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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 JUNE 30, 2022
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


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 July 27, 2022, the registrant had 290,139,940 shares of Common Stock ($0.0001 par value) outstanding.




BIONANO GENOMICS, INC.
TABLE OF CONTENTS
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2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIONANO GENOMICS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
  June 30,
2022
December 31,
2021
Assets    
Current assets:    
Cash and cash equivalents $ 27,159,000  $ 24,571,000 
Investments 160,178,000  226,041,000 
Accounts receivable, net of allowance for doubtful accounts of $463,000 and $690,000 as of June 30, 2022 and December 31, 2021, respectively
4,851,000  4,934,000 
Inventory 20,591,000  12,387,000 
Prepaid expenses and other current assets 3,509,000  4,481,000 
Total current assets 216,288,000  272,414,000 
Property and equipment, net 13,923,000  10,318,000 
Operating lease right-of-use assets 6,431,000  6,691,000 
Finance lease right-of-use assets, related party 3,810,000  3,926,000 
Intangible assets, net 24,005,000  26,842,000 
Goodwill 56,254,000  56,160,000 
Other long-term assets 841,000  749,000 
Total assets $ 321,552,000  $ 377,100,000 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 7,695,000  $ 9,696,000 
Accrued expenses 7,760,000  9,694,000 
Contract liabilities 1,180,000  684,000 
Operating lease liability 1,757,000  1,467,000 
Finance lease liability, related party 292,000  299,000 
Contingent consideration 9,224,000  — 
Total current liabilities 27,908,000  21,840,000 
Operating lease liability, net of current portion 5,075,000  5,288,000 
Finance lease liability, net of current portion, related party 3,632,000  3,642,000 
Contingent consideration —  9,066,000 
Long-term contract liabilities 203,000  146,000 
Total liabilities 36,818,000  39,982,000 
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized and no shares issued or outstanding as of June 30, 2022 and December 31, 2021
—  — 
Common stock, $0.0001 par value, 400,000,000 shares authorized at June 30, 2022 and December 31, 2021; 290,061,000 and 289,602,000 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
29,000  29,000 
Additional paid-in capital 564,852,000  553,747,000 
Accumulated deficit (278,229,000) (216,119,000)
Accumulated other comprehensive loss (1,918,000) (539,000)
Total stockholders’ equity 284,734,000  337,118,000 
Total liabilities and stockholders’ equity $ 321,552,000  $ 377,100,000 
See accompanying notes to the unaudited condensed consolidated financial statements
3

BIONANO GENOMICS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
  2022 2021 2022 2021
Revenue:    
Product revenue $ 3,913,000  $ 2,496,000  $ 7,029,000  $ 4,545,000 
Service and other revenue 2,757,000  1,360,000  5,337,000  2,479,000 
Total revenue 6,670,000  3,856,000  12,366,000  7,024,000 
Cost of revenue:
Cost of product revenue 3,973,000  1,869,000  7,549,000  3,383,000 
Cost of service and other revenue 1,226,000  548,000  2,485,000  1,159,000 
Total cost of revenue 5,199,000  2,417,000  10,034,000  4,542,000 
Operating expenses:
Research and development 11,767,000  4,086,000  22,296,000  6,765,000 
Selling, general and administrative 21,783,000  13,829,000  42,060,000  23,357,000 
Total operating expenses 33,550,000  17,915,000  64,356,000  30,122,000 
Loss from operations (32,079,000) (16,476,000) (62,024,000) (27,640,000)
Other income (expense):
Interest income 192,000  58,000  301,000  123,000 
Interest expense (74,000) (268,000) (151,000) (871,000)
Gain on forgiveness of Paycheck Protection Program loan —  —  —  1,775,000 
Loss on debt extinguishment —  (2,076,000) —  (2,076,000)
Other income (expense) (156,000) (15,000) (188,000) (29,000)
Total other income (expense) (38,000) (2,301,000) (38,000) (1,078,000)
Loss before income taxes (32,117,000) (18,777,000) (62,062,000) (28,718,000)
Benefit (provision) for income taxes (41,000) (9,000) (50,000) (15,000)
Net loss $ (32,158,000) $ (18,786,000) $ (62,112,000) $ (28,733,000)
Net loss per share, basic and diluted $ (0.11) $ (0.07) $ (0.22) $ (0.11)
Weighted-average common shares outstanding basic and diluted 285,554,000  278,898,000  285,086,000  271,460,000 
See accompanying notes to the unaudited condensed consolidated financial statements.
4

BIONANO GENOMICS, INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30, 2022
  2022 2021 2022 2021
Net Loss: $ (32,158,000) $ (18,786,000) $ (62,112,000) $ (28,733,000)
Unrealized (loss) on investment securities
(281,000) —  (1,379,000) — 
Comprehensive Loss $ (32,439,000) $ (18,786,000) $ (63,491,000) $ (28,733,000)
See accompanying notes to the unaudited condensed consolidated financial statements.
5

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, 2021 189,953,000  $ 19,000  $ 178,747,000  $ (143,684,000) $ —  $ 35,082,000 
Stock option exercises 102,000  —  333,000  —  —  333,000 
Stock-based compensation expense —  —  371,000  —  —  371,000 
Issue common stock, net of issuance costs 78,000,000  8,000  327,478,000  —  —  327,486,000 
Issue stock for warrant exercises 10,739,000  1,000  9,392,000  —  —  9,393,000 
Net loss —  —  —  (9,947,000) —  (9,947,000)
Balance at March 31, 2021 278,794,000  $ 28,000  $ 516,321,000  $ (153,631,000) $ —  $ 362,718,000 
Stock option exercises 60,000  —  89,000  —  —  89,000 
Stock-based compensation expense —  —  1,758,000  —  —  1,758,000 
Issue stock for employee stock purchase plan 150,000  —  65,000  —  —  65,000 
Issue stock for warrant exercises 50,000  —  22,000  —  —  22,000 
Net loss —  —  —  (18,786,000) —  (18,786,000)
Balance at June 30, 2021 279,054,000  28,000  518,255,000  (172,417,000) —  345,866,000 
Balance at January 1, 2022 289,602,000  $ 29,000  $ 553,747,000  $ (216,119,000) $ (539,000) $ 337,118,000 
Stock option exercises 21,000  —  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 65,000  —  —  —  —  — 
Net loss —  —  —  (29,952,000) —  (29,952,000)
Other comprehensive loss —  —  —  —  (1,098,000) (1,098,000)
Balance at March 31, 2022 289,688,000  $ 29,000  $ 558,864,000  $ (246,071,000) $ (1,637,000) $ 311,185,000 
Stock option exercises 249,000  —  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 (26,000) —  —  —  —  — 
Issue stock for employee stock purchase plan 150,000  —  75,000  —  —  75,000 
Net loss —  —  —  (32,158,000) —  (32,158,000)
Other comprehensive loss —  —  —  —  (281,000) (281,000)
Balance at June 30, 2022 290,061,000  $ 29,000  $ 564,852,000  $ (278,229,000) $ (1,918,000) $ 284,734,000 
See accompanying notes to the unaudited condensed consolidated financial statements
6

BIONANO GENOMICS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
   Six Months Ended
June 30,
  2022 2021
Operating activities:    
Net loss $ (62,112,000) $ (28,733,000)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization expense 4,475,000  964,000 
Amortization of financing lease right-of-use asset 117,000  — 
Amortization of interest on securities 551,000  — 
Non-cash lease expense 337,000  — 
Non-cash interest expense —  383,000 
Stock-based compensation 10,878,000  2,129,000 
Change in fair value of contingent consideration 158,000  — 
Gain on forgiveness of PPP Loan —  (1,775,000)
Loss on debt extinguishment —  2,076,000 
Cost of leased equipment sold to customer 204,000  — 
Changes in operating assets and liabilities:
Accounts receivable 24,000  (63,000)
Inventory (12,095,000) (3,605,000)
Prepaid expenses and other current assets 186,000  400,000 
Accounts payable (2,072,000) 816,000 
Accrued expenses and contract liabilities (1,477,000) 1,085,000 
Net cash used in operating activities (60,826,000) (26,323,000)
Investing Activities:
BioDiscovery acquisition, return of purchase consideration from escrow 694,000  — 
Purchases of property and equipment (371,000) (76,000)
Purchase of available for sale securities (29,541,000) — 
Sale and maturity of available for sale securities 93,475,000  — 
Construction in progress (1,080,000) — 
Sale of property and equipment 27,000  126,000 
Net cash provided by / (used in) investing activities 63,204,000  50,000 
Financing activities:
Repayment of term-loan debt —  (17,010,000)
Principal payments of financing lease liability (17,000) — 
Proceeds from sale of common stock —  328,635,000 
Offering expenses on sale of common stock —  (1,149,000)
 Proceeds from sale of common stock under employee stock purchase plan 75,000  65,000 
Proceeds from warrant and option exercises 152,000  9,837,000 
Net cash provided by financing activities 210,000  320,378,000 
Net increase in cash and cash equivalents 2,588,000  294,105,000 
Cash and cash equivalents at beginning of period 24,571,000  38,449,000 
Cash and cash equivalents at end of period $ 27,159,000  $ 332,554,000 
Supplemental cash flow disclosures:
Cash paid for interest $ 139,000  $ 487,000 
Cash paid for operating lease liabilities $ 695,000  $ 422,000 
Supplemental disclosure of non-cash investing and financing activities:
Transfer of instruments and servers from inventory to property and equipment, net $ 3,890,000  $ 2,035,000 
Operating lease liabilities resulting from obtaining right-of-use assets $ 517,000  $ 2,013,000 
Forgiveness of PPP Loan $ —  $ 1,775,000 
Warrant exercise pursuant to cashless exercise $ —  $ 129,000 
See accompanying notes to the unaudited condensed consolidated financial statements
7

