What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-09 compared with 2022-03-01 · 154 added, 94 removed, 181 unchanged (58% of the section changed)

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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.

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

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

Through our Bionano Laboratories business, we also 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.

Through our Purigen business, we offer nucleic acid extraction and purification solutions using proprietary ITP technology.

We expect to see OGM adoption in cytogenomics, discovery research and cell bioprocessing quality control (QC).

Within cytogenetics and molecular pathology, we estimate the number of cytogenetic labs on a worldwide basis (excluding India and developing countries) to be approximately 10,000.

We estimate that these labs analyze approximately 10.0 million samples per year.

Additionally, we estimate the number of pharmaceutical and biotech companies that are engaged in research and development of various cell therapies that rely on methods, including cytogenetics, for QC of the cell modification and manufacturing process to be approximately 1,400.

Based on these estimates, we believe the economic potential for OGM in these markets is approximately $10.0 billion annually, $3.0 billion of which we attribute to cell bioprocessing QC.

We believe there are additional potential future market opportunities for OGM including newborn screening, population genomics, and neurological and cardiological risk assessment which are not included in our estimates above.

We have incurred losses in each year since our inception.

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

We are subject to additional risks and uncertainties as a result of the continued spread of COVID-19 and uncertain market conditions, which could continue to have a material impact on our business and financial results.

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.

Accordingly, based on recurring losses from operations incurred since inception, the expectation of continued operating losses, and the need to raise additional capital to finance our future operations, we determined that there is substantial doubt about our ability to continue as a going concern within 12 months of this Annual Report.

Macroeconomic and Geopolitical Developments

We are subject to additional risks and uncertainties as a result of adverse geopolitical and macroeconomic developments, such as the ongoing conflict between Ukraine and Russia and related sanctions, any lingering effects of COVID-19 and uncertain market conditions, including inflation and supply chain disruptions, which could continue to have a material impact on our business and financial results.

Following the invasion of Ukraine by Russia, the U.S.

and global financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity globally.

In response to the invasion, the United States, United Kingdom and European Union, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future.

The full economic and social impact of the sanctions imposed on Russia and possible future punitive measures that may be implemented, as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia, which could conceivably expand into the surrounding region, remains uncertain;

however, both the conflict and related sanctions have resulted, and could continue to result, in disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity on acceptable terms, in both Europe and globally, and has introduced significant uncertainty into global markets.

As a result, our business and results of operations may be adversely affected by the ongoing conflict between Ukraine and Russia and related sanctions, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict.

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

As a result of COVID-19 and actions taken to reduce its spread, 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.

We may also see negative effects on enrollment in our ongoing or future clinical studies.

At various times throughout the pandemic, we have been unable to visit certain customer sites to support installation or 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 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.

This overall reduction in activity has contributed to a decrease in sales which negatively impacted our financial results in fiscal years 2021 and 2022.

The future effects of the COVID-19 pandemic, if any, are unknown and our financial results may continue to be negatively affected as a result.

The COVID-19 pandemic may also have long-term effects on the nature of the office environment and remote working, which may present strategy, operational, talent recruiting and retention and workplace culture challenges that may adversely affect our business.

During the twelve months ended December 31, 2022, 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.

While the COVID-19 pandemic did not prevent us from operating our business during the twelve months ended December 31, 2022 and 2021, we experienced increased costs to secure certain component parts in our products and to produce our products at our contract manufacturers.

We expect these increased costs to remain high as the COVID-19 pandemic, the Ukraine-Russia conflict and their respective effects persist.

As global economic conditions recover, business activity may not recover as quickly as anticipated, and it is not possible at this time to estimate the long-term impact that these and related events could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted.

For instance, product demand may be reduced due to an economic recession, a decrease in corporate capital expenditures, prolonged unemployment, rising inflation rates, labor shortages, reduction in consumer confidence, adverse geopolitical and macroeconomic developments, 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.

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Financial Overview

We generate product revenue from sales of our instruments and consumables.

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.

We generate product revenue from sales of our systems and consumables, which includes our instruments, and our NxClinical™ software.

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

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 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.

Consumable revenue consists of sales of reagents and chips necessary to process a sample.

Sales of our NxClinical™ software, which provides customers with solutions for analysis, interpretation and reporting of genomics data, are made on a subscription basis.

We generate service revenue from the sale of diagnostic testing services for those with autism spectrum disorder and other neurodevelopmental disabilities through Bionano Laboratories, as well as services performed related to customer sample evaluations using the Saphyr system.

Other revenue consists of warranty and other service-based revenue, including support, repair and maintenance services.

