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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-23 · 148 added, 170 removed, 127 unchanged (71% of the section changed)

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You should read the following discussion and analysis of our financial condition and results of operations together in conjunction with our financial statements and the related notes included elsewhere in this Annual Report.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and expected financial results, includes forward-looking statements that involve risks and uncertainties.

involve risks and uncertainties.

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

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.

We are a provider of genome analysis solutions that can enable researchers and clinicians to reveal answers to challenging questions in biology and medicine.

Our mission is to transform the way the world sees the genome through optical genome mapping, or OGM, solutions, diagnostic services and software.

We offer OGM solutions for applications across basic, translational and clinical research.

Through our Lineagen business, we provide diagnostic testing for patients with clinical presentations consistent with autism spectrum disorder and other neurodevelopmental disabilities.

Through our BioDiscovery business, we offer an industry-leading, platform-agnostic software solution, which integrates next-generation sequencing and microarray data designed to provide analysis, visualization, interpretation and reporting of copy number variants, single-nucleotide variants and absence of heterozygosity across the genome in one consolidated view.

We have incurred losses in each year since our inception.

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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.

We closely monitor and comply with various applicable guidelines and legal requirements in the jurisdictions in which we operate, 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.

If restrictions related to COVID-19 persist, we could see additional supply chain disruptions that impact our ability to produce our products and may cause us to make strategic determinations regarding, among other things, the cost and quality of the components and supplies we acquire.

At various times throughout the pandemic, we have been unable to visit certain customer sites to support installation of service our OGM systems.

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.

This overall reduction in activity has contributed to a decrease in sales which negatively impacted the Company’s 2021 financial results.

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

During the twelve months ended December 31, 2021, we experienced supply chain challenges, which we largely attribute to the COVID-19 pandemic.

While the COVID-19 pandemic did not prevent us from operating our business during the twelve months ended December 31, 2021, we experienced substantially increased cost to secure certain component parts in our products and to produce our products at our contract manufacturers.

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.

Further, the travel restrictions on our business have limited our ability to support our global and domestic operations, including providing installation and training and customer service, which has and may continue to slow the pace of our commercial strategy, sales and marketing efforts.

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 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.

The public offering price of each share of common stock and accompanying common warrant was $0.86 and $0.859, respectively.

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 $0.86 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 $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.

In addition, we provide instruments to certain customers under our reagent rental program, under which we provide 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.

We 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.

We also generate service and product revenue through BioDiscovery’s NxClinical software which provides customers with solutions for analysis, interpretation and reporting of genomics data.

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

The following table presents our revenue for the periods indicated:

Year Ended December 31,

Years Ended December 31,

Product revenue $ 11,695,000 $ 6,230,000

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Total $ 17,981,000 $ 8,503,000

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

1 Includes $1.1 million of revenue generated by BioDiscovery from the date of acquisition through December 31, 2021.

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

Year Ended December 31,

Years Ended December 31,

North America $ 9,329,000 52 % $ 4,489,000 53 %

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Results of Operations

Comparison of the Years Ended December 31, 2020 and 2019

The following table sets forth our results of operations for the years ended December 31, 2021 and 2020:

Year Ended December 31, Period-to-Period Change

Years Ended December 31, Period-to-Period Change Period-to-Period Percentage Change

2020 2021 to 2020 2021 to 2020

Product revenue $ 11,695,000 $ 6,230,000 $ 5,465,000 88%

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Loss from operations (77,101,000) (38,551,000) (38,550,000) 100%

Interest income 236,000 — 236,000 100%

Interest expense (927,000) (2,519,000) 1,592,000 (63)%

Gain on forgiveness of Paycheck Protection Program loan 1,775,000 — 1,775,000 100%

Loss on debt extinguishment (2,076,000) — (2,076,000) (100)%

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Net loss $ (72,435,000) $ (41,106,000) $ (31,329,000) 76%

Year Ended December 31, Period-to-Period Change

Years Ended December 31, Period-to-Period Change Period-to-Period Percentage Change

2021 to 2020 2021 to 2020

Instrument revenue $ 5,887,000 $ 3,085,000 $ 2,802,000 91%

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Total revenue $ 17,981,000 $ 8,503,000 $ 9,478,000 111%

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 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.

Revenue increased by $9.5 million, or 111% to $18.0 million for the year ended December 31, 2021, as compared to $8.5 million for the same period in 2020.

The increase in product sales was driven by increased demand for our Saphyr OGM solutions, including increased instrument sales and greater demand for our reagent rental program and consumables.

We believe increased demand for our OGM systems was primarily driven by increased market awareness and additional published data demonstrating the utility of OGM.

