SEC Form 10-Q filed by Accelerate Diagnostics Inc.
$AXDX
Biotechnology: Laboratory Analytical Instruments
Industrials
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
OR
Commission file number: 001-31822
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction | (I.R.S. Employer | ||||||||||
| of incorporation or organization) | Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(520 ) 365-3100
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| value per share | (The Nasdaq Capital Market) | |||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | |||||||
| Accelerated filer | ☐ | |||||||
| ☑ | ||||||||
| Smaller reporting company | ||||||||
| Emerging growth company | ||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
At November 5, 2024, 25,043,822 shares of common stock were outstanding, net of treasury shares.
TABLE OF CONTENTS
Item 1. Legal Proceedings | |||||
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands, except share data)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments | ||||||||
| Trade accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Purchase obligation - put option asset | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Finance lease assets, net | ||||||||
| Operating lease right of use assets, net | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Accrued interest | ||||||||
| Deferred revenue and income, current | ||||||||
| Current portion of convertible notes | ||||||||
| Common warrant liability | ||||||||
| Finance lease, current | ||||||||
| Operating lease, current | ||||||||
| Total current liabilities | ||||||||
| Finance lease, non-current | ||||||||
| Operating lease, non-current | ||||||||
| Deferred income, non-current | ||||||||
| Other non-current liabilities | ||||||||
| Notes payable, non-current | ||||||||
| Convertible notes, non-current | ||||||||
| Total liabilities | ||||||||
| Commitments (see Note 15) | ||||||||
See accompanying notes to condensed consolidated financial statements.
3
ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS (CONTINUED)
(in thousands, except share data)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Unaudited | ||||||||
| Stockholders’ deficit: | ||||||||
Preferred shares, $ | ||||||||
Common stock, $ | ||||||||
| Contributed capital | ||||||||
| Treasury stock | ( | ( | ||||||
| Accumulated deficit | ( | ( | ||||||
| Accumulated other comprehensive loss | ( | ( | ||||||
| Total stockholders’ deficit | ( | ( | ||||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
4
ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Unaudited
(in thousands, except per share data)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||
| Cost of sales | |||||||||||||||||
| Inventory write-down | |||||||||||||||||
| Total cost of sales | |||||||||||||||||
| Gross profit | |||||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Research and development | |||||||||||||||||
| Sales, general and administrative | |||||||||||||||||
| Total costs and expenses | |||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||
| Other income (expense): | |||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||
| Interest expense related-party | ( | ||||||||||||||||
| Gain (loss) on extinguishment of debt | ( | ||||||||||||||||
| (Loss) on extinguishment of debt related-party | ( | ||||||||||||||||
| Gain on extinguishment of accounts payable | |||||||||||||||||
| Gain (loss) on fair value adjustments | ( | ( | |||||||||||||||
| Foreign currency exchange gain (loss) | ( | ( | |||||||||||||||
| Interest income | |||||||||||||||||
| Other income (expense), net | ( | ( | |||||||||||||||
| Total other income (expense), net | ( | ( | ( | ||||||||||||||
| Net income (loss) before income taxes | ( | ( | ( | ||||||||||||||
| Provision for income taxes | ( | ( | |||||||||||||||
| Net income (loss) | $ | ( | $ | $ | ( | $ | ( | ||||||||||
| Basic net income (loss) per share | $ | ( | $ | $ | ( | $ | ( | ||||||||||
| Basic weighted average shares outstanding | |||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||
| Net income (loss) | $ | ( | $ | $ | ( | $ | ( | ||||||||||
| Net unrealized gain on debt securities available for sale | |||||||||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||||||||
| Comprehensive income (loss) | $ | ( | $ | $ | ( | $ | ( | ||||||||||
See accompanying notes to condensed consolidated financial statements.
5
ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Unaudited
(in thousands)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | $ | ( | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Equity-based compensation | ||||||||
| Amortization of debt discount and issuance costs | ||||||||
| Paid-in-Kind (PIK) Interest | ||||||||
| Amortization of debt discount related-party | ||||||||
| Provision for bad debts | ||||||||
| Loss on disposal of property and equipment | ||||||||
| Unrealized gain on equity investments | ( | ( | ||||||
| Units offering issuance cost | ||||||||
| Loss on extinguishment of debt | ||||||||
| Loss on extinguishment of debt with related party | ||||||||
| Gain on extinguishment of accounts payable | ( | |||||||
| Loss (gain) on fair value adjustments | ( | |||||||
| Inventory write-down | ||||||||
| (Increase) decrease in assets: | ||||||||
| Accounts receivable | ( | |||||||
| Inventory | ( | |||||||
| Prepaid expense and other | ||||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities and other | ( | |||||||
| Accrued interest | ||||||||
| Accrued interest due to related party | ||||||||
| Deferred revenue and income | ||||||||
| Net cash used in operating activities | ( | ( | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of equipment | ( | ( | ||||||
| Maturities of marketable securities | ||||||||
| Net cash (used in) provided by investing activities | ( | |||||||
See accompanying notes to condensed consolidated financial statements.
6
ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
Unaudited
(in thousands)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of Units to related party | — | |||||||
| Proceeds from issuance of Units | ||||||||
| Units offering issuance cost | ( | |||||||
| Proceeds from issuance of common stock to related party | — | |||||||
| Proceeds from exercise of warrants | ||||||||
| Payments on finance leases | ( | ( | ||||||
Proceeds from issuance of | ||||||||
| Transaction costs related to debt and equity issuances | ( | ( | ||||||
Proceeds from issuance of | ||||||||
| Payment of debt | ( | |||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate on cash | ( | |||||||
| Increase (decrease) in cash and cash equivalents | ( | |||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Non-cash investing activities: | ||||||||
| Net transfer of instruments from inventory to property and equipment | $ | $ | ||||||
| Non-cash financing activities: | ||||||||
| Accrued debt issuance costs | $ | $ | ||||||
Extinguishment of | $ | $ | ||||||
| Capital contribution from the exchange of secured note and accrued interest through the issuance of common stock with related party | $ | $ | ||||||
Exchange of | $ | $ | ||||||
Debt premium on issuance of | $ | $ | ||||||
| Bifurcated derivative liability | $ | $ | ||||||
Extinguishment of derivative liability in connection with extinguishment of | $ | $ | ||||||
Issuance of common stock in connection with extinguishment of | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
7
ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
Unaudited
(in thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Preferred stock shares outstanding | |||||||||||||||||
| Beginning | |||||||||||||||||
| Conversion of preferred stock into common stock with related party | — | — | ( | ||||||||||||||
| Ending | |||||||||||||||||
| Preferred stock | |||||||||||||||||
| Beginning | $ | $ | $ | $ | |||||||||||||
| Conversion of preferred stock into common stock with related party | — | — | ( | ||||||||||||||
| Ending | $ | $ | $ | $ | |||||||||||||
| Common stock shares outstanding | |||||||||||||||||
| Beginning | |||||||||||||||||
| Issuance of common stock | — | — | |||||||||||||||
| Issuance of common stock to related party | |||||||||||||||||
| Restricted stock awards released | |||||||||||||||||
| Issuance of shares to retire convertible notes and derivative | — | ||||||||||||||||
| Conversion of preferred stock into common stock with related party | — | — | |||||||||||||||
| Issuance of shares to retire secured promissory note with related party | — | — | |||||||||||||||
| Ending | |||||||||||||||||
| Common stock | |||||||||||||||||
| Beginning | $ | $ | $ | $ | |||||||||||||
| Issuance of common stock | — | — | |||||||||||||||
| Issuance of common stock to related party | |||||||||||||||||
| Restricted stock awards released | — | — | — | ||||||||||||||
| Issuance of shares to retire secured promissory note with related party | — | — | |||||||||||||||
| Ending | $ | $ | $ | $ | |||||||||||||
See accompanying notes to condensed consolidated financial statements.
8
ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
Unaudited
(in thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Contributed capital | |||||||||||||||||
| Beginning | $ | $ | $ | $ | |||||||||||||
| Proceeds from issuance of common stock, net of issuance costs | |||||||||||||||||
| Capital contribution from modification of securities purchase agreement with related party | — | — | |||||||||||||||
| Proceeds from issuance of common stock to related party, net of issuance costs | — | ||||||||||||||||
| Pre-funded warrants, net of issuance costs | — | — | |||||||||||||||
| Issuance of shares to retire secured promissory note with related party | — | — | |||||||||||||||
| Issuance of shares to retire convertible notes | |||||||||||||||||
| Equity-based compensation | |||||||||||||||||
| Reclassification of common stock par value due to reverse stock split | — | ||||||||||||||||
| Ending | $ | $ | $ | $ | |||||||||||||
| Accumulated deficit | |||||||||||||||||
| Beginning | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
| Net income (loss) | ( | ( | ( | ||||||||||||||
| Ending | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
| Treasury stock | |||||||||||||||||
| Beginning | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
| Ending | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
| Accumulated other comprehensive loss | |||||||||||||||||
| Beginning | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
| Net unrealized gain on debt securities available-for-sale | — | ||||||||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||||||||
| Ending | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
| Total stockholders' deficit | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
See accompanying notes to condensed consolidated financial statements.
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ACCELERATE DIAGNOSTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS; BASIS OF PRESENTATION; PRINCIPLES OF CONSOLIDATION; SIGNIFICANT ACCOUNTING POLICIES
Accelerate Diagnostics, Inc. (“we” or “us” or “our” or “Accelerate” or the “Company”) is an in vitro diagnostics company dedicated to providing solutions that improve patient outcomes and lower healthcare costs through the rapid diagnosis of serious infections.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on March 29, 2024.
