What changed in this filing

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Item 1. Financial Statements

2020-11-13 compared with 2020-08-13 · 203 added, 97 removed, 361 unchanged (45% of the section changed)

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Condensed Consolidated Balance Sheets

September 30,

2020 December 31,

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Property and equipment, net 3,635,000 1,950,000

Intangible assets, net 1,580,000 —

Goodwill 6,941,000 —

Total assets $ 41,396,000 $ 30,208,000

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Stockholders’ equity:

Common stock, $ 0.0001 par value, 200,000,000 and 200,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively;

91,975,000 and 34,274,000 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

Common stock, $ 0.0001 par value, 200,000,000 and 200,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively;

148,348,000 and 34,274,000 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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10,898,000 $ 1,000 $ 87,297,000 $ ( 94,677,000 ) $ ( 7,379,000 )

Stock-based compensation expense

— — 357,000 — 357,000

Issue common stock, net of issuance costs

11,081,000 1,000 8,549,000 — 8,550,000

Issue stock for covenant waiver

573,000 — 504,000 — 504,000

Issue stock for employee stock purchase plan

44,000 — 39,000 — 39,000

Issue stock for warrant exercises

11,678,000 1,000 9,396,000 — 9,397,000

Reduce warrant exercise price for covenant waiver

— — 46,000 — 46,000

— — — ( 7,900,000 ) ( 7,900,000 )

Balance at December 31, 2019

34,274,000 3,000 106,188,000 ( 102,577,000 ) 3,614,000

Balance at January 1, 2020 34,274,000 $ 3,000 $ 106,188,000 $ ( 102,577,000 ) $ 3,614,000

Stock-based compensation expense

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91,975,000 $ 9,000 $ 126,989,000 $ ( 121,161,000 ) $ 5,837,000

Stock-based compensation expense

— 447,000 — 447,000

Issue stock for warrant exercises 50,205,000 5,000 15,078,000 — 15,083,000

Issue stock for acquisition 6,168,000 1,000 4,100,000 — 4,101,000

Net loss ( 10,792,000 ) ( 10,792,000 )

Balance at September 30, 2020 148,348,000 $ 15,000 $ 146,614,000 $ ( 131,953,000 ) $ 14,676,000

See accompanying notes to the condensed consolidated financial statements

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Condensed Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

September 30,

Operating activities:

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Loss on debt extinguishment

Employee stock purchase plan compensation — 103,000

Changes in operating assets and liabilities:

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Investing Activities:

Lineagen acquisition, net of cash acquired ( 2,450,000 ) —

Purchases of property and equipment

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Supplemental disclosure of non-cash investing and financing activities:

Fair value of common stock issued related to Lineagen acquisition $ 4,100,000 $ —

Property and equipment costs incurred but not paid included in accounts payable and accrued expenses $ — $ 8,000

Fair value of warrants issued with debt $ — $ 630,000

$ — $ 630,000

Transfer of instruments and servers from property and equipment into inventory $ 134,000 $ 360,000

Transfer of instruments and servers from inventory to property and equipment $ 2,618,000 $ —

$ 1,191,000 $ —

Issue common stock for covenant waiver $ 300,000

Fair value of stock issued with debt $ — $ 202,000

$ — $ 202,000

Deferred equity issuance costs in accounts payable and accrued liabilities $ — $ 197,000

Debt issuance costs in accounts payable and accrued liabilities $ — $ 35,000

See accompanying notes to the condensed consolidated financial statements

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Bionano Genomics, Inc.

(collectively, with its consolidated subsidiary, the “Company”) is a life sciences instrumentation company in the genome analysis space.

The Company currently develops and markets the Saphyr system, a platform for ultra-sensitive and ultra-specific structural variation detection that enables researchers and clinicians to accelerate the search for new diagnostics and therapeutic targets and to streamline the study of changes in chromosomes, which is known as cytogenetics.

(collectively, with its consolidated subsidiaries, the “Company”) is a life sciences instrumentation company in the genome analysis space that provides tools and services based on its Saphyr system to scientists and clinicians conducting genetic research and patient testing, and provides diagnostic testing for those with autism spectrum disorder (“ASD”) and other neurodevelopmental disabilities through newly acquired Lineagen, Inc., a wholly owned subsidiary of the Company (“Lineagen”).

The Company currently develops and markets the Saphyr system, a platform for ultra-sensitive and ultra-specific structural variation detection that is designed to enable researchers and clinicians to accelerate the search for new diagnostics and therapeutic targets and to streamline the study of changes in chromosomes, which is known as cytogenetics.

The Saphyr system is comprised of an instrument, chip consumables, reagents and a suite of data analysis tools, and genome analysis services to provide access to data generated by the Saphyr system for researchers who want to evaluate Saphyr data quickly and with a low up-front investment.

Basis of Presentation

The accompanying financial information has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting purposes.

