What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-05 compared with 2023-03-09 · 478 added, 351 removed, 847 unchanged (49% of the section changed)

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Index to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm (BDO USA, LLP;

Reports of Independent Registered Public Accounting Firm (BDO USA, P.C.;

San Diego, California;

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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.

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

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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.

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(i) relate 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 matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Contingent Consideration – Purigen Biosystems, Inc.

As described in Note 4 to the Company’s consolidated financial statements, the Company’s contingent consideration is related to potential future payments to be made upon achievement of milestones related to the acquisition of Purigen Biosystems, Inc.

(Purigen) in the prior year.

The fair value of the Purigen contingent consideration as of December 31, 2023 was approximately $ 10.9 million, which was calculated by using a probability weighted model and a Monte Carlo simulation.

We identified management’s estimates used in determining the probabilities of achieving milestones when the Company estimated the fair value of the Purigen contingent consideration as a critical audit matter.

The principal considerations for our

determination were the subjectivity and significant judgement required by management in assessing the probabilities.

Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address this matter.

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

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

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

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

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

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

(i) 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

• Evaluating the reasonableness of forecasted sales, including forecasted sales from the launch of a new product, by comparing them to historical sales and assessing them in relation to internal and external analyses.

• Corroborating management’s estimated probabilities of achievement by reviewing the Company’s internal product development plans.

• Considering disconfirming evidence by performing a market analysis of similar product types to corroborate the feasibility of the milestones.

High Trail Agreement

As described in Notes 4 and 9 to the Company’s consolidated financial statements, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with High Trail Special Situations LLC in October 2023, pursuant to which the Company issued $ 80.0 million aggregate principal amount of convertible notes payable, warrants and an option to purchase additional convertible notes (“purchase option liability”).

The Company received $ 75.2 million net proceeds after deducting the expenses and placement agent fees.

The convertible notes payable and the purchase option liability were recorded at fair value, which were $ 89.1 million at issuance and $ 69.8 million as of December 31, 2023, and $ 9.8 million at issuance and $ 8.5 million as of December 31, 2023, respectively.

The warrants qualified for classification as equity instruments and were recorded at $0, which represented the residual amount after allocation of proceeds to the convertible notes payable and the purchase option liability at fair value on the issuance date.

We identified (i) the accounting evaluation of all financial instruments within the Purchase Agreement, (ii) the allocation of the proceeds among the elements of the Purchase Agreement, and (iii) the valuation of the convertible notes payable and the purchase option liability at issuance and as of December 31, 2023 as a critical audit matter.

Our principal considerations included (i) the existence of accounting complexities related to such evaluation and significant judgments involved in the interpretation of the terms of the agreements and in the application of appropriate accounting guidance, and (ii) the valuation models used in determining the fair value of the convertible notes payable and the purchase option liability were complex and consisted of certain assumptions that were subjective, such as the expected volatility and the debt discount rates utilized in the valuation models.

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

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

(i) the terms of the Purchase Agreement, and (ii) the Company’s application of the relevant accounting literature including the allocation of the proceeds received.

• Utilizing personnel with specialized skills and knowledge in accounting to assist in:

(i) evaluating relevant terms of the Purchase Agreement in relation to the appropriate accounting literature, and (ii) assessing the appropriateness of the conclusions reached by the Company.

• Utilizing personnel with specialized skills and knowledge in valuation to assist in:

(i) assessing the appropriateness of the valuation models used in estimating the fair value of the convertible notes payable and the purchase option liability;

(ii) developing independent estimates of the expected volatility and the debt discount rates.

/s/ BDO USA, P.C.

We have served as the Company’s auditor since 2020.

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Investments 48,823,000 108,095,000

Accounts receivable, net of allowance for doubtful accounts of $ 293,000 and $ 690,000 as of December 31, 2022 and 2021, respectively

Accounts receivable, net

9,319,000 7,022,000

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Prepaid expenses and other current assets 6,019,000 7,329,000

Restricted investments 35,117,000 —

Total current assets 140,118,000 157,298,000

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Operating lease right-of-use assets 5,633,000 7,222,000

Finance lease right-of-use assets, related party 3,707,000 3,926,000

Finance lease right-of-use assets

3,503,000 3,707,000

Intangible assets, net 33,974,000 41,143,000

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Operating lease liability 2,163,000 2,260,000

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

Finance lease liability

272,000 285,000

Contingent consideration — 9,382,000

Purchase option liability (at fair value)

Convertible notes payable (at fair value)

Total current liabilities 100,028,000 35,884,000

Operating lease liability, net of current portion

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

3,590,000 5,504,000

Finance lease liability, net of current portion

3,585,000 3,619,000

Contingent consideration, net of current portion

10,890,000 12,970,000

Long-term contract liabilities 154,000 127,000

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45,752,000 and 29,718,000 shares issued and outstanding at December 31, 2023 and 2022, respectively

30,000 29,000

Additional paid-in capital 677,337,000 599,234,000

Accumulated deficit ( 581,208,000 ) ( 348,715,000 )

Accumulated other comprehensive loss ( 1,124,000 ) ( 539,000 )

Accumulated other comprehensive income (loss)

23,000 ( 1,124,000 )

Total stockholders’ equity 96,157,000 249,398,000

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Selling, general and administrative 93,499,000 88,596,000

Goodwill impairment

Total operating expenses 224,811,000 137,643,000

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Interest expense ( 5,119,000 ) ( 298,000 )

Gain on forgiveness of Paycheck Protection Program Loan — 1,775,000

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

Other income (expenses) 3,449,000 ( 223,000 )

Loss on High Trail Agreement

( 18,827,000 ) —

Total other income (expense) ( 17,186,000 ) 986,000

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$ ( 232,493,000 ) $ ( 132,596,000 )

Other comprehensive loss:

Other comprehensive income (loss):

Unrealized gain (loss) on investment securities

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Foreign currency translation adjustments 65,000 ( 37,000 )

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

Other comprehensive income (loss)

$ 1,147,000 $ ( 585,000 )

Total comprehensive loss $ ( 231,346,000 ) $ ( 133,181,000 )

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Capital Accumulated

Deficit Accumulated Other Comprehensive Loss Total

Deficit Accumulated Other Comprehensive Income (Loss)

Stockholders’ Equity

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Issue common stock, net of issuance costs 664,000 — 22,551,000 — — 22,551,000

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

Issue stock for employee stock purchase plan 30,000 — 150,000 — — 150,000

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Issuance of common stock due to the vesting of restricted stock units, net of shares withheld to cover taxes 1,000 — ( 61,000 ) — — ( 61,000 )

Issuance of common stock for convertible notes payable 3,492,000 1,000 6,542,000 — — 6,543,000

Net loss — — — ( 232,493,000 ) — ( 232,493,000 )

Other comprehensive loss — — — ( 585,000 ) ( 585,000 )