The condensed consolidated balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date but does not include all disclosures such as notes required by U.S. GAAP.
The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the entire year ending December 31, 2024, or any future period.
All amounts are rounded to the nearest thousand dollars unless otherwise indicated.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of intercompany transactions and balances.
Liquidity and Going Concern
Since inception, the Company has not achieved profitable operations or positive cash flows from operations. The Company’s accumulated deficit totaled $709.3 million as of September 30, 2024. During the nine months ended September 30, 2024, the Company had a net loss of $40.5 million and negative cash flows from operations of $19.1 million. The Company had working capital of $9.2 million as of September 30, 2024.
In March 2023, the Company entered into a forbearance agreement (the “Forbearance Agreement”) with the holders of approximately 85 % of the Company’s outstanding 2.50 % convertible senior notes (the “2.50 % Notes”) (collectively, the “Ad Hoc Noteholder Group”) and the trustee for the 2.50 % Notes (the “Trustee”). Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the indenture governing the 2.50 % Notes (the “2.50 % Notes Indenture”) in connection with certain events of default under the 2.50 % Notes Indenture, including, but not limited to, the failure to timely pay in full the principal and any interest related to the 2.50 % Notes that was due and payable on March 15, 2023. In April 2023, the Company entered into a restructuring support agreement (the “Restructuring Support Agreement”) with certain holders of the 2.50 % Notes, the holder of a secured promissory note with the Jack W. Schuler Living Trust (the “Schuler Trust”) (the “Secured Note”) and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure (the “Restructuring Transactions”). In June 2023, the Company completed the Restructuring Transactions contemplated
10
by the Restructuring Support Agreement. Further details of the Forbearance Agreement and Restructuring Transactions are included in Note 10, Convertible Notes.
In January 2024, the Company completed an underwritten public offering (the “January 2024 Public Units Offering”) of Units and Pre-Funded Units (each, as defined in Note 18, Stockholders' Deficit). Concurrently with the completion of the January 2024 Public Units Offering, the Company sold Units to the Schuler Trust and to the Company’s Chief Executive Officer and Chief Financial Officer in a private placement offering. Aggregate net proceeds after transaction expenses were $11.0 million. In connection with the January 2024 Public Units Offering, the Schuler Trust agreed to and subsequently purchased additional Units in May 2024 for net proceeds of $2.7 million. Further information and a description of the Units and the Pre-Funded Units are included in Note 18, Stockholders' Deficit.
In August 2024, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with certain investors named therein pursuant to which the Company issued $15.0 million aggregate principal amount of the Company’s 16.00 % Super-Priority Senior Secured PIK Notes due 2025 (the “16.00 % Notes”). Further information and a description of the 16.00 % Notes are included in Note 9, Long Term Debt.
As of September 30, 2024, the Company had $20.9 million in cash and cash equivalents and investments, an increase of $7.7 million from $13.2 million at December 31, 2023. The primary reason for the increase was due to proceeds from the sale and issuance of Units and Pre-Funded Units and proceeds from the issuance of 16.00 % Notes during the nine months ended September 30, 2024, partially offset by cash used in operations. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations.
The Company’s primary use of capital has been for the development and commercialization of the Accelerate Pheno® system, development of complementary products and development of its next generation technology, the Accelerate WAVE™ system. The Company is subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching the Company’s products, development and market acceptance of the Company’s product candidates, development by its competitors of new technological innovations, protection of proprietary technology and raising additional capital.
Historically, the Company has funded its operations primarily through multiple equity raises and the issuance of debt. While the Company believes it has funding to allow it to progress its development and operational goals discussed in this report, it is not expected to be sufficient to fund the Company’s operations through twelve months from the issuance of these financial statements. See Note 9, Long Term Debt, Note 10, Convertible Notes, Note 11, Related-Party Transactions and Note 18, Stockholders' Deficit for additional detail.
Management currently believes that it will be necessary for the Company to secure additional funds to continue its existing business operations and to fund its obligations. While the Company continues to explore additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, there can be no assurance the necessary financing will be available on terms acceptable to the Company, or at all. If the Company raises funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of common stock. If the Company raises funds by issuing additional debt, it is likely any new debt would have rights, preferences and privileges senior to common stockholders. The terms of borrowing could impose significant restrictions on the Company’s operations. The capital markets have in the past, and may in the future, experience periods of upheaval that could impact the availability and cost of equity and debt financing. In addition, changes in federal fund rates set by the Federal Reserve, such as the significant increases experienced throughout 2022 and 2023, which serve as benchmark rates on borrowing, and other general economic conditions have impacted, and in the future may impact, the cost of debt financing or refinancing existing debt.
In September 2024, the Company announced that it has retained Perella Weinberg Partners to assist with the review of strategic alternatives. Although the Company is actively considering all available strategic alternatives to maximize value, if the Company is unable to obtain adequate capital resources to fund operations, the Company would not be able to continue to operate its business pursuant to its current plans. This may require the Company to, among other things, materially modify its operations to reduce spending; sell assets or operations; delay the implementation of, or revise certain aspects of, its business strategy; or discontinue its operations entirely.
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The Company is required to evaluate its financial condition as of the filing date of this report pursuant to the requirements of Accounting Standards Codification (“ASC”) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
Based on its evaluation pursuant to ASC 205-40, the Company has determined that, as of the filing date of this report, there is substantial doubt about its ability to continue as a going concern, as the Company does not currently have adequate financial resources to fund its forecasted operating costs for at least twelve months from the filing date of this report.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to the collectability of receivables and related credit loss allowances, inventory valuation and related reserves, impairment of property and equipment, accrued liabilities, warranty liabilities, convertible notes, derivative instruments, fair value instruments, tax valuation accounts and uncertain tax positions, equity–based compensation, revenue and leases. Actual results could differ materially from those estimates.
Estimated Fair Value of Financial Instruments
The Company follows ASC 820, Fair Value Measurement, which has defined fair value and requires the Company to establish a framework for measuring and disclosing fair value. The framework requires the valuation of assets and liabilities subject to fair value measurements using a three-tiered approach and fair value measurement be classified and disclosed in one of the following three categories:
•Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
•Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
•Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The carrying amounts of financial instruments such as cash and cash equivalents, trade accounts receivable, prepaid expenses, other current assets, accounts payable, accrued liabilities and other current liabilities approximate the related fair values due to the short-term maturities of these instruments.
See Note 4, Fair Value of Financial Instruments, for further information and related disclosures regarding the Company’s fair value measurements.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or less at time of purchase are
12
considered to be cash equivalents. Cash and cash equivalents include overnight repurchase agreement accounts and other investments. As part of the Company’s cash management process, excess operating cash is invested in overnight repurchase agreements with its bank. Repurchase agreements and other investments classified as cash and cash equivalents are not deposits and are not insured by the U.S. government, the Federal Deposit Insurance Corporation (the “FDIC”) or any other government agency and involve investment risk including possible loss of principal. The Company diversifies its cash holdings, but does have deposits at three institutions in excess of the FDIC coverage limit. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations, and cash flows.
Investments
The Company invests in various debt and equity securities which are primarily held in the custody of major financial institutions. Debt securities consist of certificates of deposit, U.S. government and agency securities, commercial paper, and corporate notes and bonds. Equity securities consist of mutual funds. The Company records these investments in the condensed consolidated balance sheets at fair value. Unrealized gains or losses for debt securities available-for-sale are included in accumulated other comprehensive loss, a component of stockholders’ deficit. Unrealized gains or losses for equity securities are included in other income (expense), net, a component of condensed consolidated statements of operations and comprehensive loss. The Company considers all debt securities to be available-for-sale, including those with maturity dates beyond 12 months, as they are available to support current operational liquidity needs. The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations.
We perform an assessment to determine whether there have been any events or economic circumstances to indicate that a debt security available-for-sale in an unrealized loss position has suffered impairment as a result of credit loss or other factors. A debt security is considered impaired if its fair value is less than its amortized cost basis at the reporting date.
If we intend to sell the debt security or if it is more-likely-than-not that we will be required to sell the debt security before the recovery of its amortized cost basis, the impairment is recognized and the unrealized loss is recorded as a direct write-down of the security's amortized cost basis with an offsetting entry to earnings. If we do not intend to sell the debt security or believe we will not be required to sell the debt security before the recovery of its amortized cost basis, the impairment is assessed to determine if a credit loss component exists. We use a discounted cash flow method to determine the credit loss component. In the event a credit loss exists, an allowance for credit losses is recorded in earnings for the credit loss component of the impairment while the remaining portion of the impairment attributable to factors other than credit loss is recognized, net of tax, in accumulated other comprehensive loss. The amount of impairment recognized due to credit factors is limited to the excess of the amortized cost basis over the fair value of the security.
Accounts Receivable
Accounts receivable consist of amounts due to the Company for sales to customers and are based on what we expect to collect in exchange for goods and services. Receivables are considered past due based on the contractual payment terms and are written off if reasonable collection efforts prove unsuccessful.
We maintain an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the condensed consolidated statements of operations and comprehensive loss. We assess collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, we consider historical collectability and make judgments about the creditworthiness of customers based on credit evaluations. Our customers typically have good credit quality. We also consider customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data.
