10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x 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: 001-34753

GenMark Diagnostics, Inc.

(Exact name of registrant as specified in its charter)

Delaware	27-2053069
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5964 La Place Court Carlsbad, California	92008-8829
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: 760-448-4300

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  x    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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 (Check one):

Large accelerated filer	¨		Accelerated filer	x
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨
Emerging growth company	¨

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

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

The number of outstanding shares of the registrant’s common stock on April 28, 2017, was 47,087,034.

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GENMARK DIAGNOSTICS, INC.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	26

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PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

GENMARK DIAGNOSTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

	March 31, 2017		December 31, 2016
Current assets
Cash and cash equivalents	$	13,178	$	15,959
Marketable securities	11,007		25,607
Accounts receivable, net of allowances of $2,749 and $2,740, respectively	7,487		9,048
Inventories	9,019		6,633
Prepaid expenses and other current assets	1,419		1,202
Total current assets	42,110		58,449
Property and equipment, net	18,482		18,268
Intangible assets, net	2,546		2,670
Restricted cash	758		758
Other long-term assets	179		179
Total assets	$	64,075	$	80,324
Current liabilities
Accounts payable	$	5,696	$	8,703
Accrued compensation	4,510		5,650
Loan payable	7,685		7,935
Other current liabilities	3,159		4,133
Total current liabilities	21,050		26,421
Long-term liabilities
Deferred rent	3,524		3,652
Long-term debt	12,261		11,880
Other non-current liabilities	186		220
Total liabilities	37,021		42,173
Stockholders’ equity
Preferred stock, $0.0001 par value; 5,000 authorized, none issued	—		—
Common stock, $0.0001 par value; 100,000 authorized; 47,084 and 46,554 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively	5		4
Additional paid-in capital	396,217		393,322
Accumulated deficit	(369,188)		(355,270)
Accumulated other comprehensive income	20		95
Total stockholders’ equity	27,054		38,151
Total liabilities and stockholders’ equity	$	64,075	$	80,324

See accompanying notes to unaudited condensed consolidated financial statements.

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GENMARK DIAGNOSTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share data)

	Three Months Ended
	March 31,
	2017			2016
Revenue
Product revenue	$	12,470		$	10,959
License and other revenue	65			105
Total revenue	12,535			11,064
Cost of revenue	6,352			4,375
Gross profit	6,183			6,689
Operating expenses
Sales and marketing	4,693			3,709
General and administrative	4,011			3,419
Research and development	11,035			12,269
Total operating expenses	19,739			19,397
Loss from operations	(13,556)			(12,708)
Other income (expense)
Interest income	52			29
Interest expense	(507		)	(277		)
Other income	95			33
Total other expense	(360)			(215)
Loss before provision for income taxes	(13,916)			(12,923)
Income tax expense	1			35
Net loss	$	(13,917	)	$	(12,958	)
Net loss per share, basic and diluted	$	(0.30	)	$	(0.30	)
Weighted average number of shares outstanding, basic and diluted	46,846			42,672
Other comprehensive loss
Net loss	$	(13,917	)	$	(12,958	)
Foreign currency translation adjustments	91			47
Net unrealized losses on marketable securities, net of tax	(16		)	(17		)
Comprehensive loss	$	(13,842	)	$	(12,928	)

See accompanying notes to unaudited condensed consolidated financial statements.

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GENMARK DIAGNOSTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended March 31,
	2017			2016
Operating activities
Net loss	$	(13,917	)	$	(12,958	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,217			900
Amortization of premiums on investments	19			16
Amortization of deferred debt issuance costs	151			92
Stock-based compensation	2,808			2,402
Provision for bad debt	9			29
Non-cash inventory adjustments	317			75
Other non-cash adjustments	(85		)	(49		)
Changes in operating assets and liabilities:
Accounts receivable	1,558			1,385
Inventories	(3,118		)	501
Prepaid expenses and other assets	(216		)	—
Accounts payable	(2,821		)	617
Accrued compensation	(1,144		)	989
Other liabilities	(343		)	(42		)
Net cash used in operating activities	(15,565		)	(6,043		)
Investing activities
Payments for intellectual property licenses	—			(800		)
Purchases of property and equipment	(1,888		)	(966		)
Proceeds from sales of marketable securities	13,896			—
Maturities of marketable securities	700			—
Net cash provided by (used in) investing activities	12,708			(1,766		)
Financing activities
Principal repayment of borrowings	(6		)	(5		)
Costs associated with debt issuance	(20		)	(10		)
Proceeds from stock option exercises	88			345
Net cash provided by financing activities	62			330
Effect of exchange rate changes on cash	14			7
Net decrease in cash and cash equivalents	(2,781		)	(7,472		)
Cash and cash equivalents at beginning of period	15,959			35,385
Cash and cash equivalents at end of period	$	13,178		$	27,913
Non-cash investing and financing activities
Transfer of instruments from (to) property and equipment into inventory	$	(415	)	$	38
Property and equipment costs included in accounts payable	$	183		$	285
Supplemental cash flow disclosures
Cash paid for income taxes, net	$	5		$	13
Cash received for interest	$	108		$	21
Cash paid for interest	$	347		$	184

See accompanying notes to unaudited condensed consolidated financial statements.

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GENMARK DIAGNOSTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

GenMark Diagnostics, Inc., the Company or GenMark, was formed by Osmetech plc as a Delaware corporation in February 2010, and had no operations prior to its initial public offering, which was completed in June 2010. The Company is a leading provider of automated, multiplex molecular diagnostic testing systems that detect and measure DNA and RNA targets to diagnose disease and optimize patient treatment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, and applicable regulations of the U.S. Securities and Exchange Commission, or the SEC, and should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on February 28, 2017. These unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for the full year or any future period.

During the quarter ended March 31, 2017, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements - Going Concern, which requires that management evaluate whether there are relevant conditions and events that in the aggregate raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued. Under this standard, management’s assessment may not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued. The Company has experienced net losses and negative cash flows from operating activities since its inception. As of March 31, 2017, the Company had an accumulated deficit of $369,188,000 and working capital of $21,060,000 available to fund future operations. Because the Company continues to incur net losses, its transition to profitability depends on the successful development, approval, and commercialization of its future products and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company would need to raise additional capital.

In performing the first step of the assessment under ASC Topic 205-40, the Company considered that its future operations anticipate the clearance by the U.S. Food and Drug Administration, or the FDA, of its ePlex Respiratory Pathogen (RP) Panel, which will allow the Company to draw $15,000,000 on its existing credit facility. The Company also continues to consider alternative forms of financing, including equity financing. However, there can be no assurances that the Company will be able draw on the credit facility or that sources of capital will be available on terms acceptable to the Company, or at all. Without the financing or capital described above, and without consideration of management’s other plans to control costs, continued net losses as anticipated raise substantial doubt about the Company’s ability to continue as a going concern under the first step of the assessment.

In performing the second step of this assessment, the Company is required to evaluate whether it has other plans to mitigate the conditions to alleviate the substantial doubt about its ability to meet its obligations as they become due. In performing this step, management considered the $15,000,000 in funding available under its credit facility since management believes the FDA clearance milestone is probable of being achieved. Management has also developed a plan to implement cost reduction measures to reduce its working capital requirements, assuming additional funding from the credit facility is unavailable. The plan includes a delay in capital expenditures, a delay in hiring and additional reductions in personnel-related costs, the curtailment of certain of the Company’s development activities and other discretionary expenditures that are within the Company’s control. Any of the actions contemplated by the implementation of this plan, if required, could have an adverse impact on the Company’s ability to achieve certain of its planned objectives during 2017, and thus, materially harm the Company’s business.

Management has concluded that if required, implementing these measures will allow the Company to meet its obligations as they become due within one year after the date that the financial statements are issued.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

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Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes thereto. The Company’s significant estimates included in the preparation of the financial statements are related to accounts receivable, inventories, property and equipment, intangible assets, employee-related compensation accruals, warranty liabilities, tax valuation accounts and stock-based compensation. Actual results could differ from those estimates.

Segment Information

The Company currently operates in one reportable business segment, which encompasses the development, manufacturing, sales and support of instruments and molecular tests based on its proprietary eSensor® detection technology. Substantially all of the Company’s operations and assets are in the United States of America.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that the Company adopts as of the specified effective date.

In March 2016, the FASB issued Accounting Standards Update, or ASU, 2016-09, Improvements to Employee Share-Based Payment Accounting. The guidance simplifies how several aspects of share-based payments are accounted for and presented in the financial statements and is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company's adoption of this guidance in the first quarter of 2017 resulted in excess tax benefits for which a benefit could not be previously recognized of approximately $1,979,000. Upon adoption, the balance of the unrecognized excess tax benefits was reversed with the impact recorded to retained earnings, including a corresponding change to the valuation allowance. Due to the full valuation allowance on the Company's U.S. deferred tax assets, there was no impact to the financial statements as a result of this adoption. The Company continues to record stock-based compensation expense net of estimated forfeitures.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of fiscal 2019, with early adoption permitted. The Company is evaluating the effects adoption will have on its consolidated financial statements, but does not anticipate a material impact on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, an updated standard on revenue recognition. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported by companies while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The main purpose of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures of revenue, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December l5, 2017, with early adoption permitted but not earlier than the original effective date. Accordingly, the updated standard is effective for the Company in the first quarter of fiscal 2018. The Company is evaluating the impact of implementation and its transition approach of this standard on its financial statements.

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents consist of cash on deposit with banks, money market instruments and certificates of deposit with original maturities of three months or less at the date of purchase. Marketable securities consist of certificates of deposits that mature in greater than three months. Marketable securities are accounted for as "available-for-sale" with the carrying amounts reported in the balance sheets stated at cost, which approximates their fair market value, with unrealized gains and losses, if any, reported as a separate component of stockholders' equity and included in comprehensive loss.

Restricted Cash

Restricted cash represents amounts designated for uses other than current operations and included $758,000 as of March 31, 2017, held as security for the Company’s letter of credit with Banc of California.

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Receivables

Accounts receivable consist of amounts due to the Company for sales to customers and are recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts is determined based on an assessment of the collectability of specific customer accounts, the aging of accounts receivable, and a reserve for unknown items based upon the Company’s historical experience.

Product Warranties

The Company generally offers a one-year warranty for its instruments sold to customers and typically up to a 60 day warranty for consumables. Factors that affect the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty repairs, and the cost per repair. The Company periodically assesses the adequacy of its warranty reserve and adjusts the amount as appropriate.

Intangible Assets

Intangible assets are comprised of licenses or sublicenses to technology covered by patents owned by third parties, and are amortized on a straight-line basis over the expected useful lives of these assets, which is generally 10 years. Amortization of licenses typically begins upon the Company obtaining access to the licensed technology and is recorded in cost of revenues for licenses supporting commercialized products. The amortization of licenses to technology supporting products in development is recorded in research and development expenses.

Impairment of Long-Lived Assets

The Company assesses the recoverability of long-lived assets, including intangible assets, by periodically evaluating the carrying value whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If impairment is indicated, the Company writes down the carrying value of the asset to its estimated fair value. This fair value is primarily determined based on estimated discounted cash flows.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value and include direct labor, materials, and manufacturing overhead. The Company periodically reviews inventory for evidence of slow-moving or obsolete parts, and writes inventory down to net realizable value, as needed. This write down is based on management’s review of inventories on hand, compared to estimated future usage and sales, shelf-life assumptions, and assumptions about the likelihood of obsolescence. If actual market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Inventory impairment charges establish a new cost basis for inventory and charges are not reversed subsequently to income, even if circumstances later suggest that increased carrying amounts are recoverable.

Property and Equipment, net

Property, equipment and leasehold improvements are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which are identified below. Repair and maintenance costs are expensed as incurred.

Machinery and laboratory equipment	3 - 5 years
Instruments	4 - 5 years
Office equipment	3 - 7 years
Leasehold improvements	over the shorter of the remaining life of the lease or the useful economic life of the asset

Income Taxes

Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. A full valuation allowance has been recorded against the Company’s net deferred tax assets due to the uncertainty surrounding the Company’s ability to utilize these assets in the future. The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. The Company recognizes accrued interest related to uncertain tax positions as a component of income tax expense.

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A tax position that is more likely than not to be realized is measured at the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the taxing authority that has full knowledge of all relevant information. Measurement of a tax position that meets the more likely than not threshold considers the amounts and probabilities of the outcomes that could be realized upon settlement using the facts, circumstances and information available at the reporting date.

2. Stock-Based Compensation

The Company recognizes stock-based compensation expense related to stock options, restricted stock awards, restricted stock units, and market-based stock units granted to employees and directors in exchange for services under the Company's 2010 Equity Incentive Plan, or the 2010 Plan, and employee stock purchases under the Company's 2013 Employee Stock Purchase Plan, or the ESPP. Employee participation in the 2010 Plan is at the discretion of the Compensation Committee of the Board of Directors of the Company. Each equity award grant reduces the number of shares available for grant under the 2010 Plan. Stock-based compensation expense is based on the fair value of the applicable award utilizing various assumptions regarding the underlying attributes of the award. The estimated fair value, net of forfeitures expected to occur during the vesting period, is amortized as compensation expense on a straight-line basis to reflect vesting as it occurs. Stock-based compensation expense is recorded in cost of sales, sales and marketing, research and development, and/or general and administrative expenses based on the employee's respective function. During the three months ended March 31, 2017 and 2016, aggregate stock-based compensation expense was $2,808,000 and $2,402,000, respectively.

The fair value of stock options granted is derived from the Black-Scholes Option Pricing Model, which uses several judgment-based variables to calculate the expense. The inputs include the expected term of the stock option, the expected volatility and other factors.

• Expected Term. Expected term represents the period that the stock-based awards are expected to be outstanding and is determined by using the simplified method.

• Expected Volatility. Expected volatility represents the estimated volatility in the Company’s stock price over the expected term of the stock option and is determined by review of the Company’s and similar companies’ historical experience.

• Expected Dividend. The Black-Scholes Option Pricing Model calls for a single expected dividend yield as an input. The Company has assumed no dividends as it has never paid dividends and has no current plans to do so.

• Risk-Free Interest Rate. The risk-free interest rate used in the Black-Scholes Option Pricing Model is based on published U.S. Treasury rates in effect at the time of grant for periods corresponding with the expected term of the option.

All stock options granted under the 2010 Plan are exercisable at a per share price equal to the closing quoted market price of a share of the Company’s common stock on the NASDAQ Global Market on the grant date and generally vest over a period of between one and four years. Stock options are generally exercisable for a period of up to 10 years after grant and are typically forfeited if employment is terminated before the options vest.

The following table summarizes stock option activity during the three months ended March 31, 2017:

	Number of Shares	Weighted Average Exercise Price
Outstanding at December 31, 2016	2,569,550	$	9.53
Granted	—	—
Exercised	(16,471)	5.33
Cancelled	(3,258)	11.94
Outstanding at March 31, 2017	2,549,821	9.56
Vested and expected to vest at March 31, 2017	2,490,813	9.50
Exercisable at March 31, 2017	2,016,369	$	8.93

Options that were exercisable as of March 31, 2017 had a remaining weighted average contractual term of 5.52 years, and an aggregate intrinsic value of $7,949,000. As of March 31, 2017, there were 2,549,821 stock options outstanding, which had a remaining weighted average contractual term of 5.97 years and an aggregate intrinsic value of $8,525,000. No stock options were granted during the three months ended March 31, 2017.