Other comprehensive income

— — — — 1,147,000 1,147,000

Balance at December 31, 2023 45,752,000 $ 5,000 $ 677,337,000 $ ( 581,208,000 ) $ 23,000 $ 96,157,000

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Depreciation and amortization expense 13,708,000 9,621,000

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

Goodwill impairment

Amortization of financing lease right-of-use asset

204,000 219,000

Amortization (accretion) of interest on securities ( 539,000 ) 638,000

Net realized loss (gain) on investments 23,000 66,000

Non-cash lease expense 56,000 478,000

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

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

Stock-based compensation 15,178,000 22,417,000

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 382,000 204,000

Client warranty exchange of fixed asset — 539,000

Change in fair value of contingent consideration ( 1,462,000 ) 316,000

Change in fair value of convertible notes payable and option liability

( 575,000 ) —

Loss on High Trail Agreement

Contingent consideration cash payment in excess of acquisition-date fair value

( 1,000,000 ) —

Changes in operating assets and liabilities (net of assets acquired and liabilities assumed in acquisition)

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Investing activities:

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

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

Purigen acquisition, return of purchase consideration from escrow 96,000 —

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

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Purchases of intangible assets — ( 102,000 )

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

Purchase of available for sale securities ( 111,264,000 ) ( 84,195,000 )

Sale and maturities of available for sale securities 137,017,000 200,888,000

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

Net cash provided by investing activities

24,158,000 82,767,000

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 — —

Principal payments of financing lease liability

( 47,000 ) ( 36,000 )

Proceeds from sale of common stock 57,697,000 23,128,000

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Proceeds from warrant and option exercises 23,000 343,000

Proceeds from High Trail Agreement

Payments on convertible notes payable

( 9,000,000 ) —

Debt issuance costs related to High Trail Agreement

( 4,521,000 ) —

Contingent consideration milestone payment

( 9,000,000 ) —

Net cash provided by financing activities 113,815,000 23,007,000

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

Effect of exchange rates on cash and cash equivalents and restricted cash

65,000 ( 38,000 )

Net increase (decrease) in cash and cash equivalents and restricted cash

12,857,000 ( 19,080,000 )

Years Ended December 31,

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

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

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

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

Cash and cash equivalents and restricted cash at beginning of period

5,491,000 24,571,000

Cash and cash equivalents and restricted cash at end of period

$ 18,348,000 $ 5,491,000

Reconciliation of cash and 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 17,948,000 5,091,000

Restricted cash 400,000 400,000

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

Total cash and cash equivalents and restricted cash at end of period

$ 18,348,000 $ 5,491,000

Supplemental disclosure of cash flow information

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Supplemental disclosure of non-cash financing and investing activity

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

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

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

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Property and equipment included in accounts payable $ 6,000 $ 90,000

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

Stock issued for services $ — $ 15,000

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

Debt issuance costs included in accounts payable

$ 150,000 $ —

Conversion of convertible notes payable into common stock at fair value

$ 6,542,000 $ —

See accompanying notes to the consolidated financial statements.

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

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

The Company offers optical genome mapping (“OGM”) solutions for applications across basic, translational and clinical research, and for other applications including bioprocessing.

Through its Lineagen, Inc.

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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.

Through its Purigen Biosystems Inc.

(“Purigen”) business, the Company offers 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.

As of December 31, 2023, the Company had approximately $ 17.9 million in cash and cash equivalents, $ 48.8 million in short-term investments, $ 35.5 million in restricted cash and cash equivalents and restricted short-term investments, and working capital of $ 40.1 million.

The Company has an accumulated deficit of $ 581.2 million as of December 31, 2023.

In 2023, the Company used $ 125.2 million cash in operations.

As of December 31, 2023, the Company reported $ 69.8 million of Notes at fair value, which are classified as current.

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

Additionally, the Company will be 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 Notes, at the Repayment Price of $ 10.4 million.

In February 2024, in connection with the Letter Agreement and Amendment (each as defined in Note 9 (High Trail Agreement)) the Company 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 on the Notes outstanding.

See Note 9 (High Trail Agreement) for additional information.

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.

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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.

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

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.

Significant estimates and assumptions used by management include but are not limited to revenue recognition, the fair value of financial instruments measured at fair value, fair value of contingent consideration, the recoverability of long-lived assets, fair value of reporting units, equity based compensation expense, and net deferred tax assets (and related valuation allowance).

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.

Reverse Stock Split

On August 4, 2023, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of all issued and outstanding shares of the Company’s common stock at a ratio of 1-for-10.

The reverse stock split did not change the par value or the authorized number of shares of the Company’s common stock.

The consolidated financial statements and notes to the consolidated financial statements present the retroactive effect of the reverse stock split on the Company’s common stock and per share amounts for all periods presented.

Basis of Presentation

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All intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

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

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

Restructuring Expenses

The Company’s restructuring expense consists primarily of actions taken in May and October 2023 in order to reduce costs and improve operations and manufacturing efficiency.

This was accounted for as a one-time termination benefit communicated by period end without an additional service component, so the charge represents the total amount expected to be incurred.

As a result of reducing facility costs and discretionary spending unrelated to headcount and combined with the cost savings from the reduction in force the Company initiated in May and October 2023, such plans are intended to decrease expenses and maintain a streamlined organization to support its business.

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.

The Company accounted for its acquisition of 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 Purigen.

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

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

Restricted Cash

Restricted Cash and Investments

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.

As of December 31, 2023, restricted investments consisted of the proceeds received from the Private Placement Notes as described further in Note 9 (High Trail Agreement) that was deposited into a restricted account subject to an account control agreement that only permits funds to be released once per calendar month upon the satisfaction of certain funding conditions specified in the Notes.

Fair Value Measurements

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

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

The Company records an allowance for credit losses when unrealized losses are due to credit-related factors.

At each reporting date, the Company evaluates securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors.

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

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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

Accounts Receivable and Allowance for Credit Losses

2023 December 31,

2022 December 31,

Accounts receivable, net:

Accounts receivable, trade $ 9,802,000 $ 7,315,000 $ 5,624,000

Less allowance for doubtful accounts ( 293,000 ) ( 690,000 )

Less allowance for credit losses

( 483,000 ) ( 293,000 ) ( 690,000 )

$ 9,319,000 $ 7,022,000 $ 4,934,000

Changes to the allowance for credit losses from December 31, 2021 to December 31, 2023 were as follows:

Allowance for Credit Losses

Balance as of January 1, 2022

$ ( 690,000 )

Provision for expected credit loss

Balance as of January 1, 2023 ( 293,000 )

Provision for expected credit loss ( 227,000 )

Write-offs 37,000

Balance as of December 31, 2023

$ ( 483,000 )

The Company extends credit to its customers in the normal course of business.

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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.

Estimates of allowances for credit losses are determined by evaluating individual customer circumstances, historical payment patterns, length of time past due, forecasts about the future, and economic and other factors.

