10-Q 1 hlth-20230930.htm 10-Q hlth-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________
FORM 10-Q
_________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                    
Commission File Number: 001-40824
_________________
Cue Health Inc.
(Exact Name of Registrant as Specified in its Charter)
_________________
Delaware
27-1562193
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
4980 Carroll Canyon Rd.
Suite 100
San Diego, CA
92121
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (858) 412-8151
_________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange
on which registered
Common Stock, par value $0.00001 per share
HLTH
Nasdaq Global Stock 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  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 fileroAccelerated filerx
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyx
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.   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  o    No  x
As of November 1, 2023 the registrant had 154,632,057 shares of common stock, $0.00001 par value per share, outstanding.


FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words, variations of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:

our expectations regarding our revenue, expenses and other operating results;
the extent and duration of the COVID-19 pandemic and the impact of the end of the COVID-19 pandemic on our business and our expectations regarding customer and user demand for our COVID-19 test;
our ability to increase demand for, and the rate of market adoption of, the Cue Health Monitoring System and our platform, tests and other products generally, including with consumers, healthcare professionals, enterprises, insurers and other payors and public health officials;
our ability to effectively scale our manufacturing capacity and other operations in a timely manner in order to meet contractual obligations, market demand and to be able to successfully operate our business;
our ability to meet our contractual obligations under our agreements with customers;
our ability to successfully develop and commercialize additional tests and other products for use with our Cue Integrated Care Platform;
our expectations of the reliability, accuracy and performance of our products and services, as well as expectations of the benefits to patients, clinicians and providers of our products and services;
our ability to obtain and maintain regulatory authorizations, clearances or approvals for our tests, including our existing Federal Drug Administration (the “FDA”) Emergency Use Authorizations (“EUAs”) for our COVID-19 test;
our ability to accurately forecast demand for the Cue Health Monitoring System, our tests and other products;
our ability to successfully build out our sales and marketing infrastructure, the costs and success of our marketing efforts, and our ability to promote our brand;
our ability to increase demand for our products and services, obtain favorable coverage and reimbursement determinations from third-party payors and expand geographically;
our ability to continue as a going concern;
our expectations regarding our current or future litigation;
our intellectual property position and our expectations regarding our ability to obtain and maintain intellectual property protection;
our ability to effectively manage our growth, including our ability to retain and recruit personnel, and maintain our culture;
the impact of U.S. and international laws and regulations;
our competitive position and expectations regarding developments and projections relating to our competitors and any competing products and services;
future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements, future revenue, expenses, the ability to obtain reimbursement for our products and any needs for additional financing;
our expectations regarding technology trends and developments in the healthcare industry and our ability to address those trends and developments with our offerings;
our expectations concerning relationships with third parties, including healthcare professionals, enterprises, insurance companies and other payors, public health officials and other stakeholders in the healthcare system;
the degree to which we are able to help bring about a new healthcare paradigm, and be a significant participant in any such new paradigm;
our ability to grow our business internationally, in addition to within the United States;
inflationary pressures, supply chain disruptions and other macroeconomic factors;
our ability to implement, maintain and improve effective internal controls and remediate material weaknesses; and
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, results of operations, financial condition, and prospects.

The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly


changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.


TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
4


Cue Health Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts and share data)
September 30,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents$111,454$241,530
Restricted cash800800
Accounts receivable, net1,32018,751
Inventories, net - current63,55582,210
Prepaid expenses9,86215,728
Other current assets5,24812,134
Total current assets
192,239371,153
Non-current inventories, net27,64025,436
Property and equipment, net166,311189,275
Operating lease right-of-use assets80,82985,321
Intangible assets, net21,53916,867
Other non-current assets3,7356,528
Total assets$492,293$694,580
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$11,109$7,150
Accrued liabilities and other current liabilities39,92052,378
Deferred revenue, current6231,566
Operating lease liabilities, current5,1097,739
Finance lease liabilities, current1,6462,362
Total current liabilities
58,40771,195
Operating leases liabilities, net of current portion42,96144,045
Finance lease liabilities, net of current portion849
Other non-current liabilities2,0911,997
Total liabilities103,459118,086
Commitments and contingencies (Note 14)
Stockholders’ Equity
Common stock, $0.00001 par value; 500,000,000 and 500,000,000 shares authorized, 154,601,335 and 150,406,014 issued and outstanding at September 30, 2023 and December 31, 2022, respectively
21
Additional paid-in-capital831,938794,567
Accumulated deficit(443,106)(218,074)
Total stockholders’ equity388,834576,494
Total liabilities and stockholders’ equity$492,293$694,580
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Cue Health Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Revenue
Product revenue$14,757 $66,660 $46,842 $328,465 
Grant and other revenue2,720 2,929 5,296 8,234 
Total revenue17,477 69,589 52,138 336,699 
Operating costs and expenses:
Cost of product revenue22,180 50,595 91,349 239,190 
Sales and marketing7,051 18,129 26,358 69,268 
Research and development37,103 42,516 118,372 115,303 
General and administrative15,848 25,625 47,489 77,946 
Restructuring expense 137 14,518 2,020 
Total operating costs and expenses82,182 137,002 298,086 503,727 
Loss from operations(64,705)(67,413)(245,948)(167,028)
Interest expense(304)(346)(815)(413)
Tax credits
20,939  20,939  
Other income, net1,833 409 5,525 458 
Loss before income taxes(42,237)(67,350)(220,299)(166,983)
Income tax expense (benefit)4,733 (1,047)4,733 (4,433)
Net loss$(46,970)$(66,303)$(225,032)$(162,550)
Net loss per share – basic$(0.31)$(0.45)$(1.48)$(1.10)
Weighted-average number of shares used in computation of net loss per share – basic153,699,408 148,582,721 152,226,999 147,443,196 
Net loss per share – diluted$(0.31)$(0.45)$(1.48)$(1.10)
Weighted-average number of shares used in computation of net loss per share – diluted153,699,408 148,582,721 152,226,999 147,443,196 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

Cue Health Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share data)
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at June 30, 2023152,662,162$2$819,311$(396,136)$423,177
Exercise of common stock options, including ESPP activity, 825,973 shares
825,973259259
Issuance of common stock upon vesting of restricted stock units1,714,320 — — — — 
Tax withholding on stock option exercises and restricted stock unit issuance(601,120)(319)(319)
Stock-based compensation12,68712,687
Net loss(46,970)(46,970)
Balance at September 30, 2023154,601,335$2$831,938$(443,106)$388,834


Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at June 30, 2022147,834,377$1$760,637$(120,265)$640,373
Exercise of common stock options, including ESPP activity, 147,463 shares
790,5301,4681,468
Issuance of common stock upon vesting of restricted stock units911,364
Tax withholding on stock option exercises and restricted stock unit issuance(358,580)(1,268)(1,268)
Stock-based compensation15,69015,690
Net loss(66,303)(66,303)
Balance at September 30, 2022149,177,691$1$776,527$(186,568)$589,960
The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Cue Health Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share data)
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at Balance at December 31, 2022150,406,014$1$794,567$(218,074)$576,494
Exercise of common stock options, including ESPP activity, 1,299,053 shares
1,468,5681371372
Issuance of common stock upon vesting of restricted stock units4,243,128
Tax withholding on stock option exercises and restricted stock unit issuance(1,516,375)(1,585)(1,585)
Stock-based compensation38,59738,597
Other(12)(12)
Net loss(225,032)(225,032)
Balance at September 30, 2023154,601,335$2$831,938$(443,106)$388,834


Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at Balance at December 31, 2021146,402,991$1$730,767$(24,018)$706,750
Exercise of common stock options, including ESPP activity, 147,463 shares
1,306,2351,9801,980
Issuance of common stock upon vesting of restricted stock units2,418,758
Tax withholding on stock option exercises and restricted stock unit issuance(950,293)(4,735)(4,735)
Stock-based compensation48,51548,515
Net loss(162,550)(162,550)
Balance at September 30, 2022149,177,691$1$776,527$(186,568)$589,960
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

