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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022
OR
☐ 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)
Delaware84-1072256
(State or other jurisdiction(I.R.S. Employer Identification No.)
of incorporation or organization)
3950 South Country Club Road, Suite 470
Tucson,Arizona85714
(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 classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 parAXDXThe 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

As of November 10, 2022, there were 99,099,480 shares of the registrant’s common stock outstanding.


TABLE OF CONTENTS


2

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands, except share data)
September 30,December 31,
20222021
Unaudited
ASSETS
Current assets:
Cash and cash equivalents$38,987 $39,898 
Investments16,407 23,720 
Trade accounts receivable, net2,393 2,320 
Inventory5,392 5,067 
Prepaid expenses1,119 768 
Other current assets1,974 1,558 
Total current assets66,272 73,331 
Property and equipment, net3,621 5,389 
Finance lease assets, net2,319 — 
Operating lease right of use assets, net2,012 2,510 
Other non-current assets1,623 1,817 
Total assets$75,847 $83,047 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable$2,819 $1,983 
Accrued liabilities4,300 2,853 
Accrued interest118 909 
Deferred revenue524 451 
Current portion of long-term debt80 80 
Finance lease, current953 — 
Operating lease, current774 669 
Total current liabilities9,568 6,945 
Finance lease, non-current 698 — 
Operating lease, non-current 1,775 2,381 
Other non-current liabilities759 808 
Accrued interest related-party220 — 
Long-term debt related-party16,299 — 
Convertible notes56,325 107,984 
Total liabilities$85,644 $118,118 
Commitments and contingencies (see Note 14)

See accompanying notes to condensed consolidated financial statements.

3

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS (CONTINUED)
(in thousands, except share data)
September 30,December 31,
20222021
Unaudited
Stockholders’ deficit:
Preferred shares, $0.001 par value;
5,000,000 preferred shares authorized and 3,954,546 outstanding as of September 30, 2022 and December 31, 2021
4 4 
Common stock, $0.001 par value;
200,000,000 common shares authorized with 97,240,983 shares issued and outstanding on September 30, 2022 and 100,000,000 common shares authorized with 67,649,018 shares issued and outstanding on December 31, 2021
97 68 
Contributed capital627,853 580,652 
Treasury stock(45,067)(45,067)
Accumulated deficit(592,439)(570,668)
Accumulated other comprehensive loss(245)(60)
Total stockholders’ deficit(9,797)(35,071)
Total liabilities and stockholders’ deficit$75,847 $83,047 

See accompanying notes to condensed consolidated financial statements.

4

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Unaudited
(in thousands, except per share data)
Three Months EndedNine Months Ended
September 30,September 30,September 30,September 30,
2022202120222021
Net sales$2,960 $3,122 $9,780 $8,439 
Cost of sales2,190 2,136 7,127 5,502 
Gross profit770 986 2,653 2,937 
Costs and expenses:
Research and development7,285 4,712 20,885 17,341 
Sales, general and administrative8,255 10,806 30,422 37,744 
Total costs and expenses15,540 15,518 51,307 55,085 
Loss from operations(14,770)(14,532)(48,654)(52,148)
Other (expense) income:
Interest expense(203)(4,211)(1,833)(12,477)
Interest expense related-party(495)— (495)— 
Gain on extinguishment of debt— 9,840 3,565 9,840 
Foreign currency exchange loss(261)(78)(221)(238)
Interest income73 — 151 55 
Other (expense) income, net(49)(5)(206)69 
Total other (expense) income, net(935)5,546 961 (2,751)
Net loss before income taxes(15,705)(8,986)(47,693)(54,899)
Provision for income taxes— — — — 
Net loss$(15,705)$(8,986)$(47,693)$(54,899)
Basic and diluted net loss per share$(0.18)$(0.15)$(0.62)$(0.91)
Weighted average shares outstanding87,011 61,146 77,049 60,250 
Other comprehensive loss:
Net loss$(15,705)$(8,986)$(47,693)$(54,899)
Net unrealized gain (loss) on debt securities available-for-sale48 (3)(84)(21)
Foreign currency translation adjustment139 (27)(101)(87)
Comprehensive loss$(15,518)$(9,016)$(47,878)$(55,007)

See accompanying notes to condensed consolidated financial statements.

