Bionano Genomics, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Pages Reports of Independent Registered Public Accounting Firm (BDO USA, LLP; San Diego, California; PCAOB ID# 243 ) 78 Consolidated Balance Sheets 80 Consolidated Statements of Operations 81 Consolidated Statements of Comprehensive Loss 82 Consolidated Statements of Stockholders’ Equity 83 Consolidated Statements of Cash Flows 84 Notes to Consolidated Financial Statements 86 77 Table of Contents Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Bionano Genomics, Inc. San Diego, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Bionano Genomics, Inc. (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. 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 These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. 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 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. 78 Table of Contents 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: a. 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. b. 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. c. Utilizing personnel with specialized knowledge and skill in valuation to assist in: (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 We have served as the Company’s auditor since 2020. San Diego, CA March 9, 2023 79 Table of Contents BIONANO GENOMICS, INC. Consolidated Balance Sheets December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 5,091,000 $ 24,571,000 Investments 108,095,000 226,041,000 Accounts receivable, net of allowance for doubtful accounts of $ 293,000 and $ 690,000 as of December 31, 2022 and 2021, respectively 7,022,000 4,934,000 Inventory 29,761,000 12,387,000 Prepaid expenses and other current assets 7,329,000 4,481,000 Total current assets 157,298,000 272,414,000 Restricted cash 400,000 — Property and equipment, net 18,029,000 10,318,000 Operating lease right-of-use assets 7,222,000 6,691,000 Finance lease right-of-use assets, related party 3,707,000 3,926,000 Intangible assets, net 41,143,000 26,842,000 Goodwill 77,289,000 56,160,000 Other long-term assets 2,414,000 749,000 Total assets $ 307,502,000 $ 377,100,000 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 12,534,000 $ 10,769,000 Accrued expenses 10,552,000 8,621,000 Contract liabilities 871,000 684,000 Operating lease liability 2,260,000 1,467,000 Finance lease liability, related party 285,000 299,000 Contingent consideration 9,382,000 — Total current liabilities 35,884,000 21,840,000 Operating lease liability, net of current portion 5,504,000 5,288,000 Finance lease liability, net of current portion, related party 3,619,000 3,642,000 Contingent consideration, net of current portion 12,970,000 9,066,000 Long-term contract liabilities 127,000 146,000 Total liabilities $ 58,104,000 $ 39,982,000 Commitments and contingencies (Note 11) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized and no shares issued or outstanding as of December 31, 2022 and 2021 — — Common stock, $ 0.0001 par value, 400,000,000 shares authorized at December 31, 2022 and 2021; 297,183,000 and 289,602,000 shares issued and outstanding at December 31, 2022 and 2021, respectively 30,000 29,000 Additional paid-in capital 599,207,000 553,747,000 Accumulated deficit ( 348,715,000 ) ( 216,119,000 ) Accumulated other comprehensive loss ( 1,124,000 ) ( 539,000 ) Total stockholders’ equity 249,398,000 337,118,000 Total liabilities and stockholders’ equity $ 307,502,000 $ 377,100,000 See accompanying notes to the consolidated financial statements. 80 Table of Contents BIONANO GENOMICS, INC. Consolidated Statements of Operations Years Ended December 31, 2022 2021 Revenue: Product revenue $ 20,425,000 $ 12,686,000 Service and other revenue 7,377,000 5,295,000 Total revenue 27,802,000 17,981,000 Cost of revenue: Cost of product revenue 15,966,000 10,524,000 Cost of service and other revenue 5,891,000 3,583,000 Total cost of revenue 21,857,000 14,107,000 Operating expenses: Research and development 49,047,000 22,485,000 Selling, general and administrative 88,596,000 58,490,000 Total operating expenses 137,643,000 80,975,000 Loss from operations ( 131,698,000 ) ( 77,101,000 ) Other expenses Interest income 1,507,000 236,000 Interest expense ( 298,000 ) ( 927,000 ) Gain on forgiveness of Paycheck Protection Program Loan — 1,775,000 Loss on debt extinguishment — ( 2,076,000 ) Other income (expenses) ( 223,000 ) ( 59,000 ) Total other income (expense) 986,000 ( 1,051,000 ) Loss before income taxes ( 130,712,000 ) ( 78,152,000 ) Benefit (provision) for income taxes ( 1,884,000 ) 5,717,000 Net loss $ ( 132,596,000 ) $ ( 72,435,000 ) Net loss per share, basic and diluted $ ( 0.46 ) $ ( 0.26 ) Weighted-average common shares outstanding, basic and diluted 289,210,000 276,782,000 See accompanying notes to the consolidated financial statements. 81 Table of Contents BIONANO GENOMICS, INC. Consolidated Statements of Comprehensive Loss Years Ended December 31, 2022 2021 Net Loss: $ ( 132,596,000 ) $ ( 72,435,000 ) Other comprehensive loss: Unrealized gain (loss) on investment securities ( 548,000 ) ( 539,000 ) 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. 82 Table of Contents BIONANO GENOMICS, INC. Consolidated Statements of Stockholders’ Equity (Deficit) Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity Common Stock Shares Amount Balance at January 1, 2021 189,953,000 $ 19,000 $ 178,747,000 $ ( 143,684,000 ) $ — $ 35,082,000 Stock option exercises 479,000 — 602,000 — — 602,000 Stock-based compensation expense — — 9,719,000 — — 9,719,000 Issue common stock, net of issuance costs 80,178,000 8,000 341,015,000 — — 341,023,000 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 Stock option exercises 468,000 — 343,000 — — 343,000 Stock-based compensation expense — — 22,417,000 — — 22,417,000 Issue common stock, net of issuance costs 6,640,000 1,000 22,550,000 — — 22,551,000 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 — — — — — Net loss — — — ( 132,596,000 ) — ( 132,596,000 ) Other comprehensive loss — — — ( 585,000 ) ( 585,000 ) Balance at December 31, 2022 297,183,000 $ 30,000 $ 599,207,000 $ ( 348,715,000 ) $ ( 1,124,000 ) $ 249,398,000 See accompanying notes to the consolidated financial statements. 83 Table of Contents BIONANO GENOMICS, INC Consolidated Statements of Cash Flows Years Ended December 31, 2022 2021 Operating activities: Net loss $ ( 132,596,000 ) $ ( 72,435,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 9,621,000 3,351,000 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) expense from deferred income taxes 1,760,000 ( 5,777,000 ) Stock-based compensation 22,417,000 9,719,000 Provision for bad debt expense 649,000 — Gain on forgiveness of PPP Loan — ( 1,775,000 ) Loss on debt extinguishment — 1,480,000 Cost of leased equipment sold to customer 204,000 568,000 Client warranty exchange of fixed asset — 539,000 Change in fair value of contingent consideration 316,000 66,000 Changes in operating assets and liabilities (net of assets acquired and liabilities assumed in acquisition) Accounts receivable ( 2,900,000 ) ( 493,000 ) Inventory ( 23,676,000 ) ( 15,928,000 ) 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 Accrued expenses and contract liabilities 366,000 3,959,000 Net cash used in operating activities ( 124,816,000 ) ( 71,927,000 ) Investing activities: 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 ) Purchase of available for sale securities ( 84,195,000 ) ( 313,392,000 ) Sale and maturities of available for sale securities 200,888,000 86,483,000 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, related party ( 36,000 ) ( 5,000 ) Proceeds from PPP Loan — — Proceeds from sale of common stock 23,128,000 342,711,000 Offering expenses on sale of common stock ( 578,000 ) ( 1,704,000 ) Proceeds from sale of common stock under employee stock purchase plan 150,000 89,000 Proceeds from warrant and option exercises 343,000 10,020,000 Net cash provided by financing activities 23,007,000 336,111,000 Effect of exchange rates on cash, cash equivalents and restricted cash ( 38,000 ) — 84 Table of Contents Years Ended December 31, 2022 2021 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 Cash paid for interest $ 298,000 $ 1,910,000 Cash paid for operating lease liabilities $ 1,622,000 $ 447,000 Supplemental disclosure of non-cash financing and investing activity 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 Warrant exercise pursuant to cashless exercise $ — $ 129,000 See accompanying notes to the consolidated financial statements. 