Cue Health Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except share data)
Nine Months Ended
September 30,
20232022
Cash flows from operating activities
Net loss$(225,032)$(162,550)
Adjustments to reconcile net loss to net cash, cash equivalents and restricted cash used in operations
Depreciation and amortization37,992 32,989 
Allowance (recoveries) for credit losses provision
(308)1,729 
Stock-based compensation expense38,597 48,515 
Non-cash lease expense7,186 6,215 
Deferred income taxes (3,478)
Interest on finance leases65 137 
Non-cash interest expense202 319 
Changes in operating assets and liabilities:
Accounts receivable17,739 78,081 
Inventories16,451 (44,921)
Prepaid expenses and other current assets9,512 (7,151)
Other non-current assets2,591 (1,912)
Accounts payable, accrued liabilities and other current liabilities(13,092)13,401 
Income taxes payable6,358 (11,331)
Deferred revenue(943)2,734 
Operating lease liabilities(6,408)(12,996)
Net cash, cash equivalents and restricted cash used in operating activities(109,090)(60,219)
Cash flows from investing activities
Purchase of property and equipment(7,800)(43,179)
Expenditures for software development and other intangible assets(10,165)(9,767)
Net cash, cash equivalents and restricted cash used in investing activities(17,965)(52,946)
Cash flows from financing activities
Proceeds from exercise of common stock options113 1,980 
Tax withholding on stock option exercises and restricted stock unit issuance(1,584)(4,735)
Proceeds from employee stock purchase plan activity372 977 
Debt issuance and prepayment costs (599)
Equity issuance costs(292) 
Payments for finance leases(1,630)(2,180)
Net cash, cash equivalents and restricted cash used in financing activities(3,021)(4,557)
Net change in cash, cash equivalents and restricted cash(130,076)(117,722)
Cash, cash equivalents and restricted cash, beginning balance242,330 423,710 
Cash, cash equivalents and restricted cash, ending balance$112,254 $305,988 

Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents$111,454 $304,654 
Restricted cash, current800 1,334 
Total cash, cash equivalents and restricted cash$112,254 $305,988 
9

Supplemental disclosure for non-cash investing and financing matters
Right-of-use assets obtained in exchange for lease obligations$ $2,611 
Prepaid rent reclassified to right-of-use assets$ $50 
Purchase of property and equipment included in accounts payable$2,594 $4,313 
Software development costs included in accounts payable$115 $995 
The accompanying notes are an integral part of these condensed consolidated financial statements.
10

Cue Health Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share data)
NOTE 1. BUSINESS AND BASIS OF ACCOUNTING

Organization and Description of Business

Cue Health Inc. (the “Company”) was originally formed in the State of California on January 26, 2010, prior to being incorporated in the State of Delaware on December 14, 2017. The Company is a healthcare technology company that uses diagnostic-enabled care to empower people to live their healthiest lives. The Cue Health platform offers individuals and healthcare providers convenient and personalized access to lab-quality diagnostic tests at home and at the point-of-care, as well as on-demand telehealth consultations and treatment options for a wide range of health and wellness needs. The Company’s headquarters are located in San Diego, California.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited annual financial statements and notes thereto for the year ended December 31, 2022. The unaudited interim condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results for the fiscal year ending December 31, 2023 or any future interim period. The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting and, in the opinion of management, include all adjustments necessary for the fair statement of the Company’s financial position for the periods presented. All such adjustments are of a normal, recurring nature. Certain disclosures have been condensed or omitted from the interim condensed consolidated financial statements. The preparation of the accompanying financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses as well as the related disclosure of contingent assets and liabilities.

Use of Estimates

The preparation of the accompanying unaudited interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to revenue recognition, net accounts receivable, equity-based compensation expense, product warranty reserve, the usage and recoverability of its inventories, long-lived assets, intangible assets and net deferred tax assets (net of related valuation allowance). The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

Segment Reporting

Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. In addition, the guidance for segment reporting indicates certain quantitative materiality thresholds. The Company views its operations and manages its business in one operating segment which is consistent with how the Chief Executive Officer, who is the chief operating decision-maker, reviews the business, makes investment and resource allocation decisions, and assesses operating performance. The majority of revenue to date is from customers located in the United States and the majority of long-lived assets are located in the United States. Revenues to customers located outside of the United States were not material and $0.1 million for the three and nine months ended September 30, 2023, respectively. Revenues to customers located outside of the United States were $1.8 million and $9.3 million for the three and nine months ended September 30, 2022, respectively. Long-lived assets, which consist of property and equipment,
11

located outside of the United States were $3.9 million and $4.7 million as of September 30, 2023 and December 31, 2022, respectively.

COVID-19 Impact

COVID-19 was declared a global pandemic by the World Health Organization in March 2020 and adversely impacted global commercial activity. The Company began selling and recording product revenues for its Cue COVID-19 test in August 2020 after obtaining an EUA from the FDA in June 2020. Currently, the majority of the Company’s product revenues are derived from the Cue COVID-19 test. Given the unpredictable nature of the COVID-19 pandemic, the development and potential size of the COVID-19 diagnostic testing market is highly uncertain.

The FDA issued various EUAs and approvals for COVID-19 vaccines. The widely administered use of efficacious vaccines and therapeutic treatments for COVID-19 reduced the demand for the Cue COVID-19 test and, as a result, the COVID-19 diagnostic testing market may not develop or grow substantially. Given the rapid development of events surrounding the pandemic, there is uncertainty to the Company’s future results and performance.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Transfers of Financial Assets

The Company accounts for transfers of financial assets as sales when it has surrendered control over the related assets. Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of the Company’s continuing involvement with the assets transferred. Gains and losses stemming from transfers reported as sales are included in other income, net in the condensed consolidated statements of operations. Assets obtained and liabilities incurred in connection with transfers reported as sales are initially recognized in the balance sheet at fair value.

Going Concern

The Company’s operations have been primarily financed through a combination of its proceeds from its initial public offering, other financing activities, and product sales. The Company expects that its near and longer-term liquidity requirements will consist of working capital and general corporate expenses associated with its business, including, without limitation, expenses associated with product production, sales and marketing expense associated with increasing market awareness of its platform and brand generally to healthcare providers, individual consumers, enterprises and other target customers, research and development expenses associated with its test and care offerings, and expenses associated with being a public company.

The Company had an accumulated deficit of $443.1 million as of September 30, 2023. During the year ended December 31, 2022, and the nine months ended September 30, 2023, the Company incurred negative cash flows. A tempering of COVID-19 testing demand has resulted in a loss from operations. Currently, the majority of our product revenue is related to sales of our Cue COVID-19 test, and while we have a number of tests submitted to the FDA for regulatory approval and in late stage technical development, the receipt of such approvals is outside the Company’s control. These factors, underscored by the inherent uncertainty in timing of regulatory approvals, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern.

Management's plans to alleviate the conditions that raise substantial doubt include obtaining regulatory approvals for additional test products, reduced spending, and the pursuit of additional capital. There can be no assurance that the current operating plan will be achieved, including the timing of additional products, or that additional funding will be available on terms acceptable to the Company, or at all. Accordingly, the Company has concluded that substantial doubt exists about the Company's ability to continue as a going concern for a period of at least 12 months from the date of issuance of these condensed consolidated financial statements.

The accompanying condensed consolidated 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 condensed consolidated 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 be necessary should the Company be unable to continue as a going concern.

12

Employee Retention Credit

Tax credits within the accompanying condensed consolidated statement of operations is attributable to the one-time receipt of the Employee Retention Tax Credit from the Internal Revenue Service (the "IRS"). As a response to the COVID-19 outbreak, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which contained a number of programs to assist workers, families and businesses. Part of the CARES Act provides an Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes equal to 50% of qualified wages paid, up to $10,000 per employee annually, from March 12, 2020 through January 1, 2021. Additional relief provisions were passed by the United States government, which extended and expanded the qualified wage caps on these credits to 70% of qualified wages paid through June 30, 2021 and 100% of qualified wages paid through December 31, 2021, up to $10,000 per employee per quarter.

The Company filed Form 941-X for the periods 2020-2021 to claim a refund for the ERC. The Company elected to account for the ERC under ASC 958-605 when the conditions had been substantially met, which was determined to be in the third quarter of 2023. During the three months ended September 30, 2023, the Company received payments from the IRS related to the ERC and recorded $20.9 million within tax credits in the accompanying condensed consolidated statement of operations.

Recent Accounting Pronouncements

In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. The standard provides guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The Company adopted this standard effective January 1, 2023 under the modified retrospective method whereas comparative period information is not restated. The adoption of this standard did not have a significant impact on the Company’s condensed consolidated financial statements, therefore no cumulative effect or catch up adjustment to the opening balance of retained earnings was recorded.
NOTE 3. REVENUE
Product Revenue
Disaggregation of the product revenue by type of customer for the three and nine months ended September 30, 2023 and 2022, respectively:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Private sector customers$14,338 $65,880 $45,648 $322,252 
Public sector entities419 780 1,194 6,213 
Total product revenue$14,757 $66,660 $46,842 $328,465 
Product revenue for the three and nine months ended September 30, 2023 includes $0.3 million and $2.1 million, respectively, of service revenue generated from telemedicine and proctoring services provided to customers. Product revenue for the three and nine months ended September 30, 2022 includes $2.6 million and $6.4 million, respectively, of service revenue generated from telemedicine and proctoring services provided to customers. Revenue generated from proctoring is recognized over the term of the contracts with customers.                
13

The following table sets forth the Company’s product gross (loss) profit and product gross (loss) profit margin for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Product revenue$14,757$66,660$46,842$328,465
Cost of product revenue22,18050,59591,349239,190
Product gross (loss) profit$(7,423)$16,065$(44,507)$89,275
Product gross (loss) profit margin(50)%24 %(95)%27 %

During the nine months ended September 30, 2023, a contract manufacturer vendor drew on a cash collateralized letter of credit in the amount of $12.0 million (the “disputed payment charge”) that was recorded in cost of product revenue. The Company disputes the validity of the payment and is pursuing recovery (See Note 14. Commitments and Contingencies).
Contract Assets and Liabilities

Contract assets primarily relate to the Company’s conditional right to consideration for performance obligations satisfied but not billed at the reporting date. Net contract assets were $0.3 million and $0.3 million as of September 30, 2023 and December 31, 2022, respectively, and were recorded in other current assets on the balance sheets.

