What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-08-06 · 135 added, 120 removed, 426 unchanged (37% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

(in thousands, except per share amounts)

28 unchanged sentences

Authorized 1,000,000 shares;

issued and outstanding 154,318 shares and 153,119 shares at June 30, 2020 and December 31, 2019, respectively

issued and outstanding 179,937 shares and 153,119 shares at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

8 unchanged sentences

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share amounts)

13 unchanged sentences

Interest expense

Other income, net

Other income (expense), net

Other comprehensive income (loss):

Unrealized income on investments

Unrealized income (loss) on investments

Comprehensive loss

9 unchanged sentences

Income (Loss)

For the three months ended June 30, 2020

Balance at March 31, 2020

For the three months ended September 30, 2020

Balance at June 30, 2020

( 1,088,096 )

Other comprehensive income

Other comprehensive loss

Issuance of common stock in conjunction with equity plans

Issuance of common stock from Underwritten Public Equity Offering, net of issuance costs

Stock-based compensation expense

Balance at June 30, 2020

Balance at September 30, 2020

( 1,111,804 )

For the three months ended June 30, 2019

Balance at March 31, 2019

For the three months ended September 30, 2019

Balance at June 30, 2019

( 1,037,026 )

Other comprehensive income

Other comprehensive loss

Issuance of common stock in conjunction with equity plans

Stock-based compensation expense

Balance at June 30, 2019

Balance at September 30, 2019

( 1,066,149 )

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

Balance at December 31, 2019

2 unchanged sentences

Adoption effect of Topic 326

Issuance of common stock from Underwritten Public Equity Offering, net of issuance costs

Issuance of common stock in conjunction with equity plans

Stock-based compensation expense

Balance at June 30, 2020

Balance at September 30, 2020

( 1,111,804 )

For the six months ended June 30, 2019

For the nine months ended September 30, 2019

Balance at December 31, 2018

2 unchanged sentences

Stock-based compensation expense

Balance at June 30, 2019

Balance at September 30, 2019

( 1,066,149 )

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

7 unchanged sentences

Amortization (accretion) from investment premium (discount)

Loss on disposition of equipment

Changes in assets and liabilities

11 unchanged sentences

Purchase of investments

Sales of investments

Maturities of investments

3 unchanged sentences

Notes payable principal payoff

Proceeds from issuance of common stock from underwritten public equity offering, net of issuance costs

Proceeds from issuance of common stock from equity plans

6 unchanged sentences

Cash and cash equivalents and restricted cash at end of period

Supplemental disclosure of cash flow information

Supplemental disclosure of non-cash operating activities

Inventory transferred to property and equipment

Inventory transferred from property and equipment

See accompanying notes to the condensed consolidated financial statements.

10 unchanged sentences

Our current products include the Sequel II instrument and SMRT Cell 8M, which together are capable of sequencing up to approximately eight million DNA molecules simultaneously, and the previous generation Sequel instrument and Sequel SMRT Cell 1M, which together are capable of sequencing up to approximately one million DNA molecules simultaneously.

In October 2020, we launched the Sequel IIe System, which has increased computational capacity, and is designed to enable customers to generate PacBio HiFi reads more efficiently.

Our customers and our scientific collaborators have published numerous peer-reviewed articles in journals including Nature, Science, Cell, PNAS and The New England Journal of Medicine highlighting the power and applications of SMRT sequencing in projects such as finishing genomes, structural variation discovery, isoform transcriptome characterization, rare mutation discovery and the identification of chemical modifications of DNA related to virulence and pathogenicity.

6 unchanged sentences

On January 2, 2020, we, Illumina and Merger Subsidiary, entered into an agreement to terminate the Merger Agreement (the “Termination Agreement”).

As part of the Termination Agreement, Illumina paid us a $ 98.0 million termination fee (the “Reverse Termination Fee”), from which we paid our financial advisor associated fees of $ 6.0 million in April 2020, which is less than the amount we initially expected.

