What changed in this filing

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Item 1A. Risk Factors

2021-11-04 compared with 2021-08-04 · 95 added, 92 removed, 1150 unchanged (14% of the section changed)

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in particular, the COVID-19 pandemic has materially affected our operations globally, including at our headquarters in San Diego, California, as well as the business or operations of our research partners, customers and other third parties with whom we conduct business;

• Our future capital needs are uncertain and we will require additional funding in the future to advance the commercialization of Saphyr and our other products, as well as continue our research and development efforts;

• Our future capital needs are uncertain and we will require additional funding in the future to advance the commercialization of Saphyr and our other products and services, as well as continue our research and development efforts;

if we fail to obtain additional funding, we will be forced to delay, reduce or eliminate our commercialization and development efforts;

• If our products fail to achieve and sustain sufficient market acceptance, our revenue will be adversely affected;

• Acquisitions or joint ventures could disrupt or otherwise harm our business and may cause dilution to our stockholders;

• Our future success is dependent upon our ability to further penetrate our existing customer base and attract new customers;

• We are currently limited to “research use only” with respect to many of the materials and components used in our consumable products including our assays;

• In the near term, sales of our Saphyr system, consumables and genome analysis service will depend on levels of research and development spending by academic and governmental research institutions and biopharmaceutical companies, a reduction in which could limit demand for our products and adversely affect our business and operating results;

• In the near term, sales of our Saphyr system, consumables and genome analysis services will depend on levels of research and development spending by clinical research laboratories, academic and governmental research institutions and biopharmaceutical companies, a reduction in which could limit demand for our products and adversely affect our business and operating results;

• If we do not successfully manage the development and launch of new products, our financial results could be adversely affected;

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• If we are unable to protect our intellectual property, it may reduce our ability to maintain any technological or competitive advantage over our competitors and potential competitors, and our business may be harmed;

• The terms of our debt facility place restrictions on our operating and financial flexibility, and failure to comply with covenants or to satisfy certain conditions of the agreement governing the debt facility may result in acceleration of our repayment obligations and foreclosure on our pledged assets, which could significantly harm our liquidity, financial condition, operating results, business and prospects and cause the price of our securities to decline;

• The price of our securities may be volatile, and you could lose all or part of your investment.

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We cannot be certain that we will achieve or sustain profitability.*

We incurred net losses of $28.7 million and $18.6 million, and used cash in operations of $26.3 million and $15.3 million for the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021, we had an accumulated deficit of $172.4 million.

We incurred net losses of $49.5 million and $29.4 million, and used cash in operations of $46.3 million and $26.2 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, we had an accumulated deficit of $193.2 million.

We cannot predict if we will achieve sustained profitability in the near future or at all.

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These increased expenses will make it harder for us to achieve and sustain future profitability.

We may incur significant losses in the future for a number of reasons, many of which are beyond our control, including the other risks described in this Quarterly Report, the market acceptance of our products, future product development and our market penetration and margins.

We may incur significant losses in the future for a number of reasons, many of which are beyond our control, including the other risks described in this Quarterly Report on Form 10-Q, the market acceptance of our products, future product development and our market penetration and margins.

Our quarterly and annual operating results and cash flows have fluctuated in the past and might continue to fluctuate, which could cause the market price of our securities to decline substantially.*

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These fluctuations may make financial planning and forecasting uncertain.

In addition, these fluctuations may result in unanticipated decreases in our available cash, which could negatively affect our business and prospects.

In addition, these fluctuations may result in unanticipated decreases in our available cash, which could negatively affect our business and

In addition, one or more of such factors may cause our revenue or operating expenses in one period to be disproportionately higher or lower relative to the others.

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• the rate of utilization of consumables by our customers;

• receipt and timing of revenue for services provided by out data solutions service;

• receipt and timing of revenue for services provided by our data solutions service;

• the timing of the introduction of new systems, products, system and product enhancements and services;

• our ability to successfully execute our sales and marketing strategy for our Lineagen products and diagnostic assays;

• the successful execution of our development and integration plans for our BioDiscovery software products and services;

• the receipt and timing of revenue from our distribution and marketing arrangements.

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result in weaknesses in our infrastructure, systems, or controls;

rise to operational mistakes, losses, loss of customers, productivity or business opportunities;

give rise to operational mistakes, losses, loss of customers, productivity or business opportunities;

and result in loss of employees and reduced productivity of remaining employees.

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We expect to continue to spend substantial amounts in order to continue the commercialization of our products as well as our research and development programs.

During October 2020 through January 2021, as described further under the heading Liquidity and Capital Resources included in Item 2 of this Quarterly Report, we raised an aggregate of $370.8 million in gross proceeds from an at-the-market facility and other public offerings, before deducting underwriting discounts and commissions and other offering costs and expenses.

During October 2020 through September 2021, as described further under the heading Liquidity and Capital Resources included in Item 2 of this Quarterly Report on Form 10-Q, we raised an aggregate of $384.7 million in gross proceeds from our at-the-market facilities and other public offerings, before deducting underwriting discounts and commissions and other offering costs and expenses.