Contract liabilities are recorded when cash is received prior to recording revenue. Contract liabilities are recorded in deferred revenue on the balance sheets. The activity related to contract liabilities for the nine months ended September 30, 2023 and 2022 is as follows:
Nine Months Ended
September 30,
20232022
Balance at beginning of period
$1,566 $92,448 
Unearned revenue from cash received during the period, excluding amounts recognized as revenue during the period623 2,734 
Revenue recognized related to contract liability balance at the beginning of the period(1,566) 
Balance at end of period
$623 $95,182 

Grant and Other Revenue
Grant and other revenue primarily relates to a cost reimbursement agreement with the Biomedical Advanced Research and Development Authority (“BARDA”). The Company generated $2.7 million and $4.9 million of revenue related to an agreement with BARDA during the three and nine months ended September 30, 2023, respectively. The Company generated $2.9 million and $8.2 million of revenue related to the agreement with BARDA during the three and nine months ended September 30, 2022, respectively.

In August 2023, the Company was awarded a new contract for $28.3 million by BARDA to develop an Influenza A/B, RSV, and COVID-19 molecular multiplex test for both over-the-counter and point-of-care use. Income derived from reimbursement of direct out-of-pocket expenses, overhead allocations and fringe benefits for research costs associated with U.S. government contracts are recorded as grant revenue. We recognize revenue from our contracts and awards with BARDA at the gross amount of the reimbursement in the period during which the related costs are incurred, provided that the conditions under which the grants and contracts were provided have been met and only perfunctory performance obligations are outstanding. The direct costs associated with the contract are reflected as a component of research and development expense in our condensed consolidated statements of operations.

14

Accounts Receivable

Under ASU 2016-13, the Company is required to remeasure expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The allowance for credit losses represents the Company’s estimate of expected credit losses relating to these factors. Amounts are written off against the allowances for credit losses when the Company determines that a customer account is uncollectible.

The activity related to the allowance for credit losses for the nine months ended September 30, 2023 and 2022 is as follows:
Nine Months Ended
September 30,
20232022
Allowance for credit losses, beginning balance$2,311 $318 
Provision for doubtful accounts, net of recoveries(308)1,729 
Write-offs (20)
Allowance for credit losses, ending balance$2,003 $2,027 

Receivables Purchase Agreement

On June 1, 2023, the Company entered into a Receivables Purchase Agreement (the “Purchase Agreement”) with East West Bank, a California state-chartered bank (the “Purchaser”), pursuant to which, among other things, the Company may sell certain of the indebtedness and other payment obligations owed to the Company to the Purchaser in an amount of up to $20 million without recourse in exchange for cash. Transactions under the Purchase Agreement, which matures on June 1, 2024, are accounted for as sales under ASC 860, Transfers and Servicing of Financial Assets, with the sold receivables removed from the Company’s balance sheet. Under the Purchase Agreement, the Company does not maintain any beneficial interest in the receivables sold. The Company performs limited administrative services on behalf of the Purchaser since the receivables are trade receivables, but otherwise maintains no significant continuing involvement with respect to the receivables. Sale proceeds that are representative of the fair value of factored receivables, less a factoring fee of the Wall Street Journal prime rate with a floor of 5.50%, are reflected in cash flows from operating activities on the condensed consolidated statements of cash flows.

During the nine months ended September 30, 2023 and 2022, the Company received cash proceeds of $6.1 million and $0, respectively, from the sales of accounts receivables under the Purchase Agreement. The Company’s loss on these transactions, the cost of factoring such receivables, is reflected in other income, net on the condensed consolidated statements of operations, and were not material during the three and nine months ended September 30, 2023.
NOTE 4. INVENTORIES
As of September 30, 2023 and December 31, 2022, the Company’s inventories consisted of the following:
September 30,
2023
December 31,
2022
Raw materials$77,819 $80,968
Work-in-process9,136 14,305
Finished goods39,182 37,867
Reserve(34,942)(25,494)
Total inventories
91,195 107,646
Non-current inventories(27,640)(25,436)
Total current inventories
$63,555 $82,210
15

NOTE 5. PREPAID EXPENSES
As of September 30, 2023 and December 31, 2022, the Company’s prepaid expenses consisted of the following:
September 30,
2023
December 31,
2022
Prepaid expense$6,409 $11,523
Prepaid inventory3,453 4,205
Total prepaid expenses$9,862 $15,728
NOTE 6. PROPERTY AND EQUIPMENT, NET
As of September 30, 2023 and December 31, 2022, the Company’s property and equipment, net consisted of the following:
September 30,
2023
December 31,
2022
Construction in progress
$33,400 $32,412
Machinery and equipment
222,412 214,702
Leasehold improvements
23,830 23,233
Furniture and fixtures
2,009 1,883
Property and equipment
281,651 272,230
Accumulated depreciation and amortization(115,340)(82,955)
Total property and equipment, net
$166,311$189,275

Depreciation and amortization expense related to property and equipment was $11.2 million and $8.3 million for the three months ended September 30, 2023 and 2022, respectively. Depreciation and amortization expense related to property and equipment was $32.4 million and $28.6 million for the nine months ended September 30, 2023 and 2022, respectively. The carrying value of assets under finance leases within property and equipment as of September 30, 2023 and December 31, 2022 was $5.4 million and $7.3 million, respectively.

As of September 30, 2023, the carrying value of manufacturing equipment not yet placed into service was $23.2 million. The cost of this equipment is substantially complete and is included in construction in progress. Depreciation expense related to these assets will commence when they are placed into service and will be depreciated over their estimated useful lives.
NOTE 7. INTANGIBLE ASSETS
As of September 30, 2023, the Company’s intangible assets consisted of the following:
Gross AmountAccumulated AmortizationNet Carrying Value
Capitalized software$27,735 $(11,140)$16,595
Other920 (192)728
Intangible assets, net28,655 (11,332)17,323
In-process software development4,216 — 4,216
Total intangible assets$32,871 $(11,332)$21,539
As of December 31, 2022, the Company’s intangible assets consisted of the following:
Gross AmountAccumulated AmortizationNet Carrying Value
Capitalized software$19,052 $(5,724)$13,328
In-process software development3,539 — 3,539
Total intangible assets$22,591 $(5,724)$16,867
16


During the development stage, the Company capitalizes certain eligible costs associated with the software development, in accordance with ASC 350-40, Internal-Use Software. The capitalized costs primarily consist of direct labor and third-party contractor fees. In-process software development consists of software costs incurred in the development of internal-use software not yet implemented. The software is expected to be implemented no later than one year from the commencement date of development. Once the software is implemented and ready for its intended use, the Company will begin amortizing the capitalized costs on a straight-line basis over the software's estimated useful life.