The accompanying financial information has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim reporting purposes.

The condensed consolidated financial statements are unaudited.

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Going Concern

The Company is required to perform an analysis regarding its ability to continue as a going concern.

The Company must evaluate whether there are conditions and events that raise substantial doubt about the Company’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.

If the Company concludes that substantial doubt is raised, the Company is also required to consider whether its plans alleviate that doubt.

The Company has experienced recurring net losses from operations, negative cash flows from operating activities, financial covenant breaches, and significant accumulated deficit since its inception and expects to continue to incur net losses into the foreseeable future.

The Company had an accumulated deficit of $ 121.2 million as of June 30, 2020.

The Company had cash and cash equivalents of $ 17.2 million as of June 30, 2020.

The Company had an accumulated deficit of $ 132.0 million as of September 30, 2020.

The Company had cash and cash equivalents of $ 18.9 million as of September 30, 2020.

Management expects operating losses and negative cash flows to continue for at least the next year as the Company continues to incur costs related to research and commercialization efforts.

Management has prepared cash flow forecasts which indicate that based on the Company’s expected operating losses, negative cash flows and debt obligations, there is substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date these financial statements are issued.

COVID-19 continues to spread in the United States and globally and as a result the Company is subject to additional risks and uncertainties.

The degree to which the Company's business will be affected by the COVID-19 pandemic is highly uncertain.

The negative effects of COVID-19 could continue to have a material impact on the Company’s financial results.

To comply with various applicable guidelines and legal requirements in the jurisdictions in which the Company operates, the Company has temporarily reduced its business operations in response to stay-at-home orders, travel restrictions and other social distancing measures.

As a result, there is substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date these financial statements are issued.

The Company is subject to additional risks and uncertainties as a result of the continued spread of COVID-19 and uncertain market conditions, which could continue to have a material impact on the Company’s business and financial results.

The Company closely monitors and complies with various applicable guidelines and legal requirements in the jurisdictions in which it operates, which may continue to result in reduced business operations in response to new or existing stay-at-home orders, travel restrictions and other social distancing measures.

The Company’s manufacturing partners, suppliers, and customers, have implemented similar operational reductions.

This overall reduction in activity has contributed to a decrease in sales which has negatively impacted the Company’s first and second quarter 2020 financial results.

Future effects of COVID-19 are unknown and the Company’s financial results may continue to be negatively affected in the future.

This overall reduction in activity has contributed to a decrease in sales which has negatively impacted the Company’s first, second and third quarter 2020 financial results.

The future effects of COVID-19 are unknown and the Company’s financial results may continue to be negatively affected in the future.

There may be long-term negative effects of the COVID-19 pandemic, even after it has subsided.

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The Company will need to raise additional capital through equity offerings or debt financings to fulfill its operating and capital requirements for at least 12 months and to maintain compliance with certain financial covenants in the Innovatus LSA (as defined below).

To raise such additional capital, the Company may pursue equity or debt financings, strategic collaborations, licensing

arrangements, asset sales, or other arrangements.

However, the Company may not be able to secure such financing in a timely manner or on favorable terms, if at all, and may not be able to comply with current covenants.

To raise such additional capital, the Company may pursue equity or debt financings, strategic collaborations, licensing arrangements, asset sales, or other arrangements.

The Company may not be able to secure such financing in a timely manner or on favorable terms, if at all, and may not be able to comply with current covenants, which could cause an acceleration of its

For example, for the three months ended September 30, 2020, the Company was not in compliance with its revenue covenant under the Innovatus LSA and, while the Company is currently in discussions with Innovatus, the Company has not yet secured a waiver for its noncompliance.

Furthermore, if the Company issues equity securities to raise additional funds, its existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of the Company’s existing stockholders.

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If the Company is not able to comply with such rules and regulations, which it has not met from time-to-time since the Company's initial public offering in August 2018, the Company may not be able to maintain its Nasdaq listing.

In April 2020, we received a Notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) advising us that for 30 consecutive trading days preceding the date of the Notice, the bid price of our common stock had closed below the $1.00 per share minimum required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).

The Notice has no effect on the listing of our common stock at this time, and our common stock continues to trade on The Nasdaq Capital Market under the symbol “BNGO.” We intend to monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options to regain compliance with the Minimum Bid Price Requirement.

In April 2020, the Company received a Notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) advising the Company that for 30 consecutive trading days preceding the date of the Notice, the bid price of the Company’s common stock had closed below the $1.00 per share minimum required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).

The Notice has no effect on the listing of the Company’s common stock at this time, and the Company’s common stock continues to trade on The Nasdaq Capital Market under the symbol “BNGO.”

Under Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days following the date of the Notice to regain compliance with the Minimum Bid Price Requirement.

However, due to recent extraordinary market conditions, Nasdaq has determined to toll the compliance period for the Minimum Bid Price Requirement through June 30, 2020 (the “Tolling Period”).