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Restricted stock awards or units may be granted in connection with the hiring or retention of personnel and are subject to certain conditions. In March 2013, the Company transitioned to granting restricted stock units under the 2010 Plan in lieu of granting restricted stock awards. The compensation expense related to the restricted stock awards or units is calculated as the fair market value of the stock on the grant date and is adjusted for estimated forfeitures. The Company’s restricted stock award and restricted stock unit activity for the three months ended March 31, 2017 was as follows:

	Restricted Stock Awards			Restricted Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2016	156	$	11.19	1,766,123	$	7.18
Granted	—	—		1,028,884	10.68
Vested	(156)	11.19		(320,081)	6.00
Cancelled	—	—		(20,766)	8.47
Unvested at March 31, 2017	—	$	—	2,454,160	$	8.79

As of March 31, 2017, all compensation expenses related to restricted stock awards has been recognized. The total fair value of restricted stock awards that vested during the three months ended March 31, 2017 and 2016 was $2,000 and $110,000, respectively.

As of March 31, 2017, there was $15,162,000 of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted average period of 3.12 years. The total fair value of restricted stock units that vested during the three months ended March 31, 2017 and 2016 was $1,920,000 and $2,250,000, respectively.

The Company issued market-based stock units in February 2017 and February 2016, which may result in the recipient receiving shares of stock equal to 200% of the target number of units granted. The vesting and issuance of Company stock depends on the Company's stock performance as compared to the NASDAQ Composite Index over a three-year period following the grant and continued service with the Company. As of March 31, 2017, there was $1,932,000 of unrecognized stock-based compensation expense related to these awards, which is expected to be recognized over a weighted average period of 2.11 years. The Company’s market-based stock unit activity for the three months ended March 31, 2017 was as follows:

	Market-Based Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2016	222,773	$	7.34
Target units granted	243,561	13.82
Vested	—	—
Cancelled	—	—
Unvested at March 31, 2017	466,334	$	10.53

    The fair value of these market-based stock units was estimated on the date of grant using the Monte Carlo Simulation Valuation Model, which estimates the potential outcome of achieving the market condition based on simulated future stock prices, with the following assumptions for the three months ended March 31, 2017:

	Three Months Ended
	March 31,
	2017			2016
Expected volatility	54		%	49		%
Risk-free interest rate	1.50		%	0.90		%
Expected dividend	—		%	—		%
Weighted average fair value	$	13.82		$	4.94

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The Company issued 43,200 performance-based restricted stock units in March 2014 with a grant date fair value of $12.30 per share. The vesting and issuance of Company stock pursuant to these awards depends on obtaining regulatory clearance of various products within a defined time. Stock-based compensation expense for performance-based awards is recognized when it is probable that the applicable performance criteria will be satisfied. The probability of achieving the relevant performance criteria is evaluated on a quarterly basis. As of March 31, 2017, there was $133,000 of unrecognized stock-based compensation expense related to these awards.

Employee Stock Purchase Plan

The Company's stockholders approved the ESPP in May 2013. A total of 650,000 shares of the Company’s common stock were originally reserved for issuance under the ESPP, which permits eligible employees to purchase common stock at a discount through payroll deductions.

The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the Company's common stock on the first or the last day of the offering period, whichever is lower. Generally, each offering under the ESPP will be for a period of six months as determined by the Company's Board of Directors; provided that no offering period may exceed 27 months. Employees may invest up to 10% of their qualifying gross compensation through payroll deductions. In no event may an employee purchase more than 1,500 shares of common stock during any six-month offering period. As of March 31, 2017, there were 267,839 shares of common stock available for issuance under the ESPP. The ESPP is a compensatory plan as defined by the authoritative guidance for stock compensation; therefore, stock-based compensation expense related to the ESPP has been recorded during the three months ended March 31, 2017.

3. Net Loss per Common Share

Basic net loss per share is calculated by dividing loss available to stockholders of the Company's common stock (the numerator) by the weighted average number of shares of the Company's common stock outstanding during the period (the denominator). Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted loss per share is calculated in a similar way to basic loss per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the dilutive potential shares had been issued, unless the effect would be anti-dilutive.

The computations of diluted net loss per share for the three month periods ended March 31, 2017 and 2016 did not include the effects of the following stock options and other equity awards which were outstanding as of the end of each period because the inclusion of these securities would have been anti-dilutive (in thousands):

	Three Months Ended March 31,
	2017	2016
Options outstanding to purchase common stock	2,550	2,875
Other unvested equity awards	2,931	2,390
Total	5,481	5,265

4. Inventories

Inventory on hand as of March 31, 2017 and December 31, 2016 comprised the following (in thousands):

	March 31, 2017		December 31, 2016
Raw materials	$	2,589	$	2,171
Work-in-process	2,929		1,488
Finished goods	3,501		2,974
Total inventories	$	9,019	$	6,633

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5. Property and Equipment, net

Property and equipment as of March 31, 2017 and December 31, 2016 comprised the following (in thousands):

	March 31, 2017			December 31, 2016
Property and equipment — at cost:
Machinery and laboratory equipment	$	10,245		$	10,145
Instruments	10,662			9,869
Office equipment	1,742			1,714
Leasehold improvements	10,318			10,100
Total property and equipment — at cost	32,967			31,828
Less: accumulated depreciation	(14,485		)	(13,560		)
Property and equipment, net	$	18,482		$	18,268

Depreciation expense was $1,093,006 and $806,000 for the three months ended March 31, 2017 and 2016, respectively.

6. Intangible Assets, net

Intangible assets as of March 31, 2017 and December 31, 2016 comprised the following (in thousands):

	March 31, 2017							December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Licensed intellectual property	$	4,250	$	(1,704	)	$	2,546	$	4,250	$	(1,580	)	$	2,670

 Intellectual property licenses have a weighted average remaining amortization period of 5.15 years as of March 31, 2017. Amortization expense for these licenses was $124,000 and $94,000 for the three months ended March 31, 2017 and 2016, respectively. Estimated future amortization expense for these licenses is as follows (in thousands):

Fiscal Years Ending	Future Amortization Expense
Remaining in 2017	$	373
2018	497
2019	497
2020	497
2021	497
Thereafter	185
Total	$	2,546

7. Loan Payable

As of March 31, 2017 and December 31, 2016, long-term debt consisted of the following (in thousands):

	March 31, 2017			December 31, 2016
Term Loans
Term Loan A - 6.9% principal	$	10,000		$	10,000
Term Loan B - 6.9% principal	10,000			10,000
Final fee obligation	878			400
Unamortized issuance costs	(932		)	(585		)
Total debt, net	19,946			19,815
Current portion of long-term debt	(7,685		)	(7,935		)
Long-term debt	$	12,261		$	11,880

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Term Loans

In January 2015, the Company entered into a Loan and Security Agreement, or the LSA, with Solar Capital Partners (as successor-in-interest to General Electric Capital Corporation), and certain other financial institutions party thereto, as lenders, pursuant to which the Company obtained (a) up to $35,000,000 in a series of term loans and (b) a revolving loan in the maximum amount of $5,000,000. Under the terms of the LSA, the Company may, subject to certain conditions, borrow:

• $10,000,000 on or before March 31, 2015, or Term Loan A;

• an additional $10,000,000, or Term Loan B, subject to the Company’s satisfaction of regulatory requirements necessary to CE Mark its ePlex system in Europe by a specified date; and

• an additional $15,000,000, or Term Loan C, and together with Term Loan A and Term Loan B, the Term Loans, subject to the Company’s satisfaction of FDA 510(k) market clearance for the sale of the Company’s ePlex system in the United States by a specified date.

On March 27, 2015, the Company borrowed $10,000,000 pursuant to Term Loan A. The Term Loans will accrue interest at a rate equal to, (a) the greater of 1.00% or the 3-year treasury rate in effect at the time of funding, plus (b) an applicable margin between 4.95% and 5.90% per annum. The Company is only required to make interest payments on amounts borrowed pursuant to the Term Loans from the applicable funding date until March 1, 2017 or the Interest Only Period. Following the Interest Only Period, monthly installments of principal and interest under the Term Loans will be due until the original principal amount and applicable interest is fully repaid by January 12, 2019, or the Maturity Date.

On September 30, 2015, the Company entered into a first amendment to the LSA, pursuant to which the lenders internally reallocated certain funding commitments under the LSA between the lenders (but did not increase or reduce the aggregate amount of such commitments), and the parties adjusted certain of the Company’s administrative financial reporting obligations and the dates by which certain future funding requirements must be satisfied.

In March 2016, the Company entered into an additional amendment to the LSA, pursuant to which the parties adjusted the date by which the Company must satisfy the funding requirements in respect of Term Loan B.

In June 2016, the Company borrowed an additional $10,000,000 pursuant to Term Loan B following the satisfaction of regulatory requirements necessary to CE Mark the Company’s ePlex system in Europe.

In July 2016, the Company entered into an additional amendment to the LSA pursuant to which the lenders reallocated certain funding commitments under the LSA between the lenders, and the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied.

In February 2017, the Company entered into an additional amendment to the LSA with Solar Capital Partners and certain other financial institutions party thereto, as lenders, pursuant to which the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied. In addition, the parties agreed to extend the Interest-Only Period in respect of amounts already borrowed under Term Loan A and Term Loan B, and the amount, if any, borrowed pursuant to Term Loan C, until June 1, 2017. The parties also agreed that the Company has the option to further extend the Interest-Only Period until August 1, 2017, and subsequently to March 1, 2018, subject in each case to the satisfaction of certain conditions.

Under the LSA, the Company is required to comply with certain affirmative and negative covenants, including, without limitation, delivering reports and notices relating to the Company’s financial condition and certain regulatory events and intellectual property matters, as well as limiting the creation of liens, the incurrence of indebtedness, and the making of certain investments, dividends, payments and acquisitions, other than as specifically permitted by the LSA. As of March 31, 2017, the Company was in compliance with all covenants under the LSA.

Revolving Loan

Pursuant to the LSA, the Company may borrow up to $5,000,000 under a revolving loan facility. Borrowings under the revolving loan will accrue interest at a rate equal to (a) the greater of 1.25% per annum or a base rate as determined by a three-month LIBOR-based formula, plus (b) an applicable margin between 2.95% and 3.95% based on certain criteria as set forth in the LSA. All principal and interest outstanding under the revolving loan is due and payable on the Maturity Date. Following the funding of Term Loan A, the Company is required to pay a commitment fee equal to 0.75% per annum of the amounts made available but unborrowed under the revolving loan. As of March 31, 2017, the Company had not borrowed any amounts pursuant the revolving loan facility.

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Debt Issuance Costs

As of March 31, 2017 and December 31, 2016, the Company had $932,000 and $585,000, respectively, of unamortized debt issuance discount, which is offset against borrowings in long-term and short-term debt.

For the three months ended March 31, 2017 and 2016, amortization of debt issuance costs was $151,000 and $92,000, respectively. Amortization of debt issuance costs is included in interest expense in the Company's unaudited condensed consolidated statements of comprehensive loss for the periods presented.

Letter of Credit

In September 2012, the Company provided a $758,000 letter of credit issued by Banc of California to the landlord of its executive office facility in Carlsbad, California. This letter of credit was secured with $758,000 of restricted cash as of March 31, 2017.

8. Leases

The Company has operating and capital lease agreements for its office, manufacturing, warehousing and laboratory space and for office equipment. Rent and operating expenses charged under these arrangements was $409,000 and $387,000 for the three months ended March 31, 2017 and 2016, respectively. Pursuant to the Company's lease agreements, a portion of the monthly rent has been deferred. The balance of deferred rent as of March 31, 2017 and December 31, 2016 was $4,005,000 and $4,097,000, respectively.

As of March 31, 2017, the future minimum lease payments required over the next five years under the Company's lease arrangements are as follows (in thousands):

Fiscal Years Ending	Future Minimum Lease Payments
Remaining in 2017	$	1,252
2018	1,792
2019	1,913
2020	1,972
2021	1,372
Thereafter	1,366
Total	$	9,667

9. Fair Value of Financial Instruments

The carrying amounts of financial instruments, such as cash equivalents, restricted cash, accounts receivable, and accounts payable approximate the related fair values due to the short-term maturities of these instruments.

The Company uses a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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The following table presents the financial instruments measured at fair value on a recurring basis and the valuation approach applied to each class of financial instruments as of March 31, 2017 and December 31, 2016 (in thousands):

	March 31, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds (cash equivalents)	$	242	$	—	$	—	$	242
Corporate notes and bonds	—		9,007		—		9,007
U.S. government and agency securities	—		1,500		—		1,500
Commercial paper	—		500		—		500
Total	$	242	$	11,007	$	—	$	11,249
	December 31, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds (cash equivalents)	$	556	$	—	$	—	$	556
Corporate notes and bonds	—		18,821		—		18,821
U.S. government and agency securities	—		3,503		—		3,503
Commercial paper	—		3,283		—		3,283
Total	$	556	$	25,607	$	—	$	26,163

Level 2 marketable securities are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs.

10. Investments

The following table summarizes the Company’s marketable securities as of March 31, 2017 and December 31, 2016 (in thousands):

March 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate notes and bonds	$	9,017	$	—	$	(10	)	$	9,007
U.S. government and agency securities	1,502		—		(2		)	1,500
Commercial paper	500		—		—			500
Total	$	11,019	$	—	$	(12	)	$	11,007
December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate notes and bonds	$	18,846	$	—	$	(25	)	$	18,821
U.S. government and agency securities	3,506		—		(3		)	3,503
Commercial paper	3,283		—		—			3,283
Total	$	25,635	$	—	$	(28	)	$	25,607

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The following table summarizes the maturities of the Company’s marketable securities as of March 31, 2017 (in thousands):

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	11,019	$	11,007
Due after one year through two years	—		—
Total	$	11,019	$	11,007

11. Income Taxes

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

As of March 31, 2017, the Company recorded a full valuation allowance against all of its net deferred tax assets due to the uncertainty surrounding the Company’s ability to utilize these assets in the future. Due to the Company's losses, it only records a tax provision or benefit related to uncertain tax positions and related interest and minimum tax payments or refunds. The Company recorded income tax expense of $1,000 for the three months ended March 31, 2017.

The Company is subject to taxation in the United States and in various state and foreign jurisdictions. The Company's federal and state returns since inception are subject to examination due to the carryover of net operating losses. As of March 31, 2017, the Company’s tax years from 2011 through 2012 are subject to examination by the United Kingdom tax authorities related to legacy operations. The statute of limitations for the assessment and collection of income taxes related to other foreign tax returns varies by country. In the foreign countries where we have operations, these time periods generally range from three to five years after the year for which the tax return is due or the tax is assessed.

