What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-09 compared with 2022-03-01 · 359 added, 294 removed, 839 unchanged (44% of the section changed)

16 unchanged sentences

We have audited the accompanying consolidated balance sheets of Bionano Genomics, Inc.

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2022 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2021 due to the adoption of Accounting Standards Codification Topic 842, Leases.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As described in Note 1 to the financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisition of BioDiscovery, LLC.

As described in Note 14 to the Company’s consolidated financial statements, the Company acquired 100% of BioDiscovery, LLC.

for a purchase price of $74.8 million.

As a result of the acquisition, management was required to determine estimated fair values of the assets acquired, including certain identifiable intangible assets, and liabilities assumed.

We identified the determination of fair values of the identifiable intangible assets as a critical audit matter.

Management applied significant judgment in determining the unobservable inputs including revenue and expense forecasts and discount rates utilized.

Acquisition of Purigen Biosystems, Inc.

As described in Note 14 to the Company’s consolidated financial statements, the Company acquired Purigen Biosystems, Inc.

for an estimated purchase price of $44.9 million, which includes estimated contingent consideration for potential future payments to be made upon achievement of certain milestones.

The Company allocated the purchase price to the estimated fair values of the assets acquired, including certain identifiable intangible assets such as developed technology, and liabilities assumed.

We identified the determination of the fair values of the developed technology and contingent consideration as a critical audit matter.

The principal considerations for our determination included the following:

(i) the assumptions used by the Company in determining the fair value of the developed technology, specifically the revenue and expense forecasts and discount rate, and in determining the fair value of the contingent consideration, specifically the probability of achievement of certain milestones and discount rate, are subjective and require significant judgment, and (ii) the fair values of the developed technology and contingent consideration are sensitive to changes in those specific assumptions.

Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Assessing the reasonableness of the revenue and expense forecasts through:

(i) evaluating historical performance of the target entity, and (ii) assessing financial projections against industry metrics and peer-group companies.

• Testing samples of opening balance sheet amounts by tracing to supporting documentation, including evaluating that the transactions were recorded in the appropriate period.

Assessing the reasonableness of the revenue and expense forecasts by evaluating:

(i) historical performance of the target entity (ii) financial projections against industry metrics and peer-group companies and (iii) management’s operating plan for future sales.

Evaluating the reasonableness of the probability of milestones by evaluating available information that either corroborated or contradicted management’s conclusions.

Estimates of future sales were evaluated for reasonableness in relation to internal and external analyses.

Utilizing personnel with specialized knowledge and skill in valuation to assist in:

(i) assessing the reasonableness of the discount rates incorporated into the various valuation models, and (ii) performing independent estimates to evaluate the potential effect of changes in the significant assumptions.

(i) evaluating the appropriateness of the valuation models utilized in determining the valuation of developed technology and the contingent consideration (ii) assessing the reasonableness of the discount rates by computing an independently developed range using publicly available data from comparable entities and (iii) performing independent estimates to evaluate the potential effect of changes in the significant assumptions.

/s/ BDO USA, LLP

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Total current assets 157,298,000 272,414,000

Restricted cash 400,000 —

Property and equipment, net 18,029,000 10,318,000

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Finance lease liability, related party 285,000 299,000

Contingent consideration 9,382,000 —

Total current liabilities 35,884,000 21,840,000

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Finance lease liability, net of current portion, related party 3,619,000 3,642,000

Contingent consideration 9,066,000 —

Long-term debt, net of current portion — 16,325,000

Contingent consideration, net of current portion 12,970,000 9,066,000

Long-term contract liabilities 127,000 146,000

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$ ( 132,596,000 ) $ ( 72,435,000 )

Unrealized (loss) on investment securities

Other comprehensive loss:

Unrealized gain (loss) on investment securities

( 548,000 ) ( 539,000 )

Comprehensive Loss $ ( 72,974,000 ) $ ( 41,106,000 )

Foreign currency translation adjustments ( 37,000 ) —

Other comprehensive loss $ ( 585,000 ) $ ( 539,000 )

Total comprehensive loss $ ( 133,181,000 ) $ ( 72,974,000 )

See accompanying notes to the consolidated financial statements.

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Issue common stock, net of issuance costs 80,178,000 8,000 341,015,000 — — 341,023,000

Issue stock for employee stock purchase plan 88,000 — 40,000 — — 40,000

Issue stock for covenant waiver 873,000 — 300,000 — — 300,000

Issue stock for warrant exercises 10,794,000 1,000 9,417,000 — — 9,418,000

Issue stock for employee stock purchase plan 300,000 — 89,000 — — 89,000

Issuance of common stock due to the vesting of restricted stock units, net of shares withheld to cover taxes 169,000 — — — — —

Issue stock for acquisition 7,729,000 1,000 14,158,000 14,159,000

Net loss — — — ( 72,435,000 ) — ( 72,435,000 )

Other comprehensive loss — — — — ( 539,000 ) ( 539,000 )

Balance at December 31, 2021 289,602,000 $ 29,000 $ 553,747,000 $ ( 216,119,000 ) $ ( 539,000 ) $ 337,118,000

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Issue common stock, net of issuance costs 6,640,000 1,000 22,550,000 — — 22,551,000

Issue stock for warrant exercises 10,794,000 1,000 9,417,000 — — 9,418,000

Issue stock for employee stock purchase plan 300,000 — 150,000 — — 150,000

Issuance of common stock due to the vesting of restricted stock units, net of shares withheld to cover taxes 173,000 — — — — —

Issue stock for acquisition 7,729,000 1,000 14,158,000 — — 14,159,000

Net loss — — — ( 132,596,000 ) — ( 132,596,000 )

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Depreciation and amortization expense 9,621,000 3,351,000

Amortization of financing lease right-of-use asset 19,000 —

Amortization of financing lease right-of-use asset, related party 219,000 19,000

Amortization of interest on securities 638,000 329,000

Non-cash interest expense — 205,000

Net realized loss (gain) on investments 66,000 —

Non-cash lease expense 478,000 671,000

Settlement of interest on debt — ( 1,235,000 )

Benefit from deferred income taxes ( 5,777,000 ) —

(Benefit) expense from deferred income taxes 1,760,000 ( 5,777,000 )

Stock-based compensation 22,417,000 9,719,000

1 unchanged sentence

Gain on forgiveness of PPP Loan — ( 1,775,000 )

Inventory impairment — 126,000

Loss on debt extinguishment — 1,480,000

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Prepaid expenses and other current assets ( 3,197,000 ) ( 1,324,000 )

Other assets ( 1,130,000 ) ( 647,000 )

Accounts payable 1,949,000 6,781,000

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Investing activities:

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

BioDiscovery acquisition, net of cash acquired — ( 49,086,000 )

BioDiscovery acquisition, return of purchase consideration from escrow 694,000 —

Purigen acquisition, net of cash acquired ( 31,344,000 ) —

Purchases of property and equipment ( 2,408,000 ) ( 822,000 )

Sale of property and equipment 26,000 —

Construction in process ( 792,000 ) ( 638,000 )

Purchases of intangible assets ( 102,000 ) —

Payment of initial direct costs on lease — ( 607,000 )

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Sale and maturities of available for sale securities 200,888,000 86,483,000

Net cash used in investing activities ( 278,062,000 ) ( 2,450,000 )

Net cash provided by (used in) investing activities 82,767,000 ( 278,062,000 )

Financing activities:

Repayment of term-loan debt — ( 15,000,000 )

Principal payments of financing lease liability ( 5,000 ) —

Principal payments of financing lease liability, related party ( 36,000 ) ( 5,000 )

Proceeds from PPP Loan — —

Proceeds from borrowing from line of credit — 761,000

Repayments of borrowing from line of credit — ( 2,258,000 )

Proceeds from sale of common stock 23,128,000 342,711,000

3 unchanged sentences

Net cash provided by financing activities 23,007,000 336,111,000

Net increase (decrease) in cash and cash equivalents ( 13,878,000 ) 21,138,000

Cash and cash equivalents at beginning of period 38,449,000 17,311,000

Cash and cash equivalents at end of period $ 24,571,000 $ 38,449,000

Effect of exchange rates on cash, cash equivalents and restricted cash ( 38,000 ) —

Years Ended December 31,

Net increase (decrease) in cash, cash equivalents and restricted cash ( 19,080,000 ) ( 13,878,000 )

Cash, cash equivalents and restricted cash at beginning of period 24,571,000 38,449,000

Cash, cash equivalents and restricted cash at end of period $ 5,491,000 $ 24,571,000

Reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the total amounts reported on the consolidated statements of cash flows

Cash and cash equivalents 5,091,000 24,571,000

Restricted cash 400,000 —

Total cash, cash equivalents and restricted cash at end of period $ 5,491,000 $ 24,571,000

Supplemental disclosure of cash flow information

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Supplemental disclosure of non-cash financing and investing activity

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

Fair value of common stock issued related to BioDiscovery acquisition $ — $ 14,159,000

Contingent consideration related to BioDiscovery acquisition $ — $ 9,000,000

Contingent consideration related to Purigen acquisition $ 12,970,000 $ —

Operating lease liabilities resulting from obtaining and modifying right-of-use assets $ 517,000 $ 4,751,000

Transfer of instruments and servers from inventory into property and equipment, net $ 7,244,000 $ 6,857,000

Property and equipment included in accounts payable $ 90,000 $ —

Forgiveness of PPP Loan $ — $ 1,775,000

Stock issued for services $ — $ 15,000

Issue stock for covenant waiver $ — $ 300,000

Warrant exercise pursuant to cashless exercise $ — $ 129,000

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(collectively, with its consolidated subsidiaries, the “Company”) is a provider of genome analysis solutions that can enable researchers and clinicians to reveal answers to challenging questions in biology and medicine.