The following table presents our revenue for the periods indicated:

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Service and other revenue 7,377,000 5,295,000

6,286,000 2,273,000

Total $ 27,802,000 $ 17,981,000

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.

North America consists of the United States and Canada.

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

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

Americas consists of North America and South America.

EMEA consists of Europe, Middle East and Africa.

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

Years Ended December 31,

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

EMEIA 5,604,000 31 % 3,163,000 37 %

Americas $ 13,862,000 50 % $ 9,329,000 52 %

EMEA 8,960,000 32 % 5,604,000 31 %

Asia Pacific 4,980,000 18 % 3,048,000 17 %

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Cost of Revenue

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

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

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

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Selling, General and Administrative Expenses

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

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

Results of Operations

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Loss before income taxes (130,712,000) (78,152,000) (52,560,000) 67%

Provision for income taxes 5,717,000 (29,000) 5,746,000 (19,814)%

Benefit (provision) for income taxes (1,884,000) 5,717,000 (7,601,000) (133)%

Net loss $ (132,596,000) $ (72,435,000) $ (60,161,000) 83%

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2022 to 2021 2022 to 2021

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

Consumable revenue 5,808,000 3,145,000 2,663,000 85%

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

Services and other revenue 6,286,000 2,273,000 4,013,000 177%

Instruments $ 8,567,000 $ 5,887,000 $ 2,680,000 46%

Consumables 6,731,000 5,808,000 923,000 16%

Software 5,127,000 991,000 4,136,000 417%

Total product revenue 20,425,000 12,686,000 7,739,000 61%

Services and other 7,377,000 5,295,000 2,082,000 39%

Total revenue $ 27,802,000 $ 17,981,000 $ 9,821,000 55%

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 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.

We have revised the classification of its revenue between the categories in the table above for the December 31, 2021 income statement to separately present software revenue.

In our December 31, 2021 income statement, “software” was included in “services and other.”

Revenue increased by $9.8 million, or 55% to $27.8 million for the year ended December 31, 2022, as compared to $18.0 million for the same period in 2021, driven primarily from an increase in instrument and software sales as discussed below.

Instrument revenue increased $2.7 million, or 46%, to $8.6 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to an increase in instruments sold.

For the year ended December 31, 2022, our installed base grew to 240 Saphyr systems compared to the 164 systems for the year ended December 31, 2021.

We expect the number of Saphyr placements to continue to grow during 2023, driven by increased market awareness and additional published data demonstrating the utility of OGM solutions.

Consumables revenue increased $0.9 million, or 16%, to $6.7 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021.

The increase in consumable revenue was attributable to higher Saphyr consumables sales given the growth of the instrument installed base.

For the year ended December 31, 2022, total flowcells sold reached 15,375, an increase of approximately 23% from the 12,518 flowcells sold during the year ended December 31, 2021.

Software revenue increased $4.1 million, or 417%, to $5.1 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021.

The increase is attributed to BioDiscovery’s NxClinical™ software contributing for a full year in 2022, and software revenue is expected to even out as a result.

BioDiscovery was acquired in October 2021.

Service and other revenue increased $2.1 million, or 39%, to $7.4 million for the year ended December 31, 2022, primarily due to a $1.2 million increase in revenue contributed from diagnostic and service project revenue contributed from Bionano Laboratories.

Cost of Revenue, Gross Profit, and Gross Margin

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

2022 to 2021 2022 to 2021

Gross profit (loss):

Product $ 4,459,000 $ 2,162,000 $ 2,297,000 106%

Service and other 1,486,000 1,712,000 (226,000) (13)%

Total gross profit $ 5,945,000 $ 3,874,000 $ 2,071,000 53%

Gross margin:

Product 22 % 17 %

Service and other 20 % 32 %

Total gross margin 21 % 22 %

Cost of product revenue increased by $5.4 million, or 52%, to $16.0 million for the year ended December 31, 2022, compared to $10.5 million for the year ended December 31, 2021.

The increase in cost of product revenue was primarily due to higher sales of instruments and consumables.

Cost of service and other revenue increased $2.3 million, or 64%, to $5.9 million for the year ended December 31, 2022, compared to $3.6 million for the year ended December 31, 2021.

The increase in cost of service and other revenue is primarily due to increased service costs on our growing installed base as well as increased costs to support the service offerings from Bionano Laboratories.

Product gross profit increased $2.3 million, or 106%, to $4.5 million for the year ended December 31, 2022, compared to $2.2 million for the year ended December 31, 2021.

The increase is primarily due to a change in product mix, where NxClinical™ software revenue represented 25% of product sales in 2022 compared to 8% in 2021, offset by an increase in product costs resulting from unfavorable flowcell yields in the production cycle and other inventory write offs.