In addition, Illumina paid us cash payments (“Continuation Advances”) of $ 34.0 million during the first quarter of 2020.

However, pursuant to the Termination Agreement, in the event that, on or prior to September 30, 2020, we enter into a definitive agreement providing for, or consummate, a Change of Control Transaction (as defined in the Termination Agreement) (“Change of Control Transaction”), then we may be required to repay the Reverse Termination Fee (without interest) to Illumina in connection with the consummation of such Change of Control Transaction.

If such Change of Control Transaction is not consummated by the two-year anniversary of the execution of the definitive agreement for such Change of Control Transaction, then we will not be required to repay the Reverse Termination Fee.

In addition, Illumina paid us cash payments (“Continuation Advances”) of $ 18.0 million during the fourth quarter of 2019 and $ 34.0 million during the first quarter of 2020.

However, pursuant to the Termination Agreement, in the event that, on or prior to September 30, 2020, we entered into a definitive agreement providing for, or consummated, a Change of Control Transaction (as defined in the Termination Agreement) (“Change of Control Transaction”), then we may have been required to repay the Reverse Termination Fee (without interest) to Illumina in connection with the consummation of such Change of Control Transaction.

No such definitive agreement was entered into nor was a Change of Control Transaction consummated as of September 30, 2020.

Please refer to “Note 5.

Balance Sheet Components” for the accounting treatment of the Reverse Termination Fee.

In addition, up to the $ 52.0 million of the Continuation Advances paid to us are repayable without interest to Illumina if, within two years of March 31, 2020, we enter into, or consummate a Change of Control Transaction or raise at least $ 100 million in equity in a single transaction or debt financing (that may have multiple closings), with the amount repayable dependent on the amount raised by us.

In addition, up to the full $ 52.0 million of Continuation Advances paid to us are repayable without interest to Illumina if, within two years of March 31, 2020, we enter into, or consummate a Change of Control Transaction or raise at least $ 100 million in a single equity or debt financing (that may have multiple closings), with the amount repayable dependent on the amount raised by us.

Please refer to “Note 3.

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These Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the entire year or any future periods.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the entire year or any future periods.

The condensed consolidated financial statements include the accounts of Pacific Biosciences and our wholly-owned subsidiaries.

2 unchanged sentences

The extent of the impact of the COVID-19 pandemic on our business is highly uncertain as responses to the pandemic can change quickly and information is rapidly evolving.

We considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of June 30, 2020.

We considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of September 30, 2020.

Use of Estimates

20 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis as of June 30, 2020 and December 31, 2019 respectively:

June 30, 2020

The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis as of September 30, 2020 and December 31, 2019 respectively:

September 30, 2020

December 31, 2019

3 unchanged sentences

Commercial paper

Treasury security

Total cash and cash equivalents

1 unchanged sentence

Corporate debt securities

US government & agency securities

government & agency securities

Treasury security

Total investments

19 unchanged sentences

The estimated fair value of the liability related to the Continuation Advances was determined using Level 3 inputs, or significant unobservable inputs.

Management estimated that there would be no future cash outflows associated with this financial instrument because the probabilities of either of the following events occurring and requiring repayment to Illumina were evaluated as being remote as of June 30 2020:

 we enter into a Change of Control Transaction within two years following March 31, 2020;

 we raise $ 100 million or more in a single equity or debt financing (that may have multiple closings) within two years following March 31, 2020.

As a result, the estimated fair value of the liability associated with the contingent repayment of the Continuation Advances received in the first quarter of 2020 was assessed to be zero as of both March 31, 2020 and June 30, 2020, with a resulting non-operating gain of $ 34.0 million recorded as “Gain from Continuation Advances from Illumina” for the quarter ended March 31, 2020.