Amortization expense related to intangible assets placed in service was $2.4 million and $5.6 million for the three and nine months ended September 30, 2023, respectively. Amortization expense related to intangible assets placed in service was $1.0 million and $2.4 million for the three and nine months ended September 30, 2022, respectively. Estimated amortization expense for each of the years ending December 31 is as follows:

2023 (excluding the nine months ended September 30, 2023)
$2,309
2024
8,559
2025
5,116
2026
1,339
Total amortization expense$17,323

TrustedMedRx Acquisition

On March 22, 2023, CHP HC, LLC, a wholly-owned subsidiary of the Company, entered into a definitive agreement to acquire TrustedMedRx, LLC, a privately-held pharmacy, which holds operating licenses in various jurisdictions. The purchase was completed on May 4, 2023, and is expected to enhance the Company's presence in the retail pharmacy market and expand its product and service offerings. The total purchase price was $0.7 million and the Company incurred acquisition costs of $0.2 million. The Company concluded the purchase qualified as an asset acquisition and the purchase price and acquisition costs related to the operating licenses have been capitalized as intangible assets. The capitalized operating licenses will be amortized on a straight-line basis over a period of two years, which represents the estimated useful life.
NOTE 8. LEASES
The Company leases real estate and manufacturing and laboratory equipment which are used in the Company’s manufacturing, research and development, and administrative activities. The Company identifies a contract that contains a lease as one which conveys a right, either explicitly or implicitly, to control the use of an identified asset in exchange for consideration. These arrangements are classified as finance leases and operating leases. Finance leases consist of laboratory and manufacturing equipment with remaining terms less than one year. The Company’s operating leases relate to the Company’s manufacturing facilities and office space and have remaining terms ranging from less than one year to eight years.
There were no new material leases entered into during the three and nine months ended September 30, 2023.
The right-of-use assets and lease liabilities recognized on the Company’s balance sheet as of September 30, 2023 and December 31, 2022 were as follows:
Balance Sheet LocationSeptember 30, 2023December 31, 2022
Assets
Right-of-use assets operating leasesOperating lease right-of-use assets$80,829 $85,321 
Right-of-use assets finance leasesProperty and equipment, net5,437 7,264 
Liabilities
Operating lease liabilities (current)Operating lease liabilities, current5,109 7,739 
Finance lease liabilities (current)Finance lease liabilities, current1,646 2,362 
Operating lease liabilities (non-current)Operating lease liabilities, net of current portion42,961 44,045 
Finance lease liabilities (non-current)Finance lease liabilities, net of current portion 849 
17

The components of lease expense for the three and nine months ended September 30, 2023 and 2022 were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Operating lease cost$3,197 $3,192 $9,198 $8,749 
Finance lease cost:
Amortization of right-of-use assets896 819 2,127 2,098 
Interest on lease liabilities24 43 65 137 
Total lease cost$4,117 $4,054 $11,390 $10,984 
NOTE 9. ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES

Accrued liabilities and other current liabilities consisted of the following:
September 30,
2023
December 31,
2022
Accrued purchases(1)
$1,127 $4,488 
Accrued payroll and benefits17,428 26,350 
Accrued expenses6,070 5,553 
Accrued sales tax1,147 1,361 
Product warranty reserve2,966 6,660 
Income tax payable2,838  
Accrued restructuring107  
Accrued purchase commitment loss (2)
8,237 7,966 
Total accrued liabilities and other current liabilities$39,920 $52,378 
(1) Accrued purchases primarily reflects receipts of goods and services for which we had not yet been invoiced. As we are invoiced for these goods and services, this balance will reduce and accounts payable will increase.

(2) Accrued purchase commitment loss reflects accrued loss on purchase obligations for inventory.
NOTE 10. DEBT
Secured Revolving Facility Agreement
On June 30, 2022, the Company entered into a loan and security agreement (the “2022 Revolving Facility Agreement”) among the Company, the lenders from time to time party thereto and East West Bank, as collateral agent and administrative agent (“Agent”). The 2022 Revolving Facility Agreement provides for a $100.0 million secured revolving credit facility, with a $20.0 million letter of credit subfacility. As of September 30, 2023, there were no revolving loans outstanding and $1.0 million aggregate face amount of letters of credit outstanding under the 2022 Revolving Facility Agreement, which reduces the availability to borrow under the revolving credit facility to $99.0 million. The Company recorded $0.6 million in deferred financings costs in connection with the 2022 Revolving Facility Agreement. This balance is amortized over two years and is classified in other non-current assets since no funds were drawn on the 2022 Revolving Facility Agreement.
The revolving loans are available subject to the Company maintaining an asset coverage ratio of not less than 1.20 to 1.00, measured as (x) the sum of specified cash and cash equivalents subject to liens in favor of Agent plus 80% of eligible accounts receivable less the amount of the Company’s outstanding sales tax liability to (y) the principal amount of the outstanding obligations under the 2022 Revolving Facility Agreement. The revolving commitments terminate and the principal amount of outstanding revolving loans, together with accrued and unpaid interest, is due and payable on June 30, 2024.
The revolving loans accrue interest at the greater of the prime rate and 3.50%. Interest on the revolving loans is payable monthly in arrears. The Company may borrow, prepay and reborrow revolving loans, without premium or penalty.
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The Company is required to pay a prepayment fee of 1.0% if the revolving commitments are terminated prior to the maturity date. The Company is also obligated to pay other customary fees for a loan facility of this size and type.
The Company’s obligations under the 2022 Revolving Facility Agreement are secured by substantially all of the Company’s assets, and will be guaranteed by, and secured by substantially all of the assets of, its future domestic subsidiaries. As of the closing date, there were no guarantors.
The 2022 Revolving Facility Agreement requires the Company to maintain a current ratio of not less than 1.20 to 1.00, measured quarterly. The 2022 Revolving Facility Agreement also requires the Company to maintain at least six months remaining liquidity, determined as set forth in the 2022 Revolving Facility Agreement. Additionally, the 2022 Revolving Facility Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its subsidiaries to, among other things, dispose of assets, effect certain mergers, incur debt, grant liens, pay dividends and distributions on their capital stock, make investments and acquisitions, and enter into transactions with affiliates, in each case subject to customary exceptions for a loan facility of this size and type. The Company was in compliance with its covenants as of September 30, 2023.

The events of default under the 2022 Revolving Facility Agreement include, among others, payment defaults, material misrepresentations, breaches of covenants, cross defaults with certain other material indebtedness, bankruptcy and insolvency events, the occurrence of a material adverse effect, a change of control and judgment defaults. The occurrence of an event of default could result in the acceleration of the Company’s obligations under the 2022 Revolving Facility Agreement, the termination of the lenders’ commitments, a 2% increase in the applicable rate of interest and the exercise by Agent and the lenders of other rights and remedies provided for under the 2022 Revolving Facility Agreement or applicable law.

NOTE 11. STOCKHOLDERS’ EQUITY

Preferred Stock Rights Agreement

On September 21, 2023, the Company’s board of directors authorized and declared a dividend distribution of one right (each, a “Right”) for each outstanding share of the Company’s common stock to stockholders of record as of the close of business on October 2, 2023. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Participating Preferred Stock, par value 0.00001 per share (the “Preferred Stock”), of the Company at an exercise price of $8.00 per one one-thousandth of a share of Preferred Stock, subject to adjustment. The Rights expire on the earliest of (i) 5:00 p.m., New York City time, on September 20, 2024 (unless such date is extended) or (ii) the redemption or exchange of the Rights. The complete terms of the Rights are set forth in a Preferred Stock Rights Agreement (the “Rights Agreement”), dated as of September 21, 2023, between the Company and Computershare Trust Company, N.A., as rights agent. Given the nature of the Rights and their contingent activation, which has been deemed remote, no value is recognized in stockholders’ equity.

At the Market Offering Program

On August 9, 2023, in connection with the launch of an “at the market” offering program, the Company entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (the “Sales Agent”). Under the Sales Agreement, the Company may offer and sell its common stock from time to time having an aggregate offering price of up to $50.0 million during the term of the Sales Agreement through the Sales Agent (the “Offering Program”).

The Company did not issue any shares of common stock under the Offering Program during the nine months ended September 30, 2023.

Stock Incentive Plans

2021 Stock Incentive Plan

In September 2021, the Company adopted the 2021 Stock Incentive Plan (the “2021 Plan”) under which employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards (incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards). The 2021 Plan initially authorized the issuance of a maximum of 22,399,691 shares of common stock. The number of shares of common stock available for issuance under the 2021 Plan were and will be increased on the first day of each fiscal year beginning with the 2022 fiscal year, in an amount equal to the least of (i) 5%
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of the number of shares of the Company's common stock outstanding on the first day of such fiscal year and (ii) the number of shares of the Company's common stock determined by the Company's board of directors.

2021 Employee Stock Purchase Plan

In September 2021, the Company adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”) under which employees of the Company can purchase shares of the Company’s common stock commencing on such time and such dates as the board of directors of the Company determine. The 2021 ESPP initially allowed for the sale of 2,834,754 shares of common stock. The number of shares of the Company's common stock to be sold under the 2021 ESPP were and will be increased on the first day of each fiscal year beginning with the 2022 fiscal year, in an amount equal to the least of (i) 8,504,263 shares, (ii) 1% of the number of shares of the Company's common stock outstanding on the first day of such fiscal year and (ii) a number of shares of the Company's common stock determined by the Company's board of directors. The price at which stock is purchased under the 2021 ESPP is equal to 85% of the fair market value of the Company’s common stock on the lesser of either (i) the first business day of the Plan Period or (ii) the Exercise Date.