As a result, the compliance Period will end on December 28, 2020 (the “Compliance Period”) instead of October 20, 2020.

If at any time during the Tolling Period or the Compliance Period the closing bid price of the Company’s common stock is at least $1.00 for a minimum of 10 consecutive business days, the Company will regain compliance with the Minimum Bid Price Requirement and its common stock will continue to be eligible for listing on The Nasdaq Capital Market absent noncompliance with any other requirement for continued listing.

If the Company does not regain compliance with the Minimum Bid Price Requirement by the end of the Compliance Period, the Company may be afforded an additional 180 calendar days to regain compliance with the Minimum Bid Price Requirement (the “Additional Compliance Period”) if on the last day of the Compliance Period the Company is in compliance with the market value of publicly held shares requirement for continued listing as well as all other standards for initial listing of its common stock on The Nasdaq Capital Market (other than the Minimum Bid Price Requirement), unless the Company does not indicate its intent to cure the deficiency, or if it appears to Nasdaq that it is not possible for the Company to cure the deficiency.

If the Company does not regain compliance with the Minimum Bid Price Requirement by the end of the Compliance Period, or the Additional Compliance Period, if applicable, the Company’s common stock will be subject to delisting.

We intend to monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options to regain compliance with the Minimum Bid Price Requirement.

Significant Accounting Policies

During the six months ended June 30, 2020, there were no changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

During the nine months ended September 30, 2020, there were no changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, except as described below.

Lineagen Acquisition

On August 21, 2020, the Company, Alta Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), Lineagen, a Delaware corporation, and Michael S.

Paul, Ph.D., solely in his capacity as exclusive agent and attorney-in-fact of the securityholders of Lineagen, entered into an Agreement and Plan of Merger (the “Merger Agreement”).

Pursuant to the terms and conditions of the Merger Agreement, Merger Sub merged with and into Lineagen (the “Merger”) whereupon the separate corporate existence of Merger Sub ceased, with Lineagen continuing as the surviving corporation of the Merger as a wholly owned subsidiary of the Company.

The Company accounted for its acquisition of Lineagen using the acquisition method of accounting pursuant to Accounting Standards Codification Topic 805, Business Combinations ("ASC 805") .

Under ASC 805, the tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the acquisition date.

Any excess purchase price over the estimated fair value assigned to the tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill.

The Company based the estimated fair value of identifiable intangible assets acquired on independent valuations that use information and assumptions provided by the Company’s management.

The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows, discount rates and useful lives could result in different purchase price allocations and amortization expense in current and future periods.

Under ASC 805, acquisition-related transaction costs (such as advisory, legal, valuation, other professional fees) are expensed in the statements of operations in the periods incurred.

Long-Lived Assets (including Finite-Lived Purchased Intangible Assets)

Long-lived assets consist of property and equipment and purchased finite-lived intangible assets.

The Company records property and equipment at cost, and records purchased finite-lived intangible assets based on their fair values at the date of acquisition.

Property and equipment generally consist of laboratory equipment, computer and office equipment, furniture and fixtures, and leasehold improvements.

Property and equipment are recorded at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the assets (generally three to five years , or the remaining term of the lease for leasehold improvements, whichever is shorter).

Repairs and maintenance costs are charged to expense as incurred.

Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date (which is regarded as their cost).

Intangible assets are amortized over the estimated useful life of the asset on a basis that approximates the pattern of economic benefit.

Intangible assets are reviewed for impairment if indicators of potential impairment exist.

There was no indication of impairment of intangible assets for any of the periods presented.

As a result of the Lineagen acquisition the Company recorded intangible assets, which consist of a trade name intangible and customer relationship intangible, which will be amortized using the straight-line method over the estimated useful lives of the assets of five years , which is consistent with the pattern of economic benefit of the assets.

If the Company identifies a change in the circumstances related to its long-lived assets, such as property and equipment and intangible assets (other than goodwill), that indicates the carrying value of any such asset may not be recoverable, the Company will perform an impairment analysis.

A long-lived asset (other than goodwill) is not recoverable when the undiscounted cash flows expected to be generated by the asset (or asset group) are less than the asset’s carrying amount.

Any required impairment loss would be measured as the amount by which the asset’s carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and a charge to operating expense.

Goodwill arises when the purchase price of an acquired business exceeds the fair value of the identifiable net assets acquired, with such excess recorded as goodwill on the balance sheet.

Goodwill is not subsequently amortized.

Goodwill is reviewed for impairment annually (during the fourth quarter) or more frequently if indications of impairment exist.

In testing goodwill for impairment, the Company will first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying value, then the Company will perform a quantitative impairment analysis by comparing the fair value of the reporting unit to the carrying value of the reporting unit, including goodwill.