As a result, the estimated fair value of the liability associated with the contingent repayment of the Continuation Advances received in the first quarter of 2020 was assessed to be zero as of March 31, 2020, June 30, 2020 and September 30, 2020, respectively, with a resulting non-operating gain of $ 34.0 million recorded as “Gain from Continuation Advances from Illumina” for the quarter ended March 31, 2020.

We recorded a similar gain of $ 18.0 million in 2019 for the Continuation Advances received during the fourth quarter of 2019.

For the quarter ended June 30, 2020, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and our valuation techniques did not change compared to the prior year.

For the quarter ended September 30, 2020, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and our valuation techniques did not change compared to the prior year.

Net Loss per Share

1 unchanged sentence

Stockholders’ Equity for detailed information on RSUs with time-based vesting and RSUs with performance-based vesting.

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

Concentration and Other Risks

For the three and six months ended June 30, 2020, Gene Company Limited accounted for approximately 15 % and 11 %, respectively, of our total revenue during the period with no other customer exceeding 10% during those periods.

For the three and six months ended June 30, 2019, Gene Company Limited accounted for approximately 23 % and 20 % of our total revenue, respectively, with no other customer exceeding 10% during those periods.

For the three and nine months ended September 30, 2020, Gene Company Limited accounted for approximately 18 % and 14 %, respectively, of our total revenue during the period with no other customer exceeding 10% during those periods.

For the three and nine months ended September 30, 2019, Gene Company Limited accounted for approximately 14 % and 18 % of our total revenue, respectively, with no other customer exceeding 10% during those periods.

Gene Company Limited is our primary distributor in China.

Recent Accounting Pronouncements

Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board, or FASB issued Accounting Standards Update, or ASU No.

2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes .

ASU 2019-12 is intended to simplify accounting for income taxes.

It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, which is fiscal 2021 for us, with early adoption permitted.

We do not expect adoption of the new guidance to have a material impact on our financial statements.

Recently Adopted Accounting Standards

Adoption of Topic 326

In June 2016, FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):

In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-13 Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“Topic 326”), which replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost.

We adopted Topic 326 on January 1, 2020, using a modified retrospective transition method, which requires a cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated.

We adopted Topic 326 on January 1, 2020, using a modified retrospective transition method, which requires a cumulative-effect adjustment to the opening balance of retained earnings/accumulated deficit to be recognized on the date of adoption with prior periods not restated.

The cumulative-effect adjustment recorded on January 1, 2020, is shown below (in thousands):

8 unchanged sentences

( 1,066,272 )

The adoption of Topic 326 did not have a material impact on our financial statements and our bad debt expense was immaterial as of June 30 2020.

The adoption of Topic 326 did not have a material impact on our financial statements and our bad debt expense was immaterial as of September 30, 2020.

Please see the description of our “Credit Losses” accounting policy in the “Significant Accounting Policies” section below.

7 unchanged sentences

Our investment portfolio at any point in time contains investments in cash deposits, money market funds, commercial paper, corporate debt securities and US government and agency securities.

We regularly review the securities in an unrealized loss position and evaluate the current expected credit loss by considering factors such as significance of loss, historical experience, market data, issuer-specific factors, and current economic conditions and concluded that an allowance for credit losses was not required as of June 30 2020.

Although we have historically not experienced significant credit losses, our exposure to credit losses may increase if our customers are adversely affected by changes in economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors.

CASH, CASH EQUIVALENTS AND INVESTMENTS

The following tables summarize our cash, cash equivalents and investments as of June 30, 2020 and December 31, 2019 (in thousands):

As of June 30, 2020

The following tables summarize our cash, cash equivalents and investments as of September 30, 2020 and December 31, 2019 (in thousands):

As of September 30, 2020

Cash and cash equivalents:

1 unchanged sentence

Commercial paper

Treasury security

Total cash and cash equivalents

1 unchanged sentence

Corporate debt securities

US government & agency securities

government & agency securities

Treasury security

Total investments

11 unchanged sentences

Long-term restricted cash:

The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of June 30, 2020 (in thousands):

The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of September 30, 2020 (in thousands):

Due in one year or less

3 unchanged sentences

BALANCE SHEET COMPONENTS

As of June 30, 2020 and December 31, 2019, our inventory consisted of the following components:

As of September 30, 2020 and December 31, 2019, our inventory consisted of the following components:

September 30,

(in thousands)

7 unchanged sentences

Pursuant to the terms of the O’Brien Lease, the letter of credit balance of $ 4.0 million was reduced again in May 2020 by $ 500,000 .

