Accelerate Diagnostics, Inc [AXDX] Filings

10-Q 1 axdx-20230930.htm 10-Q axdx-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____

Commission file number: 001-31822

ACCELERATE DIAGNOSTICS, INC.

(Exact name of registrant as specified in its charter)


Delaware			84-1072256
(State or other jurisdiction			(I.R.S. Employer Identification No.)
of incorporation or organization)

3950 South Country Club Road,		Suite 470
Tucson,	Arizona		85714
(Address of principal executive offices)			(Zip Code)

(520) 365-3100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par	AXDX	The Nasdaq Stock Market LLC
value per share		(The Nasdaq Capital Market)

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 ☐ 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 ☐ 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 the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

At November 6, 2023, 14,550,605 shares of common stock were outstanding, net of treasury shares. All common stock share data and share-based calculations set forth in this report have been adjusted to reflect the registrant’s 1-for-10 reverse stock split, which was effective July 11, 2023, on a retroactive basis for the periods presented.

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			46
Item 3. Quantitative and Qualitative Disclosures About Market Risk			58
Item 4. Controls and Procedures			58
Part II - OTHER INFORMATION
Item 1. Legal Proceedings			60
Item 1A. Risk Factors			60
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity			62
Item 3. Defaults Upon Senior Securities			62
Item 4. Mine Safety Disclosures			62
Item 5. Other Information			62
Item 6. Exhibits			63

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ACCELERATE DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED

BALANCE SHEETS

(in thousands, except share data)


	September 30,		December 31,
	2023		2022
	Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	20,162	$	34,905
Investments	989		10,656
Trade accounts receivable, net	2,666		2,416
Inventory	3,553		5,194
Prepaid expenses	1,435		818
Other current assets	3,638		2,025
Total current assets	32,443		56,014
Property and equipment, net	2,609		3,478
Finance lease assets, net	1,807		2,422
Operating lease right of use assets, net	1,352		1,859
Other non-current assets	1,113		1,242
Total assets	$	39,324	$	65,015
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	4,812	$	4,501
Accrued liabilities	3,437		2,682
Accrued interest	1,186		472
Deferred revenue	596		547
Current portion of convertible notes	726		56,413
Finance lease, current	468		1,113
Operating lease, current	963		829
Derivative liability	25,598		—
Total current liabilities	37,786		66,557
Finance lease, non-current	270		782
Operating lease, non-current	816		1,545
Deferred income, non-current	1,090		—
Other non-current liabilities	1,068		874
Accrued interest related-party	—		663
Long-term debt related-party	—		16,858
Convertible notes, non-current	33,327		—
Total liabilities	$	74,357	$	87,279

Commitments and contingencies (see Note 14)

See accompanying notes to condensed consolidated financial statements.

ACCELERATE DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED

BALANCE SHEETS (CONTINUED)

(in thousands, except share data)


	September 30,		December 31,
	2023		2022
	Unaudited
Stockholders’ deficit:
Preferred shares, $0.001 par value;
5,000,000 preferred shares authorized with no shares issued and outstanding on September 30, 2023 and 5,000,000 preferred shares authorized with 3,954,546 shares issued and outstanding on December 31, 2022	—		4
Common stock, $0.001 par value;
450,000,000 common shares authorized with 14,504,695 shares issued and outstanding on September 30, 2023 and 200,000,000 common shares authorized with 9,747,755 shares issued and outstanding on December 31, 2022	14		10
Contributed capital	666,239		630,428
Treasury stock	(45,067)		(45,067)
Accumulated deficit	(655,859)		(607,239)
Accumulated other comprehensive loss	(360)		(400)
Total stockholders’ deficit	(35,033)		(22,264)
Total liabilities and stockholders’ deficit	$	39,324	$	65,015

See accompanying notes to condensed consolidated financial statements.

ACCELERATE DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Unaudited

(in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net sales	$	3,299	$	2,960	$	9,032	$	9,780

Cost of sales:
Cost of sales	2,008		2,381		5,931		7,318
Inventory write-down	1,184		—		1,184		—
Total cost of sales	3,192		2,381		7,115		7,318

Gross profit	107		579		1,917		2,462

Costs and expenses:
Research and development	6,996		7,285		19,783		20,885
Sales, general and administrative	7,761		8,255		25,432		30,422
Total costs and expenses	14,757		15,540		45,215		51,307

Loss from operations	(14,650)		(14,961)		(43,298)		(48,845)

Other income (expense):
Interest expense	(2,205)		(203)		(3,798)		(1,833)
Interest expense related-party	—		(495)		(1,817)		(495)
Gain (loss) on extinguishment of debt	51		—		(6,499)		3,565
(Loss) on extinguishment of debt related party	—		—		(6,755)		—
Gain on fair value adjustment	18,056		—		13,026		—
Foreign currency exchange gain	(428)		(261)		(170)		(221)
Interest income	246		73		921		151
Other (expense) income, net	(29)		(49)		56		(206)
Total other income (expense), net	15,691		(935)		(5,036)		961

Net income (loss) before income taxes	1,041		(15,896)		(48,334)		(47,884)
Provision for income taxes	(131)		—		(286)		—
Net income (loss)	$	910	$	(15,896)	$	(48,620)	$	(47,884)

Basic net income (loss) per share	$	0.06	$	(1.83)	$	(4.13)	$	(6.21)
Basic weighted average shares outstanding	14,433		8,701		11,777		7,705

Dilutive net income (loss) per share	$	0.06	$	(1.83)	$	(4.13)	$	(6.21)
Dilutive weighted average shares outstanding	14,553		8,701		11,777		7,705

Other comprehensive loss:
Net income (loss)	$	910	$	(15,896)	$	(48,620)	$	(47,884)
Net unrealized gain (loss) on debt securities available-for-sale	—		48		28		(84)
Foreign currency translation adjustment	293		139		12		(101)
Comprehensive income (loss)	$	1,203	$	(15,709)	$	(48,580)	$	(48,069)

See accompanying notes to condensed consolidated financial statements.

ACCELERATE DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED

STATEMENTS OF CASH FLOWS

Unaudited

(in thousands)


	Nine Months Ended
	September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(48,620)	$	(47,884)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,434		2,207
Amortization of investment discount	—		94
Equity-based compensation	4,023		8,179
Amortization of debt discount and issuance costs	2,060		386
Amortization of debt discount related-party	1,033		275
Loss on disposal of property and equipment	134		74
Unrealized (gain) loss on equity investments	(61)		206
Loss (gain) on extinguishment of debt	6,499		(3,565)
Loss on extinguishment of debt with related party	6,755		—
Gain on fair value adjustments	(13,026)		—
Inventory write-down	1,184		—
(Increase) decrease in assets:
Contributions to deferred compensation plan	—		(174)
Accounts receivable	(250)		(73)
Inventory	298		(245)
Prepaid expense and other	956		(491)
Increase (decrease) in liabilities:
Accounts payable	218		1,221
Accrued liabilities and other	67		1,153
Accrued interest	1,738		(785)
Accrued interest to related-party	784		220
Deferred revenue and income	1,139		73
Deferred compensation	194		(49)
Net cash used in operating activities	(32,441)		(39,178)

Cash flows from investing activities:
Purchases of equipment	(925)		(446)
Purchase of marketable securities	—		(27,506)
Maturities of marketable securities	9,695		34,527
Net cash provided by investing activities	8,770		6,575

Cash flows from financing activities:
Proceeds from issuance of common stock to related party	4,000		—
Proceeds from issuance of common stock	—		32,872
Payments on finance leases	(1,357)		(1,109)
Proceeds from exercise of options	—		7
Proceeds from issuance of common stock under employee purchase plan	—		184
Proceeds from issuance of 5.00% Notes	10,000		—
Transaction costs related to debt and equity issuances	(3,731)		(192)
Payment of debt	—		(6)
Net cash provided by financing activities	8,912		31,756

See accompanying notes to condensed consolidated financial statements.