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The allowance for credit losses over trade receivables and net investment in sales-type leases for the three and nine months ended September 30, 2024 and 2023 is comprised of the following (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||
Provisions, net | |||||||||||||||||
Credit losses | ( | ( | ( | ( | |||||||||||||
Ending balance | $ | $ | $ | $ | |||||||||||||
Inventory
Inventory is stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out method. The Company estimates the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale, has a cost basis in excess of its estimated realizable value, or is considered in excess of demand. These types of inventory events could result in a charge to expense as appropriate.
We charge cost of sales for inventory provisions to write-down our inventory to the lower of cost or net realizable value or for obsolete or excess inventory. Most of our inventory provisions relate to excess quantities of products, based on our inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions. Once inventory has been written-off or written-down, it creates a new cost basis for the inventory that is not subsequently written-up.
The Company manufactures pre-launch inventory in advance of regulatory approval. This inventory is expensed before an economic benefit is probable.
See Note 6, Inventory, for further information and related disclosures.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized. When property and equipment are retired, sold or otherwise disposed of, the cost and accumulated depreciation are removed and any resulting gain or loss is included in the results of operations in the same line item as the underlying depreciation of the disposed asset. Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the assets, ranging from to ten years . Leasehold improvements are depreciated over the remaining life of the lease or the life of the asset, whichever is less.
Instruments Classified as Property and Equipment
Property and equipment includes Accelerate Pheno® and Accelerate Arc™ systems (also referred to as instruments) used for sales demonstrations, instruments under rental agreements and instruments used for research and development. Depreciation expense and losses from retirement of instruments used for sales demonstrations are recorded as a component of sales, general and administrative expenses. Depreciation expense and losses from retirement of instruments placed at customer sites pursuant to reagent rental agreements are recorded as a component of cost of sales. Depreciation expense and losses from retirement of instruments used in our laboratory and research are recorded as a component of research and development expense. The Company retains title to these instruments and depreciates them over five years .
The Company evaluates the recoverability of the carrying amount of its instruments whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, and at least annually. This evaluation is based on our estimate of future cash flows and the estimated fair value of such long-lived assets, and provides for impairment if such undiscounted cash flows or the estimated fair value are insufficient to recover the carrying amount of instruments.
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Annually, the Company identifies potential impairment indicators related to instruments installed at customer sites under rental agreements that have not yet generated revenue and the length of time from when these instruments are installed to when revenue is initially generated. The Company’s evaluation for impairment includes consideration of the cash flows of current revenue generating instruments, the length of time to recover the carrying value, the historical rate of returned instruments from customers and the Company’s ability to resell or repurpose used instruments. No material impairment charges were recorded for the three and nine months ended September 30, 2024 and 2023.
See Note 7, Property and Equipment, for further information and related disclosures.
Long-lived Assets
Long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows from and the estimated fair value of such long-lived assets, and provides for impairment if such undiscounted cash flows or the estimated fair values are insufficient to recover the carrying amount of the long-lived asset.
Warranty Reserve
Instruments are typically sold with a one year limited warranty, while kits and accessories are typically sold with a sixty-day limited warranty. Accordingly, a provision for the estimated cost of the limited warranty repair is recorded at the time revenue is recognized. Our estimated warranty provision is based on our estimate of future repair events and the related estimated cost of repairs. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. The cost incurred for these provisions is included in cost of sales on the condensed consolidated statements of operations and comprehensive loss.
Product warranty reserve activity for the three and nine months ended September 30, 2024 and 2023 is as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||
Provisions (reversals), net | ( | ( | |||||||||||||||
Warranty cost incurred | ( | ( | ( | ( | |||||||||||||
| Ending balance | $ | $ | $ | $ | |||||||||||||
Convertible Notes
The Company follows Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) in accounting for its outstanding convertible notes. The convertible notes are accounted for as a liability measured at their amortized cost. Interest expense is comprised of (1) cash interest payments, (2) amortization of any debt discounts or premiums based on the original offering, and (3) amortization of any debt issuance costs. Gain or loss on extinguishment of such notes is calculated as the difference between the (i) fair value of the consideration transferred and (ii) the sum of the carrying value of the debt at the time of repurchase, conversion or settlement.
Accounting for Derivatives
Upon issuance of the Company’s 5.00 % Convertible Senior Notes due 2026 (the “5.00 % Notes”), each holder has the right, at their option, to convert any portion to common stock (“Conversion Option”). The conversion price initially was not fixed and therefore, the Conversion Option represented a derivative financial instrument and was recorded at its estimated fair value as a derivative liability in the condensed consolidated balance sheets through October 17, 2023, the date at which the conversion price was fixed. Changes in the fair value of the derivative financial instrument were recognized in gain on fair value adjustment within the condensed consolidated statements of operations and comprehensive loss. The derivative liability was derecognized and reclassified to
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equity as of October 17, 2023 once the conversion price was fixed and after completion of the final mark-to-market fair value adjustment as of that date.
See Note 10, Convertible Notes for further information regarding the Conversion Option.
Warrants
The Company accounts for its warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants considering the authoritative guidance in ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. The assessment considers whether the warrants meet the definition of a liability pursuant to ASC 480 and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and satisfy additional conditions for equity classification. Warrants that are liability-classified, meet the definition of a derivative instrument, and do not qualify for any scope exceptions for derivative instrument accounting are measured at fair value at each reporting date in accordance with the guidance in ASC 820, Fair Value Measurement, with any subsequent changes in fair value recognized in the unaudited condensed consolidated statements of operations and comprehensive loss. Warrants that are equity-classified are recorded as contributed capital on the condensed consolidated statements of stockholders’ deficit without further remeasurement.
See Note 18, Stockholders' Deficit for further information and related disclosures.
Revenue Recognition
The Company recognizes revenue when control of the promised good or service is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales taxes are excluded from revenue.
The Company determines revenue recognition through the following steps:
•Identification of the contract with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations
•Recognition of revenue as we satisfy a performance obligation
Product revenue is derived from the sale or rental of instruments and sales of related consumable products. When an instrument is sold, revenue is generally recognized upon installation or transfer of control in sales to third party distributors consistent with contract terms, which do not include a right of return. When a consumable product is sold, revenue is generally recognized upon shipment. Invoices are generally issued when revenue is recognized. Payment terms vary by the type and location of the customer and the products or services offered. The term between invoicing and when payment is due is not significant.
Service revenue is derived from the sale of extended service agreements which are generally non-cancellable. This revenue is recognized on a straight-line basis over the contract term beginning on the effective date of the contract because the Company is standing ready to provide services. Invoices are generally issued annually and coincide with the beginning of individual service terms.
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines relative standalone selling prices based on the price charged to customers for each individual performance obligation.
Sales commissions earned by the Company’s sales force and external sales agents are considered incremental and recoverable costs of obtaining a contract with a customer. The Company has determined these costs would have an amortization period of less than one year and has elected to recognize them as an expense when incurred. Contract asset opening and closing balances were immaterial for the three and nine months ended September 30, 2024.
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Shipping and Handling
Shipping and handling costs billed to customers are included as a component of revenue. The corresponding expense incurred with third party carriers is included as a component of sales, general and administrative costs on the condensed consolidated statements of operations and comprehensive loss.
Leases
The Company accounts for leases in accordance with ASC 842, Leases. The Company determines if an arrangement is or contains a lease and the type of lease at inception. The Company classifies leases as finance leases (lessee) or sales-type leases (lessor) when there is either a transfer of ownership of the underlying asset by the end of the lease term, the lease contains an option to purchase the asset that we are reasonably certain will be exercised, the lease term is for the major part of the remaining economic life of the asset, the present value of the lease payments and any residual value guarantee equals or substantially exceeds all the fair value of the asset, or the asset is of such a specialized nature that it will have no alternative use to the lessor at the end of the lease term. Payments contingent on future events (i.e., based on usage) are considered variable and excluded from lease payments for the purposes of classification and initial measurement. Several of our leases include options to renew or extend the term upon mutual agreement of the parties and others include one-year extensions exercisable by the lessee. None of our leases contain residual value guarantees, restrictions, or covenants.
To determine whether a contract contains a lease, the Company uses its judgment in assessing whether the lessor retains a material amount of economic benefit from an underlying asset, whether explicitly or implicitly identified, which party holds control over the direction and use of the asset, and whether any substantive substitution rights over the asset exist.
Leases as Lessee
Operating and finance leases are included in right-of-use (“ROU”) assets and corresponding lease liabilities within our condensed consolidated balance sheets. These assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and their related liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Typically, we use our incremental borrowing rate based on the information available at commencement in determining the present value of lease payments. We use the implicit rate when readily determinable. ROU assets are net of lease payments made and exclude lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term, which may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.
Short-term leases have a lease term of twelve months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Lease payments for short-term leases are recognized within the condensed consolidated statements of operations and comprehensive loss in the period in which the obligation is incurred.
Our operating lease consists of leased office, factory, and laboratory space in the U.S. with a term of six years , which contains penalizing, early-termination provisions. Our finance leases consist of leased equipment with or three-year terms. Short-term leases consist of rental cars and copier leases.
Leases as Lessor
The Company leases instruments to customers under “reagent rental” agreements, whereby the customer agrees to purchase consumable products over a stated term, typically five years or less, for a volume-based price that includes an embedded rental for the instruments. When collectibility is probable, that amount is recognized as income at lease commencement for sales-type leases and as product is shipped, typically in a straight–line pattern, over the term for operating leases, which typically include a termination without cause or penalty provision given a short notice period. In some of these contracts, the customer has an option to purchase the underlying asset at a specified price.
Consideration is allocated between lease and non-lease components based on stand-alone selling price in accordance with ASC 606, Revenue from Contracts with Customers.