85 Table of Contents BIONANO GENOMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Operations Description of Business Bionano Genomics, Inc. (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 offers OGM solutions for applications across basic, translational and clinical research, and for other applications including bioprocessing. Through its Lineagen, Inc. (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. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("U.S. 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. 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. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Basis of Presentation The consolidated financial statements are prepared in accordance with U.S. GAAP and include the accounts of the Company’s 100%-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. 86 Table of Contents 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 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. Any excess purchase price over the estimated fair value assigned to the tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The Company estimated the fair value of identifiable intangible assets acquired with the assistance of independent valuations that use information and assumptions provided by the Company’s management. Under ASC 805, acquisition-related transaction costs (such as advisory, legal, valuation, other professional fees) are expensed in the statements of operations in the periods incurred. Cash and Cash Equivalents Cash equivalents primarily represent funds invested in readily available money market accounts. The Company has not experienced any losses in such accounts. 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 The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. ASC 820, “Fair Value Measurements and Disclosures”, defines and establishes a framework for measuring fair value and expands disclosures about fair value measurements. In accordance with ASC 820, the Company has categorized its financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. Level 1 – Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the company has the ability to access at the measurement date. Level 2 – Assets and liabilities whose values are based on quoted prices for similar attributes in active markets; quoted prices in markets where trading occurs infrequently; and inputs other than quoted prices that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 – Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Investment Securities All investments have been classified as “available-for-sale” and are carried at fair value as determined based upon quoted market prices or pricing models for similar securities at period end. Investments with contractual maturities less than 12 months at the balance sheet date are considered short-term investments. Investments with contractual maturities beyond one year are also classified as short-term due to the Company’s ability to liquidate the investment for use in operations within the next 12 months. Realized gains and losses on investment securities are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The Company has not realized any significant gains or losses on sales of available-for-sale investment securities during any of the periods presented. 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 87 Table of Contents security. Interest income is recognized when earned, as are the amortization of purchase premiums and accretion of purchase discounts on investment securities. Concentrations Credit Risks Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash and cash equivalents and accounts receivable. The Company maintains deposits in federally insured major financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institution in which those deposits are held. The Company’s customers are located throughout the world. The Company generally does not require collateral from its customers. More information on accounts receivable is contained in the paragraph titled “Accounts Receivable” below. Sources of Materials and Products The materials and components for the Company’s product offerings are currently obtained from single or limited sources. The Company competes with other companies for production capacity, therefore, the Company is exposed to a risk of inventory being unavailable at acceptable prices, or at all, if suppliers are unable (or decide) to provide sufficient levels of materials and components and the Company is unable to identify alternative suppliers. Accounts Receivable December 31, 2022 December 31, 2021 Accounts receivable, net: Accounts receivable, trade $ 7,315,000 $ 5,624,000 Less allowance for doubtful accounts ( 293,000 ) ( 690,000 ) $ 7,022,000 $ 4,934,000 The Company extends credit to its customers in the normal course of business. For diagnostic testing services, receivables are based on either contractual rates with third-party payors, plus the amounts expected to be collected for any patient-responsibility portion, or for non-contracted arrangements, using the amounts expected to be collected from third-party payors and/or the patient-customer based on historical collection experience. The Company does not perform credit evaluations and therefore subsequent adjustments to the amount expected to be collected are recorded to revenue. For OGM products and services, credit is extended based upon an evaluation of each customer’s credit history, financial condition, and other factors. Estimates of allowances for doubtful accounts are determined by evaluating individual customer circumstances, historical payment patterns, length of time past due, and economic and other factors. Bad debt expense is recorded as necessary to maintain an appropriate level of allowance for doubtful accounts in selling, general and administrative expense. 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, 2022 and 2021, no customers met or exceeded 10% of the Company’s total accounts receivable balance. Inventory 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. Provisions for slow-moving, excess, and obsolete inventories are estimated based on product life cycles, historical experience, and usage forecasts. 