ACCELERATE DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED

STATEMENTS OF CASH FLOWS (CONTINUED)

Unaudited

(in thousands)


	Nine Months Ended
	September 30,
	2023		2022
Effect of exchange rate on cash	16		(64)

Decrease in cash and cash equivalents	(14,743)		(911)
Cash and cash equivalents, beginning of period	34,905		39,898
Cash and cash equivalents, end of period	$	20,162	$	38,987

Non-cash investing activities:
Net transfer of instruments from inventory to property and equipment	$	343	$	(78)

Non-cash financing activities:
Extinguishment of 2.50% Notes through issuance of common stock	$	—	$	10,180
Capital contribution from the exchange of secured note and accrued interest through the issuance of common stock with related party	$	25,363	$	29,847
Exchange of 2.50% Notes and accrued interest for 5.00% Notes	$	56,893	$	—
Debt premium on issuance of 5.00% Notes	$	6,023	$	—
Derivative liability	$	38,160	$	—
2.50% Notes extinguished in connection with exchange transaction	$	—	$	49,624
Fair value of new note issued in connection with the exchange transaction	$	—	$	16,024
Fair value of common stock warrant issued in connection with the exchange transaction	$	—	$	3,753
Extinguishment of 5.00% Notes through issuance of common stock	$	330	$	—
Extinguishment of derivative liability in connection with extinguishment of 5.00% Notes	$	380	$	—
Issuance of common stock in connection with extinguishment of 5.00% Notes	$	658	$	—

Supplemental cash flow information:
Interest paid	$	—	$	2,214

See accompanying notes to condensed consolidated financial statements.

ACCELERATE DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED

STATEMENTS OF STOCKHOLDERS' DEFICIT

Unaudited

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Preferred stock shares outstanding
Beginning	—		3,955		3,955		3,955
Conversion of preferred stock into common stock with related party	—		—		(3,955)		—
Ending	—		3,955		—		3,955

Preferred stock
Beginning	$	—	$	4	$	4	$	4
Conversion of preferred stock into common stock with related party	—		—		(4)		—
Ending	$	—	$	4	$	—	$	4

Common stock shares outstanding
Beginning	14,358		7,972		9,749		6,767
Issuance of common stock	—		1,750		—		1,750
Issuance of common stock to a related party	—		—		488		—
Conversion of preferred stock into common stock with related party	—		—		396		—
Restricted stock awards released and exercise of options	53		1		346		113
Issuance of shares to retire secured promissory note with related party	—		—		3,432		—
Issuance of common stock under employee purchase plan	—		3		—		16
Issuance of shares to retire convertible notes and derivative	94		—		94		1,080
Ending	14,505		9,726		14,505		9,726

Common stock
Beginning	$	14	$	8	$	10	$	7
Issuance of common stock	—		2		—		2
Issuance of common stock to a related party	—		—		1		—
Issuance of shares to retire secured promissory note with related party	—		—		3		—
Issuance of shares to retire convertible notes and derivative	—		—		—		1
Ending	$	14	$	10	$	14	$	10

See accompanying notes to condensed consolidated financial statements.

ACCELERATE DIAGNOSTICS, INC.

CONDENSED CONSOLIDATED

STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)

Unaudited

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Contributed capital
Beginning	$	663,812	$	560,258	$	630,428	$	580,714
Cumulative effect of accounting changes	—		—		—		(37,438)
Proceeds from issuance of common stock	—		32,855		—		32,855
Proceeds from issuance of common stock related party	—		—		3,996		—
Capital contribution from modification of securities purchase agreement with related party	—		29,847		1,805		29,847
Exercise of options	—		—		—		6
Issuance of shares to retire secured promissory note with related party	—		—		25,363		—
Issuance of common stock under employee purchase plan	—		47		—		184
Issuance of shares to retire convertible notes and derivative	658		—		658		10,169
Equity-based compensation	1,769		1,166		3,946		7,825
Warrant issued to related-party	—		3,753		—		3,753
Reclassification of common stock par value due to reverse stock split	—		14		43		25
Ending	$	666,239	$	627,940	$	666,239	$	627,940

Accumulated deficit
Beginning	$	(656,769)	$	(576,734)	$	(607,239)	$	(570,668)
Cumulative effect of accounting changes	—		—		—		25,922
Net income (loss)	910		(15,896)		(48,620)		(47,884)
Ending	$	(655,859)	$	(592,630)	$	(655,859)	$	(592,630)

Treasury stock
Beginning	$	(45,067)	$	(45,067)	$	(45,067)	$	(45,067)
Ending	$	(45,067)	$	(45,067)	$	(45,067)	$	(45,067)

Accumulated other comprehensive (loss) income
Beginning	$	(653)	$	(432)	$	(400)	$	(60)
Net unrealized gain (loss) on debt securities available-for-sale	—		48		28		(84)
Foreign currency translation adjustment	293		139		12		(101)
Ending	$	(360)	$	(245)	$	(360)	$	(245)

Total stockholders' deficit	$	(35,033)	$	(9,988)	$	(35,033)	$	(9,988)

See accompanying notes to condensed consolidated financial statements.

ACCELERATE DIAGNOSTICS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

NOTE 1. ORGANIZATION AND NATURE OF BUSINESS; BASIS OF PRESENTATION; PRINCIPLES OF CONSOLIDATION; SIGNIFICANT ACCOUNTING POLICIES

Accelerate Diagnostics, Inc. (“we” or “us” or “our” or “Accelerate” or the “Company”) is an in vitro diagnostics company dedicated to providing solutions that improve patient outcomes and lower healthcare costs through the rapid diagnosis of serious infections.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on March 31, 2023.

The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date but does not include all disclosures such as notes required by U.S. GAAP.

The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the entire year ending December 31, 2023, or any future period.

All amounts are rounded to the nearest thousand dollars unless otherwise indicated.

On July 11, 2023, the Company effected a one-for-ten reverse stock split (the “Reverse Stock Split”). Consequently, on the Company’s condensed consolidated balance sheets, the aggregate par value of the issued common stock was reduced by reclassifying the par value amount of the eliminated shares of common stock to additional paid-in capital. All per share amounts and outstanding shares, including all common stock equivalents, have been retroactively restated in the condensed consolidated financial statements and in the notes to the condensed consolidated financial statement for all periods presented to reflect the Reverse Stock Split.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of intercompany transactions and balances.

Liquidity and Going Concern

Since inception, the Company has not achieved profitable operations or positive cash flows from operations. The Company’s accumulated deficit totaled $655.9 million as of September 30, 2023. During the nine months ended September 30, 2023, the Company had a net loss of $48.6 million and negative cash flows from operations of $32.4 million. The Company had a working capital deficit of $5.3 million as of September 30, 2023.

On March 9, 2023, the Company entered into a forbearance agreement (the “Forbearance Agreement”), which became effective on March 13, 2023, with the holders of approximately 85% of the Company’s outstanding 2.50% Convertible Senior Notes due 2023 (the “2.50% Notes”) (collectively, the “Ad Hoc Noteholder Group”) and the trustee for the 2.50% Notes (the “Trustee”). On March 15, 2023, the 2.50% Notes matured and became due and payable. Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the indenture governing the 2.50% Notes (the “2.50% Notes Indenture”) in connection with certain events of default under the 2.50% Notes Indenture,

including, but not limited to, the failure to timely pay in full the principal of any 2.50% Note due and payable on March 15, 2023 and the failure to pay any interest on any 2.50% Note due and payable. The Forbearance Agreement was initially effective for the period commencing on March 13, 2023 and ending on March 29, 2023, which was subsequently extended by the parties to April 21, 2023. On April 21, 2023, the Company entered into a restructuring support agreement (the “Restructuring Support Agreement”) with certain holders of the 2.50% Notes, the holder of the Company’s secured promissory note in an aggregate principal amount of $34.9 million (the “Secured Note”) and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure (the “Restructuring Transactions”).