However, in the future, we may need to raise additional funding.

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For example, certain members of our workforce are now performing their duties remotely and these employees have not been able to maintain the same level of productivity and efficiency due a lack of resources that would otherwise be available to them in our offices and additional demands on their time, such as increased responsibilities resulting from school closures or the illness of family members.

Furthermore, our remote workforce poses increased risks to our information technology systems and data as more of our personnel leverage resources not necessarily within our control.

The effects of these public health directives and orders and our related adjustments in our business have negatively impacted productivity, disrupted our business and delayed our timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.

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A recession or market correction resulting from the spread of COVID-19 could also materially affect our business and the value of our common stock even after the outbreak of COVID-19 has subsided, due to unforeseen adverse impacts on us or our third-party manufacturers, vendors and customers.

Also, in connection with our Diagnostic Services, COVID-19 poses the risk that we or our employees, contractors, suppliers, courier delivery services and other partners may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities.

Also, in connection with our Lineagen diagnostic services, COVID-19 poses the risk that we or our employees, contractors, suppliers, courier delivery services and other partners may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities.

The continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt the supply chain of materials needed for our diagnostic tests, interrupt our ability to receive specimens, impair our ability to perform or deliver the results from our tests, impede patient movement or interrupt healthcare services causing a decrease in test volumes, delay coverage decisions from Medicare and third-party payors, delay ongoing and planned clinical trials involving our tests and have a material adverse effect on our business, financial condition and results of operations.

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If the effects of COVID-19 cause us to fall out of compliance with one or more of such covenants and we are unable to secure a waiver or negotiate an amendment to our loan agreement on reasonable terms, or at all, an event of default could occur, which would allow our lender to accelerate our repayment obligations or enforce its other rights under our loan agreement.

Any such default may also require us to seek additional or alternative financing, which may not be available on commercially reasonable terms or at all.

Any such default may also require us to seek additional or alternative financing, which may not be available on commercially reasonable terms or

If we are unable to access funds to repay our lender, our lender could take control of our pledged assets.

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We do not yet know the full extent of potential delays or impacts on our business or the global economy as a whole, and such impacts may not be fully recoverable.

In addition, the current and potential adverse impacts of the COVID-19 pandemic on our business, financial condition, results of operations and growth prospects, may also have the effect of heightening many of the other risks and uncertainties described in this Quarterly Report.

Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.

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Compared to some competing technologies, our technology is new and complex, and many potential customers have limited knowledge of, or experience with, our products.

Prior to adopting our systems, some potential

customers may need to devote time and effort to testing and validating our systems.

Prior to adopting our systems, some potential customers may need to devote time and effort to testing and validating our systems.

Any failure of our systems to meet these customer benchmarks could result in potential customers choosing to retain their existing systems or to purchase systems other than ours.

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• unanticipated expenses and liabilities related to acquired companies;

• difficulties integrating acquired personnel, technologies and operations into our existing business;

• difficulties integrating acquired personnel, technologies, operations and legal compliance obligations into our existing business;

• diversion of management time and focus from operating our business to acquisition integration challenges;

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In addition, pursuant to the Lineagen Acquisition, headcount of our consolidated operations increased by 33 employees, which has resulted in and will continue to result in increased selling, general and administrative expenses.

Although we conducted extensive business, financial and legal due diligence in connection with our evaluation of the Lineagen Acquisition, our due diligence investigations may not have identified every matter that could adversely affect our business, operating results and financial condition.

We may be unable to adequately address the financial, legal and operational risks introduced by the Lineagen Acquisition and may have difficulty developing experience with the industry in which Lineagen operates.

Accordingly, we cannot guarantee that the Lineagen Acquisition will yield the results we have anticipated and unforeseen complexities and expenses may arise.

In addition, we may not achieve the revenues, growth prospects and synergies expected from this acquisition any such benefits we do achieve may not offset increased costs, resulting in a potential impairment of goodwill or other assets that were acquired.

For future acquisitions, we may similarly be unable achieve revenue, growth

prospects and synergies in a manner consistent with our expectations.

Additionally, on October 18, 2021, we completed the acquisition of BioDiscovery, Inc., or BioDiscovery, a U.S.-based software company with solutions for analysis, interpretation and reporting of genomics data, where we paid upfront consideration consisting of a combination of approximately $50 million in cash and $40 million in shares of our common stock, pursuant to the terms of that certain Agreement and Plan of Merger, dated as of October 8, 2021, or the BioDiscovery Merger Agreement, by and among us, Starship Merger Sub I, Inc., Starship Merger Sub II, LLC, BioDiscovery and Soheil Shams, solely in his capacity as the securityholders’ representative, or the BioDiscovery Acquisition, and together with the Lineagen Acquisition, the Recent Acquisitions.

The issuance of shares as consideration in the BioDiscovery Acquisition resulted in dilution to our existing stockholders.

In addition, pursuant to the BioDiscovery Acquisition, headcount of our consolidated operations increased by 24 employees, which will continue to result in increased selling, general and administrative expenses.