An impairment charge for goodwill is recognized for the amount by which the carrying value of the reporting unit exceeds its fair value, not to exceed the total goodwill allocated to the reporting unit.

Revenue Recognition for Diagnostic Services

The Company generates revenue by performing diagnostic testing services.

Revenue from the completion of diagnostic testing services is recorded at the billed value less estimated contractual adjustments.

The Company performs its obligation under a contract with a customer by processing diagnostic tests and communication of test results, which is the point at which the Company has determined control is transferred to the customer for revenue recognition purposes.

Recently Issued But Not Yet Adopted Accounting Pronouncements

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ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exceptions and also simplifies the diluted earnings per share calculation in certain areas.

The standard is effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within those fiscal years, beginning December 15, 2021.

For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023.

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Common stock equivalents are only included when their effect is dilutive.

The Company’s potentially dilutive securities which include outstanding stock options under the Company’s equity incentive plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share.

The Company’s potentially dilutive securities which include warrants and outstanding stock options under the Company’s equity incentive plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share.

For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):

2020 June 30,

September 30,

2020 September 30,

Stock options 5,331,000 1,844,000

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Revenue by Source

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Total revenue $ 2,196,000 $ 3,313,000 $ 4,513,000 $ 7,340,000

Service and other for the three and nine months includes diagnostics for the period from August 21, 2020 through September 30, 2020.

Revenue by Geographic Location

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Total $ 2,196,000 100 % $ 3,313,000 100 % $ 4,513,000 100 % $ 7,340,000 100 %

The table above provides revenue from contracts with customers by business and geographic region on a disaggregated basis.

The table above provides revenue from contracts with customers by source and geographic region (based on the customer's billing address) on a disaggregated basis.

North America consists of the United States and Canada.

EMEIA consists of Europe, the Middle East, India and Africa.

Pacific includes China, Japan, South Korea, Singapore and Australia.

For the three months ended June 30, 2020 and 2019, the United States represented 60 % and 63 % of total revenue, and for the six months ended June 30, 2020 and 2019, 63 % and 55 %, respectively.

Asia Pacific includes China, Japan, South Korea, Singapore and Australia.

For the three months ended September 30, 2020 and 2019, the United States represented 40 % and 48 % of total revenue, and for the nine months ended September 30, 2020 and 2019, 51 % and 52 %, respectively.

Remaining Performance Obligations

As of June 30, 2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was $ 373,000 .

As of September 30, 2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was $ 500,000 .

These remaining performance obligations primarily relate to extended warranty and support and maintenance obligations.

The Company expects to recognize approximately 44 % of this amount as revenue during the remainder of 2020, 52 % in 2021 and 4 % in 2022.

The Company expects to recognize approximately 27.6 % of this amount as revenue during the remainder of 2020, 61.2 % in 2021, 7.6 % in 2022, and 3.6 % in 2023.

Warranty revenue is included in Service and other revenue.

The Company recognized revenue of $ 106,000 and $ 67,000 during the three months ended June 30, 2020 and 2019, respectively, and revenue of $ 232,000 and $ 156,000 during the six months ended June 30, 2020 and 2019, respectively, which was included in the contract liability balance at the end of the previous year.

The Company recognized revenue of $ 66,000 and $ 39,000 during the three months ended September 30, 2020 and 2019, respectively, and revenue of $ 299,000 and $ 117,000 during the nine months ended September 30, 2020 and 2019, respectively, which was included in the contract liability balance at the end of the previous year.

Concentrations

As of June 30, 2020 and December 31, 2019, one customer represented 14 % and 10 %, respectively, of the Company's accounts receivable balance.

As of September 30, 2020 and December 31, 2019, one customer represented 9 % and 10 %, respectively, of the Company's accounts receivable balance.

Balance Sheet Account Details

September 30,

2020 December 31,

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Accounts receivable, trade 1

$ 5,749,000 $ 6,889,000

Less allowance for doubtful accounts ( 1,889,000 ) ( 555,000 )

$ 3,860,000 $ 6,334,000

1 Includes $ 635,000 of accounts receivable from diagnostic services.

The Company extends credit to its customers in the normal course of business based upon an evaluation of each customer’s credit history, financial condition, and other factors.

Estimates of allowances for doubtful accounts are determined by evaluating individual customer circumstances, historical payment patterns, length of time past due, and economic and other factors.

During the three and six months ended June 30, 2020, the Company recorded bad debt expense of $ 332,000 and $ 1,290,000 respectively.

These amounts are included in selling, general and administrative expenses.

During the nine months ended September 30, 2020, the Company recorded bad debt expense of $ 1,334,000 , which is included in selling, general and administrative expenses.

September 30,

2020 December 31,

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Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and certain other eligible costs (the “Eligible Costs”).

Pursuant to the Paycheck Protection Program Flexibility Act (the “PPPFA”), enacted on June 5, 2020, the Company may continue to use loan proceeds on Eligible Costs through October 2, 2020, or the date that is 24 weeks from the PPP Loan origination date (the “Covered Period”).