The Company’s mission is to transform the way the world sees the genome through optical genome mapping (“OGM”) solutions, diagnostic services and software.

The Company offers OGM solutions for applications across basic, translational and clinical research.

The Company offers OGM solutions for applications across basic, translational and clinical research, and for other applications including bioprocessing.

Through its Lineagen, Inc.

(“Lineagen”) business, the Company also provides diagnostic testing for patients with clinical presentations consistent with autism spectrum disorder and other neurodevelopmental disabilities.

Through its BioDiscovery, LLC.

(“BioDiscovery”) business, the Company also offers 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.

As of December 31, 2021, the Company had approximately $ 24.6 million in cash and cash equivalents, $ 226.0 million in short term investments, and working capital of $ 250.6 million as a result of common stock offerings executed in the quarters ended December 31, 2020, March 31, 2021, and September 30, 2021.

In February 2021, we applied for forgiveness of our PPP Loan of approximately $ 1.8 million, and in March 2021, the PPP Loan, including all accrued interest, was forgiven in full.

During the year ended December 31, 2021, the outstanding term loan under the Innovatus LSA was paid in full, including all accrued interest, an end of term fee, and a prepayment fee for a total of $ 17.0 million.

The Company believes its available cash, cash equivalents and available-for-sale securities will be sufficient to fund operations, obligations as they become due and capital investments for at least the next twelve months.

However, the Company expects to continue to incur net losses for the foreseeable future.

The Company plans to continue to fund its losses from operations and capital funding needs through a combination of equity offerings, debt financings or other sources, including potential collaborations, licenses and other similar arrangements.

If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, potentially harming the Company’s business.

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

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

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

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

Despite reporting an increase in revenue for the year ended December 31, 2021 when compared to the same period in 2020, the Company believes travel restrictions and overall reduced activity had a continued negative impact on the Company’s financial results.

Given the continued evolution of the COVID-19 pandemic and the related complexities and uncertainties associated with the additional variants, the future effects of COVID-19 are unknown and the Company’s financial results may continue to be negatively affected in the future.

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

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

These negative effects could have a material impact on the Company’s operations, business, earnings, and liquidity.

(doing business as Bionano Laboratories, “Bionano Laboratories”) business, the Company also provides diagnostic testing for patients with clinical presentations consistent with autism spectrum disorder and other neurodevelopmental disabilities.

Through its BioDiscovery, LLC (“BioDiscovery”) business, the Company also offers 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 Biosystems Inc.

(“Purigen”) business, we offer nucleic acid extraction and purification solutions using proprietary isotachophoresis (“ITP”) technology.

Liquidity and Going Concern

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

As of December 31, 2022, the Company had approximately $ 5.1 million in cash and cash equivalents, $ 108.1 million in short term investments, and working capital of $ 121.4 million.

The Company has an accumulated deficit of $ 348.7 million as of December 31, 2022.

In 2022, the Company used $ 124.8 million cash in operations.

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

Management has prepared cash flows forecasts which indicate that based on the Company’s expected operating losses and negative cash flows, there is substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the financial statements for the year ended December 31, 2022, are issued.

Management’s ability to continue as a going concern is dependent upon its ability to raise additional funding.

Management’s plans to raise additional capital to fulfill its operating and capital requirements for at least 12 months include public or private equity or debt financings.

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

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

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the outcome of this uncertainty.

Summary of Significant Accounting Policies

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GAAP") requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

lived assets and goodwill, warranty reserves, certain accrued expenses, contingent liabilities, tax reserves, deferred tax rates and recoverability of the Company’s net deferred tax assets, stock-based compensation expense, and related valuation allowances.

Significant estimates and assumptions used by management include estimates of selling prices for multiple performance obligation arrangements, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used in purchase accounting and to evaluate the recoverability of long-lived assets and goodwill, warranty reserves, certain accrued expenses, contingent liabilities, tax reserves, deferred tax rates and recoverability of the Company’s net deferred tax assets, stock-based compensation expense, and related valuation allowances.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates.

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All intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

Certain amounts reported in prior years have been reclassified to conform with the presentation in the current year.

These reclassifications had no effect on the reported results of operations.

Business Combinations

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

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

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

In October 2021, Starship Merger Sub I, Inc., a wholly owned subsidiary of the Company (“BioDiscovery Merger Sub I”), Starship Merger Sub II, LLC, a California limited liability company (“BioDiscovery Merger Sub II”), BioDiscovery, Inc., a California corporation (“Former BioDiscovery”), and Soheil Shams, solely in his capacity as the securityholders’ representative, entered into an Agreement and Plan of Merger (the “BioDiscovery Merger Agreement”), pursuant to which the Company agreed to acquire Former BioDiscovery.

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

Immediately after BioDiscovery Merger I, pursuant to the terms and conditions of the BioDiscovery Merger Agreement, Former BioDiscovery merged with and into BioDiscovery Merger Sub II (“BioDiscovery Merger II”), whereupon the separate corporate existence of Former BioDiscovery ceased, with BioDiscovery Merger Sub II continuing as the surviving company of BioDiscovery Merger II and a wholly owned subsidiary of the Company.

Concurrent with BioDiscovery Merger II, BioDiscovery Merger Sub II changed its name to that of our current subsidiary, BioDiscovery, LLC.

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

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

See Note 14, Acquisitions, for a more fulsome discussion of our acquisition of BioDiscovery and Purigen.

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

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Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Cash equivalents primarily represent funds invested in readily available money market accounts.

1 unchanged sentence

The Company believes that it is not exposed to any significant credit risk on cash and cash equivalents.

Restricted Cash

Restricted cash consists of cash restricted from withdrawal and usage and represents funds that are restricted related to the lease assumed in the acquisition of Purigen, which is further discussed in Note 14.

Fair Value Measurements

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As all the Company’s investment holdings are in the form of debt securities, unrealized gains and losses that are determined to be temporary in nature are reported as a component of accumulated other comprehensive income (loss).

A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to earnings and the establishment of a new cost basis for the security.

A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to earnings and the establishment of a new cost basis for the

Interest income is recognized when earned, as are the amortization of purchase premiums and accretion of purchase discounts on investment securities.

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Bad debt expense is recorded as necessary to maintain an appropriate level of allowance for doubtful accounts in selling, general and administrative expense.

During the year ended December 31, 2021, the Company recorded a recovery of bad debt expense of $ 108,000 , which

is included in selling, general and administrative expenses.

During the year ended December 31, 2020, the Company recorded bad debt expense of $ 1.8 million which was included in selling, general and administrative expenses.

Amounts are charged to the allowance for doubtful accounts when collection efforts have been exhausted and are deemed uncollectible.

Accounts receivable is subject to concentration risk whenever a customer has a balance that meets or exceeds 10% of the Company’s total accounts receivable balance.

As of December 31, 2021, no customers met or exceeded 10% of the Company’s total accounts receivable balance.

As of December 31, 2020, two customer balances represented 27.4 % of the Company’s total accounts receivable balance.

As of December 31, 2022 and 2021, no customers met or exceeded 10% of the Company’s total accounts receivable balance.

Inventory is stated at the lower of cost or net realizable value, on a first-in, first-out basis.

Inventory is valued at standard cost.

Inventory includes raw materials and finished goods that may be used in the research and development process and such items are expensed as consumed or expired.

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Raw materials $ 5,319,000 $ 4,649,000

Work in process 7,055,000 1,660,000

Finished goods 17,387,000 6,078,000

$ 29,761,000 $ 12,387,000

The Company has revised the classification of its inventory between the categories in the table above for the December 31, 2021 balance sheet.

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

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

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

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

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Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date.

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

Finite-lived intangible assets are amortized over the estimated useful life of the asset on a basis that approximates the pattern of economic benefit.