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’s mission is to transform the way the world sees the genome through optical genome mapping (“OGM”) solutions, diagnostic services and software. The Company offers OGM solutions for applications across basic, translational and clinical research. Through its Lineagen, Inc. (“Lineagen”) 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 an industry-leading, 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.
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. These interim 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, 2021.
Liquidity
As of June 30, 2022, the Company had approximately $27.2 million in cash and cash equivalents, $160.2 million in available for sale investment securities, and working capital of $188.4 million as a result of common stock offerings executed in the quarters ended December 31, 2020, March 31, 2021, and September 30, 2021.
The Company believes its available cash, cash equivalents, and available for sale securities will be sufficient to fund operations, obligations as they become due and capital investments for at least the next 12 months. However, the Company expects to continue to incur net losses for the foreseeable future. The Company plans to continue to fund its losses from operations and capital funding needs through a combination of equity offerings, debt financings or other sources, including potential collaborations, licenses and other similar arrangements. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, potentially harming the Company’s business.
COVID-19 and Other Geopolitical Events
The Company is subject to additional risks and uncertainties as a result of the continued spread of COVID-19, adverse macroeconomic events, such as the ongoing conflict between Ukraine and Russia and related sanctions, and uncertain market conditions, including higher inflation and supply chain disruptions, which could continue to have a material impact on the Company’s business and financial results. The Company closely monitors and complies with various applicable guidelines and legal requirements in the jurisdictions in which it operates, which may continue to result in reduced business operations in response to new or existing stay-at-home orders, travel restrictions and other social distancing measures. If restrictions related to COVID-19 persist, the Company could see additional supply chain disruptions that impact its ability to produce its products and may cause the Company to make strategic determinations regarding, among other things, the cost and quality of the components and supplies it acquires. The Company may also see negative effects on study enrollment in its ongoing or future studies. At various times throughout the pandemic, the Company has been unable to visit certain customer sites to support installation or service of its OGM systems. The Company’s manufacturing partners, suppliers, and customers, have implemented similar operational reductions. Despite reporting an increase in revenue for the three and six months ended June 30, 2022 when compared to the same period in 2021, the Company experienced supply chain constraints that negatively impacted the Company’s first and second quarter 2021 and 2022 financial results. Given the continued evolution of the COVID-19 pandemic and the related complexities and uncertainties associated with the additional variants, the future effects of COVID-19 are unknown and the Company’s financial results may continue to be negatively affected in the future. The COVID-19 pandemic may also have long-term effects on the nature of the office environment and remote working, which may
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present strategy, operational, talent recruiting and retention and workplace culture challenges that may adversely affect its business.
Following the recent invasion of Ukraine by Russia, the U.S. and global financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity globally. In response to the invasion, the United States, United Kingdom and European Union, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia and possible future punitive measures that may be implemented, as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia and related sanctions, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity on acceptable terms, in both Europe and globally, and has introduced significant uncertainty into global markets. As a result, our business and results of operations may be adversely affected by the ongoing military conflict between Ukraine and Russia and related sanctions, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict.
During the three and six months ended June 30, 2022, the Company experienced supply chain challenges, which it largely attributes to the COVID-19 pandemic and the general disruptions from the ongoing conflict between Ukraine and Russia and related sanctions. While neither the COVID-19 pandemic nor the Ukraine-Russia conflict prevented the Company from operating its business during the three and six months ended June 30, 2022, it experienced increased cost to secure certain component parts in its products and to produce its products at its contract manufacturers. The Company expects these increased costs to remain high as the COVID-19 pandemic, the Ukraine-Russia conflict and their respective effects persist.
As global economic conditions recover from the COVID-19 pandemic, the Ukraine-Russia conflict and the related sanctions, 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 the Company’s 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, rising inflation rates, labor shortages, a decrease in corporate capital expenditures, prolonged unemployment, reduction in consumer confidence, adverse macroeconomic events, or any similar negative economic condition. Further, the travel restrictions on the Company’s business have limited its ability to support its global and domestic operations, including providing installation and training and customer service, which has and may continue to slow the pace of its commercial strategy, sales and marketing efforts. These negative effects could have a material impact on the Company’s operations, business, earnings, and liquidity.
Significant Accounting Policies
During the three and six months ended June 30, 2022, there were no 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, 2021.
Recently Issued But Not Yet Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which amends the impairment model by requiring entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available for sale debt securities. The standard is effective for the company beginning in the first quarter of 2023, with early adoption permitted. The Company is currently evaluating the expected impact of ASU 2016-13 on its financial statements.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, “Leases (Topic 842)” (“ASC 842”) which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. ASC 842 establishes a right-of-use model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. ASC 842 also requires disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard was adopted on January 1, 2021, as the Company lost its status as an Emerging Growth Company effective December 31, 2021, and therefore was required to adopt the standard for the year ending December 31, 2021, using the modified retrospective method. Under this transition method, the Company recognized and measured leases that existed at the adoption date in the consolidated balance sheet as of January 1, 2021. In connection with the adoption of ASC 842, the Company elected the package of practical expedients requiring no reassessment of whether any expired or existing contracts contain leases, the lease classification of any expired or existing leases, or initial direct costs for any existing leases. The Company also made accounting policy elections not to apply the recognition requirements under ASC 842 to any short-term leases and to account for each separate lease and associated non-lease components as a single lease component for all the Company’s leases. The adoption of this new accounting standard resulted in increased qualitative and quantitative disclosures regarding the amount,
9

timing, and uncertainty of cash flows arising from leases. For further details, see Note 7, Commitments and Contingencies. The adoption of the new standard did not materially impact the Company’s consolidated results of operations.
In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges for Freestanding Equity-Classified Written Call Options to clarify the accounting for modifications or exchanges of equity-classified warrants. The standard is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company’s adoption of this accounting standard on January 1, 2022, did not have a material impact on the Company’s consolidated financial statements and related disclosures.
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. Pre-funded warrants from the Company’s follow-on offering have been treated as if they were common shares outstanding on the date of issuance. The Company’s potentially dilutive securities which include outstanding warrants to purchase stock and outstanding stock options under the Company’s equity incentive plans have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. Restricted stock is treated as outstanding for accounting purposes. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.
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):
June 30,
2022
June 30,
2021
Stock options 23,585,000  9,550,000 
Unvested restricted stock 3,841,000  — 
Warrants 4,356,000  4,361,000 
RSUs 230,000  530,000 
PSUs 290,000  290,000 
Total 32,302,000  14,731,000 
3. Revenue Recognition
Revenue by Source
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Instruments $ 2,446,000  $ 1,158,000  $ 4,042,000  $ 2,040,000 
Consumables 1,467,000  1,338,000  2,987,000  2,505,000 
Total product revenue 3,913,000  2,496,000  7,029,000  4,545,000 
Service and other 2,757,000  1,360,000  5,337,000  2,479,000 
Total revenue $ 6,670,000  $ 3,856,000  $ 12,366,000  $ 7,024,000 

Revenue by Geographic Location
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
$ % $ % $ % $ %
Americas $ 2,611,000  39  % $ 2,365,000  61  % $ 5,940,000  48  % $ 3,872,000  55  %
EMEIA 2,609,000  39  % 940,000  25  % 4,348,000  35  % 2,518,000  36  %
Asia Pacific 1,450,000  22  % 551,000  14  % 2,078,000  17  % 634,000  %
Total $ 6,670,000  100  % $ 3,856,000  100  % $ 12,366,000  100  % $ 7,024,000  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. EMEIA consists of Europe, the Middle East, India and Africa. Asia Pacific includes China, Japan, South Korea, Singapore and Australia. For the three months ended June 30, 2022 and 2021, the United States represented 37.4% and 59.5% of total revenue, respectively. For the
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six months ended June 30, 2022 and 2021, the United States represented 40.9% and 53.1% of total revenue, respectively. For the three and six months ended June 30, 2022, China represented 19.3% and 12.9% of total revenue, respectively. No other countries represented greater than 10% of revenue during the three and six months ended June 30, 2022 and 2021.
Remaining Performance Obligations
As of June 30, 2022, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was approximately $1.4 million. These remaining performance obligations primarily relate to extended warranty and support and maintenance obligations. The Company expects to recognize approximately 59.3% of this amount as revenue during the remainder of 2022, 32.6% in 2023, and 8.1% in 2024 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 June 30, 2022 and 2021, respectively, and revenue of approximately $0.5 million and $0.2 million during the six months ended June 30, 2022 and 2021, respectively, which was included in the contract liability balance at the end of the previous year.
4. Balance Sheet Account Details
Accounts Receivable
June 30,
2022
December 31,
2021
Accounts receivable, net:
Accounts receivable, trade $ 5,314,000  $ 5,624,000 
Less allowance for doubtful accounts (463,000) (690,000)
$ 4,851,000  $ 4,934,000 
Inventory
The components of inventories are as follows:
  June 30,
2022
December 31,
2021
Inventory:
Raw materials $ 837,000  $ 745,000 
Finished goods 19,754,000  11,642,000 
$ 20,591,000  $ 12,387,000 
Intangible Assets
Intangible assets that are subject to amortization consisted of the following for the periods presented:
June 30, 2022
December 31, 2021
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Trade name $ 1,630,000  $ (372,000) $ 1,258,000  $ 1,630,000  $ (210,000) $ 1,420,000 
Customer relationships 3,950,000  (773,000) 3,177,000  3,950,000  (378,000) 3,572,000 
Developed technology 22,800,000  (3,230,000) 19,570,000  22,800,000  (950,000) 21,850,000 
Intangibles, net $ 28,380,000  $ (4,375,000) $ 24,005,000  $ 28,380,000  $ (1,538,000) $ 26,842,000 
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Accrued Expenses
Accrued expenses consist of the following:
June 30,
2022
December 31,
2021
Compensation expenses $ 4,861,000  $ 4,529,000 
Goods received not invoiced 1,238,000  1,073,000 
Customer deposits 73,000  826,000 
Taxes payable 722,000  677,000 
Insurance —  1,011,000 
Professional fees and royalties 368,000  288,000 
Warranty liabilities 175,000  175,000 
Accrued clinical study fees 169,000  1,000 
Other 154,000  1,114,000 
Total $ 7,760,000  $ 9,694,000 
5. Debt
Paycheck Protection Program
On April 17, 2020, the Company received the PPP Loan proceeds of approximately $1.8 million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). In February 2021, the Company applied for forgiveness of the PPP Loan, and in March 2021, the PPP Loan, including all accrued interest, was forgiven in full. A gain on forgiveness of Paycheck Protection Program loan of $1.8 million was recognized during the six months ended June 30, 2021.
Innovatus Loan and Security Agreement
In May 2021, the outstanding term loan with Innovatus (“Innovatus LSA”) was paid in full, including all accrued interest, the end of term fee, and a prepayment fee for a total of approximately $17.0 million. Interest expense recognized during the three and six months ended June 30, 2021 totaled approximately $0.3 million and $0.9 million, respectively.
6. Stockholders’ Equity and Stock-Based Compensation
Follow-on Public Offerings
On January 12, 2021 and January 25, 2021, the Company completed an underwritten public offering of 33.4 million and 38.3 million shares of common stock, respectively. The price to the public in the offerings on January 12, 2021 and January 15, 2021 was $3.05 and $6.00 per share, respectively. The net proceeds to the Company from the offerings, after deducting the underwriting discounts and commissions and other offering expenses, were $101.5 million and $229.6 million, respectively.
Shelf Registration Statements; Ladenburg and Cowen At-the-Market Facilities
In August 2020, the Company filed a shelf registration statement on Form S-3 with the SEC covering the offering, issuance and sale of up to $125 million of the Company’s securities, including up to $40 million of common stock, pursuant to an At Market Issuance Sales Agreement, with Ladenburg Thalmann & Co. Inc. acting as sales agent (the “Ladenburg ATM”). During October 2020 through January 2021, the Company sold approximately 27.0 million shares of common stock under the Ladenburg ATM and received net proceeds of $38.0 million after deducting aggregate offering costs. The Company terminated the Ladenburg ATM in March 2021.
On January 19, 2021, the Company filed an automatically effective shelf registration statement on Form S-3 with the SEC as a “well-known seasoned issuer,” allowing for the Company to issue an indeterminate number or amount of its securities from time to time in one or more offerings. As of June 30, 2022, as a consequence of the Company’s re-qualification as a “smaller reporting company,” the Company may lose “well-known seasoned issuer” status at the time it files its Annual Report on Form 10-K for the fiscal year ending December 31, 2022 if the worldwide market value of its voting and non-voting common equity held by its non-affiliates does not equal $700.0 million or more, calculated as of a date within 60 days prior to filing such report. If that were to occur and the Company were no longer considered a well-known seasoned issuer, the Company anticipates needing to amend its automatically effective shelf registration statement on Form S-3 prior to its filing of such annual report (or earlier if required by the Securities Act or the rules and regulations of the SEC) in order to sell securities under that Form S-3 on an ongoing basis.
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
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$350.0 million through or to Cowen, acting as sales agent or principal (the “Cowen ATM”). The Company agreed to pay Cowen a commission of up to 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Cowen with customary indemnification and contribution rights. In August and September 2021, the Company sold approximately 2.3 million shares of common stock under the Cowen ATM at an average share price of $6.15 per share, and received gross proceeds of approximately $13.9 million before deducting offering costs of $0.6 million. There were no sales of common stock under the Cowen ATM from January 1, 2022 to June 30, 2022.
Stock Warrants
A summary of the Company’s warrant activity during the six months ended June 30, 2022 was as follows:
Shares of Stock under Warrants Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at January 1, 2022 4,356,000  $ 5.96  1.76 $ 785,000 
Granted —  —  —  — 
Exercised —  —  —  — 
Canceled —  —  —  — 
Outstanding at June 30, 2022
4,356,000  $ 5.96  1.27 $ 246,000 
Stock Options
A summary of the Company’s stock option activity during the six months ended June 30, 2022 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, 2022 12,765,000  $ 4.97  8.9 $ 7,891,000 
Granted 12,797,000  2.11  —  — 
Exercised (270,000) 0.59  —  302,000 
Canceled (1,708,000) 5.00  —  — 
Outstanding at June 30, 2022
23,584,000  $ 3.47  9.08 $ 2,053,000 
Vested and exercisable at June 30, 2022
4,976,000  $ 3.90  7.96 $ 1,327,000 
For the three months ended June 30, 2022, the weighted-average grant date fair value of stock options granted was $1.17 per share. For the six months ended June 30, 2022, the weighted-average grant date fair value of stock options granted was $1.33 per share.
Stock-Based Compensation
The Company recognized stock-based compensation expense for the periods presented as follows: 
  Three Months Ended
June 30,
Six Months Ended
June 30,
2022 2021 2022 2021
Research and development $ 3,468,000  $ 384,000  $ 6,795,000  $ 465,000 
General and administrative 2,309,000  1,374,000  4,084,000  1,664,000 
Total stock-based compensation expense $ 5,777,000  $ 1,758,000  $ 10,879,000  $ 2,129,000 
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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
June 30,
Six Months Ended
June 30,
2022 2021 2022 2021
Risk-free interest rate 2.8  % 1.1  % 2.1  % 1.1  %
Expected volatility 70.6  % 80.4  % 70.2  % 80.4  %
Expected term (in years) 5.7 6.0 6.0 6.0
Expected dividend yield 0.0  % 0.0  % 0.0  % 0.0  %
Restricted Stock
Restricted Stock
A restricted stock award in the amount of 5.0 million shares with a grant date fair value of $5.20 a share was granted as part of the acquisition of BioDiscovery. One-third of the Restricted Shares will vest on October 18, 2022 and one-twelfth of the Restricted Shares shall vest every three months following October 18, 2022, subject to continuous service of a key employee. The weighted average remaining contractual term for the restricted stock is 2.3 years as of June 30, 2022. The fair value of the restricted stock award is based on the market value of common stock as of the date of grant and is amortized to expense over the respective vesting period or the service period.
Restricted Stock Units and Performance Stock Units
The following table summarizes restricted share unit (“RSU”) activity during the six months ended June 30, 2022:
Stock Units Weighted- Average Grant Date Fair Value per Share
Outstanding at January 1, 2022 361,000  $ 4.74 
Granted
Released (131,000) 4.74
Forfeited —  — 
Outstanding at June 30, 2022
230,000 $ 4.74
The total intrinsic value of the RSUs that vested during the six months ended June 30, 2022 was $0.6 million, determined as of the date of vesting. The weighted average remaining contractual term for the RSUs is 0.9 years as of June 30, 2022.
The following table summarizes performance share unit (“PSU”) activity during the six months ended June 30, 2022:
Stock Units Weighted- Average Grant Date Fair Value per Share
Outstanding at January 1, 2021 290,000 $ 4.74 
Granted
Released
Forfeited
Outstanding at June 30, 2022
290,000 $ 4.74
The weighted average remaining contractual term for the PSUs is 2.9 years as of June 30, 2022.
Executive Option Grants
On February 15, 2022, the compensation committee of the Company’s board of directors granted various executive officers stock options to purchase an aggregate of 4.3 million shares of common stock at an exercise price of $2.18 a share, in each case with an effective grant date and vesting commencement date of February 15, 2022 (the “Grant Date”). These stock option grants were issued from the 2018 Stock Plan. The shares subject to the option shall vest monthly over 48 months beginning on
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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.
7. Commitments and Contingencies
The Company discounts its lease payments using its incremental borrowing rate as of the commencement of the lease. The Company has determined a weighted-average discount rate of 7% as of June 30, 2022 and December 31, 2021.
The operating lease right-of-use asset and operating lease liability as of June 30, 2022 and December 31, 2021 are as follows:
June 30, 2022 December 31, 2021
Operating lease right-of-use assets $ 6,431,000  $ 6,691,000 
Operating lease liability
Current 1,757,000 1,467,000
Non-current 5,075,000 5,288,000
Total operating lease liability $ 6,832,000  $ 6,755,000
For the three and six months ended June 30, 2022, the Company recorded $0.5 million and $1.0 million, respectively, in expense related to operating leases, including amortized tenant improvement allowances. For the three and six months ended June 30, 2021, the Company recorded $0.3 million and $0.5 million respectively, in expense related to operating leases, including amortized tenant improvement allowances.
The finance lease right-of-use asset and finance lease liability as of June 30, 2022 and December 31, 2021 are as follows:
June 30, 2022 December 31, 2021
Finance lease right-of-use assets $ 3,810,000  $ 3,926,000 
Finance lease liability
Current 292,000 299,000
Non-current 3,632,000 3,642,000
Total finance lease liability $ 3,924,000  $ 3,941,000
For the three and six months ended June 30, 2022, the Company recorded $0.1 million and $0.3 million, respectively, in expense related to its finance lease. The Company did not hold a finance lease as of June 30, 2021.
The future minimum payments under non-cancellable operating and finance leases as of June 30, 2022, are as follows:
Operating Leases Finance Lease
Remainder of 2022 $ 1,036,000  $ 158,000 
2023 2,149,000  322,000 
2024 2,219,000  330,000 
2025 2,305,000  338,000 
2026 232,000  347,000 
Thereafter —  5,949,000 
Total future lease payments 7,941,000  7,444,000 
Less: imputed interest (1,109,000) (3,520,000)
Total lease liabilities $ 6,832,000  $ 3,924,000 
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Litigation
From time to time, the Company may be subject to potential liabilities under various claims and legal actions that are pending or may be asserted. These matters arise in the ordinary course and conduct of the business. The Company regularly assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in the financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the Company’s assessment, it currently does not have any material loss exposure as it is not a defendant in any claims or legal actions.
Contingent Consideration
See Note 9 to our condensed consolidated financial statements for a discussion of the contingent consideration liability.
8. Acquisitions
BioDiscovery Acquisition
In October 2021, the Company completed the acquisition of BioDiscovery, LLC, for a combination of approximately $52.3 million in cash, $40.0 million in shares of Company common stock, and $10.0 million in cash payable based on the achievement of certain milestones. Of the $40.0 million in shares of Company common stock, approximately $26.0 million is subject to vesting based on continuous service. See Note 6 to our condensed consolidated financial statements for a discussion of the restricted stock vesting terms and accounting treatment.
The purchase price allocation for the acquisition of BioDiscovery 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. During the first quarter of 2022, the Company recorded an increase to the value of acquired contract liabilities in the amount of $94,000, with the offset recorded to goodwill. The purchase price is still subject to adjustment for the final determination of deferred and current tax assets and liabilities.
The following is the purchase price for the acquisition of BioDiscovery:
Cash $ 52,291,000 
Estimated fair value of milestone consideration $ 9,000,000 
Return of cash to buyer from escrow $ (694,000)
Shares of common stock issued as consideration 2,723,000 
Stock price per share on closing date $ 5.20 
Value of estimated common stock consideration $ 14,159,000 
Total purchase price $ 74,756,000 
The total purchase price was allocated to BioDiscovery’s tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess recorded as goodwill, as follows:
Cash and cash equivalents $ 3,205,000 
Accounts receivable 1,782,000 
Right-of-use assets 3,987,000 
Other assets 213,000 
Intangible assets 26,800,000 
Goodwill 49,081,000 
Accounts payable and other accrued liabilities (193,000)
Right-of-use liabilities (short-term and long-term) (3,987,000)
Deferred tax liability (5,777,000)
Contract liabilities (355,000)
Net assets acquired $ 74,756,000 
The acquisition date fair values of identifiable intangible assets acquired are as follows:
16

