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Item 7. Management’s Discussion and Analysis

2024-03-05 compared with 2023-03-09 · 159 added, 147 removed, 188 unchanged (62% of the section changed)

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

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

involve risks and uncertainties.

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

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• continue research and development efforts to improve our existing products;

• hire additional personnel;

• enter into collaboration arrangements, if any;

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Macroeconomic and Geopolitical Developments

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

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

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

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

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

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

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

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

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

As a result, our business and

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

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

As a result of COVID-19 and actions taken to reduce its spread, we could see additional supply chain disruptions that impact our ability to produce our products and may cause us to make strategic determinations regarding, among other things, the cost and quality of the components and supplies we acquire.

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

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

Our manufacturing partners, suppliers, and customers have implemented similar operational reductions.

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

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

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

During the twelve months ended December 31, 2022, we experienced supply chain challenges, which we largely attribute to the COVID-19 pandemic.

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

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

In the past, we have experienced supply chain challenges, attributable to such adverse geopolitical and macroeconomic developments including increased costs to secure certain component parts in our products and to produce our products at our contract manufacturers.

During the twelve months ended December 31, 2023, we did not experience material increases in our supply chain costs, but we may experience such increases in future fiscal periods.

We expect our costs to remain high for the foreseeable future.

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

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

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

For instance, product demand may be reduced due to an economic recession, a decrease in corporate capital expenditures, high inflation rates, labor shortages, reduction in consumer confidence, adverse geopolitical and macroeconomic developments, or any similar negative economic condition.

These negative effects could have a material impact on our operations, business, earnings, and liquidity.

Recent Developments

On March 5, 2024, we announced a cost savings plan that aims to reduce annual savings of operating expenses of approximately $35.0 to $40.0 million starting in the second half of 2024.

As part of the plan, we expect to reduce our overall headcount by approximately 110 to 125 employees, which represents approximately 34% to 39% of our full-time employees as of the date of this Annual Report.

In addition, Bionano Laboratories will phase out over time the offering of certain testing services related to neurodevelopmental disorders, including autism spectrum disorders and other disorders of childhood development.

These cost-saving measures are incremental to the cost saving initiatives previously announced in May 2023 and October 2023.

At this time, we are unable to make a good faith determination of the cost estimates, or ranges of cost estimates, associated with implementation of the plan, including the reduction in force.

Financial Overview

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

We generate product revenue from sales of our OGM and Ionic ® Purification systems and consumables, which includes our instruments, and our VIA software.

At the end of July 2023 we began installations of VIA software as a replacement to NxClinical software.

Like NxClinical, VIA has a simple integrated workflow for visualization, interpretation and reporting of NGS and microarray data.

VIA additionally incorporates OGM data to that workflow creating a standard software tool for use across molecular pathology and cytogenomics applications.

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

In addition, we provide instruments to certain customers under our reagent rental program, under which we provide an instrument to customers at no cost and the customers agree to purchase minimum quantities of consumables.

In addition, we provide instruments to certain customers at no cost under our reagent rental program, and the customers agree to purchase minimum quantities of consumables.

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

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

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

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

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

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The following table sets forth our results of operations for the years ended December 31, 2023 and 2022:

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

2022 to 2021 2022 to 2021

Years Ended December 31, Period-to-Period Change

Product revenue $ 26,727,000 $ 20,425,000 $ 6,302,000 31%

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Total revenue

36,116,000 27,802,000 8,314,000 30%

Cost of revenue:

Cost of product revenue 20,415,000 15,966,000 4,449,000 28%

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Total cost of revenue

26,550,000 21,857,000 4,693,000 21%

Research and development 54,032,000 49,047,000 4,985,000 10%

Selling, general and administrative 93,499,000 88,596,000 4,903,000 6%

Goodwill Impairment

77,280,000 — 77,280,000 100 %

Total operating expenses

224,811,000 137,643,000 87,168,000 63%

Loss from operations (215,245,000) (131,698,000) (83,547,000) 63%

Other income (expenses):