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

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

As a result of the Lineagen and BioDiscovery acquisitions the Company recorded intangible assets, which consist of trade name intangibles, customer relationship intangibles, and a developed technology intangible, which are amortized on a straight-line basis over their estimated useful lives of five years .

As a result of the Lineagen, BioDiscovery, and Purigen acquisitions, the Company recorded intangible assets, which consist of trade name intangibles, customer relationship intangibles, and a developed technology intangible, which are amortized on a straight-line basis over their estimated useful lives of five years .

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

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Contingent Consideration

We recorded 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, changes in our estimate of the likelihood, or timing of achieving the criteria for payment of the contingent consideration.

The Company recorded contingent consideration resulting from a business combination at its fair value on the acquisition date.

On a quarterly basis, the Company revalues this obligation and records 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 the estimate of the likelihood or timing of achieving the criteria for payment of the contingent consideration.

Balance as of December 31, 2020

Acquisitions 48,987,000

Balance as of December 31, 2021

Acquisitions 22,651,000

Measurement period adjustments ( 1,522,000 )

Balance as of December 31, 2022

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

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

Goodwill is assigned to specific reporting units for purposes of impairment assessment.

Goodwill is assigned to

specific reporting units for purposes of impairment assessment.

The Company has determined that it has a single operating segment and a single reporting unit.

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During the years ended December 31, 2022 and 2021, the Company recognized no impairment losses on goodwill.

Beginning in 2021, the Company determines if an arrangement is, or contains, a lease at the inception of the arrangement.

Right-of-use (“ROU”) assets represent our right to use an underlying asset during the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

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The Company accounts for the lease and non-lease components as a single lease component for all classes of underlying assets.

Deferred Rent

The Company’s operating leases include incentives in the form of rent abatements and leasehold improvement allowances, as well as fixed annual rent escalations.

The Company recognizes the aggregate rental expense, after considering incentives and stipulated rent escalations, on a straight-line basis over the lease term.

Prior to January 1, 2021, the difference between rent expense and amounts paid under the lease was recorded as deferred rent in the accompanying consolidated balance sheets.

Revenue Recognition

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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.

The Company provides assurance type warranties on many of its products.

As customers cannot purchase such warranties independently of the products under the contract and they are not priced separately, assurance type warranties are not separate performance obligations.

The Company recognizes a receivable when we have an unconditional right to payment, which is generally at the time of delivery of software, consumables and instruments, including any extended warranties, or at the time services are rendered.

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Product revenue recognition

Product revenue consists of sales of our Saphyr system and related consumables.

Product revenue consists of sales of our Saphyr system and related consumables, as well as sales of software.

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

1 unchanged sentence

Transfer of control for the Company's 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 control of the product.

Transfer of control of software is recognized at the point-in-time when the software license is transferred to the customer.

As such the Company's performance obligation related to product sales is satisfied at a point in time.

1 unchanged sentence

Rental revenue related to the reagent rental program recognized over-time totaled $ 0.4 million and $ 0.2 million during the years ended December 31, 2022 and 2021, respectively.

Revenue related to software license maintenance agreements is recognized over-time based on the contract term.

Revenue recognized over-time related to software sales totaled $ 0.4 million and $ 0.1 million during the years ended December 31, 2022 and 2021, respectively.

Service and other revenue recognition

Service and other revenue primarily consist of revenue from diagnostic testing services, the sale of software, and license maintenance agreements, and support, repair and maintenance services and extended warranties on Saphyr systems.

Service and other revenue primarily consist of revenue from diagnostic testing services, license maintenance agreements, software hosting arrangements, and support, repair and maintenance services and extended warranties on Saphyr systems.

Revenue from the completion of diagnostic testing services is initially recorded at the estimated consideration the Company expects to receive from contractual and non-contractual payors, and is subject to adjustment based on the amount actually collected.

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

Revenue from the sale of software is recognized at the point-in-time the software license is transferred to the customer, or for hosting arrangements, on a usage basis as the customer processes the number of genetic samples purchased with the software.

Revenue related to license maintenance agreements is recognized over-time based on the contract term.

Revenue recognized over-time related to license maintenance agreements totaled $ 0.1 million during the year ended December 31, 2021.

There was no revenue recognized related to license maintenance agreements during the year ended December 31, 2020.

Revenue for hosting arrangements is recognized over-time on a usage basis as the customer processes the number of genetic samples purchased with the software.

Hosting arrangements revenue recognized over-time totaled $ 0.5 million and $ 0.1 million during the years ended December 31, 2022 and 2021, respectively.

Revenue from support and maintenance contracts and extended warranties is 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 is recognized as the services are performed based on the specific nature of the service.

Warranty and maintenance revenue recognized over-time totaled $ 0.6 million and $ 0.5 million during the years ended December 31, 2021 and 2020, respectively, which was included in service and other revenue.

Warranty and maintenance revenue recognized over-time totaled $ 0.7 million and $ 0.6 million during the years ended December 31, 2022 and 2021, respectively.

Remaining Performance Obligations

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

The Company records a contract liability, or deferred revenue, when it has 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.

The Company records a contract liability, or deferred revenue, when it has 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.

Contract liabilities are classified as other current

liabilities and other long-term liabilities on the consolidated balance sheets.

The Company recognized revenue of $ 0.7 million and $ 0.4 million during the years ended December 31, 2022 and 2021, respectively, which was included in the contract liability balance at the end of the previous year.

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The Company issues stock-based awards as compensation to employees and directors.

Stock-based awards may include stock options, stock appreciation rights, vesting stock awards and performance share awards.

Stock-based awards may include stock options, restricted stock units, and performance stock units.

These awards are accounted for as equity awards.

To-date, the Company recognizes stock-based compensation expense net of actual forfeitures on a straight-line basis over the underlying award’s requisite service period, which is generally the vesting period, as measured using the award’s grant date fair value.

The Company determines grant date fair value of stock option awards using the Black-Scholes option-pricing model.

The fair value of restricted stock units and performance stock units are determined using the closing price of the Company’s common stock on the grant date.

For service based vesting grants, expense is recognized over the requisite service period based on the number of options or shares expected to ultimately vest.

For performance stock units, expense is recognized over the implicit service period, assuming vesting is probable.

No expense is recognized for the performance stock units if it is not probable the vesting criteria will be satisfied.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

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Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance.

The Company chief operating decision-maker, the Chief Executive Officer, views the Company’s operations and manages its business as one operating segment.

The Company’s chief operating decision-maker, the Chief Executive Officer, views the Company’s operations and manages its business as one operating segment.

Net Loss Per Share

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The Company is currently evaluating the expected impact of ASU 2016-13 on its financial statements.

In May 2021, the FASB issued ASU No.

2021-04, Issuer’s Accounting for Certain Modifications or Exchanges for Freestanding Equity-Classified Written Call Options to clarify the accounting for modifications or exchanges of equity-classified warrants.

The standard is effective for fiscal years beginning after December 15, 2021.

Early adoption is permitted.

The Company is in the process of evaluating the expected impact of ASU 2021-04 on its financial statements.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU No.

2020-06, Debt - Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"), which simplifies accounting for convertible instruments by removing major separation models required under current U.S.

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

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

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

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and adoption must be as of the beginning of the Company’s annual fiscal year.

The Company’s early adoption of this accounting standard on January 1, 2021, did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, “Leases (Topic 842)” (“ASC 842”) which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements.

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ASC 842 also requires disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

The standard was adopted

on January 1, 2021, as the Company lost its status as an Emerging Growth Company effective December 31, 2021, and therefore was required to adopt the standard for the year ending December 31, 2021, using the modified retrospective method.

Under this transition method, the Company recognized and measured leases that existed at the adoption date in the consolidated balance sheet as of January 1, 2021.

The standard was adopted on January 1, 2021, as the Company lost its status as an Emerging Growth Company effective December 31, 2021, and therefore was required to adopt the standard for the year ending December 31, 2021, using the modified retrospective method.

Under this transition method, the Company recognized and measured leases that existed at the adoption date in the audited consolidated balance sheet as of January 1, 2021.

In connection with the adoption of ASC 842, the Company elected the package of practical expedients requiring no reassessment of whether any expired or existing contracts contain leases, the lease classification of any expired or existing leases, or initial direct costs for any existing leases.

The Company also made accounting policy elections not to apply the recognition requirements under ASC 842 to any short-term leases and to account for each separate lease and associated non-lease components as a single lease component for all the Company’s leases.

Adoption of ASC 842 resulted in recognition of operating lease assets and liabilities of approximately $ 2.1 million and $ 2.1 million, respectively, as of January 1, 2021, related to the lease of office and laboratory space.

The comparative prior period information continues to be reported under ASC 840.

The adoption of this new accounting standard resulted in increased qualitative and quantitative disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases.