Although we conducted extensive business, financial and legal due diligence in connection with our evaluation of the Recent Acquisitions, our due diligence investigations may not have identified every matter that could adversely affect our business, operating results and financial condition.

We may be unable to adequately address the financial, legal and operational risks introduced by the Recent Acquisitions and may have difficulty developing experience with the industry in which Lineagen and/or BioDiscovery operates.

Accordingly, we cannot guarantee that the Recent Acquisitions will yield the results we have anticipated and unforeseen complexities and expenses may arise.

In addition, we may not achieve the revenues, growth prospects and synergies expected from the Recent Acquisitions any such benefits we do achieve may not offset increased costs, resulting in a potential impairment of goodwill or other assets that were acquired.

For future acquisitions, we may similarly be unable achieve revenue, growth prospects and synergies in a manner consistent with our expectations.

Our failure to do so could adversely affect our business, operating results and financial condition.

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In March 2021, we entered into a new at-the-market facility, or the Cowen ATM, with Cowen and Company, LLC, or Cowen, which provides for the sale, in our sole discretion, of shares of our common stock having an aggregate offering price of up to $350.0 million through or to Cowen, acting as sales agent or principal.

To-date, no shares have been issued pursuant to the Cowen ATM.

In addition, we issued shares of our common stock in connection with the Lineagen Acquisition and to Innovatus in lieu of waiver fees.

In August and September 2021, the Company sold 2,256,000 shares of common stock under the ATM at an average share price of $6.15 per share, and received gross proceeds of approximately $13.9 million before deducting offering costs of $0.6 million .

In addition, we issued shares of our common stock in connection with the Recent Acquisitions and to our previous lender, Innovatus Life Sciences Lending Fund I, LP, in lieu of waiver fees.

Any future significant sales of our capital stock would result in dilution to our current stockholders.

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• our ability to continue to fund planned sales and marketing activities;

• whether private health insurers, government health programs and other third-party payers will adopt our current and future assays in their guidelines, or cover such diagnostic assays and, if so, whether they will adequately reimburse us.

• whether private health insurers, government health programs and other third-party payors will adopt our current and future assays in their guidelines, or cover such diagnostic assays and, if so, whether they will adequately reimburse us.

The COVID-19 pandemic may also increase the risk and uncertainty of the events described above and delay our development timelines.

Failure to achieve widespread market acceptance of our current products, assays and services, as well as our planned future products, assays and services, would materially harm our business, financial condition and results of operations.

In the near term, sales of our Saphyr system, consumables and genome analysis services will depend on levels of research and development spending by academic and governmental research institutions and biopharmaceutical companies, a reduction in which could limit demand for our products and adversely affect our business and operating results.

In the near term, sales of our Saphyr system, consumables and genome analysis services will depend on levels of research and development spending by clinical research laboratories, academic and governmental research institutions and biopharmaceutical companies, a reduction in which could limit demand for our products and adversely affect our business and operating results.

In the near term, we expect that our revenue from sales of our Saphyr system, consumables and OGM services will be derived primarily from sales to academic and governmental research institutions, as well as biopharmaceutical and contract research companies worldwide for research applications.

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The sales process for our systems generally involves numerous interactions with multiple individuals within an organization, and often includes in-depth analysis by potential customers of our technology and products and a lengthy review process.

Our customers’ evaluation processes often involve a number of factors, many of which are beyond our control.

customers’ evaluation processes often involve a number of factors, many of which are beyond our control.

As a result of these factors, the capital investment required to purchase our systems and the budget cycles of our customers, the time from initial contact with a customer to our receipt of a purchase order can vary significantly.

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• anticipate and respond to our competitors’ development of new products and technological innovations;

• innovate and develop new technologies and applications, and acquire or obtain rights to third-party technologies that may have valuable applications in the markets we serve;

• innovate and develop new technologies and applications, including software applications through our BioDiscovery subsidiary, and acquire or obtain rights to third-party technologies that may have valuable applications in the markets we serve;

• successfully commercialize new technologies in a timely manner, price them competitively and manufacture and deliver sufficient volumes of new products of appropriate quality on time;

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In addition, if we fail to accurately predict future customer needs and preferences or fail to produce viable technologies, we may invest heavily in research and development of products that do not lead to significant revenue.

For example, we recently completed the BioDiscovery Acquisition and will need to devote time and resources in order to further develop and integrate BioDiscovery’s software and technology solutions for our current and anticipated product offerings.

We may be unsuccessful in achieving our desired results or in marketing such solutions to our future customers.

Even if we successfully innovate and develop new products and product enhancements, we may incur substantial costs in doing so, and our profitability may suffer.

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Our future success is dependent upon our ability to further penetrate our existing customer base and attract new customers.

Our current customer base for our RUO products is primarily composed of academic and governmental research institutions and biopharmaceutical and contract research companies and, for our Diagnostic Services, physicians and their patients.

Our success will depend upon our ability to respond to the evolving needs of, and increase our market share among, existing customers and additional potential customers, marketing new products and services as we develop them.

Our current customer base for our RUO products is primarily composed of academic and governmental research institutions and biopharmaceutical and contract research companies and, for our Lineagen diagnostic services, physicians and their patients.