5

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Unaudited
(in thousands)
Nine Months Ended
September 30,September 30,
20222021
Cash flows from operating activities:
Net loss$(47,693)$(54,899)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization2,207 1,875 
Amortization of investment discount94 153 
Equity-based compensation8,179 19,058 
Amortization of debt discount and issuance costs386 9,250 
Amortization of debt discount related-party275 — 
Loss (gain) on disposal of property and equipment74 (202)
Unrealized loss (gain) on equity investments206 (39)
Gain on extinguishment of debt(3,565)(9,840)
(Increase) decrease in assets:
Contributions to deferred compensation plan(174)(304)
Accounts receivable(73)(719)
Inventory(245)(527)
Prepaid expense and other(491)860 
Increase (decrease) in liabilities:
Accounts payable1,221 1,017 
Accrued liabilities and other962 (436)
Accrued interest(785)(1,059)
Accrued interest from related-party220 — 
Deferred revenue and income73 93 
Deferred compensation(49)343 
Net cash used in operating activities(39,178)(35,376)
Cash flows from investing activities:
Purchases of equipment(446)(202)
Purchase of marketable securities(27,506)(22,345)
Maturities of marketable securities34,527 33,601 
Net cash provided by investing activities6,575 11,054 
Cash flows from financing activities:
Proceeds from issuance of common stock32,872 22,640 
Payments on finance leases(1,109)— 
Proceeds from exercise of options7 1,456 
Proceeds from issuance of common stocks under employee purchase plan184 245 
Transaction costs related to debt exchange(192)— 
Payment of debt(6)(6)
Net cash provided by financing activities31,756 24,335 

See accompanying notes to condensed consolidated financial statements.

6

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
Unaudited
(in thousands)
Nine Months Ended
September 30,September 30,
20222021
Effect of exchange rate on cash(64)(69)
Decrease in cash and cash equivalents(911)(56)
Cash and cash equivalents, beginning of period39,898 35,781 
Cash and cash equivalents, end of period$38,987 $35,725 
Non-cash investing activities:
Net transfer of instruments (to) from inventory to property and equipment$(78)$508 
Non-cash financing activities:
Extinguishment of convertible senior notes through issuance of common stock$10,180 $34,545 
Convertible notes due from related-party extinguished in connection with the exchange transaction, net of deferred issuance costs$49,624 $— 
Fair value of new note from related-party issued in connection with the exchange transaction$16,024 $— 
Fair value of common stock warrant issued to related-party in connection with exchange transaction$3,753 $— 
Capital contribution from related-party in connection with the exchange transaction$29,847 $— 
Supplemental cash flow information:
Interest paid$2,214 $4,288 

See accompanying notes to condensed consolidated financial statements.

