Sorrento Tech, Inc. - FORM 10-Q - May 12, 2017

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EX-32.1 - EXHIBIT 32.1 - Sorrento Tech, Inc.a201703ex-321.htm
EX-31.2 - EXHIBIT 31.2 - Sorrento Tech, Inc.a201703ex-312.htm
EX-31.1 - EXHIBIT 31.1 - Sorrento Tech, Inc.a201703ex-311.htm
EX-10.2 - EXHIBIT 10.2 - Sorrento Tech, Inc.ex102leaseamendment.htm
EX-10.1 - EXHIBIT 10.1 - Sorrento Tech, Inc.ex101loanamendment.htm
EX-4.3 - EXHIBIT 4.3 - Sorrento Tech, Inc.ex43comericawarrant04062017.htm
EX-4.2 - EXHIBIT 4.2 - Sorrento Tech, Inc.ex421stamendmenttocomerica.htm
EX-4.1 - EXHIBIT 4.1 - Sorrento Tech, Inc.ex412ndamendmenttocomerica.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549   
FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-36538
 
ROKA BIOSCIENCE, INC.
(Exact name of registrant as specified in its charter)

 
DELAWARE
 
27-0881542
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
20 Independence Boulevard
Warren, NJ, 07059
(Address of principal executive offices)(Zip code)
(908) 605-4700
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
ý


 
 
 
 
 
 
 
Emerging Growth Company
 
ý
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

The number of shares outstanding of the registrant’s common stock, par value of $0.001 per share, as of May 5, 2017 was 5,007,742.



ROKA BIOSCIENCE, INC
REPORT ON FORM 10-Q
For the Quarterly Period Ended March 31, 2017
 
 
 
 
PAGE
 
 
 
 
 





2

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ROKA BIOSCIENCE, INC.
Condensed Consolidated Balance Sheets
(unaudited)
(amounts in thousands except share and per share data)
 
March 31,
 
December 31,
 
2017
 
2016
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
1,253

 
$
8,832

Short-term marketable securities
14,978

 
16,001

Trade accounts receivable, net of $0 allowance for doubtful accounts
1,016

 
930

Inventories
4,057

 
3,739

Prepaid expenses and other current assets
2,023

 
2,339

Total current assets
23,327

 
31,841

Property and equipment, net
7,372

 
7,805

Intangible assets, net
17,714

 
18,651

Other assets
264

 
264

Total assets
$
48,677

 
$
58,561

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
758

 
$
1,325

Short-term deferred payments
7,369

 
1,922

Notes payable, current
4,994

 
5,973

Accrued expenses and other current liabilities
1,827

 
2,572

Total current liabilities
14,948

 
11,792

Deferred payments
3,932

 
9,620

Other long-term liabilities
251

 
267

Total liabilities
19,131

 
21,679

Commitments and Contingencies (See Note 11)

 

Common stock, $0.001 par value:
 
 
 
500,000,000 shares of Common Stock authorized; 5,013,314 shares issued and 5,007,742 shares outstanding, respectively at March 31, 2017; 5,008,290 shares issued and 5,002,718 shares outstanding at December 31, 2016
5

 
5

Additional paid-in capital
245,368

 
245,100

Treasury stock, at cost: 5,572 shares at March 31, 2017 and December 31, 2016
(84
)
 
(84
)
Accumulated deficit
(215,743
)
 
(208,139
)
Total stockholders’ equity
29,546

 
36,882

Total liabilities and stockholders’ equity
$
48,677

 
$
58,561

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

3

ROKA BIOSCIENCE, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(amounts in thousands except share and per share data)
 
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Revenue
 
$
2,038

 
$
1,626

Operating expenses:
 
 
 
 
Cost of revenue
 
2,110

 
2,076

Research and development
 
1,364

 
1,987

Selling, general and administrative
 
4,920

 
4,385

Amortization of intangible assets
 
937

 
939

Total operating expenses
 
9,331

 
9,387

Loss from operations
 
(7,293
)
 
(7,761
)
Other income (expense):
 
 
 
 
Interest income (expense), net
 
(311
)
 
(417
)
Loss before income taxes
 
(7,604
)
 
(8,178
)
Income tax provision (benefit)
 
—

 
(2
)
Net loss and comprehensive loss
 
$
(7,604
)
 
$
(8,176
)
Net Loss per Common Share:
 
 
 
 
Basic and diluted
 
$
(1.53
)
 
$
(4.66
)
Weighted average common shares outstanding used in computing net loss per common share:
 
 
 
 
Basic and diluted
 
4,985,522

 
1,752,642

The accompanying notes are an integral part of these financial statements

4

ROKA BIOSCIENCE, INC.
Condensed Consolidated Statement of Stockholders’ Equity (Deficit)
(unaudited)
(amounts in thousands except share and per share data)
 
Preferred Stock
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Balance at December 31, 2015
—

 
$
—

 
1,786,325

 
$
18

 
$
(79
)
 
$
214,578

 
$
(169,604
)
 
$
44,913

Issuance of restricted shares to employees, net of shares withheld for taxes
—

 
—

 
2,094

 
—

 
(5
)
 
—

 
—

 
(5
)
Issuance of warrants
 
 
 
 
 
 
 
 
 
 
8,880

 
 
 
8,880

Issuance of preferred stock
22,500

 
12,396

 
 
 
 
 
 
 
 
 
 
 
12,396

Adjustment of preferred stock for beneficial conversion
 
 
(7,748
)
 
 
 
 
 
 
 
7,748

 
 
 
—

Exercise of options for Common Stock
—

 
—

 
 
 
 
 
 
 
 
 
—

 
—

Stock-based compensation expense
—

 
—

 
—

 
—

 
—

 
1,485

 
—

 
1,485

Deemed dividend
 
 
7,748

 
 
 
 
 
 
 
 
 
(7,748
)
 
—

Conversion of convertible preferred stock into Common Stock
(22,500
)
 
(12,396
)
 
3,214,299

 
(13
)
 
 
 
12,409

 
—

 
—

Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(30,787
)
 
(30,787
)
Balance at December 31, 2016
—

 
$
—

 
5,002,718

 
$
5

 
$
(84
)
 
$
245,100

 
$
(208,139
)
 
$
36,882

Issuance of restricted shares to employees, net of shares withheld for taxes
 
 
 
 
5,024

 
—

 
—

 
—

 
—

 
—

Stock-based compensation expense
 
 
 
 
—

 
—

 
—

 
268

 
—

 
268

Net loss
 
 
 
 
—

 
—

 
—

 
—

 
(7,604
)
 
(7,604
)
Balance at March 31, 2017
—

 
—

 
5,007,742

 
5

 
(84
)
 
245,368

 
(215,743
)
 
29,546

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

5

ROKA BIOSCIENCE, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(amounts in thousands)
 
Three Months Ended March 31,
 
2017
 
2016
Cash flows from operating activities
 
 
 
Net loss
(7,604
)
 
$
(8,176
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
1,417

 
1,500

Loss on disposal of property and equipment
20

 
—

Provisions for inventory
120

 
301

Share-based compensation expense
268

 
395

Non-cash interest expense
240

 
276

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(85
)
 
(90
)
Inventories
(438
)
 
(229
)
Prepaid expenses and other assets
329

 
141

Accounts payable and accrued expenses
(1,467
)
 
(1,726
)
Other liabilities
(16
)
 
(5
)
Net cash used in operating activities
(7,216
)
 
(7,613
)
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(67
)
 
(99
)
Purchase of marketable securities
(2,987
)
 
(2,991
)
Proceeds from maturities of marketable securities
3,997

 
14,175

Net cash provided by investing activities
943

 
11,085

Cash flows from financing activities
 
 
 
Principal repayments
(1,000
)
 
(1,000
)
Deferred payments
(306
)
 
(264
)
Restricted shares withheld for taxes
—

 
(5
)
Net cash used in financing activities
(1,306
)
 
(1,269
)
Net change in cash and cash equivalents
(7,579
)
 
2,203

Cash and cash equivalents, beginning of period
8,832

 
3,441

Cash and cash equivalents, end of period
$
1,253

 
$
5,644

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

6
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


1. BUSINESS OVERVIEW
Business
Roka Bioscience, Inc. (“Roka” or “the Company”) is focused on the development and commercialization of molecular assay technologies for the detection of foodborne pathogens. The Company was established in September 2009 through the acquisition of industrial testing assets and technology from Gen-Probe Incorporated, which was subsequently acquired by Hologic, Inc. (herein referred to as “Gen-Probe”).
The Company has limited capital resources, has experienced negative cash flows from operations and has incurred net losses since inception. The Company expects to continue to experience negative cash flows from operations and incur net losses in the near term as it devotes substantially all of its efforts on commercialization of its products and continued product development. The Company’s business is subject to significant risks and its ability to successfully develop, manufacture and commercialize proprietary products is dependent upon many factors which include, but are not limited to, risks and uncertainties associated with the supply of molecular diagnostic instruments (“Atlas instruments”) and materials, product development, manufacturing scale-up, attracting and retaining key personnel, customer acceptance as well as competition. The Company will need to raise additional capital through the sale of equity and/or debt securities in the future. There is no assurance that the Company will be able to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding common stock. Issued debt securities may contain covenants and limit the Company’s ability to pay dividends or make other distributions to stockholders. In addition, the Company’s debt agreement contains certain clauses which allow the lender to require repayment of the debt based on subjective factors regarding the Company’s business and performance if considered a material adverse change by the lender.
On September 21, 2016, the Company closed a private placement in which it sold 22,500 shares of Series A Preferred Stock and 3,214,299 warrants to purchase Common Stock ("the Offering"). The Company received $21.3 million of net proceeds from the Offering after deducting placement agent fee and offering expenses, see Note 15 for further details.
On July 22, 2014, the Company completed an initial public offering ("IPO") in which it received $53.2 million of net proceeds from the offering after deducting underwriting discounts, commissions and offering expenses.
Going Concern

Based upon its current and projected cash flow, the Company notes there is substantial doubt about its ability to continue as a going concern within one year after the date that these financial statements are issued. The Company has plans to further reduce expenditures during 2017 and anticipates increases in revenue to further reduce the amount of negative cash flows that it is currently experiencing. Such reductions combined with projected future increases in income do not eliminate the substantial doubt about the Company’s ability to continue as a going concern. The Company will need to raise additional capital through the sale of equity and/or debt securities in the future. However, there is no assurance that the Company will be able to raise needed capital under acceptable terms, if at all.