Customer relationships $ 3,000,000 
Developed technology 22,800,000 
Tradename 1,000,000 
Fair value of identifiable intangible assets $ 26,800,000 
The Company uses the income approach to derive the fair value of the identified intangible assets acquired. This approach calculates fair value by estimating future cash flows attributable to the assets and then discounting these cash flows to a present value using a risk-adjusted discount rate.
The developed technology, customer relationships and trade name intangibles are both being amortized on a straight-line basis over their estimated useful lives of five years. Straight-line amortization was determined to be materially consistent with the pattern of expected use of the intangible assets.
As the Company began integrating BioDiscovery’s operations with its existing operations during the fourth quarter of 2021, it is not practical or meaningful to distinguish BioDiscovery’s expenses or net income or loss from that of the combined operations.
Pro forma Financial Information
The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and BioDiscovery as if the companies had been combined as of the beginning of the year prior to the acquisition. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of BioDiscovery to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied at the beginning of the year prior to the acquisition. The following unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved as if the acquisitions had taken place as of January 1, 2020.
  Six Months Ended June 30, Three Months Ended June 30,
2021 2021
Revenue $ 9,467,000  $ 5,313,000 
Net loss (30,479,000) (19,320,000)
Basic and diluted net loss per share
$ (0.11) $ (0.07)
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 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 June 30, 2022 and December 31, 2021:
17

June 30, 2022
Total Fair Value and Carrying Value on Balance Sheet Fair Value Measurement Category
Level 1 Level 2 Level 3
Assets:
Commercial Paper $ 56,809,000  $ —  $ 56,809,000  $ — 
Corporate Notes/Bonds 100,384,000  —  100,384,000  — 
Securities of Government Sponsored Entities 2,985,000  $ —  2,985,000  $ — 
Total Investments: $ 160,178,000  $ —  $ 160,178,000  $ — 
Money Market Funds $ 15,923,000  $ 15,923,000  $ —  $ — 
Liabilities:
Contingent consideration $ 9,224,000  $ —  $ —  $ 9,224,000 
December 31, 2021
Total Fair Value and Carrying Value on Balance Sheet Fair Value Measurement Category
Level 1 Level 2 Level 3
Assets:
Commercial Paper $ 100,860,000  $ —  $ 100,860,000  $ — 
Corporate Notes/Bonds 125,181,000  —  125,181,000  — 
Total Investments: $ 226,041,000  $ —  $ 226,041,000  $ — 
Money Market Funds $ 11,126,000  $ 11,126,000  $ —  $ — 
Liabilities:
Contingent consideration $ 9,066,000  $ 9,066,000 
Money Market Funds are classified as cash equivalents on the balance sheet. As of June 30, 2022 and December 31, 2021, the Company held 47 and 57 securities in an unrealized loss position, respectively.
As of June 30, 2022 and December 31, 2021, the Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis. The Company does not believe the unrealized losses incurred during the period are due to credit-related factors. The credit ratings of the securities held remain of high quality, and the Company continues to receive payments of interest and principal as they become due, and our expectation is that those payments will continue to be received timely. As such, the Company has not recognized any impairment in its financial statements related to its available for sale investment securities.
The fair value of the contingent consideration liability is reassessed on a quarterly basis using the income approach. Assumptions used to estimate the acquisition date fair value of the contingent consideration include the probability of achieving certain milestones and a discount rate of 3%. The fair value measurement of the contingent consideration is based on significant inputs not observed in the market (Level 3 inputs). The Company determined the fair value of the milestone consideration using a scenario-based technique, as the trigger for payment is event driven. The outcome of the milestone consideration is binary, meaning the milestone is either achieved or not achieved, and the only other variable factor is the timing of when the milestone is achieved. The Company determined it is highly likely that the milestone will be achieved and therefore used a 95% probability factor which is applied to the $10.0 million milestone consideration. The change in fair value of the contingent consideration during the three and six month period ended June 30, 2022 was due to the passage of time. During the three months ended June 30, 2022, the milestone consideration liability was reclassified from non-current liabilities to current liabilities.
18