Stock-Based Compensation

Stock-based compensation expense related to awards issued under the Company's incentive compensation plans for the three and nine months ended September 30, 2023 and 2022, was as follows:

Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Cost of product revenues$650$865$1,995$2,267
Sales and marketing1,793 1,441 5,068 6,718 
Research and development4,429 6,212 13,386 17,780 
General and administrative5,815 7,172 17,599 21,750 
Restructuring549
Total stock-based compensation expense$12,687$15,690$38,597$48,515

In total, $0.7 million and $2.0 million of stock-based compensation expense was capitalized to inventory during the manufacturing process during the three and nine months ended September 30, 2023, respectively. An immaterial amount remained in inventory as of September 30, 2023.

Stock Options

A summary of stock option activity and related information for the nine months ended September 30, 2023 was as follows:
Options
Weighted Average
Exercise
Price
 
Weighted Average
Remaining Contractual
Term (Years)
Outstanding at January 1, 20237,102,853$5.926.4
Granted3,473,387$2.15
Exercised(169,515)$0.66
Forfeited(1,084,592)$11.78
Expired(355,010)$10.27
Outstanding at September 30, 2023
8,967,123$3.686.8
Exercisable at September 30, 2023
5,880,224$4.035.7
Vested and expected to vest at September 30, 2023
8,967,123$3.686.8

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As of September 30, 2023, there was $7.8 million of unamortized compensation cost related to unvested stock option awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.2 years, on a straight-line basis.

The estimated fair value of each stock option award granted to employees was determined on the date of grant using the Black-Scholes option pricing model with the following assumptions for stock option grants for the nine months ended September 30, 2023.
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Expected volatility85%
Expected term (years)6.5
Expected dividend yield0.0%
Risk-free interest rate4.3%
Grant date fair value$1.58

During the nine months ended September 30, 2023, the Company modified certain stock options previously granted to non-employees. The modification included changes to the exercise price of 622,323 unvested options. As a result of these modifications, the Company will recognize an additional $0.4 million in stock-based compensation expense over the remaining vesting period of the affected options.

Restricted Stock Units

Under the 2014 and 2021 Plans, restricted stock units (“RSUs”) are generally subject to a four-year vesting period, with 25% of the shares vesting one year from the vesting commencement date and quarterly thereafter over the remaining vesting term, but may be subject to other vesting conditions such as performance or market based conditions. Compensation expense is recognized ratably over the requisite service period.

A summary of RSU activity and related information for the nine months ended September 30, 2023 was as follows:
Underlying SharesWeighted-average Grant Date Fair ValueAggregate Fair Value
Outstanding, January 1, 202318,681,701$9.51$177,739
Granted 9,754,451$1.6315,910
Vested(4,243,128)$7.47(31,686)
Forfeited(5,260,776)$6.70(35,225)
Outstanding, September 30, 2023
18,932,248$6.69$126,738

As of September 30, 2023, there was $80.7 million of total unrecognized compensation cost related to outstanding RSUs, which is expected to be recognized over a remaining weighted-average vesting period of 2.3 years, on a straight-line basis.

Market-Based Performance-Vesting RSUs

In September 2021, the Company issued 3,335,300 RSUs that vest based on the satisfaction of both a continued employment condition and the achievement of certain market-based performance goals. Market-based performance-vesting RSUs vest upon the achievement of certain stock price performance over a performance period. There are seven stock price targets which can be achieved over the performance period and are based on an average closing price of the Company’s common stock.

Market-based performance-vesting RSU activity for the nine months ended September 30, 2023 was as follows:

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Underlying SharesWeighted-average Grant Date Fair ValueAggregate Fair Value
Outstanding, January 1, 20233,335,300 $12.82 $42,759 
Granted$
Vested$
Forfeited$
Outstanding, September 30, 20233,335,300 $12.82 $42,759 

Operational-Based Performance-Vesting RSUs

In September 2021, the Company issued 1,597,272 operational-based performance-vesting RSUs that vest based on the satisfaction of both a continued employment condition and the achievement of certain performance goals including meeting certain annual revenue targets and product development milestones.

The grant date fair value of operational-based performance-vesting RSUs was estimated based on the fair value of the Company’s common stock on the date of grant. Compensation costs are recorded when achievement of the performance goals is determined to be probable.

Operations-based performance-vesting RSU activity for the nine months ended September 30, 2023 was as follows:

Underlying SharesWeighted-average Grant Date Fair ValueAggregate Fair Value
Outstanding, January 1, 2023798,635$16.00$12,778
Granted266,212$2.48660
Vested$
Forfeited(532,425)$9.24(4,919)
Outstanding, September 30, 2023532,422$16.00$8,519
Common Stock Warrants
As of September 30, 2023, the Company had an outstanding warrant to purchase 75,744 shares of common stock at a purchase price of $0.40 per share. The warrant was issued on August 22, 2017 and expires on August 22, 2027. All shares subject to the warrant were vested as of December 31, 2022.
NOTE 12. LOSS PER SHARE
Basic net loss per share is computed by dividing net loss by the weighted-average common shares outstanding during the period. Diluted net loss per share is computed based on the weighted-average common shares outstanding plus the effect of dilutive potential common shares outstanding during the period calculated using the treasury stock method and the if-converted method. Dilutive potential common shares include stock options, non-vested shares, redeemable convertible preferred shares, convertible notes, restricted stock and similar equity instruments granted by the Company. Some restricted stock units vest upon certain performance and market conditions and as they vest, the shares will be included in outstanding common shares. Potential common share equivalents have been excluded where their inclusion would be anti-dilutive.
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The following table reconciles net loss and the weighted-average shares used in computing basic and diluted earnings per share:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Numerator:
Net loss$(46,970)$(66,303)$(225,032)$(162,550)
Denominator:
Basic and diluted weighted-average common shares outstanding153,699,408 148,582,721 152,226,999 147,443,196 
Net loss per share
Basic$(0.31)$(0.45)$(1.48)$(1.10)
Diluted$(0.31)$(0.45)$(1.48)$(1.10)
In periods of net losses, potentially dilutive securities are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive.

Outstanding anti-dilutive securities not included in the diluted net loss per share attributable to common stockholders calculations were as follows (in common stock equivalent shares):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Restricted stock units18,932,248 18,596,751 18,932,248 18,596,751 
Stock options8,967,123 7,735,773 8,967,123 7,735,773 
Employee stock purchase plan – shares projected to be issued
2,305,712 314,531 2,305,712 314,531 
Common stock warrants75,744 75,744 75,744 75,744 
Total30,280,827 26,722,799 30,280,827 26,722,799 
NOTE 13. INCOME TAXES
The Company’s effective income tax rate for the three and nine months ended September 30, 2023 was 11.2% and 2.1%, respectively. The Company’s effective income tax rate for the three and nine months ended September 30, 2022 was benefits of 1.6% and 2.7%, respectively.

The effective tax rate for the three and nine months ended September 30, 2023 differs from the statutory rate primarily due to the Company maintaining a full valuation allowance against its net deferred tax assets and the impact of tax credits recorded during the three and nine months ended September 30, 2023.

The effective tax rate for the three and nine months ended September 30, 2022 differs from the statutory rate primarily due to the Company maintaining a full valuation allowance against its net deferred tax assets and the impact of certain state tax credits recorded during the nine months ended September 30, 2022.
NOTE 14. COMMITMENTS AND CONTINGENCIES
Product Liability
The Company’s business exposes it to liability risks from its potential medical diagnostic products. Product liability claims could result in the payment of significant amounts of money and divert management’s attention from running the business. The Company may not be able to maintain insurance on acceptable terms, or the insurance may not provide adequate protection in the case of a product liability claim. To the extent that product liability insurance, if
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available, does not cover potential claims, the Company would be required to self-insure the risks associated with such claims. The Company believes it carries reasonably adequate insurance for product liability.
Product Warranty Reserve
The Company provides its customers with the right to receive a replacement of defective or nonconforming Cue Readers for a period of up to twelve months from the date of shipment. Subject to certain limitations, the Company currently provides customers with the right to receive a replacement Cue Cartridge for unexpired tests that do not produce a valid result, for a period of up to ninety days from the date the test is performed. All warranties are classified as current liabilities within the accrued liabilities and other current liabilities on the balance sheet. Provisions for estimated expenses related to product warranty are made at the time products are sold. These estimates are determined based on historical information that includes test failure rates, replacement frequency, and the overall replacement cost. The Company evaluates the reserve on a quarterly basis and makes adjustments when appropriate. Changes to test failure rates and overall replacement rates could have a material impact on our estimated liability.
The following table provides a reconciliation of the change in estimated warranty liabilities:
Amount
Balance, December 31, 2022
$6,660 
Provision for warranties 1,315 
Settlements(5,009)
Balance, September 30, 2023
$2,966 
Cost Reduction Plan

On January 5, 2023, the Company announced that it was implementing a new cost reduction plan (the “January CRP”). Management, with the oversight and guidance of the Company’s board of directors, determined to implement the January CRP following a review of the Company’s business, operating expenses and the macroeconomic environment. The January CRP is intended to reduce the Company’s cost structure and improve its operational efficiency. The January CRP includes a reduction in the Company’s employee base.