Interest income 3,311,000 1,507,000 1,804,000 120%

Interest expense (5,119,000) (298,000) (4,821,000) 1,618%

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

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

Other expense (223,000) (59,000) (164,000) 278%

Other income (expenses)

3,449,000 (223,000) 3,672,000 (1,647)%

Loss on High Trail Agreement

(18,827,000) — (18,827,000) 100%

Total other income (expenses)

(17,186,000) 986,000 (18,172,000) (1,843)%

Loss before income taxes (232,431,000) (130,712,000) (101,719,000) 78%

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Net loss $ (232,493,000) $ (132,596,000) $ (99,897,000) 75%

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

2022 to 2021 2022 to 2021

Years Ended December 31, Period-to-Period Change

Instruments $ 9,999,000 $ 8,567,000 $ 1,432,000 17%

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Total revenue $ 36,116,000 $ 27,802,000 $ 8,314,000 30%

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

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

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

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

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

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

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

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

Revenue increased by $8.3 million, or 30% to $36.1 million for the year ended December 31, 2023, as compared to $27.8 million for the same period in 2022, driven primarily from an increase in instrument, consumable, and service and other revenue as discussed below.

Instrument revenue increased $1.4 million, or 17%, to $10.0 million for the year ended December 31, 2023, as compared to $8.6 million for the year ended December 31, 2022, due to an increase in OGM and Ionic instruments sold.

For the year ended December 31, 2023, our installed base grew to 326 OGM systems compared to the 240 OGM systems for the year ended December 31, 2022.

We expect the number of our OGM system placements to continue to grow during 2024, driven by increased market awareness, the full commercial release of our Stratys system in the first quarter of 2024, additional published data demonstrating the utility of OGM solutions, along with continued efficiencies gained in the OGM workflow through research and development, and the acquisitions of BioDiscovery and Purigen.

Consumables revenue increased $4.4 million, or 66%, to $11.2 million for the year ended December 31, 2023, as compared to $6.7 million for the year ended December 31, 2022.

The increase in consumable revenue was attributable to higher OGM

consumable sales given the growth of the instrument installed base and an increase in the consumable purchase quantities under our reagent rental program.

For the year ended December 31, 2023, total flowcells sold reached 26,444, an increase of approximately 72% from the 15,375 flowcells sold during the year ended December 31, 2022.

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

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

BioDiscovery was acquired in October 2021.

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

Software revenue increased $0.4 million, or 9%, to $5.6 million for the year ended December 31, 2023, as compared to $5.1 million for the year ended December 31, 2022.

The increase is attributed to an increase in sales of our VIA software.

Service and other revenue increased $2.0 million, or 27%, to $9.4 million for the year ended December 31, 2023 as compared to $7.4 million for the year ended December 31, 2022.

The increase was primarily due to a $1.9 million increase in diagnostic and service project revenue contributed from Bionano Laboratories.

As of March 1, 2024, we have determined that Bionano Laboratories will phase out over time the products related to testing services for individuals demonstrating clinical presentations consistent with NDDs, including ASDs and other disorders of childhood development.

Cost of Revenue, Gross Profit, and Gross Margin

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

2022 to 2021 2022 to 2021

Years Ended December 31, Period-to-Period Change

Gross profit (loss):

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Cost of service and other revenue increased $0.2 million, or 4%, to $6.1 million for the year ended December 31, 2023, compared to $5.9 million for the year ended December 31, 2022.

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

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

Product gross profit increased $1.9 million, or 42%, to $6.3 million for the year ended December 31, 2023, compared to $4.5 million for the year ended December 31, 2022.

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

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

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

The increase in gross profit was primarily due to higher sales of instruments and consumables.

Service and other gross profit increased by $1.8 million, or 119%, to $3.3 million for the year ended December 31, 2023, compared to $1.5 million for the year ended December 31, 2022.