For further details, see Note 11, Commitments and Contingencies.

The adoption of the new standard did not materially impact the Company’s consolidated results of operations or cash flows.

The adoption of the new standard did not materially impact the Company’s consolidated results of operations.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

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This ASU requires an acquirer to account for revenue contracts acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts.

Prior to ASU 2021-08, an acquirer generally recognized assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts, at fair value on the acquisition date.

Prior to ASU 2021-08, an acquirer generally recognized assets acquired and liabilities assumed in a business

combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts, at fair value on the acquisition date.

The guidance is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to business combinations occurring on or after the effective date.

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The Company adopted ASU 2021-08 on October 1, 2021, and applied the ASU prospectively to its acquisition that occurred in 2021.

In May 2021, the FASB issued ASU No.

The standard is effective for fiscal years beginning after December 15, 2021.

Early adoption is permitted.

The Company’s adoption of this accounting standard on January 1, 2022, did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

Revenue from Contracts with Customers

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Consumables 6,731,000 5,808,000

Software 5,127,000 991,000

Total product revenue 20,425,000 12,686,000

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

The Company has revised the classification of its revenue between the categories in the table above for the December 31, 2021 income statement.

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

Revenue by Geographic Location

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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The tables above provide revenue from contracts with customers by source and geographic location on a disaggregated basis.

North America consists of the United States and Canada.

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

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

For the years ended December 31, 2022 and 2021, sales in the United States represented 42 % and 46 % of revenues, respectively.

During the year ended December 31, 2021, sales in China accounted for 11 % of total revenue.

During the years ended December 31, 2022 and 2021, sales in China accounted for 14 % and 11 % of revenues, respectively.

No other countries represented greater than 10% of revenue during the years ended December 31, 2022 and 2021.

During the year ended December 31, 2022, the Company changed the presentation of its revenues from India to be included in the Asia Pacific geographic region.

Prior to the year ended December 31, 2022, the Company had presented revenues from India in the EMEIA geographic region.

The impact of this change on prior period disclosures is immaterial.

Investments and Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e.

supported by little or no market activity).

Financial instruments that are not re-measured at fair value include cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities.

The carrying value of the Company’s long-term debt approximates its fair value due to the market rate of interest which was determined to be a Level 2 measurement.

The carrying values of these financial instruments approximate their fair values.

The Company holds investment securities that consist of highly liquid, investment grade debt securities.

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Corporate notes/bonds 86,094,000 — 86,094,000 —

Securities of government sponsored entities 1,981,000 1,981,000

Total investments:

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Contingent consideration $ 22,352,000 $ — $ — $ 22,352,000

December 31, 2021

Total Fair Value and Carrying Value on Balance Sheet Fair Value Measurement Category

Level 1 Level 2 Level 3

Commercial paper $ 100,860,000 $ — $ 100,860,000 $ —

Corporate notes/bonds 125,181,000 — 125,181,000 —

Securities of government sponsored entities — — — —

Total investments:

$ 226,041,000 $ — $ 226,041,000 $ —

Money market funds $ 11,126,000 $ 11,126,000 $ — $ —

Contingent consideration $ 9,066,000 $ — $ — $ 9,066,000

Money Market Funds are classified as cash equivalents on the balance sheet.

The fair value of the contingent consideration liability is reassessed on a quarterly basis using the income approach.

Assumptions used to estimate the acquisition date fair value of the contingent consideration include the probability of achieving certain milestones and a discount rate of 3.2 %.

The fair value measurement of the contingent consideration is based on significant inputs not observed in the market (Level 3 inputs).

Significant inputs used in the measurement include probabilities of achieving the remaining milestones, which depend on the milestone risk profile.

The change in fair value of the contingent consideration during the year ended December 31, 2021 was due to the passage of time.

Contingent consideration relates to the acquisitions of BioDiscovery and Purigen.

The outcome of the milestone consideration for all contingent consideration liabilities is binary, meaning the milestones are either achieved or not achieved, and the only other variable factor is the timing of when the milestones are achieved.

The fair value measurement of the contingent consideration liabilities is based on significant inputs not observed in the market (Level 3 inputs).

These unobservable inputs represent a Level 3 measurement because they are supported by little or no market activity and reflect the Company’s assumptions in measuring fair value.

The fair value of the BioDiscovery contingent consideration liability is reassessed on a quarterly basis using a probability weighted model.

Assumptions used to estimate the acquisition date fair value of the contingent consideration related to the acquisition of BioDiscovery include the probability of achieving, or changes in timing, of certain milestones, and a discount rate.

During the years ended December 31, 2022 and December 31, 2021, a discount rate of 3 % was used.

The Company determined the fair value of the BioDiscovery milestone consideration using a scenario-based technique, as the trigger for

payment is event driven.

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

The change in fair value of the contingent consideration during the years ended December 31, 2022 and December 31, 2021 was due to the passage of time.

During the year ended December 31, 2022, the milestone consideration liability related to the BioDiscovery acquisition was reclassified from non-current liabilities to current liabilities.

Contingent consideration liabilities related to the Purigen milestones are related to the achievement of two independent milestones with aggregate possible milestone payments totaling $ 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.

Assumptions used to estimate the acquisition date fair value of the milestones using a probability weighted model include the probability of achieving, or changes in timing, of independent milestones, and a discount rate of 15.3 %.

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

The Company 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.

Changes in estimated fair value of contingent consideration liability in the year ended December 31, 2022 is as follows:

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Balance as of December 31, 2022

The Company did not hold any investments as of December 31, 2020.

As of December 31, 2021, the Company held 57 securities in an unrealized loss position for a period of less than 12 months resulting in an unrealized loss of $ 0.5 million included in other comprehensive income during the year ended December 31, 2021.

None of the Company’s available-for-sale investment securities were in a material unrealized loss position at December 31, 2021.

As such, the Company has not recognized any impairment in its financial statements related to its available-for-sale investment securities.

During the year ended December 31, 2021, the Company received proceeds of $ 86.5 million relating to sales and maturities of its available for sale securities, and recognized a loss of $ 8,000 in other income relating to the sale of these securities.

Amounts are reclassified out of accumulated other comprehensive income into earnings using the specific identification method.

Changes in estimated fair value of contingent consideration liability in the year ended December 31, 2021 is as follows:

Consideration

Balance as of December 31, 2020

Liability recorded as a result of current period acquisition 9,000,000

Change in estimated fair value, recorded in selling, general and administrative expenses 66,000

Cash payments —

Balance as of December 31, 2021

As of December 31, 2022, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities:

Commercial Paper Corporate Notes/Bonds

Commercial Paper Corporate Notes/Bonds Securities of Government Sponsored Entities

Amortized Cost

Unrealized loss

Unrealized Gain (Loss)

Amortized Cost

Unrealized loss

Unrealized Gain (Loss)

Amortized Cost

Unrealized Gain (Loss)

Less than 1 year $ 20,093,000 $ ( 73,000 ) $ 72,823,000 $ ( 910,000 ) $ 1,998,000 $ ( 16,000 )

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Total $ 20,093,000 $ ( 73,000 ) $ 87,091,000 $ ( 998,000 ) $ 1,998,000 $ ( 16,000 )

As of December 31, 2021, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities:

Commercial Paper Corporate Notes/Bonds Securities of Government Sponsored Entities

Amortized Cost

Unrealized Gain (Loss)

Amortized Cost

Unrealized Gain (Loss)

Amortized Cost

Unrealized Gain (Loss)

Less than 1 year $ 100,929,000 $ ( 69,000 ) $ 41,173,000 $ ( 61,000 ) $ — $ —

Due after one year through five years — — 84,478,000 ( 409,000 ) — —

Total $ 100,929,000 $ ( 69,000 ) $ 125,651,000 $ ( 470,000 ) $ — $ —

As of December 31, 2022, the following table summarizes available-for-sale securities in an unrealized loss position:

Less Than 12 Months 12 Months or Greater Total

Gross Unrealized Loss

Commercial paper $ 20,020,000 $ ( 73,000 ) $ — $ — $ 20,020,000 $ ( 73,000 )

Corporate Notes/Bonds 9,661,000 ( 27,000 ) 74,452,000 ( 971,000 ) 84,113,000 ( 998,000 )

Securities of Government Sponsored Entities 1,981,000 ( 16,000 ) — — 1,981,000 ( 16,000 )

Total $ 31,662,000 $ ( 116,000 ) $ 74,452,000 $ ( 971,000 ) $ 106,114,000 $ ( 1,087,000 )

As of December 31, 2021, the following table summarizes available-for-sale securities in an unrealized loss position:

Less Than 12 Months 12 Months or Greater Total

Gross Unrealized Loss

Commercial paper $ 100,860,000 $ ( 69,000 ) $ — $ — $ 100,860,000 $ ( 69,000 )

Corporate Notes/Bonds 125,181,000 ( 470,000 ) — — 125,181,000 ( 470,000 )

Securities of Government Sponsored Entities — — — — — —

Total $ 226,041,000 $ ( 539,000 ) $ — $ — $ 226,041,000 $ ( 539,000 )

As of December 31, 2022, the Company held 16 securities which have been in an unrealized loss position for a period of less than 12 months.