Pursuant to the Paycheck Protection Program Flexibility Act (the “PPPFA”), enacted on June 5, 2020, the Company was permitted to use loan proceeds on Eligible Costs through October 2, 2020, or the date that was 24 weeks from the PPP Loan origination date (the “Covered Period”).

The Company is continuing to evaluate guidance released by the SBA regarding qualification for forgiveness of the PPP Loan, however, no assurance is provided that forgiveness for any portion of the Company’s PPP Loan will be obtained.

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In order to apply for the PPP Loan, the Company was required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support the Company’s ongoing operations.

This certification further required the Company to take into account the maintenance of its workforce, the Company’s need for additional funding to continue operations, and the Company’s ability to access alternative forms of capital in the current market environment to offset the effects of the COVID-19 pandemic.

This certification further

required the Company to take into account the maintenance of its workforce, the Company’s need for additional funding to continue operations, and the Company’s ability to access alternative forms of capital in the current market environment to offset the effects of the COVID-19 pandemic.

Loan Agreements

The carrying value of the Company's debt for the periods presented was as follows:

September 30,

2020 December 31,

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At inception, the Company elected to pay interest in cash at a rate of 7.25 % per annum and have 3.0 % per annum of the interest added back to the outstanding principal.

As of June 30, 2020, the effective interest rate, including debt issuance costs, for Term Loans was 16.7 %.

As of September 30, 2020, the effective interest rate, including debt issuance costs, for Term Loans was 16.7 %.

Beginning in April 2022, the Company must make 24 equal monthly payments of principal and interest with a final maturity date in March 2024, which may be earlier due to an event of default if not cured within time specified.

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The Company may repay and reborrow amounts under the Revolver at any time prior to the March 1, 2024 maturity date without penalty or premium.

The outstanding balance of amounts borrowed under the Revolver bears interest at a rate equal to 2.0 % above the variable rate of interest, per annum, as specified in the terms of the Revolver.

The outstanding balance of amounts borrowed under the Revolver bears interest at a rate equal to 2.0 % above the prime rate, per annum, as specified in the terms of the Revolver.

The Innovatus LSA is collateralized by substantially all of the Company’s assets, including its intellectual property.

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(1) a liquidity covenant requiring the Company to maintain a minimum cash balance at all times in a collateral account;

(2) a revenue

covenant requiring the Company to meet certain minimum revenue targets measured at the end of each calendar quarter.

(2) a revenue covenant requiring the Company to meet certain minimum revenue targets measured at the end of each calendar quarter.

The Innovatus LSA also includes standard events of default, including a provision that Innovatus could declare an event of default upon the occurrence of any event that it interprets as having a material adverse change in the Company's business, operations, or condition, a material impairment on the Company's ability to pay the secured obligations under the Innovatus LSA, or upon a material adverse effect on the collateral under the agreement, thereby requiring us to repay the loan immediately, together with a prepayment fee and other applicable fees.

As of June 30, 2020, the Company has not received any notification or indication from Innovatus to invoke the material adverse change clause.

As of September 30, 2020, the Company has not received any notification or indication from Innovatus to invoke the material adverse change clause.

However, due to the Company’s current cash flow position and the substantial doubt about its ability to continue as a going concern, the entire principal amount of the Term Loans are presented as short-term.

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As a result, in March 2020, the Company and Innovatus entered into an amendment to the Innovatus LSA (the “Second Amendment”) to, among other things:

(i) waive the events of default from not achieving the specific financial covenants for the December 31, 2019 measurement date, (ii) require an immediate partial repayment of $ 2.1 million, (iii) require an additional partial repayment of $ 2.9 million on the earlier of completion of an Equity Event (as defined in the Second Amendment), or April 30, 2020, (iv) modify the liquidity covenant, such that the Company’s minimum cash balance shall vary based on outstanding borrowing capacity under the Revolver (provided, however, that the Company shall maintain a minimum cash balance of $ 2 million at any given time), (v) reduce the dollar amount of certain minimum revenue covenants and (vi) modify the terms of certain events of default.

calendar quarter (each, a “Revenue Covenant”) and (vi) modify the terms of certain events of default.

For example, the Second Amendment provides for a cure period in connection with the breach of certain minimum revenue financial covenants, as long as the Company submits an updated management plan and financial projections, which are subject to Innovatus approval, and completes a Qualified Financing Event (as defined in the Second Amendment) within 45 days of such breach.

In connection with the Second Amendment, the Company was obligated to pay Innovatus a waiver fee in the amount of $ 200,000 and a prepayment fee of $ 100,000 , payable in cash or in shares of the Company’s common stock at the Company's election, no later than following completion of the Equity Event.