7

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
Unaudited
(in thousands)
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
Preferred stock shares outstanding
Beginning3,955 — 3,955 — 
Issuance of preferred stock— 2,636 — 2,636 
Ending3,955 2,636 3,955 2,636 
Preferred stock
Beginning$4 $— $4 $— 
Proceeds from issuance of preferred stock— 3 — 3 
Ending$4 $3 $4 $3 
Common stock shares outstanding
Beginning79,701 61,489 67,649 57,608 
Issuance of common stock17,500 67 17,500 2,937 
Restricted stock awards released and exercise of options6 62 1,134 1,052 
Issuance of common stock under employee purchase plan34 16 159 37 
Rescission of common stock— (2,643)— (2,643)
Issuance of shares to retire convertible notes— 5,946 10,799 5,946 
Ending97,241 64,937 97,241 64,937 
Common stock
Beginning$80 $61 $68 $58 
Proceeds from issuance of common stock17 1 17 3 
Restricted stock awards released and exercise of options— — 1 1 
Rescission of common stock— (3)— (3)
Issuance of shares to retire convertible notes— 6 11 6 
Ending$97 $65 $97 $65 
Contributed capital
Beginning$560,185 $514,122 $580,652 $475,072 
Cumulative effect of accounting changes— — (37,438)— 
Proceeds from issuance of common stock32,855 517 32,855 22,637 
Exercise of options— 234 6 1,455 
Issuance of common stock under employee purchase plan47 84 184 245 
Issuance of shares to retire Convertible Notes— 34,539 10,169 34,539 
Capital contribution from related-party in connection with exchange transaction29,847 — 29,847 — 
Warrant issued to related-party3,753 — 3,753 — 
Equity-based compensation1,166 3,638 7,825 19,186 
Ending$627,853 $553,134 $627,853 $553,134 

See accompanying notes to condensed consolidated financial statements.

8


ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
Unaudited
(in thousands)
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
Accumulated deficit
Beginning$(576,734)$(538,879)$(570,668)$(492,966)
Cumulative effect of accounting changes— — 25,922 — 
Net loss(15,705)(8,986)(47,693)(54,899)
Ending$(592,439)$(547,865)$(592,439)$(547,865)
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$(432)$13 $(60)$91 
Net unrealized gain (loss) on debt securities available-for-sale48 (3)(84)(21)
Foreign currency translation adjustment139 (27)(101)(87)
Ending$(245)$(17)$(245)$(17)
Total stockholders' deficit$(9,797)$(39,747)$(9,797)$(39,747)

See accompanying notes to condensed consolidated financial statements.

9

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, 2021, as filed with the SEC on March 14, 2022.

The condensed consolidated balance sheet as of December 31, 2021 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, 2022, or any future period.

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

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.

Risk and Uncertainties

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. Historically, the Company has funded its operations primarily through multiple equity raises, one convertible debt offering, and Secured Note (as defined in Note 11). 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.

The COVID-19 pandemic, containment measures, and downstream impacts to hospital staffing and financial stability have caused business slowdowns or shutdowns in affected areas, both, as well as disruptions to global supply chains and workforce participation. These effects have significantly impacted the Company’s business and results of operations, starting in the first quarter of 2020 and continuing through the current quarter, albeit to a lesser degree. These impacts include diminished access to the Company’s customers, principally hospitals, which has severely limited the ability to sell or implement products. Furthermore, the expected rate of growth of the Company’s consumable test kit sales has been reduced because of the negative impact of the COVID-19 pandemic on Accelerate Pheno system new sales and implementations. The Company has reviewed its suppliers and quantities of key materials and believes that it has sufficient stocks and alternate sources of critical materials should the supply chains become further disrupted, although raw materials for the manufacturing of
10

reagents is in high demand, and interruptions in supply are difficult to predict. The COVID-19 pandemic also caused the Company to reassess its build plan and evaluate its inventories accordingly, which resulted in additional charges to cost of sales for excess inventories in the prior year.

The Company may seek to fund its operations through public equity, private equity or debt financings, as well as other sources. However, the Company may be unable to raise additional funds or enter into such other arrangements when needed, on favorable terms, or at all. The Company’s failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on the Company’s business, results of operations, financial condition and the Company’s ability to develop new products. To the extent the Company raises additional funds through the sale of equity, issue convertible debt securities or exchange convertible debt for equity, the issuance of securities will result in dilution to stockholders. Investors purchasing shares or other securities in the future could have rights superior to existing stockholders. In addition, the Company has a significant number of options and restricted stock units (“RSUs”) outstanding in addition to the Warrant (as defined in Note 11). If these options or the Warrant are exercised or such RSUs are released, or shares of the Company’s common stock are issued upon conversion of the Company’s outstanding 2.50% Senior Convertible Notes due 2023 (the “Notes”) or Series A Preferred Stock, further dilution may occur.