On June 9, 2023, the Company completed the Restructuring Transactions contemplated by the Restructuring Support Agreement whereby the Company (i) exchanged approximately $55.9 million aggregate principal amount of 2.50% Notes for approximately $56.9 million aggregate principal amount of newly issued 5.00% Senior Secured Convertible Notes due 2026 (the “5.00% Notes”), which was inclusive of additional 5.00% Notes in respect of interest accrued on the 2.50% Notes from September 15, 2022; (ii) issued and sold an additional $10.0 million aggregate principal amount of 5.00% Notes; (iii) repurchased the Secured Note, plus accrued interest, by issuing approximately 3.4 million shares of the Company’s common stock; (iv) issued approximately 0.4 million shares of the Company’s common stock upon conversion of all of the Company’s outstanding Series A Preferred Stock; (v) amended the March 2022 Securities Purchase Agreement (as defined in Note 17) and issued and sold approximately 0.5 million shares of the Company’s common stock for proceeds of $4.0 million; and (vi) entered into a new securities purchase agreement with the Jack W. Schuler Living Trust (the “Schuler Trust”) pursuant to which the Schuler Trust is required, prior to December 15, 2023, to either purchase an aggregate of $10.0 million of the Company’s common stock from the Company or to backstop an underwritten public offering by the Company of its common stock for aggregate proceeds of $10.0 million, at the Company’s option. See Note 9, Convertible Notes, Note 10, Long-Term Debt Related-Party, Note 17, Stockholders' Equity and Note 18, Related-Party Transactions for additional information.

As of September 30, 2023, the Company had $21.2 million in cash and cash equivalents and investments, a decrease of $24.4 million from $45.6 million at December 31, 2022. The primary reason for the decrease was due to cash used in operations, and cash used for nonrecurring legal and professional services in connection with the, Restructuring Transactions, partially offset by the proceeds from the issuance of the 5.00% Notes and sale and issuance of common stock under the March 2022 Securities Purchase Agreement. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations.

The Company’s primary use of capital has been for commercialization of the Accelerate Pheno system and development of complementary products and the Company’s next generation platform technology. The Company is subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching the Company’s products, development and market acceptance of the Company’s product candidates, development by its competitors of new technological innovations, protection of proprietary technology and raising additional capital. Historically, the Company has funded its operations primarily through multiple equity raises and the issuance of debt.

While the Company continues to explore additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, there can be no assurance the necessary financing will be available on terms acceptable to the Company, or at all. If the Company raises funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of common stock. If the Company raises funds by issuing additional debt, it is likely any new debt would have rights, preferences and privileges senior to common stockholders. The terms of borrowing could impose significant restrictions on the Company’s operations. The capital markets have in the past, and may in the future, experience periods of upheaval that could impact the availability and cost of equity and debt financing. In addition, recent and anticipated future increases in federal fund rates set by the Federal Reserve, which serve as benchmark rates on borrowing, and other general economic conditions may impact the cost of debt financing or refinancing existing debt.

Although the Company is actively considering all available strategic alternatives to maximize value, if the Company is unable to obtain adequate capital resources to fund operations, the Company would not be able to continue to operate its business pursuant to its current plans. This may require the Company to, among other

things, materially modify its operations to reduce spending; sell assets or operations; delay the implementation of, or revise certain aspects of its business strategy; or discontinue its operations entirely.

The Company is required to evaluate its financial condition as of the date of filing this Form 10-Q pursuant to the requirements of Accounting Standards Codification (“ASC”) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

Based on its evaluation pursuant to ASC 205-40, the Company has determined that, as of the date of this Form 10-Q filing, there is substantial doubt about its ability to continue as a going concern, as the Company does not currently have adequate financial resources to fund its forecasted operating costs for at least twelve months from the date of issuance of these condensed consolidated financial statements.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to accounts receivable, inventory, property and equipment, accrued liabilities, warranty liabilities, derivatives/fair value of financial instruments, convertible notes, tax valuation accounts, equity-based compensation, warrants, revenue and leases. Actual results could differ materially from those estimates.

Estimated Fair Value of Financial Instruments

The Company follows ASC 820, Fair Value Measurement, which has defined fair value and requires the Company to establish a framework for measuring and disclosing fair value. The framework requires the valuation of assets and liabilities subject to fair value measurements using a three-tiered approach and fair value measurement be classified and disclosed in one of the following three categories:

•Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

•Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The carrying amounts of financial instruments such as cash and cash equivalents, trade accounts receivable, prepaid expenses, other current assets, accounts payable, accrued liabilities and other current liabilities approximate the related fair values due to the short-term maturities of these instruments.

See Note 4, Fair Value of Financial Instruments, for further information and related disclosures regarding the Company’s fair value measurements.

The 2.50% Notes matured on March 15, 2023 and became due and payable on such date. As of September 30, 2023, $0.7 million aggregate principal amount of the 2.50% Notes had not been converted and remained outstanding and in default. The carrying amount of these 2.50% Notes approximated their related fair value due to the instrument being fully matured and payable as of September 30, 2023. As of December 31, 2022, the 2.50% Notes were instruments measured at fair value using Level 2 inputs, as the 2.50% Notes were traded on an active market with observable inputs. See Note 9, Convertible Notes for further details on the 2.50% Notes.

The 5.00% Notes are instruments measured at fair value at initial measurement using Level 3 inputs. As of September 30, 2023, the debt is carried at amortized cost and the fair value is disclosed. The 5.00% Notes Conversion Option (as defined in Note 9) relating to the 5.00% Notes, met the bifurcation criteria under, Derivatives and Hedging (“Topic 815”) at inception and through September 30, 2023, and is recorded at fair value and marked to market at each reporting period until it becomes fixed, which occurred on October 18, 2023. The Conversion Option is considered a derivative that is measured at fair value using Level 3 inputs. See Note 9, Convertible Notes and Note 19, Subsequent Events for further details on the Conversion Option.

In June 2023, in connection with the Restructuring Transactions, the Company entered into a securities purchase agreement with the Schuler Trust to purchase common stock from the Company at the Company’s option (the “Schuler Purchase Obligation”). The Schuler Purchase Obligation was determined to be a freestanding financial instrument that must be recorded as an asset at fair value, and marked to market at each reporting period that is outstanding using Level 3 inputs. See Note 17, Stockholders' Equity for further details on the Schuler Purchase Obligation.

In June 2023, the Company fully extinguished the Secured Note held by the Schuler Trust by exchanging the Secured Note for common stock. As of December 31, 2022, the Secured Note was an instrument carried at amortized cost while fair value was disclosed using Level 3 inputs. See Note 10, Long-Term Debt Related-Party for further details on the Secured Note.

Cash and Cash Equivalents

All highly liquid investments with an original maturity of three months or less at time of purchase are considered to be cash equivalents. Cash and cash equivalents include overnight repurchase agreement accounts and other investments. As part of the Company’s cash management process, excess operating cash is invested in overnight repurchase agreements with its bank. Repurchase agreements and other investments classified as cash and cash equivalents are not deposits and are not insured by the U.S. Government, the FDIC or any other government agency and involve investment risk including possible loss of principal. Notwithstanding the possibility of bank failures, we believe as a result of the Company’s selected banks, diversified holdings strategy, and the U.S. Government’s continued support to stabilize the banking system, such as steps taken in March 2023 as a result of certain bank failures, that the market risk arising from holding these financial instruments is minimal.

Investments

The Company invests in various debt and equity securities which are primarily held in the custody of major financial institutions. Debt securities consist of certificates of deposit, U.S. government and agency securities, commercial paper, and corporate notes and bonds. Equity securities consist of mutual funds. The Company records these investments in the condensed consolidated balance sheets at fair value. Unrealized gains or losses for debt securities available-for-sale are included in accumulated other comprehensive loss, a component of stockholders’ deficit. Unrealized gains or losses for equity securities are included in other income (expense), net, a component of condensed consolidated statements of operations and comprehensive loss. The Company considers all debt securities to be available-for-sale, including those with maturity dates beyond 12 months, as they are available to support current operational liquidity needs. The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations.

We perform an assessment to determine whether there have been any events or economic circumstances to indicate that a debt security available-for-sale in an unrealized loss position has suffered impairment as a result of credit loss or other factors. A debt security is considered impaired if its fair value is less than its amortized cost

basis at the reporting date. If we intend to sell the debt security or if it is more-likely-than-not that we will be required to sell the debt security before the recovery of its amortized cost basis, the impairment is recognized and the unrealized loss is recorded as a direct write-down of the security's amortized cost basis with an offsetting entry to earnings. If we do not intend to sell the debt security or believe we will not be required to sell the debt security before the recovery of its amortized cost basis, the impairment is assessed to determine if a credit loss component exists. We use a discounted cash flow method to determine the credit loss component. In the event a credit loss exists, an allowance for credit losses is recorded in earnings for the credit loss component of the impairment while the remaining portion of the impairment attributable to factors other than credit loss is recognized, net of tax, in accumulated other comprehensive income (loss). The amount of impairment recognized due to credit factors is limited to the excess of the amortized cost basis over the fair value of the security.