During the year ended December 31, 2021, the total install base of our OGM systems increased by approximately 69%, 97 as of December 31, 2020 to 164 as of December 31, 2021.

Additionally, for the year ended December 31, 2021, total flowcells sold reached 12,518, an increase of approximately 100% from the 6,311 flowcells sold during the year ended December 31, 2020.

The increase in service and other revenue was primarily driven by sales generated by our Lineagen and BioDiscovery subsidiaries.

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 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.

Cost of revenue increased by $8.4 million, or 146%, to $14.1 million for the year ended December 31, 2021, as compared to $5.7 million for the same period in 2020.

Cost of product revenue increased primarily due to increased product sales, but was also negatively impacted by unfavorable flowcell yields in the production cycle.

The yield issues led us to record a $1.2 million inventory write-off in the fourth quarter of 2021, charged to cost of product revenue.

If we are unable to solve for the yield issue, it could lead to lower gross margins in future periods.

Cost of service and other revenue increased primarily due to costs from Lineagen sales contributing for a full year in 2021 versus a little more than one quarter in 2020.

Research and Development Expenses

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.

Research and development, or R&D expenses, increased by $12.2 million, or 119%, to $22.5 million for the year ended December 31, 2021 as compared to $10.3 million for the same period in 2020.

This is due to headcount additions to our development teams, resulting in a $7.2 million increase in R&D compensation expense.

This increase was further driven by a $5.0 million increase in product development costs, including internal materials and supply consumption costs, foundry expenses, clinical trial research, and consulting costs.

We expect research and development expenses to increase in 2022 relative to 2021 as we have added headcount in order to support our efforts to develop more scalable and efficient manufacturing workflows, expand the utility of Saphyr, and develop the next versions of OGM products – including integration of OGM data into our NxClinical software.

We expect that stock based compensation will drive a significant portion of the increase in expense in 2022 as a result of the stock issued as consideration in the BioDiscovery acquisition, which primarily rolls up into research and development expense.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $27.4 million, or 88%, to $58.5 million for the year ended December 31, 2021 as compared to $31.1 million for the same period in 2020.

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.

This increase is primarily due to a $17.0 million increase in compensation costs driven by increased headcount, and a $2.6 million increase in other headcount-related expenses.

Other headcount-related expenses included the cost of recruiting, temporary employment, and facilities expenses incurred in order to support increased product demand.

Headcount increased 103% from 2020 to 2021 to our global sales and back-office teams to support world-wide product distribution.

In addition, we increased headcount as a result of the acquisition of BioDiscovery.

Professional services – including accounting, legal, investor relations, market research, and annual meeting expenses – increased by $4.6 million.

In 2021, legal costs include a total of $1.5 million in transaction-related expenses that were recorded for the BioDiscovery acquisition.

The increase in accounting fees was primarily due to SOX compliance efforts and accounting for the BioDiscovery transaction while the increase in annual meeting expense is tied to the increase in the number of Bionano shareholders.

We expect selling, general, and administrative expenses to increase in 2022 due to our continuing investment in growing and supporting our customer base.

We expect stock based compensation to drive a significant portion of the increase in expense in 2022 due to stock option awards issued to senior-level Q4 2021 hires as well as awards annual refresher grants issued to executives and non-executives in February 2022.

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.

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.

Interest expense decreased by $1.6 million, or 63%, to $0.9 million for the year ended December 31, 2021, as compared to $2.5 million for the same period in 2020.

In May 2021, we paid off the outstanding principal balance of the Company’s March 2019 Loan and Security Agreement (“Innovatus LSA”).

The Innovatus LSA was outstanding for all of 2020 .

Interest Income

Interest income was $0.2 million, for the year ended December 31, 2021, as compared to $0.0 million for the same period in 2020 resulting from positive returns on investments.

Our total available-for-sale securities balance was $226.0 million as of December 31, 2021.

Gain on forgiveness of Paycheck Protection Program loan

A gain on forgiveness of our Paycheck Protection Program loan, or PPP Loan, of $1.8 million was recognized during the year ended December 31, 2021 in connection with the forgiveness of the PPP Loan, including all accrued interest in full.

Loss on debt extinguishment

A loss on debt extinguishment of $2.1 million was recognized during the year ended December 31, 2021 in connection with our payment in full of the Innovatus LSA, including all accrued interest, an end of term fee, a prepayment fee, and write-off of unamortized debt issuance costs

Income tax benefit (expense)

Income tax benefit increased by $5.7 million, or 19,814%, to a $5.7 million benefit for the year ended December 31, 2021, as compared to a $29,000 expense for the same period in 2020, driven by the acquisition of BioDiscovery.