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ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

The following discussion of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements for the three months ended March 31, 2017 and the notes thereto included in Part I, Item 1 of this Quarterly Report, as well as the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2016.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management, including, without limitation, our expectations regarding our results of operations, sales and marketing expenses, general and administrative expenses, research and development expenses, and the sufficiency of our cash for future operations. Words such as “expect,” “anticipate,” “target,” “project,” “believe,” “goals,” “estimate,” “potential,” “predict,” “plan,” “may,” “will,” “might,” “could,” “intend,” variations of these terms or the negative of those terms and similar expressions are intended to identify these forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in or implied by any forward-looking statements.

Among the important factors that could cause actual results to differ materially from those indicated by our forward-looking statements are those discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 28, 2017. We assume no obligation to update these forward looking statements to reflect future events or circumstances.

Trademarks and Trade Names

GenMark®, eSensor®, XT-8® and ePlex® and our other logos and trademarks are the property of GenMark Diagnostics, Inc. or its subsidiaries. All other brand names or trademarks appearing in this Quarterly Report are the property of their respective holders. Our use or display of other parties’ trademarks, trade dress or products in this Quarterly Report does not imply that we have a relationship with, or the endorsement or sponsorship of, the trademark or trade dress owners. 

Overview

GenMark was formed by Osmetech plc, or Osmetech, as a Delaware corporation in February 2010, and had no operations prior to its initial public offering, which was completed in June 2010. Immediately prior to the closing of the initial public offering, GenMark acquired all of the outstanding ordinary shares of Osmetech in a reorganization under the applicable laws of the United Kingdom. Following the reorganization, Osmetech became a wholly-owned subsidiary controlled by GenMark, and the former shareholders of Osmetech received shares of GenMark. Any historical discussion of GenMark relates to Osmetech and its consolidated subsidiaries prior to the reorganization. In September 2012, GenMark placed Osmetech into liquidation to simplify its corporate structure. The liquidation of Osmetech was competed in the fourth quarter of 2013.

We currently develop and commercialize high-value, simple to perform, clinically relevant multiplex molecular tests based on our proprietary eSensor electrochemical detection technology. We currently sell our XT-8 instrument and related diagnostic and research tests, as well as certain custom manufactured reagents, which collectively we refer to as our XT-8 system. Our XT-8 system supports a broad range of molecular tests with a compact and easy-to-use workstation and disposable test cartridges. In addition, we have developed and are commercializing our sample-to-answer ePlex instrument and Respiratory Pathogen (RP) Panel. We intend to offer a number of additional associated diagnostic tests for use with our ePlex instrument, which we collectively refer to as our ePlex system.

Since inception, we have incurred net losses from operations each year, and we expect to continue to incur losses for the foreseeable future. Our net losses for the three months ended March 31, 2017 and 2016 were approximately $13,917,000 and $12,958,000, respectively. As of March 31, 2017, we had an accumulated deficit of $369,188,000. Our operations to date have been funded principally through sales of capital stock, borrowings and cash from operations. We expect to incur increasing expenses over the next several years, principally to develop and commercialize our ePlex system and additional diagnostic tests, as well as to further increase our manufacturing capabilities and domestic and international commercial organization. 

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Our Products and Technology

We offer four FDA-cleared diagnostic tests which run on our XT-8 instrument: our Respiratory Viral Panel; our Cystic Fibrosis Genotyping Test; our Warfarin Sensitivity Test; and our Thrombophilia Risk Test. We have also developed a number of hepatitis C virus, or HCV, genotyping tests and custom manufactured reagents, as well as other research-based and pharmacogenomics products, versions of which are available for use with our XT-8 instrument for research use only (RUO).

In addition, we have commercially launched in Europe our sample-to-answer ePlex system, which integrates automated nucleic acid extraction and amplification with our eSensor detection technology to enable operators using ePlex to place a raw or a minimally prepared patient sample directly into our test cartridge and obtain results without any additional steps. This sample-to-answer capability is enabled by the robust nature of our eSensor detection technology, which is not impacted to the same degree by sample impurities that we believe hinder competing technologies. We have designed our ePlex system to further simplify workflow and provide powerful, cost-effective molecular diagnostics solutions to a significantly expanded group of hospitals and reference laboratories. We obtained CE Mark for our ePlex system and RP Panel in June 2016, and filed 510(k) applications with the FDA for the ePlex instrument and RP Panel in December 2016. In addition, during 2017, we intend to complete the development of, CE Mark, and submit 510(k) applications to the FDA our ePlex blood culture identification (BCID) family of panels, which are specifically the gram-positive (BCID-GP), gram-negative (BCID-GN), and fungal pathogen (BCID-FP) panels. On April 20, 2017, we achieved CE Mark for BCID-FP. We are actively evaluating the development of additional assay panels that we believe will meet important, unmet clinical needs, which our ePlex system is uniquely positioned to address.

Revenue

Revenue from operations includes product sales, principally of our diagnostic tests. We primarily place our instruments with customers through a reagent rental agreement, under which we retain title to the instrument and customers commit to purchasing minimum quantities of reagents and test cartridges over a period of one to three years. We also offer our instruments for sale.

Revenue also includes licensing revenue from the out-licensing of our electrochemical detection technology. We may enter into additional sublicenses of our technology generating additional revenue, but do not anticipate that this will provide a significant portion of our future revenue.

Cost of Revenues

Cost of revenues includes the cost of materials, direct labor and manufacturing overhead costs used in the manufacture of our consumable tests, including royalties on product sales. Cost of revenues also includes depreciation on revenue generating instruments that have been placed with our customers under a reagent rental agreement, cost of instruments sold to customers, amortization of licenses related to our products and other costs such as warranty, royalty and customer and product technical support. We manufacture our test cartridges in our facility and have recently invested in significant capacity for expansion. Any potential underutilized capacity may result in a high cost of revenues relative to revenue, if manufacturing volumes are not able to fully absorb operating costs. Our instruments are procured from contract manufacturers. We expect our cost of revenues to increase as we place additional instruments and manufacture and sell additional diagnostic tests; however, we expect our gross margins related to our product sales to increase as production volumes, manufacturing efficiencies, improved procurement practices, instrument reliability increases and other improvements decrease costs as a percentage of sales.

Sales and Marketing Expenses

Sales and marketing expenses include costs associated with our direct sales force, sales management, marketing, technical support and business development activities. These expenses primarily consist of salaries, commissions, benefits, stock-based compensation, travel, advertising, promotions, product samples and trade show expenses. We expect sales and marketing expenses to increase as we scale-up our domestic and international commercial efforts and expand our customer base.

Research and Development Expenses

Research and development expenses primarily include costs associated with the development of our ePlex instrument and its test menu. These expenses also include certain clinical study expenses incurred in preparation for FDA clearance for these products, intellectual property prosecution and maintenance costs, and quality assurance expenses. The expenses primarily consist of salaries, benefits, stock-based compensation, outside design and consulting services, laboratory supplies, costs of consumables and materials used in product development, contract research organization costs, clinical studies and facility costs. We expense all research and development costs in the periods in which they are incurred.

General and Administrative Expenses

Our general and administrative expenses include costs associated with our executive, accounting and finance, compliance, information technology, legal, facilities, human resource, administrative and investor relations activities. These expenses consist primarily of salaries, benefits, stock-based compensation costs, independent auditor costs, legal fees, consultants, travel, insurance, and public company expenses, such as stock transfer agent fees and listing fees for NASDAQ.

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Foreign Exchange Gains and Losses

Transactions in currencies other than our functional currency are translated at the prevailing rates on the dates of the applicable transaction. Foreign exchange gains and losses arise from differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is settled or translated.

Interest Income and Interest Expense

Interest income includes interest earned on our cash and cash equivalents and investments. Interest expense represents interest incurred on our loan payable and on other liabilities.

Provision for Income Taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

We assess the likelihood that we will be able to recover our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If it is more likely than not that we will not recover our deferred tax assets, we will increase our provision for income taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable.

Our income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.

Results of Operations — Three months ended March 31, 2017 compared to the three months ended March 31, 2016:

	Three Months Ended March 31,
	2017		2016		$ Change		% Change
	(dollars in thousands)
Revenue	$	12,535	$	11,064	$	1,471	13	%

Our revenue consists primarily of revenue from the sale of test cartridges (which we refer to as consumables), with the remaining portion resulting from the sale of instruments and other revenues.

The increase in revenue for the three months ended March 31, 2017 was primarily due to higher consumables revenues of $11,982,000 compared to $10,770,000 for the same period of the prior year. This increase in consumables revenue was primarily driven by an increased volume of infectious disease assay sales to an expanding customer base. Pricing changes did not have an impact on revenue during the current quarter. Additionally, during the three months ended March 31, 2017 instrument revenue increased $315,000 compared to the same period of the prior year.

	Three Months Ended March 31,
	2017		2016		$ Change			% Change
	(dollars in thousands)
Cost of Revenue	$	6,352	$	4,375	$	1,977		45	%
Gross Profit	$	6,183	$	6,689	$	(506	)	(8	)%

The increase in cost of revenue for the three months ended March 31, 2017, compared to the same period of the prior year, was primarily related to the increase in consumables revenue in the current period. Increases in our cost of revenue were attributable to product costs of $958,000 corresponding to volume increases, increased product warranty expense of $235,000, increased product support expenses of $859,000, and increased overhead expenses of $424,000, partially offset by increased production efficiencies of $734,000.

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	Three Months Ended March 31,
	2017		2016		$ Change		% Change
	(dollars in thousands)
Sales and Marketing	$	4,693	$	3,709	$	984	27	%

Sales and marketing expenses are primarily comprised of employee-related expenses for our domestic and international commercial organization, marketing communication and trade show expenses. The increase in sales and marketing expense for the three months ended March 31, 2017, when compared to the same period of the prior year, was primarily driven by an increase in employee-related expenses of $702,000 and increased marketing expenses of $91,000.

	Three Months Ended March 31,
	2017		2016		$ Change		% Change
	(dollars in thousands)
General and Administrative	$	4,011	$	3,419	$	592	17	%

The increase in general and administrative expense for the three months ended March 31, 2017, compared to the same period of the prior year, was primarily driven by an increase in employee-related expenses of $624,000, including a $352,000 increase in stock-based compensation expense, and an increase in outside services expenses of $129,000, partially offset by a decrease in audit and tax expenses of $290,000.

	Three Months Ended March 31,
	2017		2016		$ Change			% Change
	(dollars in thousands)
Research and Development	$	11,035	$	12,269	$	(1,234	)	(10	)%

The decrease in research and development expense for the three months ended March 31, 2017, compared to the same period of the prior year, was primarily driven by a decrease in ePlex instrument development expenses of $2,726,000, partially offset by an increase in supplies and prototype materials utilized by our assay development teams of $1,798,000.

	Three Months Ended March 31,
	2017			2016			$ Change			% Change
	(dollars in thousands)
Other Income (Expense)	$	(360	)	$	(215	)	$	(145	)	67	%

Other income (expense) represents non-operating income and expense, including, but not limited to, earnings on cash, cash equivalents, restricted cash, marketable securities, and interest expense related to debt.

The change in other income (expense) for the three months ended March 31, 2017, compared to the same period of the prior year, was primarily due to an increase in interest expense of $229,000 on amounts due under our credit facility, partially offset by an increase in unrealized gains on marketable securities.

	Three Months Ended March 31,
	2017		2016		$ Change			% Change
	(dollars in thousands)
Income tax expense (benefit)	$	1	$	35	$	(34	)	(97	)%

Due to net losses incurred, we have only recorded tax provisions related to minimum tax payments in the United States and tax liabilities generated by our foreign subsidiaries.

Liquidity and Capital Resources

To date, we have funded our operations primarily from the sale of our common stock, borrowings and cash from operations. We have incurred net losses from continuing operations each year and have not yet achieved profitability. As of March 31, 2017, we had $21,060,000 of working capital, including $24,185,000 in cash, cash equivalents, and marketable securities.

We expect that our operating expenses will continue to increase to support our anticipated revenue growth, and as a result, we may need additional capital to fund these operations. We expect to draw $15,000,000 on our current debt facility once we receive clearance by the U.S. Food and Drug Administration, or the FDA, of our ePlex instrument and Respiratory Pathogen (RP) Panel. We expect that the proceeds from this debt financing, together with our existing cash, cash equivalents and marketable securities as of March 31, 2017, will enable us to fund our operations for at least the next 12 months.

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The following table summarizes, for the periods indicated, selected items in our unaudited condensed consolidated statements of cash flows:

	March 31,
Three months ended (in thousands):	2017			2016
Net cash used in operating activities	$	(15,565	)	$	(6,043	)
Net cash used in investing activities	12,708			(1,766		)
Net cash provided by financing activities	62			330
Effect of exchange rate on cash	14			7
Net increase (decrease) in cash and cash equivalents	$	(2,781	)	$	(7,472	)

Cash flows used in operating activities

Net cash used in operating activities increased $9,522,000 for the three months ended March 31, 2017 compared to the same period of the prior year. The increase in cash used in operating activities was primarily due to an increase of $9,534,000 from changes in operating assets and liabilities and a $959,000 increase in net loss. The main drivers in the change in operating assets and liabilities included decreases in accounts payables and accrued compensation, and increases in inventories and accounts receivable.

Cash flows used in investing activities

Net cash used in investing activities increased by $14,474,000 for the three months ended March 31, 2017, compared to the same period of the prior year, primarily due to an increase in net proceeds of marketable securities of $13,896,000, partially offset by an increase of purchases of property and equipment of $922,000 to support the commercialization of ePlex.

Cash flows provided by financing activities

Net cash provided by financing activities decreased by $268,000 for the three months ended March 31, 2017, compared to the same period of the prior year, primarily due to a decrease in proceeds from the exercise of employee stock options of $257,000.

We have prepared cash flow forecasts which indicate, based on our current cash resources available, that we will have sufficient resources to fund our business for at least the next 12 months. We expect capital outlays and operating expenditures to increase over the next several years as we grow our customer base and revenues, and expand our research and development, commercialization and manufacturing activities. Factors that could affect our capital requirements, in addition to those previously identified, include, but are not limited to: 

• the level of revenues and the rate of our revenue growth;

• change in demand from our customers;

• the level of expenses required to expand our commercial (sales and marketing) activities;

• the level of research and development investment required to develop and commercialize our ePlex system and maintain our XT-8 system;

• our need to acquire or license complementary technologies;

• the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;

• competing technological and market developments; and

• changes in regulatory policies or laws that affect our operations.

Loan and Security Agreement

In January 2015, we entered into a Loan and Security Agreement, or the LSA, with Solar Capital Partners (as successor-in-interest to General Electric Capital Corporation), and certain other financial institutions party thereto, as lenders, pursuant to which we obtained (a) up to $35,000,000 in a series of term loans and (b) a revolving loan in the maximum amount of $5,000,000. Under the terms of the LSA, as amended, we may, subject to certain conditions, borrow:

• $10,000,000 on or before March 31, 2015, which we borrowed in March 2015;

• an additional $10,000,000, subject to our satisfaction of regulatory requirements necessary to CE Mark our ePlex system in Europe by a specified date, which we borrowed in June 2016.