The increase in gross profit was primarily due to increased sales of our Bionano Laboratories service offerings.

Research and Development Expenses

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

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

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

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

This increase was further driven by a $5.6 million increase in product development costs, including internal materials and supply consumption costs, foundry expenses, clinical trial research, and consulting costs.

We expect R&D expenses to increase in 2023 relative to 2022 as we have added headcount in order to support our efforts to develop more scalable and efficient manufacturing workflows, expand the utility of Saphyr, and develop the next versions of OGM products – including integration of OGM data into our NxClinical software.

Research and development expenses increased by $5.0 million, or 10%, to $54.0 million for the year ended December 31, 2023 as compared to $49.0 million for the same period in 2022.

The increase was primarily due to a $6.8 million increase in headcount-related expenses.

On a full year basis, we averaged 28 more employees allocated to research and development departments in 2023 than we did in 2022.

This was mostly attributed to the fourth quarter 2022 acquisition of Purigen and partially offset by the cost-savings initiatives announced in early 2023.

In addition, we recognized a $2.0 million increase in materials and supplies costs, a $1.4 million increase in information technology (“IT”) and software related costs, a $1.3 million increase in facilities costs, and a $1.2 million increase in depreciation expense.

These increases were incurred in support of our efforts to develop more scalable and efficient manufacturing workflows, clinical trial research, expand the utility of OGM, and develop the next versions of OGM products – including integration of OGM data into our VIA software and full commercial launch of the Stratys system.

The increases were primarily offset by a decrease in stock-based compensation of $8.3 million due to the vesting of stock issued as consideration in the BioDiscovery acquisition, which primarily rolled up into research and development expense and vested in full in 2022, as further described in Note 10 (Stockholders’ Equity and Stock-Based

Compensation).

We anticipate that our research and development expenses will decrease in 2024 as a result of our cost savings initiatives announced in May 2023 and October 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $4.9 million, or 6%, to $93.5 million for the year ended December 31, 2023 as compared to $88.6 million for the same period in 2022.

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

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

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

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

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

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

We expect selling, general, and administrative expenses to increase in 2023 due to our continuing investment in growing and supporting our customer base.

The increase was primarily due to a $4.6 million increase in headcount-related expenses.

On a full year basis, we averaged 16 more employees allocated to selling, general and administrative departments in 2023 than we did in 2022.

This was mostly attributed to the fourth quarter 2022 acquisition of Purigen and partially offset by the cost-savings initiatives announced in early 2023.

In addition, we recognized a $2.2 million increase in marketing expenses, a $1.5 million increase in consulting and professional fees, and a $1.4 million increase in amortization of acquisition-related intangibles — including an additional 11 months of amortization expense from the Purigen acquisition.

The increases are being offset by decreases of $1.9 million in materials and supplies, $1.5 million in facilities costs, and $0.9 million in legal expenses.

We anticipate that our SG&A expenses will decrease in 2024 in part due to the cost savings initiatives announced in May 2023 and October 2023.

Goodwill impairment

Goodwill impairment increased for the twelve months ended December 31, 2023 compared to the twelve months ended December 31, 2022.

The carrying value of the net assets of the Company’s reporting unit exceeded its enterprise wide fair value and the Company recognized a goodwill impairment charge of $77.3 million on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.

Interest Expense

Interest expense decreased by $0.6 million, or 68%, to $0.3 million for the year ended December 31, 2022, as compared to $0.9 million for the same period in 2021.

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

Interest expense increased by $4.8 million, or 1,618%, to $5.1 million for the year ended December 31, 2023, as compared to $0.3 million for the same period in 2022.

The increase was primarily driven by the debt issuance costs incurred in connection with the convertible notes.

See Note 9 (High Trail Agreement) to our consolidated financial statements for further discussion.