Inventory

Inventory is stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out method. The Company estimates the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale, has a cost basis in excess of its estimated realizable value, or is considered excess of demand. These type of inventory events could result in a charge to expense as appropriate.

We charge cost of sales for inventory provisions to write-down our inventory to the lower of cost or net realizable value or for obsolete or excess inventory. Most of our inventory provisions relate to excess quantities of products, based on our inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions. Once inventory has been written-off or written-down, it creates a new cost basis for the inventory that is not subsequently written-up.

See Note 6, Inventory, for further information and related disclosures.

Accounts Receivable

Accounts receivable consist of amounts due to the Company for sales to customers and are based on what we expect to collect in exchange for goods and services. Receivables are considered past due based on the contractual payment terms and are written off if reasonable collection efforts prove unsuccessful.

We maintain an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the consolidated statements of operations. We assess collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, we consider historical collectability and make judgments about the creditworthiness of customers based on credit evaluations. Our customers typically have good credit quality. We also consider customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data.

The allowance for credit losses for the three and nine months ended September 30, 2023 and 2022 is comprised of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Beginning balance	$	314	$	150	$	324	$	140
Provisions, net	253		(12)		252		18
Write-offs	(20)		—		(29)		(20)
Ending balance	$	547	$	138	$	547	$	138

The Company’s three and nine months ended September 30, 2023 beginning and ending balances increased when compared to the three and nine months ended September 30, 2022 beginning and ending balances due to provisions recorded in connection with aged net investment in sales-type leases.

Property and Equipment

Property and equipment is recorded at cost. Maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized. Gains and losses from retirement or replacement are included in other expense income, net. Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the assets, ranging from one to seven years. Leasehold improvements are depreciated over the remaining life of the lease or the life of the asset, whichever is less.

Instruments Classified as Property and Equipment

Property and equipment includes Accelerate Pheno systems (also referred to as instruments) used for sales demonstrations, instruments under rental agreements and instruments used for research and development. Depreciation expense and losses from retirement of instruments used for sales demonstrations is recorded as a component of sales, general and administrative expense. Depreciation expense and losses from retirement of instruments placed at customer sites pursuant to reagent rental agreements is recorded as a component of cost of sales. Depreciation expense and losses from retirement of instruments used in our laboratory and research is recorded as a component of research and development expense. The Company retains title to these instruments and depreciates them over five years.

The Company evaluates the recoverability of the carrying amount of its instruments whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, and at least annually. This evaluation is based on our estimate of future cash flows and the estimated fair value of such long-lived assets, and provides for impairment if such undiscounted cash flows or the estimated fair value are insufficient to recover the carrying amount of instruments. No impairment charges have been recorded for the three and nine months ended September 30, 2023 and 2022.

See Note 7, Property and Equipment, for further information and related disclosures.

Long-lived Assets

Long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows from and the estimated fair value of such long-lived assets, and provides for impairment if such undiscounted cash flows or the estimated fair values are insufficient to recover the carrying amount of the long-lived asset.

Warranty Reserve

Instruments are typically sold with a one year limited warranty, while kits and accessories are typically sold with a sixty days limited warranty. Accordingly, a provision for the estimated cost of the limited warranty repair is recorded at the time revenue is recognized. Our estimated warranty provision is based on our estimate of future repair events and the related estimated cost of repairs. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. The cost incurred for these provisions is included in cost of sales on the condensed consolidated statements of operations and comprehensive loss.

Warranty reserve activity for the three and nine months ended September 30, 2023 and 2022 is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Beginning balance	$	182	$	255	$	225	$	139
Provisions (reversals), net	(3)		187		101		325
Warranty cost incurred	(6)		(29)		(153)		(51)
Ending balance	$	173	$	413	$	173	$	413

Convertible Notes

The Company follows Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The notes are accounted for as a liability measured at their amortized cost. Interest expense is comprised of (1) cash interest payments, (2) amortization of any debt discounts or premiums based on the original offering, and (3) amortization of any debt issuance costs. Gain or loss on extinguishment of such notes is calculated as the difference between the (i) fair value of the consideration transferred and (ii) the carrying value of the debt at the time of repurchase, conversion or settlement.

Revenue Recognition

The Company recognizes revenue when control of the promised good or service is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales taxes are excluded from revenue.

The Company determines revenue recognition through the following steps:

•Identification of the contract with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations

•Recognition of revenue as we satisfy a performance obligation

Product revenue is derived from the sale or rental of instruments and sales of related consumable products. When an instrument is sold, revenue is generally recognized upon installation of the unit consistent with contract terms, which do not include a right of return. When a consumable product is sold, revenue is generally recognized upon shipment. Invoices are generally issued when revenue is recognized. Payment terms vary by the type and location of the customer and the products or services offered. The term between invoicing and when payment is due is not significant.

Service revenue is derived from the sale of extended service agreements which are generally non-cancellable. This revenue is recognized on a straight-line basis over the contract term beginning on the effective date of the contract because the Company is standing ready to provide services. Invoices are generally issued annually and coincide with the beginning of individual service terms.

The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines relative standalone selling prices based on the price charged to customers for each individual performance obligation.

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. The Company has determined these costs would have an amortization period of less than one year and has elected to recognize them as an expense when incurred. Contract asset opening and closing balances were immaterial for the three and nine months ended September 30, 2023.

Gross Profits

Gross profit consists of net sales less cost of sales. Cost of sales includes cost of materials, direct labor, equity-based compensation, facility and other manufacturing overhead costs for consumable tests and instruments sold to customers. Cost of sales for instruments also includes depreciation on revenue generating instruments that have been placed with our customers under a reagent rental agreement. Cost of sales includes charges from the write-down of inventory, repair and maintenance cost for instruments covered by a service agreement and instruments covered by a reagent rental agreement and warranty related costs.

The Company’s overall gross profit was $0.1 million and $0.6 million for the three months ended September 30, 2023 and 2022, respectively, and $1.9 million and $2.5 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease in gross profit for the three and nine months ended September 30, 2023 included a $1.2 million write-down of inventory to reflect excess quantities of instrument inventory on hand above and beyond the Company’s forecast of future demand for those products.

The Company manufactures pre-launch inventory in advance of regulatory approval. This inventory is expensed before an economic benefit is probable. Pre-launch inventory sold to customers (not capitalized and instead expensed in a previous year) during each of the three and nine months ended September 30, 2023 was $0.1 million and $0.2 million, respectively. Pre-launch inventory sold to customers during each of the three and nine months ended September 30, 2022 was $0.1 million and $0.4 million, respectively.

Shipping and Handling

Shipping and handling costs billed to customers are included as a component of revenue. The corresponding expense incurred with third party carriers is included as a component of sales, general and administrative costs on the consolidated statements of operations and comprehensive loss.

Commercial Agent Relationship with Becton, Dickinson and Company (“BD”)

The Company has entered into an exclusive commercial agreement with BD to act as the Company’s agent and representative. The purpose of this agreement is to establish an on-going commercialization of the Company’s products. The Company is classified as the principal and BD as the agent. In accordance with the terms of this agreement, BD will pay the Company an exclusivity fee in multiple installments for exclusive rights, while the Company will pay BD an agent fee based on the Company’s revenue.

The Company accounts for agent fees consistent with how it accounts for sales commissions as described above. In most instances the agent fees are determined to be costs that would have an amortization period of less than one year and the Company has elected to recognize them as an expense when incurred. The agent fee is a component of sales, general and administrative expenses, within the condensed consolidated statements of operations and comprehensive loss.

The Company accounts for the exclusivity fee from BD as a deferred liability when the cash is received. The Company uses forecasted revenue to estimate the amount of deferred liability to amortize within a period. The deferred liability is a component of deferred revenue, within the condensed consolidated balance sheets, while the corresponding amortization is charged to sales, general and administrative expenses, within the condensed consolidated statements of operations and comprehensive loss.

See Note 8, Deferred Revenue and Remaining Performance Obligations, for further information and related disclosures.