• an additional $15,000,000, subject to our satisfaction of FDA 510(k) market clearance for the sale of our ePlex system in the United States by a specified date; and

• up to $5,000,000 in the form of a revolving loan, which is subject to a defined borrowing base as set forth in the LSA.    

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Pursuant to the terms of the LSA, the lenders are granted a security interest in (a) all of our personal property, other than intellectual property (which is subject to a negative pledge), but including our rights to payment in respect of intellectual property, (b) the stock of all of our domestic subsidiaries, and (c) 65% of the voting stock and 100% of the non-voting stock of each of our non-U.S. subsidiaries.

In September, 2015, we entered into a first amendment to the LSA, pursuant to which the lenders internally reallocated certain funding commitments under the LSA between the lenders (but did not increase or reduce the aggregate amount of such commitments), and the parties adjusted certain of our administrative financial reporting obligations and the dates by which certain future funding requirements must be satisfied.

In March 2016, we entered into an additional amendment to the LSA, pursuant to which the parties adjusted the date by which we must satisfy the funding requirements in respect of Term Loan B.

In July 2016, we entered into an additional amendment to the LSA pursuant to which the lenders reallocated certain funding commitments under the LSA between the lenders, and the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied.

In February 2017, we entered into an additional amendment to the LSA with Solar Capital Partners and certain other financial institutions party thereto, as lenders, pursuant to which the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied. In addition, the parties agreed to extend the Interest-Only Period in respect of amounts already borrowed under Term Loan A and Term Loan B, and the amount, if any, borrowed pursuant to Term Loan C, until June 1, 2017. The parties also agreed that we have the option to further extend the Interest-Only Period until August 1, 2017, and subsequently to March 1, 2018, subject in each case to the satisfaction of certain conditions.

The LSA contains customary affirmative and negative covenants, including, without limitation, delivering reports and notices relating to our financial condition and certain regulatory events and intellectual property matters, as well as limiting the creation of liens, the incurrence of indebtedness, and the making of certain investments, payments and acquisitions, other than as specifically permitted by the LSA.

Letter of Credit

In September 2012, we provided a $758,000 letter of credit issued by Banc of California to the landlord of our executive office facility in Carlsbad, California. This letter of credit was secured with $758,000 of restricted cash at March 31, 2017.

If we require additional capital, we cannot be certain that it will be available when needed or that our actual cash requirements will not be greater than anticipated. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we raise additional funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our technologies or products, or grant licenses on terms that are not favorable to us.

Contractual Obligations

As of March 31, 2017, there were no material changes to our contractual obligations from those disclosed within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate our estimates on an ongoing basis, including those related to doubtful accounts, inventories, valuation of intangible assets and other long-term assets, income taxes, and stock-based compensation. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2017.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements. We have provided a $758,000 standby letter of credit to our landlord as security for future rent in connection the lease of our executive office facility in Carlsbad, California, which is recorded as restricted cash on our unaudited condensed consolidated balance sheets.

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risks during the quarter ended March 31, 2017.

Our exposure to market risk is currently limited to our cash and cash equivalents, all of which have maturities of less than three months, and marketable securities, which have maturities of greater than three months. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs, and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we may in the future maintain a portfolio of cash equivalents and investments in a variety of securities that management believes to be of high credit quality. We currently do not hedge interest rate exposure. Because of the short-term nature of our cash equivalents and investments, we do not believe that an increase in market rates would have a material negative impact on the value of our portfolio.

Interest Rate Risk

As of March 31, 2017, based on current interest rates and total borrowings outstanding, a hypothetical 100 basis point increase or decrease in interest rates would have an immaterial pre-tax impact on our results of operations.

Foreign Currency Exchange Risks

We are a U.S. entity and our functional currency is the U.S. dollar. Substantially all of our revenues were derived from sales in the United States. We have business transactions in foreign currencies, however, we believe we do not have significant exposure to risk from changes in foreign currency exchange rates at this time. We do not currently engage in hedging or similar transactions to reduce our foreign currency risks. We will continue to monitor and evaluate our internal processes relating to foreign currency exchange, including the potential use of hedging strategies.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports we file under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer, with the participation of management, concluded that, as of March 31, 2017, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There has been no change in our internal controls over financial reporting that occurred in the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

25

PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

We are from time to time subject to various claims and legal actions in the ordinary course of our business. We believe that there are currently no legal actions that would reasonably be expected to have a material adverse effect on our results of operations or financial condition.

ITEM 1A.RISK FACTORS

There have been no material changes to our risk factors during the three months ended March 31, 2017. For additional information regarding risk factors, refer to Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016.

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

None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    MINE SAFETY DISCLOSURES

None.

ITEM 5.    OTHER INFORMATION

None.

ITEM 6.     EXHIBITS

The exhibits listed in the Exhibit Index are incorporated herein by reference.

26

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			GENMARK DIAGNOSTICS, INC.
Date:	May 2, 2017	By:	/s/ HANY MASSARANY
			Hany Massarany
			President and Chief Executive Officer
			(Principal Executive Officer)
Date:	May 2, 2017	By:	/s/ SCOTT MENDEL
			Scott Mendel
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

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EXHBIT INDEX

Listed and indexed below are all Exhibits filed as part of this report.

Exhibit	Description
3.1	Certificate of Incorporation (incorporated by reference to our Registration Statement on Form S-1 (File No. 333-165562) filed with the Commission on March 19, 2010).
3.2	Amended and Restated Bylaws (incorporated by reference to our Current Report on Form 8-K filed with the SEC on October 31, 2014).
10.1	The GenMark Diagnostics Inc. 2017 Bonus Plan (incorporated by reference to our Current Report on Form 8-K filed with the SEC on February 24, 2017).†
10.2	Second Amendment to Loan and Security Agreement dated as of February 27, 2017 by and among GenMark Diagnostics, Inc., as borrower, its domestic subsidiaries, as guarantors, Solar Senior Capital Ltd., as administrative and collateral agent, and certain other financial institutions as lenders.+
31.1	Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

† Management compensation plan.

+ GenMark has requested confidential treatment with respect to certain portions of this exhibit.

28

EX-10.2

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETED ASTERISKS [***], HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Execution Version

SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT

THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”), dated as of February 27, 2017 (the “Second Amendment Effective Date”), is made among GenMark Diagnostics, Inc., a Delaware corporation (the “Borrower”), the other Loan Parties party to that certain Loan and Security Agreement (as defined below), Solar Senior Capital Ltd., in its capacity as administrative and collateral agent (in such capacity, together with its successors and assigns in such capacity, “Agent”), SUNS SPV LLC, as lender, East West Bank, as lender, and the other Lenders party to the Loan and Security Agreement or otherwise a party thereto from time to time (each a “Lender” and collectively, the “Lenders”).

The Borrower, the other Loan Parties, the Lenders and Agent are parties to a Loan and Security Agreement dated as of January 12, 2015 (as amended by that certain letter agreement dated as of September 30, 2015, that certain letter agreement dated as of March 17, 2016, and that certain First Amendment to Loan and Security Agreement dated as of July 27, 2016, and as further amended, amended and restated, supplemented or otherwise modified from time to time, the “Loan and Security Agreement”). The Borrower has requested that the Lenders agree to certain amendments to the Loan and Security Agreement. The Lenders have agreed to such request, subject to the terms and conditions hereof.

Accordingly, the parties hereto agree as follows:

SECTION 1    Definitions; Interpretation.

(a)    Terms Defined in Loan and Security Agreement. All capitalized terms used in this Amendment (including in the preamble and recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Loan and Security Agreement.

(b)    Interpretation. The rules of interpretation set forth in Section 1.1 of the Loan and Security Agreement shall be applicable to this Amendment and are incorporated herein by this reference.

SECTION 2    Amendments to the Loan and Security Agreement.

(a)    The Loan and Security Agreement shall be amended as follows effective as of the Second Amendment Effective Date:

(i)    Amended and Restated Definition. The following definition is hereby amended and restated as follows:

“Term Loan C Commitment Termination Date” means ***.

(ii)    Amended Definition. The following definition is hereby amended as follows:

“Fee Letter”. The definition of “Fee Letter” is hereby amended by adding “as amended, amended and restated, supplemented or otherwise modified from time to time” at the end of such definition.

(iii)    New Definitions. The following definitions are added to Section 11 of the Loan and Security Agreement in their proper alphabetical order:

“Applicable Final Payment Fee Percentage” means ***%; provided that, if the Initial Term Loan Payment Date is June 1, 2017, then ***%; provided further that if the Initial Term Loan Payment Date is August 1, 2017, then ***%.

1

[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

“First Interest Only Extension Conditions” shall mean satisfaction of each of the following: (a) no Default or Event of Default shall have occurred and is continuing; and (b) prior to *** , Agent shall have received evidence that the FDA has cleared the ePlex System for market distribution within the United States pursuant to a 510(k) premarket notification submitted by Borrower, thereby permitting market distribution of the ePlex System within the United States.

“Initial Term Loan Payment Date” means June 1, 2017; provided that, if the First Interest Only Extension Conditions are satisfied and Borrower notifies Agent in writing prior to *** that it wishes to extend the Initial Term Loan Payment Date, then August 1, 2017; provided further, that if the Second Interest Only Extension Conditions are satisfied and Borrower notifies Agent in writing prior to *** that it wishes to once again extend the Initial Term Loan Payment Date, then March 1, 2018.

“Second Amendment Effective Date” means February 27, 2017.

“Second Interest Only Extension Conditions” shall mean satisfaction of each of the following: (a) no Default or Event of Default shall have occurred and is continuing; (b) the First Interest Only Extension Conditions shall have been satisfied; and (c) after the Second Amendment Effective Date and prior to ***, the Borrower shall have ***.

(iv)    Section 2.4(b)(i) (Principal Payments). Section 2.4(b)(i) is hereby amended and restated as follows:

(i) Term Loans. Commencing on the Initial Term Loan Payment Date, and continuing on each Scheduled Payment Date thereafter, Borrower shall make consecutive equal monthly payments of principal, in arrears, to each Lender in accordance with their Pro Rata Shares, as calculated by Agent (which calculations shall be deemed correct absent manifest error) based upon: (1) the amount of such Lender’s Term Loan and (2) a repayment schedule equal to the number of months remaining until the Final Maturity Date. All unpaid principal and accrued and unpaid interest with respect to each Term Loan is due and payable in full on the Final Maturity Date.

(v)    Section 2.6(b) (Final Payment Fee). Section 2.6(b) is hereby amended and restated as follows:

(b) Final Payment Fee. On the date upon which the outstanding principal amount of any Term Loan is repaid in full, or if earlier, is required to be repaid in full (whether by scheduled payment, voluntary prepayment, mandatory prepayment pursuant to Section 2.5(b)(i), acceleration of the Obligations pursuant to Section 8.2 or otherwise), Borrower shall pay to Lenders in accordance with their Pro Rata Shares, a non-refundable fee equal to the Applicable Final Payment Fee Percentage of the original principal amount of such Term Loan (the “Final Payment Fee”), which Final Payment Fee shall be deemed to be fully earned on the date such Term Loan is made. If for any reason any Term Loan is prepaid in part prior to the Final Maturity Date, (i) Borrower shall pay on the date of any such partial prepayment a fee equal to the Applicable Final Payment Fee Percentage of the principal amount of any Term Loan so prepaid, and (ii) the Final Payment Fee due and payable on the date such Term Loan is repaid in full or required to be repaid in full shall be reduced

2

[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

by the aggregate amount of any such payments described in the foregoing clause (i).

(b)    References Within Loan and Security Agreement. Each reference in the Loan and Security Agreement to “this Agreement” and the words “hereof,” “herein,” “hereunder,” or words of like import, shall mean and be a reference to the Loan and Security Agreement as amended by this Amendment.

SECTION 3    Conditions of Effectiveness. The effectiveness of Section 2 of this Amendment shall be subject to the satisfaction of each of the following conditions precedent:

(a)    Fees and Expenses. The Borrower shall have paid (i) all invoiced costs and expenses then due in accordance with Section 5(d), and (ii) all other fees, costs and expenses, if any, due and payable as of the Second Amendment Effective Date under the Loan and Security Agreement.

(b)    This Amendment. Agent shall have received this Amendment, executed by Agent, the Lenders and the Loan Parties.

(c)    Fee Letter Amendment. Agent shall have received an amendment to the Fee Letter, dated as of the Second Amendment Effective Date, among Borrower and Agent.

(d)    Representations and Warranties; No Default. On the Second Amendment Effective Date, after giving effect to the amendment of the Loan and Security Agreement contemplated hereby:

(i)    The representations and warranties contained in Section 4 shall be true and correct on and as of the Second Amendment Effective Date as though made on and as of such date; and

(ii)    There exist no Defaults or Events of Default.

SECTION 4    Representations and Warranties. To induce the Lenders to enter into this Amendment, each Loan Party hereby confirms, as of the date hereof, (a) that the representations and warranties made by it in Section 5 of the Loan and Security Agreement and in the other Loan Documents are true and correct in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; (b) that there has not been and there does not exist a Material Adverse Effect; and (c) that the information included in the Perfection Certificate delivered to Agent on June 7, 2016 remains true and correct. For the purposes of this Section 4, (i) each reference in Section 5 of the Loan and Security Agreement to “this Agreement,” and the words “hereof,” “herein,” “hereunder,” or words of like import in such Section, shall mean and be a reference to the Loan and Security Agreement as amended by this Amendment, and (ii) any representations and warranties which relate solely to an earlier date shall not be deemed confirmed and restated as of the date hereof (provided that such representations and warranties shall be true, correct and complete as of such earlier date).

SECTION 5    Miscellaneous.

(a)    Loan Documents Otherwise Not Affected; Reaffirmation. Except as expressly amended pursuant hereto or referenced herein, the Loan and Security Agreement and the other Loan Documents shall remain unchanged and in full force and effect and are hereby ratified and confirmed in all respects. The Lenders’ and Agent’s execution and delivery of, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future. Each Loan Party hereby reaffirms the grant of security under Section 3.1 of the Loan and Security Agreement and hereby reaffirms that such grant of security in the Collateral secures all Obligations under the Loan and Security Agreement and all Guaranteed Obligations (as defined in the Guaranty), as applicable, including without limitation any Term Loans funded on or after the Second Amendment Effective Date, as of the date hereof.

3

(b)    Conditions. For purposes of determining compliance with the conditions specified in Section 3, each Lender that has signed this Amendment shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless Agent shall have received notice from such Lender prior to the Second Amendment Effective Date specifying its objection thereto.

(c)    No Reliance. Each Loan Party hereby acknowledges and confirms to Agent and the Lenders that such Loan Party is executing this Amendment on the basis of its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person.