Interest Income

Interest income increased by $1.8 million, or 120%, to $3.3 million for the year ended December 31, 2023, as compared to $1.5 million for the same period in 2022 resulting from positive returns on investments.

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

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

Gain on forgiveness of Paycheck Protection Program loan

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

Loss on debt extinguishment

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

Our total short-term investments balance was $48.8 million as of December 31, 2023.

Loss on High Trail Agreement

A loss on the High Trail Agreement of $18.8 million was recognized during the year ended December 31, 2023 for the difference between the combined fair value of the Notes and option to purchase additional Notes and the proceeds from the transaction, which is recorded as Loss on High Trail Agreement on the consolidated statement of operations.

Income tax benefit (expense)

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

Income tax expense decreased by $1.8 million, or 97%, to a $0.1 million expense for the year ended December 31, 2023, as compared to a $1.9 million expense for the same period in 2022, driven by the acquisition of BioDiscovery.

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

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

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

Liquidity and Capital Resources

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We incurred net losses of $232.5 million and $132.6 million, and used $125.2 million and $124.8 million of cash from our operating activities for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2022, we had an accumulated deficit of $348.7 million, cash and cash equivalents of $5.1 million and $108.1 million in available-for-sale securities.

Sources of Liquidity

In the years ended December 31, 2022 and 2021, we have generated cash flows from sales of common stock and other equity instruments.

As of December 31, 2023, we had an accumulated deficit of $581.2 million, cash and cash equivalents of $17.9 million, $48.8 million in short-term investments and $35.5 million in restricted cash and cash equivalents and restricted short-term investments.

Sources of Liquidity and Capital Resources

In the years ended December 31, 2023 and 2022, we have generated cash flows from sales of common stock, other equity instruments and the issuance of convertible notes payable.

We anticipate that future sources of liquidity will principally come from sales of common stock and other equity instruments, borrowings from credit facilities and revenue from our commercial operations.

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

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

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

See Notes 9 (High Trail Agreement) and 10 (Stockholder’s Equity and Stock-Based Compensation) to our consolidated financial statements for a discussion of our recent debt and equity activity.

As of December 31, 2023, we received net proceeds of approximately $75.2 million, after deducting placement agent fees and offering expenses from the issuance and sale of our securities pursuant to the Purchase Agreement in October 2023.

our current business plans, we believe such net proceeds together with our existing cash and cash equivalents and short-term investments, will be sufficient to fund our operating expenses and capital expenditure requirements into at least the third quarter of 2024.

This estimate assumes the inclusion of the amount equal to the sum of (i) the outstanding principal amount of the Registered Notes plus (ii) approximately $0.7 million that we are required to hold as restricted cash in an account control agreement under the terms of the Registered Notes.

Our existing cash and cash equivalents and short-term investments, will not be sufficient for us to achieve cash-flow break even and we expect to need to seek additional capital based on strategic consideration alternatives in the future.

As of December 31, 2023, we had $69.8 million of Notes at fair value, which is classified as current.

At the holder’s option, as of December 31, 2023, we would have been required to redeem $62.1 million of Notes at the Repayment Price (as defined in Note 9 (High Trail Agreement) to our consolidated financial statements) in 2024.

Because the Notes have a history of both redemptions ($20.7 million) and conversions ($10.0 million) since issuance in October 2023 through February 1, 2024, and twelve months of redemptions at the Repayment Price represents most of the outstanding balance of the Notes, we have classified the entire amount of Notes as current as of December 31, 2023.

Additionally, we would have been required to pay a retirement fee to the holder based on amounts redeemed when the outstanding balance is paid in full, which as of December 31, 2023, was estimated at $4.4 million assuming full redemption and no further conversions.

On January 1, 2024, and February 1, 2024, the holders redeemed an aggregate of $9.0 million of principal, at the Repayment Price of $10.4 million.

In February 2024, in connection with the Letter Agreement and Amendment we redeemed an aggregate of $27.7 million of Notes for a total redemption payment of approximately $31.9 million, together with a retirement fee of approximately $3.2 million.