Leases

The Company accounts for leases in accordance with ASC 842, Leases. The Company determines if an arrangement is or contains a lease and the type of lease at inception. The Company classifies leases as finance leases (lessee) or sales-type leases (lessor) when there is either a transfer of ownership of the underlying asset by the end of the lease term, the lease contains an option to purchase the asset that we are reasonably certain will be exercised, the lease term is for the major part of the remaining economic life of the asset, the present value of the lease payments and any residual value guarantee equals or substantially exceeds all the fair value of the asset, or the asset is of such a specialized nature that it will have no alternative use to the lessor at the end of the lease term. Payments contingent on future events (i.e., based on usage) are considered variable and excluded from lease payments for the purposes of classification and initial measurement. Several of our leases include options to renew or extend the term upon mutual agreement of the parties and others include one-year extensions exercisable by the lessee. None of our leases contain residual value guarantees, restrictions, or covenants.

To determine whether a contract contains a lease, the Company uses its judgment in assessing whether the lessor retains a material amount of economic benefit from an underlying asset, whether explicitly or implicitly identified, which party holds control over the direction and use of the asset, and whether any substantive substitution rights over the asset exist.

Leases as Lessee

Operating and finance leases are included in right-of-use (“ROU”) assets and corresponding lease liabilities within our condensed consolidated balance sheets. These assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and their related liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Typically, we use our incremental borrowing rate based on the information available at commencement in determining the present value of lease payments. We use the implicit rate when readily determinable. ROU assets are net of lease payments made and exclude lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term, which may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

Our operating leases consist primarily of leased office, factory, and laboratory space in the U.S. and office space in Europe with terms between two and six-year, and typically contain penalizing, early-termination provisions. Our finance leases consist of leased equipment with three-year terms.

Leases as Lessor

The Company leases instruments to customers under “reagent rental” agreements, whereby the customer agrees to purchase consumable products over a stated term, typically five years or less, for a volume-based price that includes an embedded rental for the instruments. When collectability is probable, instrument revenue is recognized at lease commencement for sales-type leases and as product is shipped, typically in a straight–line pattern, over the term for operating leases, which typically include a termination without cause or penalty provision given a short notice period.

Consideration is allocated between lease and non-lease components based on stand-alone selling price in accordance with ASC 606, Revenue from Contracts with Customers.

Net investment in sales-type leases are included within our condensed consolidated balance sheets as a component of other current assets and other non-current assets, including the present value of lease payments not yet received and the present value of the residual asset. These amounts are determined using the information available at commencement, including the lease term, estimated useful life, rate implicit in the lease, and expected fair value of the instrument.

Nonqualified Cash Deferral Plan

The Company’s Cash Deferral Plan (the “Deferral Plan”) provides certain key employees with an opportunity to defer the receipt of such participant's base salary. The Deferral Plan is intended to be a nonqualified deferred compensation plan that complies with the provisions of Section 409A of the Internal Revenue Code. All of the investments held in the Deferral Plan are equity securities consisting of mutual funds and recorded at fair value

with changes in the investments’ fair value recognized as earnings in the period they occur. The corresponding liability for the Deferral Plan is included in other non-current liabilities in the condensed consolidated balance sheets.

Equity-Based Compensation

The Company may award stock options, restricted stock units (“RSUs”), performance-based awards and other equity-based instruments to its employees, directors and consultants. Compensation cost related to equity-based instruments is based on the fair value of the instrument on the grant date, and is recognized over the requisite service period on a straight-line basis over the vesting period for each tranche (an accelerated attribution method). Performance-based awards vest based on the achievement of performance targets. Compensation costs associated with performance-based awards are recognized over the requisite service period based on probability of achievement. Performance-based awards require management to make assumptions regarding the likelihood of achieving performance targets.

The Company estimates the fair value of service-based and performance-based stock option awards, including modifications of stock option awards, using the Black-Scholes option pricing model. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield.

•Volatility: The expected volatility is based on the historical volatility of the Company's stock price over the most recent period commensurate with the expected term of the stock option award.

•Expected term: The estimated expected term for employee awards is based on a simplified method that considers an insufficient history of employee exercises. For consultant awards, the estimated expected term is the same as the life of the award.

•Risk-free interest rate: The risk-free interest rate is based on published U.S. Treasury rates for a term commensurate with the expected term.

•Dividend yield: The dividend yield is estimated as zero as the Company has not paid dividends in the past and does not have any plans to pay any dividends in the foreseeable future.

The Company accounts for forfeitures as they occur rather than on an estimated basis.

The Company records the fair value of RSUs or stock grants based on the published closing market price on the day before the grant date.

See Note 12, Employee Equity-Based Compensation for further information.

Accounting for Derivatives

The Conversion Option relating to the 5.00% Notes represents a derivative financial instrument. The derivative financial instrument is recorded at fair value in the condensed consolidated balance sheets as a current derivative liability and changes in the fair value of the derivative financial instrument are recognized in gain on fair value adjustment, within the condensed consolidated statements of operations and comprehensive loss.

See Note 9, Convertible Notes for further information.

Deferred Tax

Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying condensed consolidated balance sheets. The change in deferred tax assets and liabilities for the period represents the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws in deferred tax assets and liabilities are reflected as an adjustment to the tax provision or benefit in the period of enactment.

The Company follows the provisions of ASC 740, Income Taxes, to account for any uncertainty in income taxes with respect to the accounting for all tax positions taken (or expected to be taken) on any income tax return.

This guidance applies to all open tax periods in all tax jurisdictions in which the Company is required to file an income tax return. Under U.S. GAAP, in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not certain of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more likely than not to be realized upon resolution of the position. Interest and penalties, if any, would be recorded within tax expense.

Foreign Currency Translation and Foreign Currency Transactions

Adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive loss in the condensed consolidated statements of stockholders’ deficit.

The Company has assets and liabilities, including receivables and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, the impact of which is recorded in foreign currency exchange gain and loss, within the condensed consolidated statements of operations and comprehensive loss.

Earnings (Loss) Per Share

For the three months ended September 30, 2023, basic earnings per share is computed by dividing net income attributable to the Company by the weighted average number of common shares outstanding for that period. Diluted earnings per share takes into account the effect of dilutive instruments, such as restricted stock and performance stock, and uses the average share price for the period in determining the number of potential common shares that are to be added to the weighted average number of shares outstanding. Potential common shares are excluded from the diluted earnings per share calculation if the effect of including such securities would be anti-dilutive. For the three months ended September 30, 2023, anti-dilutive items included, shares issuable from stock options, warrants, shares that would be outstanding if the 5.00% Notes were converted, and shares that would be outstanding if the Schuler Purchase Obligation was exercised.

Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Potentially dilutive common shares consist of shares issuable from stock options, unvested RSUs, warrants shares that would be outstanding if the 5.00% Notes were converted and shares that would be outstanding if the Schuler Purchase Obligation was exercised. Diluted earnings are not presented when the effect of adding such additional common shares is antidilutive.

See Note 11, Earnings (Loss) Per Share, for further information.

Comprehensive Loss

In addition to net loss, comprehensive loss includes all changes in equity during a period, except those resulting from investments by and distributions to owners. The Company holds debt securities as available-for-sale and records the change in fair market value as a component of comprehensive loss. The Company also has adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars which is included as a component of comprehensive loss.

NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Adopted Standards

In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method. ASU 2022-01 is related to the portfolio layer method of hedge accounting. The amendments in this update clarify the accounting and promote consistency in reporting for hedges where the portfolio layer method is applied. This ASU was adopted January 1, 2023, and did not impact the Company’s condensed consolidated financial statements at January 1, 2023.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 relates to troubled debt restructurings (“TDRs”) and vintage disclosures for financing receivables. The amendments in this update eliminate the accounting guidance for

TDRs by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables. This ASU was adopted January 1, 2023, and did not impact the Company's condensed consolidated financial statements at January 1, 2023.

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. The SEC staff issued Staff Accounting Bulletin (SAB) 120 to provide guidance on the measurement and disclosure of share-based payment awards granted when a company is in possession of material nonpublic information to which the market is likely to react positively when it is announced. Such awards are commonly referred to as spring-loaded awards. This ASU was effective for the Company upon issuance, which was on July 14, 2023 and did not impact the Company's condensed consolidated financial statements at September 30, 2023.

