What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-23 compared with 2020-03-10 · 129 added, 98 removed, 168 unchanged (57% of the section changed)

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You should review the risks described in Part I, Item 1A Risk Factors and elsewhere in this Annual Report.

We are a genome analysis company providing tools and services based on our Saphyr system to scientists and clinicians conducting genetic research and patient testing.

We developed and market 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 evaluation of changes in chromosomes, which is known as cytogenetics.

Our commercial offering includes the Saphyr system, which 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 prefer not to adopt the Saphyr system in their labs.

Structural variation refers to large-scale structural differences in the genomic DNA of one individual compared to another.

Each structural variation involves the rearrangement or repetition of as few as several hundred to as many as tens of millions of DNA base pairs.

Structural variations may be inherited or arise spontaneously and many structural variations cause genetic disorders and diseases.

Until our commercial launch of the Saphyr system in February 2017, and since, we believe no other products existed or exist that could more comprehensively and cost and time-efficiently detect structural variation.

Our customers include researchers and clinicians who seek to uncover and understand the biological or clinical impact of genome variation to improve the diagnosis and treatment of patients with better clinical tests and new medicines or to replace existing cytogenetic tests that are expensive, slow and labor-intense, with a modern solution designed to simplify workflow and reduce cost and that has the potential to significantly increase diagnostic yields across the industry.

Our customers also include researchers in non-human segments, such as agricultural genomics, seeking to advance their understanding of how structural variation impacts industrial applications of plants and animals.

Since our inception, we have raised net proceeds of $168.3 million to fund our operations from the issuance of equity and convertible promissory notes as well as various term loans grossing $43.5 million.

We are 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 our wholly owned subsidiary Lineagen.

We develop and market 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.

Our Saphyr system comprises 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.

Lineagen has been providing genetic testing services to families and their healthcare providers for over nine years and has performed over 65,000 tests for those with neurodevelopmental concern.

We have incurred losses in each year since our inception.

Our net losses were $41.1 million and $29.8 million for the years ended December 31, 2020 and 2019, respectively.

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• incur increased costs as a result of operating as a public company.

We are 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 our 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.

Our 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 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.

Specifically, product demand may be reduced due to an economic recession, a decrease in corporate capital expenditures, prolonged unemployment, reduction in consumer confidence, or any similar negative economic condition.

These negative effects could have a material impact on our operations, business, earnings, and liquidity.

Initial Public Offering

In August 2018, we completed our initial public offering of our common stock, or the IPO, in which we sold an aggregate of 3,864,000 units (each unit consisting of one share of our common stock and one warrant to purchase one share of our common stock) at a public offering price of $6.125 per unit for net proceeds of $19.4 million, after deducting underwriters' discounts and commissions of $2.2 million and other offering expenses of $2.1 million.

Follow-On Offering

On October 23, 2019, we completed an underwritten public offering of 10,013,600 shares of our common stock and, to certain investors, pre-funded warrants to purchase 10,923,958 shares of our common stock, and accompanying common warrants to purchase up to an aggregate of 20,937,558 shares of our common stock.

Follow-On Public Offerings

In October 2019, we completed an underwritten public offering of 10,014,000 shares of our common stock and, to certain investors, pre-funded warrants to purchase 10,924,000 shares of our common stock, and accompanying common warrants to purchase

up to an aggregate of 20,938,000 shares of our common stock.

Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase one share of common stock.

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The common warrants are immediately exercisable at a price of $0.86 per share of common stock and will expire five years from the date of issuance.

The shares of common stock and pre-funded

warrants, and the accompanying common warrants, were issued separately and were immediately separable upon issuance.

We received gross proceeds, before deducting underwriting discounts and commissions and other offering expenses, of approximately $18.0 million.

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

We received gross proceeds, before deducting underwriting discounts and commissions and other offering expenses, of $18.0 million.

In April 2020, we completed an underwritten public offering of 16,896,000 shares of our common stock and, to certain investors, pre-funded warrants to purchase 37,650,000 shares of our common stock, and accompanying common warrants to purchase up to an aggregate of 54,546,000 shares of our common stock.

Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase one share of common stock.

The public offering price of each share of common stock and accompanying common warrant was $0.33 and $0.329 for each pre-funded warrant.

The pre-funded warrants are immediately exercisable at a price of $0.001 per share of common stock.