(d)    Costs and Expenses. The Borrower agrees to pay to Agent within ten (10) days of its receipt of an invoice (or on the Second Amendment Effective Date to the extent invoiced on or prior to the Second Amendment Effective Date), the reasonable, documented, out-of-pocket costs and expenses of Agent and the Lenders party hereto, and the reasonable, documented, fees and disbursements of counsel to Agent and the Lenders party hereto, in connection with the negotiation, preparation, execution and delivery of this Amendment and any other documents to be delivered in connection herewith on the Second Amendment Effective Date or after such date.

(e)    Binding Effect. This Amendment binds and is for the benefit of the successors and permitted assigns of each party.

(f)    Governing Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE COLLATERAL, PROVIDED, HOWEVER, THAT IF THE LAWS OF ANY JURISDICTION OTHER THAN NEW YORK SHALL GOVERN IN REGARD TO THE VALIDITYPERFECTION OR EFFECT OF PERFECTION OF ANY LIEN OR IN REGARD TO PROCEDURAL MATTERS AFFECTING ENFORCEMENT OF ANY LIENS IN COLLATERAL, SUCH LAWS OF SUCH OTHER JURISDICTIONS SHALL CONTINUE TO APPLY TO THAT EXTENT.

(g)    Complete Agreement; Amendments. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements with respect to such subject matter. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.

(h)    Severability of Provisions. Each provision of this Amendment is severable from every other provision in determining the enforceability of any provision.

(i)    Counterparts. This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Amendment. Delivery of an executed counterpart of a signature page of this Amendment by facsimile, portable document format (.pdf) or other electronic transmission will be as effective as delivery of a manually executed counterpart hereof.

(j)    Loan Documents. This Amendment and the documents related hereto shall constitute Loan Documents.

[Balance of Page Intentionally Left Blank; Signature Pages Follow]

4

IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written.

BORROWER:

GENMARK DIAGNOSTICS, INC.,as Borrower

By:/s/ Scott Mendel

Title: Chief Financial Officer

GUARANTORS:

CLINICAL MICRO SENSORS, INC.,as Guarantor

By: /s/ Scott Mendel

Title: Chief Financial Officer

OSMETECH INC.,as Guarantor

By: /s/ Scott Mendel

Title: Chief Financial Officer

[Signature Page to Second Amendment to Loan and Security Agreement]

AGENT AND LENDERS:

SOLAR SENIOR CAPITAL LTD.,
as Agent

By: /s/ Anthony Storino

Name: Anthony Storino

Title: Authorized Signatory

SUNS SPV LLC,
as Lender

By: /s/ Anthony Storino

Name: Anthony Storino

Title: Authorized Signatory

EAST WEST BANK,
as Lender

By: /s/ Leonor Hernandez

Name: Leonor Hernandez

Title: AVP – Portfolio Manager

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Hany Massarany, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 of GenMark Diagnostics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 2, 2017	By:	/s/ Hany Massarany
			Hany Massarany
			President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Scott Mendel, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 of GenMark Diagnostics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 2, 2017	By:	/s/ Scott Mendel
			Scott Mendel
			Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of GenMark Diagnostic, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), we, Hany Massarany, President and Chief Executive Officer of the Company, and Scott Mendel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i) the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 2, 2017	By:	/s/ Hany Massarany
			Hany Massarany
			President and Chief Executive Officer
Date:	May 2, 2017	By:	/s/ Scott Mendel
			Scott Mendel
			Chief Financial Officer

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Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	Apr. 28, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	GenMark Diagnostics, Inc.
Entity Central Index Key	0001487371
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		47,087,034

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Current assets
Cash and cash equivalents	$ 13,178,000	$ 15,959,000
Marketable securities	11,007,000	25,607,000
Accounts receivable, net of allowances of $2,749 and $2,740, respectively	7,487,000	9,048,000
Inventories	9,019,000	6,633,000
Prepaid expenses and other current assets	1,419,000	1,202,000
Total current assets	42,110,000	58,449,000
Property and equipment, net	18,482,000	18,268,000
Intangible assets, net	2,546,000	2,670,000
Restricted cash	758,000	758,000
Other long-term assets	179,000	179,000
Total assets	64,075,000	80,324,000
Current liabilities
Accounts payable	5,696,000	8,703,000
Accrued compensation	4,510,000	5,650,000
Loan payable	7,685,000	7,935,000
Other current liabilities	3,159,000	4,133,000
Liabilities, Current	21,050,000	26,421,000
Long-term liabilities
Deferred rent	3,524,000	3,652,000
Long-term Debt, Excluding Current Maturities	12,261,000	11,880,000
Other non-current liabilities	186,000	220,000
Total liabilities	37,021,000	42,173,000
Stockholders’ equity
Preferred stock, $0.0001 par value; 5,000 authorized, none issued	0	0
Common stock, $0.0001 par value; 100,000 authorized; 47,084 and 46,554 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively	5,000	4,000
Additional paid-in capital	396,217,000	393,322,000
Accumulated deficit	(369,188,000)	(355,270,000)
Accumulated other comprehensive income	20,000	95,000
Total stockholders’ equity	27,054,000	38,151,000
Total liabilities and stockholders’ equity	$ 64,075,000	$ 80,324,000

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Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Accounts receivable - net of allowance	$ 2,756	$ 2,727
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized	5,000,000	5,000,000
Preferred stock, issued	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, authorized	100,000,000	100,000,000
Common stock, issued	42,788,000	42,551,000
Common stock, outstanding	42,788,000	42,551,000

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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) shares in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Income Statement [Abstract]
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, before Tax	$ 91,000	$ 47,000
Revenue
Product revenue	12,470,000	10,959,000
License and other revenue	65,000	105,000
Total revenue	12,535,000	11,064,000
Cost of revenue	6,352,000	4,375,000
Gross profit	6,183,000	6,689,000
Operating expenses
Sales and marketing	4,693,000	3,709,000
General and administrative	4,011,000	3,419,000
Research and development	11,035,000	12,269,000
Total operating expenses	19,739,000	19,397,000
Loss from operations	(13,556,000)	(12,708,000)
Other income (expense)
Interest income	52,000	29,000
Interest expense	(507,000)	(277,000)
Other income	95,000	33,000
Total other expense	(360,000)	(215,000)
Loss before provision for income taxes	(13,916,000)	(12,923,000)
Income tax expense	1,000	35,000
Net loss	$ (13,917,000)	$ (12,958,000)
Net loss per share, basic and diluted	$ (0.30)	$ (0.30)
Weighted average number of shares outstanding, basic and diluted	46,846	42,672
Other comprehensive loss
Net loss	$ (13,917,000)	$ (12,958,000)
Net unrealized losses on marketable securities, net of tax	(16,000)	(17,000)
Comprehensive loss	$ (13,842,000)	$ (12,928,000)

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Condensed Consolidated Statement of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Operating activities
Net loss	$ (13,917)	$ (12,958)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,217	900
Amortization of premiums on investments	19	16
Amortization of Debt Issuance Costs and Discounts	151	92
Stock-based compensation	2,808	2,402
Provision for bad debt	9	29
Non-cash inventory adjustments	317	75
Other Operating Activities, Cash Flow Statement	(85)	(49)
Changes in operating assets and liabilities:
Accounts receivable	1,558	1,385
Inventories	(3,118)	501
Prepaid expenses and other assets	(216)	0
Accounts payable	(2,821)	617
Accrued compensation	(1,144)	989
Other liabilities	(343)	(42)
Net cash used in operating activities	(15,565)	(6,043)
Investing activities
Payments for intellectual property licenses	0	(800)
Purchases of property and equipment	(1,888)	(966)
Proceeds from sales of marketable securities	13,896	0
Maturities of marketable securities	700	0
Net cash provided by (used in) investing activities	12,708	(1,766)
Financing activities
Principal repayment of borrowings	(6)	(5)
Payments of Debt Issuance Costs	(20)	(10)
Proceeds from stock option exercises	(88)	(345)
Net cash provided by financing activities	62	330
Effect of Exchange Rate on Cash and Cash Equivalents	14	7
Net decrease in cash and cash equivalents	(2,781)	(7,472)
Cash and cash equivalents at beginning of period	15,959
Cash and cash equivalents at end of period	13,178
Non-cash investing and financing activities
Transfer of instruments from (to) property and equipment into inventory	(415)	38
Property and equipment costs included in accounts payable	183	285
Supplemental cash flow disclosures
Cash paid for income taxes, net	5	13
Cash received for interest	108	21
Cash paid for interest	$ 347	$ 184

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Organization and Basis of Presentation

3 Months Ended

Mar. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Basis of Presentation

asis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, and applicable regulations of the U.S. Securities and Exchange Commission, or the SEC, and should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on February 28, 2017. These unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for the full year or any future period.

During the quarter ended March 31, 2017, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements - Going Concern, which requires that management evaluate whether there are relevant conditions and events that in the aggregate raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued. Under this standard, management’s assessment may not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued. The Company has experienced net losses and negative cash flows from operating activities since its inception. As of March 31, 2017, the Company had an accumulated deficit of $369,188,000 and working capital of $21,060,000 available to fund future operations. Because the Company continues to incur net losses, its transition to profitability depends on the successful development, approval, and commercialization of its future products and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company would need to raise additional capital.

In performing the first step of the assessment under ASC Topic 205-40, the Company considered that its future operations anticipate the clearance by the U.S. Food and Drug Administration, or the FDA, of its ePlex Respiratory Pathogen (RP) Panel, which will allow the Company to draw $15,000,000 on its existing credit facility. The Company also continues to consider alternative forms of financing, including equity financing. However, there can be no assurances that the Company will be able draw on the credit facility or that sources of capital will be available on terms acceptable to the Company, or at all. Without the financing or capital described above, and without consideration of management’s other plans to control costs, continued net losses as anticipated raise substantial doubt about the Company’s ability to continue as a going concern under the first step of the assessment.

In performing the second step of this assessment, the Company is required to evaluate whether it has other plans to mitigate the conditions to alleviate the substantial doubt about its ability to meet its obligations as they become due. In performing this step, management considered the $15,000,000 in funding available under its credit facility since management believes the FDA clearance milestone is probable of being achieved. Management has also developed a plan to implement cost reduction measures to reduce its working capital requirements, assuming additional funding from the credit facility is unavailable. The plan includes a delay in capital expenditures, a delay in hiring and additional reductions in personnel-related costs, the curtailment of certain of the Company’s development activities and other discretionary expenditures that are within the Company’s control. Any of the actions contemplated by the implementation of this plan, if required, could have an adverse impact on the Company’s ability to achieve certain of its planned objectives during 2017, and thus, materially harm the Company’s business.

Management has concluded that if required, implementing these measures will allow the Company to meet its obligations as they become due within one year after the date that the financial statements are issued.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes thereto. The Company’s significant estimates included in the preparation of the financial statements are related to accounts receivable, inventories, property and equipment, intangible assets, employee-related compensation accruals, warranty liabilities, tax valuation accounts and stock-based compensation. Actual results could differ from those estimates.

Segment Information

The Company currently operates in one reportable business segment, which encompasses the development, manufacturing, sales and support of instruments and molecular tests based on its proprietary eSensor® detection technology. Substantially all of the Company’s operations and assets are in the United States of America.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that the Company adopts as of the specified effective date.

In March 2016, the FASB issued Accounting Standards Update, or ASU, 2016-09, Improvements to Employee Share-Based Payment Accounting. The guidance simplifies how several aspects of share-based payments are accounted for and presented in the financial statements and is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company's adoption of this guidance in the first quarter of 2017 resulted in excess tax benefits for which a benefit could not be previously recognized of approximately $1,979,000. Upon adoption, the balance of the unrecognized excess tax benefits was reversed with the impact recorded to retained earnings, including a corresponding change to the valuation allowance. Due to the full valuation allowance on the Company's U.S. deferred tax assets, there was no impact to the financial statements as a result of this adoption. The Company continues to record stock-based compensation expense net of estimated forfeitures.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of fiscal 2019, with early adoption permitted. The Company is evaluating the effects adoption will have on its consolidated financial statements, but does not anticipate a material impact on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, an updated standard on revenue recognition. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported by companies while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The main purpose of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures of revenue, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December l5, 2017, with early adoption permitted but not earlier than the original effective date. Accordingly, the updated standard is effective for the Company in the first quarter of fiscal 2018. The Company is evaluating the impact of implementation and its transition approach of this standard on its financial statements.

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents consist of cash on deposit with banks, money market instruments and certificates of deposit with original maturities of three months or less at the date of purchase. Marketable securities consist of certificates of deposits that mature in greater than three months. Marketable securities are accounted for as "available-for-sale" with the carrying amounts reported in the balance sheets stated at cost, which approximates their fair market value, with unrealized gains and losses, if any, reported as a separate component of stockholders' equity and included in comprehensive loss.

Restricted Cash

Restricted cash represents amounts designated for uses other than current operations and included $758,000 as of March 31, 2017, held as security for the Company’s letter of credit with Banc of California.

Receivables

Accounts receivable consist of amounts due to the Company for sales to customers and are recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts is determined based on an assessment of the collectability of specific customer accounts, the aging of accounts receivable, and a reserve for unknown items based upon the Company’s historical experience.

Product Warranties

The Company generally offers a one-year warranty for its instruments sold to customers and typically up to a 60 day warranty for consumables. Factors that affect the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty repairs, and the cost per repair. The Company periodically assesses the adequacy of its warranty reserve and adjusts the amount as appropriate.

Intangible Assets

Intangible assets are comprised of licenses or sublicenses to technology covered by patents owned by third parties, and are amortized on a straight-line basis over the expected useful lives of these assets, which is generally 10 years. Amortization of licenses typically begins upon the Company obtaining access to the licensed technology and is recorded in cost of revenues for licenses supporting commercialized products. The amortization of licenses to technology supporting products in development is recorded in research and development expenses.

Impairment of Long-Lived Assets

The Company assesses the recoverability of long-lived assets, including intangible assets, by periodically evaluating the carrying value whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If impairment is indicated, the Company writes down the carrying value of the asset to its estimated fair value. This fair value is primarily determined based on estimated discounted cash flows.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value and include direct labor, materials, and manufacturing overhead. The Company periodically reviews inventory for evidence of slow-moving or obsolete parts, and writes inventory down to net realizable value, as needed. This write down is based on management’s review of inventories on hand, compared to estimated future usage and sales, shelf-life assumptions, and assumptions about the likelihood of obsolescence. If actual market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Inventory impairment charges establish a new cost basis for inventory and charges are not reversed subsequently to income, even if circumstances later suggest that increased carrying amounts are recoverable.

Property and Equipment, net

Property, equipment and leasehold improvements are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which are identified below. Repair and maintenance costs are expensed as incurred.

Machinery and laboratory equipment	3 - 5 years
Instruments	4 - 5 years
Office equipment	3 - 7 years
Leasehold improvements	over the shorter of the remaining life of the lease or the useful economic life of the asset

Income Taxes

Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. A full valuation allowance has been recorded against the Company’s net deferred tax assets due to the uncertainty surrounding the Company’s ability to utilize these assets in the future. The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. The Company recognizes accrued interest related to uncertain tax positions as a component of income tax expense.