As a result of the acquisition, we recorded a $5.8 million deferred tax liability related to customer lists, patents/trademarks, developed technology, and fixed assets as part of the business combination which reduced the Company’s valuation allowance by $5.8 million, resulting in an income tax benefit for the period.

Liquidity and Capital Resources

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We incurred net losses of $72.4 million and $41.1 million, and used $71.9 million and $38.3 million of cash from our operating activities for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2020, we had an accumulated deficit of $143.7 million and cash and cash equivalents of $38.4 million.

As of December 31, 2021, we had an accumulated deficit of $216.1 million, cash and cash equivalents of $24.6 million and $226.0 million in available-for-sale securities.

Sources of Liquidity

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

In the years ended December 31, 2021 and 2020, we have generated cash flows from sales of common stock and other equity instruments.

Additionally, during the year ended December 31, 2020, we relied on debt as a source of liquidity.

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.

Revenue from our commercial operations has increased due to our acquisition of revenue-positive BioDiscovery.

See Note 10 to our consolidated financial statements for a discussion of our recent equity activity and Note 9 to our consolidated financial statements for a discussion of terms and provisions of our debt included in this Annual Report.

Future Capital Requirements

We expect that our near and longer-term liquidity requirements will consist of working capital and general corporate expenses associated with the growth of our business, including, without limitation, expenses associated with scaling up our operations and continuing to increase our manufacturing capacity, sales and marketing expense, increasing market awareness of our products and services to target customers, instrument placements with customers via the reagent rental sales strategy, additional research and development expenses associated with expanding our offerings, expenses associated with continuing to build out our corporate infrastructure and expenses associated with being a public company.

Our short-term capital expenditure needs relate primarily to the ongoing build out of our manufacturing and research facilities, service lab and service-related capabilities, research and development expenses related to current and future product offerings, and enhancements to information technology.

We expect such expenditures to continue throughout 2022.

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

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The following table sets forth the cash flow from operating, investing and financing activities for the periods presented:

Year Ended December 31,

Years Ended December 31,

Net cash provided by (used in):

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Operating Activities

2021 Compared to 2020

Net cash used in operating activities was $71.9 million during the year ended December 31, 2021 as compared to $38.3 million during the year ended December 31, 2020.

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.

The increase in cash used in operating activities of $33.6 million is attributed to increased headcount of 103% 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 transaction costs, including financial advisor fees, legal expenses and accounting fees during the year ended December 31, 2021.

We anticipate our use of cash in operating activities to increase in the next 12 to 24 months due to anticipated increases in headcount and ongoing support of our growing operations, including, R&D operations.

As discussed below, we anticipate our available cash balance will be sufficient to fund those increases in cash used in operating activities through at least the next 12 months, but we may consider funding those increases or increases beyond the next 12 months with the methods discussed in the section below entitled “Capital Resources.”

Investing Activities

Historically, our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure.

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

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.

2021 Compared to 2020

Historically, our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure, as well as the acquisitions of Lineagen and BioDiscovery to grow our business.

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

Net cash used in investing activities was $278.1 million during the year ended December 31, 2021, compared to $2.5 million during the year ended December 31, 2020.

This increase in cash used in investment activities of $275.6 million is attributed to the acquisition of BioDiscovery, our new wholly owned subsidiary, as well as purchases of available-for-sale investment securities.

Financing Activities

2021 Compared to 2020

Net cash provided by financing activities was $336.1 million during the year ended December 31, 2021 as compared to $61.9 million during the year ended December 31, 2020, an increase of $274.2 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 year ended December 31, 2021, we raised approximately $311.1 million in net proceeds from executing two follow-on offerings, $10.0 million from warrant and stock option exercises, and $29.9 million in sales under our at-the-market facilities with Landenburg Thalmann & Co.

Inc., or Landenburg, and Cowen and Company, LLC, or Cowen.

These proceeds were offset by our repayment in full of all outstanding amounts under our Innovatus LSA of $15.0 million, including all accrued interest, the end of term fee, and a prepayment fee.

Capital Resources

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.

As of December 31, 2021, we had approximately $24.6 million in cash and cash equivalents, $226.0 million of available-for-sale securities, and $250.6 million of working capital.

During the fourth quarter of 2020, we sold 27.0 million shares of our common stock under our prior at-the-market facility at an average share price of $0.82, and received gross proceeds of approximately $22.1 million before deducting offering costs of $0.6 million.

In January 2021, we sold an additional 6.3 million shares of our common stock under the such prior at-the-market facility at an average share price of $2.68, and received gross proceeds of approximately $16.9 million before deducting offering costs of $0.4 million.