Our success will depend upon our ability to respond to the evolving needs of, and increase our market share among, existing

customers and additional potential customers, marketing new products and services as we develop them.

Identifying, engaging and marketing to customers who are unfamiliar with our current products requires substantial time, expertise and expense and involves a number of risks, including:

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The FDA Guidance on “Distribution of In Vitro Diagnostic Products Labeled for Research Use Only or Investigational Use Only”, or, the RUO/IUO Labeling Guidance, emphasizes that the FDA will review the totality of the circumstances when evaluating whether equipment and testing components are properly labeled as RUO.

It further states that merely including a labeling statement that a product is intended for research use only will not necessarily render the device exempt from the FDA’s 510(k) clearance, PMA, or other requirements, if the circumstances surrounding the distribution of the product indicate that the

manufacturer intends for its product to be offered for clinical diagnostic use.

These circumstances may include written or verbal marketing claims or links to articles regarding a product’s performance in clinical applications, a manufacturer’s provision of technical support for clinical validation or clinical applications, or solicitation of business from clinical laboratories, all of which could be considered evidence of intended uses that conflict with RUO labeling.

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Our products may contain undetected errors or defects when first introduced or as new versions or new products are released.

Disruptions affecting the introduction or release of, or other performance problems with, our products may damage our

customers’ businesses and could harm their and our reputations.

Disruptions affecting the introduction or release of, or other performance problems with, our products may damage our customers’ businesses and could harm their and our reputations.

If that occurs, we may incur significant costs, the attention of our key personnel could be diverted, or other significant customer relations problems may arise.

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We intend to continue to grow our business internationally, and to do so we must attract additional distributors and retain existing distributors to maximize the commercial opportunity for our products.

There is no guarantee that we will be successful in attracting or retaining desirable sales and distribution partners or that we will be able to enter into such arrangements on favorable terms.

There is no guarantee that we will be successful in attracting or retaining desirable sales and distribution partners or that we will be able to enter into such arrangements on

favorable terms.

Distributors may not commit the necessary resources to market and sell our products to the level of our expectations or may choose to favor marketing the products of our competitors.

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As our operations in countries outside of the U.S.

grow, our results of operations and cash

flows may be subject to fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future.

grow, our results of operations and cash flows may be subject to fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future.

For example, if the value of the U.S.

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We are increasingly dependent upon information technology systems, infrastructure and data to operate our business.

In the ordinary course of our business, we collect, store, use, transmit, and otherwise process sensitive, proprietary and confidential information, including but not limited to intellectual property, proprietary business information owned or controlled by ourselves or our customers, financial information and, where allowed, personal information (including protected health information).

In the ordinary course of our business, we collect, store, use, transmit, and otherwise process sensitive, proprietary and confidential information, including but not limited to intellectual property, proprietary business information owned or controlled by ourselves or our customers, financial information and personal information (including protected health information).

The secure collection, storage, use, transmission and processing of such information is vital to our operations and business strategy.

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The procedures and controls we use to monitor cyber security threats and mitigate our exposure to such threats may not be sufficient to prevent cyber security incidents, and our internal information technology systems and those of our third-party service providers, consultants, and contractors are potentially vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war, public health crises (such as the COVID-19 global pandemic), telecommunication and electrical failures, theft as well as security breaches from inadvertent or intentional actions by our employees, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, viruses, worms, denial-of-service attacks, supply chain attacks, social engineering schemes and other means to affect service reliability and threaten the confidentiality, integrity and availability of information), which may compromise our, or our third-party service providers’ consultants’, or contracts’ system infrastructure or lead to data leakage or misdirected payments to and from us.

Ransomware attacks, including those from organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions, delays, or outages in our operations, loss of data, loss of income, significant extra expenses to restore data or systems, reputational loss and the diversion of funds.

Ransomware attacks, including those

from organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions, delays, or outages in our operations, loss of data, loss of income, significant extra expenses to restore data or systems, reputational loss and the diversion of funds.

To alleviate the financial, operational and reputational impact of a ransomware attack it may be preferable to make extortion payments, but we may be unwilling or unable to do so (including, for example, if applicable laws or regulations prohibit such payments).

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Despite the security controls we have in place, such attacks are very difficult to avoid.

To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of information, we could incur liability and reputational damage.

In addition, these incidents could result in disrupted operations, lost opportunities, misstated financial data, increased costs arising from the implementation of additional security protective measures and litigation costs.

To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure or acquisition of or access to information, we could incur liability and reputational damage.

While we have security measures in place designed to protect information and prevent data loss and other security breaches, we cannot guarantee that our, or our third-party service providers’, consultants’, or contractors’ security measures will be sufficient to protect against unauthorized access to, or other compromise of such information.

The techniques used to sabotage or to obtain unauthorized access to our platform, systems, networks and/or physical facilities in which data is stored or through which data is transmitted change frequently, and we may be unable to anticipate such techniques or implement adequate preventative measures or stop security breaches that may arise from such techniques.