On April 28, 2023, the Company announced a further cost reduction plan (the “April CRP”, and together with the January CRP, the “CRP”), which included a reduction in the Company’s employee base.

Cash expenditures in connection with the CRP consist of payments for salary, benefits, and unused paid time off for the affected employees. The CRP also consists of a severance package that includes a cash severance payment and payments to cover the employer premiums and administration fees for continuation of healthcare coverage for a limited period. The severance package, in some cases, also included an acceleration of the vesting of certain outstanding restricted stock units and stock options to affected employees.

Each affected employee’s eligibility for the severance benefits is contingent upon such employee’s execution (and no revocation) of a separation agreement, which includes a general release of claims against the Company. The Company expects payments relating to the CRP to be completed by the end of the fourth quarter of 2023.

In connection with the CRP, the Company recorded restructuring charges of $0 and $14.5 million during the three and nine months ended September 30, 2023, respectively, related to one-time termination benefits.

The following table summarizes the total amount incurred and accrued related to these restructuring activities:
Amount
Accrued restructuring as of December 31, 2022
$ 
Restructuring charges incurred during the period14,518 
Cash payments(13,862)
Non-cash settlements and other adjustments(549)
Accrued restructuring as of September 30, 2023
$107 

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Restricted Cash

In November 2021, $0.8 million of cash was restricted in relation to a customs surety on international imports which remains restricted as of September 30, 2023.

Purchase Commitments

Purchase commitments are comprised of the Company’s commitments for goods and services in the normal course of business. These purchase commitments relate to goods and services which have not yet been delivered or performed and therefore have not been reflected in our condensed consolidated balance sheets and condensed consolidated statements of operations. These commitments typically become due after the delivery and completion of such goods or services.

Legal Proceedings

On May 5, 2023, Sanmina Corporation (“Sanmina”), a contract manufacturer, filed a complaint against us in the Superior Court of California, Santa Clara County. Sanmina alleges breach of contract, breach of implied covenant of good faith and fair dealing and promissory estoppel. In connection with this allegation, in March 2023, Sanmina unilaterally drew against a $12.0 million collateralized letter of credit with Sanmina (the “Letter of Credit”) that we had posted as a partial security for our obligations under our agreement with Sanmina, and which we have recorded as cost of product revenue. Sanmina is seeking damages in the amount of approximately $24.2 million. We believe the claims are without merit, and we dispute both the incurrence of the costs alleged and that Sanmina lawfully drew on the Letter of Credit. We intend to defend ourselves vigorously and on July 25, 2023, we filed a cross-complaint alleging, among other claims, that Sanmina is in breach of contract for improperly over-ordering components and we are seeking recovery of wrongfully retained funds, components, and manufacturing equipment rightfully due to us.

Legal fees and expenses are expensed as incurred.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2022 included in our Annual Report on Form 10-K. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Forward-Looking Statements” in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Overview
We are a health technology company, and our mission is to empower people to live their healthiest lives. Our proprietary platform, the Cue Integrated Care Platform, which is comprised of our Cue Health Monitoring System, Cue Data and Innovation Layer, Cue Virtual Care Delivery Apps, Cue Ecosystem Integrations and Apps, and access to additional Cue-branded and third-party diagnostic products, enables lab-quality diagnostics-led care at home, at work or at the point of care. Our platform offers individuals and healthcare providers convenient and personalized access to lab-quality diagnostic tests at home and at the point-of-care, as well as on-demand telehealth consultations and treatment options for a wide range of health and wellness needs. We are helping pioneer a new continuous care model that we believe has the potential to significantly improve the user experience, provide measurable and actionable clinical insights, and increase efficiency within the healthcare ecosystem. We believe this model, powered by our platform, will allow users to actively manage their health, which we believe will lead to improved health outcomes and a more resilient, connected, and efficient healthcare ecosystem for all stakeholders.

The Cue Integrated Care Platform consists of multiple hardware, software, and diagnostic components: (1) our revolutionary, proprietary Cue Health Monitoring System, made up of a portable, durable and reusable reader, or Cue Reader; a single-use test cartridge, or Cue Cartridge; and a sample collection wand, or Cue Wand; (2) our Cue Data and Innovation Layer, with cloud-based data and analytics capabilities; (3) our Cue Virtual Care Delivery Apps, including our consumer-friendly Cue Health App, the clinician-facing Cue Clinic, and our Cue Enterprise Dashboard; and (4) our Cue
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Ecosystem Integrations and Apps, including integration with: electronic medical record (“EMR”) systems (enabling seamless connection between a clinician, their EMR, and Cue’s diagnostics); pharmacies and last-mile delivery (enabling e-Rx and on-demand delivery), clinician networks (enabling virtual care and prescription) and laboratories (enabling mail-in panel testing).

Our Cue Health Monitoring System is designed to deliver a broad menu of tests through one system, enabling two major testing modalities, nucleic acid amplification, or NAAT, and immunoassays, in one device. Our system is designed to handle different sample types, including saliva, blood, urine and swabs, and can detect nucleic acids, small molecules, proteins and cells. We believe this will enable us to address many of the diagnostic tests conducted in clinical laboratories, such as tests addressing indications in respiratory health, sexual health, cardiac and metabolic health, women’s health, men’s health, and chronic disease management.
COVID-19 Impact

In December 2020, the FDA issued EUA for two COVID-19 vaccines and in February 2021, the FDA issued a third EUA for a COVID-19 vaccine. The widely-administered use of efficacious vaccines and the availability of therapeutic treatments for COVID-19 reduced the demand for our COVID-19 test and, as a result, the COVID-19 diagnostic testing market may not develop or grow substantially. However, we believe the need for ongoing detection and monitoring will continue even after effective vaccines have been widely distributed and administered. We also believe COVID-19 will remain endemic for the foreseeable future and demand for a fast and accurate test to confirm a diagnosis and seek timely and appropriate treatment may fluctuate based on COVID-19 infection rates and variants. Even while vaccine efforts are underway, public health measures, like testing, will likely need to stay in effect to protect against COVID-19. However, given the unpredictable nature of the COVID-19 pandemic, the development and potential size of the COVID-19 diagnostic testing market is highly uncertain.

We began selling and recording product revenue for our COVID-19 test in August 2020 after obtaining our first FDA EUA in June 2020. Currently, the majority of our product revenue is related to sales of our Cue COVID-19 test with a portion related to the sale of non-COVID-19 test kits, component parts, telehealth and other services.

Certain Key Factors Affecting Our Performance

Manufacturing Capacity

We manufacture all of our Cue Cartridges in our vertically integrated facilities in San Diego, California. We also produce all of our biochemistry in-house, including critical enzymes, antibodies and primers for our Cue Cartridges. Production of our Cue Readers is performed for us by third-party contract manufacturers and production of our Cue Wands is performed by third-party contract manufacturers. We continue to optimize our manufacturing capabilities, including our fully automated production pods. A production pod is a free standing, modular environmentally controlled structure containing an automated cartridge production line. Our performance will depend on our ability to manufacture products efficiently at the quantities required to meet customer demand and quality to meet our internal standards.

Investments in Our Growth

We expect to make continued investments as appropriate in our business to drive growth and to deliver our business strategies. We plan to invest in research and development to enhance our platform and bring additional tests to market. In addition to continuing to develop our own test kits, we have also expanded the Cue Care experience to allow users of third-party test results to continue to receive the same virtual care and e-prescription process we offer to users of our Cue COVID-19 tests.

Expanding Our Customer Base

Following the completion of our obligations under the U.S. DoD Agreement in December 2021, the future commercial success of our diagnostic products is dependent on our ability to broaden our customer base beyond the U.S. government and public sector to include enterprise employers, healthcare providers and direct-to-consumer. As a result, our long term growth depends on our ability to renew and acquire new customers. Current key strategic relationships include BARDA, Google LLC, or Google, the Mayo Clinic, the National Basketball Association, Major League Baseball, Henry Schein, Inc., McKesson Corporation, Cardinal Health, Inc., Medline Industries, LP and the Minnesota Department of Health. We intend to leverage our success with our COVID-19 test and the expansion of our manufacturing capabilities to
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enable broad distribution of our Cue Readers and awareness of our platform across different groups of customers and to enhance pull-through of our future tests.