A tax position that is more likely than not to be realized is measured at the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the taxing authority that has full knowledge of all relevant information. Measurement of a tax position that meets the more likely than not threshold considers the amounts and probabilities of the outcomes that could be realized upon settlement using the facts, circumstances and information available at the reporting date.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2017

Compensation Related Costs [Abstract]

Stock-Based Compensation

Stock-Based Compensation

The Company recognizes stock-based compensation expense related to stock options, restricted stock awards, restricted stock units, and market-based stock units granted to employees and directors in exchange for services under the Company's 2010 Equity Incentive Plan, or the 2010 Plan, and employee stock purchases under the Company's 2013 Employee Stock Purchase Plan, or the ESPP. Employee participation in the 2010 Plan is at the discretion of the Compensation Committee of the Board of Directors of the Company. Each equity award grant reduces the number of shares available for grant under the 2010 Plan. Stock-based compensation expense is based on the fair value of the applicable award utilizing various assumptions regarding the underlying attributes of the award. The estimated fair value, net of forfeitures expected to occur during the vesting period, is amortized as compensation expense on a straight-line basis to reflect vesting as it occurs. Stock-based compensation expense is recorded in cost of sales, sales and marketing, research and development, and/or general and administrative expenses based on the employee's respective function. During the three months ended March 31, 2017 and 2016, aggregate stock-based compensation expense was $2,808,000 and $2,402,000, respectively.

The fair value of stock options granted is derived from the Black-Scholes Option Pricing Model, which uses several judgment-based variables to calculate the expense. The inputs include the expected term of the stock option, the expected volatility and other factors.

• Expected Term. Expected term represents the period that the stock-based awards are expected to be outstanding and is determined by using the simplified method.

• Expected Volatility. Expected volatility represents the estimated volatility in the Company’s stock price over the expected term of the stock option and is determined by review of the Company’s and similar companies’ historical experience.

• Expected Dividend. The Black-Scholes Option Pricing Model calls for a single expected dividend yield as an input. The Company has assumed no dividends as it has never paid dividends and has no current plans to do so.

• Risk-Free Interest Rate. The risk-free interest rate used in the Black-Scholes Option Pricing Model is based on published U.S. Treasury rates in effect at the time of grant for periods corresponding with the expected term of the option.

All stock options granted under the 2010 Plan are exercisable at a per share price equal to the closing quoted market price of a share of the Company’s common stock on the NASDAQ Global Market on the grant date and generally vest over a period of between one and four years. Stock options are generally exercisable for a period of up to 10 years after grant and are typically forfeited if employment is terminated before the options vest.

The following table summarizes stock option activity during the three months ended March 31, 2017:

	Number of Shares	Weighted Average Exercise Price
Outstanding at December 31, 2016	2,569,550	$	9.53
Granted	—	—
Exercised	(16,471)	5.33
Cancelled	(3,258)	11.94
Outstanding at March 31, 2017	2,549,821	9.56
Vested and expected to vest at March 31, 2017	2,490,813	9.50
Exercisable at March 31, 2017	2,016,369	$	8.93

Options that were exercisable as of March 31, 2017 had a remaining weighted average contractual term of 5.52 years, and an aggregate intrinsic value of $7,949,000. As of March 31, 2017, there were 2,549,821 stock options outstanding, which had a remaining weighted average contractual term of 5.97 years and an aggregate intrinsic value of $8,525,000. No stock options were granted during the three months ended March 31, 2017.

Restricted stock awards or units may be granted in connection with the hiring or retention of personnel and are subject to certain conditions. In March 2013, the Company transitioned to granting restricted stock units under the 2010 Plan in lieu of granting restricted stock awards. The compensation expense related to the restricted stock awards or units is calculated as the fair market value of the stock on the grant date and is adjusted for estimated forfeitures. The Company’s restricted stock award and restricted stock unit activity for the three months ended March 31, 2017 was as follows:

	Restricted Stock Awards			Restricted Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2016	156	$	11.19	1,766,123	$	7.18
Granted	—	—		1,028,884	10.68
Vested	(156)	11.19		(320,081)	6.00
Cancelled	—	—		(20,766)	8.47
Unvested at March 31, 2017	—	$	—	2,454,160	$	8.79

As of March 31, 2017, all compensation expenses related to restricted stock awards has been recognized. The total fair value of restricted stock awards that vested during the three months ended March 31, 2017 and 2016 was $2,000 and $110,000, respectively.

As of March 31, 2017, there was $15,162,000 of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted average period of 3.12 years. The total fair value of restricted stock units that vested during the three months ended March 31, 2017 and 2016 was $1,920,000 and $2,250,000, respectively.

The Company issued market-based stock units in February 2017 and February 2016, which may result in the recipient receiving shares of stock equal to 200% of the target number of units granted. The vesting and issuance of Company stock depends on the Company's stock performance as compared to the NASDAQ Composite Index over a three-year period following the grant and continued service with the Company. As of March 31, 2017, there was $1,932,000 of unrecognized stock-based compensation expense related to these awards, which is expected to be recognized over a weighted average period of 2.11 years. The Company’s market-based stock unit activity for the three months ended March 31, 2017 was as follows:

	Market-Based Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2016	222,773	$	7.34
Target units granted	243,561	13.82
Vested	—	—
Cancelled	—	—
Unvested at March 31, 2017	466,334	$	10.53

    The fair value of these market-based stock units was estimated on the date of grant using the Monte Carlo Simulation Valuation Model, which estimates the potential outcome of achieving the market condition based on simulated future stock prices, with the following assumptions for the three months ended March 31, 2017:

	Three Months Ended
	March 31,
	2017			2016
Expected volatility	54		%	49		%
Risk-free interest rate	1.50		%	0.90		%
Expected dividend	—		%	—		%
Weighted average fair value	$	13.82		$	4.94

The Company issued 43,200 performance-based restricted stock units in March 2014 with a grant date fair value of $12.30 per share. The vesting and issuance of Company stock pursuant to these awards depends on obtaining regulatory clearance of various products within a defined time. Stock-based compensation expense for performance-based awards is recognized when it is probable that the applicable performance criteria will be satisfied. The probability of achieving the relevant performance criteria is evaluated on a quarterly basis. As of March 31, 2017, there was $133,000 of unrecognized stock-based compensation expense related to these awards.

Employee Stock Purchase Plan

The Company's stockholders approved the ESPP in May 2013. A total of 650,000 shares of the Company’s common stock were originally reserved for issuance under the ESPP, which permits eligible employees to purchase common stock at a discount through payroll deductions.

The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the Company's common stock on the first or the last day of the offering period, whichever is lower. Generally, each offering under the ESPP will be for a period of six months as determined by the Company's Board of Directors; provided that no offering period may exceed 27 months. Employees may invest up to 10% of their qualifying gross compensation through payroll deductions. In no event may an employee purchase more than 1,500 shares of common stock during any six-month offering period. As of March 31, 2017, there were 267,839 shares of common stock available for issuance under the ESPP. The ESPP is a compensatory plan as defined by the authoritative guidance for stock compensation; therefore, stock-based compensation expense related to the ESPP has been recorded during the three months ended March 31, 2017.

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Net Loss per Common Share

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Net Loss per Common Share

Net Loss per Common Share

Basic net loss per share is calculated by dividing loss available to stockholders of the Company's common stock (the numerator) by the weighted average number of shares of the Company's common stock outstanding during the period (the denominator). Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted loss per share is calculated in a similar way to basic loss per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the dilutive potential shares had been issued, unless the effect would be anti-dilutive.

The computations of diluted net loss per share for the three month periods ended March 31, 2017 and 2016 did not include the effects of the following stock options and other equity awards which were outstanding as of the end of each period because the inclusion of these securities would have been anti-dilutive (in thousands):

	Three Months Ended March 31,
	2017	2016
Options outstanding to purchase common stock	2,550	2,875
Other unvested equity awards	2,931	2,390
Total	5,481	5,265

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Inventories

3 Months Ended

Mar. 31, 2017

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventory on hand as of March 31, 2017 and December 31, 2016 comprised the following (in thousands):

	March 31, 2017		December 31, 2016
Raw materials	$	2,589	$	2,171
Work-in-process	2,929		1,488
Finished goods	3,501		2,974
Total inventories	$	9,019	$	6,633

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Property and Equipment, net

3 Months Ended

Mar. 31, 2017

Property, Plant and Equipment, Net [Abstract]

Property and Equipment, net

Property and Equipment, net

Property and equipment as of March 31, 2017 and December 31, 2016 comprised the following (in thousands):

	March 31, 2017			December 31, 2016
Property and equipment — at cost:
Machinery and laboratory equipment	$	10,245		$	10,145
Instruments	10,662			9,869
Office equipment	1,742			1,714
Leasehold improvements	10,318			10,100
Total property and equipment — at cost	32,967			31,828
Less: accumulated depreciation	(14,485		)	(13,560		)
Property and equipment, net	$	18,482		$	18,268

Depreciation expense was $1,093,006 and $806,000 for the three months ended March 31, 2017 and 2016, respectively.

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Intangible Assets, net

3 Months Ended

Mar. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets, net

Intangible Assets, net

Intangible assets as of March 31, 2017 and December 31, 2016 comprised the following (in thousands):

	March 31, 2017							December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Licensed intellectual property	$	4,250	$	(1,704	)	$	2,546	$	4,250	$	(1,580	)	$	2,670

 Intellectual property licenses have a weighted average remaining amortization period of 5.15 years as of March 31, 2017. Amortization expense for these licenses was $124,000 and $94,000 for the three months ended March 31, 2017 and 2016, respectively. Estimated future amortization expense for these licenses is as follows (in thousands):

Fiscal Years Ending	Future Amortization Expense
Remaining in 2017	$	373
2018	497
2019	497
2020	497
2021	497
Thereafter	185
Total	$	2,546

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Loan Payable

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Loan Payable

Loan Payable

As of March 31, 2017 and December 31, 2016, long-term debt consisted of the following (in thousands):

	March 31, 2017			December 31, 2016
Term Loans
Term Loan A - 6.9% principal	$	10,000		$	10,000
Term Loan B - 6.9% principal	10,000			10,000
Final fee obligation	878			400
Unamortized issuance costs	(932		)	(585		)
Total debt, net	19,946			19,815
Current portion of long-term debt	(7,685		)	(7,935		)
Long-term debt	$	12,261		$	11,880

Term Loans

In January 2015, the Company entered into a Loan and Security Agreement, or the LSA, with Solar Capital Partners (as successor-in-interest to General Electric Capital Corporation), and certain other financial institutions party thereto, as lenders, pursuant to which the Company obtained (a) up to $35,000,000 in a series of term loans and (b) a revolving loan in the maximum amount of $5,000,000. Under the terms of the LSA, the Company may, subject to certain conditions, borrow:

• $10,000,000 on or before March 31, 2015, or Term Loan A;

• an additional $10,000,000, or Term Loan B, subject to the Company’s satisfaction of regulatory requirements necessary to CE Mark its ePlex system in Europe by a specified date; and

• an additional $15,000,000, or Term Loan C, and together with Term Loan A and Term Loan B, the Term Loans, subject to the Company’s satisfaction of FDA 510(k) market clearance for the sale of the Company’s ePlex system in the United States by a specified date.

On March 27, 2015, the Company borrowed $10,000,000 pursuant to Term Loan A. The Term Loans will accrue interest at a rate equal to, (a) the greater of 1.00% or the 3-year treasury rate in effect at the time of funding, plus (b) an applicable margin between 4.95% and 5.90% per annum. The Company is only required to make interest payments on amounts borrowed pursuant to the Term Loans from the applicable funding date until March 1, 2017 or the Interest Only Period. Following the Interest Only Period, monthly installments of principal and interest under the Term Loans will be due until the original principal amount and applicable interest is fully repaid by January 12, 2019, or the Maturity Date.

On September 30, 2015, the Company entered into a first amendment to the LSA, pursuant to which the lenders internally reallocated certain funding commitments under the LSA between the lenders (but did not increase or reduce the aggregate amount of such commitments), and the parties adjusted certain of the Company’s administrative financial reporting obligations and the dates by which certain future funding requirements must be satisfied.

In March 2016, the Company entered into an additional amendment to the LSA, pursuant to which the parties adjusted the date by which the Company must satisfy the funding requirements in respect of Term Loan B.

In June 2016, the Company borrowed an additional $10,000,000 pursuant to Term Loan B following the satisfaction of regulatory requirements necessary to CE Mark the Company’s ePlex system in Europe.

In July 2016, the Company entered into an additional amendment to the LSA pursuant to which the lenders reallocated certain funding commitments under the LSA between the lenders, and the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied.

In February 2017, the Company entered into an additional amendment to the LSA with Solar Capital Partners and certain other financial institutions party thereto, as lenders, pursuant to which the parties extended the date by which the future funding requirements in respect of Term Loan C must be satisfied. In addition, the parties agreed to extend the Interest-Only Period in respect of amounts already borrowed under Term Loan A and Term Loan B, and the amount, if any, borrowed pursuant to Term Loan C, until June 1, 2017. The parties also agreed that the Company has the option to further extend the Interest-Only Period until August 1, 2017, and subsequently to March 1, 2018, subject in each case to the satisfaction of certain conditions.

Under the LSA, the Company is required to comply with certain affirmative and negative covenants, including, without limitation, delivering reports and notices relating to the Company’s financial condition and certain regulatory events and intellectual property matters, as well as limiting the creation of liens, the incurrence of indebtedness, and the making of certain investments, dividends, payments and acquisitions, other than as specifically permitted by the LSA. As of March 31, 2017, the Company was in compliance with all covenants under the LSA.

Revolving Loan

Pursuant to the LSA, the Company may borrow up to $5,000,000 under a revolving loan facility. Borrowings under the revolving loan will accrue interest at a rate equal to (a) the greater of 1.25% per annum or a base rate as determined by a three-month LIBOR-based formula, plus (b) an applicable margin between 2.95% and 3.95% based on certain criteria as set forth in the LSA. All principal and interest outstanding under the revolving loan is due and payable on the Maturity Date. Following the funding of Term Loan A, the Company is required to pay a commitment fee equal to 0.75% per annum of the amounts made available but unborrowed under the revolving loan. As of March 31, 2017, the Company had not borrowed any amounts pursuant the revolving loan facility.

Debt Issuance Costs

As of March 31, 2017 and December 31, 2016, the Company had $932,000 and $585,000, respectively, of unamortized debt issuance discount, which is offset against borrowings in long-term and short-term debt.

For the three months ended March 31, 2017 and 2016, amortization of debt issuance costs was $151,000 and $92,000, respectively. Amortization of debt issuance costs is included in interest expense in the Company's unaudited condensed consolidated statements of comprehensive loss for the periods presented.

Letter of Credit

In September 2012, the Company provided a $758,000 letter of credit issued by Banc of California to the landlord of its executive office facility in Carlsbad, California. This letter of credit was secured with $758,000 of restricted cash as of March 31, 2017.