As of December 31, 2022, the Company held 24 securities which have been in an unrealized loss position for a period of greater than 12 months.

As of December 31, 2021, the Company held 57 securities which had been in an unrealized loss position for a period of less than 12 months.

There were no securities in an unrealized loss position for a period greater than 12 months as of December 31, 2021.

As of December 31, 2022 and December 31, 2021, the Company did not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis.

The Company does not believe the unrealized losses incurred during the period are due to credit-related factors.

The credit ratings of the securities held remain of high quality, and the Company continues to receive payments of interest and principal as they become due, and our expectation is that those payments will continue to be received timely.

As such, the Company has not recognized any impairment in its financial statements related to its available for sale investment securities.

During the year ended December 31, 2022, the Company received proceeds of $ 22.8 million relating to sales of its available for sale securities, and recognized a loss of $ 0.1 million in other income relating to the sale of these securities.

During the year ended December 31, 2021, the Company recognized a loss of $ 0.01 million in other income relating to the maturity of its securities.

Amounts are reclassified out of accumulated other comprehensive income into earnings using the specific identification method.

Included in interest income for the year ended December 31, 2022 was interest income related to the Company’s available for sale securities of $ 1.5 million.

All interest income related to the available for sale securities in 2021 related to year ended December 31, 2021.

Included in interest income for the year ended December 31, 2021 was interest income related to the Company’s available for sale securities of $ 0.4 million.

All available-for-sale securities are classified as current assets, even if the maturity when acquired by the Company is greater than one year due to the ability to liquidate within the next 12 months.

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Interest receivable 474,000 387,000

Prepaid employee related expenses 680,000 —

Internal use cloud computing arrangement software development costs 530,000 —

Prepaid software subscriptions 1,601,000 734,000

Prepaid marketing expenses 439,000 237,000

Other current assets 2,412,000 1,378,000

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Leasehold improvements 4,001,000 2,674,000

19,390,000 12,366,000

Total property and equipment, gross 31,106,000 19,390,000

Less accumulated depreciation and amortization ( 13,077,000 ) ( 9,072,000 )

$ 10,318,000 $ 4,910,000

For the years ended December 31, 2021 and 2020, the Company recorded depreciation expense of $ 1.9 million and $ 1.4 million, respectively, which includes an allocation to cost of revenue of $ 0.9 million, $ 0.5 million, and $ 41,000 respectively.

Total property and equipment, net $ 18,029,000 $ 10,318,000

For the years ended December 31, 2022 and 2021, the Company recorded depreciation expense of $ 3.8 million and $ 1.9 million, respectively, which includes an allocation to cost of revenue of $ 1.5 million and $ 0.9 million respectively.

Intangible Assets, Net

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The Company recorded amortization expense for intangible assets of $ 5.8 million and $ 1.4 million for the years ended December 31, 2022 and 2021 respectively, in selling, general and administrative expenses.

The customer relationships and trade name intangibles from the Lineagen acquisition are both being amortized on a straight-line basis over their estimated useful lives of 5 years, and have remaining amortization periods of 3.6 years.

The customer relationships, developed technology and trademark intangibles from the BioDiscovery acquisition are being amortized on a straight-line basis over their estimated useful lives of 5 years, and have remaining amortization periods of 4.8 years.

Intangible assets are amortized on a straight-line basis over their estimated useful lives of five years , with the exception of the developed technology intangible acquired through the acquisition of Purigen, which is amortized over fifteen years .

Trade name intangibles have a weighted average remaining amortization period of four years .

Customer relationships have a weighted average remaining amortization period of four years .

Developed technology intangibles have a weighted average amortization period of ten years .

Intangible assets not subject to amortization totaled $ 0.1 million at December 31, 2022 and related to the Company’s domain name.

The Company did not hold any intangibles not subject to amortization at December 31, 2021.

Future amortization expense of intangible assets is as follows:

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2027 1,473,000

Thereafter 12,429,000

Total $ 41,041,000

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Compensation expenses $ 7,002,000 $ 4,529,000

Goods received not invoiced 1,073,000 567,000

Taxes payable 825,000 677,000

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Warranty liabilities 489,000 175,000

Interest — 98,000

Accrued clinical study fees 250,000 1,000

Customer deposits 17,000 826,000

Other 1,146,000 1,114,000

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A gain on forgiveness of Paycheck Protection Program loan of $ 1.8 million was recognized during the year ended December 31, 2021.

Innovatus LSA

Innovatus Loan and Security Agreement

In March 2019, the Company entered into a Loan and Security Agreement (the “LSA”) by and among Innovatus Life Sciences Lending Fund I, LP, a Delaware limited partnership (“Innovatus”), as collateral agent and the lenders listed on Schedule 1.1 thereto, including East West Bank.

The LSA provided a first term loan of $ 17.5 million, a second term loan of $ 2.5 million and a third term loan of $ 5.0 million (collectively, the “Term Loans”) if the Company satisfied certain funding conditions.

Interest on the Term Loans is due on the first of each month at a rate of 10.25 % per annum in cash or a discounted rate of 7.25 % in cash with 3.0 % of the 10.25 % per annum rate added to the principal of the loan and subject to accruing interest through the end of the interest only payment period, which ends March 1, 2022.

Interest on the Term Loans was due on the first of each month at a rate of 10.25 % per annum in cash or a discounted rate of 7.25 % in cash with 3.0 % of the 10.25 % per annum rate added to the principal of the loan and subject to accruing interest through the end of the interest only payment period, which was scheduled to end March 1, 2022.

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

As of May 14, 2021 (the effective date of the loan payoff), the effective interest rate, including debt issuance costs, for the Term Loans was 16.7 %.

The LSA provided for prepayment fees of 3.0 % of the outstanding balance of the loan if the loan is repaid on or prior to March 14, 2020, 2.0 % of the amount prepaid if the prepayment occurs after March 14, 2020 but prior to March 14, 2021, 1 % of the amount prepaid after March 14, 2021 but prior to March 14, 2022 and 0 % of the amount prepaid if the prepayment occurs thereafter.

In addition, upon the final repayment of the total amounts borrowed, the Company is required to pay an end of term fee of $ 0.8 million.

The LSA provided for prepayment fees of 3.0 % of the outstanding balance of the loan if the loan was repaid on or prior to March 14, 2020, 2.0 % of the amount prepaid if the prepayment occurs after March 14, 2020 but prior to March 14, 2021, 1 % of the amount prepaid after March 14, 2021 but prior to March 14, 2022 and 0 % of the amount prepaid if the prepayment occurs thereafter.

In addition, upon the final repayment of the total amounts borrowed, the Company was required to pay an end of term fee of $ 0.8 million.

This end of term fee was being recognized as interest expense over the term of the LSA.

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Also pursuant to the waiver letter, as consideration for the prospective breach of a liquidity covenant, the Company agreed to issue to Innovatus $ 0.6 million shares of the Company's common stock.

As a result of the amendment and shares issued, the Company recognized $ 0.6 million as a debt discount, which is being amortized as interest expense over the remaining term of the LSA.

As a result of the amendment and shares issued, the Company recognized $ 0.6 million as a debt discount, which was being amortized as interest expense over the remaining term of the LSA.

As of December 31, 2019, the Company did not achieve certain financial covenants under the Innovatus LSA.

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In connection with the Second Amendment, the Company was obligated to pay Innovatus a waiver fee in the amount of $ 0.2 million and a prepayment fee of $ 0.1 million, payable in cash or in shares of the Company’s common stock at the Company's election, no later than following completion of the Equity Event, as defined in the Second Amendment.

As described in Note 10 below, the Company completed a follow-on public offering in April 2020 that constituted an Equity Event under the Second Amendment.

The Company completed a follow-on public offering in April 2020 that constituted an Equity Event under the Second Amendment.

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

In addition, the Company issued 0.9 million shares of its common stock to Innovatus to satisfy the $ 0.2 million waiver fee and the $ 0.1 million prepayment fee due under the Second Amendment.

As a result of the amendment and shares issued, the Company recognized $ 0.3 million as a debt discount, which is being amortized as interest expense over the remaining term of the LSA.

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

As a result of the amendment and shares issued, the Company recognized $ 0.3 million as a debt discount, which was being amortized as interest expense over the remaining term of the LSA.