Liquidity

The Company continues to assess liquidity needs and manage cash flows. As a result of the steps the Company has taken to enhance its liquidity, the Company currently believes that cash on hand and cash flows from operations will enable the Company to meet its working capital, capital expenditure, debt service and other funding requirements for at least one year from the date this Quarterly Report on Form 10-Q (this “Form 10-Q”) is issued. The Company’s view regarding sufficiency of cash and liquidity is primarily based on our financial forecast for 12 months from the date these condensed consolidated financial statements are filed, which is impacted by, among other things, various assumptions regarding demand and sales prices for our products. Our financial forecasts in recent periods have proven less reliable due to conditions created by the pandemic. As a result, there is no guarantee our financial forecast, which projects sufficient cash will be available to meet planned operating expenses and other cash needs, will be accurate. In the event the Company experiences lower customer demand, lower prices for its products and services, or higher expenses than it forecasted or if the Company underperforms relative to its forecast, the Company could experience negative cash flows from operations, as has been the case in prior years, which would reduce its cash balances and liquidity.

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 revenues 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, convertible notes, notes from related parties, 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 Accounting Standards Codification (“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).

11

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 estimated fair value of the Notes represents a Level 2 measurement. See Note 10, Convertible Notes for further detail on the Notes.

The long-term debt with a related-party consisting of the Secured Note (as defined in Note 11) and the Warrant are instruments measured at fair value on a non-recurring basis using Level 3 inputs. See Note 11, Long-Term Debt Related-Party for further detail on the Secured Note and the Warrant.

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 our cash management process, excess operating cash is invested in overnight repurchase agreements with our 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. We believe however, 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 sheet at fair value. Unrealized gains or losses for debt securities available-for-sale are included in accumulated other comprehensive income (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 available-for-sale, including those with maturity dates beyond 12 months, as 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 or has a cost basis in excess of its estimated realizable value and records a charge to expense for such inventory as appropriate.

12

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 collectibility 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 collectibility issues. In determining the amount of the allowance for credit losses, we consider historical collectibility 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, 2022 and 2021 is comprised of the following (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Beginning balance$150 $213 140 445 
(Reversals) provisions, net
(12)78 18 114 
Write-offs
— (77)(20)(345)
$138 $214 $138 $214 

The write-offs recorded during the nine months ended September 30, 2021 were in connection with a one-time restructuring activity of the Company's Europe, Middle East and Africa (“EMEA”) business. These credit losses were incurred as part of the Company terminating agreements with select distributors in geographies it exited and did not pursue collection of these accounts receivables.

Property and Equipment

Property and equipment are 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 costs and expenses. 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 for instruments used for sales demonstrations is recorded as a component of sales, general and administrative expense. Depreciation expense for instruments placed at customer sites pursuant to reagent rental agreements is recorded as a component of cost of sales. Depreciation expense for 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. Losses from the retirement of returned instruments are included in costs and expenses.
13


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 as of for the three and nine months ended September 30, 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 value 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, 2022 and 2021 is as follows (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Beginning balance$255 $169 $139 $232 
Provisions (reversals), net
(4)(31)134 (41)
Warranty cost incurred
(29)(17)(51)(70)
Ending balance$222 $121 $222 $121 

Convertible Notes

On January 1, 2022 the Company adopted 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). As a result, the Notes are now accounted for as a single liability measured at their amortized cost. The Notes are no longer bifurcated between debt and equity and are instead accounted for entirely as debt at face value net of any discount or premium and issuance costs. 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 Notes is calculated as the difference between the (i) fair value of the consideration transferred and (ii) the sum of the carrying value of the debt at the time of repurchase.

The Company classifies the Notes as a non-current liability as the Company has sufficient shares and non-cash alternatives to settle the Notes.