As such, $ 3.5 million was recorded in “Long-term restricted cash” in the condensed consolidated balance sheet as of June 30, 2020.

As such, $ 3.5 million was recorded in “Long-term restricted cash” in the condensed consolidated balance sheet as of September 30, 2020.

Deferred gain from Reverse Termination Fee

As part of the Termination Agreement, Illumina paid us a Reverse Termination Fee of $ 98.0 million, from which we owed our financial advisor associated fees of $ 6.0 million.

Pursuant to the Termination Agreement, in the event that, on or prior to September 30, 2020, we enter into a definitive agreement providing for, or consummate, a Change of Control Transaction, then we may need to repay the Reverse Termination Fee (without interest) to Illumina in connection with the consummation of such Change of Control Transaction.

If such Change of Control Transaction is not consummated by the two year anniversary of the execution of the definitive agreement for such Change of Control Transaction, then we will not be required to repay the Reverse Termination Fee.

We recorded the $ 6.0 million of associated fees owed to our financial advisor in the “Sales, general and administrative” expense line in the condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2020.

Pursuant to the Termination Agreement, in the event that, on or prior to September 30, 2020, we entered into a definitive agreement providing for, or consummated, a Change of Control Transaction, then we may have been required to repay the Reverse Termination Fee (without interest) to Illumina in connection with the consummation of such Change of Control Transaction.

If such Change of Control Transaction was not consummated by the two year anniversary of the execution of the definitive agreement for such Change of Control Transaction, then we would not have been required to repay the Reverse Termination Fee.

As indicated in ASC 450, Contingencies , a gain contingency usually is not recognized in the financial statements until the period in which all contingencies are resolved and the gain is realizable.

As such we have deferred the gain from the Reverse Termination Fee from Illumina until the date when the associated contingency is resolved and accordingly, we recorded the $ 98.0 million as “Deferred Gain from Reverse Termination Fee” in the condensed consolidated balance sheet as of June 30, 2020.

As such, we deferred the gain from the Reverse Termination Fee from Illumina until the date when the associated contingency was resolved and accordingly, we recorded the $ 98.0 million as “Deferred Gain from Reverse Termination Fee” in the condensed consolidated balance sheet as of September 30, 2020.

Subsequently, on October 1, 2020, the contingency clauses lapsed.

Notes payable, current

6 unchanged sentences

The estimated fair value of the Financing Derivative as of December 31, 2019 was $ 0 .

In February 2020, after we repaid the remaining outstanding principal of $ 16.0 million and interest to Deerfield, the Financing Derivative balance was reduced to $ 0 .

In February 2020, after we repaid the remaining outstanding principal of $ 16.0 million and interest to Deerfield, the related Financing Derivative expired.

Deferred revenue

As of June 30, 2020, we had a total of $ 8.4 million of deferred revenue from our service contracts, $ 6.9 million of which was recorded as “Deferred revenue, current” to be recognized over the next year and the remaining $ 1.5 million was recorded as “Deferred revenue, non-current” to be recognized in the next 3 years.

Revenue recorded in the three months ended June 30, 2020 includes $ 2.1 million of previously deferred revenue that was included in “Deferred revenue, current” as of December 31, 2019.

Contract assets as of June 30, 2020 and December 31, 2019 were not material.

As of June 30, 2020, we had a total of $ 0.6 million of deferred commissions included in “Prepaid expenses and other current assets” which is recognized as the related revenue is recognized.