The common warrants are immediately exercisable at a price of $0.33 per share of common stock and will expire five years from the date of issuance.

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

We received gross proceeds, before deducting underwriting discounts and commissions and other offering expenses, of $18.0 million.

On January 12, 2021, we completed an underwritten public offering of 33,368,851 shares of our common stock, including 4,352,458 shares of our common stock sold pursuant to the underwriters' exercise in full of their option to purchase additional shares.

The price to the public in the offering was $3.05 per share and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $2.867 per share.

The gross proceeds to us were approximately $101.8 million before deducting underwriting discounts and commissions and other offering expenses.

On January 25, 2021, we completed an underwritten public offering of 38,333,352 shares of our common stock, including 5,000,002 shares of our common stock sold pursuant to the underwriters' exercise in full of their option to purchase additional shares.

The price to the public in the offering was $6.00 per share and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $5.64 per share.

The gross proceeds to us were approximately $230.0 million before deducting underwriting discounts and commissions and other offering expenses.

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.

During October through December 2020, the Company sold 27,025,384 shares of common stock under the ATM at an average share price of $0.82, and received gross proceeds of approximately $22.1 million before deducting offering costs of $573,263.

In January 2021, the Company sold an additional 6,298,152 shares of common stock under the ATM at an average share price of $2.68, and received gross proceeds of approximately $16.9 million before deducting offering costs of $422,034.

Financial Overview

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We currently sell our products for research use only applications and our customers are primarily laboratories associated with academic and governmental research institutions, as well as pharmaceutical, biotechnology and contract research companies.

In addition, the Company provides instruments to certain customers under its reagent rental program, under which the Company provides an instrument to customers at no cost and the customers agree to purchase minimum quantities of consumables.

Consumable revenue consists of sales of complete assays which are developed internally by us, plus sales of kits which contain all the elements necessary to run tests.

We also generate service revenue from the sale of diagnostic testing services for those with autism spectrum disorder and other neurodevelopmental disabilities through our wholly owned subsidiary Lineagen.

Other revenue consists of warranty and other service-based revenue.

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Service and other revenue 1

2,273,373 655,064

Total $ 8,502,984 $ 10,129,508

1 Includes $1.5 million of revenue generated by Lineagen from the date of acquisition through December 31, 2020.

The following table reflects total revenue by geography and as a percentage of total revenue, based on the billing address of our customers.

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North America $ 4,489,359 53 % $ 5,030,267 50 %

EMEIA 3,162,694 37 % 3,627,602 36 %

Asia Pacific 850,931 10 % 1,471,639 14 %

Total $ 8,502,984 100 % $ 10,129,508 100 %

Cost of Revenue

Cost of revenue for our instruments and consumables includes cost from the manufacturer, raw material parts costs and associated freight, shipping and handling costs, contract manufacturer costs, salaries and other personnel costs, overhead and other direct costs related to those sales recognized as product revenue in the period.

Cost of other revenue consists of salaries and other personnel costs and costs related to warranties and other costs of servicing equipment at customer sites.

Cost of revenue for our instruments and consumables includes raw material parts costs and associated freight, shipping and handling costs, contract manufacturing costs, salaries and other personnel costs, equipment depreciation, overhead and other direct costs related to those sales recognized as product revenue in the period.

Cost of service and other revenue consists of third-party laboratory costs to process the diagnostic samples, salaries of our clinical technicians who interpret and deliver the results to patients, warranty services, and other costs of servicing equipment at customer sites.

Research and Development Expenses

Research and development expenses consist of salaries and other personnel costs, stock-based compensation, research supplies, third-party development costs for new products, materials for prototypes, and allocated overhead costs that include facility and other overhead costs.

Research and development expenses consist of salaries and other personnel costs, stock-based compensation, research supplies, third-party development costs for new products, materials for prototypes, equipment depreciation, and allocated overhead costs that include facility and other overhead costs.

We have made substantial investments in research and development since our inception, and plan to continue to make investments in the future.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and other personnel costs, and stock-based compensation for our sales and marketing, finance, legal, human resources and general management, as well as professional services, such as legal and accounting services.

Selling, general and administrative expenses consist primarily of salaries and other personnel costs, intangibles amortization, and stock-based compensation for our sales and marketing, finance, legal, human resources and general management, as well as professional services, such as legal and accounting services.