See Note 2, Recently Issued Accounting Pronouncements and Note 10, Convertible Notes, for further information and related disclosures.

14

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 revenues.

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, 2022.

Gross Profit and Gross Margin

Gross profit consists of total revenue, net of allowances, 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 repair and maintenance cost for instruments covered by a service agreement or instruments covered by a reagent rental agreement. Cost of sales also includes warranty related costs.

The Company’s overall gross margin was 26% and 32% for the three months ended September 30, 2022 and 2021, respectively, and 27% and 35% for the nine months ended September 30, 2022 and 2021, respectively. The decreases were primarily due to increases in the costs to manufacture consumables due to supply chain inflationary factors and a decrease in our average unit sales price period over period.

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.

15

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 leases are included in right-of-use (“ROU”) assets and corresponding lease liabilities, and finance leases are included in 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, have between two and six-year terms, and typically contain penalizing, early-termination provisions. Our finance leases consist of leased equipment and have 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 collectibility is probable, that amount is recognized as income 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, which include the present value of lease payments not yet received and the present value of the residual asset, which 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
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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 sheet.

Equity-Based Compensation

The Company may award stock options, 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) except for performance-based awards. 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 records the fair value of RSUs or stock grants based on the published closing market price on the day before the grant date.

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

The Company also has an employee stock purchase program whereby eligible employees can elect payroll deductions that are subsequently used to purchase common stock at a discounted price. There is no compensation recorded for this program as (i) the purchase discount does not exceed the issuance costs that would have been incurred to raise a significant amount of capital by a public offering, (ii) substantially all employees that meet limited employment qualifications may participate on an equitable basis, and (iii) the plan doesn't incorporate option features that would require compensation to be recorded.

See Note 13, Employee Equity-Based Compensation 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 sheet. 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
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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 statement of operations and comprehensive loss.

Loss Per Share

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 and the Warrant. Potentially dilutive common shares would also include common shares that would be outstanding if the Notes and the Series A Preferred Stock outstanding at the balance sheet date were converted and shares issuable in connection with the March 2022 Securities Purchase Agreement (as defined in Note 18). Diluted earnings are not presented when the effect of adding such additional common shares is antidilutive.

See Note 12, 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

Standards that were recently adopted

In August 2020, the FASB issued 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). This update simplifies the accounting for convertible debt instruments by removing the beneficial conversion and cash conversion separation models for convertible instruments. Under the update, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums accounted for as paid-in capital. The update also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will no longer be available. The Company adopted the standard on January 1, 2022 through application of the modified retrospective method of transition. The Company applied the standard to the Notes outstanding as of January 1, 2022, as discussed in Note 10, Convertible Notes. As a result, the Notes are now accounted for as a single liability measured at their amortized cost. The Notes are no longer bifurcated between debt and equity and are instead accounted for entirely as debt at face value net of any discount or premium and issuance costs. 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. On January 1, 2022, the cumulative effect of adoption resulted in an increase in the net carrying amount of the Notes, of $11.5 million, a decrease in additional-paid-in-capital of $37.4 million, and a decrease in accumulated deficit of $25.9 million. ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share. This change has no impact on the Company given the Company was already using the if-converted method to calculate diluted earnings per share.

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In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Topic 815 - 40). ASU 2021-04 codifies the final consensus reached by the Emerging Issues Task Force (EITF) on how an issuer should account for modifications made to equity-classified written call options (hereafter referred to as a warrant to purchase the issuer’s common stock). The guidance in the ASU requires the issuer to treat a modification of an equity-classified warrant that does not cause the warrant to become liability-classified as an exchange of the original warrant for a new warrant. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the warrant or as termination of the original warrant and issuance of a new warrant. This ASU was adopted January 1, 2022, and did not impact the Company's consolidated financial statements at January 1, 2022.

Standards not yet adopted

In March 2022, the 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 update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. We do not expect the update to have a material effect on our condensed consolidated financial statements.