Enhancing and Expanding Our Menu of Tests and Software Capabilities

We currently offer our molecular COVID-19 test, molecular mpox test, as well as other mail-in at-home test kits which address general health and wellness conditions across a wide range of health concerns, such as sexually transmitted infections, heart health and food sensitivities. In May 2023, we announced a new pharmacy offering with over-the-counter and prescription medication options for common health and wellness needs. A key part of our growth strategy is to continue to expand our menu of tests to include other diseases, ailments and general health markers, which we expect will support our growth and continue to contribute to the utility of our platform, including the Cue Health Monitoring System. We are currently developing tests in the fields of respiratory health, sexual health, cardiac and metabolic health, women's health, men's health, and chronic disease management. We have filed De Novo submission to the FDA for full clearance of our Flu A/B standalone molecular test and our Respiratory Syncytial Virus (“RSV”) molecular test and filed an EUA submission to the FDA for our Flu A/B + COVID molecular multiplex test. We have two test kits in clinical studies, covering Strep Throat and Chlamydia + Gonorrhea (swab collection method), as well as two test kits in late stage technical development: Chlamydia + Gonorrhea (urine collection method) molecular multiplex test and Mpox + Herpes molecular multiplex test. In August 2022, we completed our launch of Cue Care, our test-to-treat solution for patients who test positive on any COVID-19 test, including at-home antigen tests and in February 2023 we further expanded our Cue Care capabilities to include other at-home test kits. In March 2023, the FDA issued an EUA for the Company’s molecular test to detect the mpox virus for use in a point-of-care setting. In June 2023, the Company received De Novo authorization for the Company's molecular test to detect COVID-19. In August 2023, the Company was awarded a new contract for $28.3 million by BARDA to develop an Influenza A/B, RSV, and COVID-19 molecular multiplex test for both over-the-counter and point-of-care use.

Regulatory Clearance of Our Diagnostic Products

Our commercial success will depend upon a number of factors, some of which are beyond our control, including the receipt of regulatory clearances, approvals or authorizations for existing or new product offerings by us, product enhancements, or additions to our proprietary intellectual property portfolio. In June 2023, the Company received De Novo authorization for the Company's molecular test to detect COVID-19. However, we will not be able to commercialize any other tests for our platform unless we obtain required regulatory clearances or other necessary approvals or authorizations. As such, our ability to navigate, obtain and maintain the required regulatory clearances, approvals or authorizations, as well as comply with other regulatory requirements, for our products will in part drive our results of operations and impact our business.

Reimbursement and Insurance Coverage

The commercial success of our COVID-19 test, and any of our subsequently developed tests, is dependent on a customer’s ability to be able to pay for or otherwise be reimbursed for the purchase of a test, whether out-of-pocket, by insurance or from a governmental or other third-party payor. We believe payment for our products, including our Cue COVID-19 Test Kits, will be billable by a physician, reimbursable by government payors or insurance companies, paid for by a self-insured employer, or eligible under FSA and HSA guidelines. For example, most of our contemplated future tests that are currently offered by others through central labs are reimbursable by health plans and governmental payors if properly ordered by a physician. These third-party payors decide which products will be covered and establish reimbursement levels for those products. Coverage criteria and reimbursement rates for clinical laboratory tests are subject to adjustment by payors, and current reimbursement rates could be reduced, or coverage criteria restricted in the future. If the Cue Health Monitoring System, including any of our current or future tests, are not reimbursable or covered by insurance, our business may be materially and adversely impacted.

Seasonality

We anticipate that fluctuations in customer and user demand for our COVID-19 test may be similar to those related to influenza, which typically increases during the fall and winter seasons. Although our products will be available throughout the year, we anticipate that we may experience higher sales during the fall and winter seasons, relative to the spring and summer seasons. We also anticipate fluctuation in demand associated with the emergence of novel variants and the degree of severity of the existing and any new variants. However, as our portfolio of diagnostic offerings increases beyond our COVID-19 test, we expect the impact of this seasonality on our results to decrease.
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Results of Operations
The following table sets forth a summary of our results of operations for the periods indicated:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(dollars in thousands)(unaudited)
Revenue:
Product revenue$14,757 $66,660 $46,842 $328,465 
Grant and other revenue2,720 2,929 5,296 8,234 
Total revenue17,477 69,589 52,138 336,699 
Operating costs and expenses:
Cost of product revenue
22,180 50,595 91,349 239,190 
Sales and marketing
7,051 18,129 26,358 69,268 
Research and development
37,103 42,516 118,372 115,303 
General and administrative
15,848 25,625 47,489 77,946 
Restructuring expense— 137 14,518 2,020 
Total operating costs and expenses82,182 137,002 298,086 503,727 
Loss from operations(64,705)(67,413)(245,948)(167,028)
Interest expense(304)(346)(815)(413)
Tax credits
20,939 — 20,939 — 
Other income, net1,833 409 5,525 458 
Net loss before income taxes(42,237)(67,350)(220,299)(166,983)
Income tax expense (benefit)
4,733 (1,047)4,733 (4,433)
Net loss$(46,970)$(66,303)$(225,032)$(162,550)
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Comparison of the Three Months Ended September 30, 2023 and 2022
The following table sets forth a summary of our results of operations for the three months ended September 30, 2023 and 2022 and the changes between periods:
Three Months Ended September 30,
20232022$ Change% Change
(dollars in thousands)(unaudited)
Revenue:
Product revenue$14,757$66,660$(51,903)(78)%
Grant and other revenue2,7202,929(209)(7)%
Total revenue17,47769,589(52,112)(75)%
Operating costs and expenses:
Cost of product revenue22,18050,595(28,415)(56)%
Sales and marketing7,05118,129(11,078)(61)%
Research and development37,10342,516(5,413)(13)%
General and administrative15,84825,625(9,777)(38)%
Restructuring expense137(137)(100)%
Total operating costs and expenses82,182137,002(54,820)(40)%
Loss from operations(64,705)(67,413)2,708(4)%
Interest expense(304)(346)42(12%)
Tax credits
20,93920,939n.m
Other income, net1,8334091,424348%
Net loss before income taxes(42,237)(67,350)25,113 (37)%
Income tax expense (benefit)4,733 (1,047)5,780 (552)%
Net loss$(46,970)$(66,303)$19,333(29)%
Revenue was $17.5 million in the three months ended September 30, 2023, compared to $69.6 million in the three months ended September 30, 2022. The decrease was primarily volume related due to the tempering of COVID-19 testing during 2022 which continued into 2023. Revenue during the three months ended September 30, 2023 was primarily driven by sales to private sector customers of $14.4 million.
Cost of Product Revenue was $22.2 million in the three months ended September 30, 2023, compared to $50.6 million in the three months ended September 30, 2022. This decrease was primarily due to lower material costs of $18.8 million and lower labor and overhead costs of $2.3 million associated with decreased revenue volume as well as a reduction in excess inventory reserves and warranty costs of $3.9 million. Our product gross profit margin, or product gross profit as a percentage of product revenue was a loss of 50% in the three months ended September 30, 2023, compared to 24% in the three months ended September 30, 2022. The decrease in product gross profit margin was primarily due to a reduction in overall production volume relative to our manufacturing capacity which impacted product gross profit margin by 88%.
Sales and Marketing Expense was $7.1 million in the three months ended September 30, 2023, compared to $18.1 million in the three months ended September 30, 2022. This decrease was primarily due to a decrease in digital and marketing costs of $6.4 million as we shifted marketing strategies, a decrease in personnel costs of $3.7 million related to the CRP, workforce realignment and optimization efforts, and a decrease in professional services costs of $0.5 million from additional efforts in cost reduction.
Research and Development Expense was $37.1 million in the three months ended September 30, 2023, compared to $42.5 million in the three months ended September 30, 2022. This decrease was primarily driven by decreased personnel costs of $5.0 million related to the CRP, as well as workforce realignment and optimization efforts to decrease materials and other costs of $5.2 million. The decrease was offset by a shift in usage of facility and support costs by research and development of $2.2 million and increased regulatory and clinical costs of $3.7 million. These increases were driven by the investment in and expansion of our test menu including our Flu A/B standalone, RSV standalone, Flu A/B + COVID multiplex and Chlamydia + Gonorrhea molecular tests.
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General and Administrative Expense was $15.8 million in the three months ended September 30, 2023 compared to $25.6 million in the three months ended September 30, 2022. This decrease was primarily related to a decrease in personnel costs of $2.8 million related to the CRP, workforce realignment and optimization efforts and a decrease in accounting, support and other consulting-related costs of $4.8 million, as we invested in our central team to support our operations as a public company in order to reduce consulting-related costs.
Interest Expense was $0.3 million in the three months ended September 30, 2023, compared to $0.3 million in the three months ended September 30, 2022.
Tax Credits was $20.9 million in the three months ended September 30, 2023, compared to $0 in the three months ended September 30, 2022. This increase was related to the receipt of employee retention credits of $20.9 million.
Income Tax Expense (Benefit) was $4.7 million and $(1.0) million in the three months ended September 30, 2023 and 2022, respectively. Our effective income tax rate for the three months ended September 30, 2023 and 2022 was 11.2% and a benefit of 1.6%, respectively. The effective tax rate for the three months ended September 30, 2023 differs from the statutory rate primarily due to the Company maintaining a full valuation allowance against its net deferred tax assets and the impact of tax credits recorded during the three months ended September 30, 2023. The effective tax rate for the three months ended September 30, 2022 differs from the statutory rate primarily due to the Company maintaining a full valuation allowance against its net deferred tax assets and the impact of certain state tax credits recorded during the three months ended September 30, 2022.