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Leases

3 Months Ended

Mar. 31, 2017

Leases [Abstract]

Leases

Leases

The Company has operating and capital lease agreements for its office, manufacturing, warehousing and laboratory space and for office equipment. Rent and operating expenses charged under these arrangements was $409,000 and $387,000 for the three months ended March 31, 2017 and 2016, respectively. Pursuant to the Company's lease agreements, a portion of the monthly rent has been deferred. The balance of deferred rent as of March 31, 2017 and December 31, 2016 was $4,005,000 and $4,097,000, respectively.

As of March 31, 2017, the future minimum lease payments required over the next five years under the Company's lease arrangements are as follows (in thousands):

Fiscal Years Ending	Future Minimum Lease Payments
Remaining in 2017	$	1,252
2018	1,792
2019	1,913
2020	1,972
2021	1,372
Thereafter	1,366
Total	$	9,667

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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of financial instruments, such as cash equivalents, restricted cash, accounts receivable, and accounts payable approximate the related fair values due to the short-term maturities of these instruments.

The Company uses a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table presents the financial instruments measured at fair value on a recurring basis and the valuation approach applied to each class of financial instruments as of March 31, 2017 and December 31, 2016 (in thousands):

	March 31, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds (cash equivalents)	$	242	$	—	$	—	$	242
Corporate notes and bonds	—		9,007		—		9,007
U.S. government and agency securities	—		1,500		—		1,500
Commercial paper	—		500		—		500
Total	$	242	$	11,007	$	—	$	11,249
	December 31, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds (cash equivalents)	$	556	$	—	$	—	$	556
Corporate notes and bonds	—		18,821		—		18,821
U.S. government and agency securities	—		3,503		—		3,503
Commercial paper	—		3,283		—		3,283
Total	$	556	$	25,607	$	—	$	26,163

Level 2 marketable securities are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs.

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Marketable Securities

3 Months Ended

Mar. 31, 2017

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

The following table summarizes the Company’s marketable securities as of March 31, 2017 and December 31, 2016 (in thousands):

March 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate notes and bonds	$	9,017	$	—	$	(10	)	$	9,007
U.S. government and agency securities	1,502		—		(2		)	1,500
Commercial paper	500		—		—			500
Total	$	11,019	$	—	$	(12	)	$	11,007
December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate notes and bonds	$	18,846	$	—	$	(25	)	$	18,821
U.S. government and agency securities	3,506		—		(3		)	3,503
Commercial paper	3,283		—		—			3,283
Total	$	25,635	$	—	$	(28	)	$	25,607

The following table summarizes the maturities of the Company’s marketable securities as of March 31, 2017 (in thousands):

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	11,019	$	11,007
Due after one year through two years	—		—
Total	$	11,019	$	11,007

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Income Taxes

3 Months Ended

Mar. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

As of March 31, 2017, the Company recorded a full valuation allowance against all of its net deferred tax assets due to the uncertainty surrounding the Company’s ability to utilize these assets in the future. Due to the Company's losses, it only records a tax provision or benefit related to uncertain tax positions and related interest and minimum tax payments or refunds. The Company recorded income tax expense of $1,000 for the three months ended March 31, 2017.

The Company is subject to taxation in the United States and in various state and foreign jurisdictions. The Company's federal and state returns since inception are subject to examination due to the carryover of net operating losses. As of March 31, 2017, the Company’s tax years from 2011 through 2012 are subject to examination by the United Kingdom tax authorities related to legacy operations. The statute of limitations for the assessment and collection of income taxes related to other foreign tax returns varies by country. In the foreign countries where we have operations, these time periods generally range from three to five years after the year for which the tax return is due or the tax is assessed.

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Organization and Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, and applicable regulations of the U.S. Securities and Exchange Commission, or the SEC, and should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on February 28, 2017. These unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for the full year or any future period.

During the quarter ended March 31, 2017, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements - Going Concern, which requires that management evaluate whether there are relevant conditions and events that in the aggregate raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued. Under this standard, management’s assessment may not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued. The Company has experienced net losses and negative cash flows from operating activities since its inception. As of March 31, 2017, the Company had an accumulated deficit of $369,188,000 and working capital of $21,060,000 available to fund future operations. Because the Company continues to incur net losses, its transition to profitability depends on the successful development, approval, and commercialization of its future products and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company would need to raise additional capital.

In performing the first step of the assessment under ASC Topic 205-40, the Company considered that its future operations anticipate the clearance by the U.S. Food and Drug Administration, or the FDA, of its ePlex Respiratory Pathogen (RP) Panel, which will allow the Company to draw $15,000,000 on its existing credit facility. The Company also continues to consider alternative forms of financing, including equity financing. However, there can be no assurances that the Company will be able draw on the credit facility or that sources of capital will be available on terms acceptable to the Company, or at all. Without the financing or capital described above, and without consideration of management’s other plans to control costs, continued net losses as anticipated raise substantial doubt about the Company’s ability to continue as a going concern under the first step of the assessment.

In performing the second step of this assessment, the Company is required to evaluate whether it has other plans to mitigate the conditions to alleviate the substantial doubt about its ability to meet its obligations as they become due. In performing this step, management considered the $15,000,000 in funding available under its credit facility since management believes the FDA clearance milestone is probable of being achieved. Management has also developed a plan to implement cost reduction measures to reduce its working capital requirements, assuming additional funding from the credit facility is unavailable. The plan includes a delay in capital expenditures, a delay in hiring and additional reductions in personnel-related costs, the curtailment of certain of the Company’s development activities and other discretionary expenditures that are within the Company’s control. Any of the actions contemplated by the implementation of this plan, if required, could have an adverse impact on the Company’s ability to achieve certain of its planned objectives during 2017, and thus, materially harm the Company’s business.

Management has concluded that if required, implementing these measures will allow the Company to meet its obligations as they become due within one year after the date that the financial statements are issued.

Segment Information

Information

The Company currently operates in one reportable business segment, which encompasses the development, manufacturing, sales and support of instruments and molecular tests based on its proprietary eSensor® detection technology. Substantially all of the Company’s operations and assets are in the United States of America.

Recent Accounting Pronouncements

ccounting Pronouncements

From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that the Company adopts as of the specified effective date.

Cash, Cash Equivalents and Marketable Securities

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents consist of cash on deposit with banks, money market instruments and certificates of deposit with original maturities of three months or less at the date of purchase. Marketable securities consist of certificates of deposits that mature in greater than three months. Marketable securities are accounted for as "available-for-sale" with the carrying amounts reported in the balance sheets stated at cost, which approximates their fair market value, with unrealized gains and losses, if any, reported as a separate component of stockholders' equity and included in comprehensive loss.

Receivables

Accounts receivable consist of amounts due to the Company for sales to customers and are recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts is determined based on an assessment of the collectability of specific customer accounts, the aging of accounts receivable, and a reserve for unknown items based upon the Company’s historical experience.

Product War

Restricted Cash

Restricted Cash

Restricted cash represents amounts designated for uses other than current operations and included $758,000 as of March 31, 2017, held as security for the Company’s letter of credit with Banc of California.

Use of Estimates

stimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes thereto. The Company’s significant estimates included in the preparation of the financial statements are related to accounts receivable, inventories, property and equipment, intangible assets, employee-related compensation accruals, warranty liabilities, tax valuation accounts and stock-based compensation. Actual results could differ from those estimates.

Segment

Product Warranties

anties

The Company generally offers a one-year warranty for its instruments sold to customers and typically up to a 60 day warranty for consumables. Factors that affect the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty repairs, and the cost per repair. The Company periodically assesses the adequacy of its warranty reserve and adjusts the amount as appropriate.

Intangible

Intangible Assets

ssets

Intangible assets are comprised of licenses or sublicenses to technology covered by patents owned by third parties, and are amortized on a straight-line basis over the expected useful lives of these assets, which is generally 10 years. Amortization of licenses typically begins upon the Company obtaining access to the licensed technology and is recorded in cost of revenues for licenses supporting commercialized products. The amortization of licenses to technology supporting products in development is recorded in research and development expenses.

Impairment

Impairment of Long-Lived Assets

f Long-Lived Assets

The Company

Inventories

Inventories

Property and Equipment, net

Equipment, net

Property, equipment and leasehold improvements are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which are identified below. Repair and maintenance costs are expensed as incurred.

Machinery and laboratory equipment	3 - 5 years
Instruments	4 - 5 years
Office equipment	3 - 7 years
Leasehold improvements	over the shorter of the remaining life of the lease or the useful economic life of the asset

Income Tax

Income Taxes

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Organization and Basis of Presentation (Tables)

3 Months Ended

Mar. 31, 2017

Reclassifications [Line Items]

Estimated useful lives of property and equipment

x

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2017

Compensation Related Costs [Abstract]

Schedule of stock option activity

he following table summarizes stock option activity during the three months ended March 31, 2017:

	Number of Shares	Weighted Average Exercise Price
Outstanding at December 31, 2016	2,569,550	$	9.53
Granted	—	—
Exercised	(16,471)	5.33
Cancelled	(3,258)	11.94
Outstanding at March 31, 2017	2,549,821	9.56
Vested and expected to vest at March 31, 2017	2,490,813	9.50
Exercisable at March 31, 2017	2,016,369	$	8.93

Fair value assumptions of stock options

Summary of restricted stock award and restricted stock units activity

The Company’s restricted stock award and restricted stock unit activity for the three months ended March 31, 2017 was as follows:

	Restricted Stock Awards			Restricted Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2016	156	$	11.19	1,766,123	$	7.18
Granted	—	—		1,028,884	10.68
Vested	(156)	11.19		(320,081)	6.00
Cancelled	—	—		(20,766)	8.47
Unvested at March 31, 2017	—	$	—	2,454,160	$	8.79

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Net Loss per Common Share (Tables)

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Computations of diluted net loss per share

The computations of diluted net loss per share for the three month periods ended March 31, 2017 and 2016 did not include the effects of the following stock options and other equity awards which were outstanding as of the end of each period because the inclusion of these securities would have been anti-dilutive (in thousands):

	Three Months Ended March 31,
	2017	2016
Options outstanding to purchase common stock	2,550	2,875
Other unvested equity awards	2,931	2,390
Total	5,481	5,265

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Inventories (Tables)

3 Months Ended

Mar. 31, 2017

Inventory Disclosure [Abstract]

Summary of inventory on hand

Inventory on hand as of March 31, 2017 and December 31, 2016 comprised the following (in thousands):

	March 31, 2017		December 31, 2016
Raw materials	$	2,589	$	2,171
Work-in-process	2,929		1,488
Finished goods	3,501		2,974
Total inventories	$	9,019	$	6,633

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Property and Equipment, net (Tables)

3 Months Ended

Mar. 31, 2017

Property, Plant and Equipment, Net [Abstract]

Property and equipment, net

Property and equipment as of March 31, 2017 and December 31, 2016 comprised the following (in thousands):

	March 31, 2017			December 31, 2016
Property and equipment — at cost:
Machinery and laboratory equipment	$	10,245		$	10,145
Instruments	10,662			9,869
Office equipment	1,742			1,714
Leasehold improvements	10,318			10,100
Total property and equipment — at cost	32,967			31,828
Less: accumulated depreciation	(14,485		)	(13,560		)
Property and equipment, net	$	18,482		$	18,268

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Intangible Assets, net (Tables)

3 Months Ended

Mar. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Summary of intangible assets

Intangible assets as of March 31, 2017 and December 31, 2016 comprised the following (in thousands):

	March 31, 2017							December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Licensed intellectual property	$	4,250	$	(1,704	)	$	2,546	$	4,250	$	(1,580	)	$	2,670

Summary of estimated future amortization expense

Estimated future amortization expense for these licenses is as follows (in thousands):

Fiscal Years Ending	Future Amortization Expense
Remaining in 2017	$	373
2018	497
2019	497
2020	497
2021	497
Thereafter	185
Total	$	2,546

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Leases (Tables)

3 Months Ended

Mar. 31, 2017

Leases [Abstract]

Schedule of future minimum lease payments

As of March 31, 2017, the future minimum lease payments required over the next five years under the Company's lease arrangements are as follows (in thousands):

Fiscal Years Ending	Future Minimum Lease Payments
Remaining in 2017	$	1,252
2018	1,792
2019	1,913
2020	1,972
2021	1,372
Thereafter	1,366
Total	$	9,667

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Assets measured at fair value on a recurring basis

The following table presents the financial instruments measured at fair value on a recurring basis and the valuation approach applied to each class of financial instruments as of March 31, 2017 and December 31, 2016 (in thousands):

	March 31, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds (cash equivalents)	$	242	$	—	$	—	$	242
Corporate notes and bonds	—		9,007		—		9,007
U.S. government and agency securities	—		1,500		—		1,500
Commercial paper	—		500		—		500
Total	$	242	$	11,007	$	—	$	11,249
	December 31, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Money market funds (cash equivalents)	$	556	$	—	$	—	$	556
Corporate notes and bonds	—		18,821		—		18,821
U.S. government and agency securities	—		3,503		—		3,503
Commercial paper	—		3,283		—		3,283
Total	$	556	$	25,607	$	—	$	26,163

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Marketable Securities (Tables)

3 Months Ended

Mar. 31, 2017

Investments, Debt and Equity Securities [Abstract]

Company's available-for-sale investments

The following table summarizes the Company’s marketable securities as of March 31, 2017 and December 31, 2016 (in thousands):

March 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate notes and bonds	$	9,017	$	—	$	(10	)	$	9,007
U.S. government and agency securities	1,502		—		(2		)	1,500
Commercial paper	500		—		—			500
Total	$	11,019	$	—	$	(12	)	$	11,007
December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate notes and bonds	$	18,846	$	—	$	(25	)	$	18,821
U.S. government and agency securities	3,506		—		(3		)	3,503
Commercial paper	3,283		—		—			3,283
Total	$	25,635	$	—	$	(28	)	$	25,607

Company's available-for-sale maturities investments

The following table summarizes the maturities of the Company’s marketable securities as of March 31, 2017 (in thousands):

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	11,019	$	11,007
Due after one year through two years	—		—
Total	$	11,019	$	11,007

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Organization and Basis of Presentation (Details)	3 Months Ended
	Mar. 31, 2017
Machinery and laboratory equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Expected useful lives of these assets	3 years
Machinery and laboratory equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Expected useful lives of these assets	5 years
Office equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Expected useful lives of these assets	3 years
Office equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Expected useful lives of these assets	7 years
Leasehold improvements [Member]
Property, Plant and Equipment [Line Items]
Leasehold improvements	over the shorter of the remaining life of the lease or the useful economic life of the asset
Instruments [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Expected useful lives of these assets	4 years
Instruments [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Expected useful lives of these assets	5 years