Results of Operations

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The following table sets forth our results of operations for the years ended December 31, 2020 and 2019:

Year Ended December 31,

Period-to-Period Change

Year Ended December 31, Period-to-Period Change

Product revenue $ 6,229,611 9,474,444 $ (3,244,833) (34)%

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Interest expense (2,518,893) (2,286,196) (232,697) 10%

Change in fair value of preferred stock warrants and expirations

Loss on debt extinguishment — (1,333,496) 1,333,496 (100)%

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Provision for income taxes (29,193) (21,048) (8,145) 39%

Year Ended December 31,

Period-to-Period Change

Net loss $ (41,106,351) $ (29,815,070) $ (11,291,281) 38%

Year Ended December 31, Period-to-Period Change

Instrument revenue $ 3,084,869 $ 6,762,463 $ (3,677,594) (54)%

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Revenue decreased by $1.6 million, or 16% to $8.5 million for the year ended December 31, 2020, as compared to $10.1 million for the same period in 2019.

The decrease is primarily driven by our instrument sales year over year where the number units sold decreased 11% and average selling price (ASP) declined by 10%.

The decrease was largely driven by customers limiting their lab operations in response to COVID-19 restrictions to address the pandemic.

The decrease impacted all regions.

Below is a summary of changes for the year ended December 31, 2020 as compared to the same period in 2019:

• North America revenue decreased by $0.5 million, or 11%;

• EMEIA revenue decreased by $0.5 million, or 13%;

• Asia Pacific revenue decreased by $0.6 million, or 42%.

Revenue for the year ended December 31, 2020 includes service revenue of $2.3 million of which $1.5 million is from our recently acquired subsidiary, Lineagen, from the date of the acquisition of August 21, 2020 to December 31, 2020.

Cost of Revenue

Cost of revenue decreased by $1.0 million, or 15%, to $5.7 million for the year ended December 31, 2020, as compared to $6.8 million for the same period in 2019.

The decrease is due to an 11% decline in the number of instrument units sold year over year.

In addition, in connection with the market launch of the Saphyr system, including the strategic shift towards minimal selling efforts of Irys, our first generation instrument, the Company recorded a charge of $1.3 million included in cost of revenue to write-down these instruments to net realizable value during the year ended December 31, 2018.

We expect the cost of revenue per instrument to decrease in future periods as we benefit from economies of scale and modifications to the components and assembly over time.

The decrease was driven by the decrease in revenue as well as a change in the mix of revenue between instrument sales and our reagent rental program.

This was partially offset by an increase in consumable units sold of 59% and cost of service revenue of $0.5 million from our recently acquired subsidiary, Lineagen, from the date of the acquisition of August 21, 2020 to December 31, 2020.

Research and Development Expenses

Research and development expenses decreased by $0.4 million , or 4% , to $9.1 million for the year ended December 31, 2019 as compared to $9.5 million for the same period in 2018.

The decrease was primarily due to a decrease in foundry-related expenses to design our consumable production line.

This was offset by increased employee compensation costs due to headcount additions to our Assays and Regents, Genome Informatics, and Engineering teams in an effort to expand our product offerings and innovation.

Research and development expenses increased by $1.2 million, or 13%, to $10.3 million for the year ended December 31, 2020 as compared to $9.1 million for the same period in 2019.

This is due to headcount additions to our development teams, but slightly offset by the salary reductions implemented in April 2020.

In addition, our materials and supply expense increased during the year ended December 31, 2020 due to continued efforts to innovate our product.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $10.9 million, or 54%, to $31.1 million for the year ended December 31, 2020 as compared to $20.2 million for the same period in 2019.

We incurred increased employee compensation costs due to headcount additions to our global sales and marketing teams as well as back-office support teams to assist with the growth of our world-wide product distribution.

In addition, we have incurred increased professional fees to support ongoing business operations and to comply with obligations associated with being a publicly-traded company.

Lastly, we have increased our marketing and promotional spending in order to help drive sales.

We expect our selling, general and administrative expenses to increase in future periods as the number of sales, technical support and marketing and administrative personnel grows and we continue to broaden our customer base and grow our business.

This is due to organic headcount additions to our global sales and back-office teams to support world-wide product distribution, as well as headcount additions attributed to the acquisition of Lineagen.