As of September 30, 2020, we had a total of $ 8.7 million of deferred revenue from our service contracts, $ 6.9 million of which was recorded as “Deferred revenue, current” to be recognized over the next year and the remaining $ 1.8 million was recorded as “Deferred revenue, non-current” to be recognized in the next 3 years.

Revenue recorded in the three and nine months ended September 30, 2020 includes $ 1.6 million and $ 6.5 million, respectively, of previously deferred revenue that was included in “Deferred revenue, current” as of December 31, 2019.

Contract assets as of September 30, 2020 and December 31, 2019 were not material.

As of September 30, 2020, we had a total of $ 0.6 million of deferred commissions included in “Prepaid expenses and other current assets” which is recognized as the related revenue is recognized.

Additionally, as a practical expedient, we expense costs to obtain a contract as incurred if the amortization period would have been a year or less.

COMMITMENTS AND CONTINGENCIES

As of June 30, 2020, we leased approximately 180,000 square feet in 1305 O’Brien Drive, Menlo Park, California, where we house our headquarters, research and development, service and support functions.

We also leased a sales office facility in Singapore and engineering support facilities in Allen, Texas.

On July 22, 2015, we entered into a lease agreement with respect to our facility located at 1305 O’Brien Drive, Menlo Park, California.

5 unchanged sentences

We were required to establish a letter of credit for the benefits of the landlord and to submit $ 4.5 million as a deposit for the letter of credit in October 2015.

Subsequently pursuant to the terms of the O’Brien Lease, at May 1, 2019 the $ 4.5 million in restricted cash was reduced to $ 4.0 million and at May 1, 2020 the $ 4.0 million in restricted cash was reduced to $ 3.5 million.

Subsequently pursuant to the terms of the O’Brien Lease, on May 1, 2019 the $ 4.5 million in restricted cash was reduced to $ 4.0 million and on May 1, 2020 the $ 4.0 million in restricted cash was reduced to $ 3.5 million.

All of our leases are operating leases.

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We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors.

The weighted average remaining lease term for our operating leases as of June 30, 2020 was 7.3 years.

The weighted average remaining lease term for our operating leases as of September 30, 2020 was 7.1 years.

The discount rate implicit within our leases is generally not determinable and therefore we determine the discount rate based on our incremental borrowing rate.

The incremental borrowing rate for our leases is determined based on lease term and currency in which lease payments are made, adjusted for impacts of collateral.

The weighted average discount rate used to measure our operating lease liabilities as of June 30, 2020 was 7.9 %.

The following table presents information as to the amount and timing of cash flows arising from our operating leases as of June 30, 2020:

The weighted average discount rate used to measure our operating lease liabilities as of September 30, 2020 was 7.9 %.

The following table presents information as to the amount and timing of cash flows arising from our operating leases as of September 30, 2020:

Maturity of Lease Liabilities

9 unchanged sentences

Total operating lease liabilities

Cash paid for amounts included in the present value of operating lease liabilities was $ 1.8 million and $ 3.6 million, respectively, for the three and six months ended June 30, 2020 and included in operating cash flow.

Cash paid for amounts included in the present value of operating lease liabilities was $ 1.8 million and $ 5.4 million, respectively, for the three and nine months ended September 30, 2020 and included in operating cash flow.

Operating Lease Costs

Operating lease costs were $ 1.6 million and $ 3.1 million for the three and six months ended June 30, 2020, respectively.

Operating lease costs were $ 1.6 million and $ 3.1 million for the three and six months ended June 30, 2019, respectively.

Operating lease costs were $ 1.6 million and $ 4.7 million for the three and nine months ended September 30, 2020, respectively.

Operating lease costs were $ 1.6 million and $ 4.7 million for the three and nine months ended September 30, 2019, respectively.

For both 2020 and 2019 the operating lease costs primarily related to our operating leases, but also included immaterial amounts for variable leases.