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Organization and Basis of Presentation (Details Textual)	3 Months Ended
	Mar. 31, 2017 USD ($) Segment	Dec. 31, 2016 USD ($)
Property, Plant and Equipment [Line Items]
Accumulated deficit	$ (369,188,000)	$ (355,270,000)
Number of operating segment | Segment	1
Excess tax benefit, amount	$ 1,979,000
Restricted cash	758,000
Working Capital	21,060,000
Line of Credit Facility, Maximum Borrowing Capacity	$ 15,000,000
Maximum [Member]
Property, Plant and Equipment [Line Items]
Expected useful lives of these assets	10 years
Systems [Member]
Property, Plant and Equipment [Line Items]
Products warranty period	1 year
Reagents [Member]
Property, Plant and Equipment [Line Items]
Products warranty period	60 days

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Stock-Based Compensation (Details)	3 Months Ended
	Mar. 31, 2017 $ / shares shares
Compensation Related Costs [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term	5 years 6 months 7 days
Schedule of stock option activity
Number of Share options Outstanding, Beginning Balance | shares	2,569,550
Number of Share options, Granted | shares	0
Number of Share options, Exercised | shares	(16,471)
Number of Share options, Cancelled | shares	(3,258)
Number of Share options Outstanding, Ending Balance | shares	2,549,821
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number | shares	2,490,813
Number of Share options, Exercisable | shares	2,016,369
Weighted average exercise price Outstanding, Beginning Balance | $ / shares	$ 9.53
Weighted average exercise price, Granted | $ / shares	0.00
Weighted average exercise price, Exercised | $ / shares	5.33
Weighted average exercise price, Cancelled | $ / shares	11.94
Weighted average exercise price Outstanding, Ending Balance | $ / shares	9.56
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Exercise Price | $ / shares	9.50
Weighted average exercise price, Exercisable | $ / shares	$ 8.93

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Stock-Based Compensation (Details 2) - $ / shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Restricted Stock Awards [Member]
Summary of restricted stock award and restricted stock units activity
Non-vested, Number of shares, Beginning balance	156
Number of shares, Granted	0
Number of shares, Vested	(156)
Number of shares, Cancelled or expired	0
Non-vested, Number of shares, Ending balance	0
Non-vested, Weighted average Grant Date Fair Value, Beginning balance	$ 11.19
Weighted Average Grant Date Fair Value, Granted	0.00
Weighted average Grant Date Fair Value, Vested	11.19
Weighted average Grant Date Fair Value, Cancelled or expired	0.00
Non-vested, Weighted average Grant Date Fair Value, Ending balance	$ 0.00
Market Share Unit [Member]
Summary of restricted stock award and restricted stock units activity
Non-vested, Number of shares, Beginning balance	222,773
Number of shares, Granted	243,561
Number of shares, Cancelled or expired	0
Non-vested, Number of shares, Ending balance	466,334
Non-vested, Weighted average Grant Date Fair Value, Beginning balance	$ 7.34
Weighted Average Grant Date Fair Value, Granted	13.82	$ 4.94
Non-vested, Weighted average Grant Date Fair Value, Ending balance	$ 10.53
Restricted Stock Units [Member]
Summary of restricted stock award and restricted stock units activity
Non-vested, Number of shares, Beginning balance	1,766,123
Number of shares, Granted	1,028,884
Number of shares, Vested	(320,081)
Number of shares, Cancelled or expired	(20,766)
Non-vested, Number of shares, Ending balance	2,454,160
Non-vested, Weighted average Grant Date Fair Value, Beginning balance	$ 7.18
Weighted Average Grant Date Fair Value, Granted	10.68
Weighted average Grant Date Fair Value, Vested	6.00
Weighted average Grant Date Fair Value, Cancelled or expired	8.47
Non-vested, Weighted average Grant Date Fair Value, Ending balance	$ 8.79

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Stock-Based Compensation (Details Textual) - USD ($)	1 Months Ended	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Sep. 30, 2013
Share-based compensation (Textual) [Abstract]
Granted Stock option		0
Stock compensation expense		$ 2,808,000	$ 2,402,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number		2,549,821		2,569,550
Weighted average exercise price of stock option		$ 0.00
Aggregate intrinsic value of options exercisable		$ 7,949,000
Remaining weighted average contractual term		5 years 6 months 7 days
Employee Stock Purchase Plan [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value		$ 8,525,000
Weighted Average Remaining Contractual Life, Outstanding (in years)		5 years 11 months 19 days	6 years 8 months 27 days
Restricted Stock Awards [Member]
Share-based compensation (Textual) [Abstract]
Total fair value of restricted stock vested		$ 2,000	$ 110,000
Stock compensation expense		$ 2,808,000	$ 2,402,000
Number of shares, Granted		0
Weighted Average Grant Date Fair Value, Granted		$ 0.00
Market Share Unit [Member]
Share-based compensation (Textual) [Abstract]
Shares received as percent of target number of units granted		200.00%
Unrecognized compensation cost		$ 1,932,000
Weighted average-period, cost is expected to be recognized		2 years 1 month 9 days
Number of shares, Granted		243,561
Weighted Average Grant Date Fair Value, Granted		$ 13.82	$ 4.94
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate		1.50%	0.90%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate		54.00%	49.00%
Employee Stock Purchase Plan [Abstract]
Expected dividend yield (%)		0.00%	0.00%
Restricted Stock Units [Member]
Share-based compensation (Textual) [Abstract]
Total fair value of restricted stock vested		$ 1,920,000	$ 2,250,000
Unrecognized compensation cost		$ 15,162,000
Weighted average-period, cost is expected to be recognized		3 years 1 month 13 days
Number of shares, Granted		1,028,884
Weighted Average Grant Date Fair Value, Granted		$ 10.68
Performance Shares [Member]
Share-based compensation (Textual) [Abstract]
Stock compensation expense		$ 43,200
Unrecognized compensation cost		$ 133,000
Weighted Average Grant Date Fair Value, Granted		$ 12.30
Options [Member]
Employee Stock Purchase Plan [Abstract]
Maximum offering period		27 months
2010 Plan [Member] | Minimum [Member]
Share-based compensation (Textual) [Abstract]
Options vested		1 year
2010 Plan [Member] | Maximum [Member]
Share-based compensation (Textual) [Abstract]
Options vested		4 years
2010 Plan [Member] | Options [Member]
Share-based compensation (Textual) [Abstract]
Expiration period		10 years
2013 Employee Stock Purchase Plan [Member] | Options [Member]
Employee Stock Purchase Plan [Abstract]
Common stock reserved for future issuance		267,839			650,000
Purchase price as a percent of the fair market value of the common stock	85.00%
Maximum offering period	6 months
Maximum employee investment in ESPP as a percentage of gross compensation	10.00%
Maximum shares of common stock that can be puchased by each employee	1,500

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Net Loss per Common Share (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Computations of diluted net loss per share
Antidilutive securities excluded from calculation	5,481	5,265
Options [Member]
Computations of diluted net loss per share
Antidilutive securities excluded from calculation	2,550	2,875
Unvested restricted stock [Member]
Computations of diluted net loss per share
Antidilutive securities excluded from calculation	2,931	2,390

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Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Summary of inventory on hand
Raw materials	$ 2,589	$ 2,171
Work-in-process	2,929	1,488
Finished goods	3,501	2,974
Total	$ 9,019	$ 6,633

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Property and Equipment, net (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Property and equipment-at cost:
Total property and equipment-at cost	$ 32,967,000		$ 31,828,000
Less accumulated depreciation	(14,485,000)		(13,560,000)
Property and equipment, net	18,482,000		18,268,000
Depreciation expense	1,093,006	$ 806,000
Plant and machinery [Member]
Property and equipment-at cost:
Total property and equipment-at cost	10,245,000		10,145,000
Instruments [Member]
Property and equipment-at cost:
Total property and equipment-at cost	10,662,000		9,869,000
Office equipment [Member]
Property and equipment-at cost:
Total property and equipment-at cost	1,742,000		1,714,000
Leasehold improvements [Member]
Property and equipment-at cost:
Total property and equipment-at cost	$ 10,318,000		$ 10,100,000

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Intangible Assets, net (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Summary of intangible assets
Net carrying amount	$ 2,546
Licensed intellectual property [Member]
Summary of intangible assets
Gross carrying amount	4,250	$ 4,250
Accumulated amortization	(1,704)	(1,580)
Net carrying amount	$ 2,546	$ 2,670

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Intangible Assets, net (Details 1) $ in Thousands	Mar. 31, 2017 USD ($)
Summary of estimated future amortization expense
Remaining in 2017	$ 373
2015	497
2016	497
2017	497
2018	497
Thereafter	185
Net carrying amount	$ 2,546

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Intangible Assets, net (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Indefinite-lived Intangible Assets [Line Items]
Amortization expense for intangible assets	$ 124,000	$ 94,000
Licensed intellectual property [Member]
Indefinite-lived Intangible Assets [Line Items]
Weighted average amortization period	5 years 1 month 26 days

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Loan Payable (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Jun. 30, 2016
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	$ 15,000,000
Line of Credit Facility, Interest Rate Description	the greater of 1.25% per annum or a base rate as determined by a three-month LIBOR-based formula, plus (b) an applicable margin between 2.95% and 3.95%
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage	0.75%
Unamortized Loan Commitment and Origination Fees and Unamortized Discounts or Premiums	$ 932,000		$ 585,000
Loan Payable (Textual) [Abstract]
Restricted cash	758,000
Term Loans [Member]
Loan Payable (Textual) [Abstract]
Loans Payable	35,000,000
Term Loan C [Member]
Loan Payable (Textual) [Abstract]
Loans Payable	15,000,000
Term Loan A [Member]
Loan Payable (Textual) [Abstract]
Loans Payable	$ 10,000,000		10,000,000
Debt Instrument, Interest Rate, Stated Percentage	1.00%
Term Loan B [Member]
Loan Payable (Textual) [Abstract]
Face amount of term loan				$ 10,000,000
Loans Payable	$ 10,000,000		$ 10,000,000
Line of Credit [Member]
Loan Payable (Textual) [Abstract]
Debt Instrument, Interest Rate, Stated Percentage	1.25%
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	$ 5,000,000
New Letter Of Credit [Member] | Letter of Credit [Member]
Loan Payable (Textual) [Abstract]
Increased amount of line of credit availability		$ 758,000
Banc of California [Member] | Previous Letter Of Credit [Member] | Letter of Credit [Member]
Loan Payable (Textual) [Abstract]
Restricted cash	$ 758,000
Minimum [Member] | Term Loan A [Member]
Loan Payable (Textual) [Abstract]
Debt Instrument, Basis Spread on Variable Rate	4.95%
Minimum [Member] | Line of Credit [Member]
Loan Payable (Textual) [Abstract]
Debt Instrument, Basis Spread on Variable Rate	2.95%
Maximum [Member] | Term Loan A [Member]
Loan Payable (Textual) [Abstract]
Debt Instrument, Basis Spread on Variable Rate	5.90%
Maximum [Member] | Line of Credit [Member]
Loan Payable (Textual) [Abstract]
Debt Instrument, Basis Spread on Variable Rate	3.95%

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Loan Payable Loan Payable (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Debt Instrument [Line Items]
Amortization of Debt Issuance Costs and Discounts	$ 151,000	$ 92,000
Debt Instrument, Interest Rate Terms	a) the greater of 1.00% or the 3-year treasury rate in effect at the time of funding, plus (b) an applicable margin between 4.95% and 5.90% per annum.
Investment, Interest Only Flag	Mar. 01, 2017
Debt Instrument, Maturity Date	Jan. 12, 2019
Final fee obligation	$ 878,000		$ 400,000
Unamortized issuance costs	(932,000)		(585,000)
Long-term Debt	19,946,000		19,815,000
Long-term Debt, Current Maturities	(7,685,000)		(7,935,000)
Long-term Debt, Excluding Current Maturities	12,261,000		11,880,000
Term Loans [Member]
Debt Instrument [Line Items]
Loans Payable	35,000,000
Term Loan A [Member]
Debt Instrument [Line Items]
Loans Payable	10,000,000		10,000,000
Term Loan B [Member]
Debt Instrument [Line Items]
Loans Payable	10,000,000		$ 10,000,000
Term Loan C [Member]
Debt Instrument [Line Items]
Loans Payable	$ 15,000,000

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Leases (Details) $ in Thousands	Mar. 31, 2017 USD ($)
Schedule of future minimum lease payments
Remaining in 2017	$ 1,252
2015	1,792
2016	1,913
2017	1,972
2018	1,372
Thereafter	1,366
Total future minimum payments	$ 9,667

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Leases (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Leases [Abstract]
Rent and operating expenses	$ 409,000	$ 387,000
Operating lease, deferred expense	$ 4,005,000		$ 4,097,000

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Fair Value of Financial Instruments (Details) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Assets:
Assets, fair value	$ 11,249	$ 26,163
Quotes Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Assets, fair value	242	556
Significant Other Observable Inputs (Level 2) [Member]
Assets:
Assets, fair value	11,007	25,607
Significant Unobservable Inputs (Level 3) [Member]
Assets:
Assets, fair value	0	0
Money market funds (cash equivalents) [Member]
Assets:
Assets, fair value	242	556
Money market funds (cash equivalents) [Member] | Quotes Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Assets, fair value	242	556
Money market funds (cash equivalents) [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Assets, fair value	0	0
Money market funds (cash equivalents) [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Assets, fair value	0	0
Corporate notes and bonds [Member]
Assets:
Assets, fair value	9,007	18,821
Corporate notes and bonds [Member] | Quotes Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Assets, fair value	0	0
Corporate notes and bonds [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Assets, fair value	9,007	18,821
Corporate notes and bonds [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Assets, fair value	0	0
U.S. government and agency securities [Member]
Assets:
Assets, fair value	1,500	3,503
U.S. government and agency securities [Member] | Quotes Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Assets, fair value	0	0
U.S. government and agency securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Assets, fair value	1,500	3,503
U.S. government and agency securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Assets, fair value	0	0
Commercial paper [Member]
Assets:
Assets, fair value	500	3,283
Commercial paper [Member] | Quotes Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Assets, fair value	0	0
Commercial paper [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Assets, fair value	500	3,283
Commercial paper [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Assets, fair value	$ 0	$ 0

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Marketable Securities Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Company's available-for-sales investments
Amortized Cost	$ 11,019	$ 25,635
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(12)	(28)
Fair Value	11,007	25,607
Corporate notes and bonds [Member]
Company's available-for-sales investments
Amortized Cost	9,017	18,846
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(10)	(25)
Fair Value	9,007	18,821
U.S. government and agency securities [Member]
Company's available-for-sales investments
Amortized Cost	1,502	3,506
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(2)	(3)
Fair Value	1,500	3,503
Commercial paper [Member]
Company's available-for-sales investments
Amortized Cost	500	3,283
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	$ 500	$ 3,283

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Investments (Details 1) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Company's available-for-sales investments
Less than 1 year, Amortized cost	$ 11,019
Due in 1 to 2 years, Amortized cost	0
Amortized Cost	11,019	$ 25,635
Less than 1 year, Fair value	11,007
Due in 1 to 2 years, Fair value	0
Fair Value	$ 11,007	$ 25,607

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Income Taxes (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Income Tax Disclosure [Abstract]
Income tax expense (benefit)	$ (1,000)	$ (35,000)
Total amount of unrecognized tax benefits	$ 0		$ 0