Also, we incurred increased legal and accounting fees to support business operations both domestically and internationally.

A total of $1.5 million in transaction-related expenses were recorded for the Lineagen acquisition.

Lastly, we recognized bad debt expense of $1.8 million during the year ended December 31, 2020.

Interest Expense

Interest expense increased by $0.2 million, or 10%, to $2.5 million for the year ended December 31, 2020, as compared to $2.3 million for the same period in 2019, driven by changes in our long-term debt.

During that time, the principal balance of our debt increased from $10 million under the MidCap Financial CSA to $20 million under our Loan and Security Agreement with Innovatus Life Sciences Lending Fund I, LP, as further discussed below.

Change in Fair Value of Preferred Stock Warrants

Change in fair value of preferred stock warrants and expirations decreased to zero for the year ended December 31, 2019 compared to $4.0 million for the same period in 2018.

Prior to the IPO, we estimated fair value of the convertible preferred stock warrants at the time of issuance and subsequent remeasurement using the Black-Scholes-Merton model at each reporting date.

On the date of the IPO and going forward, all outstanding warrants are accounted for as equity and are not subject to remeasurement.

Loss on Debt Extinguishment

A loss on debt extinguishment of $1.3 million was recognized during the year ended December 31, 2019 resulting from the decision to pay-off the Credit and Security Agreement with MidCap Financial Trust prior to its maturity date.

Similarly, we recognized a loss of $0.3 million for the same period in 2018 when we paid-off the Western Alliance LSA.

In March 2019, the Company retired its $10.0 million Credit and Security Agreement with MidCap Financial (the “CSA”) and replaced it with a $20.0 million facility under our Loan and Security Agreement with Innovatus Life Sciences Lending Fund I, LP.

Liquidity and Capital Resources

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Sources of Liquidity

Prior to August 2018, we financed our operations principally through private placements of our convertible preferred stock, borrowings from credit facilities, and revenue from our commercial operations.

In August 2018, we completed the IPO, in which we sold 3,864,000 units (each unit consisting of one share of common stock and one warrant to purchase one share of our common stock) at a public offering price of $6.125 per unit for net cash proceeds of $19.4 million after deducting underwriters' discounts and commissions of $4.3 million.

In March 2019, we entered into a common stock purchase agreement, or the Aspire Purchase Agreement, with Aspire Capital Fund, LLC, or Aspire Capital, which provides that, subject to the terms, conditions and limitations thereto, Aspire Capital is committed to purchase up to an aggregate of $10.0 million of shares of our common stock.

Upon execution of the Aspire Purchase Agreement, we sold to Aspire Capital 272,479 shares of common stock at $3.67 per share for proceeds of $1.0 million and Aspire Capital committed to purchase up to $9.0 million of additional shares of our common stock at our request from time to time during the 30 month period beginning on April 23, 2019 and at prices based on the market price at the time of each sale, subject to certain conditions.

In consideration for entering into the Aspire Purchase Agreement and concurrently with the execution of the Aspire Purchase Agreement, we issued to

Aspire Capital 69,444 shares of our common stock.

In December, 2019, pursuant to the terms of the Aspire Purchase Agreement, we sold 1,067,361 shares of our common stock to Aspire Capital, resulting in $1.1 million in gross proceeds to us.

In March 2019, we entered into a common stock purchase agreement, or the Innovatus Purchase Agreement, with certain entities affiliated with Innovatus Life Sciences Lending Fund I, LP, or the Innovatus Investors, pursuant to which we agreed to issue and sell to the Innovatus Investors 406,504 shares of our common stock at $3.69 per share for proceeds of $1.5 million.

Upon execution of the Innovatus Purchase Agreement, we sold all of such shares to the Innovatus Investors.

In October 2019, we completed a follow-on public offering, which resulted in gross proceeds to us, before deducting underwriting discounts and commissions and other offering expenses, of approximately $18.0 million.

Preferred stock financings

Through the date of our IPO, we raised approximately $129.3 million in net equity proceeds through sales of our preferred stock.

Loan facilities

In March 2016, we entered into a new term Loan and Security Agreement with Western Alliance Bank, or the Western Alliance LSA, for $7.0 million.