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Net investment in sales-type leases is included within our condensed consolidated balance sheets as a component of other current assets and other non-current assets, which include the present value of lease payments not yet received and the present value of the residual asset. These amounts are determined using the information available at commencement, including the lease term, estimated useful life, rate implicit in the lease, purchase options (if any and if such option is reasonably certain to be exercised), and expected fair value of the instrument.
See Note 16, Leases for further information.
Nonqualified Cash Deferral Plan
The Company’s Cash Deferral Plan (the “Deferral Plan”) provides certain key employees with an opportunity to defer the receipt of such participant's base salary. The Deferral Plan is intended to be a nonqualified deferred compensation plan that complies with the provisions of Section 409A of the Internal Revenue Code. All of the investments held in the Deferral Plan are equity securities consisting of mutual funds and recorded at fair value with changes in the investments’ fair value recognized as earnings in the period they occur. The corresponding liability for the Deferral Plan represents the scheduled amount the Company expects to pay and is included in accrued liabilities and other non-current liabilities in the condensed consolidated balance sheets.
Equity-Based Compensation
The Company may award stock options, restricted stock units (“RSUs”), performance-based awards and other equity-based instruments to its employees, directors and consultants. Annual bonus equity-based awards are typically granted based upon meeting goals and objectives for a given year as determined in the following year after the Company’s financials are prepared, final results are reasonably certain, and the compensation committee has authorized the awards. Given the compensation committee has unilateral authority to modify the amount of the awards, the criteria for payout, vesting terms, etc., the Company has elected a narrow approach to determining the grant date and, as such, the grant date is based on compensation committee approval. Compensation cost related to equity-based instruments is based on the fair value of the instrument on the grant date, and is recognized over the requisite service period on a straight-line basis over the vesting period for each tranche (an accelerated attribution method). Performance-based awards vest based on the achievement of performance targets. Compensation costs associated with performance-based awards are recognized over the requisite service period based on probability of achievement. Performance-based awards require management to make assumptions regarding the likelihood of achieving performance targets.
The Company estimates the fair value of service-based and performance-based stock option awards, including modifications of stock option awards, using the Black-Scholes option pricing model. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield.
•Volatility: The expected volatility is based on the historical volatility of the Company's stock price over the most recent period commensurate with the expected term of the stock option award.
•Expected term: The estimated expected term for employee awards is based on a simplified method that considers an insufficient history of employee exercises. For consultant awards, the estimated expected term is the same as the life of the award.
•Risk-free interest rate: The risk-free interest rate is based on published U.S. Treasury rates for a term commensurate with the expected term.
•Dividend yield: The dividend yield is estimated as zero as the Company has not paid dividends in the past and does not have any plans to pay any dividends in the foreseeable future.
The Company accounts for forfeitures as they occur rather than on an estimated basis.
The Company records the fair value of RSUs or stock grants based on the published closing market price on the day before the grant date.
See Note 13, Employee Equity-Based Compensation for further information.
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Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying condensed consolidated balance sheets. The change in deferred tax assets and liabilities for the period represents the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws in deferred tax assets and liabilities are reflected as an adjustment to the tax provision or benefit in the period of enactment.
The Company follows the provisions of ASC 740, Income Taxes, to account for any uncertainty in income taxes with respect to the accounting for all tax positions taken (or expected to be taken) on any income tax return. This guidance applies to all open tax periods in all tax jurisdictions in which the Company is required to file an income tax return. Under U.S. GAAP, in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not certain of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more likely than not to be realized upon resolution of the position. Interest and penalties, if any, would be recorded within tax expense.
Our ability to use our tax loss carryforwards to offset future taxable income for U.S. federal and state income tax purposes may be limited pursuant to Internal Revenue Code Section 382 and similar provisions of U.S. state tax law. The Company previously conducted a limited analysis of the impact of Section 382 which indicted that we have not been subject to an ownership change as defined by Section 382 for the tax years 2017 through 2023.
Foreign Currency Translation and Foreign Currency Transactions
Adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive loss in the condensed consolidated statements of stockholders’ deficit.
The Company has assets and liabilities, including receivables and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, the impact of which is recorded in foreign currency exchange gain and loss, within the condensed consolidated statements of operations and comprehensive loss.
Income (Loss) Per Share
Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding (including shares underlying Pre-Funded Warrants (as defined in Note 18, Shareholders’ Deficit) warrants with only nominal cost to exercise) for the period. Potentially dilutive common shares consist of shares issuable from stock options, unvested RSUs, and warrants (other than Pre-Funded Warrants, which are already included in the weighted average number of common shares outstanding), as well as shares that would be outstanding if the 5.00 % Notes were converted. Diluted earnings are not presented when the effect of adding such additional common shares is antidilutive.
See Note 12, Income (Loss) Per Share, for further information.
Comprehensive Loss
In addition to net loss, comprehensive loss includes all changes in equity during a period, except those resulting from investments by and distributions to owners. The Company holds debt securities as available-for-sale and records the change in fair market value as a component of comprehensive loss. The Company also has adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars which is included as a component of comprehensive loss.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Standards Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09 (Topic 740): Income Taxes: Improvements to Income Tax Disclosures which expands the existing rules on income tax
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disclosures. This update requires entities to disclose specific categories in the tax rate reconciliation, provide additional information for reconciling items that meet a quantitative threshold and disclose additional information about income taxes paid on an annual basis. The new disclosure requirements are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating these new expanded disclosure requirements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which expands disclosure requirements to require entities to disclose significant segment expenses that are regularly provided to or easily computed from information regularly provided to the chief operating decision maker. This update also requires all annual disclosures currently required by Topic 280 to be disclosed in interim periods. The new disclosure requirements are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating these new expanded disclosure requirements.
NOTE 3. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable, including receivables from major customers.
As of September 30, 2024, one of the Company's financial institutions held 79 % of the Company’s cash and cash equivalents. As of December 31, 2023, two of the Company’s financial institutions held 61 % and 25 % of the Company’s cash and cash equivalents.
The Company grants credit to domestic and international customers in various industries. Exposure to losses on accounts receivable is principally dependent on each customer’s financial position. The Company had one customer that accounted for 16 % and 13 % of the Company’s net accounts receivable balance as of September 30, 2024 and December 31, 2023, respectively.
The Company had one customer that represented 11 % and 12 % of the Company’s net sales for the three and nine months ended September 30, 2024, respectively. The Company did not have any customers that represented 10% or more of the Company’s total revenue for the three and nine months ended September 30, 2023.
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NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis
The following tables and discussion below represent the financial instruments measured at fair value on a recurring basis in the condensed consolidated financial statements of the Company and the valuation approach applied to each class of financial instruments at September 30, 2024 and December 31, 2023:
| September 30, 2024 | ||||||||||||||
(in thousands) | ||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||
| Assets: | ||||||||||||||
| Cash and cash equivalents: | ||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||
| Total cash and cash equivalents | ||||||||||||||
| Equity investments: | ||||||||||||||
| Mutual funds | ||||||||||||||
| Total equity investments | ||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||
Liabilities: | ||||||||||||||
Common Warrants | $ | $ | $ | $ | ||||||||||
| December 31, 2023 | ||||||||||||||
(in thousands) | ||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||
| Assets: | ||||||||||||||
| Cash and cash equivalents: | ||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||
| Total cash and cash equivalents | ||||||||||||||
| Equity investments: | ||||||||||||||
| Mutual funds | ||||||||||||||
| Total equity investments | ||||||||||||||
Purchase obligation put option asset | ||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||
Level 1: Assets are priced using quoted prices in active markets for identical assets which include money market funds, U.S. Treasury securities and mutual funds as these specific assets are liquid;
Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
For certain other financial assets and liabilities, including trade accounts receivable, accounts payable and
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other current liabilities, the carrying amounts approximate their fair values due to the relatively short maturity of these balances.
Liabilities for Which Fair Value Is Only Disclosed
As of September 30, 2024 and December 31, 2023, the 5.00 % Notes had an outstanding principal amount of $69.2 million and $67.6 million, respectively, and a fair value of $51.6 million and $50.8 million, respectively, using Level 3 measurement assumptions. See Note 10, Convertible Notes for further detail on the 5.00 % Notes.
The 2.50 % Notes matured on March 15, 2023 and became due and payable on such date. The remaining balance due under the 2.50 % Notes was fully settled in April 2024. The amortized carrying amount of the 2.50 % Notes was $0.7 million as of December 31, 2023, which approximates the related fair value due to the instrument being fully matured and payable. See Note 10, Convertible Notes for further detail on the 2.50 % Notes.
NOTE 5. INVESTMENTS
Equity securities are comprised of investments in mutual funds. The fair value of equity securities at September 30, 2024 and December 31, 2023 was $1.2 million and $1.1 million, respectively
Unrealized gains or losses on equity securities recorded in other income (expense), net during the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Unrealized gain on equity investments | $ | $ | ( | $ | $ | ||||||||||||
These unrealized gains or losses are recorded as a component of other income (expense), net. There were no
Additional information regarding the fair value of our financial instruments is included in Note 4, Fair Value of Financial Instruments.