Following the redemptions we have $24.3 million of principal of the Notes outstanding.

See Note 9 (High Trail Agreement) to our consolidated financial statements.

Future Capital Requirements

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

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

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

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

We expect such expenditures to continue throughout 2024.

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

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

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

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

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

We had $17.9 million in cash and cash equivalents, $48.8 million short-term investments, and $35.5 million in restricted cash and cash equivalents and restricted short-term investments as of December 31, 2023.

Based on recurring losses from operations incurred since inception and the expectation of continued operating losses, we anticipate our available cash balance will not be sufficient to operate our business for the next twelve months from the issuance of this report.

Accordingly, we determined that there is substantial doubt about our ability to continue as a going concern within 12 months after the date that the financial statements included in this Annual Report are issued.

In order to continue to operate our business beyond that time, we will need to raise substantial additional capital.

We are actively evaluating debt and equity financing sources available to us as well as cost reduction strategies, but there can be no assurance that financing will be available on terms acceptable to us, on a timely basis, or at all, or that we are able to effectively reduce our operating expenses.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders.

Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends.

Any disruptions to, or volatility in, the credit and financial markets or any deterioration in overall economic conditions may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive.

If we are unable to raise additional funds through debt or equity financing or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research and development activities or future commercialization efforts.

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

In addition, our estimate as to the sufficiency of our current cash and cash equivalents and available for sale securities, and our current operating plan as discussed above are based on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we currently anticipate.

See Note 1 (Organization and Operations) to our consolidated financial statements included elsewhere in this Annual Report for more information.

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

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

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

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

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

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

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

We anticipate that our cash used in operating activities will decrease over the next 12 to 24 months;

however, we may observe fluctuations in the cash used in operating activities on an annual basis to sustain the expansion of our commercial offerings.

Net cash used in operating activities was $125.2 million during the year ended December 31, 2023 as compared to $124.8 million during the year ended December 31, 2022.

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

The increase in cash used in operating activities of $0.4 million is primarily attributed to an increase in our net loss in the current year offset by a decrease in our working capital usage due to higher inventory purchases in the prior year.

Investing Activities

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

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

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

Net cash provided by investing activities was $24.2 million during the year ended December 31, 2023, compared to $82.8 million provided by investing activities during the year ended December 31, 2022.

This decrease in cash provided by investment activities of $58.6 million is attributed to an increase in purchases of available-for-sale securities of $111.3 million as of December 31, 2023, compared to purchases of available-for-sale securities of $84.2 million as of December 31, 2022, in addition to the acquisition of Purigen, net of cash acquired of $31.3 million that occurred during the year ended December 31, 2022 only.

The decrease in cash is offset by the sales and maturity of available-for-sale securities of $137.0 million as of December 31, 2023, compared to the sales and maturity of available-for-sale securities of $200.9 million as of December 31, 2022.

Financing Activities

2023 Compared to 2022

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

During the year ended December 31, 2021, we raised approximately $311.1 million in net proceeds from executing two follow-on offerings, $10.0 million from warrant and stock option exercises, and $29.9 million in sales under our at-the-market facilities with Landenburg Thalmann & Co.

(Landenburg) and Cowen (Cowen).

These proceeds were offset by our repayment in full of all outstanding amounts under our

Innovatus LSA of $15.0 million, including all accrued interest, the end of term fee, and a prepayment fee.

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

Capital Resources

As of December 31, 2022, we had approximately $5.1 million in cash and cash equivalents, $108.1 million of available-for-sale securities, and $121.4 million of working capital.

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

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

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

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

The price to the public in the offering was $3.05 per share and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $2.87 per share.

The gross proceeds to us were approximately $101.8 million before deducting underwriting discounts and commissions and other offering expenses.

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

333-252216) with the U.S.