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The complaint is based on our U.S.

9,546,400 (the “’400 Patent”), entitled “Nanopore sequencing using n-mers” which covers novel methods for nanopore sequencing of nucleic acid molecules using the signals from multiple monomeric units.

This patent was granted on January 17, 2017.

9,546,400 (the “’400 Patent”) which covers novel methods for nanopore sequencing of nucleic acid molecules using the signals from multiple monomeric units.

We are seeking remedies including injunctive relief, damages and costs.

On August 23, 2018, we filed an amended complaint, adding ONT Ltd.

as a defendant in the 275 Action.

On August 15, 2019, the judge granted our motion to amend the complaint in the 275 Action to add allegations of willful infringement by ONT Inc.

On August 23, 2018, we filed an amended complaint, adding allegations of willful infringement and adding ONT Ltd.

as a defendant in the 275 Action, which was granted on August 15, 2019.

On September 25, 2017, we filed a second complaint in the U.S.

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The complaint is based on our U.S.

9,678,056 (the “’056 Patent”) entitled “Control of Enzyme Translation in Nanopore Sequencing”, granted June 13, 2017, and U.S.

9,738,929 (the “’929 Patent”) entitled “Nucleic Acid Sequence Analysis”, granted August 22, 2017.

9,678,056 (the “’056 Patent”) and U.S.

We are seeking remedies including injunctive relief, damages and costs.

On March 28, 2018, we added a claim for infringement of our U.S.

9,772,323 (the “’323 Patent”), entitled “Nanopore sequencing using n-mers.” On August 23, 2018 we filed an amended complaint, adding ONT Ltd.

as a defendant in the 1353 Action.

On August 15, 2019, the judge granted our motion to amend the complaint in the 1353 Action to add allegations of willful infringement by ONT Inc.

9,772,323 (the “’323 Patent”).

On August 23, 2018 we filed an amended complaint, adding allegations of willful infringement and adding ONT Ltd.

as a defendant in the 1353 Action, which was granted on August 15, 2019.

A trial for the U.S.

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The jury declined to find valid or infringed U.S.

We plan to appeal the decision to the U.S.

We are pursuing an appeal of the decision at the U.S.

Court of Appeals for the Federal Circuit.

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District Court for the District of Delaware against us for patent infringement (C.A.

The complaint is based on PGI’s U.S.

The complaint (the “PGI District Court complaint”) is based on PGI’s U.S.

7,767,441 (the “‘441 Patent”).

4 unchanged sentences

On June 27, 2020, we filed a second petition requesting institution of an IPR requesting the Board to find another set of claims in the ‘441 invalid.

The two petitions requesting IPRs assert that all of the claims relevant to the PGI complaint are invalid.

The two petitions (the “PacBio IPR petitions”) requesting IPRs assert that all of the claims relevant to the PGI complaint are invalid.

On August 19, 2020, the court ordered a stay of the PGI District Court complaint based on a joint stipulation by the parties.

The matter is stayed pending the decision by the Patent Trial and Appeals Board on institution of the PacBio IPR petitions expected January 2021.

If both IPR petitions are instituted, the stay will extend until the final written decision on the IPRs.

On May 19, 2020, PGI filed a complaint in the Wuhan People’s Court alleging infringement of one or more claims of China patent No.

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To the extent that any such indemnification obligations apply to the lawsuits described above, any associated expenses incurred are included within the related accrued litigation expense amounts.

No additional liability associated with such indemnification obligations has been recorded at June 30, 2020.

No additional liability associated with such indemnification obligations has been recorded as of September 30, 2020.

STOCKHOLDERS’ EQUITY

As of June 30, 2020, in total, we had three active equity compensation plans:

Underwritten Public Equity Offering

In June 2020, we filed a shelf registration statement on Form S-3 with the SEC pursuant to which we may, from time to time, sell up to an aggregate of $ 250.0 million of our common stock, preferred stock, depository shares, warrants, units or debt securities.