88 Table of Contents The components of inventories, net of reserve, are as follows: December 31, 2022 2021 Inventory: 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. Property and equipment generally consist of laboratory equipment, computer and office equipment, furniture and fixtures, and leasehold improvements. Property and equipment are recorded at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the assets (generally three to five years , or the remaining term of the lease for leasehold improvements, whichever is shorter). Repairs and maintenance costs are charged to expense as incurred. Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date. 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, 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. If the Company identifies a change in the circumstances related to its long-lived assets, such as property and equipment and intangible assets (other than goodwill), that indicates the carrying value of any such asset may not be recoverable, the Company will perform an impairment analysis. A long-lived asset (other than goodwill) is not recoverable when the undiscounted cash flows expected to be generated by the asset (or asset group) are less than the asset’s carrying amount. Any required impairment loss would be measured as the amount by which the asset’s carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and a charge to operating expense. During the years ended December 31, 2022 and 2021, the Company recognized no impairment losses on long-lived assets. Substantially all of the Company's long-lived assets are located in the U.S. 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. Goodwill Goodwill Balance as of December 31, 2020 $ 7,173,000 Acquisitions 48,987,000 Balance as of December 31, 2021 56,160,000 Acquisitions 22,651,000 Measurement period adjustments ( 1,522,000 ) Balance as of December 31, 2022 $ 77,289,000 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. Goodwill is not subsequently amortized. Goodwill is reviewed for impairment annually (during the fourth quarter) or more frequently if indications of impairment exist. Goodwill is assigned to 89 Table of Contents specific reporting units for purposes of impairment assessment. The Company has determined that it has a single operating segment and a single reporting unit. In testing goodwill for impairment, the Company will first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying value, then the Company will perform a quantitative impairment analysis by comparing the fair value of the reporting unit to the carrying value of the reporting unit, including goodwill. An impairment charge for goodwill is recognized for the amount by which the carrying value of the reporting unit exceeds its fair value, not to exceed the total goodwill allocated to the reporting unit. During the years ended December 31, 2022 and 2021, the Company recognized no impairment losses on goodwill. Leases 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. Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the consolidated balance sheets, while finance leases are included in finance lease right-of-use assets and finance lease liabilities. Lease assets and liabilities are recognized at commencement based on the present value of lease payments over the lease term. The Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments. The ROU assets also include any prepaid or accrued lease payments and is adjusted for lease incentives and initial direct costs. Lease terms may include options to extend or terminate the lease which are recognized when it is reasonably certain that the Company will exercise that option. Leases with terms of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the lease terms, or in some cases, the useful life of the underlying asset. Variable lease payments are excluded from the measurement of ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The Company accounts for the lease and non-lease components as a single lease component for all classes of underlying assets. Revenue Recognition The Company generates revenue primarily from the sale of products and services. The Company considers revenue to be earned when all of the following criteria are met: the Company has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount the Company expects to receive, including an estimate of uncertain amounts subject to a constraint to ensure revenue is not recognized in an amount that would result in a significant reversal upon resolution of the uncertainty, is determinable; and the Company has transferred control of the promised items to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the contract. The transaction price for the contract is measured as the amount of consideration the Company expects to receive in exchange for the goods and services expected to be transferred. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control of the distinct good or service is transferred. 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. Payment terms are typically 30 days for sales to customers in the United States but may be longer in international markets. The Company treats shipping and handling costs performed after a customer obtains control of the good as a fulfillment cost and records these costs within selling, general and administrative expenses, less any amounts reimbursed by the customer, when the corresponding revenue is recognized. Revenue is recorded net of discounts and sales tax. The Company’s contracts typically do not provide for product returns or refunds. In general, estimates of variable consideration and constraints are not material to the Company’s financial statements. Employee sales commissions are recorded as selling, general and administrative expenses when incurred as the amortization period for such costs, if capitalized, would have been one year or less. 90 Table of Contents Product revenue recognition 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. In addition, the Company provides the Saphyr system to certain customers under its reagent rental program, under which the Company provides Saphyr systems to customers at no cost and the customers agree to purchase minimum quantities of consumables. 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. For transfers of instruments and consumables to customers under the Company's rental reagent program, the Company allocates the total contract consideration between the instrument and the consumables based on estimates of stand-alone selling prices, and recognizes the instrument revenue evenly over the rental period, and the consumables revenue when the consumables are delivered. 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, 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 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 $ 0.7 million and $ 0.6 million during the years ended December 31, 2022 and 2021, respectively. Remaining Performance Obligations As of December 31, 2022, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was $ 1.0 million. These remaining performance obligations primarily relate to extended warranty and support and maintenance obligations, as well as obligations related to software under hosting arrangements. The Company expects to recognize approximately 87.4 % of this amount as revenue in 2023, 9.1 % in 2024, 3.3 % in 2025 and 0.2 % in 2026 and thereafter. We periodically review the warranty reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated costs to be incurred. Warranty expense is recorded as a component of cost of product revenue. The Company's liability for product warranties provided under its agreements with customers was $ 0.5 million and $ 0.2 million as of December 31, 2022 and 2021, respectively. Warranty expense recorded in cost of goods sold totaled $ 1.0 million and $ 0.5 million during the years ended December 31, 2022 and 2021, respectively. Contract Assets and Liabilities Contract assets primarily relate to the Company’s conditional right to consideration for work completed but not billed at the reporting date. Contract assets at the beginning and end of the period, as well as the changes in the balance, were immaterial. Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. 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 91 Table of Contents 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. Distributor Transactions In certain markets, the Company sells products and provides services to customers through distributors that specialize in life sciences products. In cases where the product is delivered to a distributor, revenue recognition generally occurs when the distributors obtains control of the product. The terms of sales transactions through distributors are generally consistent with the terms of direct sales to customers and do not contain return rights. Distributor sales transactions typically differ from direct customer sales as they do not require the Company’s services to install the instrument at the end customer or perform the services for the customer that are beyond the standard warranty in the first year following the sale. These transactions are accounted for in accordance with the Company’s revenue recognition policy described herein. Cost of Revenue Cost of revenue for products consists of the Company’s raw material parts costs and associated freight, shipping and handling costs, contract manufacturing costs, royalties due to third parties, salaries and other personnel costs, equipment depreciation, overhead and other direct costs related to those sales recognized as product revenue in the period. Cost of service and other revenue consists of salaries and other personnel costs, and facility costs associated with costs related to warranties and other costs of servicing equipment at customer sites, and performance of diagnostics services. Research and Development Costs Costs incurred for research and product development, including acquired technology and costs incurred for technology in the development stage, are expensed as incurred. Patent Costs Costs related to filing and pursuing patent applications are recorded as selling, general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain. Stock-based Compensation The Company issues stock-based awards as compensation to employees and directors. 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. Income Taxes 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. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. Changes in the valuation allowance when they are recognized in the provision for income taxes may result in a change in the estimated annual effective tax rate. The Company recognizes the impact of uncertain tax positions at the largest amount that is “more likely than not” to be sustained upon audit by the relevant taxing authority. An uncertain tax position will not be recognized if it does not have a greater than 50% likelihood of being sustained. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability. 92 Table of Contents Segment Reporting 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’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 Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common share equivalents are only included when their effect is dilutive. Pre-funded warrants from the Company's follow-on offering have been treated as if they were common shares outstanding on the date of issuance. The Company’s potentially dilutive securities which include outstanding warrants to purchase stock and outstanding stock options under the Company’s equity incentive plans have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. Restricted stock is treated as outstanding for accounting purposes. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position. Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive were as follows (in common stock equivalent shares): Years Ended December 31, 2022 2021 Common stock options 24,022,000 12,765,000 Common warrants 4,356,000 4,356,000 Unvested restricted stock — 5,006,000 RSUs 96,000 361,000 PSUs 290,000 290,000 Total 28,764,000 22,778,000 Recently Issued But Not Yet Adopted Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which amends the impairment model by requiring entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The standard is effective for the company beginning in the first quarter of 2023, with early adoption permitted. The Company is currently evaluating the expected impact of ASU 2016-13 on its financial statements. Recently Adopted Accounting Pronouncements 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. ASC 842 establishes a right-of-use model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. 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 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. 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. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers. 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 93 Table of Contents 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. Early adoption is permitted. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. 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. 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’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. 3. Revenue from Contracts with Customers Revenue by Source Years Ended December 31, 2022 2021 Instruments $ 8,567,000 $ 5,887,000 Consumables 6,731,000 5,808,000 Software 5,127,000 991,000 Total product revenue 20,425,000 12,686,000 Services and other 7,377,000 5,295,000 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, 2022 2021 $ % $ % 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 % Total $ 27,802,000 100 % $ 17,981,000 100 % The tables above provide revenue from contracts with customers by source and geographic location on a disaggregated basis. 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 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. 94 Table of Contents 4. Investments and Fair Value Measurements The Company holds investment securities that consist of highly liquid, investment grade debt securities. The Company determines the fair value of its investment securities based upon one or more valuations reported by its investment accounting and reporting service provider. The investment service provider values the securities using a hierarchical security pricing model that relies primarily on valuations provided by an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curves, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, and broker and dealer quotes, as well as other relevant economic measures. The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis in the Consolidated Balance Sheets: December 31, 2022 Total Fair Value and Carrying Value on Balance Sheet Fair Value Measurement Category Level 1 Level 2 Level 3 Assets: Commercial paper $ 20,020,000 $ — $ 20,020,000 $ — Corporate notes/bonds 86,094,000 — 86,094,000 — Securities of government sponsored entities 1,981,000 1,981,000 Total investments: $ 108,095,000 $ — $ 108,095,000 $ — Money market funds $ 1,868,000 $ 1,868,000 $ — $ — Liabilities: 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 Assets: 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 $ — $ — Liabilities: Contingent consideration $ 9,066,000 $ — $ — $ 9,066,000 Money Market Funds are classified as cash equivalents on the balance sheet. 