The techniques used to sabotage or to obtain unauthorized access to our products, services, platform, systems, networks and/or physical facilities in which data is stored or through which data is transmitted change frequently, and we may be unable to anticipate such techniques or implement adequate preventative measures or stop security breaches that may arise from such techniques.

As a result, our safeguards and preventive measures may not be adequate to prevent current or future cyberattacks and security incidents, including security breaches that may remain undetected for extended periods of time, which can substantially increase the potential for a material adverse impact resulting from the breach.

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In addition, we may have contractual and other legal obligations to notify relevant stakeholders of security breaches.

Failure to prevent or mitigate cyberattacks could result in unauthorized access to such information, including personal information (and protected health information).

Failure to prevent or mitigate cyberattacks could result in unauthorized access to, acquisition of or disclosure of such information, including personal information (and protected health information).

Most jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities and others of security breaches involving certain types of data.

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In addition, any costs or other liabilities related to responding to a cybersecurity event or to mitigate any identified security vulnerabilities could be significant, including costs for remediating the effects of such an event, paying a ransom, restoring data from backups, and conducting data analysis to determine what data may have been affected by the breach.

In addition, our efforts to contain or remediate a security breach or any vulnerability exploited to cause a breach may be unsuccessful, and efforts and any related failures to contain or remediate

them could result in interruptions, delays, loss in customer trust, harm to our reputation, and increases to our insurance coverage.

In addition, our efforts to contain or remediate a security breach or any vulnerability exploited to cause a breach may be unsuccessful, and efforts and any related failures to contain or remediate them could result in interruptions, delays, loss in customer trust, harm to our reputation, and increases to our insurance coverage.

For example, any such event that leads to unauthorized access, use, or disclosure of information, including personal information related to our patient samples or personnel, could harm our reputation directly, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information, which could result in significant legal and financial exposure and reputational damages that could potentially have an adverse effect on our business.

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Our actual or perceived failure to comply with such obligations could lead to enforcement or litigation (that could result in fines or penalties), reputational harm, or other adverse business effects.

We are or may become subject to numerous foreign and domestic laws, regulations and standards regarding privacy and data security that govern the personal information and other data we may collect, store, use, or process.

The regulatory framework for privacy and data protection issues is rapidly evolving and is likely to remain uncertain for the foreseeable future.

We are or may become subject to numerous foreign and domestic laws, regulations and standards, as well as policies, contracts and other obligations regarding privacy and data security that govern the personal information and other data we may collect, store, use, or process.

The regulatory framework for privacy and data protection issues is rapidly evolving and is likely to

remain uncertain for the foreseeable future.

Many government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use, storage, destruction, and disclosure of personal information and breach notification procedures.

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Interpretation of these laws, rules and regulations in applicable jurisdictions is subject to change and may result in potentially conflicting obligations.

The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH"), and their respective implementing regulations, impose requirements relating to the privacy, security and transmission of individually identifiable health information.

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, impose requirements relating to the privacy, security and transmission of individually identifiable health information.

Such laws may apply to us, our customers or our service providers.

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A person may be prosecuted for alleged HIPAA violations either directly or indirectly such as under aiding-and-abetting or conspiracy principles.

Consequently, depending on the facts and circumstances, we could face substantial civil and criminal penalties and liabilities if we knowingly receive individually identifiable health information from a HIPAA-covered healthcare provider that has not satisfied HIPAA’s requirements for disclosure of individually identifiable health information.

In the United States, at the state level, the California Consumer Privacy Act of 2018 (“CCPA”), which took effect on January 1, 2020, gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used.

Further, depending on the facts and circumstances, we could face substantial civil and criminal penalties and liabilities if we fail to comply with our obligations (required by law and/or contract) in our processing of such information and/or if we knowingly receive individually identifiable health information from a HIPAA-covered healthcare provider that has not satisfied HIPAA’s requirements for disclosure of individually identifiable health information.

In the United States, at the state level, the California Consumer Privacy Act of 2018, or the CCPA, which took effect on January 1, 2020, gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used.

The CCPA also provides for civil penalties for violations and contains a private right of action for data breaches that is expected to increase litigation involving misuse of personal information of California residents.

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We cannot yet determine the impact that such future laws, regulations and standards may have on our business.

For example, in May 2018, the European Union’s General Data Protection Regulation, or the GDPR, took effect across the European Economic Area (“EEA”)..

Also, notwithstanding the United Kingdom’s (“UK”) withdrawal from the EU, the GDPR continues to apply in substantially equivalent form in the context of the UK, UK establishments and UK-focused processing operations by operation of the so-called “UK GDPR.” European data protection laws imposes stringent data protection requirements and to date, has increased compliance burdens on us, including by mandating burdensome documentation requirements and granting certain rights to individuals to control how we collect, use, disclose, retain and process their personal data.

For example, in May 2018, the European Union’s General Data Protection Regulation, or the GDPR, took effect across the European Economic Area, or the EEA.

Also, notwithstanding the United Kingdom’s, or the UK’s withdrawal from the EU, the GDPR continues to apply in substantially equivalent form in the context of the UK, UK establishments and UK-focused processing operations by operation of the so-called “UK GDPR.” European data protection laws impose stringent data protection requirements and to date, have increased compliance burdens on us, including by mandating burdensome documentation requirements and granting certain rights to individuals to control how we collect, use, disclose, retain and process their personal data.