Concentration of Suppliers

The Company relies on single source suppliers, including Gen-Probe, for certain components and materials used in its products, including its Atlas Detection Assays. Since the Company’s contracts with these suppliers, including Gen-Probe, do not commit the suppliers to carry inventory or to make available any minimum quantities, the Company may be unable to obtain adequate supplies in a timely manner or on commercially reasonable terms.  If the Company loses such suppliers, or its suppliers encounter financial hardships, the Company may not be able to identify or enter into agreements with alternative suppliers on a timely basis on acceptable terms, if at all. Transitioning to a new supplier could be time consuming, may be expensive, may result in an interruption in the Company’s operations and could affect the performance specifications of the Company’s products. If the Company should encounter delays or difficulties in securing the quality and quantity of materials required for its products, the Company’s ability to manufacture its products would be interrupted which could adversely affect sales.



7
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Roka Bioscience, Inc. have been prepared by the Company in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting, which do not conform in all respects to the requirements of U.S. GAAP for annual financial statements. The information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 20, 2017 (the “2016 Form 10-K”). Accordingly, these condensed consolidated notes to the unaudited financial statements should be read in conjunction with the 2016 audited financial statements and notes thereto prepared in accordance with U.S. GAAP. The unaudited financial statements have been prepared using accounting policies that are consistent with the policies used in preparing the Company’s audited financial statements for the year ended December 31, 2016. The condensed consolidated Balance Sheet as of December 31, 2016 was derived from the Company’s audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The unaudited financial statements reflect all normal and recurring adjustments necessary, if any, for a fair statement of the Company’s financial position and results of operations for the interim periods presented. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any other future annual or interim period. There have been no changes in the significant accounting policies from those included in the 2016 Form 10-K. However, in order to further clarify the Company's policy with respect to impairment of long-lived assets, below please find a description of such policy.
Impairment of Long-Lived Assets

The Company’s long-lived assets are primarily comprised of intangible assets and property, plant and equipment. The Company evaluates its finite-lived intangible assets and property, plant and equipment, for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets is not recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted cash flows expected to be generated by the asset group. If the Company’s estimated undiscounted future cash flows are below the asset group’s carrying value, the Company may recognize an impairment charge measured by its fair value.

Reverse Stock Split

In June 2016, the Company's shareholders approved an amendment to the Company's certificate of incorporation and grant of discretionary authority to the Board of Directors to effect a reverse stock split. On October 11, 2016, the Company's Board of Directors effected a 10:1 reverse stock split of the Company's Common Stock. In addition, effective on the date of the reverse stock split, the conversion price of the Company's Preferred Stock sold in the Offering detailed in Note 1 was adjusted proportionately, and consequently each share of such Preferred Stock became convertible into approximately 143 shares of Common Stock. Unless otherwise noted, the Company’s historical share and per share information have been retroactively adjusted as if such stock split and corresponding change in conversion ratio occurred on the first day of the first period presented.
Prior Period Corrections
Previously, the Company included approximately $3.3 million in Other current assets and Accrued expenses and other current liabilities related to the settlement amount for the class action lawsuit filed against the Company. The amount in Other current assets represented the expected reimbursement from the Company's insurance provider and the amount in Accrued expenses and other current liabilities was determined based upon the proposed settlement amount. During April 2017, the Company received additional information regarding the status of the litigation which indicated the Company's insurance provider disbursed the settlement amount and the settlement amount was finalized by the court as of December 31, 2016. As such, the Company has revised the December 31, 2016 balance sheet as indicated in the table below.

8
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 
 
As of December 31, 2016
 
 
As previously reported
 
Change
 
As revised
Prepaid expenses and other current assets
 
5,614

 
(3,275
)
 
2,339

Total current assets
 
35,116

 
(3,275
)
 
31,841

Total assets
 
61,836

 
(3,275
)
 
58,561

Accrued expenses and other current liabilities
 
5,847

 
(3,275
)
 
2,572

Total current liabilities
 
15,067

 
(3,275
)
 
11,792

Total liabilities
 
24,954

 
(3,275
)
 
21,679

Total liabilities and stockholders' equity
 
61,836

 
(3,275
)
 
58,561

Additionally, the Company made the following corrections to the amounts presented in the Accrued expenses footnote below.
 
 
As of December 31, 2016
 
 
As previously reported
 
Change
 
As revised
Other
 
3,658

 
(3,275
)
 
383

Total accrued expenses
 
5,847

 
(3,275
)
 
2,572

The Company believes these corrections are not material to any previously issued financial statements and further notes these adjustments have no impact on the 2016 Consolidated Statement of Operations and Comprehensive Loss, the Consolidated Statement of Convertible Preferred Stock Stockholders' Equity (Deficit), or the net amounts presented in the Consolidated Statement of Cash Flows for the year ended December 31, 2016.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date.
    
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. This standard clarifies the treatment of specific cash flow issues in order to reduce existing diversity in practice. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not believe this new guidance will have a material impact on its financial statements.

In February 2016, the FASB issued ASU 2016-02, creating Topic 842, Leases which supersedes the guidance in former ASC 840, Leases, to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The standard will become effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. The Company is currently in the process of evaluating the impact this new guidance will have on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. ASU 2014-09 provides companies with two implementation methods. Companies can choose to apply the standard retrospectively to each prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date. This ASU defers the effective date of Update 2014-09 for all entities by one year, requiring the guidance in ASU 2014-09 to be applied for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Additionally, this ASU permits earlier application only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact this new guidance will have on its financial statements.

9
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Adoption of New Accounting Principle

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The standard requires entities to classify all deferred tax assets and liabilities as noncurrent. The standard will become effective for interim and annual periods beginning after December 15, 2016 and early adoption is permitted. The Company adopted this new guidance beginning with the annual period beginning January 1, 2017. No adjustments were required to be made to the financial statements as a result of the Company's adoption of this new guidance.

Reverse Stock Split
On October 11, 2016, the Company's Board of Directors effected a 10:1 0.1 reverse stock split of the Company's Common Stock.

3. CASH AND CASH EQUIVALENTS
The Company’s entire balance of Cash and cash equivalents as of March 31, 2017 was held in demand accounts with one financial institution, which subjects the Company to significant concentrations of credit risk.

4. MARKETABLE SECURITIES

As of March 31, 2017 and December 31, 2016, the fair value of held-to-maturity marketable securities by type of security was as follows (amounts in thousands):


10
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 
Amortized Cost
Gross Unrealized Holding Gains
Gross Unrealized Holding Losses
Aggregate Fair Value
March 31, 2017
 
 
 
 
Short-term marketable securities
 
 
 
 
Debt securities
$
14,978

$
9

$
(8
)
$
14,979

December 31, 2016
 
 
 
 
Short-term marketable securities
 
 
 
 
Debt securities
$
16,001

$
—

$
(10
)
$
15,991


Marketable securities held by the Company consist of United States treasury bills, commercial paper, U.S. government-related debt, and corporate debt securities. All short-term marketable securities held by the Company mature within one year and all long-term marketable securities mature after one year but in less than five years from the respective balance sheet date.


5. INVENTORIES
The following table provides details of the Company’s net inventories (amounts in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Raw materials
$
828

 
$
696

Work in process
6

 
39

Finished goods
3,223

 
3,004

 
$
4,057

 
$
3,739

6. PROPERTY AND EQUIPMENT
The following table provides details of the Company’s property and equipment (amounts in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Atlas instruments placed with customers
$
5,518

 
$
5,295

Atlas instruments intended for placement(1)
3,958

 
4,181

Manufacturing equipment
3,045

 
3,045

Laboratory equipment
2,912

 
2,912

Computer and office equipment
1,624

 
1,557

Leasehold improvements
1,475

 
1,504

Software
1,142

 
1,142

Total property and equipment
$
19,674

 
$
19,636

Less: Accumulated depreciation
(12,302
)
 
(11,831
)
 
 
 
 
Total
$
7,372

 
$
7,805

(1) The Company does not depreciate Atlas instruments prior to the instruments being placed with customers.
As of March 31, 2017 and December 31, 2016, the cost of Atlas instruments, which represents equipment on lease or held for lease, was $6.4 million and $6.4 million, respectively, net of accumulated depreciation of $3.1 million and $3.1 million, respectively.

Expenses for depreciation of property and equipment were incurred as follows (amounts in thousands):
 
 
For the Three Months Ended March 31,
 
 
2017
 
2016
Depreciation expense
 
$
480

 
$
560





11
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

7. INTANGIBLE ASSETS

In June 2014, the Company entered into an amendment to its license agreement with Gen-Probe. Under the amendment, the Company obtained a two-year option to reduce the royalty rate it pays to Gen-Probe in exchange for an option payment of $2.5 million. Upon completion of its IPO in July 2014, the Company exercised its option and issued to Gen-Probe 865,063 shares of common stock valued at $10.51 per share on the issuance date and made a cash payment of $8.0 million. The Company is required to make additional cash payments of $5.0 million on January 1, 2018 and $5.0 million on January 1, 2020.
    
The aggregate cash and stock payments made to Gen-Probe along with the present value of the two $5.0 million payments described above were recorded as a $26.6 million addition to the Company's intangible technology asset in Intangible assets on the Balance Sheet and will be amortized on a straight-line basis through December 31, 2021, the end of the estimated remaining life of the technology asset. See Note 9 for further details on the additional required future cash payments described above.

Pursuant to the terms of the license agreement amendment, the Company committed to additional future contingent payments, as described in Note 11 below. If made, such additional payments will further reduce the royalty rate the Company pays to Gen-Probe, and will be recorded as additions to the Company's intangible technology asset upon payment and amortized over the estimated remaining life of the technology asset.

The Company assesses its intangible and other long-lived assets for impairment whenever events or other changes in circumstances suggest that the carrying value of an asset group may not be recoverable based on its undiscounted future cash flows. If the Company’s estimated undiscounted future cash flows are below the asset group’s carrying value, the Company may recognize an impairment charge measured by its fair value.

During the fourth quarter of 2016, the Company prepared revised projections for revenue and expenses, which indicated continued cash flow losses for the Company, and as a result, the Company determined a triggering event had occurred. The Company completed an assessment of the asset group including the intangible asset for recoverability. The recoverability assessment was based upon probability-weighted cash flow estimates resulting from updated revenue and expense projections and an appropriate terminal value. Based on the impairment assessment, the Company determined that the asset group including the intangible asset was not impaired.

The following table summarizes the Company's intangible asset as of the periods presented (amounts in thousands):

 
March 31, 2017
 
December 31, 2016
Intangible asset, gross
$
28,259

 
$
28,259

Accumulated amortization
(10,545
)
 
(9,608
)
Intangible asset, net
$
17,714

 
$
18,651





8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The following table provides details of the Company’s accrued expenses (amounts in thousands):
 
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Employee related
$
1,422

 
$
2,072

Professional services
86

 
117

Other
319

 
383

Total accrued expenses and other current liabilities
$
1,827

 
$
2,572


9. DEFERRED PAYMENTS
Gen-Probe supply agreement

12
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In May 2011, the Company entered into a supply agreement with Gen-Probe to purchase Atlas instruments. Pursuant to the terms of the agreement, the Company can defer up to one half of the purchase price for up to 54 months from the date of delivery. The deferred amounts do not bear interest, and the Company has recorded the imputed interest component as a reduction of the deferred payment and as a reduction of the asset cost. The supply agreement provides for variable repayment terms based on a percentage of net sales as defined in the agreement, and the Company has estimated its net sales in determining amounts due for the 54 month term. The following table summarizes the amounts deferred under this agreement (amounts in thousands):
 
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Current
 
 
 
Deferred payments, gross
$
2,744

 
$
2,076

Imputed interest
(105
)
 
(154
)
Deferred payments, net
$
2,639


$
1,922

Long-term
 
 
 
Deferred payments, gross
$
—

 
$
1,136

Imputed interest
—

 
(8
)
Deferred payments, net
$
—

 
$
1,128

The Company estimated the interest rate implicit in the extended payment terms by considering the rate at which it could obtain financing of a similar nature from other sources at the date of each transaction, as well as prevailing rates for similar debt instruments of issuers with similar credit ratings. The estimated effective interest rate used ranges from 9.9% to 11.2%.
In each of the three months ended March 31, 2017 and the three months ended March 31, 2016, the Company recorded less than $0.1 million as non-cash interest expense related to the deferred payments pursuant to the supply agreement with Gen-Probe.
Gen-Probe license amendment
The amendment to the license agreement with Gen-Probe detailed in Note 7 includes a $5.0 million payment due on January 1, 2018 and a $5.0 million payment due on January 1, 2020. Under the terms of the amendment, no interest payments are required and no interest rate is stated. The Company determined that imputed interest should be calculated and recognized in accordance with ASC-835, and the payments are recorded in Deferred payments on the Balance Sheet at their present value based upon a 7.6% interest rate for the payment due on January 1, 2018 and a 9.0% interest rate for the payment due on January 1, 2020. The difference between the present value and the amount payable is accreted to Deferred payments over the respective term with a corresponding charge to Interest expense.

10. NOTES PAYABLE

In November 2013, the Company entered into a loan and security agreement (the 'Comerica Loan") with Comerica Bank (“Comerica”) in which it borrowed $5.0 million. The interest under the loan accrues at Comerica’s Prime Referenced Rate (as defined in the loan agreement with Comerica) plus 3.15%, subject to a floor of the daily adjusting LIBOR rate plus 2.5%. As of March 31, 2017, the rate was 7.15%. Additionally, the Comerica Loan contains various covenants that limit the Company’s ability to engage in specified types of transactions, including limiting the Company’s ability to; sell, transfer, lease or dispose of certain assets; engage in certain mergers and consolidations; incur debt or encumber or permit liens on certain assets, make certain restricted payments, including paying dividends on, or repurchasing or making distributions with respect to, the Company’s Common Stock; and enter into certain transactions with affiliates.
In May 2015, the Company amended the loan and security agreement with Comerica (the “First Amendment”). The Comerica Amendment increased the borrowing under the Comerica Loan to $10.0 million and extended the interest-only period until December 31, 2015. Beginning January 1, 2016, the Company began making monthly payments which consist of accrued interest and equal principal payments in accordance with a 30-month amortization schedule. As of March 31, 2017, the entire remaining balance of $5.0 million has been classified as Notes payable, current on the Balance Sheet, although only $4.0 million is due within one year. The remaining $1.0 million has also been classified as Notes payable, current because the Comerica Loan agreement contains a material adverse change clause which allows Comerica to require repayment of the debt based on subjective factors regarding the Company’s business and performance.

13
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In April 2017, the Company entered into a second amendment with Comerica (the "Second Amendment"). The Second Amendment provides for an interest only period for three months after which the Company will begin making monthly payments which consist of accrued interest and equal principal payments in accordance with a 15-month amortization schedule. The interest rate under the Second Amendment accrues at Comerica’s Prime Referenced Rate (as defined in the loan agreement with Comerica) plus 3.40%, subject to a floor of the daily adjusting LIBOR rate plus 2.5%. In connection with the Second Amendment, the Company issued an additional warrant to Comerica to purchase up to an aggregate of 8,403 shares of Common Stock at $3.57 per share and modified the exercise price of the warrants previously granted to Comerica under the Comerica Loan and the first amendment to $3.57 per share. The value of the new warrant and the incremental value due to the amendment of the previously issued warrants were recorded as a reduction to Notes payable with a corresponding offset to Additional paid-in capital. The value of the new warrant and the incremental value due to the modified pricing of the existing Comerica warrants were recorded as a reduction to Notes payable with a corresponding offset to Additional paid-in capital, see Note 15 for further details.
In connection with the Comerica Loan and the two amendments, the Company recorded the note net of expenses paid to Comerica, the value of the warrants issued to Comerica and the incremental value due to the amendment of the warrants at the time of the repricing. The difference between the liability recorded and the face value of the note will be accreted to Notes payable over the term of the loan with a corresponding charge to Interest expense.
Pursuant to the Second Amendment, the amount of unrestricted cash and/or marketable securities the Company is required to maintain with Comerica at all times was reduced from $5.0 million to $4.0 million. The Company has been in compliance with these requirements since implemented. In addition, the Second Amendment makes available to the Company a revolving line of credit of up to $4.0 million but not to exceed 80% of qualified receivables as defined in the Second Amendment. Borrowings under the revolving line of credit accrue interest at Comerica’s Prime Referenced Rate (as defined in the loan agreement with Comerica) plus 1.95%, subject to a floor of the daily adjusting LIBOR rate plus 2.5%.
        
11. COMMITMENTS AND CONTINGENCIES
Operating Leases

The Company did not enter into any new operating leases or amend any existing operating leases during the three months ended March 31, 2017. See note 18 for additional details.

Commitments

During the three months ended March 31, 2017, there have been no significant changes to the Company’s commitments as disclosed in the Company’s most recent audited financial statements.


Contingent liabilities

In addition to the commitments disclosed in the Company’s most recent audited financial statements, the amendment to the license agreement with Gen-Probe detailed in Note 9 provides for additional milestone payments of up to $6.0 million which will further reduce the royalty rate paid. Such payments are required to be made upon meeting certain revenue milestones or may be made at the election of the Company prior to meeting the revenue milestones.
Legal Matters
The Company may periodically become subject to legal proceedings and claims arising in connection with its business. Except as set forth below, the Company is not currently involved in any legal proceedings, nor are any claims pending against the Company.
    
A putative securities class action originally captioned Ding v. Roka Bioscience, Inc., Case No. 3:14-cv-8020, was filed against the Company and certain of its officers and directors in the United States District Court for the District of New Jersey on December 24, 2014, on behalf of a putative class of persons and entities who had purchased or otherwise acquired securities pursuant or traceable to the Registration Statement for the Company’s IPO. The original putative class period ran from July 17 through November 6, 2014.  The original complaint asserted claims under the Securities Act of 1933 and contended that the IPO Registration Statement was false and misleading, or omitted allegedly material information, in connection with the Company’s

14
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

statements about its placement of Atlas instruments and its expectations of future growth and increased market share, and the Company’s alleged failure to disclose “known trends and uncertainties about the Company’s sales.”  The alleged misrepresentations and omissions purportedly came to light when the Company issued its third-quarter 2014 earnings release on November 6, 2014.
    
Pursuant to the Private Securities Litigation Reform Act of 1995, the court appointed Stanley Yedlowski as lead plaintiff and The Rosen Law Firm as lead counsel on April 21, 2015. The lead plaintiff then filed an amended complaint, captioned Stanley Yedlowski v. Roka Bioscience, Inc., Case No. 14-cv-8020, on June 23, 2015. The amended complaint pled Securities Act claims on behalf of persons and entities who had purchased or otherwise acquired Roka securities pursuant or traceable to the IPO Registration Statement during an extended putative class period, running from July 17, 2014 through March 26, 2015. The amended complaint alleged that the Registration Statement was false or misleading in that it failed to disclose that the Company’s customers purportedly were experiencing false positives and other usage issues with the Company’s Listeria assays apparently arising from the customers’ employees’ inability to follow the Company’s Listeria assay workflow. The amended complaint alleged that the full extent of the purported misstatements and omissions was not revealed until March 26, 2015. Defendants filed a motion on August 25, 2015 to dismiss the amended complaint, and plaintiffs filed an opposition to that motion on October 9, 2015. The parties entered into a settlement agreement, which was approved by the court in December 2016, to pay approximately $3.3 million. As of March 31, 2017, all payments have been made in accordance with the settlement agreement and the corresponding receivable and liability are no longer recognized on the Company's Balance Sheet.

The Company sells its products in various jurisdictions and is subject to federal, state and local taxes including, where applicable, sales and use tax. While the Company believes that it has properly paid or accrued for all such taxes based on its interpretation of applicable law, tax laws are complex and interpretations differ. Periodically, the Company may be audited by taxing authorities, and it is possible that additional assessments may be made in the future.

12. FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist of cash and cash equivalents, marketable securities, trade accounts receivable, accounts payable, short-term deferred payments, deferred payments, notes payable, accrued expenses and Convertible Preferred Stock Warrants. The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, short-term deferred payments and accrued expenses approximate their fair values because of the short-term nature of the instruments, or, in the case of the deferred payments and notes payable, because the interest rates the Company believes it could obtain for similar borrowings is similar to its existing interest rates.  The carrying amount of the Company's marketable securities is the amortized cost basis based upon their held-to-maturity classification.
The following table summarizes the fair value information for the Company’s cash held in money market deposit accounts and its marketable securities at March 31, 2017 and December 31, 2016 (amounts in thousands):
 
 
 
 
Fair value measurements using:
 
Carrying
Value
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Financial Assets and Liabilities Carried at Fair Value
 
 
 
 
 
 
 
As of March 31, 2017
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
Money market deposit accounts
$
1,065

 
$
1,065

 
—

 
—

As of December 31, 2016
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
Money market deposit accounts
$
7,712

 
$
7,712

 
—

 
—

Financial Assets Carried at Amortized Cost
 
 
 
 
 
 
 
As of March 31, 2017
 
 
 
 
 
 
 
Short-term marketable securities
$
14,978

 
$
6,584

 
8,395

 
—

As of December 31, 2016
 
 
 
 
 
 
 
Short-term marketable securities
$
16,001

 
$
7,080

 
8,911

 
—


15
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

A portion of the Company’s cash and cash equivalents are held in money market deposit accounts and a portion of the Company's short-term marketable securities are United States treasury bills, each of which are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
The Company's short-term marketable securities and long-term marketable securities not classified within Level 1 of the fair value hierarchy are comprised of commercial paper, U.S. government-related debt, and corporate debt securities, all of which are classified as  Level 2 within the fair value hierarchy. The Company estimates the fair values of these marketable securities by taking into consideration valuations obtained from its investment manager, which utilizes industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. There have been no transfers between levels during the reporting period.

13. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

Authorized stock

In connection with the seventh amended and restated certificate of incorporation effective on July 22, 2014, the total authorized shares of stock was changed to 520,000,000 of which 500,000,000 shares are designated as common stock with a par value of $0.001 per share and 20,000,000 shares are designated as "blank check" preferred stock with a par value of $0.001 per share.
    
Convertible Preferred Stock

On September 21, 2016, the Company closed a private placement offering (the "Offering") in which it issued and sold 22,500 shares of Series A Preferred Stock ("Preferred Stock") and five-year warrants (the "Investor Warrants") to purchase an aggregate of 3,214,299 shares of the Company’s Common Stock, par value $0.001 (the “Warrant Shares”) at a purchase price of $1,000 per share of Preferred Stock for aggregate gross proceeds of $22.5 million. The shares of Preferred Stock were convertible into common stock at a conversion rate of $7.00 per share of Common Stock and were immediately convertible at the option of the holder up to the holder's pro-rata share of 19.999% of the Company's Common Stock outstanding on the closing date of the Offering. All shares of Preferred Stock not previously converted were converted to Common Stock automatically upon shareholder approval which was obtained at a special shareholder meeting held on November 10, 2016.

Registration rights
Holders of approximately 0.8 million shares of the Company's outstanding Common Stock have rights, subject to certain conditions, to require that the Company file a registration statement under the Securities Act covering the registration of such shares of Common Stock, as well as piggyback registration rights. These rights are provided under the terms of an investor rights agreement between the Company and the holders of the registrable securities, which will expire upon the earlier of (i) five years after the Company's IPO and (ii) as to a holder, at such time as all registrable securities held by such holder may be sold without restriction under Rule 144.

In connection with the Offering, on September 21, 2016, the Company entered into a registration rights agreement which provides that the Company would prepare and file with the U.S. Securities and Exchange Commission (the “SEC”), a resale shelf registration statement covering the Conversion Shares and Warrant Shares. Accordingly, on October 7, 2016, the Company filed an S-3 registration statement which was declared effective on October 24, 2016 enabling registration of the Conversion Shares and the Warrant Shares. The Company is required to maintain the effectiveness of such registration statement until the earlier of: (i) the date that all registrable securities covered by such registration statement have been sold, thereunder or pursuant to Rule 144 or (ii) the date that all registrable securities covered by such registration statement may be sold without limitation pursuant to Rule 144 (the “Effectiveness Period”). Subject to certain exceptions set forth in the registration rights agreement, if the Company fails to maintain the effectiveness of the registration statement during the Effectiveness Period, the Company will be required to pay to each holder an amount in cash equal to the product of 1.5% multiplied by the aggregate purchase price paid by such holder pursuant to the securities purchase agreement, subject to a cap equal to 10.0% of the aggregate purchase paid by such holder pursuant to the securities purchase agreement.

    

16
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

14. STOCK-BASED COMPENSATION
Effective upon the closing of the IPO, the Company adopted the Roka Bioscience, Inc. 2014 Equity Incentive Plan (the "2014 Plan"). The 2014 Plan initially made available 108,695 shares to be granted to employees, officers, directors, consultants, advisors or other individual service providers of the Company. On February 28, 2017, the Company held a special shareholder meeting at which the shareholders voted to increase the total number of shares available under the 2014 Plan to 665,340. Additionally, the amended plan provides for automatic increases on January 1st of each year for a period of ten years commencing on January 1, 2018 and ending on (and including) January 1, 2027, in an amount equal to 3% of the total number of shares of Common Stock outstanding on December 31st of the preceding calendar year.
Under the Roka Bioscience, Inc. 2009 Equity Incentive Plan (the “2009 Plan”), as amended on June 13, 2013, incentive and non-qualified stock options and restricted stock may be granted for up to a maximum of 202,885 shares to employees, consultants and directors of the Company. Effective upon adoption of the 2014 Plan, the Company has not and does not intend to issue additional shares under the 2009 Plan.
Stock options and shares of restricted stock granted under the 2009 Plan and the 2014 Plan have a maximum contractual term of ten years from the date of grant and generally vest over four years. For stock options, the exercise price may not be less than the fair value of the stock on the grant date.

The Company recognized stock compensation expense as follows (amounts in thousands):

 
For the Three Months Ended 
 March 31,
 
2017
 
2016
Stock options
$
164

 
$
210

Restricted stock
$
104

 
$
185



The Company granted approximately 394,000 stock options and 5,000 shares of restricted stock during the three months ended March 31, 2017, valued at approximately $1.0 million and $0.02 million, respectively. The Company granted approximately 58,000 stock options and 2,500 shares of restricted stock, valued at $0.4 million and $0.01 million, respectively, during the three months ended March 31, 2016.
The Company determines the fair value of stock option awards at the date of grant using a Black-Scholes valuation model. This model requires the Company to make assumptions and judgments on the expected volatility, dividend yield, the risk-free interest rate and the expected term of the stock options. The following ranges of assumptions were utilized for stock options granted during the periods indicated:
 
 
 
For the Three Months Ended March 31,
 
 
2017
 
2016
Expected life in years
 
5.7-6.1
 
5.8-6.2
Interest rate
 
2.04%-2.09%
 
1.36%-1.92%
Volatility
 
85%
 
80%
Dividend yield
 
—
 
—
The Company estimates the expected life of its employee stock options using the “simplified” method, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data. The risk-free interest rates are based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The expected stock price volatility rates are based on average historical volatilities of the common stock of the Company and a group of public companies in similar industries. The Company has no history or expectations of paying dividends on its Common Stock and therefore uses a zero percent dividend yield in the Black-Scholes option pricing model.

 
15. WARRANTS

17
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

As of March 31, 2017, there were 3,460,830 warrant shares outstanding with a weighted average exercise price of $7.18 per share.
Warrants Issued prior to IPO    
In connection with the closing of the loan and security agreement in November 2013 discussed in Note 10, and an additional loan and security agreement (the 'TriplePoint Loan") which was paid off in 2015, the Company issued warrants to purchase up to an aggregate of 352,941 shares of Series E preferred stock with an exercise price of $1.28. Upon issuance, the Company recorded liabilities of approximately $0.08 million for the warrants issued. The initial fair value of the warrant issued to Comerica of approximately $0.03 million was deemed a discount on the debt issued by Comerica and is being accreted to interest expense over the term of the Comerica Loan. The initial fair value of the remaining warrants issued were capitalized in Other assets on the Balance Sheet as part of debt issuance costs and were amortized to Interest expense. In connection with borrowings made under the TriplePoint Loan in March 2014, one of the warrants issued to TriplePoint became exercisable for an additional 156,863 shares of Series E. The related fair value of approximately $0.1 million was deemed a discount on the debt issued at that time and was accreted to interest expense through the payoff of the loan in May 2015. In connection with the IPO, the Series E warrants converted into warrants to purchase common stock at their conversion rate of approximately 0.0906 common warrant shares to one Series E warrant share. As a result, and subsequent to the reverse stock split conducted in October 2016, became exercisable for 4,618 shares of Common Stock with an exercise price of $140.80.
Warrants Issued Subsequent to IPO
In connection with the First Amendment to the Comerica Loan on May 29, 2015, the Company issued an additional warrant to Comerica to purchase up to an aggregate of 5,227 shares of Common Stock at $28.70 per share and modified the exercise price of the original warrant granted to Comerica to purchase up to an aggregate of 1,066 shares of common stock from $140.80 per share to $28.70 per share. In connection with the Second Amendment to the Comerica Loan on April 6, 2017, the Company issued an additional warrant to Comerica to purchase up to an aggregate of 8,403 shares of Common Stock at $3.57 per share and modified the exercise price of the warrants previously granted to Comerica under the Comerica Loan and the first amendment to $3.57 per share.
In connection with the Offering discussed in Note 13, the Company issued Investor Warrants to purchase up to an aggregate of approximately 3,214,299 shares of the Company’s Common Stock and warrants to the placement agent to purchase up to an aggregate of approximately 236,686 shares of the Company's Common Stock (the "Placement Warrants"). The Investor Warrants and Placement Warrants have an exercise price of $7.00 and expire five years from the date of issuance.

