Bionano Genomics, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 84 Table of Contents Index to Consolidated Financial Statements Pages Reports of Independent Registered Public Accounting Firm (BDO USA, P.C.; San Diego, California; PCAOB ID# 243 ) 86 Consolidated Balance Sheets 88 Consolidated Statements of Operations 89 Consolidated Statements of Comprehensive Loss 90 Consolidated Statements of Stockholders’ Equity 91 Consolidated Statements of Cash Flows 92 Notes to Consolidated Financial Statements 94 85 Table of Contents Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Bionano Genomics, Inc. San Diego, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Bionano Genomics, Inc. (the “Company”) as of December 31, 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 The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit 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 86 Table of Contents 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: • 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: • Analyzing: (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. San Diego, CA March 5, 2024 87 Table of Contents BIONANO GENOMICS, INC. Consolidated Balance Sheets December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 17,948,000 $ 5,091,000 Investments 48,823,000 108,095,000 Accounts receivable, net 9,319,000 7,022,000 Inventory 22,892,000 29,761,000 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 Restricted cash 400,000 400,000 Property and equipment, net 23,345,000 18,029,000 Operating lease right-of-use assets 5,633,000 7,222,000 Finance lease right-of-use assets 3,503,000 3,707,000 Intangible assets, net 33,974,000 41,143,000 Goodwill — 77,289,000 Other long-term assets 7,431,000 2,414,000 Total assets $ 214,404,000 $ 307,502,000 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 10,384,000 $ 12,534,000 Accrued expenses 8,089,000 10,552,000 Contract liabilities 783,000 871,000 Operating lease liability 2,163,000 2,260,000 Finance lease liability 272,000 285,000 Contingent consideration — 9,382,000 Purchase option liability (at fair value) 8,534,000 — Convertible notes payable (at fair value) 69,803,000 — Total current liabilities 100,028,000 35,884,000 Operating lease liability, net of current portion 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 Total liabilities $ 118,247,000 $ 58,104,000 Commitments and contingencies (Note 11) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized and no shares issued or outstanding as of December 31, 2023 and 2022 — — Common stock, $ 0.0001 par value, 400,000,000 shares authorized at December 31, 2023 and 2022; 45,752,000 and 29,718,000 shares issued and outstanding at December 31, 2023 and 2022, respectively 5,000 3,000 Additional paid-in capital 677,337,000 599,234,000 Accumulated deficit ( 581,208,000 ) ( 348,715,000 ) Accumulated other comprehensive income (loss) 23,000 ( 1,124,000 ) Total stockholders’ equity 96,157,000 249,398,000 Total liabilities and stockholders’ equity $ 214,404,000 $ 307,502,000 See accompanying notes to the consolidated financial statements. 88 Table of Contents BIONANO GENOMICS, INC. Consolidated Statements of Operations Years Ended December 31, 2023 2022 Revenue: Product revenue $ 26,727,000 $ 20,425,000 Service and other revenue 9,389,000 7,377,000 Total revenue 36,116,000 27,802,000 Cost of revenue: Cost of product revenue 20,415,000 15,966,000 Cost of service and other revenue 6,135,000 5,891,000 Total cost of revenue 26,550,000 21,857,000 Operating expenses: Research and development 54,032,000 49,047,000 Selling, general and administrative 93,499,000 88,596,000 Goodwill impairment 77,280,000 — Total operating expenses 224,811,000 137,643,000 Loss from operations ( 215,245,000 ) ( 131,698,000 ) Other expenses Interest income 3,311,000 1,507,000 Interest expense ( 5,119,000 ) ( 298,000 ) 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 Loss before income taxes ( 232,431,000 ) ( 130,712,000 ) Benefit (provision) for income taxes ( 62,000 ) ( 1,884,000 ) Net loss $ ( 232,493,000 ) $ ( 132,596,000 ) Net loss per share, basic and diluted $ ( 6.81 ) $ ( 4.58 ) Weighted-average common shares outstanding, basic and diluted 34,150,000 28,921,000 See accompanying notes to the consolidated financial statements. 89 Table of Contents BIONANO GENOMICS, INC. Consolidated Statements of Comprehensive Loss Years Ended December 31, 2023 2022 Net Loss: $ ( 232,493,000 ) $ ( 132,596,000 ) Other comprehensive income (loss): Unrealized gain (loss) on investment securities 1,082,000 ( 548,000 ) Foreign currency translation adjustments 65,000 ( 37,000 ) Other comprehensive income (loss) $ 1,147,000 $ ( 585,000 ) Total comprehensive loss $ ( 231,346,000 ) $ ( 133,181,000 ) See accompanying notes to the consolidated financial statements. 90 Table of Contents BIONANO GENOMICS, INC. Consolidated Statements of Stockholders’ Equity (Deficit) Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Common Stock Shares Amount Balance at January 1, 2022 28,960,000 $ 3,000 $ 553,773,000 $ ( 216,119,000 ) $ ( 539,000 ) $ 337,118,000 Stock option exercises 47,000 — 343,000 — — 343,000 Stock-based compensation expense — — 22,417,000 — — 22,417,000 Issue common stock, net of issuance costs 664,000 — 22,551,000 — — 22,551,000 Issue stock for employee stock purchase plan 30,000 — 150,000 — — 150,000 Issuance of common stock due to the vesting of restricted stock units, net of shares withheld to cover taxes 17,000 — — — — — Issue stock for acquisition — — — — Net loss — — — ( 132,596,000 ) — ( 132,596,000 ) Other comprehensive loss — — — — ( 585,000 ) ( 585,000 ) Balance at December 31, 2022 29,718,000 $ 3,000 $ 599,234,000 $ ( 348,715,000 ) $ ( 1,124,000 ) $ 249,398,000 Stock option exercises 4,000 — 23,000 — — 23,000 Stock-based compensation expense — — 15,178,000 — — 15,178,000 Issue common stock, net of issuance costs 12,507,000 1,000 56,313,000 — — 56,314,000 Issue stock for employee stock purchase plan 30,000 — 108,000 — — 108,000 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 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 See accompanying notes to the consolidated financial statements. 91 Table of Contents BIONANO GENOMICS, INC Consolidated Statements of Cash Flows Years Ended December 31, 2023 2022 Operating activities: Net loss $ ( 232,493,000 ) $ ( 132,596,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 13,708,000 9,621,000 Goodwill impairment 77,280,000 — 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 (Benefit) expense from deferred income taxes — 1,760,000 Stock-based compensation 15,178,000 22,417,000 Cost of leased equipment sold to customer 382,000 204,000 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 18,826,000 — 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) Accounts receivable ( 2,296,000 ) ( 2,251,000 ) Inventory ( 4,150,000 ) ( 23,676,000 ) Prepaid expenses and other current assets 1,213,000 ( 3,197,000 ) Other assets ( 5,020,000 ) ( 1,130,000 ) Accounts payable ( 1,995,000 ) 1,949,000 Accrued expenses and contract liabilities ( 2,521,000 ) 366,000 Net cash used in operating activities ( 125,181,000 ) ( 124,816,000 ) Investing activities: 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 ) Purchases of property and equipment ( 1,691,000 ) ( 2,408,000 ) Sale of property and equipment — 26,000 Construction in process — ( 792,000 ) Purchases of intangible assets — ( 102,000 ) 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 investing activities 24,158,000 82,767,000 Financing activities: Principal payments of financing lease liability ( 47,000 ) ( 36,000 ) Proceeds from sale of common stock 57,697,000 23,128,000 Offering expenses on sale of common stock ( 1,444,000 ) ( 578,000 ) Proceeds from sale of common stock under employee stock purchase plan 107,000 150,000 Proceeds from warrant and option exercises 23,000 343,000 Proceeds from High Trail Agreement 80,000,000 — 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 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 ) 92 Table of Contents Years Ended December 31, 2023 2022 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 and cash equivalents and restricted cash at end of period $ 18,348,000 $ 5,491,000 Supplemental disclosure of cash flow information Cash paid for interest $ 1,648,000 $ 298,000 Cash paid for operating lease liabilities $ 2,586,000 $ 1,622,000 Supplemental disclosure of non-cash financing and investing activity Contingent consideration related to Purigen acquisition $ — $ 12,970,000 Operating lease liabilities resulting from obtaining and modifying right-of-use assets $ — $ 517,000 Transfer of instruments and servers from inventory into property and equipment, net $ 10,979,000 $ 7,244,000 Property and equipment included in accounts payable $ 6,000 $ 90,000 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. 93 Table of Contents BIONANO GENOMICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Operations Description of Business Bionano Genomics, Inc. (collectively, with its consolidated subsidiaries, the “Company”) is a provider of genome analysis solutions that can enable researchers and clinicians to reveal answers to challenging questions in biology and medicine. The Company offers optical genome mapping (“OGM”) solutions for applications across basic, translational and clinical research, and for other applications including bioprocessing. Through its Lineagen, Inc. (doing business as Bionano Laboratories, “Bionano Laboratories”) business, the Company also provides diagnostic testing for patients with clinical presentations consistent with autism spectrum disorder and other neurodevelopmental disabilities. Through its BioDiscovery, LLC (“BioDiscovery”) business, the Company also offers platform-agnostic software solution, which integrates next-generation sequencing and microarray data designed to provide analysis, visualization, interpretation and reporting of copy number variants, single-nucleotide variants and absence of heterozygosity across the genome in one consolidated view. Through 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, 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. Management has prepared cash flows forecasts which indicate that based on the Company’s expected operating losses and negative cash flows, there is substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the financial statements for the year ended December 31, 2023, are issued. Management’s ability to continue as a going concern is dependent upon its ability to raise additional funding. Management’s plans to raise additional capital to fulfill its operating and capital requirements for at least 12 months include public or private equity or debt financings. However, the Company may not be able to secure such financing in a timely manner or on favorable terms, if at all. The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the outcome of this uncertainty. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions used by management include 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 94 Table of Contents 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 The consolidated financial statements are prepared in accordance with U.S. GAAP and include the accounts of the Company’s 100%-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. 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 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. Any excess purchase price over the estimated fair value assigned to the tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The Company estimated the fair value of identifiable intangible assets acquired with the assistance of independent valuations that use information and assumptions provided by the Company’s management. Under ASC 805, acquisition-related transaction costs (such as advisory, legal, valuation, other professional fees) are expensed in the statements of operations in the periods incurred. Cash and Cash Equivalents Cash equivalents primarily represent funds invested in readily available money market accounts. The Company has not experienced any losses in such accounts. The Company believes that it is not exposed to any significant credit risk on cash and cash equivalents. Restricted Cash 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 The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. ASC 820, “Fair Value Measurements and Disclosures”, defines and establishes a framework for measuring fair value and expands disclosures about fair value measurements. In accordance with ASC 820, the Company has categorized its financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. 95 Table of Contents Level 1 – Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the company has the ability to access at the measurement date. Level 2 – Assets and liabilities whose values are based on quoted prices for similar attributes in active markets; quoted prices in markets where trading occurs infrequently; and inputs other than quoted prices that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 – Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Investment Securities All investments have been classified as “available-for-sale” and are carried at fair value as determined based upon quoted market prices or pricing models for similar securities at period end. Investments with contractual maturities less than 12 months at the balance sheet date are considered short-term investments. Investments with contractual maturities beyond one year are also classified as short-term due to the Company’s ability to liquidate the investment for use in operations within the next 12 months. Realized gains and losses on investment securities are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The Company has not realized any significant gains or losses on sales of available-for-sale investment securities during any of the periods presented. As all the Company’s investment holdings are in the form of debt securities, unrealized gains and losses that are determined to be temporary in nature are reported as a component of accumulated other comprehensive income (loss). 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. Concentrations Credit Risks Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash and cash equivalents and accounts receivable. The Company maintains deposits in federally insured major financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institution in which those deposits are held. The Company’s customers are located throughout the world. The Company generally does not require collateral from its customers. More information on accounts receivable is contained in the paragraph titled “Accounts Receivable” below. Sources of Materials and Products The materials and components for the Company’s product offerings are currently obtained from single or limited sources. The Company competes with other companies for production capacity, therefore, the Company is exposed to a risk of inventory being unavailable at acceptable prices, or at all, if suppliers are unable (or decide) to provide sufficient levels of materials and components and the Company is unable to identify alternative suppliers. Accounts Receivable and Allowance for Credit Losses December 31, 2023 December 31, 2022 December 31, 2021 Accounts receivable, net: Accounts receivable, trade $ 9,802,000 $ 7,315,000 $ 5,624,000 Less allowance for credit losses ( 483,000 ) ( 293,000 ) ( 690,000 ) $ 9,319,000 $ 7,022,000 $ 4,934,000 96 Table of Contents 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 ( 144,000 ) Write-offs 541,000 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. For diagnostic testing services, receivables are based on either contractual rates with third-party payors, plus the amounts expected to be collected for any patient-responsibility portion, or for non-contracted arrangements, using the amounts expected to be collected from third-party payors and/or the patient-customer based on historical collection experience. The Company does not perform credit evaluations and therefore subsequent adjustments to the amount expected to be collected are recorded to revenue. For OGM products and services, credit is extended based upon an evaluation of each customer’s credit history, financial condition, and other factors. Estimates of allowances for 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. As of December 31, 2023 and 2022, no customers met or exceeded 10% of the Company’s total accounts receivable balance. Inventory Inventory is stated at the lower of cost or net realizable value, on a first-in, first-out basis. Inventory is valued at standard cost. Inventory includes raw materials, 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. The components of inventories, net of reserve, are as follows: December 31, 2023 2022 Inventory: Raw materials $ 7,567,000 $ 5,319,000 Work in process 9,790,000 7,055,000 Finished goods 10,245,000 17,387,000 $ 27,602,000 $ 29,761,000 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) Long-lived assets consist of property and equipment and acquired finite-lived intangible assets. Property and equipment generally consist of laboratory equipment, computer and office equipment, furniture and fixtures, and leasehold improvements. Property and equipment are recorded at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the assets (generally three to five years , or the remaining term of the lease for leasehold improvements, whichever is shorter). Repairs and maintenance costs are charged to expense as incurred. 97 Table of Contents Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date. Finite-lived intangible assets are amortized over the estimated useful life of the asset on a basis that approximates the pattern of economic benefit. 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. A long-lived asset (other than goodwill) is not recoverable when the undiscounted cash flows expected to be generated by the asset (or asset group) are less than the asset’s carrying amount. Any required impairment loss would be measured as the amount by which the asset’s carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and a charge to operating expense. During the 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. Substantially all of the Company's long-lived assets are located in the U.S. Contingent Consideration The Company recorded contingent consideration resulting from a business combination at its fair value on the acquisition date. On a quarterly basis, the Company revalues this obligation and records any increase or decrease in fair value as an adjustment to the consolidated statement of operations. Changes to the fair value of the contingent consideration obligation may result from changes to the discount rate, the passage of time, or changes in the estimate of the likelihood or timing of achieving the criteria for payment of the contingent consideration. Goodwill Changes to goodwill from December 31, 2021 to December 31, 2023 were as follows: Goodwill Balance as of December 31, 2021 $ 56,160,000 Acquisitions 22,651,000 Measurement period adjustments ( 1,522,000 ) Balance as of December 31, 2022 77,289,000 Measurement period adjustments ( 9,000 ) Goodwill impairment ( 77,280,000 ) Balance as of December 31, 2023 $ — Goodwill arises when the purchase price of an acquired business exceeds the fair value of the identifiable net assets acquired, with such excess recorded as goodwill on the balance sheet. Goodwill is not subsequently amortized. Goodwill is reviewed for impairment annually (during the fourth quarter) or more frequently if indications of impairment exist. Goodwill is assigned to specific reporting units for purposes of impairment assessment. The Company has determined that it has a single operating segment and a single reporting unit. In testing goodwill for impairment, the Company will first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying value, then the Company will perform a quantitative impairment analysis by comparing the fair value of the reporting unit to the carrying value of the reporting unit, including goodwill. An impairment charge for goodwill is recognized for the amount by which the carrying value of the reporting unit exceeds its fair value, not to exceed the total goodwill allocated to the reporting unit. During the 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 98 Table of Contents 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. Leases Right-of-use (“ROU”) assets represent our right to use an underlying asset during the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the consolidated balance sheets, while finance leases are included in finance lease right-of-use assets and finance lease liabilities. Lease assets and liabilities are recognized at commencement based on the present value of lease payments over the lease term. The Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments. The ROU assets also include any prepaid or accrued lease payments and is adjusted for lease incentives and initial direct costs. Lease terms may include options to extend or terminate the lease which are recognized when it is reasonably certain that the Company will exercise that option. 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. Lease expense is recognized on a straight-line basis over the lease terms, or in some cases, the useful life of the underlying asset. Variable lease payments are excluded from the measurement of ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The Company accounts for the lease and non-lease components as a single lease component for all classes of underlying assets. 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 99 Table of Contents 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 The Company generates revenue primarily from the sale of products and services. The Company considers revenue to be earned when all of the following criteria are met: the Company has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount the Company expects to receive, including an estimate of uncertain amounts subject to a constraint to ensure revenue is not recognized in an amount that would result in a significant reversal upon resolution of the uncertainty, is determinable; and the Company has transferred control of the promised items to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the contract. The transaction price for the contract is measured as the amount of consideration the Company expects to receive in exchange for the goods and services expected to be transferred. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control of the distinct good or service is transferred. The Company provides assurance type warranties on many of its products. As customers cannot purchase such warranties independently of the products under the contract and they are not priced separately, assurance type warranties are not separate performance obligations. The Company recognizes a receivable when we have an unconditional right to payment, which is generally at the time of delivery of software, consumables and instruments, including any extended warranties, or at the time services are rendered. Payment terms are typically 30 days for sales to customers in the United States but may be longer in international markets. The Company treats shipping and handling costs performed after a customer obtains control of the good as a fulfillment cost and records these costs within selling, general and administrative expenses, less any amounts reimbursed by the customer, when the corresponding revenue is recognized. Revenue is recorded net of discounts and sales tax. The Company’s contracts typically do not provide for product returns or refunds. In general, estimates of variable consideration and constraints are not material to the Company’s financial statements. Employee sales commissions are recorded as selling, general and administrative expenses when incurred as the amortization period for such costs, if capitalized, would have been one year or less. Product revenue recognition 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 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. Transfer of control of software is recognized at the point-in-time when the software license is transferred to the customer. As such the Company’s performance obligation related to product sales is satisfied at a point in time. For transfers of instruments and consumables to customers under the Company’s rental reagent program, the Company allocates the total contract consideration between the instrument and the consumables based on estimates of stand-alone selling prices, and recognizes the instrument revenue evenly over the rental period, and the consumables revenue when the consumables are delivered. Rental revenue related to the reagent rental program recognized over-time totaled $ 1.1 million and $ 0.4 million during the years ended December 31, 2023 and 2022, respectively. Revenue related to software license maintenance agreements is recognized over-time based on the contract term. Revenue recognized over-time related to software sales totaled $ 0.4 million and $ 0.4 million during the years ended December 31, 2023 and 2022, respectively. Service and other revenue recognition 100 Table of Contents 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 OGM systems. Revenue from the completion of diagnostic testing services is initially recorded at the estimated consideration the Company expects to receive from contractual and non-contractual payors, and is subject to adjustment based on the amount actually collected. The Company performs its obligation under a contract with a customer by processing diagnostic tests and communicating the test results, which the Company has determined is the point at which control is transferred to the customer for revenue recognition purposes. Revenue for hosting arrangements is recognized over-time on a usage basis as the customer processes the number of genetic samples purchased with the software. Hosting arrangements revenue recognized over-time totaled $ 0.7 million and $ 0.5 million during the years ended December 31, 2023 and 2022, respectively. Revenue from support and maintenance contracts and extended warranties is recognized over time based on the contract term, which represents a faithful depiction of the transfer of goods and services given the stand-ready nature of the performance obligations. Service revenue related to repairs and customer sample evaluations is recognized as the services are performed based on the specific nature of the service. Warranty and maintenance revenue recognized over-time totaled $ 0.9 million and $ 0.7 million during the years ended December 31, 2023 and 2022, respectively. Remaining Performance Obligations As of December 31, 2023, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was $ 0.9 million. These remaining performance obligations primarily relate to extended warranty and support and maintenance obligations, as well as obligations related to software under hosting arrangements. The Company expects to recognize approximately 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. Warranty expense is recorded as a component of cost of product revenue. The Company’s liability for product warranties provided under its agreements with customers was $ 0.4 million and $ 0.5 million as of December 31, 2023 and 2022, respectively. Warranty expense recorded in cost of goods sold totaled $ 0.6 million and $ 1.0 million during the years ended December 31, 2023 and 2022, respectively. Contract Assets and Liabilities Contract assets primarily relate to the Company’s conditional right to consideration for work completed but not billed at the reporting date. Contract assets at the beginning and end of the period, as well as the changes in the balance, were immaterial. Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. The Company records a contract liability, or deferred revenue, when it has an obligation to provide service, and to a much lesser extent product, to the customer and payment is received or due in advance of performance. 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. Distributor Transactions In certain markets, the Company sells products and provides services to customers through distributors that specialize in life sciences products. In cases where the product is delivered to a distributor, revenue recognition generally occurs when the distributors obtains control of the product. The terms of sales transactions through distributors are generally consistent with the terms of direct sales to customers and do not contain return rights. Distributor sales transactions typically differ from direct customer sales as they do not require the Company’s services to install the instrument at the end customer or perform the services for the customer that are beyond the standard warranty in the first year following the sale. These transactions are accounted for in accordance with the Company’s revenue recognition policy described herein. Cost of Revenue Cost of revenue for products consists of the Company’s raw material parts costs and associated freight, shipping and handling costs, contract manufacturing costs, royalties due to third parties, salaries and other personnel costs, equipment depreciation, overhead and other direct costs related to those sales recognized as product revenue in the period. Cost of service and other revenue consists of salaries and other personnel costs, and facility costs associated with costs related to warranties and other costs of servicing equipment at customer sites, and performance of diagnostics services. 101 Table of Contents Research and Development Costs Costs incurred for research and product development, including acquired technology and costs incurred for technology in the development stage, are expensed as incurred. Patent Costs Costs related to filing and pursuing patent applications are recorded as selling, general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain. Stock-based Compensation The Company issues stock-based awards as compensation to employees and directors. Stock-based awards may include stock options, restricted stock units, and performance stock units. These awards are accounted for as equity awards. To-date, the Company recognizes stock-based compensation expense net of actual forfeitures on a straight-line basis over the underlying award’s requisite service period, which is generally the vesting period, as measured using the award’s grant date fair value. The Company determines grant date fair value of stock option awards using the Black-Scholes option-pricing model. The fair value of restricted stock units and performance stock units are determined using the closing price of the Company’s common stock on the grant date. For service based vesting grants, expense is recognized over the requisite service period based on the number of options or shares expected to ultimately vest. For performance stock units, expense is recognized over the implicit service period, assuming vesting is probable. No expense is recognized for the performance stock units if it is not probable the vesting criteria will be satisfied. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. Changes in the valuation allowance when they are recognized in the provision for income taxes may result in a change in the estimated annual effective tax rate. The Company recognizes the impact of uncertain tax positions at the largest amount that is “more likely than not” to be sustained upon audit by the relevant taxing authority. An uncertain tax position will not be recognized if it does not have a greater than 50% likelihood of being sustained. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability. Segment Reporting Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company’s chief operating decision-maker, the Chief Executive Officer, views the Company’s operations and manages its business as one operating segment. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common share equivalents are only included when their effect is dilutive. 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. 102 Table of Contents Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive were as follows (in common stock equivalent shares): Years Ended December 31, 2023 2022 Common stock options 3,268,000 2,402,000 Common warrants 21,696,000 436,000 Convertible notes payable into common stock 21,301,000 — RSUs 239,000 10,000 PSUs 29,000 29,000 Total 46,533,000 2,877,000 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. 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. 103 Table of Contents 3. Revenue from Contracts with Customers Revenue by Source Years Ended December 31, 2023 2022 Instruments $ 9,999,000 $ 8,567,000 Consumables 11,157,000 6,731,000 Software 5,571,000 5,127,000 Total product revenue 26,727,000 20,425,000 Services and other 9,389,000 7,377,000 Total revenue $ 36,116,000 $ 27,802,000 Revenue by Geographic Location Years Ended December 31, 2023 2022 $ % $ % Americas $ 18,020,000 50 % $ 13,862,000 50 % EMEA 12,963,000 36 % 8,960,000 32 % Asia Pacific 5,133,000 14 % 4,980,000 18 % Total $ 36,116,000 100 % $ 27,802,000 100 % The tables above provide revenue from contracts with customers by source and geographic location on a disaggregated basis. Americas consists of North America and South America. EMEA consists of Europe, the Middle East and Africa. Asia Pacific includes China, Japan, South Korea, Singapore, Australia and India. For the years ended December 31, 2023 and 2022, sales in the United States represented 44 % and 42 % of revenues, respectively. During the years ended December 31, 2023 and 2022, sales in China accounted for 10 % and 14 % of revenues, respectively. No other countries represented greater than 10% of revenue during the years ended December 31, 2023 and 2022. 4. Investments and Fair Value Measurements The Company holds investment securities that consist of highly liquid, investment grade debt securities. The Company determines the fair value of its investment securities based upon one or more valuations reported by its investment accounting and reporting service provider. The investment service provider values the securities using a hierarchical security pricing model that relies primarily on valuations provided by an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curves, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, and broker and dealer quotes, as well as other relevant economic measures. The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis in the Consolidated Balance Sheets: 104 Table of Contents December 31, 2023 Total Fair Value and Carrying Value on Balance Sheet Fair Value Measurement Category Level 1 Level 2 Level 3 Assets: Corporate notes/bonds 14,360,000 — 14,360,000 — U.S. treasuries 34,463,000 — 34,463,000 — Total investments: $ 48,823,000 $ — $ 48,823,000 $ — Money market funds $ 9,752,000 $ 9,752,000 $ — $ — Commercial paper classified as restricted investments 5,432,000 — 5,432,000 — U.S. treasuries classified as restricted investments 29,685,000 — 29,685,000 — Total restricted investments: $ 35,117,000 $ — $ 35,117,000 $ — Liabilities: 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 Total Fair Value and Carrying Value on Balance Sheet Fair Value Measurement Category Level 1 Level 2 Level 3 Assets: Commercial paper $ 20,020,000 $ — $ 20,020,000 $ — Corporate notes/bonds 86,094,000 — 86,094,000 — U.S. treasuries 1,981,000 — 1,981,000 — Total investments: $ 108,095,000 $ — $ 108,095,000 $ — Money market funds $ 1,868,000 $ 1,868,000 $ — $ — Liabilities: Contingent consideration 22,352,000 — — 22,352,000 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. The outcome of the milestone consideration for all contingent consideration liabilities is binary, meaning the milestones are either achieved or not achieved, and the only other variable factor is the timing of when the milestones are achieved. The fair value measurement of the contingent consideration liabilities is based on significant inputs not observed in the market (Level 3 inputs). These unobservable inputs represent a Level 3 measurement because they are supported by little or no market activity and reflect the Company’s assumptions in measuring fair value. The fair value of the BioDiscovery contingent consideration liability is reassessed on a quarterly basis using a probability weighted model. Assumptions used to estimate the 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. 105 Table of Contents 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 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 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) 0.80 1.47 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 Warrants 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: 106 Table of Contents Contingent Consideration Liability (Level 3 Measurement) Convertible Notes Payable (Level 3 Measurement) Option Liability (Level 3 Measurement) Balance as of December 31, 2022 $ 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 ) — — 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: Contingent Consideration Liability (Level 3 Measurement) Balance as of December 31, 2021 $ 9,066,000 Liability recorded as a result of current period acquisition 12,970,000 Change in estimated fair value, recorded in selling, general and administrative expenses 316,000 Cash payments — Balance as of December 31, 2022 $ 22,352,000 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 U.S. treasuries 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 U.S. treasuries 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: 107 Table of Contents 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 U.S. 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 As of December 31, 2023, the following table summarizes available-for-sale securities in an unrealized loss position: Less Than 12 Months 12 Months or Greater Total Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Corporate notes/bonds 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 Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Commercial paper $ 5,432,000 $ ( 3,000 ) $ — $ — $ 5,432,000 $ ( 3,000 ) U.S. treasuries 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: Less Than 12 Months 12 Months or Greater Total Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Commercial paper $ 20,020,000 $ ( 73,000 ) $ — $ — $ 20,020,000 $ ( 73,000 ) Corporate notes/bonds 9,661,000 ( 27,000 ) 74,452,000 ( 971,000 ) 84,113,000 ( 998,000 ) U.S. treasuries 1,981,000 ( 16,000 ) — — 1,981,000 ( 16,000 ) Total $ 31,662,000 $ ( 116,000 ) $ 74,452,000 $ ( 971,000 ) $ 106,114,000 $ ( 1,087,000 ) As of December 31, 2023, the Company held 15 securities which have been in an unrealized loss position for a period of less than 12 months. As of December 31, 2023, the Company held 2 securities which have been in an unrealized loss position for a period of greater than 12 months. 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. 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. 108 Table of Contents 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. The Company does not believe the unrealized losses incurred during the period are due to credit-related factors. The credit ratings of the securities held remain of high quality, and the Company continues to receive payments of interest and principal as they become due, and our expectation is that those payments will continue to be received timely. As such, the Company has not recognized any 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. 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 maturity of its securities. Amounts are reclassified out of accumulated other comprehensive income into earnings using the specific identification method. Included in interest income for the year ended December 31, 2023 was interest income related to the Company’s available for sale securities of $ 3.3 million. Included in interest income for the year ended December 31, 2022 was interest income related to the Company’s available for sale securities of $ 1.5 million. All available-for-sale securities are classified as current assets, even if the maturity when acquired by the Company is greater than one year due to the ability to liquidate within the next 12 months. 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following: December 31, 2023 December 31, 2022 Prepayment to supplier $ 1,000 $ 245,000 Prepaid insurance 907,000 948,000 Interest receivable 342,000 474,000 Prepaid employee related expenses 94,000 680,000 Internal use cloud computing arrangement software development costs 1,430,000 530,000 Prepaid software subscriptions 2,075,000 1,601,000 Prepaid marketing expenses 194,000 439,000 Other current assets 976,000 2,412,000 Total $ 6,019,000 $ 7,329,000 6. Property and Equipment, Net Property and equipment, net consist of the following: December 31, 2023 December 31, 2022 Computer and office equipment $ 2,984,000 $ 1,622,000 Lab equipment 18,438,000 15,080,000 Service equipment placed at customer sites 17,254,000 10,403,000 Leasehold improvements 3,746,000 4,001,000 Total property and equipment, gross 42,422,000 31,106,000 Less accumulated depreciation and amortization ( 19,077,000 ) ( 13,077,000 ) Total property and equipment, net $ 23,345,000 $ 18,029,000 For the years ended December 31, 2023 and 2022, the Company recorded depreciation expense of $ 6.5 million and $ 3.8 million, respectively, which includes an allocation to cost of revenue of $ 3.5 million and $ 1.5 million respectively. 109 Table of Contents 7. Intangible Assets, Net Intangible assets that are subject to amortization consisted of the following at December 31, 2023 and 2022: 2023 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trade name $ 2,630,000 $ ( 1,078,000 ) $ 1,552,000 $ 2,630,000 $ ( 552,000 ) $ 2,078,000 Customer relationships 4,150,000 ( 2,002,000 ) 2,148,000 4,150,000 ( 1,172,000 ) 2,978,000 Developed technology 41,600,000 ( 11,428,000 ) 30,172,000 41,600,000 ( 5,615,000 ) 35,985,000 Intangibles, net $ 48,380,000 $ ( 14,508,000 ) $ 33,872,000 $ 48,380,000 $ ( 7,339,000 ) $ 41,041,000 The Company recorded amortization expense for intangible assets of $ 7.2 million and $ 5.8 million for the years ended December 31, 2023 and 2022 respectively, in selling, general and administrative expenses. Intangible assets are amortized on a straight-line basis over their estimated useful lives of five years , with the exception of the developed technology intangible acquired through the acquisition of Purigen, which is amortized over fifteen years . 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: 2024 $ 7,169,000 2025 7,064,000 2026 5,737,000 2027 1,473,000 2028 1,253,000 Thereafter 11,176,000 Total $ 33,872,000 8. Accrued Expenses Accrued expenses consist of the following: December 31, 2023 December 31, 2022 Compensation expenses $ 5,030,000 $ 7,002,000 Taxes payable 1,099,000 825,000 Insurance 512,000 613,000 Professional fees and royalties 387,000 210,000 Warranty liabilities 391,000 489,000 Accrued clinical study fees 138,000 250,000 Customer deposits 17,000 17,000 Other 515,000 1,146,000 Total $ 8,089,000 $ 10,552,000 9. 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 110 Table of Contents (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: Notes Principal balance, October 13, 2023 $ 80,000,000 Less: Conversions 10,000,000 Partial redemption payments of principal 9,000,000 Notes principal balance, December 31, 2023 $ 61,000,000 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 111 Table of Contents 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. Conversion 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. Redemption 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): 2024 $ 62,100,000 2025 8,050,000 Thereafter — Total $ 70,150,000 112 Table of Contents 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. Warrants 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; and • 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. 10. Stockholders’ Equity and Stock-Based Compensation Common Stock The Company is currently authorized to issue up to 400 million shares of $ 0.0001 par value common stock. All issued shares of common stock are entitled to vote on a 1 share/1 vote basis. 113 Table of Contents Preferred Stock The Company is currently authorized to issue up to 10 million shares of $ 0.0001 par value preferred stock. 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 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 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. Stock Warrants A summary of the Company’s warrant activity for the year ended December 31, 2023 was as follows: 114 Table of Contents Shares of Stock under Warrants Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2022 436,000 $ 59.60 0.76 $ 273,000 Granted — — — Exercised — — — Canceled — — — Outstanding at December 31, 2022 436,000 $ 59.60 0.76 $ 273,000 Granted 21,661,000 3.19 — Exercised — — — Canceled ( 401,000 ) — — Outstanding at December 31, 2023 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 In August 2018, the Company’s board of directors (the “Board”) and its stockholders adopted the 2018 Equity Incentive Plan (the “2018 Plan”), as a successor to and continuation of the Company’s 2006 Equity Incentive Plan (the “2006 Plan”). Under the 2018 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then its employees, directors and consultants, including employees and consultants of its affiliates. The Company has initially reserved 1.5 million shares of common stock for issuance under the 2018 Plan, which is the sum of (1) 1.0 million new shares, plus (2) the number of shares that remained available for issuance under the 2006 Plan at the time the 2018 Plan became effective, and (3) any shares subject to outstanding stock options or other stock awards that were granted under the 2006 Plan that would have otherwise returned to the 2006 Plan. In addition, the number of shares of common stock reserved for issuance under the 2018 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2019 through January 1, 2028, in an amount equal to 5 % of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Board. As of December 31, 2023, 1.3 million shares of common stock were authorized for future grants under the 2018 Plan. 2020 Inducement Plan In August 2020, the Company’s Board adopted the 2020 Inducement Plan, which was further amended by the Board on October 6, 2021, and November 21, 2022. Under the 2020 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then its employees, directors and consultants, including employees and consultants of its affiliates. The Company initially reserved 2.1 million shares of common stock for issuance under the 2020 Plan. An additional 1.0 million of shares of common stock were reserved for issuance under the Inducement Plan on each of October 6, 2021 and November 21, 2022 for a total of 4.1 million shares pursuant to amendments approved by the Board. As of December 31, 2023, there were approximately 0.1 million shares of common stock authorized for future grants under the 2020 Plan. Stock Options A summary of the Company’s stock option activity is as follows: Shares of Stock under Stock Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2023 2,402,000 $ 32.80 8.5 $ 2,068,000 Granted 1,446,000 12.09 Exercised ( 4,000 ) 5.49 25,000 Canceled ( 576,000 ) 26.58 Outstanding and expected to vest at December 31, 2023 3,268,000 24.79 7.8 3,000 Vested and exercisable at December 31, 2023 1,529,000 $ 30.40 6.8 $ — 115 Table of Contents The weighted-average grant date fair value of stock option grants during the years ended December 31, 2023 and 2022 was $ 8.15 and $ 13.50 , respectively. 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. Stock options generally vest or become exercisable monthly over a four-year period. Restricted Stock Restricted Stock A restricted stock award in the amount of 0.5 million shares with a grant date fair value of $ 52.00 a share was granted as part of the acquisition of BioDiscovery. One-third of the Restricted Shares was scheduled to vest on October 18, 2022 and one-twelfth of the Restricted Shares was scheduled to vest every three months following October 18, 2022, subject to continuous service of the key employee. The fair value of the restricted stock award was based on the market value of common stock as of the date of grant and was amortized to stock-based compensation expense over the service period. On October 4, 2022, the restricted stock award was modified due to the change in employment status of the key employee from full time to emeritus. As a result of the modification, the restricted stock award vested in full on October 4, 2022. The award was revalued on the modification date, resulting in a modified grant date fair value of $ 20.40 a share ($ 15.8 million less than the initial grant date fair value of the award). The fair value of the modified restricted stock award was based on the market value of common stock as of the modification date. 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 The Company issues restricted stock units (RSU) and performance stock units (PSU). The Company grants restricted stock pursuant to the 2018 Plan and satisfy such grants through the issuance of new shares. RSUs are share awards that, upon vesting, will deliver to the holder shares of our common stock. RSUs generally vest over a two-year period with equal vesting annually 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: Stock Units Weighted- Average Grant Date Fair Value per Share Outstanding at January 1, 2023 10,000 $ 47.40 Granted 290,000 14.29 Released ( 10,000 ) 47.40 Forfeited ( 51,000 ) — Outstanding at December 31, 2023 239,000 $ 16.30 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. Performance stock activity was as follows: 116 Table of Contents Stock Units Weighted- Average Grant Date Fair Value per Share Outstanding at January 1, 2023 29,000 $ 47.40 Granted — — Released — — Forfeited — — Outstanding at December 31, 2023 29,000 $ 47.40 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 The Company recognized stock-based compensation expense for the years ended December 31, 2023 and 2022 was as follows: Years Ended December 31, 2023 2022 Cost of product revenue $ 520,000 $ — Cost of service and other revenue 183,000 — Research and development 5,092,000 13,402,000 General and administrative 9,383,000 9,015,000 Total stock-based compensation expense $ 15,178,000 $ 22,417,000 The weighted-average assumptions used in the Black-Scholes-Merton option pricing model to determine the fair value of the employee stock option grants were as follows: Years Ended December 31, 2023 2022 Risk-free interest rate 4.0 % 2.4 % Expected volatility 75.3 % 68.0 % Expected term (in years) 5.9 5.8 Expected dividend yield 0.0 % 0.0 % Risk-free interest rate. The risk-free rate assumption is based on the U.S. Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options. Expected volatility. 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. The expected term of stock options represents the weighted-average period the stock options are expected to be outstanding. The Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded. As a result, the Company uses the simplified method for estimating the expected term as provided by the SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. Expected dividend yield. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not intend to pay dividends. Forfeitures . The Company reduces stock-based compensation expense for actual forfeitures during the period. 117 Table of Contents Unrecognized Stock-Based Compensation Expense As of December 31, 2023, the unrecognized compensation expense for all non-vested share-based awards was $ 24.5 million and is expected to be recognized as expense over a weighted-average period of 2.3 years. Employee Stock Purchase Plan In August 2018, the Board and the Company’s stockholders adopted the 2018 Employee Stock Purchase Plan (the “ESPP”). A total of 0.2 million shares of common stock were initially reserved for issuance under the ESPP. In addition, the number shares of common stock reserved for issuance under the ESPP will automatically increase on January 1 of each calendar year, beginning on January 1, 2019, through January 1, 2028, by the lesser of (1) 1 % of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of the automatic increase, (2) 220,000 shares, or (3) a lesser number of shares as determined by the Board. As of December 31, 2023, 1.3 million shares of common stock were authorized for future grants under the ESPP. 11. Commitments and Contingencies Leases Operating leases The Company leases approximately 41,101 square feet of office, laboratory, and manufacturing space in two buildings at our headquarters in San Diego, California, with the lease for all rented space expiring December 31, 2025. In December 2021, the Company executed a new lease for approximately 11,978 additional square feet square feet of office and laboratory space in San Diego, California that expires in January 2026. In January 2022, the Company executed a new lease for an additional 5,278 square feet of office and laboratory space in San Diego, California that expires in January 2026. In December 2022, the Company executed a new lease, subject to the consent of a third party that was obtained in February 2023, for an additional 18,005 square feet of office and laboratory space in San Diego, California that commences in April 2023 and expires in March 2024. Rent payments for the additional space are $ 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. Finance lease In October 2021, through the acquisition of BioDiscovery, the Company obtained a finance lease of 4,786 square feet of office space in El Segundo, California that expires in February 2041. The portion of the future payments designated as principal repayment and related interest was classified as a finance lease obligation on our consolidated balance sheets. Supplemental information For all leases, the Company has the ability to enter into renewal negotiations, prior to the lease end date, with no specific terms. At this time, it is not reasonably certain that we will extend the term of the lease and therefore the renewal period has been excluded from the aforementioned ROU asset and lease liability measurements. The leases are subject to variable charges for common area maintenance and other costs that are determined based on actual costs and includes certain lease incentives such as tenant improvement allowances. The base rent for the leases is subject to an annual increase each year. Rent expense is being recognized on a straight-line basis over the term of the lease. The Company’s estimated incremental borrowing rate summarized in the table below was used in its present value calculations as the operating and finance leases do not have a stated rate and the implicit rate was not readily determinable. In determining the incremental borrowing rate, the Company considered the interest rate of the Term Loans as well as publicly available data for discount rates used by peer companies. Supplemental information pertaining to the Company’s leases in which the Company is the lessee is as follows: 118 Table of Contents Year Ended December 31, 2023 2022 Cash payments included in the measurement of lease liabilities: Operating cash flows from operating leases $ 2,586,000 $ 1,622,000 Operating cash flows from finance leases $ 275,000 $ 278,000 Financing cash flows from finance leases $ 47,000 $ 36,000 Weighted-average remaining lease term: Operating leases 2.47 years 3.41 years Finance leases 17.17 years 18.17 years Weighted-average discount rate: Operating leases 8.3 % 8.3 % Finance leases 7.1 % 7.1 % Noncash lease liabilities resulting from obtaining right-of-use assets Operating leases $ — $ 517,000 The following table provides the components of the Company’s lease cost: Year Ended December 31, 2023 2022 Operating leases Operating lease costs $ 2,663,000 $ 2,084,000 Variable lease costs 702,000 940,000 Total rent expense 3,365,000 3,024,000 Finance lease Amortization of right of use assets 204,000 219,000 Interest on lease liabilities 275,000 278,000 Variable lease costs 40,000 32,000 Total finance lease costs 519,000 529,000 Gross sublease income ( 106,000 ) ( 106,000 ) Total lease costs $ 3,778,000 $ 3,447,000 The future minimum payments under non-cancellable operating and finance leases as of December 31, 2023, are as follows: Operating Leases Finance Lease 2024 2,684,000 330,000 2025 2,788,000 338,000 2026 729,000 347,000 2027 255,000 356,000 2028 — 365,000 Thereafter — 5,227,000 Total future lease payments 6,456,000 6,963,000 Less: imputed interest ( 703,000 ) ( 3,106,000 ) Total lease liabilities 5,753,000 3,857,000 Less: lease liability, current portion 2,163,000 272,000 Lease liability, net of current portion $ 3,590,000 $ 3,585,000 Purchase Commitments 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. 119 Table of Contents 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 Litigation From time to time, the Company may be subject to potential liabilities under various claims and legal actions that are pending or may be asserted. These matters arise in the ordinary course and conduct of the business. The Company regularly assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in the financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the Company’s assessment, it currently does not have any material loss exposure as it is not a defendant in any claims or legal actions. Contingent Consideration Refer to Note 4 -Investments and Fair Value Measurements for discussion regarding contingent consideration. 12. Income Taxes The domestic and foreign components of income (loss) from continuing operations are as follows: Year Ended December 31, 2023 2022 Domestic $ ( 235,852,000 ) $ ( 131,237,000 ) Foreign 3,421,000 525,000 Loss before provision for income taxes $ ( 232,431,000 ) $ ( 130,712,000 ) The provision for domestic and foreign income taxes is as follows: Year Ended December 31, 2023 2022 Current: Federal $ — $ — Foreign 63,000 123,000 State and local ( 1,000 ) 1,000 Total current income tax provision (benefit) $ 62,000 $ 124,000 Deferred: Federal $ — $ ( 277,000 ) Foreign — — State and local — 2,037,000 Total deferred income tax provision (benefit) — 1,760,000 Income tax provision (benefit) $ 62,000 $ 1,884,000 120 Table of Contents Reconciliations of the income tax computed at the federal statutory tax rate to the expense for income taxes are as follows: Year Ended December 31, 2023 2022 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 43,680,000 — Goodwill impairment 16,229,000 — Research credits ( 5,416,000 ) ( 1,733,000 ) Convertible notes payable and warrants 4,211,000 — Stock-based compensation 1,836,000 1,345,000 Other permanent differences 9,000 434,000 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 Significant components of the Company’s deferred tax assets at December 31, 2023 and 2022 are as follows: December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 91,977,000 $ 109,612,000 Research and development credits 8,283,000 9,816,000 Stock-based compensation 1,991,000 1,639,000 ASC 842 - lease liability 2,113,000 2,599,000 UNICAP 826,000 1,049,000 Sec 174 Capitalization 13,483,000 6,831,000 Other 1,413,000 1,944,000 Total gross 120,086,000 133,490,000 Deferred tax liabilities: Amortization ( 7,360,000 ) ( 9,033,000 ) ASC 842 - ROU asset ( 2,013,000 ) ( 2,441,000 ) Less: valuation allowance ( 110,713,000 ) ( 122,016,000 ) Deferred tax assets, net of valuation allowance $ — $ — As of December 31, 2023, the Company has federal and state tax net operating loss carryforwards of $ 394.0 million and $ 159.4 million, respectively. The federal tax loss carryforwards include $ 370.2 million that do not expire but utilization is limited to 80% of the Company’s taxable income in any given tax year based on current federal tax laws. The remaining federal tax loss carryforwards of $ 23.8 million and state tax loss carryforwards begin to expire in 2027 and 2024, respectively, unless previously utilized. As of December 31, 2023, the Company also has federal and California research credit carryforwards of $ 5.1 million and $ 9.4 million, respectively. The federal research credit carryforwards begin to expire in 2027 unless previously utilized. The California research credits carry forward indefinitely. Management assesses all available evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. The Company has experienced net losses since inception, and the revenue and income potential of the Company’s business and market are unproven. Due to the Company’s continuing research and development (“R&D”) activities, the Company expects to continue to incur net losses into the foreseeable future. As such, the Company cannot conclude that it is more likely than not that its deferred tax assets will be realized. A valuation allowance of $ 110.7 million, and $ 122.0 million as of December 31, 2023, and 2022, respectively, has been established to offset the deferred tax assets. The Company acquired BioDiscovery, LLC. an entity designated for income tax purposes as a corporation in a plan of reorganization within the meaning of Section 368(a)(1)(A) on October 18, 2021. Under ASC 805-740, the Company recorded deferred tax liabilities of $ 5.8 million related to customer lists, patents/trademarks, developed technology, and fixed assets as part of the business combination. As the deferred tax liability recorded in the business combination constitutes a source of 121 Table of Contents 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 change. The Company recorded a corresponding increase in the valuation allowance of $ 1.8 million as a deferred income tax expense for the year ended December 31, 2022. The purchase price for BioDiscovery was finalized during the year ended December 31, 2022. In November 2022, the Company completed the stock acquisition of Purigen Biosystems, Inc. The Company recorded a net deferred tax asset of $ 11.5 million of which $ 4.4 million related to deferred tax liabilities for non-deductible intangibles and $ 15.4 million related to deferred tax assets for pre-acquisition tax loss and credit carryforwards. As management determined that the net deferred tax asset was not more likely than not to realize, a full valuation allowance was recorded. There was no impact on the Company’s income tax provision as of December 31, 2022. 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. 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: December 31, 2023 2022 Balance at beginning of the year $ 7,281,000 $ 5,119,000 Additions/(reductions) for tax positions - prior year ( 3,643,000 ) 903,000 Increase related to current year positions 1,349,000 1,259,000 Balance at the end of the year $ 4,987,000 $ 7,281,000 The Company recognizes the benefit of uncertain tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained. Due to the valuation allowance position, none of the unrecognized tax benefits, if recognized, will impact the Company’s effective tax rate. The Company does not anticipate a significant change in the unrecognized tax benefits during the next twelve months. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company had no accrual of interest and penalties on the Company’s balance sheets and has not recognized any interest and penalties in the statements of operations for the years ended December 31, 2023 and 2022. The Company is subject to taxation in the United States, the United Kingdom and China. The Company’s tax years from 2007 (inception) are subject to examination by the United States and state authorities due to the carry forward of unutilized net operating losses and R&D credits. 13. Employee Benefits The Company has a defined contribution 401(k) plan available to eligible employees. Under the terms of the plan, employees may make voluntary contributions as a percent of compensation, limited to the maximum amount allowable under federal tax 122 Table of Contents regulations. The Company, at its discretion, may make certain contributions to the 401(k) plan. The Company expensed matching contributions of $ 1.9 million and $ 1.5 million for the years ended December 31, 2023 and 2022, respectively. 14. Acquisitions Purigen Acquisition In November 2022, the Company, Mazdan Merger Sub, Inc., a wholly owned subsidiary of the Company (“Purigen Merger Sub”), Purigen and Shareholder Representative Services LLC, solely in its capacity as the securityholders’ representative, entered into an Agreement and Plan of Merger (the “Purigen Merger Agreement”) pursuant to which the Company agreed to acquire Purigen. Pursuant to the terms and conditions of the Purigen Merger Agreement, Purigen Merger Sub merged with and into Purigen, whereupon the separate corporate existence of Purigen Merger Sub ceased, with Purigen continuing as the surviving corporation of such merger and a wholly owned subsidiary of the Company. Purigen’s isotachophoresis (ITP) technology is expected to expand and accelerate the adoption of OGM. Pursuant to Purigen Merger Agreement, the Company paid upfront consideration consisting of a combination of approximately $ 32.0 million in cash. The upfront consideration is subject to adjustment for, among other things, cash, unpaid indebtedness, unpaid transaction expenses and working capital relative to a target. Under the Purigen Merger Agreement, the Company has also agreed to pay additional consideration, up to an aggregate of $ 32.0 million in cash based on the achievement of certain milestones. Cash of $ 1.2 million will be held in an escrow fund for purposes of satisfying any post-closing purchase price adjustments and indemnification claims under the Purigen Merger Agreement. The Company accounted for its acquisition of Purigen using the acquisition method of accounting pursuant to ASC 805. The tangible and identifiable intangible assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date, and the excess of the purchase price over the estimated fair value assigned to the tangible and identifiable intangible assets acquired and liabilities assumed was recorded to goodwill. Goodwill relates to the expected synergies from combining the operations of the companies. The acquisition was structured as a stock sale and therefore goodwill is non-tax deductible. The purchase price allocation for the acquisition of Purigen 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 Return of cash to buyer from escrow $ ( 95,000 ) Total estimated purchase price $ 44,909,000 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 Accounts receivable 259,000 Inventory 944,000 Prepaid expenses and other current assets 184,000 Property and equipment, net 805,000 Restricted cash 400,000 Operating lease right-of-use assets 1,636,000 Other long-term assets 533,000 Intangible assets 20,000,000 Goodwill 22,646,000 Accounts payable and other accrued liabilities ( 1,152,000 ) Operating lease liability (short-term and long-term) ( 1,636,000 ) Net assets acquired $ 44,909,000 The acquisition date fair values of identifiable intangible assets acquired are as following: Developed technology $ 18,800,000 Customer relationships 200,000 Tradename 1,000,000 Fair value of identifiable intangible assets $ 20,000,000 123 Table of Contents The Company uses the income approach to derive the fair value of the identified intangible assets acquired. This approach calculates fair value by estimating future cash flows attributable to the assets and then discounting these cash flows to a present value using a risk-adjusted discount rate. The customer relationships and trade name intangibles are being amortized on a straight-line basis over their estimated useful lives of 5 years. The developed technology intangible is being amortized on a straight-line basis over its estimated useful life of 15 years. Straight-line amortization was determined to be materially consistent with the pattern of expected use of the intangible assets. As the Company began integrating Purigen’s operations with its existing operations during the fourth quarter of 2022, it is not practical or meaningful to distinguish Purigen’s expenses or net income or loss from that of the combined operations. Purigen revenues included in the Company’s consolidated statement of operations from the date of acquisition through December 31, 2023 were not significant. 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, 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. 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, 2021. Years Ended December 31, (Unaudited) 2022 Revenue $ 29,893,000 Net loss ( 141,068,000 ) Basic and diluted net loss per share $ ( 4.88 ) 15. Related Party Transactions Through the acquisition of BioDiscovery in October 2021, the Company inherited a building lease with a landlord owned by BioDiscovery’s former Director and Chief Executive Officer, who served as the Company’s Chief Informatics Officer from the date of the acquisition through October 2022. The Company recorded $ 0.5 million 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. 124 Table of Contents ITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.