recognized expense related to all awards expected to vest over the duration of the CPSA in the current period as an equity- based severance cost as the consulting services are not substantive.

Total expense related to non-employee stock- based compensation recognized for the year ended December 31, 2020 was $ 1.8 million.

The Company did no t recognize any non-employee stock-based compensation expense for the years ended December 31, 2019 and 2018.

Net Loss Per Common Share

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Organization and Description of Business.

The revision of the third quarter 2018 was previously effected in the Company’s Quarterly Report on Form 10-Q for the third quarter of fiscal 2019 and thus the impact of the revision on such periods financial data is not reflected below.

The Company will effect the revision of its unaudited interim financial statements as of and for the three months ended March 31, 2019 and as of and for the three and six-months ended June 30, 2019 when it issues its Form 10-Q for the periods ended March 31 and June 30, 2020.

The Company believes this information reflects all recurring adjustments necessary to fairly state this information when read in conjunction with the Company's financial statements and the related notes.

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Net loss per common share, basic and diluted $ ( 0.33 ) $ ( 0.01 ) $ ( 0.34 )

Quarter Ended December 31, 2018

As Reported Adjustment As Revised

Total revenues $ 43,155 $ ( 1,373 ) $ 41,782

Gross profit 32,626 ( 1,650 ) 30,976

Net loss ( 14,713 ) ( 1,557 ) ( 16,270 )

Net loss per common share, basic and diluted $ ( 0.61 ) $ ( 0.06 ) $ ( 0.67 )

Quarter Ended June 30, 2018

As Reported Adjustment As Revised

Total revenues $ 35,469 $ ( 177 ) $ 35,292

Gross profit 25,979 ( 173 ) 25,806

Net loss ( 12,206 ) ( 1,098 ) ( 13,304 )

Net loss per common share, basic and diluted $ ( 0.51 ) $ ( 0.05 ) $ ( 0.56 )

Quarter Ended March 31, 2018

As Reported Adjustment As Revised

Total revenues $ 30,565 $ 1,197 $ 31,762

Gross profit 21,954 1,258 23,212

Net loss $ ( 11,117 ) $ 40 $ ( 11,077 )

Disaggregation of Revenue

During the preparation of the Company’s annual financial statements for the year ended December 31, 2019, the Company identified a $ 965 thousand classification error in the presentation of contracted third-party payors and non-contracted third-party payors in the disaggregation of revenue disclosure in Note 2.

Summary of Significant Accounting Policies of its Quarterly Report on Form 10-Q for the period ended September 30, 2019.

Previously reported nine-month ended September 30, 2019 balances (in thousands) of $ 72,040 and $ 9,016 for contracted third-party payors and non-contracted third-party payors, respectively, should have been $ 73,005 and $ 8,051 , respectively.

The Company concluded that the amounts were not material to its previously issued September 30, 2019 condensed consolidated financial statements.

The error impacted the disclosures in the September 30, 2019 Form 10-Q but did not impact the Company’s condensed consolidated balance sheets, statements of operations or statements of cash flows included in such 10-Q.

Revision of Prior Period Financial Statements

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Net loss per common share, basic and diluted ( 2.02 ) ( 0.09 ) ( 2.11 )

Year ended December 31, 2017

As Reported Adjustment As Revised

Revenue $ 98,509 $ 620 $ 99,129

Cost of revenue 27,708 495 28,203

Gross profit 70,801 125 70,926

Research and development 13,335 ( 70 ) 13,265

Selling, general and administrative 84,737 515 85,252

Total operating expenses 98,072 445 98,517

Loss from operations ( 27,271 ) ( 320 ) ( 27,591 )

Net loss ( 29,420 ) ( 320 ) ( 29,740 )

Net loss per common share, basic and diluted ( 1.30 ) ( 0.01 ) ( 1.31 )

Revised Consolidated Statements of Comprehensive Loss

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Comprehensive loss ( 48,256 ) ( 2,073 ) ( 50,329 )

Year ended December 31, 2017

As Reported Adjustment As Revised

Net loss $ ( 29,420 ) $ ( 320 ) $ ( 29,740 )

Comprehensive loss ( 29,476 ) ( 320 ) ( 29,796 )

Revised Consolidated Statements of Cash Flows

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Net cash provided by investing activities 34,117 25 34,142

Year ended December 31, 2017

As Reported Adjustment As Revised

Cash flows from operating activities

Net loss $ ( 29,420 ) $ ( 320 ) $ ( 29,740 )

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation 10,123 ( 371 ) 9,752

Provision for bad debt and contractual allowances 9,403 ( 181 ) 9,222

Changes in operating assets and liabilities:

Accounts receivable ( 12,950 ) 479 ( 12,471 )

Accrued liabilities 5,364 393 5,757

Supplemental disclosures of cash flow information

Property, plant and equipment costs included in liabilities 35 75 110

Revised Consolidated Statements of Shareholder's Equity

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Total stockholders' equity 54,422 ( 2,285 ) 52,137

Year Ended December 31, 2017

As Reported Adjustment As Revised

Accumulated deficit beginning balance $ ( 127,169 ) $ 108 $ ( 127,061 )

Net loss ( 29,420 ) ( 320 ) ( 29,740 )

Accumulated deficit ending balance ( 156,589 ) ( 212 ) ( 156,801 )

Total stockholders' equity 79,553 ( 212 ) 79,341

Subsequent Events

Novitas Announcement

In December 2020, CMS published its Calendar Year 2021 Medicare Physician Fee Schedule Final Rule (the “Final Rule”).

In the Final Rule, CMS did not finalize national pricing for the extended external ECG patch, medical magnetic tape recorder (SD339) supply, and ruled to contractor pricing for CPT codes 93241, 93243, 93245 and 93247.

The Company has been working with Medicare Administrative Contractors (MACs) to establish pricing for these codes.

On January 29, 2021, Novitas Solutions, the MAC which covers the region where the Company's Independent Diagnostic Testing Facility in Houston, Texas where almost all Medicare services for Zio XT are processed, published rates for 2021 that were significantly below historical Medicare rates for Zio XT.

The Company is in the process of negotiating with Novitas to establish higher pricing for the Category I CPT Codes but can offer no assurances as to the timing or outcome of those discussions.

In the event that Novitas does not publish new higher rates or that new rates are not backdated to a January 1st effective date, The company will recognize medicare revenue starting January 1, 2021 at the Novitas rates published January 29th.

Employee Bonus

In April 2020, the Company's Compensation Committee of the Board of Directors ("Compensation Committee") approved bonus metrics for the employee bonus program and confirmed that the bonus would be paid to employees in RSUs in an effort to preserve cash while assessing the impact of COVID-19.

The Company accrued employee bonus under ASC 718 for the year ended December 31, 2020.

In February 2021, the Compensation Committee approved the achievement of the bonus metrics and confirmed that the employee bonus would be paid out in cash given the company's current liquidity.

The Company will apply this change prospectively under ASC 480 in the first quarter of 2021.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data