As described in Note 6 below, the Company completed the follow-on offering in April 2020 that constituted an Equity Event under the Second Amendment.

A portion of the proceeds from the follow-on offering were used to pay-down $ 2.9 million of principal balance outstanding under the Innovatus term loan in accordance with the Second Amendment.

As described in Note 6 below, the Company completed a follow-on public offering in April 2020 that constituted an Equity Event under the Second Amendment.

A portion of the proceeds from the follow-on offering were used to pay-down $ 2.9 million of principal balance outstanding under the Term Loans in accordance with the Second Amendment.

In addition, the Company issued 872,601 shares of its common stock to Innovatus to satisfy the $ 200,000 waiver fee and $ 100,000 prepayment fee due under the Second Amendment.

The Company was in compliance with all financial covenants under the Innovatus LSA for the three months ended June 30, 2020.

Also pursuant to the Second Amendment, the Company subsequently registered such shares for resale on a registration statement on Form S-3 (the “Registration Statement”) filed with the Securities and Exchange Commission on June 22, 2020 and declared effective on July 7, 2020.

We have not and will not receive any of the proceeds from the offering described in the Registration Statement.

In connection with the Merger, the Company and Lineagen entered into a Third Amendment (the “Third Amendment”) to the Innovatus LSA.

Among other things, the Third Amendment adds Lineagen as a “Borrower” under the Innovatus LSA and updates certain financial covenants in light of Lineagen becoming a wholly owned subsidiary of the Company.

For the three months ended September 30, 2020, the Company was not in compliance with their revenue covenant under the Innovatus LSA.

Stockholders’ Equity and Stock-Based Compensation

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The shares of common stock and pre-funded warrants, and the accompanying common warrants, were issued separately and were immediately separable upon issuance.

The gross proceeds to the Company were approximately $ 18.0 million before deducting underwriting discounts and commissions and other offering expenses.

The gross proceeds to the Company were approximately $ 18.0 million before deducting underwriting discounts and commissions and other offering expenses of $ 1.6 million.

Stock Warrants

A summary of the Company’s warrant activity for the six months ended June 30, 2020 was as follows:

A summary of the Company’s warrant activity for the nine months ended September 30, 2020 was as follows:

Shares of Stock under Warrants Weighted-

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Exercised ( 90,093,000 ) 0.21 37,150,000

Outstanding at June 30, 2020 79,914,000 $ 0.76 4.62 $ 18,232,000

Vested and exercisable at June 30, 2020 79,914,000 $ 0.76 4.62 $ —

Warrant Exercise Update

From July 1, 2020 through August 12, 2020, the Company has received gross proceeds of approximately $ 13.9 million pursuant to the exercise of outstanding and common and pre-funded warrants to purchase an aggregate of 46,505,000 shares of the Company's common stock.

Warrant Inducement

As previously reported, the Company issued warrants (the “Original Warrants”) to purchase shares of the Company’s Common Stock to certain investors in the Company’s underwritten public offering completed on October 23, 2019.

The Original Warrants were immediately exercisable upon issuance at an exercise price per share of $ 0.86 and are set to expire on October 23, 2024.

On March 2, 2020, the Company entered into a Warrants Amendment and Agreement (the “Inducement Agreement”) with certain holders (“Holders”) of the Original Warrants that are exercisable for an aggregate of up to 3,200,000 shares of Common Stock.

The Inducement Agreement provided that, commencing immediately following the delivery to the Holders of a prospectus supplement (the “Prospectus Supplement”) relating to the impact of the Inducement Agreement on the Original Warrants and ending at 9:15 a.m.

Eastern Time on the business day following the date of such delivery (the “Modified Exercise Price Term”), the exercise price per share for the Original Warrants will be equal to $ 0.75 but only with respect to a cash exercise under Section 1(a) of the Original Warrants.

In addition, the Company and each Holder agreed that if and only if the Holders exercise for cash all of their Original Warrants as amended pursuant to the Inducement Agreement during the Modified Exercise Price Term, the Company will issue to each Holder a new warrant (collectively, the “New Warrants”) to purchase up to the same number of shares of Common Stock issued to such Holder pursuant to the exercise of its Original Warrant during the Modified Exercise Price Term.

The Company delivered the Prospectus Supplement on March 2, 2020 and each Holder exercised all of their Original Warrants for cash.

As a result, on March 3, 2020, the Company issued the New Warrants to the Holders.

The New Warrants are exercisable at an exercise price per share of $ 1.06 commencing on the six-month anniversary of the issuance date, and will terminate on the date that is five years, six months following the issuance date.

The New Warrants and the shares of Common Stock issuable upon exercise of the New Warrants were not registered under the Securities Act of 1933, as amended (the "Securities Act"), and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act.