Provision for expected credit losses is recorded as necessary to maintain an appropriate level of allowance for credit losses in selling, general and administrative expense.

Amounts are charged to the allowance for credit losses 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.

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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.

Inventory includes raw materials, work in process, 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.

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$ 27,602,000 $ 29,761,000

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

Inventories current

$ 22,892,000 $ 29,761,000

Inventories non-current (included in other long-term assets) $ 4,710,000 $ —

The Company reviews its inventories for classification purposes.

The value of inventories not expected to be realized in cash, sold or consumed during the next 12 months are classified as non-current within Other long-term assets.

As of December 31, 2023, $ 4.7 million of inventories were included in Other long term assets.

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

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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 , with the exception of the developed technology intangible acquired through the acquisition of Purigen, which is amortized over fifteen years .

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

Long-lived assets are reviewed for impairment if indicators of potential impairment exist.

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.

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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 year ended December 31, 2023, the Company experienced a triggering event that required evaluation of our asset groups for impairment.

The Company performed a recoverability test and there was sufficient cushion related to the cash flows of each of our asset groups.

There was no indications of impairment of intangible assets during the year ended December 31, 2022.

During the years ended December 31, 2023 and 2022, the Company recognized no impairment losses on long-lived assets.

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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.

Changes to goodwill from December 31, 2021 to December 31, 2023 were as follows:

Balance as of December 31, 2021

Acquisitions 22,651,000

Measurement period adjustments

( 1,522,000 )

Balance as of December 31, 2022

Acquisitions 22,651,000

Measurement period adjustments

Goodwill impairment

( 77,280,000 )

Balance as of December 31, 2023

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

Goodwill is assigned to

specific reporting units for purposes of impairment assessment.

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

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

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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.

During the quarter ended September 30, 2023, the Company 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, including a sustained decline in our stock price.

Our qualitative assessment indicated that it is more likely than not that the fair value of the reporting unit was less than its carrying value as of September 30, 2023;

therefore, we performed a quantitative impairment analysis.

The Company determined the fair value of its reporting unit using a

combination of the income and market approaches.

The Company placed a 50 % weighting on the market and income approach methods.

The determination of fair value using a market approach requires management to make significant assumptions related to the determination of an appropriate group of peer companies, and market revenue multiples from within the selected group of peer companies.

Under the income approach, the Company uses a discounted cash flow method, or DCF, to estimate the fair value of a reporting unit.

Estimates and assumptions used in the income approach included projected cash flows and a discount rate.

Discount rates were determined using a weighted average cost of capital for risk factors specific to the Company and other market and industry data.

Annual estimated cash flows and a terminal value are then discounted to their present value at an appropriate discount rate to obtain an indication of fair value.

The discount rate utilized reflects estimates of required rates of return for investments that are seen as similar to an investment in the reporting unit.

Because DCF analyses are based on management’s long-term financial projections and require significant estimates and judgments, the market approach is conducted in addition to the income approach in estimating the fair value of a reporting unit.

Under the market approach, the Company uses both a Guideline Public Company Method and Guideline Transactions Method to estimate the fair value of equity and the business enterprise value of a reporting unit.

The Guideline Public Company approach uses financial metrics from similar public traded companies to estimate fair value.

The Guideline Transaction Method calculates fair value by analyzing the actual prices paid for recent mergers and acquisitions in the industry.

The Company believes that the current methodology used in determining the fair value at its reporting unit represent its best estimates.

In addition, the Company compares the aggregate fair value of the reporting unit to its overall market capitalization, including an estimated control premium based upon control premiums observed in comparable market transactions and other factors.

During the quarter ended September 30, 2023, the carrying value of equity of the Company’s reporting unit exceeded its enterprise wide fair value of equity and the Company recognized a goodwill impairment charge, impairing goodwill of $ 77.3 million in full on the consolidated statements of operations.

During the year 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.

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

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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.

The Company has not included any options to extend in their lease term.

Leases with terms of 12 months or less are not recorded on the balance sheet.

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

Convertible Notes Payable

The Company elected to account for convertible notes issued in October 2023 using the fair value option under ASC 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities (or “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.

Direct issuance costs are expensed as incurred and are included in interest expense in the consolidated statements of operations.

Increases or decreases in the fair value of the convertible notes payable can result from updates to assumptions such as the 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.

Financial Instruments with Characteristics of Both Liabilities and Equity

The Company accounts for issued warrants either as a liability or equity in accordance with ASC 480-10, Distinguishing Liabilities From Equity (or “ASC 480-10”), and ASC 815-40, Derivatives and Hedging:

Contracts in Entity’s Own Equity (or “ASC 815-40”).

Under ASC 480-10, warrants are considered a liability if mandatorily redeemable and require settlement in cash, other assets, or a variable number of shares.

If warrants do not meet liability classification under ASC 480-10, the Company considers the requirements of ASC 815-40 to determine whether the warrants should be classified as a liability or as equity.

Under ASC 815-40, contracts that may require settlement for cash that are not under the control of the Company are liabilities, regardless of the probability of the occurrence of the triggering event.

Liability-classified warrants are measured at

fair value on the date of issuance and on a recurring basis at the end of each reporting period with any change in fair value after issuance recorded in other (income) expense, net on the consolidated statements of operations as a gain or loss.

If warrants do not require liability classification under ASC 815-40, in order to conclude warrants should be classified as equity, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or under another applicable GAAP standard.

Equity-classified warrants are accounted for at fair value on the issuance date, or in a bundled transaction on a residual basis based on an allocation of proceeds first to the instruments measured at fair value on a recurring basis, and are not subsequently remeasured.

The Company’s outstanding warrants do not meet the requirements for liability classification under ASC-480-10 or ASC-815-40.

Therefore, the Company’s outstanding warrants are classified as equity as of and for the years ended December 31, 2023 and 2022.

Revenue Recognition

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Product revenue recognition

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

Product revenue consists of sales of our OGM systems 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.

In addition, the Company provides the OGM systems to certain customers under its reagent rental program, under which the Company provides OGM 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.

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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.

8 unchanged sentences

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.

The Company expects to recognize approximately 81.7 % in 2024, 12.6 % in 2025 and 2.5 % in 2026 and 3.3 % in 2027 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.

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The Company records a contract liability, or deferred revenue, when it has an obligation to provide service, and to a much lesser extent product, to the customer and payment is received or due in advance of performance.

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

Contract liabilities are classified as other current

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

Contract liabilities primarily relate to support and maintenance contracts and extended warranty obligations.

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

The Company recognized revenue of $ 1.4 million and $ 0.7 million during the years ended December 31, 2023 and 2022, respectively, which was included in the contract liability balance at the end of the previous year.

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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.

The Company’s potentially dilutive securities which include convertible notes payable into common stock and outstanding warrants to purchase stock under the High Trail Agreement, 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.