Standards not yet adopted

There were no standards not yet adopted that are applicable to the Company's financial statements as of September 30, 2023.

NOTE 3. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and accounts receivable.

The Company has financial institutions for banking operations that hold 10% or more of the Company’s cash and cash equivalents. As of September 30, 2023, two of the Company's financial institutions held 71% and 11%, of the Company’s cash and cash equivalents. As of December 31, 2022, three of the Company’s financial institutions held 52%, 24% and 21% of the Company’s cash and cash equivalents.

The Company grants credit to domestic and international customers. Exposure to losses on accounts receivable is principally dependent on each customer’s financial position. The Company had one customer that accounted for 13% and 15% of the Company’s net accounts receivable balance as of September 30, 2023 and December 31, 2022, respectively.

The Company did not have any customers that represented 10% or more of the Company’s total revenue for either of the three and nine months ended September 30, 2023 and 2022.

NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The following tables represent the financial instruments measured at fair value on a recurring basis in the financial statements of the Company and the valuation approach applied to each class of financial instruments at September 30, 2023 and December 31, 2022 (in thousands):


	September 30, 2023
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash and cash equivalents:
Money market funds	$	14,253	$	—	$	—	$	14,253
Total cash and cash equivalents	14,253		—		—		14,253
Equity investments:
Mutual funds	989		—		—		989
Total equity investments	989		—		—		989
Total assets measured at fair value	$	15,242	$	—	$	—	$	15,242


	December 31, 2022
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash and cash equivalents:
Money market funds	$	7,194	$	—	$	—	$	7,194
Total cash and cash equivalents	7,194		—		—		7,194
Equity investments:
Mutual funds	928		—		—		928
Total equity investments	928		—		—		928
Debt securities available-for-sale:
Certificates of deposit	—		2,541		—		2,541
U.S. Treasury securities	3,009		—		—		3,009
Commercial paper	—		424		—		424
Corporate notes and bonds	—		3,754		—		3,754
Debt securities available-for-sale	3,009		6,719		—		9,728
Total assets measured at fair value	$	11,131	$	6,719	$	—	$	17,850

Highly liquid investments with an original maturity of three months or less at time of purchase are included in cash and cash equivalents on the condensed consolidated balance sheets.

Level 1 assets are priced using quoted prices in active markets for identical assets which include money market funds, U.S. Treasury securities and mutual funds as these specific assets are liquid.

Level 2 available-for-sale securities are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted

market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made any material adjustments to such inputs during the periods presented.

As of September 30, 2023, the Company’s Conversion Option, which is classified as a derivative liability, has a fair value of $25.6 million, using Level 3 measurement assumptions. See Note 9, Convertible Notes for further detail on the Conversion Option.

As of September 30, 2023, the Company’s Schuler Purchase Obligation, which is classified as a financial instrument asset, has a fair value of $2.2 million, using Level 3 measurement assumptions. See Note 17, Stockholders' Equity for further detail on the Schuler Purchase Obligation.

Liabilities for which Fair Value is only Disclosed

As of December 31, 2022, the Secured Note had an outstanding principal amount of $34.9 million, and a fair value of $16.0 million, using Level 3 measurement assumptions. The Secured Note was not outstanding as of September 30, 2023. See Note 10, Long-Term Debt Related-Party for further detail on the Secured Note.

As of September 30, 2023, the 5.00% Notes had an outstanding principal amount of $66.2 million, and a fair value of $37.0 million, using Level 3 measurement assumptions. See Note 9, Convertible Notes for further detail on the 5.00% Notes.

The 2.50% Notes matured on March 15, 2023 and became due and payable on such date. The amortized carrying amount of the 2.50% Notes is $0.7 million as of September 30, 2023 and approximates the related fair value due to the instrument being fully matured and payable. As of December 31, 2022, the 2.50% Notes represented a Level 2 measurement with an outstanding principal amount of $56.6 million and a fair value of $51.9 million. See Note 9, Convertible Notes for further detail on the 2.50% Notes.

NOTE 5. INVESTMENTS

The Company did not have any debt securities classified as available-for-sale investments at September 30, 2023.

The following tables summarize the Company’s debt securities classified as available-for-sale investments at December 31, 2022 (in thousands):


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Certificates of deposit	$	2,548	$	—	$	(7)	$	2,541
U.S. Treasury securities	3,015		—		(6)		3,009
Commercial paper	425		—		(1)		424
Corporate notes and bonds	3,769		—		(15)		3,754
Total	$	9,757	$	—	$	(29)	$	9,728

The following table summarizes the maturities of the Company’s debt securities classified as available-for-sale investments at September 30, 2023 and December 31, 2022 (in thousands):


	September 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than 1 year	$	—	$	—	$	9,757	$	9,728
Total	$	—	$	—	$	9,757	$	9,728

There were no material proceeds (including principal paydowns), or realized gains or losses from sales of debt securities available-for-sale for the three and nine months ended September 30, 2023 and 2022. The Company determines gains and losses on marketable securities based on specific identification of the securities sold. No material balances were reclassified out of accumulated other comprehensive loss for the three and nine months ended September 30, 2023 and 2022. No losses on debt securities available-for-sale have been recognized in income for the three and nine months ended September 30, 2023 and 2022, as the issuers of such securities were of high credit quality.

Equity securities are comprised of investments in mutual funds. The fair value of equity securities at September 30, 2023 and December 31, 2022 was $1.0 million and $0.9 million, respectively.

Unrealized gains or losses on equity securities recorded in income during the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Unrealized (gain) loss on equity investments	$	29	$	50	$	(61)	$	206

These unrealized gains or losses are recorded as a component of other (expense) income, net. There were no realized gains or losses from equity securities for each of the three and nine months ended September 30, 2023 and 2022.

NOTE 6. INVENTORY

Inventories consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):


	September 30,		December 31,
	2023		2022
Raw materials	$	1,392	$	1,827
Work in process	504		2,115
Finished goods	1,657		1,252
	$	3,553	$	5,194

During the three and nine months ended September 30, 2023, the Company recorded a charge of $1.2 million to write-down excess quantities of instrument inventory on hand above and beyond our forecast of future demand for those products. This write-down primarily reduced the value of work in process inventory as of September 30, 2023.

NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):


	September 30,		December 31,
	2023		2022
Computer equipment	$	3,673	$	3,551
Technical equipment	3,246		3,236
Facilities	3,687		3,663
Instruments	2,965		3,735
Capital projects in progress	111		114
Total property and equipment	$	13,682	$	14,299
Accumulated depreciation	(11,073)		(10,821)
Property and equipment, net	$	2,609	$	3,478

Depreciation expense for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Depreciation expense	$	315	$	381	$	1,023	$	1,284

Instruments at cost and related accumulated depreciation where the Company is the lessor under operating leases consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):


	September 30,		December 31,
	2023		2022
Instruments at cost under operating leases	$	2,129	$	2,585
Accumulated depreciation on operating leases	(1,223)		(1,209)
Net property and equipment under operating leases	$	906	$	1,376

NOTE 8. DEFERRED REVENUE AND REMAINING PERFORMANCE OBLIGATIONS

Deferred revenue, consisting of amounts received for products and services not yet delivered or earned, was as follows as of September 30, 2023 and December 31, 2022 (in thousands):


	September 30,		December 31,
	2023		2022
Products and services not yet delivered	$	596	$	547

We recognized $0.2 million of revenue that was included in the beginning contract liabilities balances for each of the three months ended September 30, 2023 and 2022 and $0.5 million and $0.4 million for the nine months ended September 30, 2023 and 2022, respectively. No material amount of revenue recognized during the period was from performance obligations satisfied in prior periods.

Transaction Price Allocated to Remaining Performance Obligations

As of September 30, 2023, $5.7 million of revenue is expected to be recognized from remaining performance obligations. This balance primarily relates to product shipments for reagents sold to customers under sales-type lease agreements. These agreements have between two and four year terms and revenue is recognized as reagents are shipped, typically on a straight-line basis. The remaining balance relates to executed service contracts that begin as warranty periods expire. These service contracts typically provide a one to four year term and revenue is recognized on a straight-line basis.