Also pursuant to the Second Amendment, the Company subsequently registered such shares for resale on a registration statement on Form S-3 (the “Registration Statement”)

filed with the Securities and Exchange Commission on June 22, 2020 and declared effective on July 7, 2020.

The Company has not and will not receive any of the proceeds from the offering described in the Registration Statement.

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

On December 31, 2020, the Company obtained a waiver from Innovatus of its previously disclosed noncompliance, as of September 30, 2020, with the revenue covenant contained in the LSA.

As of December 31, 2020, the Company was in compliance with the covenants under the Innovatus LSA.

The Innovatus LSA was paid in full and terminated in 2021.

Summary of Debt Obligations

The Company had no debt as of December 31, 2021.

The carrying value of the Company’s debt as of December 31, 2020 was as follows:

Term Loans $ 15,981,000

PPP Loan 1,775,000

Total principal 17,756,000

unamortized debt issuance costs ( 1,430,000 )

Total carrying value of debt $ 16,326,000

Stockholders’ Equity and Stock-Based Compensation

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Follow-on Public Offerings

In April 2020, the Company completed an underwritten public offering of 16.9 million shares of its common stock and, to certain investors, pre-funded warrants to purchase 37.7 million shares of its common stock, and accompanying common warrants to purchase up to an aggregate of 54.5 million shares of its 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.

The gross proceeds to the Company, before deducting offering costs of $ 1.6 million, were $ 18.0 million.

On January 12, 2021, the Company completed an underwritten public offering of 33.4 million shares of common stock, including 4.4 million shares of common stock sold pursuant to the underwriters’ exercise in full of their option to purchase additional shares.

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acting as sales agent (the “Ladenburg ATM”).

During October through December 2020, the Company sold 27.0 million shares of common stock under 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 $ 0.6 million.

In January 2021, the Company sold an additional 6.3 million 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 $ 0.4 million.

In January 2021, the Company sold 6.3 million 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 $ 0.4 million.

The Company terminated the Ladenburg ATM in March 2021.

On January 19, 2021, the Company filed an automatically effective shelf registration statement on Form S-3 with the SEC as a “well-known seasoned issuer,” allowing for the Company to issue an indeterminate number or amount of its securities from time to time in one or more offerings.

On January 19, 2021, the Company filed an automatic shelf registration statement on Form S-3 with the SEC.

On March 23, 2021, the Company entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”) which provides for the sale, in the Company’s sole discretion, of shares of common stock having an aggregate offering price of up to $ 350.0 million through or to Cowen, acting as sales agent or principal, which was amended on March 9, 2023 to decrease the maximum aggregate offering price to $ 200.0 million for sales made on and after the date of the amendment (the “Cowen ATM”) .

The Company agreed to pay Cowen a commission of up to 3.0 % of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Cowen with customary indemnification and contribution rights.

In August and September 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 .

In August 2022, the Company 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 and February 2023, the Company sold approximately 9.5 million shares of common stock under the Cowen ATM at an average share price of $ 1.60 per share, and received gross proceeds of approximately $ 15.2 million before deducting offering costs of $ 0.4 million.

Stock Warrants

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Outstanding at January 1, 2021

15,174,000 $ 2.34 3.76 $ 26,841,000

Granted — — —

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4,356,000 $ 5.96 0.76 $ 273,000

In March 2020, the Company entered into a Warrants Amendment and Agreement with certain holders of warrants that were exercisable for 3.2 million shares of common stock.

The agreement reduced the exercise price of existing warrants from $ 0.86 per share to $ 0.75 per share, which were exercised following the amendment, in addition to issuing 3.2 million new warrants at an exercise price per share of $ 1.06 that were exercised in the year ended December 31, 2021.

2018 Equity Incentive Plan

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2020 Inducement Plan

In August 2020, the Company’s Board and its stockholders adopted the 2020 Inducement Plan and amended by the Board on October 6, 2021.

In August 2020, the Company’s Board adopted the 2020 Inducement Plan, which was further amended by the Board on October 6, 2021, and November 21, 2022.

Under the 2020 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then its employees, directors and consultants, including employees and consultants of its affiliates.

The Company has initially reserved 2.1 million shares of common stock for issuance under the 2020 Plan.

An additional 1.0 million of shares of common stock was reserved for issuance under the Inducement Plan for a total of 3.1 million shares pursuant to an amendment to the Inducement Plan approved by the board of directors on October 6, 2021.

The Company initially reserved 2.1 million shares of common stock for issuance under the 2020 Plan.

An additional 1.0 million of shares of common stock were reserved for issuance under the Inducement Plan on each of October 6, 2021 and November 21, 2022 for a total of 4.1 million shares pursuant to amendments approved by the Board.

As of December 31, 2022, there were approximately 2.1 million shares of common stock authorized for future grants under the 2020 Plan.

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Shares of Stock under Stock Options Weighted-

Outstanding at December 31, 2020

Outstanding at January 1, 2022

12,765,000 $ 4.97 8.9 $ 7,891,000

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The weighted-average grant date fair value of stock option grants during the years ended December 31, 2022 and 2021 was $ 1.35 and $ 4.35 , respectively.

The total intrinsic value of the stock options exercised during the years ended December 31, 2021 and 2020 were $ 2.5 million and $ 7,000 , respectively.

The contractual term of stock options granted to employees was 10 years, which is also the maximum contractual term permitted for stock options (and stock appreciation rights) issued under the 2018 Plan.

The total intrinsic value of the stock options exercised during the years ended December 31, 2022 and 2021 were $ 0.6 million and $ 2.5 million, respectively.

The contractual term of stock options granted to employees

was 10 years, which is also the maximum contractual term permitted for stock options (and stock appreciation rights) issued under the 2018 Plan.

Stock options generally vest or become exercisable monthly over a four-year period.

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A restricted stock award in the amount of 5.0 million shares with a grant date fair value of $ 5.20 a share was granted as part of the acquisition of BioDiscovery.

One-third of the Restricted Shares will vest on October 18, 2022 and one-twelfth of the Restricted Shares shall vest every three months following October 18, 2022, subject to continuous service of a key employee.

The weighted average remaining contractual term for the restricted stock is 2.8 years as of December 31, 2021.

The fair value of the restricted stock award is based on the market value of common stock as of the date of grant and is amortized to expense over the respective vesting period or the service period.

One-third of the Restricted Shares was scheduled to vest on October 18, 2022 and one-twelfth of the Restricted Shares was scheduled to vest every three months following October 18, 2022, subject to continuous service of the key employee.

The fair value of the restricted stock award was based on the market value of common stock as of the date of grant and was amortized to stock-based compensation expense over the service period.

On October 4, 2022, the restricted stock award was modified due to the change in employment status of the key employee from full time to emeritus.

As a result of the modification, the restricted stock award vested in full on October 4, 2022.

The award was revalued on the modification date, resulting in a modified grant date fair value of $ 2.04 a share ($ 15.8 million less than the initial grant date fair value of the award).

The fair value of the modified restricted stock award was based on the market value of common stock as of the modification date.

Restricted Stock Units and Performance Stock Units

The Company issues restricted stock units (RSU) and performance stock units (PSU).

The Company grants restricted stock pursuant to the 2018 Stock Plan and satisfy such grants through the issuance of new shares.

The Company grants restricted stock pursuant to the 2018 Plan and satisfy such grants through the issuance of new shares.

RSUs are share awards that, upon vesting, will deliver to the holder shares of our common stock.

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Outstanding at January 1, 2022

Granted 540,000 4.75

361,000 $ 4.74

Released ( 265,000 ) 4.74

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Outstanding at December 31, 2022

96,000 $ 4.74

The total intrinsic value of the RSUs that vested was $ 1.3 million during fiscal 2022, determined as of the date of vesting.

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Outstanding at January 1, 2022

Granted 290,000 4.74

290,000 $ 4.74

Forfeited — —

Outstanding at December 31, 2022

290,000 $ 4.74

The weighted average remaining contractual term for the PSUs is 2.4 years as of December 31, 2022

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A total of 0.2 million shares of common stock were initially reserved for issuance under the ESPP.

In addition, the number shares of common stock reserved for issuance under the ESPP will automatically increase on January 1 of each calendar year, beginning on January 1, 2019, through January 1, 2028, by the lesser of (1) 1 % of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of the automatic increase, (2) 220,000 shares,

or (3) a lesser number of shares as determined by the Board.

As of December 31, 2022, 0.1 million shares of common stock were authorized for future grants under the ESPP.

Executive Option Grants

On February 15, 2022, the compensation committee of the Company’s board of directors granted various executive officers stock options to purchase an aggregate of 4.3 million shares of common stock at an exercise price of $ 2.18 a share, in each case with an effective grant date and vesting commencement date of February 15, 2022 (the “Grant Date”).

These stock option grants were issued from the 2018 Stock Plan.