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.

3 unchanged sentences

Common warrants 21,696,000 436,000

Unvested restricted stock — 5,006,000

Convertible notes payable into common stock

RSUs 239,000 10,000

1 unchanged sentence

Total 46,533,000 2,877,000

Recently Issued But Not Yet Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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

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.

For trade receivables and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for losses.

For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities.

The Company adopted ASU 2016-13 as of January 1, 2023.

The cumulative effect of applying the new credit loss standard was not material and, therefore, did not result in an adjustment to retained earnings.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related financial statement disclosures.

In accordance with ASU 2016-13, the Company no longer evaluates whether its available-for-sale debt securities in an unrealized loss position are other than temporarily impaired.

Instead, the Company assesses whether such unrealized loss positions are credit-related.

The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in other income through an allowance account.

Unrealized gains and losses that are not credit-related are included in accumulated other comprehensive income.

The Company’s adoption of ASU No.

2016-13, Financial Instruments - Credit Losses, included an assessment of our aged trade receivables balances and their underlying credit risk characteristics.

Our evaluation of past events, current conditions, and reasonable and supportable forecasts about the future resulted in an expectation of immaterial credit losses.

Revenue from Contracts with Customers

7 unchanged sentences

Total revenue $ 36,116,000 $ 27,802,000

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

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No other countries represented greater than 10% of revenue during the years ended December 31, 2023 and 2022.

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

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

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

Investments and Fair Value Measurements

7 unchanged sentences

Level 1 Level 2 Level 3

Commercial paper $ 20,020,000 $ — $ 20,020,000 $ —

Corporate notes/bonds 14,360,000 — 14,360,000 —

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

34,463,000 — 34,463,000 —

Total investments:

1 unchanged sentence

Money market funds $ 9,752,000 $ 9,752,000 $ — $ —

Commercial paper classified as restricted investments

5,432,000 — 5,432,000 —

treasuries classified as restricted investments

29,685,000 — 29,685,000 —

Total restricted investments:

$ 35,117,000 $ — $ 35,117,000 $ —

Contingent consideration 10,890,000 — — 10,890,000

Convertible notes payable

69,803,000 — — 69,803,000

Purchase option liability

8,534,000 — — 8,534,000

December 31, 2022

3 unchanged sentences

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

Securities of government sponsored entities — — — —

1,981,000 — 1,981,000 —

Total investments:

2 unchanged sentences

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

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

Money market funds are classified as cash equivalents on the consolidated balance sheets.

Contingent Consideration

Contingent consideration relates to the acquisitions of BioDiscovery and Purigen.

3 unchanged sentences

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

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

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

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

payment is event driven.

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

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

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

Assumptions used to estimate the 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 of 3 %.

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

The fair value of the contingent consideration as of December 31, 2022 was $ 9.4 million.

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

Any change in fair value of the contingent consideration during the years ended December 31, 2023 and December 31, 2022 was due to the passage of time.

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 %.

Assumptions used to estimate the fair value of the milestones using a probability weighted model include the probability of achieving independent milestones, anticipated payment date and a discount rate of 13.2 % and 15.3 % as of December 31, 2023 and 2022, respectively.

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:

The Company determined the likelihood of each independent milestone and used probability factors ranging from 9 % to 49 % which were applied to the individual payments over the five year milestone term.

The probability factors as of December 31, 2022 ranged from 20 % to 80 %.

For one milestone a Monte Carlo Simulation was performed to determine the likelihood that the milestone will be achieved to determine the milestone consideration payment.

Assumptions include the projected units, revenue discount rate of 7.0 % and 6.5 % and a discount rate of 13.2 % and 15.3 % as of December 31, 2023 and 2022, respectively.

The fair value of the Purigen contingent consideration as of December 31, 2023 and 2022 were $ 10.9 million and $ 13.0 million, respectively.

Convertible notes payable and purchase option liability

The estimated fair value of the convertible notes payable (or “Notes”, refer to Note 9 - High Trail Agreement) was based on a lattice model.

Assumptions used to estimate the fair value of the Notes are as follows:

December 31, 2023

October 13, 2023

Expected volatility

80.20 % 74.30 %

Risk-free interest rate

4.92 % 5.17 %

Term to maturity (years)

Debt discount rate

17.11 % 18.00 %

Equity discount rate

4.92 % 5.17 %

The table above uses a weighted average of assumptions based on the fair value of the Notes.

The volatility is based on an analysis of the Company, the risk-free rate is based on US treasury yields, the equity discount rate is based on term-specific US treasury yields, and the debt discount rate is based on the Company’s credit rating.

In connection with the Notes, the Purchaser was granted an option which expires on the maturity date of the Notes to purchase up to an additional $ 25.0 million aggregate principal amount of private placement notes and warrants (refer to Note 9 - High Trail Agreement).

The estimated fair value of the Option as of the valuation date was assessed as the difference in the aggregate indicated value of the Subsequently Purchased Notes and the consideration to be paid upon exercising the option which was estimated to be $ 9.8 million at inception of the agreement and $ 8.5 million at December 31, 2023.

The terms used to estimate the fair value of the Subsequently Purchased Notes and Subsequently Purchased Warrant underlying the Purchase Option Liability are as follows:

Subsequently Purchased Notes

Subsequently Purchased

December 31, 2023

October 13, 2023 December 31, 2023

October 13, 2023

Expected volatility

80.20 % 74.30 % 66.20 % 59.60 %

Risk-free interest rate

4.46 % 5.17 % 3.80 % 4.60 %

Term to maturity (years)

1.50 1.47 5.00 5.00

Dividend yield

— % — % — % — %

Exercise price

— — $ 3.19 $ 3.19

Debt discount rate

16.60 % 18.00 % — % — %

Equity discount rate

4.46 % 5.17 % — % — %

Changes in estimated fair value of contingent consideration liability, convertible notes payable and option liability in the year ended December 31, 2023 are as follows:

Consideration

Notes Payable (Level 3 Measurement)

(Level 3 Measurement)

Balance as of December 31, 2022

Liability recorded as a result of current period acquisition 12,970,000

$ 22,352,000 $ — $ —

Issuance of convertible notes payable and option

— 89,063,000 9,763,000

Change in estimated fair value, recorded in selling, general and administrative expenses ( 1,462,000 ) — —

Cash payments —

Changes in estimated fair value, recorded in other income (expense), net

— ( 3,718,000 ) ( 1,229,000 )

Conversions to common stock

— ( 6,542,000 ) —

Cash payments or redemptions

( 10,000,000 ) ( 9,000,000 ) —

Balance as of December 31, 2023

$ 10,890,000 $ 69,803,000 $ 8,534,000

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

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Balance as of December 31, 2022

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 )

As of December 31, 2023, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities presented within investments:

Remaining Contractual Maturity (in years) Amortized Cost Unrealized Gains Unrealized Losses Aggregate Estimated Fair Value

Corporate notes/bonds Less than 1 14,369,000 — ( 9,000 ) 14,360,000

Less than 1 34,459,000 4,000 — 34,463,000

Total maturity less than 1 year $ 48,828,000 $ 4,000 $ ( 9,000 ) $ 48,823,000

As of December 31, 2023, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities listed as restricted investments:

Remaining Contractual Maturity (in years) Amortized Cost Unrealized Gains Unrealized Losses Aggregate Estimated Fair Value

Commercial paper Less than 1 $ 5,435,000 $ — $ ( 3,000 ) $ 5,432,000

Less than 1 29,682,000 5,000 ( 2,000 ) 29,685,000

Total maturity less than 1 year $ 35,117,000 $ 5,000 $ ( 5,000 ) $ 35,117,000

As of December 31, 2022, there were no available for sale securities listed as restricted investments.

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 $ 100,929,000 $ ( 69,000 ) $ 41,173,000 $ ( 61,000 ) $ — $ —

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

Remaining Contractual Maturity (in years) Amortized Cost Unrealized Gains Unrealized Losses Aggregate Estimated Fair Value

Commercial paper Less than 1 $ 20,093,000 $ — $ ( 73,000 ) $ 20,020,000

Corporate notes/bonds Less than 1 72,823,000 — ( 910,000 ) 71,913,000

treasuries Less than 1 1,998,000 — ( 16,000 ) 1,982,000

Total maturity less than 1 year $ 94,914,000 $ — $ ( 999,000 ) $ 93,915,000

Corporate notes/bonds 1 to 5 14,268,000 — ( 88,000 ) 14,180,000

Total $ 109,182,000 $ — $ ( 1,087,000 ) $ 108,095,000

4 unchanged sentences

Gross Unrealized Loss

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

Corporate notes/bonds

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

2,362,000 ( 5,000 ) 10,001,000 ( 4,000 ) 12,363,000 ( 9,000 )

Total $ 2,362,000 $ ( 5,000 ) $ 10,001,000 $ ( 4,000 ) $ 12,363,000 $ ( 9,000 )

As of December 31, 2023, the following table summarizes available-for-sale securities listed as restricted investments in an unrealized loss position:

Less Than 12 Months 12 Months or Greater Total

Gross Unrealized Loss

Gross Unrealized Loss Fair Value

Gross Unrealized Loss

Commercial paper $ 5,432,000 $ ( 3,000 ) $ — $ — $ 5,432,000 $ ( 3,000 )

11,789,000 ( 2,000 ) — — 11,789,000 ( 2,000 )

Total $ 17,221,000 $ ( 5,000 ) $ — $ — $ 17,221,000 $ ( 5,000 )

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

5 unchanged sentences

Corporate notes/bonds

Securities of Government Sponsored Entities — — — — — —

9,661,000 ( 27,000 ) 74,452,000 ( 971,000 ) 84,113,000 ( 998,000 )

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 )

2 unchanged sentences

As of December 31, 2022, the Company held 16 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, the company held 24 securities which had been in an unrealized loss position for a period greater than 12 months.

As of December 31, 2023 and December 31, 2022, 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.

1 unchanged sentence

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.

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

During the year ended December 31, 2023, there were no sales of the Company’s available for sale securities.

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

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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.

As of December 31, 2023, trade name intangibles, customer relationships, and developed technology have weighted average remaining amortization periods of three years , three years , and nine years , respectively.

Intangible assets not subject to amortization totaled $ 0.1 million at December 31, 2023 and December 31, 2022 and related to the Company’s domain name.

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 11,176,000

12 unchanged sentences

Total $ 8,089,000 $ 10,552,000

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 %.

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”)

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.

High Trail Agreement

The Company entered into a securities purchase agreement (the “Purchase Agreement”) with High Trail Special Situations LLC (the “Purchaser”) on October 11, 2023, pursuant to which the Company agreed to issue and sell, for an aggregate $ 80.0 million in gross proceeds:

(i) in a registered offering by the Company directly to the Purchaser (the “Offering”)

(a) $ 45.0 million aggregate principal amount of senior secured convertible notes payable due 2025 (the “Registered Notes”)

initially convertible by the Purchaser at a price of $ 2.86 into 15.7 million shares of the Company’s common stock and

(b) warrants to purchase up to 21.7 million shares of the Company’s common stock at a price of $ 3.19 per share (the

“Registered Warrants”), and

(ii) in a concurrent private placement to the Purchaser (the “Private Placement”), $ 35.0 million aggregate principal amount of senior secured convertible notes payable due 2025 initially convertible at a price of $ 2.86 into 12.2 million shares of the Company’s common stock (the “Private Placement Notes” and together with the Registered Notes, the “Notes”).

The Company also granted the Purchaser an Option to purchase up to an additional $ 25.0 million aggregate principal amount of Private Placement Notes, in their sole discretion, initially convertible into shares of the Company’s common stock (the “Subsequently Purchased Notes”) at a conversion price equal to $1,000 divided by a fraction (1) whose numerator is $1,000;

and (2) whose denominator is the sum of (a) $ 0.09375 and (b) the greater of (x) the Nasdaq Minimum Price (as defined in Nasdaq Rule 5635(d)) on the date of the Purchase Agreement and (y) the Nasdaq Minimum Price (as defined in Nasdaq Rule 5635(d)) on the date of the issuance of the Subsequently Purchased Notes) Notice per the terms of the Notes and warrants (the “Private Placement Warrants” and together with the Registered Warrants, the “Warrants”) to purchase up to 6.8 million shares of the Company’s common stock at an exercise price calculated as the greater of (x) 115 % of the Nasdaq Minimum Price on the date of the applicable Subsequently Purchased Securities Notice is delivered and (y) the Nasdaq Minimum Price on the date of signing the Purchase Agreement, per the terms, in a subsequent private placement on the same terms as the Notes and the Registered Warrants (any such subsequent private placement, a “Subsequent Private Placement”).

The $ 35.0 million proceeds of the Private Placement Notes was deposited into a restricted account subject to an account control agreement that only permitted funds to be released once per calendar month upon the satisfaction of certain funding conditions specified in the Notes.

The Offering and Private Placement closed on October 13, 2023.

The Company’s net proceeds from the sale of the Notes and the Registered Warrants were approximately $ 75.2 million, after deducting the Offering and Private Placement expenses and placement agent fees.

As of December 31, 2023, the Company had aggregate principal outstanding under the Notes of $ 61.0 million, reported at fair value of $ 69.8 million (refer to Note 4 - Investments and Fair Value Measurements, for fair value measurements and additional discussion) and broken out as follows:

Principal balance, October 13, 2023

Partial redemption payments of principal

Notes principal balance, December 31, 2023

There were no amounts outstanding under the Notes as of December 31, 2022.

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

All payments due under the Notes rank (i) pari passu with all Other Notes, (ii) effectively senior to all unsecured obligations of the Company to the extent of the value of the collateral securing the Notes for so long as the collateral secures the Notes in accordance with the terms and (iii) senior to any subordinated indebtedness.

The Company recorded the Notes at their fair value at issuance of $ 89.1 million, per the fair value option under ASC 825 (refer to Note 4 - Investments and Fair Value Measurements) and will be measured on a recurring basis and adjusted through other income and expense.

The Option was recorded as a liability at fair value at issuance of $ 9.8 million (refer to Note 4 - Investments and Fair Value Measurements).

The Warrants qualified for classification as equity instruments and were recorded at $ 0 in additional paid in capital, which represents the residual amount after allocation of proceeds to the Notes and option to purchase additional Notes (“Option”) at fair value.

The Company recognized an initial loss on the issuance of the Notes and Option of $ 18.8 million for the difference between the combined fair value of the Notes and Option and proceeds from the transaction, which is recorded in Loss on High Trail Agreement on the consolidated statement of operations.

The Company incurred debt issuance costs of $ 4.8 million related to the Offering, which was charged to interest expense.

Terms of Repayment

The Notes were sold at 100 % of their principal amount and will be repaid at 115 % of the principal amount (the “Repayment Price”).

The Notes do not bear regular interest and mature on September 1, 2025 (the “Maturity Date”), unless earlier repurchased, redeemed or converted.

On the earlier to occur of (i) the date that no principal amount remains outstanding or (ii) the Maturity Date, the Company will be required to pay a retirement fee (the “Retirement Fee”) to the holders of the Notes equal to (x) with respect to the Registered Notes, the product of (a) $ 2.8 million multiplied by (b) a fraction, whose numerator is an amount equal to $ 45.0 million less the aggregate principal amount of such Registered Notes converted into shares of the Company’s common stock, and whose denominator is $ 45.0 million;

and (y) with respect to any Subsequently Purchased Notes, an amount equal to the product of (a) 6.25 % of the initial principal amount of such Subsequently Purchased Notes multiplied by (b) a fraction, whose numerator is an amount equal to the initial principal amount of such Subsequently Purchased Notes less the aggregate principal amount of such Subsequently Purchased Notes converted into shares of the Company’s common stock, and whose denominator is an amount equal to the initial principal amount of such Subsequently Purchased Notes.

In connection with the redemption of the Private Placement Notes in February 2024, the Company paid a Retirement Fee of $ 3.2 million.

The holder may convert the principal amount of the Notes in whole at any time prior to maturity, or in part in denominations of $1,000, per the terms.

The holder’s ability to convert the Notes is limited if after such conversion the holder and its affiliates and attribution parties beneficially own an aggregate of 4.99 % of the Company’s common stock, which percentage may be changed at the holders’ election to a higher or lower percentage not in excess of 9.99 % upon 61 days’ notice subject to the terms of the Notes.

The Company may require conversion of all, but not less than all, of the Notes upon occurrence of a forced conversion trigger and if certain equity conditions are satisfied on date of notice, pursuant to the terms of the Notes.

A forced conversion trigger occurs if the last reported sale price of the Company’s common stock exceeds 175 % of the conversion price on at least 20 volume-weighted average price (“VWAP”) trading days in any 30 consecutive trading day period.

The Notes contain standard antidilution provisions which adjust the conversion rate upon stock dividends, splits and combinations, certain events which include the distribution of rights, options and warrants, spin-offs and other distributed property, cash dividends or distributions, and tender or exchange offers.

The Company may increase the conversion rate on any portion of the Notes for any period of time (which decreases the conversion price) if the Board of Directors determines in good faith that such an increase is in the best interest of the Company.

As of December 31, 2023, the holder had converted $ 10.0 million principal into 3.5 million shares of the Company’s common stock, at the conversion price of $ 2.86 per share.

The holders have the option to partially redeem a portion of the Notes on the first day of each month beginning on November 1, 2023, (except for March 1, 2024, and subject to a delay of the April 2024 partial redemption date to April 20, 2024), at the Repayment Price, for an amount not to exceed $ 5.2 million, which amount may be increased upon agreement of both parties.

The Company has the right to redeem all of the then outstanding principal amount of the Notes under certain circumstances beginning on the 30th day following the date that the Resale Registration Statement became effective, and the holders of the Notes may require the Company to redeem the Notes upon a fundamental change, which includes a change in control, liquidation provisions or if the Company’s common stock ceases to be listed on any eligible exchange (as defined in the Notes), in each case for a redemption price set forth in the Notes.

If an event of default occurs (other than certain bankruptcy provisions which require automatic acceleration) and has not been waived by the holder, the holder may declare the Notes due and payable for cash in an amount equal to the event of default acceleration amount as set forth in the Notes.

Events of default include, among other things, non-timely Form 10-Q and 10-K Exchange filings, “Big R” restatement for any previously filed 10-Q or 10-K and ceasing to satisfy the eligibility requirement under Section I.A.

of General Instruction to Form S-3.

If an event of default occurs, default interest of 15 % will automatically accrue on the principal amount outstanding until cured and interest is paid, as specified in the Notes.

As of December 31, 2023, the holders have redeemed $ 9.0 million of principal amount of the Notes at the Repayment Price of $ 10.4 million.

As of December 31, 2023, at the holder’s option, the Company may be required to make future aggregate redemptions of at the Repayment Price as follows (unless earlier converted per the terms):

As of December 31, 2023, and assuming no future conversions, the Company would be required to pay a retirement Fee of $ 4.4 million, based on full redemption of principal.

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, the Company 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 the Company has $ 24.3 million of Notes outstanding, see “Debt Financing Amendment” below.

Covenants and Restrictions

The Notes subject the Company to various affirmative and negative covenants, and events of default that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to incur or amend indebtedness, grant liens on their assets, make investments, make distributions or pay certain dividends, transfer assets, and place limitations or requirements on business combination events.

The Company must comply with certain financial maintenance covenants and shall have at all times a minimum liquidity amount which is tested monthly and must maintain a minimum cash spend availability tested quarterly.

As long as the Notes remain outstanding, the Company is required to maintain a share reserve and a required funding program, the Company and each subsidiary is prohibited from directly or indirectly entering into any variable rate transactions subject to certain exclusions, the Company is subject to certain restricted periods during which it will not issue equity or equity linked securities subject to certain exclusions, and as long as any Notes or Warrants remain outstanding the Company may not issue any Notes or Warrants or other securities which would cause a breach or default, without the consent of the required holders.

The Notes contain provisions for liquidated damages, and require the Company to reimburse the holder for out-of-pocket costs incurred in connection their reliance on receipt of shares as applicable, if the Company fails to timely deliver shares upon conversion of the Notes or exercise of the Warrants or fails to deliver certificates with removal of restrictive legend when required, and in the event the Company fails to reserve the required number of authorized but unissued shares.

As of December 31, 2023, the Company was in compliance with its covenants.

In connection with the Notes, the Company issued Warrants to purchase up to 21.7 million shares of the Company’s common stock at an exercise price of $ 3.19 per share and a term of 5 years from the date of issuance.

The Warrants qualified for classification as equity instruments, and as discussed above, were recorded in additional paid in capital at $ 0 , which represents the residual amount after allocation of proceeds to the Notes and Option at fair value (refer to Note 10 - Stockholders’ Equity and Stock-Based Compensation).

Debt Financing Amendment

On February 27, 2024, the Company entered into a letter agreement (the “Letter Agreement”) and an Amendment to the Registered Note (the “Amendment”), with the Purchaser of the Notes which provided for, among other things, the following:

• Reduction of the minimum available liquidity covenant from $ 50.0 million to $ 25.0 million;

• Reduction of the restricted cash covenant from $ 35.0 million to the amount equal to the sum of (i) the outstanding principal amount of the Registered Notes plus (ii) approximately $ 0.7 million, which will be further reduced as the remaining principal on the Registered Notes are retired;

• Cancellation of the March 2024 partial redemption payment and delay of the April 2024 partial redemption payment;

• Redemption of the outstanding $ 17.0 million balance of the Private Placement Notes at a redemption price of 115 % for a total redemption payment of approximately $ 19.6 million;

• Redemption of approximately $ 10.7 million of the Registered Notes at a redemption price of 115 % for a total redemption payment of approximately $ 12.3 million;

• Increase of $ 1.0 million to the Retirement Fee (as defined in the Notes) of the Private Placement Notes to $ 3.2 million payable concurrently with redemptions of the Initial Private Placement Note.

Immediately following the redemptions above, there is approximately $ 24.3 million in aggregate principal amount of the Registered Notes outstanding.

Stockholders’ Equity and Stock-Based Compensation

3 unchanged sentences

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.

No preferred stock issued or outstanding as of December 31, 2023 and December 31, 2022.

Series A Preferred Stock

On April 13, 2023, the Company entered into an agreement with David Barker, the Chair of the Company’s board of directors, pursuant to which the Company agreed to issue and sell one share of the Company’s Series A Preferred Stock, par value $ 0.0001 per share for a purchase price of $ 100.00 .

The closing of the sale and purchase of the share of Series A Preferred was completed on April 13, 2023.The share of Series A Preferred was entitled 3.0 billion votes, but had the right to vote only on a proposal submitted to the stockholders of the Company to adopt an amendment, or a series of alternate amendments, to the Company’s Amended and Restated Certificate of Incorporation, as amended, to combine the outstanding shares of common stock into a smaller number of shares of common stock at a ratio specified in or determined in accordance with the terms of such amendment or series of alternate amendments (“Reverse Stock Split Proposal”), and had no voting rights (i) except with respect to a Reverse Stock Split Proposal and the votes of the share of Series A Preferred were required to be cast for and against such Reverse Stock Split Proposal in the same proportion as shares of common stock were voted for and against such Reverse Stock Split Proposal (with any shares of common stock that were not voted, whether due to abstentions, broker non-votes or otherwise not counted as votes for or against a Reverse Stock Split Proposal) and (ii) unless the holders of one-third (1/3rd) of the outstanding shares of common stock were present and voted, in person or by proxy, at the meeting of stockholders at which the Reverse Stock Split Proposal was submitted for stockholder approval (or any adjournment thereof).

The share of Series A Preferred voted together with the common stock as a single class on the Reverse Stock Split Proposal at the Company’s 2023 Annual Meeting of Stockholders held on June 14, 2023.

The Series A Preferred had no other voting rights, except as may have been required by the General Corporation Law of the State of Delaware.

The outstanding share of Series A Preferred was redeemed in whole, for a redemption price of $ 100.00 , paid out of funds lawfully available therefor automatically immediately following the approval by the stockholders of the Reverse Stock Split Proposal on June 14, 2023.

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.

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.

Cowen At-the-Market Facility

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 0.7 million shares of common stock under the Cowen ATM at an average share price of $ 34.59 per share, and received gross proceeds of approximately $ 23.1 million before deducting offering costs of $ 0.6 million.

During the twelve months ended December 31, 2023, the Company sold approximately 12.5 million shares of common stock under the Cowen ATM at an average share price of $ 4.62 per share, and received gross proceeds of approximately $ 57.8 million before deducting offering costs of $ 1.4 million.

In January and February 2024, the Company sold approximately 9.1 million shares of common stock under the Cowen ATM at an average share price of $ 1.38 per share, and received gross proceeds of approximately $ 12.5 million before deducting offering costs of $ 0.3 million.

16 unchanged sentences

21,696,000 $ 4.38 4.78 $ —

In connection with the issuance of the Notes on October 13, 2023, the Company issued warrants to purchase 21.7 million shares of the Company’s common stock (refer to Note 9 - High Trail Agreement).

2018 Equity Incentive Plan

18 unchanged sentences

Canceled ( 576,000 ) 26.58

Outstanding at December 31, 2022

Outstanding and expected to vest at December 31, 2023

3,268,000 24.79 7.8 3,000

3 unchanged sentences

The total intrinsic value of the stock options exercised during the years ended December 31, 2023 and 2022 were $ 0.03 million and $ 0.6 million, respectively.

The contractual term of stock options granted to employees

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

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

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

8 unchanged sentences

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

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 0.3 million shares of common stock at an exercise price of $ 16.30 per share, and RSUs amounting to 0.1 million shares of common stock at a grant date fair value of $ 16.30 per share, in each case with an effective grant date and vesting commencement date of February 15, 2023 (the “Grant Date”).

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

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

The RSUs shall vest monthly over 48 months beginning one year after the Grant Date, and the balance of the shares vest in a series of three successive equal annual installments measured from the first anniversary of the Grant Date, such that the option shall be fully vested and exercisable on the four-year anniversary of the Grant Date.

Restricted Stock Units and Performance Stock Units

2 unchanged sentences

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.

RSUs generally vest over a two-year period with equal vesting annually prior to 2023, and over a four-year period with equal vesting monthly beginning one year after the grant date beginning in 2023.

The Company issues 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:

2 unchanged sentences

10,000 $ 47.40

Granted 290,000 14.29

Released ( 10,000 ) 47.40

2 unchanged sentences

239,000 $ 16.30

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

The total fair value of the RSUs that vested during the years ended December 31, 2023 and 2022 were $ 0.5 million and $ 1.3 million, respectively, determined as of the date of vesting.

The weighted average remaining contractual term for the RSUs is 2.9 years as of December 31, 2023.

6 unchanged sentences

29,000 $ 47.40

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

During the year ended December 31, 2023, the Company reassessed the implicit service period on its performance-based stock units relative to specified revenue targets and determined that the performance conditions were met from an accounting perspective, but subject to certain certifications and approval from the Compensation Committee;

therefore, the remaining expense was accelerated as of December 31, 2023.