The GDPR also provides for more robust regulatory enforcement and greater fines for noncompliance than previous data protection laws, including fines of up to €20 million or 4% of global annual revenue of any noncompliant company for the preceding financial year, whichever is greater as well as the potential for processing penalties that include the inability to process European personal data.

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At present, there are few if any viable alternatives to the Standard Contractual Clauses and, therefore, there is uncertainty regarding how to ensure that transfers of personal information from Europe to the United States comply with the GDPR.

As such, any transfers by us, our customers or our third party service providers, of personal information from Europe may not comply with European data protection laws;

As such, any transfers by us, our customers

or our third-party service providers, of personal information from Europe may not comply with European data protection laws;

may increase our exposure to the GDPR’s heightened sanctions for violations of its cross-border data transfer restrictions;

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If the adequacy decision is withdrawn or not renewed, transfers of personal data from the EEA to the United Kingdom will require a valid ‘transfer mechanism’ and we may be required to implement new processes and put new agreements in place, such as SCCs, to enable transfers of personal data from the EEA to the United Kingdom to continue.

In Canada, where we may also operate or have customers, the Personal Information Protection and Electronic Documents Act (“PIPEDA”) and various provincial laws require that companies give detailed privacy notices to consumers, obtain consent to use personal information, with limited exceptions, allow individuals to access and correct their personal information, and report certain data breaches.

In Canada, where we may also operate or have customers, the Personal Information Protection and Electronic Documents Act, or PIPEDA and various provincial laws require that companies give detailed privacy notices to consumers, obtain consent to use personal information, with limited exceptions, allow individuals to access and correct their personal information, and report certain data breaches.

In addition, Canada’s Anti-Spam Legislation, or CASL, prohibits email marketing without the recipient’s consent, with limited exceptions.

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We may publish privacy policies and other documentation regarding our collection, processing, use and disclosure of personal information.

Although we endeavor to comply with our published policies and other documentation, we may at times fail to do

so or may be perceived to have failed to do so.

Although we endeavor to comply with our published policies and other documentation, we may at times fail to do so or may be perceived to have failed to do so.

Despite our efforts, we may not be successful in achieving compliance if our personnel, customers, or service providers fail to comply with our policies and documentation.

Such failures can subject us to potential foreign, local, state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices.

Compliance with applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms to ensure compliance with the new data protection rules.

Compliance with applicable privacy and data security laws and regulations and other related obligations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms to ensure compliance with our data protection obligations.

These obligations may necessitate changes to our information technology systems and data practices.

Any failure or perceived failure by us or third parties working on our behalf to comply with applicable laws and regulations, any privacy and data security obligations pursuant to contract, our stated privacy or security policies, or obligations to customers or other third parties may result in governmental enforcement actions (including fines, penalties, judgments, settlements, imprisonment of company officials and public censure), civil claims, litigation, damage to our brand and reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could have a material adverse effect on our business, operations and financial performance.

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Such in-vitro diagnostic, or IVD, products will be subject to regulation by the FDA as medical devices, or comparable international agencies, including requirements for regulatory clearance or approval of such products before they can be marketed.

If the FDA were to determine that our products are intended for clinical use or if we decided to market our products for such use, we would be required to obtain FDA 510(k) clearance or premarket approval in

order to sell our products in a manner consistent with FDA laws and regulations.

Such regulatory approval processes or clearances are expensive, time-consuming and uncertain;

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Failure to comply with these requirements may subject us or a collaborator to a range of enforcement actions, such as warning letters, injunctions, civil monetary penalties, criminal prosecution, recall and/or seizure of products, and revocation of marketing authorization, as well as significant adverse publicity.

If we or our collaborators fail to obtain, or experience significant delays in obtaining, regulatory approvals for IVD products, such products may not be able to be launched or successfully commercialized in a timely manner, or at all.

If we or our collaborators fail to obtain, or experience

significant delays in obtaining, regulatory approvals for IVD products, such products may not be able to be launched or successfully commercialized in a timely manner, or at all.

Laboratory developed tests, or LDTs, are a subset of IVD tests that are designed, manufactured and used within a single laboratory.

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Billing for our Lineagen diagnostic testing procedures is complex and requires substantial time and resources to collect payment.

Billing for clinical laboratory testing services in connection with our diagnostic services is complex, time-consuming and expensive.

Depending on the billing arrangement and applicable law, we bill various payors, including Medicare, Medicaid,

private insurance companies, private healthcare institutions, and patients, all of which have different billing requirements.

Billing for clinical laboratory testing services in connection with our Lineagen diagnostic services is complex, time-consuming and expensive.

Depending on the billing arrangement and applicable law, we bill various payors, including Medicare, Medicaid, private insurance companies, private healthcare institutions, and patients, all of which have different billing requirements.

We generally bill third-party payors for our diagnostic testing services and pursue reimbursement on a case-by-case basis where pricing contracts are not in place.