Changes in estimated fair value of contingent consideration liability in the six months ended June 30, 2022 is as follows:
Contingent
Consideration
Liability
(Level 3
Measurement)
Balance as of January 1, 2021 $ 9,066,000 
Liability recorded as a result of current period acquisition — 
Change in estimated fair value, recorded in selling, general and administrative expenses 158,000 
Cash payments — 
Balance as of June 30, 2022
$ 9,224,000 
As of June 30, 2022, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities:
Commercial Paper Corporate Notes/Bonds Securities of Government Sponsored Entities
Amortized Cost
Unrealized gains (losses)
Amortized Cost
Unrealized gains (losses)
Amortized Cost Unrealized gains (losses)
Less than 1 year $ 57,070,000  $ (261,000) $ 65,045,000  $ (909,000) $ 2,986,000  $ (1,000)
Due after one year through five years —  —  36,997,000  (749,000) —  — 
Total $ 57,070,000  $ (261,000) $ 102,042,000  $ (1,658,000) $ 2,986,000  $ (1,000)
As of December 31, 2021, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities:
Commercial Paper Corporate Notes/Bonds Securities of Government Sponsored Entities
Amortized Cost
Unrealized loss
Amortized Cost
Unrealized loss
Amortized Cost Unrealized gains (losses)
Less than 1 year $ 100,929,000  $ (69,000) $ 41,173,000  $ (61,000) $ —  $ — 
Due after one year through five years —  —  84,478,000  (409,000) —  — 
Total $ 100,929,000  $ (69,000) $ 125,651,000  $ (470,000) $ —  $ — 
Included in interest income for the three-month period ended June 30, 2022 was interest income related to the Company’s available for sale securities of $0.2 million. Included in interest income for the six-month period ended June 30, 2022 was interest income related to the Company’s available for sale securities of $0.3 million. All available for sale securities are classified as current assets, even if the maturity when acquired by the Company is greater than one year due to the ability to liquidate within the next 12 months.
10. Related Party Transactions
Through the acquisition of BioDiscovery in October 2021, the Company inherited a building lease with a landlord owned by BioDiscovery’s former Director and Chief Executive Officer, who is now the Company’s Chief Informatics Officer. The Company recorded $0.1 million in finance lease costs related to this lease for the three-month period ended June 30, 2022. The Company recorded $0.3 million in finance lease costs related to this lease for the six-month period ended June 30, 2022.
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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 consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2021 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, or our Annual Report, filed with the Securities and Exchange Commission, or the SEC, on March 1, 2022. 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 on Form 10-Q 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 the potential effects of the COVID-19 pandemic on our business, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans 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 in our 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, or OGM, solutions, diagnostic services and software. We offer OGM solutions for applications across basic, translational and clinical research. Through our Lineagen, Inc., or Lineagen, business, we also provide diagnostic testing for patients with clinical presentations consistent with autism spectrum disorder and other neurodevelopmental disabilities. Through our BioDiscovery, LLC, or BioDiscovery, business, we also offer an industry-leading, 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.
We have incurred losses in each year since our inception. Our net loss was $32.2 million and $62.1 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2022, we had an accumulated deficit of $278.2 million.
We expect to continue to incur significant expenses and operating losses as we:
expand our sales and marketing efforts to further commercialize our products;
continue research and development efforts to improve our existing products;
hire additional personnel;
enter into collaboration arrangements, if any;
add operational, financial and management information systems; and
incur increased costs as a result of operating as a public company.
Recent Highlights
Commercial Adoption of Offerings for Saphyr
In executing on our commercialization strategy, we expanded the utilization of our Saphyr® system and:
Grew our installed base to 196 as of June 30, 2022, an increase of approximately 62% from a total installed base of 121 as of June 30, 2021. Installed base represents the global number of Saphyr instruments installed at end-customer locations and therefore having the technology to process OGM.
20

Sold 3,394 flowcells in the three-month period ended June 30, 2022, an increase of approximately 24% over the 2,742 flowcells sold during the same quarter of 2021. The Saphyr cartridge is the consumable that packages nanochannel arrays for DNA linearization. In its current form, the Saphyr cartridge has two configurations - one with two flowcells per cartridge and the other with three flowcells per cartridge. Flowcells sold refers to the units of genome mapping consumables used for analyzing one genome, purchased by customers to process optical genome mapping.
We analyzed 373 samples in our Saphyr service lab during the quarter ended June 30, 2022, compared to 190 samples analyzed in the same quarter in 2021.
COVID-19 and Other Geopolitical Events
We are subject to additional risks and uncertainties as a result of the continued spread of COVID-19, adverse geopolitical and macroeconomic events, such as the ongoing conflict between Ukraine and Russia and related sanctions, and uncertain market conditions, including higher inflation and supply chain disruptions, which could continue to have a material impact on our business and financial results.
We closely monitor and comply with various applicable guidelines and legal requirements in the jurisdictions in which we operate, which may continue to result in reduced business operations in response to new or existing stay-at-home orders, travel restrictions and other social distancing measures. If restrictions related to COVID-19 persist, we could see additional supply chain disruptions that impact our ability to produce our products and may cause us to make strategic determinations regarding, among other things, the cost and quality of the components and supplies we acquire. We may also see negative effects on enrollment in our ongoing or future clinical studies. At various times throughout the pandemic, we have been unable to visit certain customer sites to support installation or service our OGM systems. Our manufacturing partners, suppliers, and customers, have implemented similar operational reductions. This overall reduction in activity has contributed to a decrease in sales which negatively impacted the Company’s financial results in the first and second quarters of 2021 and 2022. Given the continued evolution of the COVID-19 pandemic and the related complexities and uncertainties associated with the additional variants, the future effects of COVID-19 are unknown and our financial results may continue to be negatively affected in the future. The COVID-19 pandemic may also have long-term effects on the nature of the office environment and remote working, which may present strategy, operational, talent recruiting and retention and workplace culture challenges that may adversely affect our business.
Following the recent invasion of Ukraine by Russia, the U.S. and global financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity globally. In response to the invasion, the United States, United Kingdom and European Union, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia and possible future punitive measures that may be implemented, as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity on acceptable terms, in both Europe and globally, and has introduced significant uncertainty into global markets. As a result, our business and results of operations may be adversely affected by the ongoing conflict between Ukraine and Russia and related sanctions, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict.
During the three and six months ended June 30, 2022, we experienced supply chain challenges, which we largely attribute to the COVID-19 pandemic and the general disruptions resulting from the ongoing conflict between Ukraine and Russia and related sanctions. While neither the COVID-19 pandemic nor the Ukraine-Russia conflict prevented us from operating our business during the three and six months ended June 30, 2022, we experienced increased cost to secure certain component parts in our products and to produce our products at our contract manufacturers. We expect these increased costs to remain high as the COVID-19 pandemic, the Ukraine-Russia conflict and their respective effects persist. As global economic conditions recover from the COVID-19 pandemic, the Ukraine-Russia conflict and the related sanctions, business activity may not recover as quickly as anticipated, and it is not possible at this time to estimate the long-term impact that these and related events could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. For instance, product demand may be reduced due to an economic recession, a decrease in corporate capital expenditures, prolonged unemployment, rising inflation rates, labor shortages, reduction in consumer confidence, adverse geopolitical and macroeconomic events, or any similar negative economic condition. Further, the travel restrictions on our business have limited our ability to support our global and domestic operations, including providing installation and training and customer service, which has and may continue to slow the pace of our commercial strategy, sales and marketing efforts. These negative effects could have a material impact on our operations, business, earnings, and liquidity.
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Financial Overview
Revenue
We generate product revenue from sales of our instruments and consumables. We currently sell our products for research use only applications and our customers are primarily laboratories associated with academic and governmental research institutions, academic and commercial clinical laboratories, as well as pharmaceutical, biotechnology and contract research companies. In addition, we provide instruments to certain customers under our reagent rental program, under which we provide an instrument to customers at no cost and the customers agree to purchase minimum quantities of consumables. Consumable revenue consists of sales of reagents and chips necessary to process a sample. We generate service revenue from the sale of diagnostic testing services for those with autism spectrum disorder and other neurodevelopmental disabilities through our wholly owned subsidiary Lineagen. We also generate service and product revenue through BioDiscovery’s NxClinical™ software, which provides customers with solutions for analysis, interpretation and reporting of genomics data. Other revenue consists of warranty and other service-based revenue, including services performed related to customer sample evaluations using the Saphyr system, license maintenance agreements, and support, repair and maintenance services.
The following table presents our revenue for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
  2022 2021 2022 2021
Product revenue $ 3,913,000  $ 2,496,000  $ 7,029,000  $ 4,545,000 
Service and other revenue1
2,757,000  1,360,000  5,337,000  2,479,000 
Total $ 6,670,000  $ 3,856,000  $ 12,366,000  $ 7,024,000 
1 Includes $1.0 million and $2.2 million of revenue generated from BioDiscovery during the three and six months ended June 30, 2022, respectively.
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. EMEIA consists of Europe, Middle East, India and Africa. Asia Pacific includes China, Japan, South Korea, Singapore and Australia.
  Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
$ % $ % $ % $ %
Americas $ 2,611,000  39  % $ 2,365,000  61  % $ 5,940,000  48  % $ 3,872,000  55  %
EMEIA 2,609,000  39  % 940,000  25  % 4,348,000  35  % 2,518,000  36  %
Asia Pacific 1,450,000  22  % 551,000  14  % 2,078,000  17  % 634,000  %
Total $ 6,670,000  100  % $ 3,856,000  100  % $ 12,366,000  100  % $ 7,024,000  100  %
Cost of Revenue
Cost of product revenue for our instruments and consumables includes costs from the manufacturer, raw material parts costs and associated freight, shipping and handling costs, contract manufacturer costs, salaries and other personnel costs, 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, and allocated overhead costs that include facility and other overhead costs. We have made substantial investments in research and development since our inception, and plan to continue to make investments in the future. Our research and development efforts have focused primarily on the tasks required to support development and commercialization of new and 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, stock-based compensation for our sales and marketing, amortization expense related to acquired intangible assets, finance, legal, human resources and general management, as well as professional services, such as legal and accounting services.
22

Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table sets forth our results of operations for the three months ended June 30, 2022 and 2021:
Three Months Ended June 30, Period-to-Period Change
2022
2021 $ %
Revenues:        
Product revenue $ 3,913,000  $ 2,496,000  $ 1,417,000  57  %
Service and other revenue 2,757,000  1,360,000  1,397,000  103  %
Total revenue 6,670,000  3,856,000  2,814,000  73  %
Cost of revenue:    
Cost of product revenue 3,973,000  1,869,000  2,104,000  113  %
Cost of other revenue 1,226,000  548,000  678,000  124  %
Total cost of revenue 5,199,000  2,417,000  2,782,000  115  %
Operating expenses:    
Research and development 11,767,000  4,086,000  7,681,000  188  %
Selling, general and administrative 21,783,000  13,829,000  7,954,000  58  %
Total operating expenses 33,550,000  17,915,000  15,635,000  87  %
Loss from operations (32,079,000) (16,476,000) (15,603,000) 95  %
Other income (expenses):
Interest income 192,000  58,000  134,000  231  %
Interest expense (74,000) (268,000) 194,000  (72) %
Loss on debt extinguishment —  (2,076,000) 2,076,000  (100) %
Other income (expenses) (156,000) (15,000) (141,000) 940  %
Total other income (expenses) (38,000) (2,301,000) 2,263,000  (98) %
Loss before income taxes (32,117,000) (18,777,000) (13,340,000) 71  %
Provision for income taxes (41,000) (9,000) (32,000) 356  %
Net loss $ (32,158,000) $ (18,786,000) $ (13,372,000) 71  %
Revenue
Total revenue increased by $2.8 million, or 73%, to $6.7 million for the three months ended June 30, 2022 compared to $3.9 million for the same period in 2021. The increase in product sales was driven by increased demand for our Saphyr OGM solutions, including an increase in instrument installed base (62%) and flowcell units sold (24%), when compared to the same period last year. The increased demand for our reagent rental program continues to drive a significant portion of the increase in consumable sales. We believe increased demand for our OGM systems was primarily driven by increased market awareness and additional published data demonstrating the utility of OGM. While not immune to the negative effects caused by COVID-19 and other geopolitical events, we expect revenue to increase as market awareness and published data of OGM utility increases. The increase in service and other revenue was primarily driven by $1.0 million in revenues generated by our BioDiscovery subsidiary, which was acquired in October 2021.
Cost of Revenue
Cost of revenue increased by $2.8 million, or 115%, to $5.2 million for the three months ended June 30, 2022 compared to $2.4 million for the same period in 2021. During the three months ended June 30, 2022, gross margin was 22%, compared to 37% during the same period in 2021. Gross margin for the three months ended June 30, 2022 improved compared to gross margin for the first quarter of 2022, which was 15%. The improvement in gross margin was primarily due to improvements in chip yield during the second quarter of 2022. Cost of product revenue increased primarily due to increased instrument and flowcell sales volume, but was also negatively impacted by unfavorable flowcell yields in the production cycle, which is in part attributable to COVID-19. Our gross margins for the three months ended June 30, 2022 were affected by the unfavorable flowcell yields in the production cycle which led to increased scrap and quality control costs during the second quarter of 2022. If we are unable to solve the unfavorable flowcell yield issue, it could lead to lower gross margins in future periods. Cost of service and other revenue increased primarily due to increased maintenance and service costs on our increased installed base, as
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well as increased service expenses related to our laboratory services. We expect cost of product and service and other revenue to continue to increase as we continue to increase our installed base and the number of customers purchasing laboratory services
Research and Development Expenses
Research and development, or R&D, expenses increased by $7.7 million, or 188%, to $11.8 million for the three months ended June 30, 2022 compared to $4.1 million for the same period in 2021. The increase is primarily due to a $5.5 million increase in compensation expenses, of which $3.1 million relates to stock-based compensation expense, and an increase of $1.8 million in product development costs. The increase in compensation expense is primarily driven by increased headcount. We anticipate future additions to our development teams as well as continued increases to our product development costs and, thus, future increases to R&D expenses.
We expect R&D expenses to increase in the remainder of 2022 relative to 2021 as we have added headcount in order to support our efforts to develop more scalable and efficient manufacturing workflows, expand the utility of Saphyr, and develop the next versions of OGM products – including integration of OGM data into our NxClinical software. We expect that stock based compensation will continue to drive a significant portion of the increase in expense in the remainder of 2022 as a result of the stock issued as consideration in the BioDiscovery acquisition, which primarily rolls up into R&D expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $8.0 million, or 58%, to $21.8 million for the three months ended June 30, 2022 compared to $13.8 million for the same period in 2021. The increase is primarily due to a $4.1 million increase in compensation expenses, of which $0.9 million relates to stock-based compensation, a $1.3 million increase in amortization of intangibles related to the acquisition of BioDiscovery, a $0.6 million increase in marketing expenses, and a $0.4 million increase in other headcount-related expenses. The increase in compensation expense is driven primarily by increased headcount. This is due to growth in our global sales, service, and back-office teams to facilitate the expanding customer base, as well as headcount additions attributed to the acquisition of BioDiscovery. We anticipate headcount additions to our global sales and back-office teams in the coming 12 months. Other headcount-related expenses included the cost of recruiting, temporary employment, and facilities expenses incurred in order to support increased product demand.
We expect selling, general, and administrative expenses to increase in the remainder of 2022 due to our continuing investment in growing and supporting our customer base. We expect stock based compensation to continue to drive a significant portion of the increase in expense in the remainder of 2022 due to stock option awards issued to senior-level fourth quarter 2021 hires as well as annual refresher grants issued to executives and non-executives in February 2022.
Interest Expense
Interest expense decreased by $0.2 million, or 72%, to $0.07 million for the three months ended June 30, 2022 compared to $0.3 million for the same period in 2021, driven by us paying off the outstanding principal balance of our outstanding term loan with Innovatus, or the Innovatus LSA, during the three months ended June 30, 2021.
Interest Income
Interest income was $0.2 million for the three months ended June 30, 2022, as compared to $58,000 for the same period in 2021 resulting from positive returns on investments. Our total available for sale securities balance was $160.2 million as of June 30, 2022.
Loss on debt extinguishment
A loss on debt extinguishment of $2.1 million was recognized during the three months ended June 30, 2021 in connection with our payment in full of the term loan under the Innovatus LSA, including all accrued interest, an end of term fee, a prepayment fee, and write-off of unamortized debt issuance costs.
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Comparison of the Six Months Ended June 30, 2022 and 2021
The following table sets forth our results of operations for the six months ended June 30, 2022 and 2021:
Six Months Ended June 30, Period-to-Period Change
2022
2021 $ %
Revenues:        
Product revenue $ 7,029,000  $ 4,545,000  $ 2,484,000  55  %
Service and other revenue 5,337,000  2,479,000  2,858,000  115  %
Total revenue 12,366,000  7,024,000  5,342,000  76  %
Cost of revenue:    
Cost of product revenue 7,549,000  3,383,000  4,166,000  123  %
Cost of other revenue 2,485,000  1,159,000  1,326,000  114  %
Total cost of revenue 10,034,000  4,542,000  5,492,000  121  %
Operating expenses:    
Research and development 22,296,000  6,765,000  15,531,000  230  %
Selling, general and administrative 42,060,000  23,357,000  18,703,000  80  %
Total operating expenses 64,356,000  30,122,000  34,234,000  114  %
Loss from operations (62,024,000) (27,640,000) (34,384,000) 124  %
Other income (expenses):
Interest income 301,000  123,000  178,000  145  %
Interest expense (151,000) (871,000) 720,000  (83) %
Loss on debt extinguishment —  (2,076,000) 2,076,000  —  %
Gain on forgiveness of Paycheck Protection Program Loan —  1,775,000  (1,775,000) (100) %
Other income (expenses) (188,000) (29,000) (159,000) 548  %
Total other income (expenses) (38,000) (1,078,000) 1,040,000  (96) %
Loss before income taxes (62,062,000) (28,718,000) (33,344,000) 116  %
Provision for income taxes (50,000) (15,000) (35,000) 233  %
Net loss $ (62,112,000) $ (28,733,000) $ (33,379,000) 116  %
Revenue
Total revenue increased by $5.3 million, or 76%, to $12.4 million for the six months ended June 30, 2022 compared to $7.0 million for the same period in 2021. The increase in product sales was driven by increased demand for our Saphyr OGM solutions, including an increase in instrument installed base (62%) and flowcell units sold (24%), when compared to the same period last year. The increased demand for our reagent rental program continues to drive a significant portion of the increase in consumable sales. We believe increased demand for our OGM systems was primarily driven by increased market awareness and additional published data demonstrating the utility of OGM. While not immune to the negative effects caused by COVID-19 and other geopolitical events, we expect revenue to increase as market awareness and published data of OGM utility increases. The increase in service and other revenue was primarily driven by $2.2 million in revenues generated by our BioDiscovery subsidiary, which was acquired in October 2021.
Cost of Revenue
Cost of revenue increased by $5.5 million, or 121%, to $10.0 million for the six months ended June 30, 2022 compared to $4.5 million for the same period in 2021. Cost of product revenue increased primarily due to increased instrument and flowcell sales volume, but was also negatively impacted by unfavorable flowcell yields in the production cycle, which is in part attributable to COVID-19. Our gross margins for the six months ended June 30, 2022 were affected by the unfavorable flowcell yields in the production cycle which led to increased scrap and quality control costs during the first half of 2022. If we are unable to solve the unfavorable flowcell yield issue, it could lead to lower gross margins in future periods. Cost of service and other revenue increased primarily due to increased maintenance and service costs on our increased installed base, as well as increased service expenses related to our laboratory services. We expect cost of product and service and other revenue to continue to increase as we continue to increase our installed base and the number of customers purchasing laboratory services.
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Research and Development Expenses
R&D expenses increased by $15.5 million, or 230%, to $22.3 million for the six months ended June 30, 2022 compared to $6.8 million for the same period in 2021. The increase is primarily due to a $11.6 million increase in compensation expenses, of which $6.3 million relates to stock-based compensation expense, and an increase of $3.1 million in product development costs. The increase in compensation expense is primarily driven by increased headcount. We anticipate future additions to our development teams as well as continued increases to our product development costs and, thus, future increases to R&D expenses.
We expect R&D expenses to increase in the remainder of 2022 relative to 2021 as we have added headcount in order to support our efforts to develop more scalable and efficient manufacturing workflows, expand the utility of Saphyr, and develop the next versions of OGM products – including integration of OGM data into our NxClinical software. We expect that stock based compensation will continue to drive a significant portion of the increase in expense in the remainder of 2022 as a result of the stock issued as consideration in the BioDiscovery acquisition, which primarily rolls up into R&D expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $18.7 million, or 80%, to $42.1 million for the six months ended June 30, 2022 compared to $23.4 million for the same period in 2021. The increase is primarily due to a $9.9 million increase in compensation expenses, of which $2.4 million relates to stock-based compensation, a $2.7 million increase in amortization of intangibles related to the acquisition of BioDiscovery, a $1.8 million increase in marketing expenses, and a $1.0 million increase in other headcount-related expenses. The increase in compensation expense is driven primarily by increased headcount. This is due to growth in our global sales, service, and back-office teams to facilitate the expanding customer base, as well as headcount additions attributed to the acquisition of BioDiscovery. We anticipate headcount additions to our global sales and back-office teams in the coming 12 months. Other headcount-related expenses included the cost of recruiting, temporary employment, and facilities expenses incurred in order to support increased product demand.
We expect selling, general, and administrative expenses to increase in the remainder of 2022 due to our continuing investment in growing and supporting our customer base. We expect stock based compensation to continue to drive a significant portion of the increase in expense in the remainder of 2022 due to stock option awards issued to senior-level fourth quarter 2021 hires as well as annual refresher grants issued to executives and non-executives in February 2022.
Interest Expense
Interest expense decreased by $0.7 million, or 83%, to $0.2 million for the six months ended June 30, 2022 compared to $0.9 million for the same period in 2021, driven by us paying off the outstanding principal balance of our outstanding term loan under the Innovatus LSA during the six months ended June 30, 2021.
Interest Income
Interest income was $0.3 million for the six months ended June 30, 2022, as compared to $0.1 million for the same period in 2021 resulting from positive returns on investments. Our total available for sale securities balance was $160.2 million as of June 30, 2022.
Loss on debt extinguishment
A loss on debt extinguishment of $2.1 million was recognized during the six months ended June 30, 2021 in connection with our payment in full of the term loan under the Innovatus LSA, including all accrued interest, an end of term fee, a prepayment fee, and write-off of unamortized debt issuance costs.
Gain on forgiveness of Paycheck Protection Program loan
A gain on forgiveness of our Paycheck Protection Program loan, or PPP Loan, of $1.8 million was recognized during the six months ended June 30, 2021 in connection with the forgiveness of the PPP Loan in full, including all accrued interest.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have incurred net losses and negative cash flows from operations. We have primarily generated cash flows from sales of equity securities and debt financings. We anticipate that future sources of liquidity will principally come from sales of common stock and other equity instruments, borrowings from credit facilities and revenue from our commercial operations. Revenue from our commercial operations has increased due to increased demand for our product offerings and our acquisition of revenue-positive BioDiscovery. See Note 6 to our condensed consolidated financial statements for a discussion of our recent equity activity included elsewhere in this Quarterly Report on Form 10-Q for more information. We incurred net losses of $62.1 million and $28.7 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $278.2 million, cash and cash equivalents of $27.2 million, and available for sale investment
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securities of $160.2 million. As of December 31, 2021, we had an accumulated deficit of $216.1 million, cash and cash equivalents of $24.6 million, and available for sale investment securities of $226.0 million.
Future Capital Requirements
We expect that our near and longer-term liquidity requirements will consist of working capital and general corporate expenses associated with the growth of our business, including, without limitation, expenses associated with scaling up our operations and continuing to increase our manufacturing capacity, sales and marketing expense, increasing market awareness of our products and services to target customers, instrument placements with customers via the reagent rental sales strategy, additional research and development expenses associated with expanding our offerings, expenses associated with continuing to build out our corporate infrastructure and expenses associated with being a public company. Our short-term capital expenditure needs relate primarily to the ongoing build out of our facilities, service lab and service-related capabilities, research and development expenses related to current and future product offerings, and enhancements to information technology. We expect such expenditures to continue throughout 2022.
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): Six Months Ended June 30,
2022 2021
 