Service and other gross profit decreased by $0.2 million, or 13%, to $1.5 million for the year ended December 31, 2022, compared to $1.7 million for the year ended December 31, 2021.

The decrease in service and other gross profit is primarily due to increased service costs on our growing installed base as well increased costs to support the service offerings from Bionano Laboratories.

Research and Development Expenses

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.

Research and development (R&D) expenses increased by $26.6 million, or 118%, to $49.0 million for the year ended December 31, 2022 as compared to $22.5 million for the same period in 2021.

The increase is primarily due to a $19.4 million increase in compensation expenses, of which $9.9 million relates to stock-based compensation expense.

The increase in compensation expense is primarily driven by increased headcount.

We anticipate future additions to our development teams as well as continued increases to our product development costs and, thus, future increases to R&D expenses.

This increase was further driven by a $5.6 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.

We expect R&D expenses to increase in 2023 relative to 2022 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.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $30.1 million, or 51%, to $88.6 million for the year ended December 31, 2022 as compared to $58.5 million for the same period in 2021.

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.

The increase is primarily due to a $16.7 million increase in compensation expenses, of which $2.8 million relates to stock-based compensation, a $4.4 million increase in amortization of intangibles related to the acquisitions of BioDiscovery and Purigen, a $3.2 million increase in marketing expenses, and a $1.8 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.

The increase in compensation expense is driven primarily by increased headcount.

This is due to growth in our global sales, service, and back-office teams to facilitate the expanding customer base, as well as headcount additions attributed to the acquisition of Purigen.

We anticipate headcount additions to our global sales, service and back-office teams in the coming 12

While we expect headcount to continue to grow, we anticipate that headcount will grow at a slower pace than the trailing twelve months.

We expect selling, general, and administrative expenses to increase in 2023 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 decreased by $0.6 million, or 68%, to $0.3 million for the year ended December 31, 2022, as compared to $0.9 million for the same period in 2021.

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 .

In May 2021, we paid off the outstanding principal balance of our March 2019 Loan and Security Agreement (Innovatus LSA).

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.

Interest income increased by $1.3 million, or 539%, to $1.5 million for the year ended December 31, 2022, as compared to $0.2 million for the same period in 2021 resulting from positive returns on investments.

We did not hold available for sale securities until August 2021.

Our total available-for-sale securities balance was $108.1 million as of December 31, 2022.

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.

A gain on forgiveness of our Paycheck Protection Program loan (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

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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.

Income tax expense increased by $7.6 million, or 133%, to a $1.9 million expense for the year ended December 31, 2022, as compared to a $5.7 million benefit for the same period in 2021, driven by the acquisition of BioDiscovery.

We adjusted the business combination accounting for the tax impact of the BioDiscovery acquisition within the one year measurement period for the acquisition.

The effect of the adjustment was to decrease the net deferred tax liability and decrease goodwill recorded in connection with the acquisition by $1.8 million, which increased the valuation allowance associated with our deferred taxes by $1.8 million, which we recorded to deferred tax expense for the year ended December 31, 2022.

Liquidity and Capital Resources

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In the years ended December 31, 2022 and 2021, 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.

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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.

See the section below entitled “ Capital Resources ” for a discussion of our no longer qualifying as a well-known seasoned issuer and its impacts on our ability to generate liquidity.

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.

Our short-term capital expenditure needs relate primarily to the ongoing build out of our 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 2023.

Based on our $5.1 million in cash and cash equivalents and $108.1 million in available for sale securities as of December 31, 2022, we anticipate our available cash balance will not be sufficient for the next twelve months from the issuance of this report.

As a result, in order to continue to operate our business beyond that time, we will need to raise additional funds.

However, there can be no assurance that we will be able to generate funds on terms acceptable to us, on a timely basis, or at all.

In addition, we have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we currently anticipate.

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

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2022 Compared to 2021

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

Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support the growth of our business.

We have historically experienced negative cash flows from operating activities as we have developed our technology, expanded our business and built our infrastructure, and this may continue in the future.

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 and servicing our expanding commercial footprint.

As discussed below, we anticipate our available cash balance will not be sufficient for the next twelve months from the issuance of this report.

We plan to raise additional capital to fulfill our operating and capital requirements for at least 12 months through public or private equity or debt financings, however, we may not be able to secure such financing in a timely manner or an favorable terms, if it all.

Net cash used in operating activities was $124.8 million during the year ended December 31, 2022 as compared to $71.9 million during the year ended December 31, 2021.

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.

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.”

The increase in cash used in operating activities of $52.9 million is attributed to increased headcount of 35% across the business, increased professional fees to support ongoing business operations and increase our international presence and increased spending on materials and supplies during the year ended December 31, 2022.

Investing Activities

2022 Compared to 2021

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.

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

Net cash provided by investing activities was $82.8 million during the year ended December 31, 2022, compared to $278.1 million used in investing activities during the year ended December 31, 2021.

This increase in cash provided by investment activities of $360.8 million is attributed to sales of available-for-sale investments and is offset by the acquisition of Purigen, our new wholly owned subsidiary.

Financing Activities

2022 Compared to 2021

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.

Net cash provided by financing activities was $23.0 million during the year ended December 31, 2022 as compared to $336.1 million during the year ended December 31, 2021, a decrease of $313.1 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.

(Landenburg) and Cowen (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.

During the year ended December 31, 2022, we raised approximately $23.1 million in gross proceeds from sales under the Cowen ATM.

Capital Resources

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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.

In January 2021, we sold an additional 6.3 million shares of our common stock under the 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 at-the-market facility with Cowen (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.

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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.

On January 19, 2021, we filed an automatic shelf registration statement on Form S-3 (File No.

333-252216) with the U.S.

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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.

Further, as of the date of this Annual Report, the worldwide market value of our voting and non-voting common equity held by our non-affiliates did not equal $700.0 million or more, calculated as of a date within 60 days prior to filing, and, consequently, we are no longer a well-known seasoned issuer.

We may continue to use our automatic shelf registration statement but only for a limited time and only if we follow the applicable provisions of the Securities Act of 1933, as amended (the Securities Act), the rules promulgated thereunder and the guidance of the SEC relating to a former well-known seasoned issuer utilizing an automatic shelf registration statement.

We anticipate filing a new shelf registration statement after filing this Annual Report;

however, we anticipate being unable to raise additional capital as efficiently as when we could rely on our automatic shelf registration statement, and raising capital may take more time and be more costly as a result.

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.

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

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.

We have in place the Cowen ATM, as amended, pursuant to which we may offer and sell from time to time up to $200.0 million of shares from the date of the amendment going forward through or to Cowen, acting as sales agent or principal.

In the third quarter of 2021, we 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 .

In the third quarter of 2022, we sold approximately 6.6 million shares of common stock under the Cowen ATM at an average share price of $3.46 per share, and received gross proceeds of approximately $23.1 million before deducting offering costs of $0.6 million.

In January, February and March 2023, we sold approximately 9.5 million shares of common stock under the Cowen ATM and received gross proceeds of approximately $15.2 million before deducting offering costs of $0.4 million.

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

We believe, based on our current business plan, that our existing cash and cash equivalents will not be sufficient for the next twelve months from the issuance of this report.

We plan to continue to fund our losses from operations through cash and cash equivalents on hand, as well as through public or private equity or debt financings.

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

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

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

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.

Contingent Consideration

As part of the merger agreement related to the acquisition of BioDiscovery, we agreed to pay a milestone payment of $10.0 million in cash contingent on the achievement of a commercial milestone within eighteen months of the acquisition date.

We determined the fair value of the milestone consideration using a scenario-based technique, as the trigger for payment is event driven.

The outcome of the milestone consideration is binary, meaning the milestone is either achieved or not achieved, and the only other variable factor is the timing of when the milestone is achieved.

We determined it is highly likely that the milestone will be achieved and therefore used a 95% probability factor which is applied to the $10.0 million milestone consideration.

As part of the merger agreement related to the acquisition of Purigen, we agreed to pay two independent milestone payments up to an aggregate of $32.0 million.

The fair value of the Purigen milestones are reassessed on a quarterly basis using a probability weighted model and a Monte Carlo Simulation.

We determined the fair value of this milestone consideration using a scenario-based technique, as the trigger for payment is event driven.

We determined the likelihood of each independent milestone and used probability factors ranging from 20% to 80% which were applied to the individual payments.

A Monte Carlo Simulation was performed to determine the likelihood that the milestone will be achieved and was applied to the milestone consideration payment.

Based on these valuation assumptions, the fair value of the contingent consideration liabilities was determined to be $22.4 million as of December 31, 2022, $9.4 million of which is current as of December 31, 2022.

Contractual Obligations

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Total contractual obligations $ 17,679,000 $ 4,258,000 $ 6,140,000 $ 1,687,000 $ 5,594,000

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.

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

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

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

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

We have determined that we are a single reporting unit for purposes of goodwill impairment testing.

As of December 31, 2022, we performed a qualitative assessment of goodwill impairment which included an evaluation of changes in industry, market and macroeconomic conditions as well as consideration of our financial performance and any significant trends.

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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

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