The Company elects not to disclose the value of unsatisfied performance obligations for (i) contracts with an expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Commercial Agent Relationship with BD

The Company has entered into an exclusive commercial agreement with BD to act as the Company’s agent and representative. Exclusivity fees paid to the Company are amortized on a forecast basis as an offset to sales, general, and administrative expense. Agent fees paid to BD correspond with periodic sales and are expensed to sales, general, and administrative expense. The following table presents this information for the three and nine months ended September 30, 2023 (in thousands):


	Three Months Ended		Nine Months Ended
	September 30, 2023
Exclusivity fees received	$	—	$	750
Amortized exclusivity fees	(108)		(750)
Agent fees incurred	271		782
Net expense	$	163	$	32

NOTE 9. CONVERTIBLE NOTES

Convertible Notes

The information presented in this section summarizes the data related to the Company’s convertible notes, which consisted of the 2.50% Notes as of December 31, 2022 and both the 2.50% Notes and the 5.00% Notes as of September 30, 2023.

The carrying value of the convertible notes at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	September 30,		December 31,
	2023		2022
Outstanding principal at par	$	66,944	$	56,595
Debt premium	5,641		—
Unamortized debt discount	(35,744)		—
Unamortized debt issuance costs	(2,788)		(182)
Net carrying amount	$	34,053	$	56,413

At September 30, 2023 and December 31, 2022 the convertible notes were classified as follows (in thousands):


	September 30,		December 31,
	2023		2022
Current portion of convertible notes	$	726	$	56,413
Convertible notes, non-current	33,327		—
Total convertible notes	$	34,053	$	56,413

Interest expense related to convertible notes during the three and nine months ended September 30, 2023 and 2022 was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Contractual coupon interest	$	838	$	79	$	1,730	$	1,528
Amortization of premium, discount and issuance costs, net	1,367		121		2,060		386
Total interest expense on convertible notes	$	2,205	$	200	$	3,790	$	1,914

Gain (loss) on extinguishment of exchanged convertible notes during the three and nine months ended September 30, 2023 and 2022 was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Gain (loss) on extinguishment	$	51	$	—	$	(6,499)	$	3,565

2.50% Convertible Senior Notes due 2023 (the “2.50% Notes”)

On March 27, 2018, the Company issued $150.0 million aggregate principal amount of 2.50% Notes. In connection with the offering of the 2.50% Notes, the Company granted the initial purchasers of the Notes a 13-day option to purchase up to an additional $22.5 million aggregate principal amount of the 2.50% Notes on the same terms and conditions. On April 4, 2018 the option was partially exercised, which resulted in $21.5 million of additional proceeds, for total proceeds of $171.5 million. The 2.50% Notes matured on March 15, 2023.

As of September 30, 2023, approximately $0.7 million aggregate principal amount of 2.50% Notes remains outstanding and in default accruing interest at 2.5% per annum. The Company continues to accrue interest on the remaining outstanding notes. As of September 30, 2023, the amount of accrued interest on these notes is immaterial.

The Company incurred issuance costs related to the issuance of the 2.50% Notes which were amortized over the five-year contractual term of the 2.50% Notes using the effective interest method. The effective interest rate on the 2.50% Notes, including accretion of the 2.50% Notes to par was 3.2%.

Holders had the option to convert the 2.50% Notes in multiples of $1,000 principal amount at any time prior to December 15, 2022, but only in the following circumstances:

•if the Company’s stock price exceeds 130% of the conversion price for 20 of the last 30 trading days of any calendar quarter after June 30, 2018;

•during the 5 business day period after any 5 consecutive trading day period in which the 2.50% Notes’ trading price is less than 98% of the product of the common stock price times the conversion rate; or

•the occurrence of certain corporate events, such as a change of control, merger or liquidation.

At any time on or after December 15, 2022, and prior to the maturity date, a holder could have converted its 2.50% Notes in multiples of $1,000 principal amount. Holders of the 2.50% Notes who convert their 2.50% Notes in connection with a make-whole fundamental change (as defined in the 2.50% Notes Indenture) were, under certain circumstances, entitled to an increase in the conversion rate. In addition, in the event of a fundamental change or event of default prior to the maturity date for the 2.50% Notes, holders, subject to certain conditions, had the right, at their option, to require the Company to repurchase for cash all or part of the 2.50% Notes at a repurchase price equal to 100% of the principal amount of the 2.50% Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the repurchase date. None of the remaining 2.50% Notes outstanding as of September 30, 2023, are convertible pursuant to their original terms.

The carrying value of the 2.50% Notes at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	September 30,		December 31,
	2023		2022
Outstanding principal at par	$	726	$	56,595
Unamortized debt issuance	—		(182)
Net carrying amount	$	726	$	56,413

At September 30, 2023 and December 31, 2022 the 2.50% Notes were classified as follows (in thousands):


	September 30,		December 31,
	2023		2022
Current portion of convertible notes	$	726	$	56,413
Convertible notes, non-current	—		—
Total convertible notes	$	726	$	56,413

Interest expense for the 2.50% Notes during the three and nine months ended September 30, 2023 and 2022 was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Contractual coupon interest	$	5	$	79	$	562	$	1,528
Amortization of debt issuance costs	—		121		182		386
Total interest expense on 2.50% Notes	$	5	$	200	$	744	$	1,914

Forbearance Agreement

On March 9, 2023, the Company entered into the Forbearance Agreement, which became effective on March 13, 2023, with the Ad Hoc Noteholder Group holding approximately 85% of the Company’s outstanding 2.50% Notes, the Trustee and any other owner of the 2.50% Notes who executed and delivered to the Company a joinder to the Forbearance Agreement (collectively with the Trustee and Ad Hoc Noteholder Group, the “Counterparties”). Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the 2.50% Notes Indenture in connection with certain events of default under the 2.50% Notes Indenture, such as (i) failure to timely pay in full the principal of any 2.50% Note when due and payable on March 15, 2023, (ii) failure to pay any interest on any 2.50% Note when due and payable, (iii) failure to convert any 2.50% Notes, (iv) default under any agreement with outstanding indebtedness for money borrowed in excess of $15.0 million and (v) any other breach, default or event of default under the 2.50% Notes Indenture arising from the failure of the Company to timely pay in full the principal of any 2.50% Note when due and payable on the maturity date for the 2.50% Notes. The Forbearance Agreement was initially effective for the period commencing on March 13, 2023 and ending on April 21, 2023, the date of the Restructuring Support Agreement.

The holders of the 2.50% Notes that joined the Forbearance Agreement received a fee (the “Forbearance Premium”) equal to $5.00 per $1,000 principal amount of the 2.50% Notes held by such party, by executing and delivering a joinder to the Forbearance Agreement to the Company. During the nine months ended September 30, 2023 the Ad Hoc Noteholder Group received $0.2 million in Forbearance Premiums were capitalized and amortized as interest expense during the period commencing on March 13, 2023 through March 31, 2023.

Restructuring Support Agreement and June 2023 Exchange Transaction

On April 21, 2023, the Company entered into the Restructuring Support Agreement with certain holders of the 2.50% Notes, the holder of the Secured Note and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure. On June 9, 2023, the Company completed the Restructuring Transactions contemplated by the Restructuring Support Agreement whereby the Company (i) exchanged approximately $55.9 million aggregate principal amount of the 2.50% Notes for approximately $56.9 million aggregate principal amount of newly issued 5.00% Notes, which was inclusive of additional 5.00% Notes in respect of interest accrued on the 2.50% Notes from September 15, 2022, for $1.0 million; (ii) issued and sold an additional $10.0 million aggregate principal amount of 5.00% Notes; (iii) repurchased the Secured Note, plus accrued interest, by issuing approximately 3.4 million shares of the Company’s common stock; (iv) issued approximately 0.4 million shares of the Company’s common stock upon conversion of all of the Company’s outstanding Series A Preferred Stock; (v) amended the March 2022 Securities Purchase Agreement (as defined in Note 17) and issued and sold approximately 0.5 million shares of the Company’s common stock for proceeds of $4.0 million; and (vi) entered into a new securities purchase agreement with the Schuler Trust pursuant to which the Schuler Trust is required, prior to December 15, 2023, to either purchase an aggregate of $10 million of the Company’s common stock from the Company or to backstop an underwritten public offering by the Company of its common stock for aggregate proceeds of $10 million, at the Company’s option. See Note 10, Long-Term Debt Related-Party, Note 17, Stockholders' Equity and Note 18, Related-Party Transactions for additional information.