Operating activities $ (60,826,000) $ (26,323,000)
Investing activities 63,204,000  50,000 
Financing activities 210,000  320,378,000 
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 the growth of 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. We anticipate our use of cash in operating activities to increase in the next 12 to 24 months due to anticipated increases in headcount and ongoing support of our growing operations, including, R&D operations. As discussed below, we anticipate our available cash balance will be sufficient to fund those increases in cash used in operating activities for at least the next 12 months, but we may consider funding those increases or increases beyond the next 12 months with the methods discussed in the section below entitled “Capital Resources.”
Net cash used in operating activities was $60.8 million during the six months ended June 30, 2022 as compared to $26.3 million during the same period in 2021. The increase in cash used in operating activities of $34.5 million was primarily attributed to an incremental headcount growth compared to our headcount as of June 30, 2021.
Investing Activities
Historically, our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure, the acquisitions of Lineagen and BioDiscovery to grow our business, and purchases of available for sale investment securities. We expect to continue to incur additional costs for capital expenditures related to these efforts in future periods. During the six months ended June 30, 2022, cash provided by investing activities was $63.2 million, as compared to $0.05 million during the same period in 2021. The increase in cash provided by investing activities of $63.2 million was primarily attributed to the sale of $93.5 million in available for sale securities, offset by a purchase of $29.5 million in available for sale securities.
Financing Activities
Net cash provided by financing activities was $0.2 million during the six months ended June 30, 2022 as compared to the same period in 2021 where we had net cash provided by financing activities of $320.4 million, a decrease of $320.2 million. During the six months ended June 30, 2021, we raised approximately $328.6 million in gross proceeds from executing two follow-on offerings and sales under our at-the-market facilities with Ladenburg Thalmann & Co. Inc., or Ladenburg, and Cowen and Company, LLC, or Cowen. We did not have similar fundraising activity in the six months ended June 30, 2022.
Paycheck Protection Program
In April 2020, we received loan proceeds of approximately $1.8 million, or the PPP Loan, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, administered by the U.S. Small Business Administration, or the SBA.
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The PPP Loan accrued interest at a rate of 1.00% per annum, and is subject to the standard terms and conditions applicable to loans administered by the SBA under the CARES Act. In February 2021, we applied for forgiveness of the PPP Loan and, in March 2021, the PPP Loan, including all accrued interest, was forgiven in full.
The PPP Loan is also described in Note 5 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Capital Resources
As of June 30, 2022, we had approximately $27.2 million in cash and cash equivalents, available for sale securities of $160.2 million, and working capital of $188.4 million.
In August 2020, we filed a shelf registration statement on Form S-3 with the SEC covering the offering, issuance and sale of up to $125.0 million of our securities, including up to $40.0 million of common stock pursuant to an At Market Issuance Sales Agreement, with Ladenburg acting as sales agent, or the Ladenburg ATM. During October 2020 through January 2021, we sold 27.0 million shares of common stock under the Ladenburg ATM and received net proceeds of $38.0 million after deducting aggregate offering costs. We terminated the Ladenburg ATM in March 2021.
On January 12, 2021, we completed an underwritten public offering of 33.4 million shares of our common stock, including 4.4 million shares of our common stock sold pursuant to the underwriters’ exercise in full of their option to purchase additional shares. The price to the public in the offering was $3.05 per share and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $2.87 per share. The gross proceeds to us were approximately $101.8 million before deducting underwriting discounts and commissions and other offering expenses.
On January 19, 2021, we filed an automatically effective shelf registration statement on Form S-3 (File No. 333-252216) with the U.S. Securities and Exchange Commission, or SEC, as a “well-known seasoned issuer.” The registration statement allows us to issue an indeterminate number or amount of common stock, preferred stock, debt securities and warrants from time to time in one or more offerings. However, there can be no assurance that we will complete any future offerings of securities. Any future offerings under this registration statement will be dependent upon, among other factors, market conditions, available pricing, our financial condition, investor perception of our prospects, our capital needs and our ability to maintain status as a well-known seasoned issuer. Further, as of June 30, 2022, as a consequence of our re-qualification as a “smaller reporting company,” we may lose “well-known seasoned issuer” status at the time we file our Annual Report on Form 10-K for the fiscal year ending December 31, 2022 if the worldwide market value of our voting and non-voting common equity held by our non-affiliates does not equal $700.0 million or more, calculated as of a date within 60 days prior to filing such report. If that were to occur and we were no longer considered a well-known seasoned issuer, we anticipate needing to amend our automatically effective shelf registration statement on Form S-3 prior to our filing of such annual report (or earlier if required by the Securities Act or the rules and regulations of the SEC) in order to sell securities under that Form S-3 on an ongoing basis.
On January 25, 2021, we completed an underwritten public offering pursuant to our shelf registration statement of 38.3 million shares of our common stock, including 5.0 million shares of our common stock sold pursuant to the underwriters’ exercise in full of their option to purchase additional shares. The price to the public in the offering was $6.00 per share, and the underwriters purchased the shares from us pursuant to the underwriting agreement at a price of $5.64 per share. The gross proceeds to us were approximately $230.0 million before deducting underwriting discounts and commissions and other offering expenses.
On March 23, 2021, we entered into a Sales Agreement with Cowen pursuant to which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $350.0 million, through or to Cowen, acting as sales agent or principal, or the Cowen ATM. In August and September 2021, the Company sold 2.3 million shares of common stock under the Cowen ATM at an average share price of $6.15 per share, and received gross proceeds of approximately $13.9 million before deducting offering costs of $0.6 million. There were no sales of common stock under the Cowen ATM from January 1, 2022 to June 30, 2022.
We believe that our cash, cash equivalents, and available for sale securities will be sufficient to fund our planned operations, obligations as they become due and capital investments for at least the next twelve months. This estimate is based on our current business plan. This estimate does not reflect any additional expenditures resulting from potential acquisitions or strategic transactions. We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. See Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.
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Contingent Consideration
As part of the merger agreement related to the acquisition of BioDiscovery, the Company agreed to pay a milestone payment of $10.0 million in cash contingent on the achievement of a commercial milestone within eighteen months of the acquisition date. The Company determined the fair value of the milestone consideration using a scenario-based technique, as the trigger for payment is event driven. The outcome of the milestone consideration is binary, meaning the milestone is either achieved or not achieved, and the only other variable factor is the timing of when the milestone is achieved. The Company determined it is highly likely that the milestone will be achieved and therefore used a 95% probability factor which is applied to the $10.0 million milestone consideration. Based on these valuation assumptions, the fair value of the milestone consideration was determined to be $9.2 million as of June 30, 2022. During the three months ended June 30, 2022, the milestone consideration liability was reclassified from non-current liabilities to current liabilities.
Contractual Obligations
There were no material changes to our contractual obligations from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our 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 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.
During the three and six months ended June 30, 2022, there have been no changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Recent Accounting Pronouncements
See Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information concerning recent accounting pronouncements.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of business. These risks primarily relate to interest rates, foreign currency exchange rates and inflation.
Interest Rate Risk
We had approximately $27.2 million in cash and cash equivalents and $160.2 million in available for sale securities as of June 30, 2022, which include highly liquid, investment grade debt securities. Such interest-bearing instruments are exposed to a certain degree of interest rate risk. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. To achieve this objective, we invest in highly liquid and high-quality government and other debt securities. To minimize our exposure due to adverse shifts in interest rates, we invest primarily in short-term securities.
Although we are seeing, and expect to continue to see, increased interest rates, due to our investment in highly liquid and high quality government and other debt securities as well as short-term securities, as of the date of this Quarterly Report on Form 10-Q, we do not expect anticipated changes in interest rates to have a material effect on our interest rate risk in future reporting periods. Due to the short holding period of our investments and the nature of our investments, a hypothetical change of 100 basis points would have approximately a $0.6 million impact on our investments.
Our liabilities for acquisition-related contingent consideration, which is adjusted to fair value each reporting period, is also impacted by changes in interest rates. The risk-free interest rate used to estimate our weighted average cost of capital is a component of the discount rate used to calculate the present value of future cash flows due upon the achievement of certain milestones. As a result, any changes in the underlying risk-free interest rate could result in material changes to the fair value of such liabilities and could materially impact the amount of non-cash expense (or income) recorded each reporting period. As a consequence of the U.S. Federal Reserve raising interest rates, the underlying risk-free interest rate we use for purposes of calculating fair value of our liabilities for acquisition-related contingent consideration has increased from our prior reporting
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periods, but such increase did not have a material impact on our financial statements, and we currently do not expect anticipated future changes to have a material effect in future reporting periods.
Foreign Currency Exchange Rate Risk
We conduct a portion of our business in currencies other than our U.S. dollar functional currency. These transactions give rise to monetary assets and liabilities that are denominated in currencies other than the U.S. dollar. The value of these monetary assets and liabilities are subject to changes in currency exchange rates from the time the transactions are originated until settlement in cash. Our foreign currency exposures are primarily concentrated in the British Pound, Chinese Renminbi, Euro, and Canadian dollar. Both realized and unrealized gains or losses on the value of these monetary assets and liabilities are included in the determination of net income. We do not currently participate in material foreign exchange hedging activities. As of June 30, 2022 and December 31, 2021, we had minimal assets and liabilities denominated in foreign currencies and expect similar levels of foreign currency denomination in the next 12 months. We believe a hypothetical 10% change in foreign exchange rates as of June 30, 2022 would not have a material impact on our business, financial condition, or results of operations.
Inflation
The COVID-19 pandemic and other geopolitical and macroeconomic events, including the conflict between Ukraine and Russia and related sanctions, have contributed to supply chain challenges, which we believe have resulted in inflation headwinds, particularly increased logistical costs and raw material prices. During the three and six months ended June 30, 2022, we experienced increased costs to secure certain component parts in our products and to produce our products at our contract manufacturers. However we do not believe that inflation has had a material effect on our business, financial condition or results of operations, other than its impact on the general economy, as our cost of revenue for the three and six months ended June 30, 2022 was not significantly impacted by the cost increases we experienced. While the effects of the COVID-19 pandemic and other macroeconomic events as well as other inflationary pressures, are highly uncertain, as of the date of this Quarterly Report on Form 10-Q, we do not expect anticipated changes in inflation to have a material effect on our business, financial condition or results of operations for future reporting periods other than the general impacts on companies due to general economic and market conditions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition or results of operations.
ITEM 4.    CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As of June 30, 2022, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this assessment, our management, including our principal executive officer and principal financial officer, has concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control over Financial Reporting
Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we carried out an evaluation of any potential changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report on Form 10-Q. Except as described below, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In October 2021, we acquired BioDiscovery LLC. We are in the process of integrating the internal controls of the acquired business into our overall system of internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
RISK FACTOR SUMMARY
Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, and other risks and uncertainties that we face, are set forth below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report and our other filings with the SEC before making investment decisions regarding our securities.
We are an early-commercial-stage company and have a limited commercial history, which may make it difficult to evaluate our current business and predict our future performance;
We have incurred recurring net losses since we were formed and expect to incur losses in the future. We cannot be certain that we will achieve or sustain profitability;
Our quarterly and annual operating results and cash flows have fluctuated in the past and might continue to fluctuate, which makes our future operating results difficult to predict and could cause the market price of our securities to decline substantially;
Our future capital needs are uncertain and we may require additional funding in the future to advance the commercialization of Saphyr system, NxClinical software and our other products, technologies, and services, as well as continue our research and development efforts. If we fail to obtain additional funding, we will be forced to delay, reduce or eliminate our commercialization and development efforts;
Our business, and that of our customers, has been adversely affected by the effects of public health crises, including the COVID-19 pandemic. In particular, the COVID-19 pandemic has materially affected our operations globally, including at our headquarters in San Diego, California, as well as the business or operations of our research partners, customers and other third parties with whom we conduct business;
Acquisitions, joint ventures and other strategic transactions could disrupt or otherwise harm our business and may cause dilution to our stockholders;
If our products or technologies fail to achieve and sustain sufficient market acceptance, our revenue will be adversely affected;
In the near term, sales of our Saphyr system, the NxClinical software, our consumables and genome analysis services will depend on levels of research and development spending by clinical research laboratories, academic and governmental research institutions and biopharmaceutical companies, a reduction in which could limit demand for our technologies and products and adversely affect our business and operating results;
If we do not successfully manage the development and launch of new products and technologies, our financial results could be adversely affected;
Our future success is dependent upon our ability to further penetrate our existing customer base and attract new customers;
We are currently limited to “research use only” with respect to many of the materials and components used in our consumable products including our assays;
If the FDA determines that our RUO products are medical devices or if we seek to market our RUO products for clinical diagnostic or health screening use, we will be required to obtain regulatory clearance(s) or approval(s), and may be required to cease or limit sales of our then marketed products, which could materially and adversely affect our business, financial condition and results of operations. Any such regulatory process would be expensive, time-consuming and uncertain both in timing and in outcome;