16. NET LOSS PER SHARE
Basic net loss per share is calculated by dividing net loss applicable to common stockholders by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. The weighted-average common shares outstanding excludes unvested restricted stock which although such shares are legally issued and outstanding, are not required to share in losses of the Company and are therefore excluded from the net loss per share calculation. Diluted net loss per share is calculated by adjusting the weighted-average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, stock options and warrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented.

 
 
For the Three Months Ended March 31,
 
 
2017
 
2016
Net loss applicable to common shareholders (thousands)
 
$
(7,604
)
 
$
(8,176
)
Basic and diluted weighted average common shares outstanding
 
4,985,522

 
1,752,642

Basic and diluted loss per share
 
$
(1.53
)
 
$
(4.66
)


18
ROKA BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

As the Company incurred a loss for the three months ended March 31, 2017 and 2016, all unvested restricted stock awards were excluded from the calculation of basic net loss per share and all potential Common Stock shares issuable for stock options and warrants were excluded from the calculation of diluted net loss per share, as the effect of including them would have been anti-dilutive. Had the Company not incurred a loss, the dilutive effect of the unvested restricted stock awards on basic weighted average common shares outstanding and the dilutive effect of potential Common Stock shares issuable for stock options and warrants on the weighted-average number of Common Stock shares outstanding would have been as follows:
 
 
 
For the Three Months Ended March 31,
 
 
2017
 
2016
Basic weighted average shares outstanding
 
4,985,522

 
1,752,642

Dilutive effect of unvested restricted stock
 
1,084

 
—

Basic weighted average shares outstanding had the Company not incurred a loss
 
4,986,606

 
1,752,642

Dilutive effect of warrants
 
—

 
—

Dilutive effect of stock options
 
—

 
36

Diluted weighted average shares outstanding had the Company not incurred a loss
 
4,986,606

 
1,752,678





17. SEGMENT INFORMATION
The Company operates in a single reportable segment. During each of the three months ended March 31, 2017, and the three months ended March 31, 2016, the Company had multiple customers which each generated more than 10% of the Company’s revenues. These customers accounted for revenues as follows (amounts in thousands):

 
Three Months Ended March 31,
 
2017
 
2016
Customer A
$
563

 
$
528

Customer B
$
419

 
$
386

Customer C
$
214

 
171




18. SUBSEQUENT EVENTS

In April 2017, the Company amended the lease for its Warren, NJ laboratory and office space. The amendment provides for the termination of the lease of laboratory space and for extending the lease on office space through June 2023. The termination and extension resulted in additional future commitments of approximately $1.5 million.



19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this Quarterly Report on Form 10-Q, the words “Roka”, the “Company”, “our”, “we” and “us” refer to Roka Bioscience, Inc.
The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the audited Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains a number of forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements contained herein (including, without limitation, statements to the effect that we “believe”, “expect”, “anticipate”, “plan” and similar expressions) that are not statements of historical fact should be considered forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management’s current beliefs and assumptions.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, but not limited to:
    
•
the ability of our Atlas Detection Assays and Atlas instrument to gain market acceptance, particularly from key thought leaders in the industry, major food companies and third-party food safety testing laboratories;
•
our ability to increase our revenue, instrument placements and average revenue per instrument;
•
our ability to raise additional capital to fund our operations and our anticipated cash needs and estimates regarding our capital requirements;
•
our ability to achieve or sustain profitability and if we are unable to achieve or sustain profitability, we may need to write off certain intangible assets if events or changes in circumstances indicate that the carrying value of such assets is not recoverable and if such assets are found to be impaired, which could have a material adverse effect on our financial condition and results of operations;
•
the ability of our Atlas solution to provide our customers with accurate, timely test results and improved laboratory efficiencies;
•
our relationship with Gen-Probe under our license and supply agreements;
•
our relationships with key suppliers, including certain single source suppliers such as Gen-Probe, from whom we obtain our Atlas instrument and supplies for Atlas Detection Assays and certain components and materials used in our assays;
•
our ability to manufacture our complex assays in accordance with precise technical specifications and in sufficient quantities, on a timely basis;
•
our ability to enhance existing products and to develop, introduce and commercialize new products;
•
our ability to protect our intellectual property rights, including the patent rights we license from Gen-Probe;
•
our ability to defend against any future claims that our Atlas Detection Assays and Atlas instrument infringe the patent rights of any third parties;
•
our ability to manage lengthy and variable sales cycles and to forecast revenue and operating expenses;
•
anticipated trends and challenges in our business and the markets in which we operate; and
•
the factors listed under the heading “Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2016 and other reports that we file with the Securities and Exchange Commission.

Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

20

Overview
Background
We are a molecular diagnostics company focused on providing advanced testing solutions for the detection of foodborne pathogens. The proprietary molecular technology used in our assays enables us to offer accurate and rapid testing solutions while our fully automated Atlas instrument helps our customers reduce labor costs and minimize operator error. In late 2012, we launched our proprietary Atlas Detection Assays and Atlas instrument in the North American food safety testing market and we have worldwide rights to develop and commercialize our advanced molecular testing solutions for a wide range of other industrial applications.
Our company was founded in 2009 through the acquisition of the industrial application market assets of Gen-Probe. The acquisition included a worldwide license for Gen-Probe’s molecular assay technologies in the industrial application markets, access to certain instrument platforms as well as certain key development personnel. Our advanced molecular assays and automated instruments are derived from Gen-Probe technologies, which Gen-Probe uses in the highly regulated clinical diagnostics and blood screening markets.
We are focused on the commercialization of a comprehensive menu of molecular diagnostic products for the detection of foodborne pathogens under the Atlas brand name. We believe that other available pathogen test methods have significant performance gaps with respect to accuracy, time to results and automation, which are areas of critical importance to food processors, third-party contract testing laboratories and the government agencies that regulate food safety. Our Atlas solution is designed to provide our customers with accurate and rapid test results with reduced labor costs and improved laboratory efficiencies. In addition, we are developing a molecular chemistry and instrument platform, which is expected to address the needs of lower-volume throughput food safety customers, and to have potential clinical applications.
Our commercial success is dependent upon our ability to successfully market our Atlas Detection Assays and Atlas instrument. Our sales cycle is lengthy, often lasting longer than 12 months, which makes it difficult for us to accurately forecast revenue and other operating results. Through March 31, 2017, we have installed 54 Atlas instruments pursuant to commercial agreements, and for the three months ended March 31, 2017, we generated approximately $2.0 million in revenue, which was derived from a small number of customers. Since our inception in 2009, we have devoted substantially all of our resources to the development and commercialization of our advanced molecular testing solutions. We have incurred significant losses since our inception, and as of March 31, 2017, our accumulated deficit was $215.7 million. We expect to continue to incur operating losses over the near term as we pursue our commercial strategy, operate as a public company and continue development of products and technology. In order to achieve and sustain profitability, we will need to significantly increase our revenue and the number of customers that are using our products.

Financial Operations Overview
Revenue
Our revenue is derived primarily from the sale of our Atlas Detection Assays and consumable supplies for our Atlas instruments. Our Atlas Detection Assays and our consumable supplies are designed to be used only on our Atlas instruments and our Atlas instruments will only accept our Atlas Detection Assays and our consumable supplies. This closed system model enables us to generate recurring revenue from the sale of our Atlas Detection Assays and other consumable supplies for use with each Atlas instrument we place. We mostly place our Atlas instruments with customers through reagent rental agreements, and recover the cost of providing the Atlas instruments, including services related to instrument maintenance, repairs, installation and training to our customers, in the amount charged for our Atlas Detection Assays. The reagent rental agreements are typically for a one-year initial period with automatic renewal provisions and have no minimum purchase obligations.
Shipping and handling costs incurred by us are included in our billings to customers. Revenue is generally recognized when our Atlas Detection Assays and other consumable supplies are shipped to the customer.
In addition to sales of our Atlas Detection Assays, we generate limited revenue from instrument rental and service and maintenance contracts. Revenue from instrument rental and service and maintenance contracts is recognized ratably over the term of the contract. We also offer our Atlas instruments for sale, however during the three months ended March 31, 2017, we did not sell any Atlas instruments.
Potential customers for our products typically need to commit significant time and resources to evaluate our products, due to the nature and cost of our products and their impact on the potential customers’ businesses. To date, it has been difficult for us to accurately project revenues and other operating results due to these and other factors. In addition, the revenue generated from sales of our Atlas Detection Assays may fluctuate from time to time due to changes in the testing volumes of our customers. As a result, our financial results may fluctuate on a quarterly or annual basis.

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Our future revenue growth is dependent on our ability to place additional commercial instruments with customers and increase usage of our Atlas Detection Assays. During the three months ended March 31, 2017, we placed four instruments with customers, but also took back three instruments which were previously placed with customers. The three instruments we took back were not being utilized and therefore we do not expect their return will have a negative impact on our future revenue.

Operating Expenses
Cost of revenue
Cost of revenue primarily consists of the cost of materials, direct labor and manufacturing overhead costs associated with the production and distribution of our Atlas Detection Assays and consumable supplies for our Atlas instruments. Cost of revenue also includes depreciation on Atlas instruments installed with our customers under reagent rental or rental agreements, expenses related to service and maintenance of instruments, and royalties payable under our technology license agreement with Gen-Probe.

We manufacture our Atlas Detection Assays and consumable supplies in our San Diego facility, which has significant capacity for expansion. To date, the underutilized capacity in this facility has contributed to a high cost of revenue relative to revenue.
We expect our cost of revenue to increase as we place additional Atlas instruments and manufacture and sell an increasing number of our Atlas Detection Assays and consumable supplies. We believe cost of revenue as a percentage of revenue will decrease in future periods as our manufacturing and sales volumes of Atlas Detection Assays increase, which can allow us to achieve better utilization of our manufacturing capacity.
Research and development
Our research and development expenses are primarily associated with costs incurred for development, improvements and support activities for our Atlas instruments and Atlas Detection Assays. These expenses consist principally of payroll, employee benefits, as well as fees for contract research, consulting services and laboratory supplies. We expense all research and development costs as incurred.
Due to the completion of development of most assays for the Atlas instrument, we made reductions in our research and development department in the first quarter of 2017, and as a result, we expect our research and development expenses to decrease from their current level. We expect to continue to remain focused on improving our existing Atlas Detection Assays and to continue to develop a molecular chemistry and instrument platform, which is expected to address the needs of lower-volume throughput food safety customers and to have potential clinical applications.
Selling, general and administrative
Our selling, general and administrative expenses include costs associated with our sales organization as well as our executive, accounting, information technology and human resources functions. These expenses consist principally of payroll, employee benefits, travel, and stock-based compensation, as well as professional services fees such as consulting, audit, tax and legal fees, and general corporate costs. We expense all general and administrative costs as incurred.
We expect our selling, general and administrative expenses to decrease from their current level, primarily as a result of efficiencies achieved through reductions made to our organization in the first quarter of 2017 and efficiencies gained in the execution of our commercial strategy.
Amortization of Intangible Assets
In connection with the acquisition of the industrial application market assets of Gen-Probe, we acquired certain in-process research and development projects that were recorded as an intangible asset with an indefinite life. Upon completion of the development of our first Atlas Detection Assay in January 2012, this asset was transferred from in-process research and development to a definite life intangible asset and we initiated amortization of the asset over its estimated useful life of 10 years. In June 2014, we entered into an amendment to our license agreement with Gen-Probe. Under the amendment, we obtained a two-year option to reduce the royalty rate we pay to Gen-Probe in exchange for an option payment of $2.5 million. Upon completion of our IPO we exercised our option and issued to Gen-Probe 865,063 shares of common stock and made a cash payment of $8.0 million. We are required to make additional cash payments of $5.0 million on January 1, 2018 and $5.0 million on January 1, 2020. The aggregate cash and stock payments made to Gen-Probe along with the present value of the two $5.0 million payments described above were recorded as a $26.6 million addition to our intangible technology asset in Intangible assets on the Balance Sheet and will be amortized through December 31, 2021, the end of the estimated remaining life of the technology asset. In addition to the payments outlined above, the amendment to the license agreement provides for additional milestone payments of up to $6.0 million to further reduce the royalty rate paid. As a result, if these additional milestone payments are made by us, amortization expenses for these intangible assets may increase in future periods. We assess our intangible and other long-lived assets for impairment

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whenever events or other changes in circumstances suggest that the carrying value of an asset group may not be recoverable based on its undiscounted future cash flows. For example, if our commercialization efforts are not successful, or if commercialization progress takes longer than anticipated, we may recognize a non-cash impairment charge with respect to the asset group including our intangible asset and other long-lived assets in future periods.
 
Other Income (Expenses)
Interest Income (Expense), net
Interest income is derived from cash and cash equivalents held with our banking institution as well as our short-term and long-term marketable securities. Interest income fluctuates based on the current interest rate available from our banking institution and the amount of funds held in cash accounts and marketable securities. Interest expense for the periods presented is associated with the debt outstanding under the loan and security agreement we entered into in November 2013 with Comerica Bank and its subsequent amendments, the two individual $5.0 million payments due to Gen-Probe on January 1, 2018 and January 1, 2020, respectively, under the terms of the royalty reduction option exercised under the terms of the amendment to our license agreement, as well as the extended payment terms provided to us by Gen-Probe on the purchase of Atlas instruments. See “—Liquidity and Capital Resources” below for further details.
Our interest expense has decreased as the balances due on our Comerica loan and under the extended payment terms provided to us by Gen-Probe on the purchase of Atlas instruments have been paid down. However, our interest expense may increase if we purchase additional instruments to be placed with customers, or if the variable interest rate under the Comerica loan increases.

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Results Of Operations

Comparison of the Three Months Ended March 31, 2017 to the Three Months Ended March 31, 2016
 
 
Three Months Ended March 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(amounts in thousands, except percentages)
Statement of Operations Data:
 
 
 
 
 
 
 
Revenue
$
2,038

 
$
1,626

 
$
412

 
25
 %
Operating Expenses
 
 
 
 
 
 
 
Cost of revenue
2,110

 
2,076

 
34

 
2
 %
Research and development
1,364

 
1,987

 
(623
)
 
(31
)%
Selling, general and administrative
4,920

 
4,385

 
535

 
12
 %
Amortization of intangible asset
937

 
939

 
(2
)
 
—
 %
Total operating expenses
9,331

 
9,387

 
(56
)
 
(1
)%
Loss from operations
(7,293
)
 
(7,761
)
 
468

 
(6
)%
Other (expense) income:
 
 
 
 
 
 


Interest income (expense), net
(311
)
 
(417
)
 
106

 
(25
)%
Net loss
$
(7,604
)
 
$
(8,176
)
 
$
572

 
(7
)%
Revenue
Revenue increased by $0.4 million for the three months ended March 31, 2017, compared to the three months ended March 31, 2016. During the three months ended March 31, 2017, we sold 248,000 Atlas Detection Assays compared to 197,000 during the three months ended March 31, 2016.
As of March 31, 2017, we had 54 instruments placed with customers under commercial agreements, compared to 44 instruments as of March 31, 2016. For the three months ended March 31, 2017, the average revenue per instrument placed under commercial agreements was approximately $38,000, which was consistent with the three months ended March 31, 2016. During the three months ended March 31, 2017, three customers each accounted for more than 10% of revenues and generated approximately $1.2 million of revenue compared to three customers who generated $1.1 million of revenue in the three months ended March 31, 2016.
Operating Expenses
Cost of Revenue
Cost of revenue was $2.1 million for the three months ended March 31, 2017, unchanged compared to the three months ended March 31, 2016.
Research and Development
Research and development expense decreased by $0.6 million to $1.4 million for the three months ended March 31, 2017, from $2.0 million for the three months ended March 31, 2016. The decrease was primarily due to a decrease in external development services of approximately $0.3 million, a decrease of $0.2 million in payroll related expenses and a $0.1 million decrease in supplies.

Selling, General and Administrative
Selling, general and administrative expense increased by $0.5 million, to $4.9 million for the three months ended March 31, 2017, from $4.4 million for the three months ended March 31, 2016. Payroll related expenses increased by approximately $0.5 million, primarily driven by one-time charges related to a headcount reduction effectuated in the first quarter of 2017, and an increase in consulting services by approximately $0.1 million, partially offset by a decrease in promotional expenses of $0.1 million.
Amortization of intangible assets

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Amortization of intangibles was consistent for the three months ended March 31, 2017 compared to the three months ended March 31, 2016.
Other (Expense) Income
Interest Income (Expense), net
Net interest expense decreased by $0.1 million to $0.3 million for the three months ended March 31, 2017, from net interest expense of $0.4 million for the three months ended March 31, 2016. The decrease was primarily due to the decreased debt principal outstanding under our loan and security agreement with Comerica.

Liquidity and Capital Resources
Prior to our IPO in July 2014, our operations were primarily financed through private sales of shares of our preferred stock and debt. Upon closing of our IPO on July 22, 2014 we received approximately $53.2 million of net proceeds, after deduction of underwriting discounts, commissions and expenses.  In October 2015, we filed a shelf registration statement with the Securities and Exchange Commission to register for sale any combination of the types of securities described in the filing up to an amount of $100 million. The shelf registration went effective on October 7, 2015, and to date no securities have been sold by us under this shelf registration. In September 2016, we closed a private placement stock offering in which we sold 22,500 shares of Series A Convertible Preferred Stock and five-year warrants to purchase an aggregate of approximately 3,214,299 shares of the Company’s common stock, at a purchase price of $1,000 per share of Preferred Stock. We received approximately $21.3 million in proceeds from the offering after deducting commissions and offering expenses.
We have incurred negative cash flows from operating and investment activities since our inception in 2009 and we expect to continue to incur negative cash flows from operating activities until we achieve a significant increase in our revenue. Since inception, we have devoted our resources to funding research and development and to commercializing the assets and technology acquired from Gen-Probe, as well as development of molecular chemistry and a small volume instrument. At March 31, 2017, we had cash and cash equivalents of $1.3 million and marketable securities of $15.0 million and an accumulated deficit of $215.7 million.
The following table shows a summary of our cash flows for the three months ended March 31, 2017 and 2016, respectively (amounts in thousands):
 
 
Three Months Ended March 31,
 
2017
 
2016
Net cash used in operating activities
$
(7,216
)
 
$
(7,613
)
Net cash provided by (used in) investing activities
943

 
11,085

Net cash provided by (used in) financing activities
(1,306
)
 
(1,269
)
Net decrease in cash and cash equivalents
$
(7,579
)
 
$
2,203



Operating Activities
Net cash used in operating activities was $7.2 million for the three months ended March 31, 2017 and resulted from a $7.6 million net loss and $1.7 million net changes in operating assets and liabilities, partially offset by $2.1 million in non-cash items, principally depreciation and amortization, share-based compensation expense, provisions for inventory and non-cash interest expense.  Net cash used in operating activities was $7.6 million for the three months ended March 31, 2016 and resulted from an $8.2 million net loss and $1.9 million net changes in operating assets and liabilities, partially offset by $2.5 million in non-cash items, principally depreciation and amortization, share-based compensation expense and non-cash interest expense.
Investing Activities
Net cash provided by investing activities was $0.9 million for the three months ended March 31, 2017 and was primarily the result of maturities of marketable securities that were not reinvested. Net cash provided by investing activities was $11.1 million during the three months ended March 31, 2016 and was primarily the result of maturities of marketable securities that were not reinvested.
Financing Activities

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Net cash used in financing activities was $1.3 million for the three months ended March 31, 2017 and consisted primarily of principal payments under our loan and security agreement with Comerica Bank of $1.0 million and payments to Gen-Probe for amounts deferred under our supply agreement of $0.3 million. Net cash used in financing activities for the three months ended March 31, 2016 was $1.3 million and consisted primarily of principal payments under our loan and security agreement with Comerica Bank of $1.0 million and payments to Gen-Probe for amounts deferred under our supply agreement of $0.3 million.
Operating Capital Requirements
We have limited capital resources, have experienced negative cash flows from operations and have incurred net losses since inception. We expect to continue to experience negative cash flows from operations and incur net losses in the near term as we devote substantially all of our efforts on commercialization of our products and continued product development. We expect future operating, investment and financing activities to be funded by our product revenue, our existing cash and cash equivalents, and from cash raised through debt or equity offerings in the future. Based on our current business plan, we currently anticipate that we will have sufficient capital to fund our existing operations through the end of 2017. Our liquidity requirements may be negatively impacted by changes to our business plan, a lengthier sales cycle, lower demand for our products or other risks described elsewhere in this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2016, and therefore we may need to raise capital sooner than currently anticipated. These factors create substantial doubt about our ability to continue as a going concern. Our liquidity requirements have and will continue to consist of sales, marketing, research and development expenses, capital expenditures, working capital and general corporate expenses. Our future liquidity requirements will also include interest and principal payments on our debt and anticipated future payments to Gen-Probe of $5.0 million on January 1, 2018 and $5.0 million on January 1, 2020 as well as general and administrative expenses, such as insurance costs and professional fees associated with being a public company. As demand for our products increases, we expect that our capital requirements will increase in order to purchase additional Atlas instruments for placement with customers and cause increased working capital requirements, such as inventory and accounts receivable.
Our present and future funding requirements will depend on many factors, including our revenue growth and ability to generate cash flows from operating activities; the level of our sales and marketing and research and development activities; the effect of competing technological and market developments; the cost of and potential delays in product development; any change in regulatory oversight applicable to our products; and potential costs related to international expansion.
We expect to need to raise additional capital to fund our existing operations and commercialize our products. Additional capital may not be available on reasonable terms, if at all. We may seek to sell common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding, or seek other debt financing. In addition, we may raise additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons. The sale of equity or convertible debt securities may result in dilution to our stockholders and those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that may restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights.

These statements regarding our future liquidity requirements are forward-looking statements and involve risks and uncertainties and actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in the section “Risk Factors” of our most recent Annual Report on Form 10-K. We have based our estimates regarding our future liquidity requirements on assumptions that may prove to be wrong and we could utilize our available capital resources sooner than we currently expect. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition, and results of operations could be materially adversely affected.
Term Loan and Security Agreement
In November 2013, we entered into loan and security agreement with Comerica Bank ("Comerica").
Under the terms of the loan agreement with Comerica, we borrowed $5.0 million in November 2013. The Comerica loan bears interest at Comerica’s Prime Referenced Rate (as defined in the loan agreement with Comerica) plus 3.15 %, subject to a floor of the daily adjusting LIBOR rate plus 2.5%, which was 7.15% as of March 31, 2017.
In May 2015, we amended the Comerica Loan (the “Comerica Amendment”). The Comerica Amendment increased the borrowing under the Comerica Loan to $10.0 million, extended the interest-only period from June 1, 2015 until December 31, 2015 and extended the overall term by 12 months. In January 2016, we began making monthly payments which consist of accrued interest and equal principal payments in accordance with a 30-month amortization schedule.
Pursuant to the Comerica Amendment we were required to maintain at least $5.0 million of unrestricted cash and/or marketable securities with Comerica at all times. As of March 31, 2017 and during the period since we entered into the Comerica

26

Amendment, we have been in compliance with this requirement. Additionally, the Comerica Loan contains various covenants that limit our ability to engage in specified types of transactions, including limiting our ability to; sell, transfer, lease or dispose of certain assets; engage in certain mergers and consolidations; incur debt or encumber or permit liens on certain assets, make certain restricted payments, including paying dividends on, or repurchasing or making distributions with respect to, our Common Stock; and enter into certain transactions with affiliates.
As of March 31, 2017, we had $5.0 million outstanding under the amended Comerica Loan. We may prepay the loan to Comerica, in full or in part at any time, provided that no event of default has occurred and is continuing.
In April 2017, we entered into a second amendment with Comerica (the "Second Amendment"). The Second Amendment provides for an interest only period for three months after which we will begin making monthly payments which consist of accrued interest and equal principal payments in accordance with a 15-month amortization schedule. The interest rate under the Second Amendment accrues at Comerica’s Prime Referenced Rate (as defined in the loan agreement with Comerica) plus 3.40%, subject to a floor of the daily adjusting LIBOR rate plus 2.5%.
Pursuant to the Second Amendment, the amount of unrestricted cash and/or marketable securities we are required to maintain with Comerica at all times was reduced from $5.0 million to $4.0 million. In addition, the Second Amendment makes available to us a revolving line of credit of up to $4.0 million but not to exceed 80% of qualified receivables as defined in the Second Amendment. Borrowings under the revolving line of credit accrue interest at Comerica’s Prime Referenced Rate (as defined in the loan agreement with Comerica) plus 1.95%, subject to a floor of the daily adjusting LIBOR rate plus 2.5%. Finally, we issued an additional warrant to Comerica to purchase up to an aggregate of 8,403 shares of Common Stock at $3.57 per share and modified the exercise price of the warrants previously granted to Comerica under the Comerica Loan and the first amendment to $3.57 per share.
Warrants
Warrants Issued prior to IPO    
In connection with the Comerica Loan, and an additional loan and security agreement (the 'TriplePoint Loan") which was paid off in 2015, the Company issued warrants to purchase up to an aggregate of 352,941 shares of Series E preferred stock with an exercise price of $1.28. In connection with borrowings made under the TriplePoint Loan in March 2014, one of the warrants issued to TriplePoint became exercisable for an additional 156,863 shares of Series E. In connection with the IPO, the Series E warrants converted into warrants to purchase common stock at their conversion rate of approximately 0.0906 common warrant shares to one Series E warrant share. As a result, and subsequent to the reverse stock split conducted in October 2016, these warrants became exercisable for 4,618 shares of Common Stock with an exercise price of $140.80.
Warrants Issued Subsequent to IPO
In connection with the First Amendment to the Comerica Loan on May 29, 2015, we issued an additional warrant to Comerica to purchase up to an aggregate of 5,227 shares of Common Stock at $28.70 per share and modified the exercise price of the original warrant granted to Comerica to purchase up to an aggregate of 1,066 shares of common stock from $140.80 per share to $28.70 per share. In connection with the Second Amendment to the Comerica Loan on April 6, 2017, the Company issued an additional warrant to Comerica to purchase up to an aggregate of 8,403 shares of Common Stock at $3.57 per share and modified the exercise price of the warrants previously granted to Comerica under the Comerica Loan and the first amendment to $3.57 per share.
In connection with the private placement offering noted above, we issued warrants to the investors (the "Investor Warrants") to purchase up to an aggregate of approximately 3,214,299 shares of the our Common Stock and warrants to the placement agent to purchase up to an aggregate of approximately 236,686 shares of the Company's Common Stock (the "Placement Warrants"). The Investor Warrants and Placement Warrants have an exercise price of $7.00 and expire five years from the date of issuance.
As of March 31, 2017, there are 3,460,830 warrant shares outstanding with a weighted average exercise price of $7.18 per share. The Comerica and TriplePoint warrants have the same piggyback registration rights as holders of registrable securities under the investors' rights agreement. Such rights will expire upon the earlier of (i) five years after our IPO and (ii) as to any holder, at such time as all registrable securities held by such holder may be sold without restriction under Rule 144.
    
Controlled Equity OfferingSM Sales Agreement

We entered into a Controlled Equity OfferingSM Sales Agreement (the "Sales Agreement"), dated October 30, 2015, with Cantor Fitzgerald & Co., as sales agent, pursuant to which we may offer and sell, from time to time, through Cantor Fitzgerald

27

shares of our common stock for an aggregate offering price of up to $6,750,000, provided, however, that in no event shall we issue or sell through Cantor Fitzgerald such number or dollar amount of shares that exceed the number or dollar amount of shares permitted to be sold under Form S-3 (including General Instruction I.B.6 thereof). We are not obligated to sell any shares under the Sales Agreement. Subject to the terms and conditions of the Sales Agreement, Cantor Fitzgerald will use commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of The NASDAQ Global Market to sell shares from time to time based upon our instructions, including any price, time or size limits specified by us. Under the Sales Agreement, we must pay Cantor Fitzgerald a commission of 3.0% of the aggregate gross proceeds from each sale of shares and reimburse Cantor Fitzgerald for certain specified expenses.  As of May 5, 2017, we had not sold any shares under this Sales Agreement, and we had $6.75 million remaining in aggregate offering price available under the Sales Agreement, provided, however, that in no event shall we issue or sell through Cantor Fitzgerald such number or dollar amount of shares that exceed the number or dollar amount of shares permitted to be sold under Form S-3 (including General Instruction I.B.6 thereof). 