Outstanding at September 30, 2020

29,709,000 $ 1.54 4.11 $ 1,813,000

Vested and exercisable at September 30, 2020

29,709,000 $ 1.54 4.11 $ —

Shelf Registration Statement and At-the-Market Facility

In August 2020, the Company filed a shelf registration statement on Form S-3 with the SEC covering the offering, issuance and sale of up to $ 125.0 million of the Company’s securities, including up to $ 40.0 million of common stock pursuant to an at-the-market facility (“ATM”) with Ladenburg Thalmann & Co.

acting as sales agent.

As of September 30, 2020, the Company had not sold any shares of common stock under the ATM.

Stock-Based Compensation

Stock Options

A summary of the Company’s stock option activity for the six months ended June 30, 2020 was as follows:

A summary of the Company’s stock option activity under the Company's equity incentive plans for the nine months ended September 30, 2020 was as follows:

Shares of Stock under Stock Options Weighted-

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Canceled ( 662,000 ) 3.52

Outstanding at June 30, 2020 2,988,000 $ 3.34 8.46 $ 22,000

Vested and exercisable at June 30, 2020 1,021,000 $ 5.65 6.93 $ —

For the three months ended June 30, 2020 and 2019, the Company granted to its employees options to purchase 443,000 and 42,000 shares with a weighted average exercise price of $ 0.46 and $ 3.00 per share, respectively.

For the six months ended June 30, 2020 and 2019, the Company granted to its employees options to purchase 1,591,000 and 545,000 shares with a weighted average exercise price of $ 0.88 and $ 4.15 per share, respectively.

For the three months ended June 30, 2020 and 2019, the weighted-average grant date fair value of stock options granted was $ 0.30 and $ 1.71 per share, respectively.

For the six months ended June 30, 2020 and 2019, the weighted-average grant date fair value of stock options granted was $ 0.55 and $ 2.37 per share, respectively.

Outstanding at September 30, 2020

5,331,000 $ 1.97 8.96 $ 353,000

Vested and exercisable at September 30, 2020

1,119,000 $ 5.10 7.31 $ —

For the three months ended September 30, 2020 and 2019, the Company granted to its employees options to purchase 2,659,000 and 29,800 shares with a weighted average exercise price of $ 0.55 and $ 2.33 per share, respectively.

For the nine months ended September 30, 2020 and 2019, the Company granted to its employees options to purchase 4,250,000 and 706,640 shares with a weighted average exercise price of $ 0.67 and $ 3.82 per share, respectively.

For the three months ended September 30, 2020 and 2019, the weighted-average grant date fair value of stock options granted was $ 0.35 and $ 1.42 per share, respectively.

For the nine months ended September 30, 2020 and 2019, the weighted-average grant date fair value of stock options granted was $ 0.43 and $ 2.19 per share, respectively.

The Company recognized stock-based compensation expense for the periods presented were as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Three Months Ended

June 30, Six Months Ended

September 30, Nine months Ended

September 30,

2020 2019 2020 2019

16 unchanged sentences

The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer’s social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property (QIP).

The CARES Act did not have a material impact on the Company’s income tax provision for the three months ended June 30, 2020.

The Company continues to evaluate the impact of the CARES Act on its financial position, results of operations and cash flows.

The CARES Act did not have a material impact on the Company’s income tax provision for the three and nine months ended September 30, 2020.

Acquisition of Lineagen

On August 21, 2020, the Company, Merger Sub, Lineagen, and Michael S.

Paul, Ph.D., solely in his capacity as exclusive agent and attorney-in-fact of the securityholders of Lineagen, entered into the Merger Agreement.

Pursuant to the terms and conditions of the Merger Agreement, Merger Sub merged with and into Lineagen whereupon the separate corporate existence of Merger Sub ceased, with Lineagen continuing as the surviving corporation of the Merger as a wholly owned subsidiary of the Company.

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), the shares of capital stock of Lineagen and all options of Lineagen that were issued and outstanding immediately prior to the Effective Time were automatically cancelled and extinguished without any payment with respect thereto.

Certain holders of convertible notes and other indebtedness of Lineagen at the closing of the Merger (the “Closing”) received common stock of the Company.

The total number of shares of the Company’s common stock issued or reserved for issuance as consideration for the Merger is 6,167,510 shares, subject to adjustment for cash, accounts receivable, unpaid indebtedness, unpaid transaction expenses and certain other liabilities of Lineagen (the “Merger Shares”).

925,126 of the Merger Shares (the “Escrowed Shares”) will be held in an escrow fund for purposes of satisfying any post-closing purchase price adjustments and indemnification claims under the Merger Agreement.

Also as consideration for the Merger, pursuant to the Merger Agreement, the Company paid approximately $ 1.9 million in cash to certain creditors and assumed certain liabilities of Lineagen totaling approximately $ 2.9 million, reflective of the Company's preliminary estimate of the post-closing purchase price adjustment (which adjustment is subject to finalization pursuant to the terms of the Merger Agreement).