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. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the update to have a material effect on our condensed consolidated financial statements.

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, 2022, three of the Company's financial institutions held 74%, 12% and 13% of the Company’s cash and cash equivalents. As of December 31, 2021, two of the Company's financial institutions held 72% and 13% 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 client's financial position. The Company had one customer that accounted for 16% and 13% of the Company’s net accounts receivable balance as of September 30, 2022 and December 31, 2021, respectively.

The Company did not have any customers that represented 10% or more of the Company’s total revenue for the three and nine months ended September 30, 2022 and 2021.

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NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS

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, 2022 and December 31, 2021 (in thousands):

September 30, 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$5,145 $— $— $5,145 
Total cash and cash equivalents5,145 — — 5,145 
Equity investments:
Mutual funds808 — — 808 
Total equity investments808 — — 808 
Debt securities available-for-sale:
Certificates of deposit— 3,382 — 3,382 
U.S. Treasury securities5,228 — — 5,228 
Commercial paper— 2,893 — 2,893 
Corporate notes and bonds— 4,096 — 4,096 
Debt securities available-for-sale5,228 10,371 — 15,599 
Total assets measured at fair value$11,181 $10,371 $— $21,552 

December 31, 2021
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$5,563 $— $— $5,563 
Commercial paper— 200 — 200 
Total cash and cash equivalents5,563 200 — 5,763 
Equity investments:
Mutual funds841 — — 841 
Total equity investments841 — — 841 
Debt securities available-for-sale:
Certificates of deposit— 1,351 — 1,351 
U.S. Treasury securities250 — — 250 
Commercial paper— 8,046 — 8,046 
Corporate notes and bonds— 13,232 — 13,232 
Debt securities available-for-sale250 22,629 — 22,879 
Total assets measured at fair value$6,654 $22,829 $— $29,483 

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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 sheet.

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, during the periods presented, any material adjustments to such inputs.

At September 30, 2022, the Notes had an outstanding principal amount of $56.6 million with a fair value of $51.7 million. At December 31, 2021, the Notes had an outstanding principal amount of $120.5 million with a fair value of $89.4 million. The fair value of the Notes represents a Level 2 measurement. The fair value of the Notes is typically correlated to the Company’s stock price and as a result, significant changes to the Company’s stock price will have a significant impact on the calculated fair value. See Note 10, Convertible Notes for further detail on the Notes.

The Secured Note is an instrument measured at fair value on a non-recurring basis using Level 3 inputs. The estimated fair value of the Secured Note on August 15, 2022 was $16.0 million. See Note 11, Long-Term Debt Related-Party for further detail on the Secured Note.

The warrant is an instrument measured at fair value on a non-recurring basis using Level 3 inputs. The estimated fair value of the warrant on August 15, 2022 was $3.8 million. See Note 11, Long-Term Debt Related-Party for further detail on the Company’s warrant with a related-party.

NOTE 5. INVESTMENTS

The following tables summarize the Company’s debt securities available-for-sale investments at September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
Certificates of deposit$3,400 $— $(18)$3,382 
U.S. Treasury securities5,266 — (38)5,228 
Commercial paper2,901 — (8)2,893 
Corporate notes and bonds4,131 — (35)4,096 
Total$15,698 $— $(99)$15,599 

December 31, 2021
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
Certificates of deposit$1,351 $— $— $1,351 
U.S. Treasury securities250 — — 250 
Commercial paper8,048 — (2)8,046 
Corporate notes and bonds13,245 — (13)13,232 
Total$22,894 $— $(15)$22,879 

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The following table summarizes the maturities of the Company’s debt securities available-for-sale investments at September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022December 31, 2021
Amortized
Cost		Fair ValueAmortized
Cost		Fair Value
Due in less than 1 year$15,698 $15,599 $22,663 $22,649 
Due in 1-3 years— — 231 230 
Total
$15,698 $15,599 $22,894