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

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

Any future offerings under this registration statement will be dependent upon, among other factors, market conditions, available pricing, our financial condition, investor perception of our prospects and our capital needs.

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

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

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

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

On January 25, 2021, we completed an underwritten public offering pursuant to our shelf registration statement of 38.3 million shares of our common stock, including 5.0 million shares of our common stock sold pursuant to the underwriters’ exercise in full of their option to purchase additional shares.

The price to the public in the offering was $6.00 per share and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $5.64 per share.

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

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

In the third quarter of 2021, we sold 2.3 million shares of common stock under the Cowen ATM at an average share price of $6.15 per share, and received gross proceeds of approximately $13.9 million before deducting offering costs of $0.6 million .

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

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

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

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

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

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

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

We have based these estimates on assumptions that may prove to be wrong,

and we could use our available capital resources sooner than we currently expect.

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

Net cash provided by financing activities was $113.8 million during the year ended December 31, 2023 as compared to $23.0 million during the year ended December 31, 2022, an increase of $90.8 million.

This increase in cash provided by financing activities is mainly attributed to the proceeds from the issuance of convertible notes payable and warrants of $80.0 million as further discussed in Note 9 (High Trail Agreement).

During the year ended December 31, 2023, we raised approximately $57.8 million in gross proceeds from sales under the Cowen ATM as compared to $23.1 million during the year ended December 31, 2022.

Financial Information about Affiliates Whose Securities Collateralize a Registrant’s Securities and Consolidated Subsidiaries

The Notes are secured by a first-priority lien, subject only to certain permitted liens, on substantially all of our and our subsidiaries’ (other than certain foreign subsidiaries) tangible and intangible assets, whether now owned or hereafter acquired (other than certain excluded property).

For a list of subsidiaries whose securities collateralize the Notes, see Exhibit 22 to this Annual Report.

The Notes are our senior secured obligations, rank pari passu with the up to $25.0 million of additional notes that may be issued pursuant to the securities purchase agreement, senior in right of payment to all of our indebtedness that is expressly subordinated to the Notes in right of payment, effectively senior to all of our unsecured indebtedness to the extent of the collateral securing the Notes, effectively junior to all of our indebtedness secured by permitted liens, to the extent of the value of the assets subject to such permitted liens and to the extent such permitted liens have lien priority by contract or law and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries that are not party to the security documents.

We do not believe there is any trading market for any of our subsidiaries whose securities are pledged as collateral for the Notes.

See Note 9 (High Trail Agreement) to our consolidated financial statements for further details about the terms, conditions and other factors that may affect payments to holders and the collateral arrangements of the Notes.

Rule 13-02 of Regulation S-X requires the presentation of summarized financial information of the combined affiliates whose securities are pledged as collateral for the Notes unless such information is not material.

Because the combined assets, liabilities and results of operations of the Company and the affiliates whose securities are pledged as collateral for the Notes are not materially different than the corresponding amounts presented in our consolidated financial statements, summarized financial information of affiliates whose securities are pledged as collateral for the Notes is not required to be presented under Rule 13-02.

Contingent Consideration

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

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

On October 2, 2023, the $10.0 million milestone consideration was paid in full.

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

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

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

We determined the likelihood of each independent milestone and used probability factors which were applied to the individual payments over the five year milestone term.

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

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

Based on these valuation assumptions, the fair value of the contingent consideration liabilities was determined to be $10.9 million as of December 31, 2023, $0.0 of which is current as of December 31, 2023.

Contractual Obligations

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Finance lease obligations, including interest, related party 6,963,000 330,000 685,000 721,000 5,227,000

Purchase obligations 1,350,000 1,350,000 — — —

Convertible notes payable*

70,150,000 62,100,000 8,050,000 — —

Total contractual obligations $ 83,569,000 $ 65,114,000 $ 12,252,000 $ 976,000 $ 5,227,000

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

*Also refer to Note 9 (High Trail Agreement) in our consolidated financial statements.