The exchange agreement described above (the “June 2023 Exchange Transaction”) was accounted for as an extinguishment which resulted in the $56.9 million in aggregate principal of the 5.00% Notes replacing the $55.9 million aggregate principal of the 2.50% Notes and the $1.0 million of accrued interest expense. The 5.00% Notes were recorded at fair value on initial measurement, while the $55.9 million aggregate principal of 2.50% Notes and the $1.0 million of related accrued interest expense was retired. During June 2023, the extinguishment of the 2.50% Notes resulted in a loss of $6.6 million. See further discussion of the 5.00% Notes below.

March 2022 Exchange Transaction

On March 21, 2022, the Company entered into a privately negotiated exchange agreement (the “March 2022 Exchange Agreement”) with a holder of the 2.50% Notes. Under the terms of the March 2022 Exchange Agreement, the note holder agreed to exchange with the Company $14.0 million in aggregate principal amount 2.50% Notes held by it in eight equal tranches as follows for each tranche: (a) 2.26 shares per $1,000 principal amount of 2.50% Notes exchanged, plus (b) an additional number of shares of the Company’s common stock per $1,000 principal amount of 2.50% Notes exchanged equal to the sum, for each of the trading days during a separate agreed upon reference period for each tranche commencing on March 21, 2022 for the first tranche, of the quotient of (i) $15.567 divided by (ii) the daily volume-weighted average price for such trading day (collectively, the “Exchange Transaction”). The closing of the March 2022 Exchange Agreement occurred in eight tranches (“2022 Obligation to Exchange”), with the first closing occurring on March 29, 2022 and the last closing on May 18, 2022.

On March 21, 2022 the 2022 Obligation to Exchange $14.0 million of 2.50% Notes was accounted for as an extinguishment and was replaced by new notes with an embedded feature (the “2022 New Notes”). The 2022 New Notes were elected to be carried using the fair value option. The 2022 New Notes were recorded at fair value on initial measurement and remeasured at fair value (“mark to market”) at each reporting period with changes in fair value reported in other income and expense, net. This fair value election was exclusive to the 2022 New Notes and did not extend to other 2.50% Notes. As of September 30, 2023 and 2022 none of the 2.50% Notes were carried using the fair value option.

During the nine months ended September 30, 2022, the holder of the 2.50% Notes exchanged approximately $14.0 million in aggregate principal amount of 2.50% Notes held by the holder for approximately 1.1 million shares of the Company's common stock pursuant to the March 2022 Exchange Agreement. The legal exchange of these 2.50% Notes resulted in a gain of $3.6 million during the nine months ended September 30,

2022. The Company’s common stock was determined to have a fair value of $10.2 million, which was recorded to contributed capital during the nine months ended September 30, 2022.

August 2022 Exchange Transaction

On August 15, 2022, the Company entered into an exchange agreement (the “August 2022 Exchange Agreement”) with the Schuler Trust, as discussed in Note 10, Long-Term Debt Related-Party. Under the terms of the August 2022 Exchange Agreement, the Schuler Trust agreed to exchange with the Company $49.9 million in aggregate principal amount of 2.50% Notes held by it for (a) the Secured Note in an aggregate principal amount of $34.9 million and (b) the Warrant to acquire the Company’s common stock.

The transaction qualified as an extinguishment of debt. Under extinguishment accounting, these 2.50% Notes were derecognized and the new instruments, which include the Secured Note and the Warrant, were recorded at their fair values. The Secured Note included various features that were advantageous to the Company, including a lower interest rate compared to current market rates and a share conversion feature. There were no other negotiating parties that had similar terms or economic outcomes. As such, the exchange was considered not to be an arm’s length transaction, and therefore the resulting gain was accounted for as a capital transaction. The net carrying amount of the extinguished 2.50% Notes was $49.6 million. The estimated fair values of the Secured Note and the Warrant on August 15, 2022 were $16.0 million and $3.8 million, respectively, which resulted in a net gain of $29.8 million that was recorded to contributed capital. See Note 18, Related-Party Transactions and Note 10, Long-Term Debt Related-Party for additional information.

Closing of Prepaid Forward

In connection with the initial offering of the 2.50% Notes, the Company entered into a prepaid forward stock repurchase transaction (the “Prepaid Forward”) with a financial institution. Pursuant to the Prepaid Forward, we used approximately $45.1 million of the proceeds from the offering of the 2.50% Notes to pay the prepayment amount. The aggregate number of our common stock underlying the Prepaid Forward was approximately 0.2 million shares (based on the sale price of $24.25). On March 24, 2023, approximately 0.2 million shares of common stock were returned to the Company pursuant to our agreement with the counterparty. On March 27, 2018 and forward, these shares purchased under the Prepaid Forward were treated as treasury stock in the condensed consolidated balance sheets (and not outstanding for purposes of the calculation of basic and diluted earnings per share), but remain outstanding for corporate law purposes, including for purposes of any future stockholders’ votes.

5.00% Convertible Senior Notes due 2026 (the “5.00% Notes”)

As described above, on June 9, 2023, the Company entered into the June 2023 Exchange Transaction with holders of the 2.50% Notes. The June 2023 Exchange Transaction was accounted for as an extinguishment which resulted in the 5.00% Notes replacing the 2.50% Notes and associated accrued interest expense. The 5.00% Notes were recorded at fair value on initial measurement. In addition the Company issued an additional $10.0 million aggregate principal amount of 5.00% Notes, for cash proceeds with certain existing note holders. Following the June 2023 Exchange Transaction and the additional issuance of 5.00% Notes, the 5.00% Notes had an aggregate principal amount of $66.9 million and a maturity date of December 15, 2026 (the “Maturity Date”).

The 5.00% Notes bear interest at a rate of 5.00% per annum. The Company pays interest on the 5.00% Notes by payment-in-kind (“PIK”), through the issuance of additional 5.00% Notes (“PIK Notes”). The amount is paid to holders by increasing the principal amount of each outstanding 5.00% Note by an amount equal to the interest payable for the applicable interest period. The Company calculates PIK interest semi-annually on June 15 and December 15, on a compound basis based on the stated rate of 5.00%. The PIK Notes also incur interest at a rate of 5.00% per annum.

The 5.00% Notes are secured by substantially all of the assets of the Company and its subsidiaries.

Holders of the 5.00% Notes who convert their 5.00% Notes in connection with a make-whole fundamental change (as defined in the indenture governing the 5.00% Notes (the “5.00% Notes Indenture”)) are, under certain circumstances, entitled to an increase in the conversion rate. If a fundamental change occurs at any time prior to the Maturity Date, each holder will have the right, at such holder’s option, to require the Company to repurchase for cash all of such holder’s 5.00% Notes, at a repurchase price equal to 100% of the principal amount thereof, plus

accrued and unpaid interest.

Redeeming the 5.00% Notes before June 15, 2025 could trigger a make-whole fundamental change as described above. On or after June 15, 2025 the Company may, at its option, redeem for cash all or a portion of the 5.00% Notes. If the Company does not redeem 100% of the 5.00% Notes then the redeemed amount is subject to minimums as outlined in the 5.00% Notes Indenture.

Each holder of the 5.00% Notes has the right at their option, to convert any portion of the 5.00% Notes at an initial conversion rate of 138.88889 shares of common stock per $1,000 principal amount of the 5.00% Notes. The Company cannot require the holders of the 5.00% Notes to convert at any time, but the holders can convert up to the Maturity Date. Effective October 18, 2023, the initial conversion rate was to be adjusted to a conversion rate calculated based on a conversion price of $7.20 per share of common stock plus 50% of the difference between the Post-Closing VWAP (as defined in the 5.00% Notes Indenture) and $7.20 (if such difference is a positive number), provided that in no event will the adjusted conversion rate be lower than 120.48193 per $1,000 principal amount of the 5.00% Notes, based on a conversion price of $8.30 per share of common stock (the “Conversion Option”). On October 18, 2023, the Company evaluated the conversion rate per the terms outlined above and determined the initial conversion rate of 138.88889 shares of common stock per $1,000 principal amount will continue to be the conversion rate through the remaining term of the 5.00% Notes.