On July 14, 2020, the registration statement was declared effective by the SEC, which allows us to access the capital markets for the three year period following this effective date.

In August 2020, we entered into an underwriting agreement, relating to the public offering of 19,430,000 shares of our common stock, $ 0.001 par value per share, at a price to the public of $ 4.47 per share.

Under the terms of the underwriting agreement, we also granted the underwriters a 30 -day option to purchase up to an additional 2,914,500 shares of our common stock, which was subsequently exercised in full, and the offering including the sale of shares of common stock subject to the underwriters’ option, closed in August 2020.

In total, we sold 22.3 million shares of our common stock.

We paid a commission equal to 6 % of the gross proceeds from the sale of shares of our common stock.

The total net proceeds to us from the offering after deducting the underwriting discount were approximately $ 93.9 million, excluding approximately $ 0.3 million of offering expenses, $ 0.2 million of which was unpaid as of September 30, 2020.

The Termination Agreement currently limits our ability to issue additional securities or incur indebtedness as up to the $ 52.0 million of the Continuation Advances paid to us are repayable without interest to Illumina if, within two years of March 31, 2020, we enter into, or consummate a Change of Control Transaction or raise at least $ 100 million in a single equity or debt financing (that may have multiple closings), with the amount repayable dependent on the amount raised by us.

At June 30, 2020, in total, we had three active equity compensation plans:

the 2010 Equity Incentive Plan (“2010 Plan”), the 2010 Outside Director Equity Incentive Plan (“2010 Director Plan”) and the 2010 Employee Stock Purchase Plan (“ESPP”).

Pursuant to the terms of the then-in-process Merger Agreement, the ESPP was terminated after the completion of the purchase period ended March 1, 2019.

After the merger with Illumina was terminated in January 2020, we began offerings under the ESPP again starting with the offering period beginning on March 1, 2020.

Our 2010 Equity Incentive Plan (“ 2010 Plan”) and 2010 Outside Director Equity Incentive Plan (“ 2010 Director Plan”) expired on July 29, 2020.

On August 4, 2020, stockholders at the 2020 Annual Meeting approved a new 2020 Equity Incentive Plan and the 2010 Equity Incentive Plan and 2010 Outside Director Equity Incentive Plan were terminated.

A description of the 2020 Equity Incentive Plan can be found in the Company’s Proxy Statement for the 2020 Annual Meeting of Stockholders, dated June 24, 2020.

Our 2010 Plan and 2010 Director Plan expired on July 29, 2020.

On August 4, 2020, stockholders approved our new 2020 Equity Incentive Plan.

A description of the 2020 Equity Incentive Plan can be found in our Proxy Statement for the 2020 Annual Meeting of Stockholders, dated June 24, 2020.

Pursuant to the terms of the then-in-process Merger Agreement with Illumina, offerings under our ESPP were suspended after the completion of the purchase period ended March 1, 2019.

After the merger with Illumina was terminated in January 2020, we began offerings under the ESPP again starting with the offering period beginning March 1, 2020.

Stock Options

The following table summarizes stock option activity for all our stock option plans for the six months ended June 30, 2020 (in thousands, except per share amounts):

The following table summarizes stock option activity for all our stock option plans for the nine months ended September 30, 2020 (in thousands, except per share amounts):

Stock Options Outstanding

5 unchanged sentences

Options canceled

Balances, June 30, 2020

For the three and six months ended June 30, 2020, we recognized stock-based compensation expense of $ 1.1 million and $ 2.9 million, respectively, related to options.

Restricted Stock Units, or “RSUs”

Balances, September 30, 2020

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $ 1.4 million and $ 4.2 million, respectively, related to options.