In June 2018, we entered into a new Credit and Security Agreement with MidCap Financial Trust, or the MidCap Financial CSA, which provided a five-year, $15 million term loan facility.

The MidCap Financial CSA was secured by a lien covering substantially all of our assets, including intellectual property.

Upon executing the agreement, we drew down a $10.0 million term loan from the credit facility.

The loan proceeds were used to repay the outstanding $7.0 million balance on the Western Alliance LSA.

In March 2019, we entered into a new Loan and Security Agreement, or the Innovatus LSA, with Innovatus Life Sciences Lending Fund I, LP, or Innovatus, and certain lenders, which provides for borrowings up to $25.0 million pursuant to certain term loans and an additional $5.0 million under a revolving credit line.

The Innovatus LSA is secured by a lien covering substantially all of our assets, including our intellectual property.

Also in March 2019, we drew down $20.0 million in term loans from the Innovatus LSA.

These loan proceeds were used to repay the outstanding balance under the MidCap Financial CSA.

Beginning in May 2019, we began drawing down on the revolving credit line.

See Note 7 to our financial statements for a discussion of terms and provisions to the Western Alliance LSA, the Midcap Financial CSA, and the Innovatus LSA.

Note purchase agreement

In February 2018, we entered into a Note Purchase Agreement with various investors, or the Investors, pursuant to which we agreed to sell the Investors 8% Convertible Promissory Notes, or the Convertible Notes, in the original principal amount up to approximately $16.0 million.

In the second quarter 2018, we amended the Note Purchase Agreement to, among other things, increase the principal amount available for issuance under the Note Purchase Agreement to approximately $19.4 million.

In August 2018, the outstanding convertible promissory notes of $14.3 million and accrued interest was converted into 3,239,294 shares of common stock upon completion of the IPO.

Since our IPO, we have generated cash flows from sales of common stock and other equity instruments.

We anticipate that future sources of liquidity will principally come from sales of common stock and other equity instruments, borrowings from credit facilities and revenue from our commercial operations.

See Note 9 to our consolidated financial statements for a discussion of our recent equity activity and Note 8 to our consolidated financial statements for a discussion of terms and provisions of our debt included in this Annual Report on Form 10-K for more information.

We derive cash flows from operations primarily from the sale of our products and services.

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Net cash used in operating activities was $38.3 million during the year ended December 31, 2020 as compared to $29.5 million during the year ended December 31, 2019.

The increase in cash used in operating activities of $9.6 million is attributed to increased headcount across all business segments, increased professional fees to support ongoing business operations and to comply with obligations associated with being a publicly-traded company, and increased investments in marketing and promotions.

These increases are partly offset by lower facilities expense as a result of us subleasing one of our leased facilities in the fourth quarter of 2018.

The increase in cash used in operating activities of $8.8 million is attributed to increased headcount across the business, increased professional fees to support ongoing business operations and increase our international presence, increased spending on materials and supplies, as well as $1.5 million in acquisition-related costs.

Investing Activities

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We expect to continue to incur additional costs for capital expenditures related to these efforts in future periods.

We did not use a significant amount of cash in investing activities during the year ended December 31, 2019 as well as for the same period in 2018.

During the year ended December 31, 2020, cash used in investing activities related to the acquisition of Lineagen, our new wholly owned subsidiary.

We did not use a significant amount of cash in investing activities during the year ended December 31, 2019.

Financing Activities

Historically, we have financed our operations principally through private placements of our convertible preferred stock and promissory notes and borrowings from credit facilities, as well as gross profits from our commercial operations.

In August 2018, we completed the IPO.

Net cash provided by financing activities was $30.4 million during the year ended December 31, 2019 as compared to $35.8 million during the year ended December 31, 2018, a decrease of $5.4 million .

Net cash provided by financing activities was $61.9 million during the year ended December 31, 2020 as compared to $30.4 million during the year ended December 31, 2019, an increase of $31.5 million.

During the year ended December 31, 2020, we raised approximately $16.4 million in net proceeds from a follow-on offering, and $28.6 million from warrant exercises, and $21.6 million in ATM sales.

In addition, we received approximately $1.8 million pursuant to the PPP Loan, as defined in Note 8 to our consolidated financial statements included in this Annual Report.

Offsets included payments of $2.3 million on our revolving line of credit and $5.0 million in term-loan principal prepayments in accordance with the Second Amendment.