Executive Option Grants and RSUs

On February 15, 2023, the compensation committee of the Company’s board of directors granted various executive officers stock options to purchase an aggregate of 3.3 million shares of common stock at an exercise price of $ 1.63 per share, and RSUs amounting to 0.7 million shares of common stock at a grant date fair value of $ 1.63 per share, in each case with an effective grant date and vesting commencement date of February 15, 2023 (the “Grant Date”).

These stock option grants and RSUs were issued from the 2018 Plan.

The shares subject to the option shall vest monthly over 48 months beginning on the one-month anniversary of the Grant Date, such that the option shall be fully vested and exercisable on the four-year anniversary of the Grant Date.

The RSUs shall vest monthly over 48 months beginning one year after the Grant Date, and the balance of the shares

vest in a series of three successive equal annual installments measured from the first anniversary of the Grant Date, such that the option shall be fully vested and exercisable on the four-year anniversary of the Grant Date.

Commitments and Contingencies

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In January 2022, the Company executed a new lease for an additional 5,278 square feet of office and laboratory space in San Diego, California that expires in January 2026.

Rent payments for the additional space are $ 16,000 each month through December 2022, and increases annually according to the Company’s lease agreement.

In December 2022, the Company executed a new lease, subject to the consent of a third party that was obtained in February 2023, for an additional 18,005 square feet of office and laboratory space in San Diego, California that commences in April 2023 and expires in March 2024.

Rent payments for the additional space are $ 49,000 each month through the end of the lease term.

In August 2020, through the acquisition of Lineagen, the Company obtained a lease for approximately 9,710 square feet of office space in a Salt Lake City, Utah under a non-cancelable operating lease that expires in December 2026.

In November 2022, through the acquisition of Purigen, the Company obtained a lease for approximately 16,165 square feet of office and laboratory space in Pleasanton, California, under a non-cancelable operating lease agreement that expires in July 2027.

Finance lease

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Rent expense is being recognized on a straight-line basis over the term of the lease.

The Company’s estimated incremental borrowing rate of 7.1 % was used in its present value calculations as the operating and finance leases do not have a stated rate and the implicit rate was not readily determinable.

The Company’s estimated incremental borrowing rate summarized in the table below was used in its present value calculations as the operating and finance leases do not have a stated rate and the implicit rate was not readily determinable.

In determining the incremental borrowing rate, the Company considered the interest rate of the Term Loans as well as publicly available data for discount rates used by peer companies.

Supplemental information pertaining to the Company’s leases in which the Company is lessee for the year ended December 31, 2021 is as follows:

Supplemental information pertaining to the Company’s leases in which the Company is the lessee is as follows:

Year Ended December 31,

Cash payments included in the measurement of lease liabilities:

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Weighted-average remaining lease term:

Operating leases 4.1 years

Finance leases 19.2 years

Operating leases 3.41 years 4.10 years

Finance leases 18.17 years 19.20 years

Weighted-average discount rate:

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Operating lease costs $ 2,084,000 $ 1,118,000

$ 1,118,000 $ 887,000

Variable lease costs 940,000 386,000

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Interest on lease liabilities 278,000 47,000

Variable lease costs 32,000 —

Total finance lease costs 529,000 66,000

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Total lease costs $ 3,447,000 $ 1,552,000

1 Rent expense and sublease income for the year ended December 31, 2020 reflects accounting treatment under ASC 840.

The future minimum payments under non-cancellable operating and finance leases as of December 31, 2022, are as follows:

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Total lease liabilities 7,764,000 3,904,000

Prior to the adoption of ASC Topic 842, future minimum rental payments under operating leases as of December 31, 2020, were as follows:

Year Ending December 31, Total Payments

2021 $ 734,000

2025 and thereafter 729,000

Total minimum lease payments $ 3,464,000

lease liability, current portion 2,260,000 285,000

Lease liability, net of current portion $ 5,504,000 $ 3,619,000

Purchase Commitments

The Company has a contractual commitment with a supplier to purchase $ 0.3 million of products every month for an initial term of two years beginning in May 2021 until May 2023.

$ 3.2 million and $ 1.9 million of materials were purchased under this minimum purchase commitment during the years ended December 31, 2022 and 2021, respectively.

The contract can be terminated with 90 days written notice by either party.

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The Company regularly assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in the financial statements.

An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the

amount of the loss can be reasonably estimated.

An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Based on the Company’s assessment, it currently does not have any material loss exposure as it is not a defendant in any claims or legal actions.

Contingent Consideration

As part of the Merger Agreement related to the acquisition of BioDiscovery, the Company 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.

The Company 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.

The Company 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.

Based on these valuation assumptions, a contingent liability of $ 9.0 million was recognized on the acquisition date.

As of December 31, 2021, the fair value of the milestone consideration was determined to be $ 9.1 million.

The change in fair value of $ 0.1 million was recorded in selling, general and administrative expense in the consolidated statement of operations for the year ended December 31, 2021.

Refer to Note 4.

Investments and Fair Value Measurements for discussion regarding contingent consideration.

The domestic and foreign components of income (loss) from continuing operations are as follows:

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Change in valuation allowance 27,342,000 12,879,000

Stock-based compensation 1,345,000 581,000

Section 162(m) 2,447,000 966,000

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ASC 842 - lease liability 2,599,000 2,517,000

UNICAP 1,049,000 481,000

Other 1,944,000 976,000

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Under ASC 805-740, the Company recorded deferred tax liabilities of $ 5.8 million related to customer lists, patents/trademarks, developed technology, and fixed assets as part of the business combination.

As the deferred tax liability recorded in the business combination constitutes a source of future taxable income, the Company recorded a decrease to its valuation allowance against its deferred tax assets of $ 5.8 million as a deferred income tax benefit.

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

During the year ended December 31, 2022, the Company recorded a decrease to the deferred tax liabilities previously recorded by $ 1.8 million due to adjustments to pre-acquisition tax losses and the state rate

The Company recorded a corresponding increase in the valuation allowance of $ 1.8 million as a deferred income tax expense for the year ended December 31, 2022.

The purchase price for BioDiscovery was finalized during the year ended December 31, 2022.

In November 2022, the Company completed the stock acquisition of Purigen Biosystems, Inc.

The Company recorded a net deferred tax asset of $ 11.5 million of which $ 4.4 million related to deferred tax liabilities for non-deductible intangibles and $ 15.4 million related to deferred tax assets for pre-acquisition tax loss and credit carryforwards.

As management determined that the net deferred tax asset was not more likely than not to realize, a full valuation allowance was recorded.

There was no impact on the Company's income tax provision as of December 31, 2022.

The measurement period remains open for the Purigen acquisition as of December 31, 2022.

Utilization of the net operating losses and R&D credit carryforwards are subject to annual limitations due to ownership changes that have occurred or that could occur in the future, as required by Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as similar state and foreign provisions.

These ownership changes will limit the amount of net operating losses and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.

In general, an "ownership change" as defined by Section 382 of the Code results from a transaction or series of

transactions over a three-year period resulting in an ownership change of more than 50 percentage points of outstanding stock of a company by certain stockholders.

In general, an "ownership change" as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of outstanding stock of a company by certain stockholders.

Due to the existence of the valuation allowance, limitations created by past or future ownership changes, if any, will not impact its effective tax rate.

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The Company expensed matching contributions of $ 1.5 million and $ 0.8 million for the years ended December 31, 2022 and 2021, respectively.

Lineagen Acquisition

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

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

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

Lineagen’s expertise in development, commercialization and reimbursement of laboratory-developed tests provides a platform for accelerating sales growth for the Company’s Saphyr system.

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

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

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

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

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

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

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

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

Purigen Acquisition

In November 2022, the Company, Mazdan Merger Sub, Inc., a wholly owned subsidiary of the Company (“Purigen Merger Sub”), Purigen and Shareholder Representative Services LLC, solely in its capacity as the securityholders’ representative,

entered into an Agreement and Plan of Merger (the “Purigen Merger Agreement”) pursuant to which the Company agreed to acquire Purigen.

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

Purigen’s isotachophoresis (ITP) technology is expected to expand and accelerate the adoption of OGM.

Pursuant to Purigen Merger Agreement, the Company paid upfront consideration consisting of a combination of approximately $ 32.0 million in cash.

The upfront consideration is subject to adjustment for, among other things, cash, unpaid indebtedness, unpaid transaction expenses and working capital relative to a target.

Under the Purigen Merger Agreement, the Company has also agreed to pay additional consideration, up to an aggregate of $ 32.0 million in cash based on the achievement of certain milestones.

Cash of $ 1.2 million will be held in an escrow fund for purposes of satisfying any post-closing purchase price adjustments and indemnification claims under the Purigen Merger Agreement.

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

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

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The acquisition was structured as a stock sale and therefore goodwill is non-tax deductible.

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

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

During the fourth quarter of 2020, the Company recorded a $ 0.2 million adjustment to the original purchase price allocation to reduce the estimated fair value of accounts receivable, with the offsetting amount recorded to goodwill.

There were no additional purchase price adjustments made during 2021.

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

Cash (a) $ 1,940,000

Cash transferred for repayment of Lineage PPP Loan (b) $ 1,105,000

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

Shares of common stock returned to the Company (c) ( 138,247 )

Stock price per share on closing date $ 0.68

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

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

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

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

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

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

The value of the common stock consideration and the total purchase price incorporated the return of 138,247 Escrowed Shares to the Company.

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

Cash and cash equivalents $ 596,000

Per the terms of the Purigen Merger Agreement, the purchase price is still subject to adjustment for the final determination of cash, unpaid indebtedness, unpaid transaction expenses and working capital, as well for deferred and current tax assets and liabilities

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

Cash $ 32,034,000

Estimated fair value of milestone consideration $ 12,970,000

Estimated return of cash to buyer from escrow $ ( 90,000 )

Total estimated purchase price $ 44,914,000

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

Cash & cash equivalents $ 290,000

Accounts receivable 259,000

Other assets 209,000

Property and equipment 111,000

Inventory 944,000

Prepaid expenses and other current assets 184,000

Property and equipment, net 805,000

Restricted cash 400,000

Operating lease right-of-use assets 1,636,000

Other long-term assets 533,000

Intangible assets 20,000,000

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Accounts payable and other accrued liabilities ( 1,152,000 )

Operating lease liability (short-term and long-term) ( 1,636,000 )

Net assets acquired $ 44,914,000

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

Developed technology $ 18,800,000

Customer relationships 200,000

Trade name 630,000

Tradename 1,000,000

Fair value of identifiable intangible assets $ 20,000,000

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

The Company uses the income approach to derive the fair value of the identified intangible assets acquired.

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.

The customer relationships and trade name intangibles are being amortized on a straight-line basis over their estimated useful lives of 5 years.

The developed technology intangible is being amortized on a straight-line basis over its estimated useful live of 15 years.

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

The Company recognized approximately $ 1.5 million of acquisition-related transaction costs, including financial advisor fees, legal expenses and accounting fees during the year ended December 31, 2020.

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

Also, the Company reported approximately $ 1.5 million of service revenue generated by Lineagen in its consolidated statement of operations from the date of acquisition through December 31, 2020.

As the Company began integrating Lineagen’s operations with its existing operations during the fourth quarter of 2020, it is not practical or meaningful to distinguish Lineagen’s expenses or net income or loss from that of the combined operations for 2020.

As the Company began integrating Purigen’s operations with its existing operations during the fourth quarter of 2022, it is not practical or meaningful to distinguish Purigen’s expenses or net income or loss from that of the combined operations.

Purigen revenues included in the Company’s consolidated statement of operations from the date of acquisition through December 31, 2022 were not significant.

BioDiscovery Acquisition

In October 2021, the Company completed the acquisition of BioDiscovery, LLC., pursuant to the BioDiscovery Merger Agreement.

BioDiscovery's solutions for analysis, interpretation and reporting of genomics data is expected to accelerate and broaden Bionano’s market leadership in digital cytogenetics and comprehensive genome analysis.

Pursuant to BioDiscovery Merger Agreement, the Company paid upfront consideration consisting of a combination of approximately $ 52.3 million in cash and $ 40.0 million in shares of Company common stock.

Approximately $ 26.0 million worth of the shares of the Company’s common stock issued pursuant to the upfront consideration are subject to vesting based on continued service, subject to the terms and conditions of a stock restriction agreement.

Accordingly, the restricted stock is being accounted for as compensation over the requisite service period, and is not included in the purchase price.

The upfront consideration is subject to adjustment for, among other things, cash, unpaid indebtedness, unpaid transaction expenses and working capital relative to a target.

Under the BioDiscovery Merger Agreement, the Company has also agreed to pay a milestone payment of $ 10.0 million in cash based on the achievement of certain commercial milestones.

Cash of $ 2.5 million will be held in an escrow fund for purposes of satisfying any post-closing purchase price adjustments and indemnification claims under the BioDiscovery Merger Agreement.

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

Goodwill relates to the expected synergies from combining the operations of the companies.

The acquisition was structured as a stock sale and therefore goodwill is non-tax deductible.

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

In October 2021, the Company, Starship Merger Sub I, Inc., a wholly owned subsidiary of the Company (“BioDiscovery Merger Sub I”), Starship Merger Sub II, LLC, a California limited liability company (“BioDiscovery Merger Sub II”), BioDiscovery, Inc., a California corporation (“Former BioDiscovery”), and Soheil Shams, solely in his capacity as the securityholders’ representative, entered into an Agreement and Plan of Merger (the “BioDiscovery Merger Agreement”), pursuant to which the Company agreed to acquire Former BioDiscovery.

Concurrent with BioDiscovery Merger II, BioDiscovery Merger Sub II changed its name to that of our current subsidiary, BioDiscovery, LLC.

Pursuant to the BioDiscovery Merger Agreement, the Company completed the acquisition of BioDiscovery, LLC for a combination of approximately $ 52.3 million in cash and $ 40.0 million in shares of Company common stock.

Of the $ 40.0 million in shares of Company common stock, approximately $ 26.0 million was subject to vesting based on continuous service.

These shares vested in full in October 2022.

See Note 9 to our consolidated financial statements for a discussion of the restricted stock vesting terms and accounting treatment.

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

Per the terms of the BioDiscovery Merger Agreement, the purchase price is still subject to adjustment for the final determination of cash, unpaid indebtedness, unpaid transaction expenses and working capital, as well for deferred and current tax assets and liabilities

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

During the year ended December 31, 2022, the Company recorded an increase to the value of acquired contract liabilities in the amount of $ 0.3 million, a decrease to acquired deferred tax liabilities in the amount of $ 1.8 million, and an increase to acquired other assets in the amount of $ 0.1 million, with the offset recorded to goodwill.

There were no additional purchase price adjustments made during 2022.

The purchase price for BioDiscovery was finalized during the year ended December 31, 2022.

The following is the purchase price for the acquisition of BioDiscovery:

Cash $ 52,291,000

Estimated fair value of milestone consideration $ 9,000,000

Estimated return of cash to buyer from escrow $ ( 694,000 )

Fair value of milestone consideration $ 9,000,000

Return of cash to buyer from escrow $ ( 694,000 )

Shares common stock issued as consideration 2,723,000

Stock price per share on closing date $ 5.20

Value of estimated common stock consideration $ 14,159,000

Total estimated purchase price $ 74,756,000

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

Value of common stock consideration $ 14,159,000

Total purchase price $ 74,756,000

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

Cash and cash equivalents $ 3,205,000

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

The Company recognized approximately $- 1.5 million of acquisition-related transaction costs, including financial advisor fees, legal expenses and accounting fees during the year ended December 31, 2021.

As the Company began integrating BioDiscovery’s operations with its existing operations during the fourth quarter of 2021, it was not practical or meaningful to distinguish BioDiscovery’s expenses or net income or loss from that of the combined operations.

The Company recognized approximately $ 1.8 million and $ 1.5 million of acquisition-related transaction costs for the acquisitions of Purigen and BioDiscovery, including financial advisor fees, legal expenses and accounting fees for the years ended December 31, 2022 and 2021, respectively.

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

The Company reported approximately $ 1.1 million of revenue generated by BioDiscovery in its consolidated statement of operations from the date of acquisition through December 31, 2021.

As the Company began integrating BioDiscovery’s operations with its existing operations during the fourth quarter of 2021, it is not practical or meaningful to distinguish BioDiscovery’s expenses or net income or loss from that of the combine operations.

Pro forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company, Lineagen, and BioDiscovery as if the companies had been combined as of the beginning of the year prior to the acquisition.

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Lineagen and BioDiscovery to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied at the beginning of the year prior to the acquisition.

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company, BioDiscovery and Purigen as if the companies had been combined as of the beginning of the year prior to the acquisition.

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of BioDiscovery and Purigen to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied at the beginning of the year prior to the acquisition.

The following unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved as if the acquisitions had taken place as of January 1, 2020 and January 1, 2021, respectively.

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Related Party Transactions

Through the acquisition of BioDiscovery in October 2021, the Company inherited a building lease with a landlord owned by BioDiscovery’s former Director and Chief Executive Officer, who is now the Company’s Chief Informatics Officer.

The Company recorded $ 0.1 million in finance lease costs related to this lease for the year ended December 31, 2021.

The Company recorded $ 0.5 million and $ 0.1 million in finance lease costs related to this lease for the years ended December 31, 2022 and 2021, respectively.

Refer to Note 11.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data