Time-based RSUs

The following table summarizes the time-based RSUs activity for the six months ended June 30, 2020 (in thousands, except per share amounts):

The following table summarizes the time-based RSUs activity for the nine months ended September 30, 2020 (in thousands, except per share amounts):

Weighted average

2 unchanged sentences

RSUs forfeited

Unvested RSUs outstanding at June 30, 2020

For the three and six months ended June 30, 2020, we recognized stock-based compensation expense of $ 1.6 million and $ 3.8 million, respectively, related to time-based RSUs.

Unvested RSUs outstanding at September 30, 2020

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $ 1.7 million and $ 5.5 million, respectively, related to time-based RSUs.

Performance-based RSUs

The following table summarizes the performance-based RSUs activity for the six months ended June 30, 2020 (in thousands, except per share amounts):

The following table summarizes the performance-based RSUs (“PSUs”) activity for the nine months ended September 30, 2020 (in thousands, except per share amounts):

Weighted average

2 unchanged sentences

PSUs forfeited

Unvested PSUs outstanding at June 30, 2020

For the three and six months ended June 30, 2020, we recognized stock-based compensation expense of $ 0 related to the performance-based RSUs.

Unvested PSUs outstanding at September 30, 2020

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $ 0 related to the performance-based RSUs.

In January 2020, an additional 7.7 million shares and 1.5 million shares, respectively, were reserved under the 2010 Plan and the 2010 Director Plan.

As of June 30, 2020, we had an aggregate of 27.2 million shares of common stock reserved and available for future issuance under the 2010 Plan and 2010 Director Plan.

Shares issued under our ESPP were none and 1,306,329 during the six months ended June 30, 2020 and 2019, respectively.

The 2010 Plan and the 2010 Director Plan expired on July 29, 2020.

On August 4, 2020, stockholders at the 2020 Annual Meeting approved a new 2020 Equity Incentive Plan with 11,000,000 shares available for issuance and the 2010 Plan and 2010 Director Plan were terminated.

As of September 30, 2020, we had 7.9 million shares of common stock available for future issuance.

Shares issued under our ESPP were 834,677 and 1,306,329 during the nine months ended September 30, 2020 and 2019, respectively.

In January 2020, an additional 3.1 million shares were reserved under the ESPP.

As of June 30, 2020, 6,713,447 shares of our common stock remain available for issuance under our ESPP.

For the three and six months ended June 30, 2020, we recognized stock-based compensation expense of $ 408,000 and $ 537,000 , respectively, related to the ESPP shares.

As of September 30, 2020, 5,878,770 shares of our common stock remain available for issuance under our ESPP.

For the three and nine months ended September 30, 2020, we recognized stock-based compensation expense of $ 1.8 million and $ 2.3 million, respectively, related to the ESPP shares.

Stock-Based Compensation

The following table summarizes the stock-based compensation expense for the three and six months ended June 30, 2020 and 2019, respectively (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

The following table summarizes the stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue

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

We did no t grant any stock options for the three months ended June 30, 2020.

We did no t grant any stock options for the year ended December 31, 2019 due to the then-in-process merger with Illumina.

Three Months Ended June 30,

Six Months Ended June 30,

The fair value of shares to be purchased under our stock option was estimated using the following assumptions:

Three Months Ended September 30,

Nine Months Ended September 30,

Expected term in years

1 unchanged sentence

Risk-free interest rate

0.3 % - 1.2 %

Dividend yield

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After the merger with Illumina was terminated in January 2020, we began offerings under the ESPP again starting with the offering period on March 1, 2020.

Three Months Ended June 30,

Six Months Ended June 30,

The fair value of shares to be purchased under our ESPP was estimated using the following assumptions:

Three Months Ended September 30,

Nine Months Ended September 30,

Expected term in years

2 unchanged sentences

0.1 % - 1.0 %

0.8 % - 1.0 %

Dividend yield

A summary of our revenue by geographic location for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

A summary of our revenue by geographic location for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

North America

Europe (including the Middle East and Africa)

A summary of our revenue by category for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

A summary of our revenue by category for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

5 unchanged sentences

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-Q

Item 1. Financial Statements