As a result of the accelerated vesting terms, the weighted average remaining contractual term for the PSUs is 0 as of December 31, 2023.

Stock-Based Compensation Expense

1 unchanged sentence

Years Ended December 31,

Cost of product revenue $ 520,000 $ —

Cost of service and other revenue 183,000 —

Research and development 5,092,000 13,402,000

11 unchanged sentences

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.

Prior to 2023, 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.

Beginning in 2023, we incorporated the Company’s own volatility assumption into the expected volatility calculation for Black-Scholes by using an equal weighting of the Company’s historical stock volatility and the historical volatilities of a group of industry peers whose share prices are publicly available.

Expected term.

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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.

As a result, the Company uses the simplified method for estimating the expected term as provided by the SEC.

The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.

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As of December 31, 2023, 1.3 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 RSUs shall vest monthly over 48 months beginning one year after the Grant Date, and the balance of the shares

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

Commitments and Contingencies

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In 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.

Rent payments for the additional space are $ 0.05 million 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.

As further described under the heading “Restructuring” below, in connection with the Company’s restructuring initiatives, the Company entered into a lease termination agreement on February 28, 2024 with the landlord for the facility in Salt Lake City.

The Company will continue to lease the property through June 2024.

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.

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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

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2027 255,000 356,000

Thereafter — 5,227,000

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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.

The Company had a contractual commitment with a supplier to purchase $ 0.3 million of products every month for an initial term of two years which began in May 2021 and ended in May 2023.

$ 1.4 million and $ 3.2 million of materials were purchased under this minimum purchase commitment during the years ended December 31, 2023 and 2022, respectively.

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

Restructuring

In October, 2023, the Company committed to a series of cost saving initiatives including a reduction in force (the “Workforce Reduction”) and, as a result of reducing facility costs and discretionary spending unrelated to headcount and combined with the cost savings from the reduction in force the Company initiated in May 2023, such plan is intended to decrease expenses and maintain a streamlined organization to support its business.

In connection with the Workforce Reduction, the Company incurred $ 0.7 million of severance costs for impacted employees, consisting primarily of cash, which the Company recognized during the fourth quarter of 2023.

The Company substantially completed the Workforce Reduction as of December 31, 2023.

The Company had accrued severance of $ 0.1 million and none as of December 31, 2023 and 2022, respectively.

The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the Workforce Reduction.

In connection with the Company’s restructuring initiatives, the Company entered into a lease termination agreement on February 28, 2024 with the landlord for the facility in Salt Lake City that will result in a one-time termination fee of approximately $ 0.2 million in the third quarter of 2024.

The Company will continue to lease the property through June 2024.

On March 1, 2024, the Board of Directors approved a cost savings plan that it expects to reduce its annualized operating expenses which will include a reduction in force.

This cost savings plan is incremental to the 2023 Workforce Reduction.

As part of the plan, the Company will further reduce its overall headcount by approximately 110 to 125 employees.

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.

As of the issuance of these consolidated financial statements, the Company is not able to estimate the impact of these actions on the financial statements

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.

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Contingent Consideration

Refer to Note 4.

Investments and Fair Value Measurements for discussion regarding contingent consideration.

Refer to Note 4 -Investments and Fair Value Measurements for discussion regarding contingent consideration.

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

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Year Ended December 31,

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

Income taxes at statutory rates $ ( 48,811,000 ) $ ( 27,447,000 )

State income tax, net of federal benefit ( 1,050,000 ) ( 1,321,000 )

Reduction of tax attributes under section 382

Goodwill impairment

Research credits ( 5,416,000 ) ( 1,733,000 )

Convertible notes payable and warrants

Stock-based compensation 1,836,000 1,345,000

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

Other permanent differences 9,000 434,000

Research credits ( 1,733,000 ) ( 938,000 )

Other 817,000 ( 911,000 )

Limitation of compensation under section 162(m)

( 1,145,000 ) 2,447,000

Other, net 1,822,000 817,000

Change in valuation allowance ( 11,303,000 ) 27,342,000

Income tax expense (benefit) $ 62,000 $ 1,884,000

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UNICAP 826,000 1,049,000

Sec 174 Capitalization

13,483,000 6,831,000

Other 1,413,000 1,944,000

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

As the deferred tax liability recorded in the business combination constitutes a source of future taxable income, the Company recorded a decrease to its valuation allowance against its deferred tax assets of $ 5.8 million as a deferred income tax benefit for the year ended December 31, 2021.

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

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.

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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.

There was no adjustment to the deferred taxes related to the Purigen acquisition during the measurement period which is now closed.

Utilization of the net operating losses and R&D credit carryforwards may be 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 may 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.

The Company has performed an ownership change analysis pursuant to Section 382 of the Code and identified that ownership changes occurred on various dates that will limit the Company’s ability to utilize its net operating loss and R&D credit carryforwards.

Based on the analysis, the Company’s deferred tax assets related to the tax attributes that will expire unused as a result of the ownership change limitations have been adjusted as of December 31, 2023 with related valuation allowance disclosed above.

As a result of limitations arising from the prior ownership changes, $ 33.0 million of federal and $ 5.4 million of California net operating loss carry-forwards were removed from the inventory of deferred tax assets.

In addition, $ 6.4 million of federal R&D tax credits were removed from the deferred tax assets as of December 31, 2023.

Further, the Company’s deferred tax assets associated with such tax attributes could be significantly reduced upon a future ownership change within the meaning of Section 382 of the Code.

Reconciliations of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, are as follows:

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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.

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

The Company, at its discretion, may make certain contributions to the 401(k) plan.

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Purigen Acquisition

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

In November 2022, the Company, Mazdan Merger Sub, Inc., a wholly owned subsidiary of the Company (“Purigen Merger Sub”), Purigen and Shareholder Representative Services LLC, solely in its capacity as the securityholders’ representative, entered into an Agreement and Plan of Merger (the “Purigen Merger Agreement”) pursuant to which the Company agreed to acquire Purigen.

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

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

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

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

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:

The purchase price allocation for the acquisition of Purigen was finalized during the year ended December 31, 2023.

The following is the 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 )

Return of cash to buyer from escrow

Total estimated purchase price $ 44,909,000

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:

The total 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

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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.

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

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

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Purigen revenues included in the Company’s consolidated statement of operations from the date of acquisition through December 31, 2023 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:

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.

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

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.

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company, 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 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.

Years Ended December 31,

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Basic and diluted net loss per share

$ ( 0.50 ) $ ( 0.32 )

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.

The Company recorded $ 0.5 million in finance lease costs related to this lease for the year ended December 31, 2022.

Refer to Note 11 - Commitments and Contingencies for future commitments pertaining to this finance lease.

CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data