Pleasanton, California.

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

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

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

While our significant accounting policies are more fully described in Note 2, (Summary of Significant Accounting Policies) to our consolidated financial statements in this Annual Report, the significant accounting estimates that we believe are important to aid in fully understanding and evaluating our reported financial results include the following:

Stock-Based Compensation Expense

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The expected life was based on the simplified method in accordance with the SEC Staff Accounting Bulletin Nos.

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

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

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

We review goodwill annually at the reporting unit level at the same time every year or when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist.

We have established December 31 as the annual impairment test date.

We first make a qualitative assessment as to whether goodwill is impaired and if it is more likely than not that goodwill is impaired, we perform a quantitative impairment analysis to determine if goodwill is impaired.

We may also determine to skip the qualitative assessment in any year and move directly to the quantitative test.

For the quantitative test, we determine the fair value of the reporting unit, then compare the fair value of the reporting unit to its carrying value.

Goodwill impairment is recorded for any excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

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

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

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

Our qualitative assessment indicated that it was not more likely that not that goodwill is impaired .

No impairments of goodwill were reported during the years ended December 31, 2022 and 2021.

Valuation of Goodwill

Goodwill is tested annually for impairment, in the fourth quarter, and in interim periods if events or changes in circumstances indicate that the assets may be impaired.

We first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test.

The qualitative factors include economic environment, business climate, market capitalization, operating performance, competition, and other factors.

If, after completing such assessment, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then there is no need to perform any further testing.

If we conclude otherwise, or if we proceed directly to perform a quantitative assessment, then we calculate the estimated fair value of the reporting unit and compare the fair value with the carrying value of the reporting unit.

If the carrying amount of the reporting unit exceeds the fair value, we record an impairment loss based on the difference.

If a quantitative assessment is performed, the evaluation includes management estimates of cash flow projections based on internal future projections and/or use of a market approach by looking at market values of comparable companies.

Key assumptions include, but are not limited to, future revenue growth, operating margins, capital expenditures, terminal growth rates and discount rates.

We also consider our market capitalization as a part of our analysis .

As described further in Note 2, (Summary of Significant Accounting Policies) to our consolidated financial statements in this Annual Report, we performed qualitative goodwill impairment tests as of September 30, 2023 and concluded that it is more likely than not that the fair value of the reporting unit is less than its carrying value.

Therefore, we performed a quantitative impairment test and recognized a goodwill impairment charge, impairing goodwill of $77.3 million in full on the consolidated statements of operations and comprehensive loss for the quarter ended September 30, 2023.

During the years ended December 31, 2023, the Company recognized no additional impairment losses on goodwill and during the year ended December 31, 2022, no impairment losses were recorded on goodwill.

Business Combinations

We apply the provisions of ASC 805, Business Combinations, in accounting for acquisitions.

We apply the provisions of Accounting Standards Codification (“ASC”) 805, Business Combinations, in accounting for acquisitions.

It requires us to recognize separately from goodwill the identifiable assets acquired and the liabilities assumed at the acquisition date fair values.

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

Convertible Notes Payable

As described further in Note 2, (Summary of Significant Accounting Policies) to our consolidated financial statements in this Annual Report, the Company elected to account for the convertible notes payable issued using the fair value option under ASC 825-10.

Such instruments are recognized at estimated fair value on the date of issuance, with changes in fair value after issuance recorded in other (income) expense, net on the consolidated statements of operations as a gain or loss, unless the change is a result of a change in credit risk, in which case such change in estimated fair value is recorded within other comprehensive income.

Increases or decreases in the fair value of the convertible notes payable can result from updates to assumptions such as the expected timing or probability of a qualified financing event, expected volatility or changes in discount rates.

Judgment is used in determining these assumptions as of the initial valuation date and at each subsequent reporting period.

Updates to assumptions could have a significant impact on the Company’s results of operations in any given period.

Recent Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis