SEC Filing | Bionano Genomics, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________________________

FORM 10-Q

_________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number: 001-38613

_________________________________________________________

Bionano Genomics, Inc.

(Exact name of registrant as specified in its charter)


Delaware						26-1756290
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

9540 Towne Centre Drive, Suite 100, San Diego, CA						92121
(Address of Principal Executive Offices)						(Zip Code)

(858) 888-7600

(Registrant’s Telephone Number, Including Area Code)

_________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

BNGO

The Nasdaq Stock Market, LLC

Warrants to purchase Common Stock

BNGOW

The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of November 6, 2023, the registrant had 38,840,337 shares of Common Stock ($0.0001 par value) outstanding.

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BIONANO GENOMICS, INC.

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PART I. FINANCIAL INFORMATION		3
	Item 1. Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	36
	Item 4. Controls and Procedures	37
PART II. OTHER INFORMATION		38
	Item 1. Legal Proceedings	38
	Item 1A. Risk Factors	38
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	81
	Item 3. Defaults Upon Senior Securities	81
	Item 4. Mine Safety Disclosures	81
	Item 5. Other Information	81
	Item 6. Exhibits	82
SIGNATURES		84

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIONANO GENOMICS, INC.

Condensed Consolidated Balance Sheets


	(Unaudited)
	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	34,568,000	$	5,091,000
Investments	29,014,000		108,095,000
Accounts receivable, net	8,669,000		7,022,000
Inventory	26,429,000		29,761,000
Prepaid expenses and other current assets	5,857,000		7,329,000
Total current assets	104,537,000		157,298,000
Restricted cash	400,000		400,000
Property and equipment, net	21,266,000		18,029,000
Operating lease right-of-use assets	6,170,000		7,222,000
Finance lease right-of-use assets	3,555,000		3,707,000
Intangible assets, net	35,766,000		41,143,000
Goodwill	—		77,289,000
Other long-term assets	10,210,000		2,414,000
Total assets	$	181,904,000	$	307,502,000

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	15,369,000		12,534,000
Accrued expenses	11,552,000		10,552,000
Contract liabilities	811,000		871,000

Operating lease liability	2,186,000		2,260,000
Finance lease liability	276,000		285,000
Contingent consideration	10,000,000		9,382,000
Total current liabilities	40,194,000		35,884,000
Operating lease liability, net of current portion	4,085,000		5,504,000
Finance lease liability, net of current portion	3,595,000		3,619,000
Contingent consideration, net of current portion	14,880,000		12,970,000

Long-term contract liabilities	151,000		127,000

Total liabilities	$	62,905,000	$	58,104,000
Commitments and contingencies (Note 7)






Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized at September 30, 2023 and December 31, 2022; no shares issued and outstanding at September 30, 2023 and December 31, 2022	—		—
Common stock, $0.0001 par value, 400,000,000 shares authorized at September 30, 2023 and December 31, 2022; 35,349,000 and 29,718,000 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	3,000		3,000
Additional paid-in capital	656,406,000		599,234,000
Accumulated deficit	(537,317,000)		(348,715,000)
Accumulated other comprehensive loss	(93,000)		(1,124,000)
Total stockholders’ equity	$	118,999,000	$	249,398,000
Total liabilities and stockholders’ equity	$	181,904,000	$	307,502,000

See accompanying notes to the unaudited condensed consolidated financial statements

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BIONANO GENOMICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue:
Product revenue	$	6,456,000	$	5,253,000	$	18,512,000	$	14,254,000
Service and other revenue	2,862,000		1,968,000		6,883,000		5,333,000
Total revenue	9,318,000		7,221,000		25,395,000		19,587,000
Cost of revenue:
Cost of product revenue	5,105,000		3,708,000		13,714,000		11,257,000
Cost of service and other revenue	1,464,000		1,704,000		4,553,000		4,190,000
Total cost of revenue	6,569,000		5,412,000		18,267,000		15,447,000
Operating expenses:
Research and development	13,785,000		12,742,000		42,331,000		35,036,000
Selling, general and administrative	24,896,000		21,216,000		77,809,000		63,275,000
Goodwill impairment	77,280,000		—		77,280,000		—
Total operating expenses	115,961,000		33,958,000		197,420,000		98,311,000
Loss from operations	(113,212,000)		(32,149,000)		(190,292,000)		(94,171,000)
Other income (expense):
Interest income	730,000		436,000		2,122,000		737,000
Interest expense	(71,000)		(73,000)		(221,000)		(223,000)
Other income (expense)	26,000		5,000		(113,000)		(183,000)
Total other income (expense)	685,000		368,000		1,788,000		331,000
Loss before income taxes	(112,527,000)		(31,781,000)		(188,504,000)		(93,840,000)
Benefit (provision) for income taxes	(39,000)		(28,000)		(98,000)		(79,000)
Net loss	$	(112,566,000)	$	(31,809,000)	$	(188,602,000)	$	(93,919,000)
Net loss per share, basic and diluted	$	(3.22)	$	(1.10)	$	(5.85)	$	(3.28)
Weighted-average common shares outstanding basic and diluted	35,001,000		28,970,000		32,246,000		28,663,000

See accompanying notes to the unaudited condensed consolidated financial statements.

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BIONANO GENOMICS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net loss:	$	(112,566,000)	$	(31,809,000)	$	(188,602,000)	$	(93,919,000)
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities	227,000		236,000		1,014,000		(1,143,000)
Foreign currency translation adjustments	(10,000)		(140,000)		17,000		(140,000)
Other comprehensive income (loss)	$	217,000	$	96,000	$	1,031,000	$	(1,283,000)
Total comprehensive loss	$	(112,349,000)	$	(31,713,000)	$	(187,571,000)	$	(95,202,000)

See accompanying notes to the unaudited condensed consolidated financial statements.

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BIONANO GENOMICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)


	Common Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity (Deficit)
	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	2,000	—			15,000			—			—			15,000
Stock-based compensation expense	—	—			5,102,000			—			—			5,102,000
Issuance of common stock due to the vesting of restricted stock units, net of shares withheld to cover taxes	7,000	—			—			—			—			—
Net loss	—	—			—			(29,952,000)			—			(29,952,000)
Other comprehensive income (loss)	—	—			—			—			(1,098,000)			(1,098,000)
Balance at March 31, 2022	28,969,000	$	3,000		$	558,890,000		$	(246,071,000)		$	(1,637,000)		$	311,185,000
Stock option exercises	25,000	—			136,000			—			—			136,000
Stock-based compensation expense	—	—			5,777,000			—			—			5,777,000
Issuance of common stock due to the vesting of restricted stock units, net of shares withheld to cover taxes	(3,000)	—			—			—			—			—


Issue stock for employee stock purchase plan	15,000	—			75,000			—			—			75,000
Net loss	—	—			—			(32,158,000)			—			(32,158,000)
Other comprehensive income (loss)	—	—			—			—			(281,000)			(281,000)
Balance at June 30, 2022	29,006,000	$	3,000		$	564,878,000		$	(278,229,000)		$	(1,918,000)		$	284,734,000
Stock option exercises	13,000	—			111,000			—			—			$	111,000
Stock-based compensation expense	—	—			6,059,000			—			—			$	6,059,000
Issuance of common stock due to the vesting of restricted stock units, net of shares withheld to cover taxes	7,000	—			—			—			—			$	—
Issue common stock, net of issuance costs	664,000	—			22,550,000			—			—			$	22,550,000
Issue stock for employee stock purchase plan	—	—			—			—						$	—
Net loss	—	—			—			(31,809,000)			—			$	(31,809,000)
Other comprehensive income (loss)	—	—			—			—			96,000			$	96,000
Balance at September 30, 2022	29,690,000	3,000			593,598,000			(310,038,000)			(1,822,000)			281,741,000

Balance at January 1, 2023	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	—	—			3,882,000			—			—			3,882,000
Issue common stock, net of issuance costs	950,000	—			14,848,000			—			—			14,848,000
Issuance of common stock due to the vesting of restricted stock units, net of shares withheld to cover taxes	7,000	—			—			—			—			—
Net loss	—	—			—			(37,124,000)			—			(37,124,000)
Other comprehensive income (loss)	—	—			—			—			459,000			459,000
Balance at March 31, 2023	30,679,000	$	3,000		$	617,987,000		$	(385,839,000)		$	(665,000)		$	231,486,000
Stock option exercises	—	—			1,000			—			—			1,000

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Stock-based compensation expense	—	—		3,932,000		—		—		3,932,000
Issue common stock, net of issuance costs	2,552,000	—		17,802,000		—		—		17,802,000

Issuance of common stock due to the vesting of restricted stock units, net of shares withheld to cover taxes	(6,000)	—				—		—		—
Issue stock for employee stock purchase plan	15,000	—		92,000						92,000
Net loss	—	—				(38,912,000)		—		(38,912,000)
Other comprehensive income (loss)	—	—				—		355,000		355,000
Balance at June 30, 2023	33,240,000	$	3,000	$	639,814,000	$	(424,751,000)	$	(310,000)	$	214,756,000
Stock option exercises	—	—		—		—		—		—
Stock-based compensation expense	—	—		3,992,000		—		—		3,992,000
Issue common stock, net of issuance costs	2,109,000	—		12,661,000		—		—		12,661,000

Issuance of common stock due to the vesting of restricted stock units, net of shares withheld to cover taxes	—	—		(61,000)		—		—		(61,000)
Net loss	—	—		—		(112,566,000)		—		(112,566,000)
Other comprehensive income (loss)	—	—		—				217,000		217,000
Balance at September 30, 2023	35,349,000	$	3,000	$	656,406,000	$	(537,317,000)	$	(93,000)	$	118,999,000

See accompanying notes to the unaudited condensed consolidated financial statements

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BIONANO GENOMICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
Operating activities:
Net loss	$	(188,602,000)	$	(93,919,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	10,112,000		6,855,000
Goodwill impairment	77,280,000		—
Amortization of financing lease right-of-use asset	153,000		168,000
Amortization (accretion) of interest on securities	(309,000)		695,000
Non-cash lease expense	38,000		383,000
Net realized loss (gain) on investments	23,000		—
Stock-based compensation	11,806,000		16,938,000
Change in fair value of contingent consideration	2,528,000		237,000
Cost of leased equipment sold to customer	88,000		204,000
Changes in operating assets and liabilities:
Accounts receivable	(1,646,000)		(1,134,000)
Inventory	(3,819,000)		(18,121,000)
Prepaid expenses and other current assets	1,376,000		(3,387,000)
Other assets	(7,798,000)		(52,000)
Accounts payable	2,401,000		(1,233,000)
Accrued expenses and contract liabilities	967,000		2,067,000
Net cash used in operating activities	(95,402,000)		(90,299,000)
Investing Activities:
BioDiscovery acquisition, return of purchase consideration from escrow	—		694,000
Purigen acquisition, return of purchase consideration from escrow	96,000		—
Purchases of property and equipment	(946,000)		(1,055,000)
Purchase of available for sale securities	(4,485,000)		(63,208,000)
Sale and maturity of available for sale securities	84,866,000		135,386,000
Construction in progress	—		(686,000)
Sale of property and equipment	—		26,000
Net cash provided by investing activities	79,531,000		71,157,000
Financing activities:





Principal payments on financing lease liability	(34,000)		(26,000)
Proceeds from sale of common stock	46,411,000		23,128,000
Offering expenses on sale of common stock	(1,161,000)		(578,000)
Proceeds from sale of common stock under employee stock purchase plan	92,000		75,000
Proceeds from warrant and option exercises	23,000		262,000
Net cash provided by financing activities	45,331,000		22,861,000
Effect of exchange rates on cash, cash equivalents and restricted cash	17,000		(124,000)
Net decrease in cash, cash equivalents and restricted cash	29,477,000		3,595,000
Cash, cash equivalents and restricted cash at beginning of period	5,491,000		24,571,000
Cash, cash equivalents and restricted cash at end of period	$	34,968,000	$	28,166,000
Reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets to the total amounts reported on the unaudited condensed consolidated statements of cash flows
Cash and cash equivalents	34,568,000		28,166,000
Restricted cash	400,000		—
Total cash, cash equivalents and restricted cash at end of period	$	34,968,000	$	28,166,000
Supplemental cash flow disclosures:
Cash paid for interest	$	221,000	$	222,000

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Cash paid for operating lease liabilities	$	1,938,000	$	1,166,000
Supplemental disclosure of non-cash investing and financing activities:

Transfer of instruments and servers from inventory to property and equipment, net	$	7,112,000	$	5,500,000
Property and equipment included in accounts payable	$	434,000	$	857,000
Construction in progress included in accounts payable	$	—	$	106,000
Operating lease liabilities resulting from obtaining right-of-use assets	$	—	$	517,000

See accompanying notes to the unaudited condensed consolidated financial statements

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BIONANO GENOMICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation

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 our Purigen Biosystems Inc. (“Purigen”) business, we offer nucleic acid extraction and purification solutions using proprietary isotachophoresis (“ITP”) technology.

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 accompanying 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 accompanying financial information has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting purposes. The condensed consolidated financial statements are unaudited. The unaudited condensed consolidated financial statements reflect, in the opinion of the Company’s management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of financial position, results of operations, changes in equity, and comprehensive loss and cash flows for each period presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”). All intercompany transactions and balances have been eliminated. The operating results presented in these unaudited interim condensed financial statements are not necessarily indicative of the results that may be expected for any future periods. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Reclassifications

Certain amounts reported in prior years have been reclassified to conform with the presentation in the current year. These reclassifications had no effect on the reported results of operations.

Liquidity and Going Concern

The Company has experienced recurring net losses from operations, negative cash flows from operating activities, and accumulated deficit since its inception and expects to continue to incur net losses into the foreseeable future. As of September 30, 2023, the Company had approximately $34.6 million in cash and cash equivalents and $29.0 million in short term investments.

The Company has an accumulated deficit of $537.3 million as of September 30, 2023. During the nine months ended September 30, 2023, the Company used $95.4 million cash in operations.

Management expects operating losses and negative cash flows to continue for at least the next year as the Company continues to incur costs related to research and commercialization efforts. Management has prepared cash flows forecasts which indicate that based on the Company’s expected operating losses and negative cash flows, there is substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 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. See Note 5 to our

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unaudited condensed consolidated financial statements for a discussion of our recent debt financing included elsewhere in this Quarterly Report on Form 10-Q for more information.

Furthermore, if the Company issues equity securities to raise additional funds, its existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of the Company’s existing stockholders.

The unaudited condensed consolidated 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.

Significant Accounting Policies

During the three and nine months ended September 30, 2023, there were no material changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Restructuring

On October 9, 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 currently estimates it will incur approximately $0.7 million of severance costs for impacted employees, consisting primarily of cash, which the Company expects to recognize in the fourth quarter of 2023. The Company expects to substantially complete the Workforce Reduction by December 31, 2023. The estimates of costs and expenses that the Company expects to incur in connection with the Workforce Reduction are subject to a number of assumptions and actual results may differ materially. 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.

Goodwill

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.

As of September 30, 2023, we performed a qualitative assessment of goodwill impairment which included an evaluation of changes in industry, market and macroeconomic conditions as well as consideration of our financial performance and any significant trends, 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 is less than its carrying value as of September 30, 2023; therefore, we performed a quantitative impairment analysis. The Company determined the fair value of its reporting unit using a combination of the income and market approaches. The Company placed a 50% weighting on the market and income approach methods. The determination of fair value using a market approach requires management to make significant assumptions related to the determination of an appropriate group of peer companies, and market revenue multiples from within the selected group of peer companies. Under the income approach, the Company uses a discounted cash flow method, or DCF, to estimate the fair value of a reporting unit. In applying the DCF method, an identified level of future cash flow is estimated. The cash flow projections are based on ten-year financial forecasts developed by management that include purchasing volume, collections forecasts, capital spending trends, and cost assumptions to support anticipated growth, which are updated annually and reviewed by management. 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

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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. As of 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 on the consolidated statements of operations and comprehensive loss for the quarter ended September 30, 2023. No impairments were recorded for the same period in 2022.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment when the Company determines a triggering event has occurred. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or an asset group may not be recoverable. When a triggering event has occurred, each impairment test is based on a comparison of the future expected undiscounted cash flow to the recorded value of the asset. If the recorded value of the asset is more than the undiscounted cash flow, the asset is written down to its estimated fair value. No impairments were recorded as of September 30, 2023 or for the same period in 2022.

Inventories

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 September 30, 2023, $7.1 million of inventories were included in Other long term assets.

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.

2. 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 outstanding warrants to purchase stock, restricted stock units (“RSUs”), performance stock units (“PSUs”), and outstanding stock options under the Company’s equity incentive plans have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. Restricted stock is treated as outstanding for accounting purposes. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding because all potentially dilutive securities were anti-dilutive.

Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):

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	September 30, 2023	September 30, 2022
Stock options	3,527,000	2,459,000
Unvested restricted stock	—	342,000
Warrants	40,000	436,000
RSUs	266,000	16,000
PSUs	29,000	29,000
Total	3,862,000	3,282,000

3. Revenue Recognition

Revenue by Source


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Instruments	$	2,338,000	$	1,830,000	$	6,684,000	$	5,873,000
Consumables	2,476,000		1,776,000		7,664,000		4,762,000
Software	1,642,000		1,647,000		4,164,000		3,619,000
Total product revenue	6,456,000		5,253,000		18,512,000		14,254,000
Service and other	2,862,000		1,968,000		6,883,000		5,333,000
Total revenue	$	9,318,000	$	7,221,000	$	25,395,000	$	19,587,000

The Company has revised the classification of its revenue between the categories in the table above for the September 30, 2022 statement of operations. In the September 30, 2022 statement of operations, “software” was included in “service and other.”

Revenue by Geographic Location


	Three Months Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
	$		%		$		%		$		%		$		%
Americas	$	5,346,000	57	%	$	3,679,000	51	%	$	13,103,000	52	%	$	9,618,000	49	%
EMEA	2,686,000		29	%	1,969,000		27	%	8,426,000		33	%	6,317,000		32	%
Asia Pacific	1,286,000		14	%	1,573,000		22	%	3,866,000		15	%	3,652,000		19	%
Total	$	9,318,000	100	%	$	7,221,000	100	%	$	25,395,000	100	%	$	19,587,000	100	%

The table above provides revenue from contracts with customers by source and geographic region (based on the customer’s billing address) 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, India and Australia. During the three months ended September 30, 2022, the Company changed the presentation of its revenues from India to be included in the Asia Pacific geographic region. Prior to the three months ended September 30, 2022, the Company had presented revenues from India in the EMEA geographic region. The impact of this change on prior period disclosures is immaterial.

For the three months ended September 30, 2023 and 2022, the United States represented 51.2% and 41.8% of total revenue, respectively. For the nine months ended September 30, 2023 and 2022, the United States represented 44.2% and 41.3% of total revenue, respectively. For the nine months ended September 30, 2023, China represented 10.3% of total revenue. For the three and nine months ended September 30, 2022, China represented 13.4% and 13.1% of total revenue, respectively. No other countries represented greater than 10% of revenue during the three and nine months ended September 30, 2023 and 2022.

Remaining Performance Obligations

As of September 30, 2023, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was approximately $1.0 million. These remaining performance obligations primarily relate to extended warranty and support and maintenance obligations. The Company expects to recognize approximately 37.7% of this amount as revenue during the remainder of 2023, 50.7% in 2024, and 11.6% in 2025 and thereafter. Warranty revenue is included in service and other revenue.

The Company recognized revenue of approximately $0.2 million and $0.1 million during the three months ended September 30, 2023 and 2022, respectively, which was included in the contract liability balance at the end of the previous year, and revenue of approximately $1.3 million and $0.6 million during the nine months ended September 30, 2023 and 2022, respectively, which was included in the contract liability balance at the end of the previous year.

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4. Balance Sheet Account Details

Accounts Receivable and Allowance for Credit Losses


	September 30, 2023		December 31, 2022		December 31, 2021
Accounts receivable, net:
Accounts receivable, trade	$	9,023,000	$	7,315,000	$	5,624,000
Allowance for credit losses	(354,000)		(293,000)		(690,000)
	$	8,669,000	$	7,022,000	$	4,934,000

Changes to the allowance for credit losses during the nine months ended September 30, 2023 were as follows:


	Allowance for Credit Losses
Balance as of January 1, 2023	$	(293,000)
Provision for expected credit loss	(98,000)
Write-offs	37,000
Balance as of September 30, 2023	$	(354,000)

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.

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Inventory

The components of inventories are as follows:


	September 30, 2023		December 31, 2022
Inventory:
Raw materials	$	7,590,000	$	5,319,000
Work in process	10,541,000		7,055,000
Finished goods	15,383,000		17,387,000
	$	33,514,000	$	29,761,000
Inventories current	$	26,429,000	$	29,761,000
Inventories non-current (included in other long-term assets)	$	7,085,000	$	—

Intangible Assets

Intangible assets that are subject to amortization consisted of the following for the periods presented:


	September 30, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trade name	$	2,630,000	$	(947,000)	$	1,683,000	$	2,630,000	$	(552,000)	$	2,078,000
Customer relationships	4,150,000		(1,794,000)		2,356,000		4,150,000		(1,172,000)		2,978,000
Developed technology	41,600,000		(9,975,000)		31,625,000		41,600,000		(5,615,000)		35,985,000
Intangibles, net	$	48,380,000	$	(12,716,000)	$	35,664,000	$	48,380,000	$	(7,339,000)	$	41,041,000

Intangible assets not subject to amortization totaled $0.1 million at September 30, 2023 and December 31, 2022, and related to the Company’s domain name.

Accrued Expenses

Accrued expenses consist of the following:


	September 30, 2023		December 31, 2022
Compensation expenses	$	8,509,000	$	7,002,000
Customer deposits	17,000		17,000
Taxes payable	724,000		825,000
Insurance	834,000		613,000
Professional fees and royalties	308,000		210,000
Warranty liabilities	572,000		489,000
Accrued clinical study fees	71,000		250,000
Other	517,000		1,146,000
Total	$	11,552,000	$	10,552,000

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5. Convertible Notes and Warrants

On October 11, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with High Trail Special Situations LLC (the “Purchaser”) 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 due 2025 (the “Registered Notes”) initially convertible by the Purchaser at a price of $2.86 into 15.7 million shares of the Company’s common stock and

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

(ii) in a concurrent private placement (the “Private Placement”), $35.0 million aggregate principal amount of senior secured convertible notes 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 initially convertible at a price of $2.86 into 8.7 million shares of the Company’s common stock (the “Subsequently Purchased 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 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 permits funds to be released once per calendar month upon the satisfaction of certain funding conditions specified in the Notes. 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). 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 $75.6 million, after deducting the estimated Offering and Private Placement expenses and placement agent fees.

Placement Agent Agreement

The Company retained Cowen and Company, LLC and Stifel, Nicolaus & Company, Incorporated to act as co-lead placement agents and BTIG, LLC as placement agent (together, the “Placement Agents”) for the sale of the Notes and the Warrants, and entered into a placement agent agreement, dated October 11, 2023. The Company agreed to pay the Placement Agents a cash fee equal to $2.7 million at the closing of the Offering and a cash fee equal to 6.0% of the gross proceeds from the sale of any Subsequent Private Placement. The Placement Agent Agreement contains customary representations, warranties and agreements by the Company and indemnification obligations.

Senior Secured Convertible Notes

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. The holders will have the option to partially redeem a portion of the Notes on the first day of each month beginning on November 1, 2023, at the Repayment Price. The Company has the right to redeem all of the then outstanding principal amount of the Notes under certain circumstances, and the holders of the Notes may require the Company to redeem the Notes upon a fundamental change (as defined in the Notes) in each case for a redemption price set forth in the Notes. The Notes subject the Company to various affirmative and negative covenants, events of default and other restrictions.

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 to the holders of the Notes equal to the product of (x) with respect to the Registered Notes, (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; (y) with respect to the Private Placement Notes, (a) $2.2 million multiplied by (b) a fraction, whose numerator is an amount equal to $35.0 million less the aggregate principal amount of such Private Placement Notes converted into shares of the Company’s common stock, and whose denominator is $35.0 million; and (z) with respect to any Subsequently Purchased Notes, an amount equal to 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.

Warrants

Each Warrant is immediately exercisable upon issuance for one share of the Company’s common stock with an exercise price of $3.19 per share. The Warrants expire on the fifth anniversary of the date of issuance and provide for earlier redemption at the request of the holder in the event of a Change of Control, as defined. The exercise price and number of Warrants is subject to adjustment in the event of subdivision or combination of the Company’s common stock, and the exercise price is subject to reduction at any time if deemed appropriate by the Company’s Board of Directors. The holders of the Warrants have certain participatory rights upon any distributions of assets, including cash, stock or other property to the Company’s stockholders, per their terms. The holders of the Warrants have certain purchase rights if at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the holders of common stock, per their terms. The Warrants include provision for cashless exercise, at the holder’s election, if at the time of exercise there is no effective registration statement registering, or a prospectus is not available for the issuance of, the common stock to the holder. The Holder’s ability to exercise the Warrants is limited if after such exercise 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 Warrants.

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6. Stockholders’ Equity and Stock-Based Compensation

Reverse Stock Split

On August 4, 2023, the Company completed a reverse stock split of its outstanding shares of common stock pursuant to which every 10 shares of issued and outstanding common stock were exchanged for one share of common stock. No fractional shares were issued in the reverse stock split. Instead, the Company paid cash (without interest) equal to such fraction multiplied by $5.90 per share (a price equal to the average of the closing sales prices of the common stock on The Nasdaq Capital Market during regular trading hours for the five consecutive trading days immediately preceding August 4, with such average closing sales prices being adjusted to give effect to a Reverse Stock Split). All share and per share amounts included within these condensed consolidated financial statements have been retrospectively adjusted to reflect the reverse stock split.

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 nine months ended September 30, 2023, the Company sold approximately 5.6 million shares of common stock under the Cowen ATM at an average share price of $8.28 per share, and received gross proceeds of approximately $46.5 million before deducting offering costs of $1.2 million.

Stock Warrants

A summary of the Company’s warrant activity during the nine months ended September 30, 2023 was as follows:


	Shares of Stock under Warrants	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2023	436,000	$	59.60	0.76	$	273,000
Granted	—	—		—	—
Exercised	—	—		—	—
Canceled	(396,000)	—		—	—
Outstanding at September 30, 2023	40,000	$	653.98	1.25	$	—

Stock Options

A summary of the Company’s stock option activity during the nine months ended September 30, 2023 was 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	8.50	$	2,068,000
Granted	1,427,000	12.23		—
Exercised	(4,000)	5.49		—	25,000
Canceled	(298,000)	28.85		—
Outstanding at September 30, 2023	3,527,000	$	24.86	8.52	$	6,000
Vested and exercisable at September 30, 2023	1,308,000	$	31.94	7.75	$	—

For the three months ended September 30, 2023, the weighted-average grant date fair value of stock options granted was $2.32 per share. For the nine months ended September 30, 2023, the weighted-average grant date fair value of stock options granted was $8.24 per share.

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Stock-Based Compensation

The Company recognized stock-based compensation expense for the periods presented as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of product revenue	$	139,000	$	—	$	395,000	$	—
Cost of service and other revenue	48,000		—		136,000		$	—
Research and development	1,249,000		3,606,000		3,907,000		$	10,401,000
General and administrative	2,556,000		2,453,000		7,368,000		6,537,000
Total stock-based compensation expense	$	3,992,000	$	6,059,000	$	11,806,000	$	16,938,000

The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants during the periods presented were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Risk-free interest rate	4.3	%	3.1	%	4.0	%	2.2	%
Expected volatility	78.9	%	71.0	%	75.2	%	70.3	%
Expected term (in years)	6.1		6.1		5.9		6.0
Expected dividend yield	0.0	%	0.0	%	0.0	%	0.0	%

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.

Restricted Stock Units and Performance Stock Units

The following table summarizes RSU activity during the nine months ended September 30, 2023:


	Stock Units	Weighted- Average Grant Date Fair Value per Share
Outstanding at January 1, 2023	10,000	$	47.40
Granted	287,000	14.40
Released	(10,000)	47.40
Forfeited	(21,000)	16.30
Outstanding at September 30, 2023	266,000	$	16.30

The total intrinsic value of the RSUs that vested during the nine months ended September 30, 2023 was $0.5 million, determined as of the date of vesting. The weighted average remaining contractual term for the RSUs is 3.2 years as of September 30, 2023.

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The following table summarizes PSU activity during the nine months ended September 30, 2023:


	Stock Units	Weighted- Average Grant Date Fair Value per Share
Outstanding at January 1, 2023	29,000	$	47.4
Granted	—	—
Released	—	—
Forfeited	—	—
Outstanding at September 30, 2023	29,000	$	47.4

The weighted average remaining contractual term for the PSUs is 0.3 years as of September 30, 2023.

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 Equity Incentive 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 annually over four years 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 RSU shall be fully vested on the four-year anniversary of the Grant Date.

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.

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7. Commitments and Contingencies

The Company has entered into various operating lease agreements and a finance lease agreement, primarily relating to our office, laboratory, and manufacturing space. See Note 11 – Commitments and Contingencies, subsection titled “Leases”, in Part II, Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2022 for information regarding the Company’s lease agreements.

The future minimum payments under non-cancellable operating and finance leases as of September 30, 2023, are as follows:


	Operating Leases		Finance Lease
Remainder of 2023	$	648,000	$	81,000
2024	2,684,000		330,000
2025	2,788,000		338,000
2026	729,000		347,000
2027	255,000		356,000
Thereafter	—		5,594,000
Total future lease payments	7,104,000		7,046,000
Less: imputed interest	(833,000)		(3,175,000)
Total lease liabilities	$	6,271,000	$	3,871,000

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 unaudited condensed consolidated financial statements. An estimated loss contingency is accrued in the unaudited condensed consolidated 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

See Note 9 to our unaudited condensed consolidated financial statements for a discussion of the contingent consideration liability.

8. Acquisitions

Purigen Acquisition

In November 2022, the Company completed the acquisition of Purigen Biosystems, Inc. for approximately $32.0 million in cash and up to an aggregate of $32.0 million in cash payable 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 acquisition was structured as a stock sale and therefore goodwill is non-tax deductible.

The purchase price allocation for the acquisition of Purigen is preliminary and subject to revision as additional information about the fair value of assets and liabilities becomes available. As permitted under ASC 805, the Company is allowed a measurement period, which may not exceed one year, in which to complete its accounting for the acquisition. Per the terms of the Purigen Merger Agreement, the purchase price is still subject to adjustment for the final determination of deferred and current tax assets and liabilities. During the second quarter of 2023, the Company recorded an increase in the estimated return of cash to buyer from escrow in the amount of $5,000, with the offset recorded to goodwill.

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 purchase price	$	44,909,000

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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

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 live of 15 years. Straight-line amortization was determined to be materially consistent with the pattern of expected use of the intangible assets.

As the Company began integrating Purigen’s operations with its existing operations during the fourth quarter of 2022, it is not practical or meaningful to distinguish Purigen’s expenses or net income or loss from that of the combined operations.

The Company recognized approximately $1.8 million of acquisition-related transaction costs for the acquisitions of Purigen, including financial advisor fees, legal expenses and accounting fees for the year ended December 31, 2022. These costs were 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 acquisition had taken place as of January 1, 2021.


	Three Months Ended September 30		Nine Months Ended September 30,
	2022		2022
Revenue	$	7,667,000	$	21,119,000
Net loss	(33,584,000)		(100,101,000)
Basic and diluted net loss per share	$	(1.16)	$	(3.49)

9. 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

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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 as of September 30, 2023 and December 31, 2022:


	September 30, 2023
	Total Fair Value and Carrying Value on Balance Sheet		Fair Value Measurement Category
			Level 1		Level 2		Level 3
Assets:
Commercial paper	$	3,488,000	$	—	$	3,488,000	$	—
Corporate notes/bonds	23,533,000				23,533,000		—
Securities of government sponsored entities	1,993,000		—		1,993,000		—
Total investments:	$	29,014,000	$	—	$	29,014,000	$	—
Money market funds	$	31,151,000	$	31,151,000	$	—	$	—
Liabilities:
Contingent consideration	$	24,880,000	$	—	$	—	$	24,880,000


	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		—
Securities of government sponsored entities	1,981,000				1,981,000
Total investments:	$	108,095,000	$	—	$	108,095,000	$	—
Money market funds	$	1,868,000	$	1,868,000	$	—	$	—
Liabilities:
Contingent consideration	$	22,352,000	$	—	$	—	$	22,352,000

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

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 acquisition date fair value of the contingent consideration related to the acquisition of BioDiscovery include the probability of achieving, or changes in timing, of certain milestones, and a discount rate. On October 2, 2023, the $10.0 million milestone consideration was paid in full which approximated the fair value recorded as of September 30, 2023.

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.

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The fair value of the Purigen milestones are reassessed on a quarterly basis using a probability weighted model and a Monte Carlo Simulation. Assumptions used to estimate the acquisition date fair value of the milestones using a probability weighted model include the probability of achieving, or changes in timing, of independent milestones, and a discount rate of 14%. The Company determined the fair value of this milestone consideration using a scenario-based technique, as the trigger for payment is event driven. The Company determined the likelihood of each independent milestone and used probability factors ranging from 20% to 80% which were applied to the individual payments. A Monte Carlo Simulation was performed to determine the likelihood that the milestone will be achieved and was applied to the milestone consideration payment. The change in fair value of the contingent consideration during the nine months ended September 30, 2023 was $2.5 million.

Changes in estimated fair value of contingent consideration liability in the n