If we are unable to protect our intellectual property, it may reduce our ability to maintain any technological or competitive advantage over our competitors and potential competitors, and our business may be harmed; and
The price of our securities has been and may in the future be volatile or may decline regardless of our operating performance, and you could lose all or part of your investment.
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, together with other information in this Quarterly Report on Form 10-Q and our other filings with the SEC, before making investment decisions regarding our securities. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. The risks described below are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. We have marked with an asterisk (*) those risk factors that reflect changes from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K.
Risks related to our financial condition and need for additional capital
We are an early commercial-stage company and have a limited commercial-history, which may make it difficult to evaluate our current business and predict our future performance.
We are an early commercial-stage company and have a limited commercial history. Our limited commercial history may make it difficult to evaluate our current business and, especially when combined with the other risk factors listed in this section, makes predictions about our future success or viability subject to significant uncertainty. In particular, we have significantly increased our headcount through recent acquisitions of other businesses and the expansion of our sales, marketing and research and development teams, which has increased our operating costs in a manner not historically reflected in our consolidated financial statements, and plan to further increase headcount as we expand our operations. Our business model has evolved over time, and combined with our recent acquisitions, this has impacted the composition and concentration of our revenues, which we expect to continue to change with any future acquisitions and further expansion of our operations. These changes, among others, may make it difficult to evaluate our current business, assess our future performance relative to prior performance and accurately predict our future performance. We have encountered in the past, and will continue to encounter in the future, risks and difficulties frequently experienced by early commercial-stage companies, including those associated with scaling up our infrastructure, increasing the size of our organization and integrating acquired businesses. If we do not address these risks successfully, or if our assumptions regarding these risks and uncertainties are incorrect or change over time, our results of operations could differ materially from our expectations and our business, financial condition and results of operations could be materially and adversely affected.
We have incurred recurring net losses since we were formed and expect to incur losses in the future. We cannot be certain that we will achieve or sustain profitability.*
Since our inception, we have incurred recurring net losses. We incurred net losses of $62.1 million and $28.7 million, and used cash in operations of $60.8 million and $26.3 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $278.2 million. We cannot predict if we will be profitable in the near future or at all. We expect that our losses will continue for the foreseeable future as we plan to invest significant additional funds toward the expansion of our commercial organization, research and development efforts and capital expenditures, among other things. Our recent acquisitions have increased our expenses and we expect that any future acquisitions of businesses, assets, products or technologies will further increase our expenses, which may result in additional losses. We also expect significant increases in our stock-based compensation expense in future periods, reflecting higher stock option valuations as a public company and the issuance of additional equity awards due to increased headcount. In addition, we incur significant legal, accounting and other expenses as a result of being a public company, especially as we no longer qualify as an emerging growth company and are therefore required to comply with additional disclosure and compliance requirements. These factors, among others, will make it hard for us to achieve and sustain profitability. We may also incur significant losses in the future for a number of other reasons, many of which are beyond our control, including the level of market acceptance of our products, the introduction of competitive products and technologies, our future product development efforts, our market penetration and our margins, as well as the other risks described below.
Our quarterly and annual operating results and cash flows have fluctuated in the past and might continue to fluctuate, which makes our future operating results difficult to predict and could cause the market price of our securities to decline substantially.*
Numerous factors, many of which are outside our control, may cause or contribute to significant fluctuations in our quarterly and annual operating results. These fluctuations may make financial planning and forecasting uncertain and may result in unanticipated decreases in our available cash, which could negatively affect our business and prospects. In addition, one or more of such factors may cause our revenue or operating expenses in one period to be disproportionately higher or lower relative to the other periods. As a result, comparing our operating results on a period-to-period basis might not be meaningful. You should not rely on our past results as indicative of our future performance. Moreover, our stock price might be based on
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expectations of future performance that are unrealistic or that we might not meet and, if our revenue or operating results fall below the expectations of investors or securities analysts, the price of our securities could decline substantially.
Our operating results have varied in the past. In addition to other risk factors listed in this section, some of the important factors that, alone or together, may cause fluctuations in our quarterly and annual operating results include:
adoption of our optical genome mapping solutions on our Saphyr system or successor systems;
the successful integration of our Lineagen and BioDiscovery businesses;
execution on our commercial and reimbursement strategy involving Lineagen;
customer demand for current BioDiscovery software solutions, including NxClinical software, and future software solutions developed through BioDiscovery’s platform;
the timing of customer orders and payments and our ability to recognize revenue;
the rate of utilization of consumables by our customers;
reductions in or other difficulties relating to staffing, capacity, shutdowns or slowdowns of laboratories and other institutions in our customer base, as well as other impacts stemming from the COVID-19 pandemic or other similar factors, such as reduced or delayed investment in new technologies or spending on products, technologies or consumables;
differences in purchasing patterns across our customer base, including potential differences in consumables spending between earlier adopters of our technologies and more recent customers and variances in rates of increase of consumables spending following new technology purchases, some of which may be compounded by impacts of the COVID-19 pandemic;
geopolitical events, such as the conflict between Ukraine and Russia and related sanctions, and macroeconomic conditions, such as inflation, increased cost of goods, supply chain issues, and global financial market conditions;
our ability to successfully integrate new personnel, technology and other assets that we may acquire into our company;
the timing of the introduction of new systems, products, technologies, system and product enhancements and services;
changes in governmental funding of life sciences research and development or other changes that impact budgets, budget cycles or seasonal or other spending patterns of our customers;
future accounting pronouncements or changes in our accounting policies; and
the outcome of any current or future litigation or governmental investigations involving us or other third parties with whom we do business.
In addition, a significant portion of our operating expenses are relatively fixed in nature, and planned expenditures are based in part on expectations regarding future revenue. Accordingly, unexpected revenue shortfalls could decrease our gross margins and cause significant changes in our operating results from quarter to quarter. If this occurs, the trading price of our securities could fall substantially. This variability and unpredictability caused by factors such as those described above and elsewhere in this section could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any guidance we may provide, or if the guidance we provide is below the expectations of analysts or investors, the price of our securities could decline substantially. Such a stock price decline could occur even when we have met or exceeded any previously publicly stated guidance.
If we are unable to maintain adequate revenue growth or do not successfully manage such growth, our business and growth prospects will be harmed.
We may not achieve substantial growth rates in future periods. Investors should not rely on our operating results for any prior periods as an indication of our future operating performance. To effectively manage our anticipated future growth, we must continue to maintain and enhance our financial, accounting, manufacturing, customer support and sales administration systems, processes and controls. Failure to effectively manage our anticipated growth could lead us to over-invest or under-invest in development, operational and administrative infrastructure; result in weaknesses in our infrastructure, systems, or controls; give rise to operational mistakes, losses, loss of customers, productivity or business opportunities; and result in loss of employees and reduced productivity of remaining employees.
Our continued growth could require significant capital expenditures and might divert financial resources from other projects such as the development of new products, technologies and services. As additional products and technologies are commercialized, we may need to incorporate new equipment, implement new technology systems, or hire new personnel with different qualifications. Failure to manage this growth or transition could result in turnaround time delays, higher product costs,
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declining product quality, deteriorating customer service, and slower responses to competitive challenges. A failure in any one of these areas could make it difficult for us to meet market expectations for our products and technologies, and could damage our reputation and the prospects for our business.
If our management is unable to effectively manage our anticipated growth, our expenses may increase more than expected, our revenue could decline or grow more slowly than expected and we may be unable to implement our business strategy. The quality of our products, technologies and services may suffer, which could negatively affect our reputation and harm our ability to retain and attract customers.
Our future capital needs are uncertain and we may require additional funding in the future to advance the commercialization of our Saphyr system, NxClinical software, and our other products, technologies and services, as well as continue our research and development efforts. If we fail to obtain additional funding, we will be forced to delay, reduce or eliminate our commercialization and development efforts.*
Our operations have consumed substantial amounts of cash since our inception. We expect to continue to spend substantial amounts of cash in order to continue the commercialization of our products and technologies, fund our research and development programs, expand headcount and execute potential strategic transactions. Although we raised $384.7 million of gross proceeds during 2021, we may need to raise additional funding, or we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. Such funding may mean the sale of common or preferred equity or convertible debt securities, entry into one or more credit facilities or another form of third-party funding, or seeking other debt financing. We may also consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons, including to:
expand our sales and marketing efforts to further commercialize our products, technologies and services and address competitive developments;
expand our research and development efforts to improve our existing products, technologies and services and develop and launch new products, technologies and services, particularly if any of our products, technologies and services are deemed by the U.S. Food and Drug Administration, or FDA, to be medical devices or otherwise subject to additional regulation by the FDA;
pursue a regulatory path with the FDA, or a regulatory body outside the United States, to market our existing RUO products or new products utilized for diagnostic purposes;
lease additional facilities or build-out existing facilities as we continue to grow our employee headcount, inventory and research and development;
further expand our operations outside the United States;
enter into collaboration arrangements, if any, or in-license products and technologies;
acquire or invest in complimentary businesses or assets;
add operational, financial and management information systems; and
cover increased costs incurred as a result of continued operation as a public company, including costs resulting from our no longer qualifying as an emerging growth company and a smaller reporting company and becoming a large accelerated filer.
Our future funding requirements will be influenced by many factors, including:
market acceptance of our products, technologies and services, and the variability in costs to achieve such acceptance;
the cost and timing of establishing additional sales, marketing and distribution capabilities;
the cost of our research and development activities;
our ability to satisfy any outstanding or future debt obligations;
increasing interest rates;
the success of our existing distribution and marketing arrangements and our ability to enter into additional arrangements in the future;
the effects of the ongoing military conflict between Russia and Ukraine and the related sanctions imposed against Russia;
the effects of the COVID-19 pandemic; and
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the effect of competing technological and market developments.
The various ways we could raise additional capital carry potential risks. We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Any equity or debt securities we issue could provide for rights, preferences, or privileges senior to those of holders of our common stock. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us.
However, global economic conditions have been worsening, with disruptions to, and volatility in, the credit and financial markets in the U.S. and worldwide resulting from the effects of COVID-19 and otherwise. If these conditions persist and deepen, we could experience an inability to access additional capital. If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our technologies and products. We also may have to reduce marketing, customer support or other resources devoted to our products or technologies or cease operations. Any of these factors could have a material adverse effect on our financial condition, operating results and business. Any of the foregoing could significantly harm our business, prospects, financial condition and results of operation and could cause the price of our securities to decline.
Our business, and that of our customers, has been adversely affected by the effects of public health crises, including the COVID-19 pandemic. In particular, the COVID-19 pandemic has materially affected our operations globally, including at our headquarters in San Diego, California, as well as the business or operations of our research partners, customers and other third parties with whom we conduct business.*
Our business could be adversely affected by health crises in regions where we have operations, concentrations of sales and marketing teams, distributors or other business operations. Such health crises could also affect the business or operations of our research partners, customers and other third parties with whom we conduct business. In particular, the evolving effects of the COVID-19 pandemic and government measures taken in response have had significant impacts, both direct and indirect, on businesses and commerce, as significant reductions in business-related activities have occurred, supply chains have been disrupted, manufacturing and clinical development activities have been curtailed or suspended and enrollment in studies has been limited or made more difficult. Continued remote work policies, quarantines, shelter-in-place and similar government orders, shutdowns or other restrictions on the conduct of business operations related to the effects of the COVID-19 pandemic have materially affected and may continue to materially affect how we, our customers, and our suppliers are operating our businesses.
In response to public health directives and orders implemented in response to the COVID-19 pandemic, we have implemented work-from-home policies for certain employees. We have also modified certain business practices, including those related to employee travel and cancellation of physical participation in meetings, events and conferences, and implemented new protocols to promote social distancing and enhance sanitary measures in our offices and facilities. The quarantine of our personnel and the inability to access our facilities or customer sites has adversely affected, and is expected to continue adversely affecting, our operations, namely in sales and marketing and product delivery, including providing installation and training and customer service, which has and may continue to slow the pace of our commercial strategy. For example, we experienced at various times during the pandemic the inability to visit certain customer sites to support installation or service our OGM systems. As a result, in the past, we have had to delay instrument installations or service related visits. In addition, certain members of our workforce are now performing their duties remotely and these employees have not been able to maintain the same level of productivity and efficiency due a lack of resources that would otherwise be available to them in our offices and additional demands on their time, such as increased responsibilities resulting from school closures or the illness of family members. Furthermore, our remote workforce poses increased risks to our information technology systems and data as more of our personnel leverage resources not necessarily within our control.