Contractual Obligations and Commitments
For the three months ended March 31, 2017, there were no significant changes to our contractual obligations from those disclosed in our audited financial statements as of December 31, 2016. The following is a summary of our contractual obligations as of March 31, 2017 (in thousands):
 
 
Total
 
Less than 1
year
 
1-3 years
 
3-5 years
 
More than 5
years
Deferred payment obligations(1)
$
12,744

 
$
7,744

 
$
5,000

 
$
—

 
$
—

Operating lease obligations(2)
2,612

 
1,025

 
1,587

 
—

 
—

Purchase obligations(3)
794

 
794

 
—

 
—

 
—

Notes payable(4)
5,040

 
5,040

 
—

 
—

 
—

Total contractual obligations
$
21,190

 
$
14,603

 
$
6,587

 
$
—

 
$
—

 
(1)
The deferred payment obligations are based upon the gross deferred amounts outstanding for instruments purchased from Gen-Probe as of March 31, 2017 as disclosed in the notes to our unaudited financial statements included elsewhere in this Form 10-Q. Such amounts are recorded at their aggregate present value of $2.6 million on the Balance Sheet as of March 31, 2017. The timing of when these payments are due reflects our current estimates of repayment. We do not believe that future revisions of estimates will have a significant impact on the timing of payments. Additionally, amounts due in less than one year includes the $5.0 million lump-sum payments payable to Gen-Probe on January 1, 2018 and amounts due beyond one year represent the $5.0 million lump-sum payment payable to Gen-Probe on January 1, 2020 in accordance with the amendment to our licensing agreement discussed in "Results of Operations". Such amounts are recorded at their present values of $4.7 million and $3.9 million as current and non-current liabilities, respectively, on the Balance Sheet as of March 31, 2017.
(2)
Our operating lease obligations represent the contractual payments due for the lease of our corporate office in Warren, NJ, our laboratory in Warren, NJ and our facility in San Diego, CA. On April 5, 2017, we amended our lease for our Warren, NJ locations, terminating the lease for the laboratory in Warren, NJ and extending the lease for the corporate office in Warren, NJ through June 30, 2023. Such incremental payments of approximately $1.5 million are not reflected in the above chart as of March 31, 2017.
(3)
Our purchase obligations represent the total cost of instruments and supplies which we are committed to purchase from Gen-Probe as well as additional obligations due under other agreements entered into in the normal course of business. In accordance with the supply agreement with Gen-Probe, our purchases of Atlas instruments are defined in rolling quarterly forecasts, and these forecasts become binding commitments for approximately nine months of Atlas instrument purchases at any given time. Our obligation to purchase supplies from Gen-Probe is defined in an annual purchase order submitted in the third quarter of each year.
(4)
Such amounts include the total principal outstanding at March 31, 2017 of $5.0 million and final payment fees of $0.04 million, of which approximately $4.0 million is due within one year from the Balance Sheet date. The remaining amounts are shown as being due in less than one year as our loan agreement contains a material adverse change clause which allows the lender to call the debt based on subjective factors regarding our business and performance. Amounts which are or may become payable as interest are excluded from the table, but are estimated to be approximately $0.2 million during the remainder of 2017. On April 6, 2017, we amended our loan agreement which included a deferral of principal for three months reducing the total due within one year as of April 1, 2017 by $1.0 million, such change is not reflected in the above chart as of March 31, 2017.



28
ROKA BIOSCIENCE, INC.
NOTES TO FINANCIAL STATEMENTS


Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under the rules and regulations of the Securities and Exchange Commission.
Critical Accounting Policies and Significant Estimates
We have prepared our financial statements in accordance with U.S. generally accepted accounting principles. Our preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures at the date of the financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K.

29

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2017, our cash and cash equivalents of $1.3 million were primarily held in money market deposit accounts. Our primary exposure to market risk for our cash and cash equivalents is interest income sensitivity, which is affected by changes in the general level of U.S interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in the interest rates associated with these instruments is not expected to have a material impact on our financial condition or results of operations.
As of March 31, 2017, we had $15.0 million of marketable securities classified as held-to-maturity on our balance sheet which had a fair value of $17.5 million. As our intention is to hold these investments through maturity, any interest rate fluctuation changing the fair value of such marketable securities would only be realized if we sold the investments prior to maturity.
As of March 31, 2017, we had $5.0 million of variable interest-rate debt outstanding under the Amendment to the loan and security agreement with Comerica. Considering the amounts outstanding and the term of the loan and security agreement, we do not believe a 1.0% increase in the interest rate would have a material impact on our financial condition or results of operations.
We do not have any foreign currency or other derivative financial instruments.
 
ITEM 4.
CONTROLS AND PROCEDURES
a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
We continue the process of reviewing and documenting our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Our management, with the participation of the principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on this evaluation, the principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective at the reasonable assurance level.
b) Changes in Internal Control Over Financial Reporting.
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performed during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS
None.

Item 1A. RISK FACTORS


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In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K may not be the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.
 
There were no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2017.




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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


Unregistered Sale of Equity Securities
In connection with the Second Amendment to the Loan Agreement, we issued an additional ten-year warrant to Comerica to purchase up to an aggregate of 8,403 shares of Common Stock at $3.57 per share and modified the exercise price of the warrants previously granted to Comerica under the Comerica Loan and the first amendment to $3.57 per share. The securities issued, as described above, have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were made pursuant to the exemptions from registration provided by Section 4(a)(2) of the Securities Act. Such securities are therefore restricted in accordance with Rule 144 under the Securities Act.
Use of Proceeds
On July 16, 2014, our registration statement on Form S-1 (File No. 333-196135) was declared effective by the Securities and Exchange Commission for our initial public offering pursuant to which we sold an aggregate of 5,000,000 shares of our common stock at a price to the public of $12.00 per share. BofA Merrill Lynch and Leerink Partners acted as joint book-running managers for the offering. Cowen and Company and Wedbush PacGrow Life Sciences acted as co-managers. On July 22, 2014, we closed the sale of 5,000,000 shares, resulting in net proceeds to us of $53.2 million after deducting underwriting discounts and commissions and other offering expenses of $2.6 million. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates. As of March 31, 2017, we have used all $53.2 million of the net proceeds from our initial public offering, of which $8.0 million was paid to Gen-Probe pursuant to the terms of the second amendment to our license agreement with Gen-Probe and the remaining $45.2 million was used in operating activities including the commercialization of our Atlas Detection Assays and ongoing research and development activities. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the Securities and Exchange Commission on July 17, 2014 pursuant to Rule 424(b).
Issuer Repurchases of Equity Securities

None.



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ITEM 5. OTHER INFORMATION

On April 6, 2017, we entered into a second amendment with Comerica (the "Second Amendment"). The Second Amendment provides for an interest only period for three months after which we will begin making monthly payments which consist of accrued interest and equal principal payments in accordance with a 15-month amortization schedule. The interest rate under the Second Amendment accrues at Comerica’s Prime Referenced Rate (as defined in the loan agreement with Comerica) plus 3.40%, subject to a floor of the daily adjusting LIBOR rate plus 2.5%.
Pursuant to the Second Amendment, the amount of unrestricted cash and/or marketable securities we are required to maintain with Comerica at all times was reduced from $5.0 million to $4.0 million. In addition, the Second Amendment makes available to us a revolving line of credit of up to $4.0 million but not to exceed 80% of qualified receivables as defined in the Second Amendment. Borrowings under the revolving line of credit accrue interest at Comerica’s Prime Referenced Rate (as defined in the loan agreement with Comerica) plus 1.95%, subject to a floor of the daily adjusting LIBOR rate plus 2.5%. Finally, we issued an additional warrant to Comerica to purchase up to an aggregate of 8,403 shares of Common Stock at $3.57 per share (the “Additional Warrant”) and modified the exercise price of the warrants previously granted to Comerica under the Comerica Loan and the first amendment to $3.57 per share (the “Repriced Warrants”).

The foregoing description of the Second Amendment, the Additional Warrant and the Re-priced Warrants is intended to be a summary and is qualified in its entirety by reference to such documents, which are attached as Exhibits 4.1, 4.2 and 10.1 and are incorporated by reference herein.


ITEM 6.
EXHIBITS
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which is incorporated herein by reference.




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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf on the date set forth below by the undersigned thereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
ROKA BIOSCIENCE, INC.
 
 
 
Date:
May 12, 2017
 
 
By: /s/ Mary Duseau
 
 
 
 
Mary Duseau
 
 
 
 
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
Date:
May 12, 2017
 
 
By: /s/ Lars Boesgaard
 
 
 
 
Lars Boesgaard
 
 
 
 
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)





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Exhibit Index
 
 
 
 
Exhibit No.
 
 
 
 
4.1*
 
Second Amendment to Stock Purchase Warrant issued to Comerica Bank on November 21, 2013
 
 
 
4.2*
 
First Amendment to Stock Purchase Warrant issued to Comerica Bank on May 29, 2015
 
 
 
4.3*
 
Stock Purchase Warrant, dated as of April 6, 2017, issued to Comerica Bank
 
 
 
10.1*
 
Second Amendment dated April 6, 2017 to Loan and Security Agreement by and between Roka Bioscience, Inc. and Comerica Bank, dated as of November 21, 2013


 
 
 
10.2*
 
First amendment dated April 5, 2017 to Lease Agreement by and between Roka Bioscience, Inc. and Normandy Warren Holdings, LLC, dated as of May 16, 2011.
 
 
 
31.1*
 
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2*
 
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1**
 
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101*
 
Interactive Data Files regarding (a) our Condensed Balance Sheets as of March 31, 2017 and December 31, 2016 (b) our Condensed Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2017 and 2016, (c) our Condensed Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 and (d) the Notes to such Condensed Financial Statements.
 
  *
Filed herewith
 
 
 **
Furnished herewith
 
 



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Sorrento Tech, Inc. Reports