In addition, on August 21, 2020, concurrent with the Closing, the Company paid approximately $ 1.1 million to satisfy all outstanding principal and accrued interest amounts due pursuant to that certain Promissory Note, dated April 22, 2020, by and between Lineagen and Silicon Valley Bank (the “Lineagen PPP Loan”), issued pursuant to the CARES Act administered by the SBA.

The amount outstanding under the Lineagen PPP Loan previously accrued interest of 1.00% per annum and was subject to the standard terms and conditions applicable to loans administered by the SBA under the CARES Act.

The Lineagen PPP Loan was repaid by the Company prior to maturity without penalty.

The Company accounted for its acquisition of Lineagen using the acquisition method of accounting pursuant to ASC 805.

The tangible and identifiable intangible assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date, and the excess of the purchase price over the estimated fair value assigned to the tangible and identifiable intangible assets acquired and liabilities assumed was recorded to goodwill.

The purchase price allocation for the acquisition of Lineagen is preliminary and subject to revision as additional information about the fair value of assets and liabilities becomes available.

As permitted under ASC 805, the Company is allowed a measurement period, which may not exceed one year, in which to complete its accounting for the acquisition.

The Company has recognized provisional amounts for certain items, and subsequent adjustments during the measurement period to any of these items may affect the amount of goodwill recognized.

In particular, the Company has not yet completed its accounting for any acquired tax liabilities.

As discussed above, the purchase price for the acquisition of Lineagen is subject to adjustment for cash, accounts receivable, unpaid indebtedness, unpaid transaction expenses and certain other liabilities of Lineagen.

The following is the estimated purchase price for the acquisition of Lineagen:

Cash (a) $ 1,940,000

Cash transferred for repayment of Lineage PPP Loan (b) $ 1,104,000

Shares common stock issued as consideration (c) 6,167,510

Estimated shares of common stock to be returned to the Company (c) ( 138,247 )

Stock price per share on Effective Date $ 0.68

Value of estimated common stock consideration (c) $ 4,100,000

Total estimated purchase price (c) $ 7,144,000

(a) The Company paid approximately $ 1.9 million in cash to certain creditors of Lineagen.

(b) The Company paid approximately $ 1.1 million to satisfy all outstanding principal and accrued interest amounts due pursuant to the Lineagen PPP Loan.

(c) The total number of shares of the Company’s common stock issued or reserved for issuance as consideration for the Merger was 6,167,510 shares.

925,126 of the Merger Shares will be held in an escrow fund for purposes of satisfying any post-closing purchase price adjustments and indemnification claims under the Merger Agreement.

The total number of Merger Shares is subject to adjustment for cash, accounts receivable, unpaid indebtedness, unpaid transaction expenses and certain other liabilities of Lineagen.

The value of the estimated common stock consideration and the total estimated purchase price incorporate the return of an estimated 138,247 Escrowed Shares to the Company based on a preliminary estimate of this adjustment.

The total estimated purchase price was allocated to Lineagen’s tangible and identifiable intangible assets acquired and liabilities assumed on based on their estimated fair values as of the acquisition date, with the excess recorded as goodwill, as follows:

Cash and cash equivalents $ 596,000

Accounts receivable 569,000

Other assets 209,000

Property and equipment, net 111,000

Intangible assets 1,580,000

Goodwill 6,941,000

Accounts payable and other accrued liabilities ( 2,862,000 )

Net assets acquired $ 7,144,000

The acquisition date fair values of identifiable intangible assets acquired are as following:

Customer relationships $ 950,000

Trade name 630,000

Fair value of identifiable intangible assets $ 1,580,000

The customer relationships and trade name intangibles are both being amortized on a straight-line basis over their estimated useful lives of five years .

Straight-line amortization was determined to be materially consistent with the pattern of expected use of the intangible assets.

The Company recognized $ 1.1 million of acquisition-related costs, including financial advisor fees, legal expenses and accounting fees during the nine months ended September 30, 2020.

These costs are included in the condensed consolidated statement of operations in selling, general and administrative expense.

The amounts of revenue and net loss of Lineagen included in the Company’s Services and Other Revenue on the condensed consolidated statement of operations from the acquisition date to September 30, 2020 are as follows (in thousands):

Revenue $ 445,000

Net loss $ ( 330,000 )

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and Lineagen as if the companies had been combined as of January 1, 2019.

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Lineagen to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2019.

The following unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved as if the acquisition had taken place as of January 1, 2019.

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Revenue $ 3,018,000 $ 5,123,000 $ 7,948,000 $ 13,287,000

Net loss ( 10,087,000 ) ( 7,588,000 ) ( 30,375,000 ) ( 26,892,000 )

Basic and diluted net loss per share

$ ( 0.07 ) $ ( 0.45 ) $ ( 0.33 ) $ ( 1.61 )

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

What changed 10-Q

Item 1. Financial Statements