The effects of these public health directives and orders and our related adjustments in our business have negatively impacted productivity, disrupted our business and delayed our timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. The spread of COVID-19 has resulted in a widespread health crisis that is also adversely affecting economies and financial markets globally, including inflation higher than we have seen in decades, which may negatively affect demand for our products, technologies and services and materially affect us financially. For example, customers who have committed to order minimum quantities of consumables or to purchase our Saphyr instrument have delayed these commitments. Further, restrictions on our ability to travel, stay-at-home orders and other similar restrictions on our business have limited our ability to support our global and domestic operations, including providing installation and training and customer service, resulting in disruptions in our sales and marketing efforts and negative impacts on our commercial strategy. In addition, despite the increased availability of vaccines, due to the continuing and evolving nature of the COVID-19 pandemic and the potential for periods of increases in case numbers and emergence and spread of COVID-19 variants in markets and communities where we, our customers, and our suppliers are
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operating our businesses, it is not possible for us to accurately predict the duration or magnitude of the adverse impacts of the pandemic and its effects on our business, results of operations, or financial condition. The COVID-19 pandemic may also have long-term effects on the nature of the office environment and remote working, which may present strategy, operational, talent recruiting and retention, and workplace culture challenges that may adversely affect our business.
As public health directives surrounding the pandemic have relaxed, our offices have reopened and we have begun permitting travel and in-person events, taking into consideration government restrictions, employee safety and health risks. Our approach may vary among geographies depending on appropriate health protocols, and may change at any time. Additionally, our efforts to reopen our offices safely may not be successful, could expose our employees to health risks, and could involve additional costs or liability. To the extent our employees are exposed to or become ill with COVID-19, our ability to conduct our operations may be impaired from time to time.
In addition, disruption of global financial markets as a result of COVID-19 may limit our ability to access capital, which could negatively affect our liquidity. A recession or market correction resulting from the spread of COVID-19 could also materially affect our business and the value of our securities even after the outbreak of COVID-19 has subsided due to, among other things, unforeseen adverse impacts on us or our third-party manufacturers, vendors and customers. Such a recession could also cause product demand to be reduced, a decrease in corporate capital expenditures, prolonged unemployment, reduction in consumer confidence and similar negative economic conditions.
Also, in connection with our Lineagen diagnostic services, COVID-19 poses the risk that we or our employees, contractors, suppliers, courier delivery services and other partners may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. The continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt the supply chain of materials needed for our diagnostic tests, interrupt our ability to receive specimens, impair our ability to perform or deliver the results from our tests, impede patient movement or interrupt healthcare services causing a decrease in test volumes, delay coverage decisions from Medicare and third-party payors, delay ongoing and planned clinical studies involving our tests, negatively affect enrollment in our ongoing or future studies, cause us to make strategic determinations regarding, among other things, the cost and quality of the components and supplies we acquire, and have a material adverse effect on our business, financial condition and results of operations. For example, COVID-19 related disruptions to the global supply chain created challenges in getting sufficient components and raw materials for production of our OGM systems and consumables, as well as resulted, at least in part, in the unfavorable flowcell yields. If the pandemic persists, these disruptions could reoccur or persist.
These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition. In addition, quarantines, stay-at-home, executive and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, have disrupted our supply chain and affected customer decision-making. For example, any actual or perceived disruption in our product distribution channel could alter customer buying decisions, prompting customers to delay or cancel their orders, which would negatively impact our sales revenue and could harm our reputation. In addition, we anticipate that ongoing disruptions in our supply chain will cause shortages in the materials required to operate our instruments, therefore limiting our ability to process customer samples and the ability of users of our system to operate our system.
As global economic conditions recover from the COVID-19 pandemic, the Ukraine-Russia conflict and the related sanctions, business activity may not recover as quickly as anticipated, and it is not possible at this time to estimate the long-term impact that COVID-19 could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. Conditions will be subject to the effectiveness of government policies, including vaccine mandates, vaccine shortages and administration rates, the emergence of new strains or variants of the virus, and other factors that are not foreseeable. Any of the foregoing could adversely affect our business, financial condition and results of operations.
The ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of delays or impacts on our business or the global economy as a whole, and such impacts may not be fully recoverable. In addition, the current and potential adverse impacts of the COVID-19 pandemic on our business, financial condition, results of operations and growth prospects, may also have the effect of heightening many of the other risks and uncertainties described in this Quarterly Report on Form 10-Q.
Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.*
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, legislation enacted in 2017 informally titled the Tax Cuts and Jobs Act, or the Tax Act, enacted many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain
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aspects of the Tax Act could be repealed or modified in future legislation. For example, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act or any newly enacted federal tax legislation. In addition, the Biden administration and Congress have proposed various changes to the U.S. federal tax regime. Certain of these proposals include, among other things, eliminating or modifying some of the provisions enacted in the Tax Act, a significant increase in the corporate income tax rate, a new alternative minimum tax on book income and changes in the taxation of non-U.S. income. While these proposals have not yet been enacted and it is unclear whether these proposals or similar changes will ultimately ever be enacted, the passage of any legislation as a result of these proposals or any other future changes in U.S. tax laws could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. tax expense. Moreover, should the scale of our international business activities expand, any changes in the U.S. taxation of such activities or any other changes in applicable non-U.S. tax laws could increase our worldwide effective tax rate and harm our future financial position and results of operations.
Limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the U.S. are repatriated to the U.S., as well as changes to United States tax laws that may be enacted in the future, could impact the tax treatment of future foreign earnings. Should the scale of our international business activities expand, any changes in the United States taxation of such activities could increase our worldwide effective tax rate and harm our future financial position and results of operations.
Our ability to use net operating losses and certain other tax attributes to offset future taxable income and taxes may be subject to limitations.*
As of December 31, 2021, we had federal and state tax net operating loss carryforwards of $341.1 million and $158.4 million, respectively. The federal tax loss carryforwards include $176.8 million that do not expire, but utilization of such tax loss carryforwards is limited to 80% of our taxable income. The remaining federal tax loss carryforwards of $164.3 million and state tax loss carryforwards begin to expire in 2027 and 2023, respectively, unless previously utilized. As of December 31, 2021, we also had federal and California research credit carryforwards of $6.7 million and $6.1 million, respectively. The federal research credit carryforwards begin to expire in 2027 unless previously utilized. The California research credits carry forward indefinitely.
In addition, utilization of net operating losses and research and development credit carryforwards may be subject to limitations due to ownership changes that have occurred or that could occur in the future in accordance with applicable provisions of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law. We may have experienced one or more ownership changes in the past and we may also experience additional ownership changes in the future as a result of subsequent changes in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss or research and development credit carryforwards is materially limited, it would harm our future operating results by increasing our future tax obligations. In addition, at the state level, there may be periods during which the use of net operating loss carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operation could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our securities.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. If our assumptions underlying our estimates and judgements relating to our critical accounting policies change or if actual circumstances differ from our assumptions, estimates or judgements, our operating results may be adversely affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our securities.
Risks related to our business operations
Acquisitions, joint ventures and other strategic transactions could disrupt or otherwise harm our business and may cause dilution to our stockholders.*
As part of our growth strategy, we have acquired and may continue to acquire other businesses, products or technologies as well as pursue strategic alliances, joint ventures, technology licenses or investments in complementary businesses or assets. We may not be able to locate or make suitable acquisitions on acceptable terms, and future acquisitions may not be effectively and profitably integrated into our business. Our failure to successfully complete the integration of any business or assets that we
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acquire could have an adverse effect on our prospects, business activities, cash flow, financial condition, results of operations and stock price. Integration challenges may include the following:
disruption in our relationships with customers, distributors or suppliers as a result of such a transaction;
unanticipated expenses and liabilities related to acquired companies or assets;
disputes with the seller(s) of any acquired companies or assets or litigation resulting from acquired companies or assets;
difficulties integrating acquired personnel, technologies, operations and legal compliance obligations into our existing business;
diversion of management time and focus from operating our business to acquisition integration challenges;
increases in our expenses and reductions in our cash available for operations and other uses;
possible write-offs or impairment charges relating to acquired businesses or assets;
difficulties developing and marketing new products, technologies and services;
entering markets in which we have limited or no prior experience; and
coordinating our efforts throughout various localities and time zones.
Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.
In addition, in connection with any such transactions, we may also issue equity securities in a dilutive manner, incur additional debt, assume contractual obligations or liabilities or expend significant cash. Such transactions could harm our operating results and cash position, negatively affect the price of our stock and cause dilution to our current stockholders. For example, in connection with our acquisition of Lineagen, Inc., or Lineagen, a U.S.-based provider of proprietary molecular diagnostics services for individuals presenting with certain neurodevelopmental disorders, we issued 6.2 million shares of our common stock, and in our acquisition of BioDiscovery, LLC, or BioDiscovery, a U.S.-based software company with solutions for analysis, interpretation and reporting of genomics data, we paid upfront consideration consisting of a combination of approximately $52.3 million in cash and 2.7 million shares of our common stock. In connection with the acquisition of BioDiscovery, we issued an additional 5.0 million shares of our common stock subject to vesting based on continued service of a key employee. The issuances of shares in connection with the Lineagen and BioDiscovery acquisitions resulted in dilution to our existing stockholders, the payment of cash in the BioDiscovery acquisition reduced our cash by approximately $52.3 million and our headcount increased by more than 50 employees as a result of both acquisitions. Accordingly, in addition to transaction costs, these acquisitions have increased our operating expenses, further increasing our net losses. We cannot predict the number, timing or size of any future strategic transactions, or the effect that any such transactions might have on our operating results.
Although we conducted extensive business, financial and legal due diligence in connection with our evaluation of our recent acquisitions, our due diligence investigations may not have identified every matter that could adversely affect our business, operating results and financial condition, and such investigations may have identified matters that, in the opinion of our management based on information available at the time, bore an acceptable level of risk that they, individually or in the aggregate, might or might not adversely affect our business, operating results or financial condition. We may be unable to adequately address the financial, legal and operational risks introduced by our recent acquisitions and may have difficulty developing experience with the industries in which Lineagen and/or BioDiscovery operate. Accordingly, we cannot guarantee that our recent acquisitions will yield the results we have anticipated and unforeseen complexities and expenses may arise. In addition, we may not achieve the revenues, growth prospects and synergies expected from these recent acquisitions, and any such benefits we do achieve may not offset our increased costs, resulting in a potential impairment of goodwill or other assets that were acquired. For any future acquisitions, we may similarly be unable to achieve revenue, growth prospects and synergies in a manner consistent with our expectations. Our failure to do so could adversely affect our business, operating results and financial condition.
If our products or technologies fail to achieve and sustain sufficient market acceptance, our revenue will be adversely affected.
Our success depends on our ability to develop and market products and technologies that are recognized and accepted as reliable, enabling and cost-effective. Most of the potential customers for our products and technologies already use expensive research systems in their laboratories that they have used for many years and may be reluctant to replace those systems with ours. Market acceptance of our systems will depend on many factors, including our ability to demonstrate to potential customers that our technology is an attractive alternative to existing technologies. Compared to some competing technologies,
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our technology is new and complex, and many potential customers have limited knowledge of, or experience with, our products and technologies. Prior to adopting our systems, some potential customers may need to devote time and effort to testing and validating our systems. Any failure of our systems to meet these customer benchmarks could result in potential customers choosing to retain their existing systems or to purchase systems other than ours. In addition, it is important that our gene mapping systems be perceived as accurate and reliable by the scientific and medical research community as a whole. The scientific community is comprised of a small number of early adopters and key opinion leaders who significantly influence the rest of the community. Historically, a significant part of our sales and marketing efforts has been directed at demonstrating the advantages of our technology to industry leaders, including those key opinion leaders, and encouraging such leaders to publish or present the results of their evaluation of our system. If we are unable to continue to motivate leading researchers to use our technology, or if such researchers are unable to achieve or unwilling to publish or present significant experimental results using our systems, acceptance and adoption of our systems will be slowed and our ability to increase our revenue would be adversely affected. We also run the risk that researchers may produce publications or presentations with findings that are negative about our technologies or systems, and t