This at-the-market facility was terminated effective March 22, 2021 and replaced by an ATM with Cowen and Company, LLC, or the Cowen ATM.

On January 12, 2021, we completed an underwritten public offering of 33.4 million shares of our common stock, including 4.4 million 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 19, 2021, we filed an automatically effective shelf registration statement on Form S-3 (File No.

333-252216) with the U.S.

Securities and Exchange Commission, or SEC, as a “well-known seasoned issuer.” The registration statement allows us to issue an indeterminate number or amount of common stock, preferred stock, debt securities and warrants from time to time in one or more offerings.

However, there can be no assurance that we will complete any future offerings of securities.

Any future offerings under this registration statement will be dependent upon, among other factors, market conditions, available pricing, our financial condition, investor perception of our prospects, our capital needs and our ability to maintain status as a well-known seasoned issuer.

On January 25, 2021, we completed an underwritten public offering pursuant to our shelf registration statement of 38.3 million shares of our common stock, including 5.0 million 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.

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

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, and similarly did not and do not have any holdings in variable interest entities.

Recent Accounting Pronouncements

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

On March 23, 2021, we entered into a Sales Agreement with Cowen and Company, LLC, or the Cowen ATM, or Cowen, pursuant to which we may offer and sell, from time to time at our sole discretion, 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.

In the third quarter of 2021, the Company sold 2.3 million shares of common stock under the Cowen 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 .

We believe that our cash, cash equivalents, and available for sale securities will be sufficient to fund our planned operations, obligations as they become due, and capital investments for at least the next twelve months.

This estimate is based on our current business plan.

This estimate does not reflect any additional expenditures resulting from potential acquisitions or strategic transactions.

We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

See Note 1 to our consolidated financial statements included elsewhere in this Annual Report for more information.

Contractual Obligations

The following table summarizes our future cash outflows for contractual obligations as of December 31, 2021.

Payments Due by Period

Total Less than 1 Year 1-3 Years 3-5 Years More than 5 years

Operating lease obligations, including interest $ 8,162,000 $ 1,881,000 $ 3,961,000 $ 2,320,000 $ —

Finance lease obligations, including interest, related party 7,599,000 314,000 652,000 684,000 5,949,000

Purchase obligations 6,480,000 3,240,000 1,350,000 — —

Total contractual obligations $ 22,241,000 $ 5,435,000 $ 5,963,000 $ 3,004,000 $ 5,949,000

Operating lease obligations relate to our office, laboratory and manufacturing space for our corporate headquarters in San Diego, California and Lineagen operations in Salt Lake City, Utah.

Finance lease obligations relate to our BioDiscovery office in El Segundo, California.

See Note 11, Commitments and Contingencies to our consolidated financial statements included in this Annual Report.

Purchase obligations primarily represent commitments for purchases of inventory from our supplier as disclosed in Note 11, Commitments and Contingencies to our consolidated financial statements included in this Annual Report.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes.

We evaluate these estimates and judgments on an ongoing basis.

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

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.

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:

we have a contract with a customer that creates enforceable rights and obligations;

promised products or services are identified;

the transaction price, or the amount we expect to receive, including an estimate of uncertain amounts subject to a constraint to ensure revenue is not recognized in an amount that would result in a significant reversal upon resolution of the uncertainty, is determinable;

and we have transferred control of the promised items to the customer.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the contract.

The transaction price for the contract is measured as the amount of consideration we expect to receive in exchange for the goods and services expected to be transferred.

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control of the distinct good or service is transferred.

Transfer of control for our products is generally at shipment or delivery, depending on contractual terms, but occurs when title and risk of loss transfers to the customer which represents the point in time when the customer obtains the use of and substantially all of the remaining benefit of the product.

As such our performance obligation related to product sales is satisfied at a point in time.

Revenue from support and maintenance contracts and extended warranties are recognized over time based on the contract term, which represents a faithful depiction of the transfer of goods and services given the stand-ready nature of the performance obligations.

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.

Payment terms are typically 30 days for sales to customers in the United States but may be longer in international markets.

We treat shipping and handling costs performed after a customer obtains control of the good as a fulfillment cost and record these costs within selling, general and administrative expenses, less any amounts reimbursed by the customer, when the corresponding revenue is recognized.

Some of our contracts have multiple performance obligations.

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.

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

We exercise judgment in estimating variable consideration, if any, which would be recorded as a reduction to revenue.

To the extent the transaction price includes variable consideration, we apply judgment in constraining the estimated variable consideration due to factors that may cause reversal of revenue recognized.