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Comparison of the Nine Months Ended September 30, 2023 and 2022
The following table sets forth a summary of our results of operations for the nine months ended September 30, 2023 and 2022 and the changes between periods:

Nine Months Ended September 30,
20232022$ Change% Change
(dollars in thousands)(unaudited)
Revenue:
Product revenue$46,842$328,465$(281,623)(86)%
Grant and other revenue5,2968,234(2,938)(36)%
Total revenue52,138336,699(284,561)(85)%
Operating costs and expenses:
Cost of product revenue91,349239,190(147,841)(62)%
Sales and marketing26,35869,268(42,910)(62)%
Research and development118,372115,3033,0693%
General and administrative47,48977,946(30,457)(39)%
Restructuring expense14,5182,02012,498619%
Total operating costs and expenses298,086503,727(205,641)(41)%
Loss from operations(245,948)(167,028)(78,920)47%
Interest expense(815)(413)(402)97%
Tax credits
20,93920,939n.m
Other income, net5,5254585,0671,106%
Net loss before income taxes(220,299)(166,983)(53,316)32 %
Income tax expense (benefit)
4,733 (4,433)9,166 (207)%
Net loss$(225,032)$(162,550)$(62,482)38 %
Revenue was $52.1 million in the nine months ended September 30, 2023, compared to $336.7 million in the nine months ended September 30, 2022. The decrease was primarily volume related due to the tempering of COVID-19 testing during 2022 which continued into 2023. Revenue during the nine months ended September 30, 2023 was primarily driven by sales to private sector customers of $46.0 million.
Cost of Product Revenue was $91.3 million in the nine months ended September 30, 2023, compared to $239.2 million in the nine months ended September 30, 2022. This decrease was primarily due to lower material costs of $93.5 million and lower labor and overhead costs of $35.7 million associated with decreased revenue volume, offset by the disputed payment charge of $12.0 million (see Note 3. Revenue, to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). Our product gross profit margin, or product gross profit as a percentage of product revenue was a loss of 95% in the nine months ended September 30, 2023, compared to 27% in the nine months ended September 30, 2022. The decrease in product gross profit margin was primarily due to the aforementioned $12.0 million charge which impacted product gross profit margin by 26% and an increase in excess inventory reserves and scrap of $11.5 million which impacted product gross profit margin by 25%. In addition, a reduction in overall production volume relative to our manufacturing capacity impacted product gross profit margin by 77%. These decreases were offset by a prior year charge of $45.5 million related to an overbuild of inventory and identification of certain products which are not expected to perform in line with the Company’s quality standards which impacted product gross profit margin by 14%.
Sales and Marketing Expense was $26.4 million in the nine months ended September 30, 2023, compared to $69.3 million in the nine months ended September 30, 2022. This decrease was primarily due to a decrease in digital and marketing costs of $33.4 million as we shifted marketing strategies, a decrease in personnel costs of $8.1 million related to the CRP, workforce realignment and optimization efforts, and a decrease in professional services costs of $3.3 million from additional efforts in cost reduction.
Research and Development Expense was $118.4 million in the nine months ended September 30, 2023, compared to $115.3 million in the nine months ended September 30, 2022. This increase was primarily driven by a shift in usage of facility and support costs by research and development of $7.4 million and increased regulatory and clinical costs
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of $5.8 million. The increase was driven by investment and expansion of our test menu including our Flu A/B standalone, RSV standalone, Flu A/B + COVID multiplex and Chlamydia + Gonorrhea molecular tests. These increases were offset by a decrease of personnel costs of $7.4 million related to the CRP, as well as workforce realignment and optimization efforts to decrease professional service and other costs of $5.2 million.
General and Administrative Expense was $47.5 million in the nine months ended September 30, 2023 compared to $77.9 million in the nine months ended September 30, 2022. This decrease was primarily related to a decrease in personnel costs of $9.9 million related to the CRP, workforce realignment and optimization efforts, and a decrease in accounting, consulting-related and other support costs of $13.3 million, as we invested in our central team to support our operations as a public company in order to reduce consulting and external-related costs.
Interest Expense was $0.8 million in the nine months ended September 30, 2023, compared to $0.4 million in the nine months ended September 30, 2022.
Tax Credits was $20.9 million in the nine months ended September 30, 2023, compared to $0 in the nine months ended September 30, 2022. This increase was related to the receipt of employee retention credits of $20.9 million.
Income Tax Expense (Benefit) was $4.7 million and $(4.4) million in the nine months ended September 30, 2023 and 2022, respectively. Our effective income tax rate for the nine months ended September 30, 2023 and 2022 was 11.2% and a benefit of 2.7%, respectively. The effective tax rate for the nine months ended September 30, 2023 differs from the statutory rate primarily due to the Company maintaining a full valuation allowance against its net deferred tax assets and the impact of tax credits recorded during the nine months ended September 30, 2023. The effective tax rate for the nine months ended September 30, 2022 differs from the statutory rate primarily due to the Company maintaining a full valuation allowance against its net deferred tax assets and the impact of certain state tax credits recorded during the nine months ended September 30, 2022.
Liquidity and Capital Resources
Overview
As of September 30, 2023, we held $111.5 million of cash and cash equivalents. Our primary cash needs are for the funding of day-to-day operations and to address our working capital needs. Our largest source of operating cash generation is from sales to our customers. Our primary uses of cash from operating activities are for personnel-related expenses, material and supply costs for manufacturing, direct costs to deliver our products, and sales and marketing expenses and research and development initiatives.

On June 30, 2022, we entered into the 2022 Revolving Facility Agreement. The 2022 Revolving Facility Agreement provides for a $100.0 million secured revolving credit facility, with a $20.0 million letter of credit subfacility. As of September 30, 2023, there were no revolving loans outstanding and $1.0 million aggregate face amount of letters of credit outstanding under the 2022 Revolving Facility Agreement, which reduces the availability to borrow under the revolving credit facility to $99.0 million. The revolving commitments terminate and the principal amount of outstanding revolving loans, together with accrued and unpaid interest, is due and payable on June 30, 2024.

We had an accumulated deficit of $443.1 million as of September 30, 2023. During the year ended December 31, 2022, and the nine months ended September 30, 2023, we incurred negative cash flows. A tempering of COVID-19 testing demand has resulted in a loss from operations. Currently, the majority of our product revenue is related to sales of our Cue COVID-19 test, and while we have a number of tests submitted to the FDA for regulatory approval and in late stage technical development, the receipt of such approvals is outside our control. These factors, underscored by the inherent uncertainty in timing of regulatory approvals, when considered in the aggregate, raise substantial doubt about our ability to continue as a going concern.

In August 2023, we filed with the SEC a new shelf registration statement on Form S-3, pursuant to which we may offer debt securities, preferred stock, common stock and certain other securities from time to time up to a maximum aggregate amount of $250,000,000. Additionally, on August 9, 2023, in connection with the launch of an “at the market” offering program, we entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (the “Sales Agent”). Under the Sales Agreement, we may offer and sell our common stock from time to time having an aggregate offering price of up to $50,000,000 during the term of the Sales Agreement through the Sales Agent (the “Offering Program”). We did not issue any shares of our common stock under the Offering Program during the nine months ended September 30, 2023.

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Management's plans to alleviate the conditions that raise substantial doubt include obtaining regulatory approvals for additional test products, reduced spending, and the pursuit of additional capital. There can be no assurance that the current operating plan will be achieved, including the timing of additional products, or that additional funding will be available on terms acceptable to us, or at all. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these condensed consolidated financial statements.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended
September 30,
20232022
(dollars in thousands)(unaudited)
Net cash, cash equivalents and restricted cash used in operating activities$(109,090)$(60,219)
Net cash, cash equivalents and restricted cash used in investing activities(17,965)(52,946)
Net cash, cash equivalents and restricted cash used in financing activities(3,021)(4,557)
Net change in cash, cash equivalents and restricted cash$