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 95 Table of Contents 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: Contingent Consideration Liability (Level 3 Measurement) Balance as of December 31, 2021 $ 9,066,000 Liability recorded as a result of current period acquisition 12,970,000 Change in estimated fair value, recorded in selling, general and administrative expenses 316,000 Cash payments — Balance as of December 31, 2022 $ 22,352,000 Changes in estimated fair value of contingent consideration liability in the year ended December 31, 2021 is as follows: Contingent Consideration Liability (Level 3 Measurement) 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 $ 9,066,000 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 Securities of Government Sponsored Entities Amortized Cost Unrealized Gain (Loss) Amortized Cost 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 ) Due after one year through five years — — 14,268,000 ( 88,000 ) — — Total $ 20,093,000 $ ( 73,000 ) $ 87,091,000 $ ( 998,000 ) $ 1,998,000 $ ( 16,000 ) 96 Table of Contents 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 Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value 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 Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value 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. 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. 97 Table of Contents 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following: December 31, 2022 December 31, 2021 Prepayment to supplier $ 245,000 $ 285,000 Prepaid insurance 948,000 1,461,000 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 Total $ 7,329,000 $ 4,481,000 6. Property and Equipment, Net Property and equipment, net consist of the following: December 31, 2022 December 31, 2021 Computer and office equipment $ 1,622,000 $ 819,000 Lab equipment 15,080,000 9,341,000 Service equipment placed at customer sites 10,403,000 6,556,000 Leasehold improvements 4,001,000 2,674,000 Total property and equipment, gross 31,106,000 19,390,000 Less accumulated depreciation and amortization ( 13,077,000 ) ( 9,072,000 ) 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. 7. Intangible Assets, Net Intangible assets that are subject to amortization consisted of the following at December 31, 2022 and 2021: 2022 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trade name $ 2,630,000 $ ( 552,000 ) $ 2,078,000 $ 1,630,000 $ ( 210,000 ) $ 1,420,000 Customer relationships 4,150,000 ( 1,172,000 ) 2,978,000 3,950,000 ( 378,000 ) 3,572,000 Developed technology 41,600,000 ( 5,615,000 ) 35,985,000 22,800,000 ( 950,000 ) 21,850,000 Intangibles, net $ 48,380,000 $ ( 7,339,000 ) $ 41,041,000 $ 28,380,000 $ ( 1,538,000 ) $ 26,842,000 98 Table of Contents 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. 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: 2023 $ 7,169,000 2024 7,169,000 2025 7,064,000 2026 5,737,000 2027 1,473,000 Thereafter 12,429,000 Total $ 41,041,000 8. Accrued Expenses Accrued expenses consist of the following: December 31, 2022 December 31, 2021 Compensation expenses $ 7,002,000 $ 4,529,000 Taxes payable 825,000 677,000 Insurance 613,000 1,011,000 Professional fees and royalties 210,000 288,000 Warranty liabilities 489,000 175,000 Accrued clinical study fees 250,000 1,000 Customer deposits 17,000 826,000 Other 1,146,000 1,114,000 Total $ 10,552,000 $ 8,621,000 9. Long-Term Debt Paycheck Protection Program On April 17, 2020, the Company received the PPP Loan proceeds of approximately $ 1.8 million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). The PPP Loan accrued interest at a rate of 1% per annum and was subject to the standard terms and conditions applicable to loans administered by the SBA under the CARES Act. In February 2021, the Company applied for forgiveness of the PPP Loan, and in March 2021, the PPP Loan, including all accrued interest, was forgiven in full. A gain on forgiveness of Paycheck Protection Program loan of $ 1.8 million was recognized during the year ended December 31, 2021. 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 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 %. 99 Table of Contents 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. As of December 31, 2021, the outstanding term loan with Innovatus was paid in full, including all accrued interest, the end of term fee, and a prepayment fee for a total of $ 17.0 million. The Company recorded a loss on debt extinguishment of $ 2.1 million. The LSA also provided for a revolving line of credit in an amount not to exceed $ 5.0 million (the “Revolver”), which was terminated effectively upon payment in full of the above term loan. The LSA was collateralized by substantially all of the Company’s assets, including its intellectual property. The LSA required the Company to comply with various affirmative and negative covenants, including: (1) a liquidity covenant requiring the Company to maintain a minimum cash balance at all times in a collateral account and (2) a revenue covenant requiring the Company to meet certain minimum revenue targets measured at the end of each calendar quarter. The LSA also included certain standard events of default, and a provision that Innovatus could declare an event of default upon the occurrence of any event that it interprets as having a material adverse impact to the Company's business, operations, or condition, a material impairment on the Company's ability to pay the secured obligations under the LSA, or upon a material adverse effect on the collateral under the agreement, thereby requiring the Company to repay the loans immediately, together with a prepayment fee and other applicable fees. In March 2019, in connection with the receipt of $ 20.0 million in proceeds from the Term Loans, the Company issued to Innovatus a warrant to purchase up to 0.2 million shares of its common stock at an exercise price of $ 4.63 per share, which has a term of 10 years. These warrants were equity classified and their respective fair value was recorded as a discount to the debt. The warrants were exercised during the year end December 31, 2021. In June 2019, the LSA was amended to among other things: (i) extend the deadline for the Company to maintain its domestic depository and operating accounts with the Bank, subject to a control agreement in favor of Innovatus, to July 31, 2019 and (ii) permit the Company to incur credit card indebtedness in an amount not to exceed $ 0.2 million. As of September 30, 2019, the Company did not achieve the revenue covenant under the Innovatus LSA. As a result, in October 2019, the Company obtained a waiver letter from Innovatus. Pursuant to the waiver letter, Innovatus agreed to allow the Company to cure its noncompliance with the revenue covenant as of September 30, 2019 so long as the Company (i) raised at least $ 10 million in gross proceeds from the sale of its securities in an underwritten public offering by October 31, 2019 and (ii) amended the warrant to purchase stock, issued by the Company to Innovatus in March 2019 to decrease the exercise price of the warrant from $ 4.63 per share to $ 0.48 per share. 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 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. As a result, in March 2020, the Company and Innovatus entered into an amendment to the Innovatus LSA (the “Second Amendment”) to, among other things: (i) waive the events of default from not achieving the specific financial covenants for the December 31, 2019 measurement date, (ii) require an immediate partial repayment of $ 2.1 million, (iii) require an additional partial repayment of $ 2.9 million on the earlier of completion of an Equity Event (as defined in the Second Amendment), or April 30, 2020, (iv) modify the liquidity covenant, such that the Company’s minimum cash balance shall vary based on outstanding borrowing capacity under the Revolver (provided, however, that the Company shall maintain a minimum cash balance of $ 2 million at any given time), (v) reduce the dollar amount of certain minimum revenue covenants measured as of the end of each calendar quarter (each, a “Revenue Covenant”) and (vi) modify the terms of certain events of default. For example, the Second Amendment provides for a cure period in connection with the breach of certain minimum revenue financial covenants, as long as the Company submits an updated management plan and financial projections, which are subject to Innovatus approval, and completes a Qualified Financing Event (as defined in the Second Amendment) within 45 days of such breach. 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. 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 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”) 100 Table of Contents 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. In connection with the Merger, the Company and Lineagen entered into a Third Amendment (the “Third Amendment”) to the Innovatus LSA. 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. The Innovatus LSA was paid in full and terminated in 2021. 10. Stockholders’ Equity and Stock-Based Compensation Common Stock The Company is currently authorized to issue up to 400 million shares of $ 0.0001 par value common stock. All issued shares of common stock are entitled to vote on a 1 share/1 vote basis. Preferred Stock The Company is currently authorized to issue up to 10 million shares of $ 0.0001 par value preferred stock. No preferred stock has been issued to date. Sale of Common Stock Follow-on Public Offerings 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. The price to the public in the offering was $ 3.05 per share and the underwriters purchased the shares from the Company pursuant to the underwriting agreement at a price of $ 2.87 per share. The gross proceeds were approximately $ 101.8 million before deducting underwriting discounts and commissions and other offering expenses of $ 0.3 million. On January 25, 2021, the Company completed an underwritten public offering of 38.3 million shares of common stock, including 5.0 million shares of common stock sold pursuant to the underwriters’ exercise in full of their option to purchase additional shares. The price to the public in the offering was $ 6.00 per share and the underwriters purchased the shares from the Company pursuant to the underwriting agreement at a price of $ 5.64 per share. The gross proceeds to us were approximately $ 230.0 million before deducting underwriting discounts and commissions and other offering expenses of $ 0.4 million. Shelf Registration Statements; Ladenburg and Cowen At-the-Market Facilities In August 2020, the Company filed a shelf registration statement on Form S-3 with the SEC covering the offering, issuance and sale of up to $ 125 million of the Company’s securities, including up to $ 40 million of common stock pursuant to an At Market Issuance Sales Agreement, with Ladenburg Thalmann & Co. Inc. acting as sales agent (the “Ladenburg ATM”). 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 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 A summary of the Company’s warrant activity for the year ended December 31, 2022 was as follows: 101 Table of Contents Shares of Stock under Warrants Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2021 15,174,000 $ 2.34 3.76 $ 26,841,000 Granted — — — Exercised ( 10,794,000 ) 0.88 58,191,000 Canceled ( 24,000 ) 3.29 — Outstanding at December 31, 2021 4,356,000 $ 5.96 1.76 $ 785,000 Granted — — — Exercised — — — Canceled — — — Outstanding at December 31, 2022 4,356,000 $ 5.96 0.76 $ 273,000 2018 Equity Incentive Plan In August 2018, the Company’s board of directors (the “Board”) and its stockholders adopted the 2018 Equity Incentive Plan (the “2018 Plan”), as a successor to and continuation of the Company’s 2006 Equity Incentive Plan (the “2006 Plan”). Under the 2018 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 1.5 million shares of common stock for issuance under the 2018 Plan, which is the sum of (1) 1.0 million new shares, plus (2) the number of shares that remained available for issuance under the 2006 Plan at the time the 2018 Plan became effective, and (3) any shares subject to outstanding stock options or other stock awards that were granted under the 2006 Plan that would have otherwise returned to the 2006 Plan. In addition, the number of shares of common stock reserved for issuance under the 2018 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2019 through January 1, 2028, in an amount equal to 5 % of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Board. As of December 31, 2022, 8.6 million shares of common stock were authorized for future grants under the 2018 Plan. 2020 Inducement Plan 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 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. Stock Options A summary of the Company’s stock option activity is as follows: Shares of Stock under Stock Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2022 12,765,000 $ 4.97 8.9 $ 7,891,000 Granted 16,148,000 2.12 Exercised ( 467,000 ) 0.74 580,000 Canceled ( 4,424,000 ) 4.18 Outstanding at December 31, 2022 24,022,000 3.28 8.5 2,068,000 Vested and exercisable at December 31, 2022 7,791,000 $ 3.79 7.5 $ 1,513,000 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, 2022 and 2021 were $ 0.6 million and $ 2.5 million, respectively. The contractual term of stock options granted to employees 102 Table of Contents 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. Restricted Stock Restricted Stock 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 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 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. RSUs generally vest over a two-year period with equal vesting annually. We issue PSUs for which the number of shares issuable at the end of a four-year performance period is based on our performance relative to specified revenue targets and continued employment through the vesting period. Restricted stock activity was as follows: Stock Units Weighted- Average Grant Date Fair Value per Share Outstanding at January 1, 2022 361,000 $ 4.74 Granted — — Released ( 265,000 ) 4.74 Forfeited — — 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. The weighted average remaining contractual term for the RSUs is 0.4 years as of December 31, 2022. Performance stock activity was as follows: Stock Units Weighted- Average Grant Date Fair Value per Share Outstanding at January 1, 2022 290,000 $ 4.74 Granted — — Released — — Forfeited — — Outstanding at December 31, 2022 290,000 $ 4.74 103 Table of Contents The weighted average remaining contractual term for the PSUs is 2.4 years as of December 31, 2022 Stock-Based Compensation Expense The Company recognized stock-based compensation expense for the years ended December 31, 2022 and 2021 was as follows: Years Ended December 31, 2022 2021 Research and development $ 13,402,000 $ 3,531,000 General and administrative 9,015,000 6,188,000 Total stock-based compensation expense $ 22,417,000 $ 9,719,000 The weighted-average assumptions used in the Black-Scholes-Merton option pricing model to determine the fair value of the employee stock option grants were as follows: Years Ended December 31, 2022 2021 Risk-free interest rate 2.4 % 1.1 % Expected volatility 68.0 % 76.2 % Expected term (in years) 5.8 6.0 Expected dividend yield 0.0 % 0.0 % Risk-free interest rate. The risk-free rate assumption is based on the U.S. Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options. Expected volatility. Due to the Company’s limited operating history and lack of company-specific historical or implied volatility as a private company, the expected volatility assumption was determined by examining the historical volatilities of a group of industry peers whose share prices are publicly available. Expected term. The expected term of stock options represents the weighted-average period the stock options are expected to be outstanding. The Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded. As a result, the Company uses the simplified method for estimating the expected term as provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. Expected dividend yield. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not intend to pay dividends. Forfeitures . The Company reduces stock-based compensation expense for actual forfeitures during the period. Unrecognized Stock-Based Compensation Expense As of December 31, 2022, the unrecognized compensation expense for all non-vested share-based awards was $ 31.8 million and is expected to be recognized as expense over a weighted-average period of 2.7 years. Employee Stock Purchase Plan In August 2018, the Board and the Company’s stockholders adopted the 2018 Employee Stock Purchase Plan (the “ESPP”). 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 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 104 Table of Contents 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. 11. Commitments and Contingencies Leases Operating leases The Company leases approximately 35,823 square feet of office, laboratory, and manufacturing space in two buildings at our headquarters in San Diego, California, with the lease for all rented space expiring December 31, 2025. In December 2021, the Company executed a new lease for approximately 11,978 additional square feet square feet of office and laboratory space in San Diego, California that expires in January 2026. 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. 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 In October 2021, through the acquisition of BioDiscovery, the Company obtained a finance lease of 4,786 square feet of office space in El Segundo, California that expires in February 2041. The portion of the future payments designated as principal repayment and related interest was classified as a finance lease obligation on our consolidated balance sheets. Refer to Note 15. Related Party Transactions for additional information. Supplemental information For all leases, the Company has the ability to enter into renewal negotiations, prior to the lease end date, with no specific terms. At this time, it is not reasonably certain that we will extend the term of the lease and therefore the renewal period has been excluded from the aforementioned ROU asset and lease liability measurements. The leases are subject to variable charges for common area maintenance and other costs that are determined based on actual costs and includes certain lease incentives such as tenant improvement allowances. The base rent for the leases is subject to an annual increase each year. Rent expense is being recognized on a straight-line basis over the term of the lease. 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 the lessee is as follows: Year Ended December 31, 2022 2021 Cash payments included in the measurement of lease liabilities: Operating cash flows from operating leases $ 1,622,000 $ 447,000 Operating cash flows from finance leases $ 278,000 $ 47,000 Financing cash flows from finance leases $ 36,000 $ 5,000 Weighted-average remaining lease term: Operating leases 3.41 years 4.10 years Finance leases 18.17 years 19.20 years Weighted-average discount rate: Operating leases 8.3 % 7.1 % Finance leases 7.1 % 7.1 % Noncash lease liabilities resulting from obtaining right-of-use assets Operating leases $ 517,000 $ 4,751,000 105 Table of Contents The following table provides the components of the Company’s lease cost: Year Ended December 31, 2022 2021 Operating leases Operating lease costs $ 2,084,000 $ 1,118,000 Variable lease costs 940,000 386,000 Total rent expense 3,024,000 1,504,000 Finance lease Amortization of right of use assets 219,000 19,000 Interest on lease liabilities 278,000 47,000 Variable lease costs 32,000 — Total finance lease costs 529,000 66,000 Gross sublease income ( 106,000 ) ( 18,000 ) Total lease costs $ 3,447,000 $ 1,552,000 The future minimum payments under non-cancellable operating and finance leases as of December 31, 2022, are as follows: Operating Leases Finance Lease 2023 $ 2,586,000 $ 322,000 2024 2,684,000 330,000 2025 2,788,000 338,000 2026 729,000 347,000 2027 255,000 356,000 Thereafter — 5,594,000 Total future lease payments 9,042,000 7,287,000 Less: imputed interest ( 1,278,000 ) ( 3,383,000 ) Total lease liabilities 7,764,000 3,904,000 Less: 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. Litigation From time to time, the Company may be subject to potential liabilities under various claims and legal actions that are pending or may be asserted. These matters arise in the ordinary course and conduct of the business. 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. 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 Refer to Note 4. Investments and Fair Value Measurements for discussion regarding contingent consideration. 106 Table of Contents 12. Income Taxes The domestic and foreign components of income (loss) from continuing operations are as follows: Year Ended December 31, 2022 2021 Domestic $ ( 131,237,000 ) $ ( 78,356,000 ) Foreign 525,000 204,000 Loss before provision for income taxes $ ( 130,712,000 ) $ ( 78,152,000 ) The provision for domestic and foreign income taxes is as follows: Year Ended December 31, 2022 2021 Current: Federal $ — $ — Foreign 123,000 39,000 State and local 1,000 21,000 Total current income tax provision (benefit) $ 124,000 $ 60,000 Deferred: Federal $ ( 277,000 ) $ ( 4,055,000 ) Foreign — — State and local 2,037,000 ( 1,722,000 ) Total deferred income tax provision (benefit) 1,760,000 ( 5,777,000 ) Income tax provision (benefit) $ 1,884,000 $ ( 5,717,000 ) 107 Table of Contents Reconciliations of the income tax computed at the federal statutory tax rate to the expense for income taxes are as follows: Year Ended December 31, 2022 2021 Income taxes at statutory rate $ ( 27,447,000 ) $ ( 16,413,000 ) State income taxes, net of federal benefits ( 1,321,000 ) ( 2,030,000 ) 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 Other permanent differences 434,000 149,000 Research credits ( 1,733,000 ) ( 938,000 ) Other 817,000 ( 911,000 ) Income tax expense (benefit) $ 1,884,000 $ ( 5,717,000 ) Significant components of the Company’s deferred tax assets at December 31, 2022 and 2021 are as follows: December 31, 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 109,612,000 $ 81,399,000 Research and development credits 9,816,000 6,911,000 Stock-based compensation 1,639,000 849,000 ASC 842 - lease liability 2,599,000 2,517,000 UNICAP 1,049,000 481,000 Other 1,944,000 976,000 Total gross 126,659,000 93,133,000 Deferred tax liabilities: Amortization ( 2,202,000 ) ( 7,478,000 ) ASC 842 - ROU asset ( 2,441,000 ) ( 2,504,000 ) Less: valuation allowance ( 122,016,000 ) ( 83,151,000 ) Deferred tax assets, net of valuation allowance $ — $ — As of December 31, 2022, the Company has federal and state tax net operating loss carryforwards of $ 463.8 million and $ 197.6 million, respectively. The federal tax loss carryforwards include $ 282.9 million that do not expire but utilization is limited to 80% of the Company’s taxable income in any given tax year based on current federal tax laws. The remaining federal tax loss carryforwards of $ 180.9 million and state tax loss carryforwards begin to expire in 2027 and 2023, respectively, unless previously utilized. As of December 31, 2022, the Company also has federal and California research credit carryforwards of $ 9.4 million and $ 8.8 million, respectively. The federal research credit carryforwards begin to expire in 2027 unless previously utilized. The California research credits carry forward indefinitely. Management assesses all available evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. The Company has experienced net losses since inception, and the revenue and income potential of the Company’s business and market are unproven. Due to the Company’s continuing research and development ("R&D") activities, the Company expects to continue to incur net losses into the foreseeable future. As such, the Company cannot conclude that it is more likely than not that its deferred tax assets will be realized. A valuation allowance of $ 122.0 million, and $ 83.2 million as of December 31, 2022, and 2021, respectively, has been established to offset the deferred tax assets. The Company acquired BioDiscovery, LLC. an entity designated for income tax purposes as a corporation in a plan of reorganization within the meaning of Section 368(a)(1)(A) on October 18, 2021. 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 for the year ended December 31, 2021. 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 108 Table of Contents change. 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. 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. The Company last performed a 382 study during 2013 and since this date there have been changes in ownership that will limit the Company's ability to utilize the net operating loss and R&D credit carryforwards. The Company is in the process of refreshing its 382 study but the results of that analysis are unknown as of the issuance date of these consolidated financial statements. The completion of the 382 study could result in material reductions to deferred tax assets and related valuation allowance disclosed above. However, the Company had not utilized any of the net operating losses and R&D credits during the years ended December 31, 2022, and 2021. Reconciliations of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, are as follows: December 31, 2022 2021 Balance at beginning of the year $ 5,119,000 $ 4,201,000 Additions/(reductions) for tax positions - prior year 903,000 231,000 Increase related to current year positions 1,259,000 687,000 Balance at the end of the year $ 7,281,000 $ 5,119,000 The Company recognizes the benefit of uncertain tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained. Due to the valuation allowance position, none of the unrecognized tax benefits, if recognized, will impact the Company`s effective tax rate. The Company does not anticipate a significant change in the unrecognized tax benefits during the next twelve months. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company had no accrual of interest and penalties on the Company’s balance sheets and has not recognized any interest and penalties in the statements of operations for the years ended December 31, 2022 and 2021. The Company is subject to taxation in the United States, the United Kingdom and China. The Company’s tax years from 2007 (inception) are subject to examination by the United States and state authorities due to the carry forward of unutilized net operating losses and R&D credits. 13. Employee Benefits The Company has a defined contribution 401(k) plan available to eligible employees. Under the terms of the plan, employees may make voluntary contributions as a percent of compensation, limited to the maximum amount allowable under federal tax regulations. The Company, at its discretion, may make certain contributions to the 401(k) plan. The Company expensed matching contributions of $ 1.5 million and $ 0.8 million for the years ended December 31, 2022 and 2021, respectively. 14. Acquisitions 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, 109 Table of Contents 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. 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 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. 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 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 Goodwill 22,651,000 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 Tradename 1,000,000 Fair value of identifiable intangible assets $ 20,000,000 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. 110 Table of Contents 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. 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, 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. 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. 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 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 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: 111 Table of Contents Cash and cash equivalents $ 3,205,000 Accounts receivable 1,782,000 Right-of-use assets 3,987,000 Other assets 280,000 Intangible assets 26,800,000 Goodwill 47,466,000 Accounts payable and other accrued liabilities ( 193,000 ) Right-of-use liabilities (short-term and long-term) ( 3,987,000 ) Deferred tax liability ( 4,016,000 ) Contract liabilities ( 568,000 ) Net assets acquired $ 74,756,000 The acquisition date fair values of identifiable intangible assets acquired are as following: Customer relationships $ 3,000,000 Developed technology 22,800,000 Tradename 1,000,000 Fair value of identifiable intangible assets $ 26,800,000 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 developed technology, customer relationships and trade name intangibles are both being 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. 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. Pro forma Financial Information 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. Years Ended December 31, (Unaudited) 2022 2021 Revenue $ 29,893,000 $ 24,086,000 Net loss ( 143,309,000 ) ( 91,505,000 ) Basic and diluted net loss per share $ ( 0.50 ) $ ( 0.32 ) 15. 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 served as the Company’s Chief Informatics Officer from the date of the acquisition through October 2022. 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. Commitments and Contingencies for future commitments pertaining to this finance lease. 112 Table of Contents ITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.