We evaluate constraints based on our historical and projected experience with similar customer contracts.

Our contracts typically do not provide for product returns or refunds.

In general, estimates of variable consideration and constraints are not material to our financial statements.

Remaining Performance Obligations

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

We disclose accounts receivable separately in the consolidated balance sheets at their net realizable value.

Contract assets primarily relate to our conditional right to consideration for work completed but not billed at the reporting date.

Contract assets at the beginning and end of the period, as well as the changes in the balance, were immaterial.

Contract liabilities primarily relate to payments received from customers in advance of performance under the contract.

We record a contract liability, or deferred revenue, when we have an obligation to provide service, and to a much lesser extent product, to the customer and payment is received or due in advance of performance.

Deferred revenue primarily relates to support and maintenance contracts and extended warranty obligations.

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

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

In certain markets, we sell products and provide services to customers through distributors that specialize in life sciences products.

In cases where the product is delivered to a distributor, revenue recognition generally occurs when title transfers to the distributor.

The terms of sales transactions through distributors are generally consistent with the terms of direct sales to customers and do not contain return rights.

Distributor sales transactions typically differ from direct customer sales as they do not require our services to install the instrument at the end customer or perform the services for the customer that are beyond our standard warranty in the first year following the sale.

These transactions are accounted for in accordance with our revenue recognition policy described herein.

These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented.

We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made.

To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected.

Historically, revisions to our estimates have not resulted in a material change to our financial statements.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report, the significant accounting estimates that we believe are important to aid in fully understanding and evaluating our reported financial results include the following:

Stock-Based Compensation Expense

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

Goodwill Impairment

Our expected dividend yield assumption is zero as we have never paid dividends and have no present intention to do so in the future.

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.

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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.

It requires us to recognize separately from goodwill the identifiable 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 identifiable 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.

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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.

Under the JOBS Act, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

This provision allows an emerging growth company to delay the adoption of new or revised accounting standards that have different transition dates for public and private companies until those standards would otherwise apply to private companies.

We have elected to use this extended transition period.

As a result of this election, our timeline to comply with these standards will in many cases be delayed as compared to other public companies that are not eligible to take advantage of this election or have not made this election.

Therefore, our financial statements may not be comparable to those of companies that comply with the public company effective dates for these standards.

For so long as we are an emerging growth company we expect that:

• we will present only two years of audited consolidated financial statements, plus unaudited consolidated condensed financial statements for any interim period, and related management’s discussion and analysis of financial condition and results of operations in our initial registration statement;

• we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;

• we will avail ourselves of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards;

• we will provide less extensive disclosure about our executive compensation arrangements.

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, or (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act.

We generally use the income approach to derive the fair value of the above identified intangible assets when accounting for business combinations.

This approach calculates fair value by estimating future cash flows attributable to the assets and then discounting these cash flows to a present value using a risk-adjusted discount rate.

We selected this method because we believe the income approach most appropriately measures the value of our income producing assets.

This approach requires significant management judgment with respect to future volume, revenue and expense growth rates, changes in working capital use, appropriate discount rates, terminal values and other assumptions and estimates.

The estimates and assumptions used are consistent with our business plans.

The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the asset.

Actual results may differ from management’s estimates.

We record contingent consideration resulting from a business combination at its fair value on the acquisition date.

On a quarterly basis, we revalue this obligation and record any increase or decrease in fair value as an adjustment to the consolidated statement of operations.

Changes to the fair value of the contingent consideration obligation may result from changes to the discount rate, the passage of time, or changes in our estimate of the likelihood or timing of achieving the criteria for payment of the contingent consideration.

Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent reporting period.

Accordingly, changes in the assumptions described above could have a material impact on the amount of income or expense we record for contingent consideration in any given period.

Recent Accounting Pronouncements

Refer to Note 2, ‘‘Summary of Significant Accounting Policies,’’ in the accompanying notes to our consolidated financial statements included in this Annual Report for a discussion of recent accounting pronouncements.

JOBS Act Accounting Election

Previously, we were an emerging growth company within the meaning of the JOBS Act.

Section 107(b) of the JOBS Act provides that an emerging growth company can leverage the extended transition period, provided in Section 102(b) of the JOBS Act, for complying with new or revised accounting standards.

However, because the market value of our common stock held by non-affiliates exceeded $700.0 million as of June 30, 2021, we are no longer an emerging growth company effective December 31, 2021.

As a result, we now apply public company adoption dates for new or revised accounting standards.

Further, we were required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley regarding our internal control over financial reporting as of December 31, 2021.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide information typically disclosed under this item.

Not applicable.

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