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Coverage determinations by a third-party payor may depend on a number of factors, including, but not limited to, a third-party payor’s determination of whether our products or services are appropriate, medically necessary or cost-effective.

If we are unable to provide third-party payors with sufficient evidence of the clinical utility and validity of our Lineagen products and

diagnostic assays, they may not provide coverage, or may provide limited coverage, which will adversely affect our revenues and our ability to succeed.

If we are unable to provide third-party payors with sufficient evidence of the clinical utility and validity of our Lineagen products and diagnostic assays, they may not provide coverage, or may provide limited coverage, which will adversely affect our revenues and our ability to succeed.

Since each third-party payor makes its own decision as to whether to establish a policy to cover our Lineagen products and diagnostic assays, enter into a contract with us and set the amount it will reimburse for a product, these negotiations are a time-consuming and costly process, and they do not guarantee that the third-party payor will provide coverage or adequate reimbursement for our Lineagen products and diagnostic assays.

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Such appeals and other processes are time-consuming and expensive, and may not result in payment.

Third-party payors may perform audits of historically paid claims and attempt to recoup funds years after the funds were initially distributed if the third-party payors believe the funds were paid in error or determine that our Lineagen products and diagnostic assays were medically unnecessary.

Lineagen products and diagnostic assays were medically unnecessary.

If a third-party payor audits our claims and issues a negative audit finding, and we are not able to overturn the audit findings through appeal, the recoupment may result in a material adverse effect on our revenue.

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In addition, other legislative changes have been proposed and adopted since the ACA was enacted.

For example, on April 1, 2014, the Protecting Access to Medicare Act of 2014, or PAMA, was signed into law, which, among other things, significantly altered the payment methodology under the Medicare Clinical Laboratory Fee Schedule, or CLFS.

example, on April 1, 2014, the Protecting Access to Medicare Act of 2014, or PAMA, was signed into law, which, among other things, significantly altered the payment methodology under the Medicare Clinical Laboratory Fee Schedule, or CLFS.

PAMA requires certain laboratories performing clinical diagnostic laboratory tests to report to CMS the amounts paid by private payors for laboratory tests.

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We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and additional downward pressure on the price that we or our collaborators will receive for any cleared or approved product.

Based on a recent executive order, the Biden administration expressed its intent to pursue certain policy initiatives to reduce drug prices.

Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.

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Additionally, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

In addition, the ACA codified case law that a claim including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or the FCA;

In addition, the ACA

codified case law that a claim including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or the FCA;

• the Stark Law, which prohibits a physician from making a referral for certain designated health services covered by the Medicare or Medicaid program, including laboratory and pathology services, if the physician or an immediate family member of the physician has a financial relationship with the entity providing the designated health services and prohibits that entity from billing, presenting or causing to be presented a claim for the designated health services furnished pursuant to the prohibited referral, unless an exception applies;

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We rely on patent protection as well as trademark, copyright, trade secret and other intellectual property rights protection and contractual restrictions to protect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.

As of February 28, 2021, we (directly or through our wholly owned subsidiary Lineagen, Inc.) were the assignee or assignee-applicant of 17 granted U.S.

As of October 28, 2021, we (directly or through our wholly owned subsidiary Lineagen, Inc.) were the assignee or assignee-applicant of 21 granted U.S.

patents and 17 pending U.S.

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We cannot guarantee investors that we will be successful in defending challenges made against our patents and patent applications.

Any successful third-party challenge or challenges to our patents could result in the unenforceability or invalidity of such patents, or such patents being interpreted narrowly and/or in

a manner adverse to our interests.

Any successful third-party challenge or challenges to our patents could result in the unenforceability or invalidity of such patents, or such patents being interpreted narrowly and/or in a manner adverse to our interests.

Our ability to establish or maintain a technological or competitive advantage over our competitors and/or market entrants may be diminished because of these uncertainties.

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Moreover, if a party having an agreement with us has an overlapping or conflicting obligation to a third-party, our rights in and to certain intellectual property could be undermined.

Monitoring unauthorized and inadvertent disclosure is difficult, and we do not know whether the steps we

have taken to prevent such disclosure are, or will be, adequate.

Monitoring unauthorized and inadvertent disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate.

If we were to enforce a claim that a third-party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, the outcome would be unpredictable, and any remedy may be inadequate.

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Our business could suffer, for example, if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms.

As we have done previously, we may need or may choose to obtain licenses and/or acquire intellectual property rights from third parties to advance our research or begin commercialization of our current or future products or services, and we cannot provide any assurances that third-party patents do not exist that might be enforced against our current or future products or services in the absence of such a license.

provide any assurances that third-party patents do not exist that might be enforced against our current or future products or services in the absence of such a license.

We may fail to obtain any of these licenses or intellectual property rights on commercially reasonable terms.

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We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition by potential partners or customers in our markets of interest.

At times, competitors may

adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion.

At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion.

In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks.

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If our common stock is delisted by Nasdaq, our common stock may be eligible to trade on the OTC Bulletin Board, OTC-QB or another over-the-counter market.