During the year ended December 31, 2019, we had net proceeds of $11.0 million from the Innovatus LSA and Innovatus Purchase Agreement, $2.5 million from the Aspire Purchase Agreement, and net proceeds from our follow-on public offering of $16.0 million.

During the same period of 2018, we had net proceeds from the issuance of convertible notes of $14.3 million, IPO net proceeds of $19.4 million, and net debt proceeds of $2.0 million.

Capital Resources

We performed an analysis of our ability to continue as a going concern.

We believe, based on our current business plan, that our existing cash and cash equivalents will be sufficient to fund our operations and obligations through the second quarter of 2020, but will not be sufficient to fund our operations and obligations throughout the remainder of the year.

We plan to continue to fund our operations through cash and cash equivalents on hand, as well as through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset sales, or other arrangements.

There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.

Even if we raise additional capital, we may also be required to modify, delay or abandon some of our plans which could have a material adverse effect on our business, operating results and financial condition and our ability to achieve our intended business objectives.

Any of these actions could materially harm our business, results of operations and future prospects.

As of December 31, 2020, we had approximately $38.4 million in cash and cash equivalents, and working capital of $37.8 million.

In addition, we have a revolving line of credit with Innovatus Life Sciences Lending Fund I, LP (the “Innovatus LSA”), under which no borrowings were outstanding as of December 31, 2020.

As of December 31, 2020, the amount available under the revolving line of credit was $5.0 million.

This facility is scheduled to expire in March 2024.

See Note 8 to our consolidated financial statements for a discussion of terms and provisions of our debt included in this Annual Report on Form 10-K for more information.

During October through December 2020, pursuant an effective registration statement on Form S-3, we sold 27,025,384 shares of our common stock under an at-the-market facility, or the Ladenburg ATM, at an average share price of $0.82, and received gross proceeds of approximately $22.1 million before deducting offering costs of $573,263.

In January 2021, we sold an additional 6,298,152 shares of our common stock under the Ladenburg ATM at an average share price of $2.68, and received gross proceeds of approximately $16.9 million before deducting offering costs of $422,034.

The price to the public in the offering was $3.05 per share and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $2.867 per share.

The gross proceeds to us were approximately $101.8 million before deducting underwriting discounts and commissions and other offering expenses.

The price to the public in the offering was $6.00 per share and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $5.64 per share.

The gross proceeds to us were approximately $230.0 million before deducting underwriting discounts and commissions and other offering expenses.

Management believes the available cash balance will be sufficient to fund operations, obligations as they become due, and capital investments for at least the next twelve months.

Off-Balance Sheet Arrangements

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Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements included elsewhere in this Annual Report on for information concerning recent accounting pronouncements.

See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on for information concerning recent accounting pronouncements.

Critical Accounting Policies and Estimates

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Revenue Recognition

We generate revenue from the sale of our products, primarily our Saphyr system and related consumables, and related services, which are primarily support, repairs and maintenance services on the instruments.

Our products are sold primarily through a direct sales force, and within international markets, there is more reliance on distributors.

We generate revenue from the sale of our OGM products, primarily our Saphyr system and related consumables, and related services, which are primarily support, repair and maintenance services on the instruments.

These products are sold primarily through a direct sales force, and within international markets, there is more reliance on distributors.

In addition, we provide the Saphyr system to certain customers under our reagent rental program, under which we provides Saphyr systems to customers at no cost and the customers agree to purchase minimum quantities of consumables.

We also generate revenue by performing diagnostic testing services, sourced from our recently acquired subsidiary, Lineagen.

Revenue is recorded net of sales tax.

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

Year Ended December 31,

North America

For the years ended December 31, 2019 and 2018 , the United States represented 47% and 38% , and China represented 5% and 17% , respectively of total revenue.

We provide assurance-type warranties on our instruments with a term of one year, which are not material performance obligations, and also offer separately-priced extended warranties for periods after the initial year.

We consider revenue to be earned when all of the following criteria are met:

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Service revenue related to repairs and customer sample evaluations are recognized as the services are performed based on the specific nature of the service.

For transfers of instruments and consumables to customers under our rental reagent program, we allocate the total contract consideration between the instrument and the consumables based on estimates of stand-alone selling prices, and we recognize the instrument revenue evenly over the rental period, and the consumables revenue when the consumables are delivered.

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

We perform our obligation under a contract with a customer by processing diagnostic tests and communicating the test results, which we have determined is the point at which control is transferred to the customer for revenue recognition purposes.

We recognize a receivable when it has an unconditional right to payment, which is generally at the time of shipment of consumables and instruments, including any extended warranties, and at the time when services are rendered.

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For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

We determine our best estimate of standalone selling price using average selling prices over 3- to 12-month periods of data depending on the products or nature of the services coupled with current market considerations.

If the product or service does not have a history of sales or if sales volume is not sufficient, including instruments under reagent rental agreements, we have estimated the standalone selling price to be the incremental sales price generally charged for consumables to customers under the reagent rental agreements in relation to amounts charged to other customers.

If the product or service does not have a history of sales or if sales volume is not sufficient, including

instruments under reagent rental agreements, we have estimated the standalone selling price to be the incremental sales price generally charged for consumables to customers under the reagent rental agreements in relation to amounts charged to other customers.

Variable Consideration

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Remaining Performance Obligations

As of December 31, 2019, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was approximately $540,140 .

As of December 31, 2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was $513,379.

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

We expect to recognize approximately 81% of this amount as revenue in 2021, 16% in 2022 and 3% in 2023.

Warranty revenue is included in service and other revenue.

Contract Assets and Liabilities

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Contract liabilities are classified as other current liabilities and other long-term liabilities on the consolidated balance sheets.

We recognized revenue of $270,171 and $74,342 during the years ended December 31, 2019 and 2018, respectively, that was included in the contract liability balance at the end of the previous year.

We recognized revenue of $357,492 and $270,171 during the years ended December 31, 2020 and 2019, respectively, which was included in the contract liability balance at the end of the previous year.

Distributor Transactions

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The inputs for the Black-Scholes valuation model require management’s significant assumptions.

Prior to our IPO, the common share price was determined by our board based on recent prices of common shares sold in private offerings prior to the IPO.

Subsequent to the IPO, the common share price was determined by using the quoted price on the grant date.

The common share price was determined by using the quoted price on the grant date.

The risk-free interest rates were based on the rate for U.S.

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The expected volatility was estimated based on historical volatility information of peer companies that are publicly available.

Goodwill Impairment

We review goodwill annually at the reporting unit level at the same time every year or when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist.

We have established December 31 as the annual impairment test date.

We first make a qualitative assessment as to whether goodwill is impaired and if it is more likely than not that goodwill is impaired, we perform a quantitative impairment analysis to determine if goodwill is impaired.

We may also determine to skip the qualitative assessment in any year and move directly to the quantitative test.

For the quantitative test, we determine the fair value of the reporting unit, then compare the fair value of the reporting unit to its carrying value.

Goodwill impairment is recorded for any excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The determination of fair value requires a number of significant assumptions and judgments, including assumptions about future economic conditions, revenue growth, operating margins, and discount rates.

We have determined that the Company is a single reporting unit for purposes of goodwill impairment testing.

As of December 31, 2020, we performed a qualitative assessment of goodwill impairment which included an evaluation of changes in industry, market and macroeconomic conditions as well as consideration of our financial performance and any significant trends.

Our qualitative assessment indicated that it was not more likely that not that goodwill is impaired.

No impairments of goodwill were reported during the years ended December 31, 2020 and 2019.

Business Combinations

We apply the provisions of ASC 805, Business Combinations, in accounting for acquisitions.

It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are required to be recorded to our consolidated statements of operations.

Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies and any contingent consideration, where applicable.

Although we believe that the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired company and are inherently uncertain.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act.

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We will remain an emerging growth company for up to five years, although we will cease to be an “emerging growth company” upon the earliest of:

(1) December 31, 2023, which is the end of the fiscal year following the fifth anniversary of the closing of our IPO, (2) the last day of the first fiscal year in which our annual revenues are $1.07 billion or more, (3) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities, and (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act.

(1) December 31, 2023, which is the end of the fiscal year following the fifth anniversary of the closing of our IPO, (2) the last day of the first fiscal year in which our annual revenues are $1.07 billion or more, (3) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities, or (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act.

Quantitative and Qualitative Disclosures About Market Risk.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis