Bionano Genomics, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2024 (“Quarterly Report”) and the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2023 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2023, (“Annual Report”), filed with the Securities and Exchange Commission, (“SEC”), on March 5, 2024. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Bionano Genomics, Inc. and its subsidiaries or, as the context may require, Bionano Genomics, Inc. only. Forward-Looking Statements The information in this Quarterly Report contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to any statements concerning our strategy, future operations, future financial position, future revenues, projected costs, expected savings including from restructuring initiatives, projected cash runway, prospects and plans, expected growth in sales of instruments and consumables, installed bases and provision of clinical services, and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth- under Part II, Item 1A. Risk Factors in this Quarterly Report and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. Overview We are a provider of genome analysis solutions that can enable researchers and clinicians to reveal answers to challenging questions in biology and medicine. Our mission is to transform the way the world sees the genome through optical genome mapping (“OGM”) solutions, diagnostic services and software. We offer OGM solutions for applications across basic, translational and clinical research, and for other applications including bioprocessing. We offer a platform-agnostic software solution, which integrates next-generation sequencing, microarray and OGM 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. The Company also offers nucleic acid extraction and purification solutions using proprietary isotachophoresis ITP technology. Through our Bionano Laboratories business, we also provide OGM-based diagnostic testing services. Recent Highlights Commercial Adoption of Offerings for OGM Systems In executing on our commercialization strategy, we expanded the utilization of our OGM systems and: • Grew our installed base to 368 as of September 30, 2024, an increase of approximately 22% from a total installed base of 301 as of September 30, 2023. Installed base represents the global number of OGM instruments installed at end-customer locations and therefore having the technology to process OGM. • Sold 7,835 flowcells in the three-month period ended September 30, 2024, an increase of approximately 27% from 6,176 flowcells sold in the same quarter of 2023. Sold 22,249 flowcells in the nine-month period ended September 30, 2024, an increase of approximately 20% from 18,464 flowcells sold in the same period of 2023.The OGM cartridge is the consumable that packages nanochannel arrays for DNA linearization. In its current form, the OGM cartridge can comprise - one, two or three flowcells per cartridge. Flowcells sold refers to the units of genome mapping consumables used for analyzing one genome, purchased by customers to process samples for optical genome mapping. Macroeconomic and Geopolitical Developments We are subject to additional risks and uncertainties as a result of adverse geopolitical and macroeconomic developments, such as recent and potential future bank failures, the ongoing conflict between Ukraine and Russia and in the Middle East, related sanctions, and any effects of global pandemics and uncertain market conditions, including inflation and supply chain disruptions, which could continue to have a material impact on our business and financial results. For example, we are 31 Table of Contents anticipating a potential protracted slowdown in our Asia Pacific business due to funding headwinds in the region, which are negatively impacting these manufacturing partners who are reliant on government funding, and are awaiting approval from the NMPA. We closely monitor and comply with various applicable guidelines and legal requirements in the jurisdictions in which we operate. In the past, we have experienced supply chain challenges, attributable to such adverse geopolitical and macroeconomic developments including increased costs to secure certain component parts in our products and to produce our products at our contract manufacturers. During the nine months ended September 30, 2024, we did not experience material increases in our supply chain costs, but we may experience such increases in future fiscal periods. We expect our costs to remain high for the foreseeable future. As global economic conditions recover, business activity may not recover as quickly as anticipated, and it is not possible at this time to estimate the long-term impact that these and related events could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. For instance, product demand may be reduced due to an economic recession, a decrease in corporate capital expenditures, prolonged unemployment, high inflation rates, labor shortages, reduction in consumer confidence, adverse geopolitical and macroeconomic developments, or any similar negative economic condition. These negative effects could have a material impact on our operations, business, earnings, and liquidity. Recent Developments In March 2024 and September 2024, we announced restructuring plans that aim to reduce annualized operating expenses by approximately $35.0 to $40.0 million starting in the second half of 2024, and by an additional $25.0 million to $30.0 million beginning in the fourth quarter of 2024, respectively. As part of the plans, we reduced our overall headcount by approximately 120 and 83 employees, respectively. The Company has substantially completed the reductions in force as of September 30, 2024. In addition, as of September 30, 2024, we have phased out the offering by Bionano Laboratories of certain testing services related to neurodevelopmental disorders, including autism spectrum disorders and other disorders of childhood development. These measures were incremental to the cost saving initiatives previously announced in May 2023 and October 2023. See Note 7 (Commitments and Contingencies) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information. As part of the plans we have also made a change in our business strategy and refocused our efforts on the current installed base of OGM systems with less emphasis on new placements of OGM systems and more emphasis on ensuring customers are able to maximize their utilization of the OGM systems. Financial Overview Revenue We generate product revenue from sales of our OGM and Ionic ® Purification systems and consumables, which includes our instruments, and our VIA™ software. At the end of July 2023 we began installations of VIA software as a replacement to NxClinical software. Like NxClinical, VIA has a simple integrated workflow for visualization, interpretation and reporting of NGS and microarray data. VIA additionally incorporates OGM data to that workflow creating a standard software tool for use across molecular pathology and cytogenomics applications. We currently sell our systems for research use only applications and our customers are primarily laboratories associated with academic and governmental research institutions, academic and commercial clinical laboratories, as well as pharmaceutical, biotechnology and contract research companies. In addition, we provide instruments to certain customers at no cost under our reagent rental program, and the customers agree to purchase minimum quantities of consumables. Consumable revenue consists of sales of reagents and chips necessary to process a sample. Sales of our VIA software, which provides customers with solutions for analysis, interpretation and reporting of genomic data, are made on a subscription basis. We generate service revenue from the sale of diagnostic testing services through Bionano Laboratories, as well as services performed related to customer sample evaluations using an OGM system. Other revenue consists of warranty and other service-based revenue, including support, repair and maintenance services. We anticipate that our change in business strategy to focus on driving utilization and adoption of OGM from our existing installed base, with less emphasis on new placements of our OGM systems would slow the pace of our revenue growth when compared to historical growth rates. We expect service and other revenue to continue to decrease over the remainder of 2024 as a result of phasing out Bionano Laboratories offerings. 32 Table of Contents The following table presents our revenue for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Product revenue $ 6,021,000 $ 6,456,000 $ 19,359,000 $ 18,512,000 Service and other revenue 52,000 2,862,000 3,254,000 6,883,000 Total $ 6,073,000 $ 9,318,000 $ 22,613,000 $ 25,395,000 The following table reflects total revenue by geography and as a percentage of total revenue, based on the billing address of our customers. 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, India and Australia. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 $ % $ % $ % $ % Americas $ 2,537,000 42 % $ 5,346,000 57 % $ 10,613,000 47 % $ 13,103,000 52 % EMEA 2,764,000 46 % 2,686,000 29 % 9,521,000 42 % 8,426,000 33 % Asia Pacific 772,000 13 % 1,286,000 14 % 2,479,000 11 % 3,866,000 15 % Total $ 6,073,000 100 % $ 9,318,000 100 % $ 22,613,000 100 % $ 25,395,000 100 % Cost of Revenue Cost of product revenue for our systems and consumables includes raw material parts costs and associated freight, shipping and handling costs, contract manufacturing costs, 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 third-party laboratory costs to process the diagnostic samples, salaries of our clinical technicians who interpret and deliver the results to patients, warranty services, and other costs of servicing equipment at customer sites. Research and Development Expenses Research and development expenses consist of salaries and other personnel costs, stock-based compensation, research supplies, third-party development costs for new products, materials for prototypes, equipment depreciation, and allocated overhead costs that include facility and other overhead costs. We have made substantial investments in research and development since our inception. Our research and development efforts have focused primarily on the tasks required to support development and commercialization of existing products. We believe that our continued investment in research and development is essential to our long-term competitive position. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and other personnel costs, amortization expense related to acquired intangibles, and stock-based compensation for our sales and marketing, finance, legal, human resources and general management, as well as professional services, such as legal and accounting services. Results of Operations We have incurred losses in each year since our inception. Our net loss was $44.2 million and $91.9 million for the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, we had an accumulated deficit of $673.1 million. While we have implemented restructuring plans in March and September 2024, we expect to continue to incur significant expenses and operating losses as we: • continue our sales and marketing efforts to maintain sales of our existing products; • continue research and development efforts to improve our existing products; • enter into collaboration arrangements, if any; • maintain operational, financial and management information systems; and • incur increased costs as a result of operating as a public company. 33 Table of Contents Accordingly, based on recurring losses from operations incurred since inception, the expectation of continued operating losses, and the need to raise additional capital to finance our future operations, we determined that there is substantial doubt about our ability to continue as a going concern within 12 months after the date that the financial statements included in this Quarterly Report are issued. We will continue to seek to raise additional capital, but without sufficient additional financing in the very near term we will not be able to continue as a going concern. If we are unable to continue as a going concern, we may have to reorganize or liquidate our business and may receive less than the value at which those assets are carried on our consolidated financial statements, and investors may lose all or a part of their investment. The board of directors (the “Board”) has established a strategy committee to work with the Company and outside advisors in evaluating our options and considering alternatives that we believe will maximize stakeholder value, including any of the following or a combination thereof: debt financing, equity investments, combinations with other companies, or the sale of all or part of the company. There can be no assurances that any transactions will be available to us or completed and if we are not able to raise sufficient additional capital in the very near term to fund our operation, we may seek relief available under applicable insolvency laws. We do not intend to make further announcements regarding this process unless and until the Board approves a specific transaction or otherwise determines that further disclosure is appropriate. Comparison of the Three Months Ended September 30, 2024 and 2023 The following table sets forth our results of operations for the three months ended September 30, 2024 and 2023: Three Months Ended September 30, Period-to-Period Change 2024 2023 $ % Revenues: Product revenue $ 6,021,000 $ 6,456,000 $ (435,000) (7) % Service and other revenue 52,000 2,862,000 (2,810,000) (98) % Total revenue 6,073,000 9,318,000 (3,245,000) (35) % Cost of revenue: Cost of product revenue 14,251,000 5,105,000 9,146,000 179 % Cost of service and other revenue 268,000 1,464,000 (1,196,000) (82) % Total cost of revenue 14,519,000 6,569,000 7,950,000 121 % Operating expenses: Research and development 4,717,000 13,785,000 (9,068,000) (66) % Selling, general and administrative 9,464,000 24,896,000 (15,432,000) (62) % Goodwill impairment — 77,280,000 (77,280,000) (100) % Intangible assets and other long-lived assets impairment 19,504,000 — 19,504,000 100 % Restructuring costs 1,770,000 — 1,770,000 100 % Total operating expenses 35,455,000 115,961,000 (80,506,000) (69) % Loss from operations (43,901,000) (113,212,000) 69,311,000 (61) % Other income (expenses): Interest income 376,000 730,000 (354,000) (48) % Other income (expenses) (697,000) (45,000) (652,000) 1,449 % Total other income (expenses) (321,000) 685,000 (1,006,000) (147) % Loss before income taxes (44,222,000) (112,527,000) 68,305,000 (61) % Provision for income taxes (24,000) (39,000) 15,000 (38) % Net loss $ (44,246,000) $ (112,566,000) $ 68,320,000 (61) % Revenue Product revenue decreased by $0.4 million, or 7%, to $6.0 million for the three months ended September 30, 2024 compared to $6.5 million for the same period in 2023. The decrease in product revenue was driven by a $0.9 million or 39% decrease in instrument revenue, a $0.4 million or 23% decrease in software revenue, and partially offset by an increase of $0.9 million or 35% in consumables revenue. In September 2024 Bionano announced a change in its business strategy which would allow the company to become a more capital-efficient business. Our focus is on driving utilization and adoption of OGM from our 34 Table of Contents existing installed base, with less emphasis on new placements of our OGM systems. We anticipate that this change in strategy would slow the pace of our revenue growth when compared to historical growth rates. Service and other revenue decreased by $2.8 million, or 98%, to $0.1 million for the three months ended September 30, 2024 when compared to the same period in 2023 which is the result of discontinuing sales of certain clinical service offerings from Bionano Laboratories effective March 2024. We expect service and other revenue to continue to decrease over the remainder of 2024 as a result of phasing out these offerings. Cost of Revenue Cost of product revenue increased by 179%, to $14.3 million for the three months ended September 30, 2024, compared to $5.1 million for the three months ended September 30, 2023. The increase in cost of product revenue was primarily due to $9.8 million in total expenses recognized to write-off excess Saphyr instrument spare parts and other obsolete inventory for $7.2 million, as well as dispose of reagent rentals that were underutilized for $2.6 million . We expect cost of product revenue to fluctuate with the volume of product sales. Cost of service and other revenue decreased by $1.2 million, or 82%, to $0.3 million for the three months ended September 30, 2024, compared to $1.5 million for the three months ended September 30, 2023. The decrease in cost of service and other revenue was primarily due to discontinuing sales of certain clinical service offerings from Bionano Laboratories effective March 2024. We expect cost of service and other revenue to decrease over the remainder of 2024 as a result of our decision to phase out certain clinical service offerings from Bionano Laboratories. Gross Profit, and Gross Margin Three Months Ended September 30, Period-to-Period Change Period-to-Period Percentage Change 2024 2023 2024 to 2023 2024 to 2023 Gross profit (loss): Product $ (8,230,000) $ 1,351,000 $ (9,581,000) (709)% Service and other (216,000) 1,398,000 (1,614,000) (115)% Total gross profit $ (8,446,000) $ 2,749,000 $ (11,195,000) (407)% Gross margin: Product (137) % 21 % Service and other (415) % 49 % Total gross margin (139) % 30 % Product gross profit decreased by $9.6 million, or 709%, to $8.2 million for the three months ended September 30, 2024, compared to $1.4 million for the three months ended September 30, 2023. The decrease in product gross profit was primarily due to $9.8 million in total expenses recognized to write-off excess Saphyr instrument spare parts and other obsolete inventory for $7.2 million as well as dispose of reagent rentals that were underutilized for $2.6 million . We expect cost of product revenue to fluctuate with the volume of product sales. Service and other gross profit decreased by $1.6 million, or 115%, to $0.2 million for the three months ended September 30, 2024, compared to $1.4 million for the three months ended September 30, 2023. The decrease in service and other gross profit was impacted by a $0.5 million write-down of aged receivables tied to discontinued clinical service offerings from Bionano Laboratories. The write-down was treated as a reversal of revenue. We expect service and other gross profit to decrease over the remainder of 2024 as a result of our decision to phase out certain clinical service offerings from Bionano Laboratories. Research and Development Expenses Research and development (“R&D”) expenses decreased by $9.1 million, or 66%, to $4.7 million for the three months ended September 30, 2024 compared to $13.8 million for the same period in 2023. The decrease was partially due to decreases of $4.6 million in salaries, wages and benefits driven by headcount reductions announced throughout 2023 and 2024, and of $2.6 million in professional and consulting fees including decreases in costs incurred to support clinical research studies, Stratys development, foundry expenses, and cloud computing. We also reduced our internal consumption of inventory, materials and supplies by $1.4 million. We anticipate that R&D expenses will decrease for the remainder of 2024 as a result of our cost saving initiatives announced in March and September 2024. 35 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses decreased by $15.4 million, or 62%, to $9.5 million for the three months ended September 30, 2024 compared to $24.9 million for the same period in 2023. The decrease was primarily due to a $6.3 million decrease in salaries, wages and benefits driven by headcount reductions announced throughout 2023 and 2024, a $6.1 million decrease in the gain/loss recorded on fair value of the contingent consideration due for BioDiscovery and Purigen milestones, a $3.2 million decrease in professional and consulting fees which is primarily marketing, software and legal expenses, and $0.6 million decrease in travel and entertainment. We anticipate that SG&A expenses will decrease for the remainder of 2024 as a result of our restructuring initiatives announced in March and September 2024. Goodwill impairment Goodwill of $77.3 million was fully impaired during the three months ended September 30, 2023. Intangible assets and other long-lived assets impairment The Company recognized a $19.5 million loss on intangible assets and other long-lived assets impairment during the three months ended September 30, 2024 due to our restructuring initiatives and change in business strategy. The Company recognized no additional impairment losses during the three months ended September 30, 2023. See Note 1 (Organization and Basis of Presentation) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for further discussion on the impairment charges that were recorded during the quarter. Restructuring Costs Restructuring costs were $1.8 million for the three months ended September 30, 2024, as a result of our cost saving initiatives announced in March and September 2024. We had no expenses that were classified as restructuring costs during the same period in 2023. Interest Income Interest income was $0.4 million for the three months ended September 30, 2024, as compared to $0.7 million for the same period in 2023. The decrease is the result of a reduction in investments offset by higher returns. Other income (expense) Other income (expense) was $0.7 million for the three months ended September 30, 2024, as compared to $45,000 for the same period in 2023. The increase is primarily driven by an increase in the change in fair value (net gain) of $0.6 million for the convertible debentures. See Note 5 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for further discussion on debt transactions that took effect during the year. 36 Table of Contents Comparison of the Nine Months Ended September 30, 2024 and 2023 The following table sets forth our results of operations for the nine months ended September 30, 2024 and 2023: Nine Months Ended September 30, Period-to-Period Change 2024 2023 $ % Revenues: Product revenue $ 19,359,000 $ 18,512,000 $ 847,000 5 % Service and other revenue 3,254,000 6,883,000 (3,629,000) (53) % Total revenue 22,613,000 25,395,000 (2,782,000) (11) % Cost of revenue: Cost of product revenue 23,858,000 13,714,000 10,144,000 74 % Cost of service and other revenue 1,792,000 4,553,000 (2,761,000) (61) % Total cost of revenue 25,650,000 18,267,000 7,383,000 40 % Operating expenses: Research and development 21,329,000 42,331,000 (21,002,000) (50) % Selling, general and administrative 40,109,000 77,809,000 (37,700,000) (48) % Goodwill impairment — 77,280,000 (77,280,000) (100) % Intangible assets and other long-lived assets impairment 19,951,000 — 19,951,000 100 % Restructuring costs 7,616,000 — 7,616,000 100 % Total operating expenses 89,005,000 197,420,000 (108,415,000) (55) % Loss from operations (92,042,000) (190,292,000) 98,250,000 (52) % Other income (expenses): Interest income 1,876,000 2,122,000 (246,000) (12) % Other income (expenses) (1,694,000) (334,000) (1,360,000) 407 % Total other income (expenses) 182,000 1,788,000 (1,606,000) (90) % Loss before income taxes (91,860,000) (188,504,000) 96,644,000 (51) % Provision for income taxes (32,000) (98,000) 66,000 (67) % Net loss $ (91,892,000) $ (188,602,000) $ 96,710,000 (51) % Revenue Product revenue increased by $0.8 million, or 5%, to $19.4 million for the nine months ended September 30, 2024, compared to $18.5 million for the same period in 2023. The increase in product revenue was driven by a $1.7 million or 22% increase in sales of consumables and an increase of $0.5 million or 13% of software, partially offset by a $1.4 million or 21% decrease in instrument sale s. In September 2024, we announced a change in its business strategy which would allow the company to become a more capital-efficient business. Our focus is on driving utilization and adoption of OGM from our existing installed base, with less emphasis on new placements of our OGM systems. We anticipated that this change in strategy would slow the pace of our revenue growth when compared to historical growth rates. Service and other revenue decreased by $3.6 million or 53% for the nine months ended September 30, 2024, compared to the same period in 2023 which is the result of discontinuing sales of certain clinical service offerings from Bionano Laboratories effective March 2024. Such clinical service offerings from Bionano Laboratories contributed $1.7 million in revenues for the nine months ended September 30, 2024 compared to $5.1 million for the same period in 2023. We expect service and other revenue to continue to decrease over the remainder of 2024 as a result of phasing out these offerings. Cost of Revenue Cost of product revenue increased by $10.1 million, or 74%, to $23.9 million for the nine months ended September 30, 2024, compared to $13.7 million for the same period in 2023. The increase in cost of product revenue was due to higher sales of consumables offset by lower sales of instruments. In addition, during the three months ended September 30, 2024, $9.8 million in total expenses recognized to write-off excess Saphyr instrument spare parts and other obsolete inventory for $7.2 million as well as dispose of reagent rentals that were underutilized for $2.6 million . We expect cost of product revenue to fluctuate with the volume of product sales. 37 Table of Contents Cost of service and other revenue decreased by $2.8 million, or 61%, to $1.8 million for the nine months ended September 30, 2024, compared to $4.6 million for the same period in 2023. The decrease in cost of service and other revenue was primarily due to discontinuing sales of certain clinical service offerings from Bionano Laboratories effective March 2024. We expect cost of service and other revenue to decrease over the remainder of 2024 as a result of our decision to phase out certain clinical service offerings from Bionano Laboratories. Gross Profit, and Gross Margin Nine Months Ended September 30, Period-to-Period Change Period-to-Period Percentage Change 2024 2023 2024 to 2023 2024 to 2023 Gross profit (loss): Product $ (4,499,000) $ 4,798,000 $ (9,297,000) (194)% Service and other 1,462,000 2,330,000 (868,000) (37)% Total gross profit $ (3,037,000) $ 7,128,000 $ (10,165,000) (143)% Gross margin: Product (23) % 26 % Service and other 45 % 34 % Total gross margin (13) % 28 % Product gross profit decreased by $9.3 million, or 194%, to $4.5 million for the nine months ended September 30, 2024, compared to $4.8 million for the same period in 2023. The decrease in product gross profit was primarily due to $9.8 million in total expenses recognized to write-off excess Saphyr instrument spare parts and other obsolete inventory for $7.2 million as well as dispose of reagent rentals that were underutilized for $2.6 million . Service and other gross profit decreased by $0.9 million, or 37%, to $1.5 million for the nine months ended September 30, 2024, compared to $2.3 million for the same period in 2023. T he decrease in service and other gross profit was primarily due to discontinuing sales of certain clinical service offerings from Bionano Laboratories effective March 2024. We expect service and other gross profit to decrease over the remainder of 2024 as a result of our decision to phase out certain clinical service offerings from Bionano Laboratories. Research and Development Expenses R&D expenses decreased by $21.0 million, or 50%, to $21.3 million for the nine months ended September 30, 2024 compared to $42.3 million for the same period in 2023. The decrease was partially due to decreases of $11.1 million in salaries, wages and benefits driven by headcount reductions announced throughout 2023 and 2024 and $6.2 million in professional and consulting fees, including decreases in costs incurred to support clinical research studies, Stratys development, foundry expenses, and cloud computing. Lastly, we reduced information technology and rent and facility costs by $0.6 million, and we reduced our internal consumption of inventory, materials and supplies by $2.5 million. We anticipate that R&D expenses will decrease for the remainder of 2024 as a result of our cost saving initiatives announced in March and September 2024. Selling, General and Administrative Expenses SG&A expenses decreased by $37.7 million, or 48%, to $40.1 million for the nine months ended September 30, 2024 compared to $77.8 million for the same period in 2023. The decrease was primarily due to a $16.1 million decrease in salaries, wages and benefits driven by headcount reductions announced in 2023 and 2024, a $13.4 million decrease in the gain/loss recorded on fair value of the contingent consideration due for Purigen and BioDiscovery milestones, a $7.4 million decrease in professional and consulting fees which is primarily marketing, software, and legal expenses, and a $1.7 million decrease in travel and entertainment. We anticipate that SG&A expenses will decrease for the remainder of 2024 as a result of our cost saving initiatives announced in March and September 2024. 38 Table of Contents Goodwill impairment Goodwill of $77.3 million was fully impaired during the nine months ended September 30, 2023. Intangible assets and other long-lived assets impairment The Company recognized $20.0 million in impairment losses on intangible assets and other long-lived assets during the nine months ended September 30, 2024 due to our restructuring initiatives and change in business strategy. The Company recognized no additional impairment losses during the nine months ended September 30, 2023. See Note 1 (Organization and Basis of Presentation) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for further discussion on the impairment charges that were recorded during the quarter. Restructuring Costs Restructuring costs were $7.6 million for the nine months ended September 30, 2024, as a result of our cost saving initiatives announced in March and September 2024. We had no expenses that were classified as restructuring costs during the same period in 2023. Interest Income Interest income was $1.9 million for the nine months ended September 30, 2024, as compared to $2.1 million for the same period in 2023. The decrease is the result of a reduction in investments offset by higher returns. Other income (expense) Other expense was $1.7 million for the nine months ended September 30, 2024 compared to $0.3 million for the same period in 2023. The decrease was driven by a net gain on the extinguishment of the High Trail Note and Purchase Option of $4.0 million, offset by a loss recorded on the issuance of the JGB Debentures of $1.9 million, an increase in the change in fair value (net gain) of $2.0 million for the convertible notes, purchase option, and convertible debentures, and an increase in interest expense of $1.5 million. See Note 5 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for further discussion on debt transactions that took effect during the year. Liquidity and Capital Resources Since our inception, we have incurred recurring net losses from operations, negative cash flows from operating activities and accumulated deficit. We have primarily generated cash flows from sales of equity securities and debt financings. We incurred net losses of $91.9 million and $188.6 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $673.1 million, cash and cash equivalents of $8.8 million, $11.4 million in restricted cash and short-term investments of $3.2 million. In connection with the Debentures (as defined below), the amount we are required to hold as restricted cash or restricted investments is equal to the lesser of (a) $11.0 million and (b) the then outstanding principal balance of the Debentures. Sources of Liquidity and Capital Resources In the nine months ended September 30, 2024, we incurred negative cash flows from operating activities of $62.4 million. We anticipate that future sources of liquidity will principally come from sales of common stock and other equity instruments, borrowings from credit facilities and revenue from our commercial operations. See Note 6 (Stockholder’s Equity and Stock-Based Compensation) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for a discussion of our recent equity activity for more information. On October 13, 2023, we completed a registered offering (the “October 2023 Registered Offering”) of senior secured convertible notes payable due 2025 (the “High Trail Registered Notes”) and warrants (the “Registered Warrants”) and a concurrent private placement (the “October 2023 Private Placement” and together with the October 2023 Registered Offering, the “October 2023 Offering”) of senior secured convertible notes payable due 2025 (the “High Trail Private Placement Notes” and, together with the High Trail Registered Notes, the “High Trail Notes”) and warrants (the “Private Placement Warrants” and, together with the Registered Warrants, the “Warrants”) and received net proceeds from the sale of the High Trail Notes and the Registered Warrants of approximately $75.6 million, after deducting the offering expenses and placement agent fees. On February 27, 2024, we entered into a letter agreement (the “Letter Agreement”) and an Amendment to the Registered Notes (the “Amendment”), with the purchaser of the High Trail Registered Notes which provided reduction (i) of the minimum liquidity covenant from $50.0 million, and (ii) of the restricted cash covenant from $35.0 million, to the amount equal to the sum of (iii) the outstanding principal amount of the High Trail Registered Notes plus (iv) approximately $0.7 million, which will be further reduced as the remaining principal on the High Trail Registered Notes are retired. We also redeemed the outstanding $17.0 million of the High Trail Private Placement Notes for a redemption payment of approximately $19.6 million and a retirement fee of $3.2 million paid concurrently and $10.7 million of the High Trail Registered Notes for a redemption payment of approximately $12.3 million. 39 Table of Contents On March 1, 2024, we redeemed $27.7 million aggregate principal amount of the High Trail Notes at a redemption price of 115% of the outstanding principal (the “Repayment Price”) or $31.8 million, and for the period January 1, 2024 through May 1, 2024, redeemed an additional $18.0 million aggregate principal amount of the High Trail Notes at the holders’ option at the Repayment Price for an aggregate of $20.7 million. On May 24, 2024, we entered into a securities purchase agreement with certain accredited investors (the “Holders”) and JGB Collateral LLC, as collateral agent for the Holders, for the sale by the Company in a private placement (the “JGB Debentures Offering”) of: • 2.25 million shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”), and • Senior Secured Convertible Debentures in the aggregate principal amount of $20.0 million (the “Debentures”), for an aggregate purchase price of $18.0 million. The closing of the JGB Debentures Offering occurred on May 24, 2024. In connection with the closing of the JGB Debentures Offering, the Company received net proceeds of approximately $16.6 million, after payment of placement agent fees, and other offering expenses. The Company used the proceeds received to fully redeem the outstanding balance due under the High Trail Note of approximately $17.6 million, as amended (see further discussion below). On May 23, 2024, in connection with the JGB Debentures Offering, the Company entered into a redemption agreement with High Trail (“HT Agreement”). Pursuant to the HT Agreement, the Company agreed to redeem the entire outstanding principal amount of $15.3 million under the High Trail Note at a redemption price of 115% for a total redemption payment of $17.6 million (the “Redemption Payment”). Upon High Trail’s receipt of the Redemption Payment on May 24, 2024, the High Trail Note and related Option were cancelled. In addition, the Company agreed to pay High Trail a retirement fee of $2.2 million and to reimburse High Trail for all of its reasonable and documented out-of-pocket expenses incurred with the release and termination of security interests relating to the High Trail Note. As of September 30, 2024, the Company reported $15.0 million of Debentures at fair value, which is classified as current on the unaudited condensed consolidated balance sheet. Through September 30, 2024, the Company paid $0.8 million in interest and $3.0 million in principal redemption amounts on the Debentures. As of September 30, 2024, the Company may be required to redeem up to $3.0 million of principal and expects to pay an additional $0.4 million in interest on the Debentures in the fourth quarter of 2024. See Note 5 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for further information. 40 Table of Contents On April 4, 2024, we entered into a securities purchase agreement (the “April Purchase Agreement”) with certain institutional investors, pursuant to which we agreed to issue and sell, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market (the “April 2024 Registered Direct Offering”): (i) an aggregate of 6.5 million shares of common stock, (ii) pre-funded warrants to purchase up to an aggregate of 2.2 million shares of common stock and (iii) warrants to purchase up to 8.7 million shares of common stock. The combined purchase price of each share of common Stock and accompanying warrant was $1.15 per share. The combined purchase price of each pre-funded warrant and accompanying warrant was $1.14 (equal to the combined purchase price per share of common stock and accompanying warrant, minus $0.001). We received gross proceeds from the April 2024 Registered Direct Offering of approximately $10.0 million, before deducting placement agent fees and other offering expenses of $0.7 million. On July 4, 2024, we entered into a securities purchase agreement (the “July 2024 Purchase Agreement”) with certain institutional investors, pursuant to which we agreed to issue and sell, (i) in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market (the “July 2024 Registered Direct Offering”): (a) an aggregate of 11.7 million shares of our common stock, and (b) pre-funded warrants to purchase up to an aggregate of 5.8 million shares of Common Stock, and (ii) in a concurrent private placement (the “Private Placement” and together with the Registered Direct Offering, the “July 2024 Offering”), Series A warrants to purchase up to an aggregate of 17.5 million shares of Common Stock (the “Series A Warrants”) and Series B warrants to purchase up to an aggregate of 17.5 million shares of Common Stock (the “Series B Warrants”, and together with the Series A Warrants, the “Purchase Warrants”). Each share of Common Stock and each Pre-Funded Warrant sold pursuant to the Purchase Agreement will be accompanied by one Series A Warrant and one Series B Warrant. The combined purchase price of each share of Common Stock and accompanying Purchase Warrants is $0.571 per share. The combined purchase price of each Pre-Funded Warrant and accompanying Purchase Warrants is $0.571 (equal to the combined purchase price per share of Common Stock and accompanying Purchase Warrants, minus $0.001). We received gross proceeds from the July 2024 Offering of approximately $10.0 million (excluding up to $20.0 million of aggregate gross proceeds that may be received in the future upon the cash exercise of the Purchase Warrants issued in the Private Placement which is contingent upon stockholder approval), before deducting placement agent fees and other offering expenses of $0.7 million. On October 30, 2024, the Company entered into a securities purchase agreement (the “October 2024 Purchase Agreement”) with certain institutional investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market (the “October 2024 Offering”): (i) an aggregate of approximately 9.9 million shares (the “Shares”) of the Company’s common stock, (ii) Series C warrants to purchase up to an aggregate of approximately 9.9 million shares of the Company’s common stock (the “Series C Warrants”) and (iii) Series D warrants to purchase up to an aggregate of approximately 9.9 million shares of the Company’s common stock (the “Series D Warrants”, and together with the Series C Warrants, the (“October Purchase Warrants”). Each share of common stock sold pursuant to the October 2024 Purchase Agreement will be accompanied by one Series C Warrant to purchase one share of common stock and one Series D Warrant to purchase one share of common stock . The Shares and the October Purchase Warrants are immediately separable and will be issued separately. The combined purchase price of each Share and accompanying October Purchase Warrants is $0.304 per share. The gross proceeds to the Company from the October 2024 Offering are expected to be approximately $3.0 million (excluding up to approximately $6.0 million of aggregate gross proceeds that may be received in the future upon the cash exercise of the October Purchase Warrants, which is contingent upon stockholder approval), before deducting placement agent fees and other offering expenses payable by the Company. Based on our current business plans, we will continue to require additional capital in the very near term to fund our operating expenses and capital expenditure requirements, or we may need to further curtail or cease operations and seek protection by filing a voluntary petition for relief under the United States Bankruptcy Code. If this were to occur, the value available to our various stakeholders, including our creditors and stockholders, is uncertain and trading prices for our securities may bear little or no relationship to the actual recovery, if any, by holders of our securities in bankruptcy proceedings, if any. This estimate assumes the inclusion of the amount equal to the outstanding principal amount of the Debentures. Our existing cash and cash equivalents and short-term investments, will not be sufficient for us to achieve cash-flow break even and we expect to need to seek additional capital. Future Capital Requirements We expect that our near and longer-term liquidity requirements will consist of working capital and general corporate expenses associated with the growth of our business, including, without limitation, expenses associated with scaling up our operations and continuing to increase our manufacturing capacity, sales and marketing expense, increasing market awareness of our products and services to target customers, instrument placements with customers via the reagent rental sales strategy, additional research and development expenses associated with expanding and proving the utility of our offerings, expenses associated with continuing to build out our corporate infrastructure, enhancements to information technology, restructuring and advisory fees, and expenses associated with being a public company. We expect such expenditures to continue throughout the balance of 2024. 41 Table of Contents As of September 30, 2024, we had $8.8 million in cash and cash equivalents, $3.2 million in short-term investments and $11.4 million in restricted cash and investments. The amount we are required to hold as restricted cash or restricted investments is equal to the lesser of (a) $11.0 million and (b) the then outstanding principal balance of the Debentures. Based on recurring losses from operations incurred since inception and the expectation of continued operating losses, we anticipate our available cash balance will not be sufficient to operate our business for the next twelve months from the issuance of this Quarterly Report. Accordingly, we determined that there is substantial doubt about our ability to continue as a going concern within 12 months after the date that the financial statements included in this Quarterly Report are issued. In order to continue to operate our business beyond that time, we will need to raise substantial additional capital. We are actively evaluating debt and equity financing sources available to us as well as cost reduction strategies, but there can be no assurance that financing will be available on terms acceptable to us, on a timely basis, or at all, or that we are able to effectively reduce our operating expenses. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. Any disruptions to, or volatility in, the credit and financial markets or any deterioration in overall economic conditions may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. If we are unable to raise additional funds through debt or equity financing or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research and development activities or future commercialization efforts. Even if we raise additional capital, we may also be required to modify, delay or abandon some of our plans which could have a material adverse effect on our business, operating results and financial condition and our ability to achieve our intended business objectives. In addition, our estimate as to the sufficiency of our current cash, cash equivalents and short-term investments and our current operating plan as discussed above are based on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we currently anticipate. See Note 1 (Organization and Basis of Presentation) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for more information. If we are unable to continue as a going concern, we may have to reorganize or liquidate our business and may receive less than the value at which those assets are carried on our consolidated financial statements, and investors may lose all or a part of their investment. The Board has established a strategy committee to work with the Company and outside advisors in evaluating our options and considering alternatives that we believe will maximize stakeholder value, including any of the following or a combination thereof: debt financing, equity investments, combinations with other companies, or the sale of all or part of the company. There can be no assurances that any transactions will be available to us or completed and if we are not able to raise sufficient additional capital in the very near term to fund our operation, we may seek relief available under applicable insolvency laws. We do not intend to make further announcements regarding this process unless and until the Board approves a specific transaction or otherwise determines that further disclosure is appropriate. Cash Flows The following table sets forth the cash flow from operating, investing and financing activities for the periods presented: Net cash provided by (used in): Nine Months Ended September 30, 2024 2023 Operating activities $ (62,418,000) $ (95,402,000) Investing activities 70,842,000 79,531,000 Financing activities (17,575,000) 45,331,000 42 Table of Contents Operating Activities We derive cash flows from operations primarily from the sale of our products and services. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support our business. We have historically experienced negative cash flows from operating activities as we have developed our technology, expanded our business and built our infrastructure, and this may continue in the future. As discussed above, we anticipate our available cash balance will not be sufficient for the next twelve months from the issuance of this report. We expect to seek to raise additional capital to fulfill our operating and capital requirements for at least 12 months through equity or debt financings, however, we may not be able to secure such financing in a timely manner or on favorable terms, if it all, and if we are unable to raise sufficient additional capital in the very near term, we may need to further curtail or cease operations and seek protection by filing a voluntary petition for relief under the United States Bankruptcy Code. See Note 5 (Debt) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for a discussion of our recent debt financing. Our recent restructuring activities are anticipated to reduce the cash used in operating activities over the next 12 months; however, our financial condition may result in certain additional restructuring or advisory expenses which may result in our corporate expenditures increasing, potentially materially, and we may observe fluctuations in the cash used in operating activities on a quarterly basis to sustain our current commercial offerings. Net cash used in operating activities was $62.4 million during the nine months ended September 30, 2024 as compared to $95.4 million during the same period in 2023. The decrease in cash used in operating activities of $33.0 million was primarily attributed to a decrease in our net loss and a decrease in cash used for inventory purchases over that time, consistent with the cost saving initiatives that were initiated in May of 2023 Investing Activities Historically, our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure, as well as the acquisitions of Lineagen, BioDiscovery and Purigen to grow our business. We expect to continue to incur additional costs for capital expenditures related to these efforts in future periods. During the nine months ended September 30, 2024, cash provided by investing activities was $70.8 million, as compared to $79.5 million provided by investing activities during the same period in 2023. The decrease in cash provided by investing activities of $8.7 million was primarily attributed to the maturity of $285.3 million in available for sale securities which was offset by a purchase of available for sale securities of $214.3 million during the nine months ended September 30, 2024, compared to the maturity of $84.9 million in available for sale securities offset by a purchase of $4.5 million of available for sale securities during the same period in 2023. Financing Activities Net cash used in financing activities was $17.6 million during the nine months ended September 30, 2024 as compared to net cash provided by financing activities of $45.3 million during the same period in 2023, a decrease of $62.9 million. During the nine months ended September 30, 2024, the Company made principal payments of $61.0 million and payments on debt extinguishment costs of $5.4 million towards the High Trail convertible notes payable which was offset by approximately $18.0 million in gross proceeds from the issuance of the JGB convertible debentures and $37.7 million in gross proceeds from executing sales under our at-the-market facility with Cowen and Company, LLC (“Cowen”) as compared to $46.4 million during the same period in 2023. Capital Resources As of September 30, 2024, we had approximately $8.8 million in cash and cash equivalents, $3.2 million in short-term investments , $11.4 million in restricted cash and restricted investments and working capital of $14.0 million. The amount we are required to hold as restricted cash or restricted investments is equal to the lesser of (a) $11.0 million and (b) the then outstanding principal balance of the Debentures. We have in place a Sales Agreement with Cowen (the “Cowen ATM”), as amended, pursuant to which we may offer and sell from time to time up to $200.0 million of shares from the date of the amendment going forward through or to Cowen, acting as sales agent or principal. During the nine months ended September 30, 2024, we sold approximately 14.2 million shares of common stock under the Cowen ATM and received gross proceeds of approximately $17.7 million before deducting offering costs of $0.4 million. Contingent Consideration As part of the merger agreement related to the acquisition of Purigen, we agreed to pay two independent milestone payments up to an aggregate of $32.0 million. The fair value of the Purigen milestones is reassessed on a quarterly basis using a probability weighted model and a Monte Carlo Simulation. We determined the fair value of the milestone consideration using a scenario-based technique, as the trigger for payment is event driven. For the second milestone, we performed a Monte Carlo Simulation to determine the likelihood that 43 Table of Contents the milestone will be achieved and was applied to the milestone consideration payment. As of September 30, 2024, the Company concluded that the probability of achievement of the two independent milestones was 0% which resulted in a reduction in the contingent consideration liability to zero. Contractual Obligations There were no material changes to our contractual obligations from those disclosed in the Company’s Annual Report. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We have discussed the development, selection and disclosure of the accounting estimates with our audit committee. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. Historically, revisions to our estimates have not resulted in a material change to our financial statements. Change in Accounting Estimates The Company reviews the estimated useful life of its fixed assets on an ongoing basis. This review indicated that the actual lives of the Company’s Saphyr and Stratys instruments were longer than the estimated useful lives used for depreciation purposes in the Company’s unaudited condensed consolidated financial statements. We first assessed several qualitative and quantitative factors as part of our review including an analysis of the product life cycle, continued product support, customer commitments, technical durability, and compatibility of the Company’s Saphyr and Stratys instruments. As described further in Note 1, (Organization and Basis of Presentation) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report, effective January 1, 2024, the Company changed its estimates of the useful lives of the Company’s Saphyr and Stratys instruments to better reflect the estimated period during which these assets will remain in service. During the nine months ended September 30, 2024, there have been no changes to our critical accounting policies and estimates as described in our Annual Report. Recent Accounting Pronouncements See Note 1 (Organization and Basis of Presentation) to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for information concerning recent accounting pronouncements.