Any such alternative would likely result in it being more difficult for us to raise additional capital through the public or private sale of equity securities and for investors to dispose of or obtain accurate quotations as to the market value of, our common stock.

the market value of, our common stock.

In addition, there can be no assurance that our common stock would be eligible for trading on any such alternative exchange or markets.

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Additionally, unless exempt, prior to a transaction involving a penny stock, the penny stock rules require the delivery of a disclosure schedule prescribed by the SEC relating to the penny stock market.

broker-dealer must also disclose the commissions payable to the broker-dealer, current quotations for the securities and, if the broker-dealer is the sole market-maker for the security, the fact that they are the sole market-maker and their presumed control over the market.

The broker-dealer must also disclose the commissions payable to the broker-dealer, current quotations for the securities and, if the broker-dealer is the sole market-maker for the security, the fact that they are the sole market-maker and their presumed control over the market.

Finally, monthly statements disclosing recent price information on the limited market in penny stocks must be sent to holders of such penny stocks.

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Accordingly, realization of a gain on your investment will depend on the appreciation of the price of our securities, which may never occur.

In addition, the Innovatus LSA contains a negative covenant which prohibits us from paying dividends without the prior written consent of Innovatus.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

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generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.

As of May 7, 2021, the market value of our common stock held by non-affiliates exceeded $700.0 million.

If the market value of our common stock held by non-affiliates exceeds $700.0 million as of June 30, 2021, we will be a large accelerated filer and

thus will cease to be an emerging growth company effective December 31, 2021.

Additionally, in such case, we expect to no longer qualify as a smaller reporting company beginning with our first Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2022.

As of June 30, 2021, the market value of our common stock held by non-affiliates exceeded $700.0 million.

As a result, we will be a large accelerated filer and thus will cease to be an emerging growth company effective December 31, 2021.

Additionally,, we will no longer qualify as a smaller reporting company beginning with our first Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2022.

We have identified material weaknesses in our internal control over financial reporting.

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We have begun to incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance initiatives.*

As a newly public company, we have begun to incur significant legal, accounting and other expenses that we did not incur as a private company.

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which will require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and

financial condition.

As a newly public company, we have incurred significant legal, accounting and other expenses that we did not incur as a private company.

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition.

In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices.

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We intend to take advantage of this new legislation, but cannot assure you that we will not be required to implement these requirements sooner than planned and thereby incur unexpected expenses.

For example, as of May 7, 2021, the market value of our common stock held by non-affiliates exceeded $700.0 million.

If the market value of our common stock held by non-affiliates exceeds $700.0 million as of June 30, 2021, we will be a large accelerated filer and will therefore cease to be an emerging growth company effective December 31, 2021.

As of June 30, 2021, the market value of our common stock held by non-affiliates exceeded $700.0 million.

Consequently, we will be a large accelerated filer and will therefore cease to be an emerging growth company effective December 31, 2021.

As a result of this transition, we will be subject to certain disclosure and compliance requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company and expect to incur additional legal and financial compliance costs as a result.

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All of our outstanding shares of common stock are available for sale in the public market, subject only to the restrictions of Rule 144 under the Securities Act in the case of our affiliates.

In addition, as of June 30, 2021, we have filed registration statements on Form S-8 under the Securities Act registering the issuance of an aggregate of 21,104,867 shares of common stock subject to options or other equity awards issued or reserved for future issuance under our equity incentive plans.

In addition, as of September 30, 2021, we have filed registration statements on Form S-8 under the Securities Act registering the issuance of an aggregate of 21,104,867 shares of common stock subject to options or other equity awards issued or reserved for future issuance under our equity incentive plans.

Shares registered under these registration statements on Form S-8 are available for sale in the public market subject to vesting arrangements and exercise of options, the lock-up agreements described above and the restrictions of Rule 144 in the case of our affiliates.

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A proxy contest would require us to incur significant legal and advisory fees, proxy solicitation expenses and administrative and associated costs and require significant time and attention by our board of directors and management, diverting their attention from the pursuit of our business strategy.

Any perceived uncertainties as to our future direction and control, our ability to execute on our strategy, or changes to the composition of our board of directors or senior management team arising from a proxy contest could lead to the perception of a change in the direction of our business or instability which may result in the loss of potential business opportunities, make it more difficult to pursue our strategic initiatives, or limit our ability to attract and retain qualified personnel and business partners, any of which could adversely affect our business and operating results.

initiatives, or limit our ability to attract and retain qualified personnel and business partners, any of which could adversely affect our business and operating results.

If individuals are ultimately elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively implement our business strategy and create additional value for our stockholders.

We may choose to initiate, or may become subject to, litigation as a result of the proxy contest or matters arising from the proxy

contest, which would serve as a further distraction to our board of directors and management and would require us to incur significant additional costs.

We may choose to initiate, or may become subject to, litigation as a result of the proxy contest or matters arising from the proxy contest, which would serve as a further distraction to our board of directors and management and would require us to incur significant additional costs.

In addition, actions such as those described above could cause significant fluctuations in our stock price based upon temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

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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-Q

Item 1A. Risk Factors