NOTE 6. INVENTORY
Inventories consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
During the three and nine months ended September 30, 2023, the Company recorded a charge of $1.2
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NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment, net is recorded at cost and consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Computer equipment | $ | $ | ||||||
| Technical equipment | ||||||||
| Facilities | ||||||||
| Instruments | ||||||||
| Capital projects in progress | ||||||||
| Total property and equipment | ||||||||
| Accumulated depreciation | ( | ( | ||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Depreciation expense | $ | $ | $ | $ | |||||||||||||
Instruments at cost and related accumulated depreciation where the Company is the lessor under operating leases consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Instruments at cost under operating leases | $ | $ | ||||||
| Accumulated depreciation under operating leases | ( | ( | ||||||
| Property and equipment under operating leases, net | $ | $ | ||||||
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NOTE 8. DEFERRED REVENUE AND REMAINING PERFORMANCE OBLIGATIONS
Deferred revenue consists of amounts received for products or services not yet delivered or earned. Deferred income consists of amounts received for commitments not yet fulfilled. When products or services are delivered to customers and as service commitments are fulfilled, these contract liabilities are recognized as earned. Deferred revenue or income that the Company does not expect will be earned within the following twelve months is reported in the condensed consolidated balance sheets as deferred income, non-current.
Contract liabilities consisted of the following as of September 30, 2024 and December 31, 2023 (in thousands):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Products and services not yet delivered | $ | $ | ||||||
| BD deferred exclusivity fee | ||||||||
| Deferred revenue and income, current | $ | $ | ||||||
| Australia R&D tax incentive | $ | $ | ||||||
| Total deferred income, non-current | $ | $ | ||||||
The Company recognized $0.2 0.5
Transaction Price Allocated to Remaining Performance Obligations
As of September 30, 2024, $3.2 million of revenue is expected to be recognized from remaining performance obligations. This balance primarily relates to product shipments for reagents sold to customers under sales-type lease agreements. These agreements have between and six year terms and revenue is recognized as reagents are shipped, typically on a straight-line basis. The remaining balance relates to executed service contracts that begin as warranty periods expire. These service contracts typically provide a to five year term and revenue is recognized on a straight-line basis.
The Company elects not to disclose the value of unsatisfied performance obligations for (i) contracts with an expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Commercial Agent Relationship with Becton, Dickinson and Company (“BD”)
The Company has entered into an exclusive commercial agreement with BD to act as the Company’s agent and representative. The purpose of this agreement is to establish an on-going commercialization of the Company’s products. The Company is classified as the principal and BD as the agent. In accordance with the terms of this agreement, BD will pay the Company an exclusivity fee in multiple installments for exclusive rights, while the Company will pay BD an agent fee based on the Company’s revenue.
The Company accounts for agent fees consistent with how it accounts for sales commissions as described above in Note 1, Organization and Nature of Business; Basis of Presentation; Principles of Consolidation; Significant Accounting Policies. As such, agent fees paid to BD correspond with periodic sales and are expensed to sales, general and administrative expense.
The Company accounts for the exclusivity fee from BD as a deferred income when the cash is received. The Company uses forecasted revenue to estimate the amount of deferred income to amortize within the period as an offset to sales, general and administrative expense.
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The following table presents the activity related to the BD commercial agreement for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| Exclusivity fees received | $ | $ | $ | $ | ||||||||||
| Amortized exclusivity fees | ( | ( | ( | ( | ||||||||||
| Agent fees incurred | ||||||||||||||
| Expense (income) | $ | ( | $ | $ | ( | $ | ||||||||
Australia R&D Tax Incentive
As discussed further in Note 14, Income Taxes, in July 2023 and July 2024, the Company received a research and development tax incentive from Australia (“Australia R&D Tax Incentive”) totaling $1.1 million and $1.2 million, respectively, from the Australian government which is fully reserved as the sustainability of the respective amounts upon potential examination by the Australian tax authority is uncertain. These amounts, including any foreign exchange revaluations, are recorded as deferred income, non-current in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023.
NOTE 9. LONG TERM DEBT
16.00% Notes
On August 8, 2024, the Company entered into the Note Purchase Agreement with certain investors named therein pursuant to which the Company issued $15.0 million aggregate principal amount of the 16.00 % Notes.
The carrying value of the 16.00 % Notes consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Principal | $ | $ | ||||||
| Accretion of exit premium | ||||||||
| Unamortized debt issuance costs | ( | |||||||
| Net carrying amount | $ | $ | ||||||
The 16.00 % Notes will mature on December 31, 2025, and bear interest at a rate of 16.00 % per annum, payable in kind. Interest on the 16.00 % Notes is payable in kind by the Company quarterly in arrears on the last business day of each March, June, September and December, beginning on September 30, 2024.
Interest expense related to the Company’s 16.00 % Note obligation consisted of the following for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| Contractual coupon interest | $ | $ | $ | $ | ||||||||||
| Amortization of premium, discount and issuance costs, net | ||||||||||||||
| Total interest expense | $ | $ | $ | $ | ||||||||||
The effective interest rate on the 16.00 % Notes is 80.9 %. The Company may at any time redeem the 16.00 % Notes, in whole or in part, at a redemption price equal to the sum of the outstanding principal, all accrued and unpaid interest, and an applicable Exit Premium (as defined below).
Contemporaneously with the Note Purchase Agreement, the Company also entered into an indenture,
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dated August 8, 2024 (the “16.00 % Notes Indenture”), with a trustee that provides that the 16.00 % Notes will be secured by a super-priority security interest in the same collateral that secures the Company’s outstanding 5.00 % Notes. See Note 10, Convertible Notes fro additional detail.
The 16.00 % Notes Indenture contains customary events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the trustee, by notice to the Company, or the holders of the 16.00 % Notes representing at least a majority in aggregate principal amount of the outstanding 16.00 % Notes, by notice to the Company and the trustee, may declare 100 % of the principal of, the premium (including the Exit Premium) and all accrued and unpaid interest on, all of the then outstanding 16.00 % Notes to be due and payable immediately.
Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal, the premium (including the Exit Premium (as defined below)), and all accrued and unpaid interest on, all of the then outstanding 16.00 % Notes will automatically become immediately due and payable.
Upon the occurrence of a change of control, the Company will be required to make an offer to repurchase all or any portion of the outstanding 16.00 % Notes at a price in cash equal to 100 % of the aggregate principal amount of the 16.00 % Notes repurchased, plus the premium (including the Exit Premium), and all accrued and unpaid interest to, but excluding, the date of repurchase.
Upon the occurrence of any repayment (including at maturity or in connection with a change of control or an asset sale) or redemption or acceleration upon any event of default, the Company is required to pay the investors a fee equal to a certain percentage of the aggregate principal amount of the 16.00 % Notes then outstanding plus accrued and unpaid interest thereon, which fee shall be equal to 30.00 % if any such event occurs on or prior to June 30, 2025 and equal to 42.50 % if any such event occurs on July 1, 2025 and thereafter (the “Exit Premium”). The Company also contemporaneously entered into other customary ancillary agreements in connection with the issuance of the 16.00 % Notes.
The 16.00 % Notes Indenture also contains various affirmative, negative and financial covenants that, among other things, may restrict the ability of the Company and its subsidiaries to incur additional indebtedness, create certain liens, merge or consolidate with another entity, pay dividends or repurchase stock, and sell all or substantially all of their assets.The 16.00 % Notes Indenture also contains various affirmative, negative and financial covenants that, among other things, may restrict the ability of the Company and its subsidiaries to incur additional indebtedness, create certain liens, merge or consolidate with another entity, pay dividends or repurchase stock, and sell all or substantially all of their assets.
Repayment of the 16.00 % Notes inclusive of the Exit Premium resulted in the Notes being issued at a substantial discount. Accordingly, the associated prepayment contingencies were evaluated as an embedded feature of the Notes that requires bifurcation as a derivative liability. The fair value of the prepayment derivative liability was calculated using the “with and without” methodology at loan issuance. The “with and without” methodology involves valuing the term loan on an as-is basis and then valuing the term loan without the embedded derivative. As the Exit Premium is due on repayment regardless of contingency, there is nominal difference in the value of the term loan using the “with and without” methodology, and the derivative liability was determined to have no value as of issuance and as of September 30, 2024.
NOTE 10. CONVERTIBLE NOTES
The Company’s outstanding convertible notes consisted of the 5.00 % Notes as of September 30, 2024, and the 2.50 % Notes and the 5.00 % Notes as of December 31, 2023.
As of September 30, 2024 and December 31, 2023, the convertible note obligations were classified as follows in the condensed consolidated balance sheets (in thousands):
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| September 30, 2024 | December 31, 2023 | |||||||
| $ | $ | |||||||
| $ | $ | |||||||
| Total convertible notes | $ | $ | ||||||
| Current portion of convertible notes | $ | $ | ||||||
| Convertible notes, non-current | $ | $ | ||||||
Interest expense related to the Company’s convertible note obligations consisted of the following for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| Contractual coupon interest | $ | $ | $ | $ | ||||||||||
| Amortization of premium, discount and issuance costs, net | ||||||||||||||
| Total interest expense on convertible notes | $ | $ | $ | $ | ||||||||||
2.50% Notes
The carrying value of the 2.50 % Notes was included in current portion of convertible notes and consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Outstanding principal | $ | $ | ||||||
| Unamortized debt issuance | ||||||||
| Net carrying amount | $ | $ | ||||||
In March 2018, the Company issued $150.0 million aggregate principal amount of 2.50 % Notes. In connection with the offering of the 2.50 % Notes, the Company granted the initial purchasers of the notes a 13-day option to purchase up to an additional $22.5 million aggregate principal amount of the 2.50 % Notes on the same terms and conditions. In April 2018, the option was partially exercised, which resulted in $21.5 million of additional proceeds, for total proceeds of $171.5 million. The Company incurred issuance costs related to the issuance of the 2.50 % Notes which were amortized over the five-year contractual term of the 2.50 % Notes using the effective interest method until the maturity date of the 2.50 % Notes. The 2.50 % Notes matured on March 15, 2023 and became due and payable.
In August 2022, the Company entered into an exchange agreement (the “August 2022 Exchange Agreement”) with the Schuler Trust. Under the terms of the August 2022 Exchange Agreement, the Schuler Trust agreed to exchange with the Company $49.9 million in aggregate principal amount of 2.50 % Notes held by it for (a) the Secured Note with an aggregate principal amount of $34.9 million and (b) a warrant to acquire the Company’s common stock (the “2022 Warrant”) at an exercise price of $21.20 per share (the “Exercise Price”). See Note 11, Related-Party Transactions for additional information.
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In March 2023, the Company entered into the Forbearance Agreement with the Ad Hoc Noteholder Group holding approximately 85 % of the Company’s outstanding 2.50 % Notes, the Trustee and any other owner of the 2.50 % Notes who executed and delivered to the Company a joinder to the Forbearance Agreement (collectively with the Trustee and Ad Hoc Noteholder Group, the “Counterparties”). Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the 2.50 % Notes Indenture in connection with certain events of default under the 2.50 % Notes Indenture, such as (i) failure to timely pay in full the principal of any 2.50 % Note when due and payable on March 15, 2023, (ii) failure to pay any interest on any 2.50 % Note when due and payable, (iii) failure to convert any 2.50 % Notes, (iv) default under any agreement with outstanding indebtedness for money borrowed in excess of $15.0 million and (v) any other breach, default or event of default under the 2.50 % Notes Indenture arising from the failure of the Company to timely pay in full the principal of any 2.50 % Note when due and payable on the maturity date for the 2.50 % Notes. The Forbearance Agreement was initially effective for the period commencing on March 13, 2023 and ending on April 21, 2023, the date of the Restructuring Support Agreement.
The holders of the 2.50 % Notes that joined the Forbearance Agreement received a fee (the “Forbearance Premium”) equal to $5.00 per $1,000 principal amount of the 2.50 % Notes held by such party, by executing and delivering a joinder to the Forbearance Agreement to the Company. During the year ended December 31, 2023, the Ad Hoc Noteholder Group received $0.2 million in Forbearance Premiums, which were capitalized and amortized as interest expense during the period commencing on March 13, 2023 through March 31, 2023.
Restructuring Support Agreement and June 2023 Restructuring Transactions
In April 2023, the Company entered into the Restructuring Support Agreement with certain holders of the 2.50 % Notes, the holder of the Secured Note and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure. In June 2023, the Company completed the Restructuring Transactions contemplated by the Restructuring Support Agreement whereby the Company:
•Exchanged approximately $55.9 million aggregate principal amount of the 2.50 % Notes for approximately $56.9 million aggregate principal amount of newly issued 5.00 % Notes, which was inclusive of additional 5.00 % Notes in respect of interest accrued on the 2.50 % Notes from September 15, 2022, of $1.0 million;
•Issued and sold an additional $10.0 million aggregate principal amount of 5.00 % Notes;
•Amended and repurchased the Secured Note, plus accrued interest, by issuing approximately 3.4 million shares of the Company’s common stock;
•Issued approximately 0.4 million shares of the Company’s common stock upon conversion of all of the Company’s outstanding Series A Preferred Stock;
•Amended the securities purchase agreement that the Company entered into with the Schuler Trust in March 2022 (the “March 2022 Securities Purchase Agreement”) and issued and sold approximately 0.5 million shares of the Company’s common stock for proceeds of $4.0 million; and
•Entered into a purchase agreement with the Schuler Trust (the “Schuler Purchase Obligation”) pursuant to which the Schuler Trust was required, prior to December 15, 2023 (which was subsequently amended and extended to February 15, 2024), to either purchase an aggregate $10.0 million of the Company’s common stock from the Company or to backstop an underwritten public offering by the Company of its common stock for aggregate proceeds of $10.0 million, at the Company’s option.
Further details regarding the Secured Note, March 2022 Securities Purchase Agreement, Series A Preferred Stock, and Schuler Purchase Obligation are included in Note 11, Related-Party Transactions.
The exchange of the 2.50 % Notes for the 5.00 % Notes, as described above, and associated accrued interest was accounted for as an extinguishment of debt under ASC 470-50-40. Under extinguishment accounting, the 2.50 % Notes were derecognized and the new instruments, which included the 5.00 % Notes and a bifurcated Conversion Option were recorded at their respective fair values. The extinguishment of the 2.50 % Notes resulted in a loss of $6.6 million for the year ended December 31, 2023. See further discussion of the 5.00 % Notes below.
On April 2, 2024, the Company settled the outstanding balance of its 2.50 % Notes. The payment of approximately $0.8 million satisfied all outstanding principal and accrued interest remaining on the 2.50 % Notes.
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5.00% Notes
The carrying value of the 5.00 % Notes consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Outstanding principal at par | $ | $ | ||||||
| Unamortized debt premium | ||||||||
| Unamortized debt discount | ( | ( | ||||||
| Unamortized debt issuance costs | ( | ( | ||||||
| Net carrying amount | $ | $ | ||||||
Upon issuance of the 5.00 % Notes in June 2023, the Company recorded approximately $56.9 million aggregate principal in its condensed consolidated balance sheets. In addition, the Company issued an additional $10.0 million aggregate principal amount of 5.00 % Notes, for cash proceeds with certain existing note holders as part of the Restructuring Transactions. On the December 15, 2026 maturity date, outstanding principal will be due for all remaining outstanding 5.00 % Notes.
The 5.00 % Notes bear interest at a rate of 5.00 % per annum. The Company pays interest on the 5.00 % Notes by payment-in-kind (“PIK”), through the issuance of additional 5.00 % Notes (“5.00 % PIK Notes”). The amount is paid to holders by increasing the principal amount of each outstanding 5.00 % Note by an amount equal to the interest payable for the applicable interest period. The Company calculates PIK interest semi-annually on June 15 and December 15, on a compound basis based on the stated rate of 5.00 %.
The 5.00 % Notes are secured by substantially all of the assets of the Company and its subsidiaries.
Redeeming the 5.00 % Notes before June 15, 2025 could trigger a “Make-Whole Fundamental Change” as defined in the indenture governing the 5.00 % Notes (the “5.00 % Notes Indenture”). On or after June 15, 2025, the Company may, at its option, redeem for cash all or a portion of the 5.00 % Notes.
Upon issuance of the 5.00 % Notes, each holder has a Conversion Option, which represented the right at their option, to convert any portion of their notes at an initial conversion rate of 138.88889 shares of common stock per $1,000 of principal amount (the “Initial Conversion Rate”). Effective October 18, 2023, the Initial Conversion Rate was to be adjusted to a conversion rate calculated based on a conversion price of $7.20 per share of common stock plus 50 % of the difference between the Post-Closing VWAP (as defined in the 5.00 % Notes Indenture) and $7.20 (if such difference is a positive number), provided that in no event will the adjusted conversion rate be lower than 120.48193 per $1,000 principal amount of the 5.00 % Notes, based on a conversion price of $8.30 per share of common stock. The Company evaluated the conversion rate per the terms outlined above and determined the Initial Conversion Rate of 138.88889 shares of common stock per $1,000 principal amount will continue to be the conversion rate through the remaining term of the 5.00 % Notes (the “Fixed Conversion Rate”). The Company cannot require the holders of the 5.00 % Notes to convert at any time but when a holder exercises their Conversion Option, the Company can settle in cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election.
Management determined the Conversion Option met the derivative bifurcation criteria under ASC 815 at inception through October 17, 2023, the date at which the conversion rate became fixed. During that period the derivative instrument was bifurcated and adjusted to fair value through earnings, using Level 3 inputs, at each reporting date with a final mark-to-market adjustment once the Conversion Option became fixed at the end of the day on October 17, 2023 and no longer met the bifurcation criteria. The fair value of the Conversion Option and a derivative liability of $38.2 million as of the transaction date was recorded as a debt issuance discount at inception. The Company also incurred issuance costs of $3.0 million. The debt premium, debt discount and debt issuance costs are being amortized using the effective interest method over the 3.5 year contractual term of the 5.00 % Notes. The effective interest rate on the 5.00 % Notes is 27.6 %. As of September 30, 2024, the number of shares of common stock issuable upon conversion of the 5.00 % Notes was 9.6 million shares, based on the Fixed Conversion Rate.
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Holders of the 5.00 % Notes who convert their notes in connection with a Make-Whole Fundamental Change are, under certain circumstances, entitled to an increase in the conversion rate. If a fundamental change occurs at any time prior to the maturity date of the 5.00 % Notes, each holder will have the right, at such holder’s option, to require the Company to repurchase for cash all of such holder’s 5.00 % Notes, at a repurchase price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest.
In August 2023, certain holders of the 5.00 % Notes opted to convert approximately $0.7 million aggregate principal amount of 5.00 % Notes for approximately 94,000 shares of the Company’s common stock at the Initial Conversion Rate (the “Initial Conversion Rate Conversions”).
Subsequent Conversion Option transactions were at the Fixed Conversion Rate (the “Fixed Conversion Rate Conversions”) and include $0.3 million aggregate principal amount of 5.00 % Notes converted for approximately 39,000 shares of the Company’s common stock for the year ended December 31, 2023 and $0.1 million aggregate principal amount of 5.00 % Notes converted for approximately 11,000 shares of the Company’s common stock for the nine months ended September 30, 2024.
Under ASC 470-50-40, the Initial Conversion Rate Conversions qualified as an extinguishment. These conversions of 5.00 % Notes were included within the bifurcated Conversion Option classified as a derivative liability. Upon the Initial Conversion Rate Conversions, the 5.00 % Notes and the derivative liability were derecognized at their carrying amounts and the common stock was measured at its then-current fair value, with the difference recorded as a gain on the extinguishment of the applicable liability. For the nine months ended September 30, 2023, the Company reported no gain (loss) on extinguishment of exchanged convertible notes. The value of the shares of common stock issued in connection Fixed Conversion Rate Conversions was recorded to contributed capital.
The net carrying value of the 5.00 % Notes derecognized as part of the Initial Conversion Rate Conversions, the 2023 Fixed Conversion Rate Conversions and 2024 Fixed Conversion Rate Conversions was $0.3 million, $0.1 million, and $0.1 million, respectively. The carrying amount of the derivative liability, which was carried at fair value, derecognized as part of the Initial Conversion Rate Conversions was $0.4 million. The Initial Conversion Rate Conversions resulted in a gain on extinguishment of debt of $0.1 million for the year ended December 31, 2023.
The 5.00 % Notes represent an instrument measured at fair value on a non-recurring basis using Level 3 inputs. The estimated fair value of the 5.00 % Notes on June 9, 2023, the initial measurement date, was $38.2 million, which included a $6.0 million debt premium.
As of September 30, 2024 and December 31, 2023, the 5.00 % Notes are carried at amortized cost with an estimated fair value of $51.6 million and $50.8 million, respectively. The table below summarizes the significant inputs used to estimate the fair value of the 5.00 % Notes as of September 30, 2024 and December 31, 2023:
| September 30, 2024 | December 31, 2023 | |||||||
| Coupon rate | % | % | ||||||
| Term (years) | ||||||||
| Volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Discount yield | % | % | ||||||
The volatility used to estimate the fair value of the 5.00 % Notes is an unobservable input. As volatility is an estimate, there is a range of values that could be considered appropriate. Changes to this input could impact the fair value reported.
As of September 30, 2024 and December 31, 2023, $1.0 million and $0.1 million of accrued interest, respectively, related to the 5.00 % Notes is included on the condensed consolidated balance sheets.
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NOTE 11. RELATED-PARTY TRANSACTIONS
March 2022 Securities Purchase Agreement
In March 2022, the Company entered into the March 2022 Securities Purchase Agreement with the Schuler Trust for the issuance and sale by the Company of an aggregate of approximately 0.2 million shares of the Company’s common stock to the Schuler Trust in an offering (the “2022 Private Placement”) exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. Pursuant to the March 2022 Securities Purchase Agreement, the Schuler Trust agreed to purchase the shares at a purchase price (determined in accordance with Nasdaq rules relating to the “market value” of the Company’s common stock) of $16.40 per share, for an aggregate purchase price of $4.0 million. In March 2022, the Company classified the March 2022 Securities Purchase Agreement as an equity forward agreement that met the definition of a freestanding derivative financial instrument initially classified in stockholders’ deficit. The value of this equity forward agreement was considered immaterial at inception.
The Company and the Schuler Trust agreed to extend the closing date of the March 2022 Securities Purchase Agreement several times under the original terms of the 2022 Private Placement. As discussed in Note 10, Convertible Notes, in June 2023, the Company and the Schuler Trust amended the March 2022 Securities Purchase Agreement, which changed the terms of settlement. The amendment changed the closing date to June 9, 2023, amended the price per share from $16.40 to $8.20 , upon which the Company issued approximately 0.5 million shares of common stock to the Schuler Trust for the same proceeds of $4.0 million.
The Company determined the amendment was a modification of a freestanding equity classified financial instrument. The share price change from $16.40 to $8.20 , with no changes to the total proceeds of $4.0 million, resulted in the Schuler Trust receiving approximately 0.2 million more shares than the Schuler Trust would have received prior to the modification. The closing price of the Company’s common stock on June 9, 2023, the date of the modification, was $7.40 and was used to estimate the fair value of the additional common stock issued. The fair value of the additional shares issued was $1.8 million, which was recorded to loss on extinguishment of debt with related party on the condensed consolidated statements of operations and comprehensive loss.
August 2022 Exchange Agreement
In August 2022, the Company entered into the August 2022 Exchange Agreement with the Schuler Trust. Under the terms of the August 2022 Exchange Agreement, the Schuler Trust agreed to exchange with the Company $49.9 million in aggregate principal amount of 2.50 % Notes held by it for the Secured Note and the 2022 Warrant. See Note 10, Convertible Notes for additional information regarding the 2.50 % Notes.
The 2022 Warrant may be exercised through the earlier of (i) August 15, 2029 and (ii) the consummation of certain acquisition transactions involving the Company, as set forth in the 2022 Warrant. The 2022 Warrant is exercisable for up to 247,171 shares of the Company’s common stock and may be exercised in whole or in part at any time during the exercise period. Such number of shares and the Exercise Price are subject to certain customary proportional adjustments for fundamental events, including stock splits and recapitalizations, as set forth in the 2022 Warrant. The Company determined that the 2022 Warrant meets the criteria for classification in stockholders’ equity and was recorded in equity and initially measured at fair value on the issuance date. The fair value of the 2022 Warrant at issuance was $3.8 million and was estimated using the Black-Scholes option pricing model. The fair value of the 2022 Warrant was a non-recurring measurement that is categorized as Level 3 within the fair value hierarchy as it is based on Level 2 and Level 3 inputs. No portion of the 2022 Warrant has been exercised as of September 30, 2024.
The Secured Note had a scheduled maturity date of August 15, 2027 and was repayable upon written demand any time on or after such date. The Company could, at its option, repay the Secured Note in (i) cash or (ii) in the form of common stock of the Company, in a number of shares that is obtained by dividing the total amount of such payment by $21.20 .
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Secured Note Amendment and Exchange
As discussed in Note 10, Convertible Notes, as part of the Restructuring Transactions, the Company and the Schuler Trust amended the Secured Note (the “Secured Note Amendment”), which changed the settlement provisions of the Secured Note. Pursuant to the Secured Note Amendment, the share conversion price was changed from $21.20 to $10.60 , and the Secured Note was contemporaneously settled through the Company’s issuance of approximately 3.4 million shares of its common stock.
The transaction qualified as an extinguishment of debt, and the reacquisition price of the extinguished debt was determined to be the fair value of the common stock issued in the transaction. The closing price of the Company’s common stock on June 9, 2023, the date of the extinguishment, was $7.40 and was used to estimate the fair value of the common stock, which was $25.4 million. The carrying amount of the Secured Note and associated accrued interest being extinguished was determined to be $19.3 million. This resulted in a net loss on extinguishment of $6.1 million, which was recorded to loss on extinguishment of debt with related party in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023.
Conversion of Series A Preferred Stock to Common Stock
In September 2021, the Company entered into a securities purchase agreement with the Tanya Eva Schuler Trust, the Therese Heidi Schuler Trust and Schuler Grandchildren LLC (collectively, the ”Schuler Purchasers”) for the issuance and sale by the Company of an aggregate of approximately 4.0 million shares of the Company’s Series A Preferred Stock, par value 0.001 per share (the “Series A Preferred Shares”) at a purchase price of $7.70 per share for an aggregate purchase price of approximately $30.5 million, which was recorded to contributed capital when it was received in 2022. Each share of Series A Preferred Shares was convertible, at the option of the holder, into one share of the Company’s common stock.
As discussed in Note 10, Convertible Notes, the Schuler Purchasers exercised their right to convert a total of approximately 4.0 million shares of Series A Preferred Shares to approximately 0.4 million shares of the Company’s common stock. All of the Company’s Series A Preferred Shares were converted into common stock as part of the Restructuring Transactions, and no Series A Preferred Shares remained outstanding as of December 31, 2023. During the year ended December 31, 2023, the amounts associated with the Series A Preferred Shares were reclassified to common stock and contributed capital as presented in the condensed consolidated statements of stockholders’ deficit.
Schuler Purchase Obligation
In June 2023, the Company entered into the Schuler Purchase Obligation with the Schuler Trust pursuant to which the Schuler Trust was required, at the Company’s option, to either purchase approximately 1.4 million shares of common stock from the Company valued at $7.20 per share for an aggregate purchase price of $10.0 million or to backstop a public offering by the Company of common stock for aggregate proceeds of $10.0 million. If the Company elected to conduct a public offering of common stock and other investors purchased less than $10.0 million of common stock by December 15, 2023, the Schuler Trust would have the obligation to purchase $10.0 million of shares of common stock, less the amount of common stock purchased by other investors, and would have the right to purchase additional shares of common stock such that the total amount of common stock purchased by the Schuler Trust equaled $10.0 million of shares of common stock. If the Company elected to conduct a public offering of common stock and other investors purchased $10.0 million of shares of common stock by December 15, 2023, the Schuler Trust would have the right, but not the obligation, to purchase up to $10.0 million of shares of common stock at the public offering price for the backstopped offering up to a maximum aggregate purchase by the Schuler Trust of $10.0 million of common stock.
In December 2023, the Company and the Schuler Trust entered into an amendment to the Schuler Purchase Obligation extending the deadline for the investment or public offering backstop through February 15, 2024 and the Schuler Trust agreed to purchase $2.0 million at the public offering price if the aggregate gross proceeds to the Company resulting from the public offering was more than $10.0 million.
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Management determined the Schuler Purchase Obligation met the criteria of a freestanding financial instrument at inception. The Schuler Purchase Obligation was recorded as an asset at fair value to be marked to market at each reporting period. At inception, the value of the Schuler Purchase Obligation was $1.3 million, which was recorded as an offset to loss on extinguishment of debt related-party on the condensed consolidated statements of operations and comprehensive loss.
At December 31, 2023, it was determined that the fair value of the Schuler Purchase Obligation financial instrument was $3.4 million. Changes in the fair value of the Schuler Purchase Obligation are recognized in loss on fair value adjustments within the condensed consolidated statements of operations and comprehensive loss. The recognized gain on fair value adjustment on financial instruments related to the Schuler Purchase Obligation for the year ended December 31, 2023 was $2.1 million.
To determine the fair value of the Schuler Purchase Obligation, the Company used a Cox-Ross-Rubinstein binomial tree model to value the American put option. The table below summarizes the significant inputs used to estimate the fair value of the Schuler Purchase Obligation as of December 31, 2023:
| December 31, 2023 | |||||
| Stock price | $ | ||||
| Exercise price | $ | ||||
| Term (years) | |||||
| Volatility | % | ||||
| Risk-free rate | % | ||||
| Fixed commitment purchase price (in thousands) | $ | ||||
| Number of Shares | |||||
| Obligation probability | % | ||||
The volatility and obligation probability used to quantify the fair value of the Schuler Purchase Obligation are unobservable inputs, and because these are estimates, there are a range of values that could be considered appropriate, which could impact the fair value reported. In determining the obligation probability, the Company assessed the likelihood that the Schuler Purchase Obligation would be utilized to either sell common shares or backstop a public offering. Given the equity market environment as of December 31, 2023 and the significant number of unknowns that would lead to either a successful or unsuccessful conclusion of a public offering, the Company estimated the likelihood of such obligation probability at 75 %. There were significant judgments, assumptions and estimates inherent in the determination of the fair value of the Schuler Purchase Obligation, which included determination of valuation method, selection of inputs, and assessment of possible outcomes.
In January 2024, the Company completed the January 2024 Public Units Offering for $10.2 million of gross proceeds. As a result, the Schuler Trust was not required to backstop the offering in accordance with the Schuler Purchase Obligation. Upon completion of the January 2024 Public Units Offering, the fair value of the Schuler Purchase Obligation financial instrument was eliminated resulting in a loss on fair value adjustment of $3.4 million during the nine months ended September 30, 2024.
Concurrently with the completion of the January 2024 Public Units Offering, Units were sold to the Schuler Trust, the Company’s Chief Executive Officer and Chief Financial Officer in a private placement offering. Additional information regarding the offerings of Units is included in Note 18, Stockholders' Deficit.
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NOTE 12. INCOME (LOSS) PER SHARE
Basic net income (loss) per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding (including shares underlying Pre-Funded Warrants with only nominal cost to exercise) during the period. Basic and diluted net loss per share are the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive due to the Company’s losses.
The following potentially issuable common shares were not included in the computation of diluted earnings (loss) per share because they would have an anti-dilutive effect for each of the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| Shares issuable upon the release of RSUs | ||||||||||||||
| Shares issuable upon exercise of stock options | ||||||||||||||
| Shares issuable upon the exercise of the 2022 Warrant | ||||||||||||||
Shares issuable upon the exercise of the Common Warrants (as defined in Note 18, Stockholders' Deficit) | ||||||||||||||
Potentially dilutive common shares also include the following:
5.00% Notes
As discussed in Note 10, Convertible Notes, each holder of the 5.00 % Notes has the right at their option, to convert any portion of the 5.00 % Notes at the Fixed Conversion Rate of 138.88889 shares of common stock per $1,000 principal amount of the 5.00 % Notes. Holders of the 5.00 % Notes who convert their 5.00 % Notes in connection with a Make-Whole Fundamental Change are, under certain circumstances, entitled to an increase in the conversion rate. The number of shares of common stock issuable upon conversion of the 5.00 % Notes as of September 30, 2024 based on the Fixed Conversion Rate is 9.6 million, convertible at the holders’ option. There were 9.2 million shares of common stock issuable upon conversion of the 5.00 % Notes as of September 30, 2023. These shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for the three and nine months ended September 30, 2024.
NOTE 13. EMPLOYEE EQUITY-BASED COMPENSATION
The following table summarizes option activity under the Company's equity-based compensation plans for the nine months ended September 30, 2024:
| Number of Shares | Weighted Average Exercise Price per Share | |||||||
| Options outstanding January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | |||||||
| Exercised | ||||||||
| Expired | ( | |||||||
| Options outstanding September 30, 2024 | $ | |||||||
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The following table shows summary information for outstanding options and options that are exercisable (vested) as of September 30, 2024:
| Options Outstanding | Options Exercisable | |||||||
| Number of options | ||||||||
| Weighted average remaining contractual term (in years) | ||||||||
| Weighted average exercise price | $ | $ | ||||||
| Weighted average fair value | $ | $ | ||||||
| Aggregate intrinsic value (in thousands) | $ | $ | ||||||
The following table summarizes RSU activity for the nine months ended September 30, 2024:
| Number of Shares | Weighted Average Grant Date Fair Value per Share | |||||||
| Outstanding January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | |||||||
| Released | ( | |||||||
| Outstanding September 30, 2024 | $ | |||||||
The table below summarizes equity-based compensation expense for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Cost of sales | $ | $ | $ | $ | |||||||||||||
| Research and development | |||||||||||||||||
| Sales, general and administrative | |||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||
The table below summarizes share-based compensation cost capitalized to inventory for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
Cost capitalized to inventory | $ | $ | $ | $ | |||||||||||||
As of September 30, 2024, unrecognized equity-based compensation expense related to unvested stock options and unvested RSUs was $0.1 million and $4.5 million, respectively. This is expected to be recognized over the years 2024 through 2028.
Included in the above-noted RSU outstanding amount are performance-based RSUs which vest only upon the achievement of certain targets. Performance-based RSUs contingently vest over a period of 19 months and have contractual lives of 10 years. These units were valued in the same manner as other RSUs, based on the published closing market price on the day before the grant date. However, the Company only recognizes stock compensation expense to the extent that the targets are determined to be probable of being achieved, which triggers the vesting of the performance options.
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For the nine months ended September 30, 2024, the Company granted 1.3 million performance-based RSUs and no performance-based RSUs were released due to the performance obligations being achieved. As of September 30, 2024, 1.3 million performance-based RSU's were outstanding. None of these performance-based RSU have been forfeited due to performance obligations not being achieved, while 60,000 performance-based RSUs were forfeited.
NOTE 14. INCOME TAXES
For the nine months ended September 30, 2024, the Company recorded no tax expense related to its foreign operations. The Company’s tax expense for the nine months ended September 30, 2024 differs from the tax expense computed by applying the U.S. statutory tax rate to its year-to-date pre-tax loss of $40.5 million, as no tax benefits were recorded for current year tax losses generated in the U.S. and other foreign jurisdictions. At September 30, 2024, the Company had deferred tax assets primarily related to U.S. Federal and state tax loss carryforwards and a deferred tax liability related to the Company’s convertible notes. The Company provided a valuation allowance against its net deferred tax assets as future realization of such assets is not more likely than not to occur.
For the three months ended September 30, 2024, the Company recorded no tax expense related to an uncertain tax position in a foreign jurisdiction. The Company recorded no U.S. Federal and state income taxes as it generated tax losses for the nine months ended September 30, 2024 for which a tax benefit is not recorded.
The Company’s policy is to record interest and penalties associated with reserves for uncertain tax positions as a component of income tax expense. As of September 30, 2024, the Company has not recorded interest or penalties associated with its uncertain tax positions. As of September 30, 2024, the Company has unrecognized tax benefits of $8.8 million. If recognized, $0.6 million of unrecognized tax benefits would impact the Company’s effective tax rate. The Company does not anticipate that its reserve for uncertain tax positions will change significantly within the next 12 months. The Company’s U.S. Federal and state tax returns are generally open to examination for all periods due to its net operating losses. The Company’s foreign tax returns are generally open to examination for a period of four years following the date such tax returns were filed. The Company is not currently under examination by any tax authority.
The following represents the total amount of unrecognized tax benefits as of September 30, 2024 (in thousands):
| Balance as of December 31, 2023 | $ | ||||
| Increases for nine months ended September 30, 2024 | |||||
| Balance as of September 30, 2024 | $ | ||||
Australia R&D Tax Incentive
The Australian government offers the Australia R&D Tax Incentive to help companies conducting eligible research and development (“R&D”) activities in Australia in the form of refundable tax credit if certain conditions are met. Management assesses the Company’s R&D activities and expenditures to determine which activities and expenditures are likely to be eligible under the tax incentive regime. Annually, management estimates the refundable tax credit available to the Company based on available information and submits an application to the Australian tax authority for R&D credit approval. The Company recognizes the refundable R&D tax credit when there is reasonable assurance that the terms have been met, income will be received, the relevant expenditure has been incurred and the consideration can be reliably measured. The refundable R&D tax credit is recorded as a reduction to research and development expense in the condensed consolidated statements of operations and comprehensive loss when the aforementioned criteria are met. In July 2023, the Company received a $1.1 million refundable R&D tax credit for its R&D activities conducted in 2022, and in July 2024, the Company received a $1.2 million refundable R&D tax credit for its R&D activities conducted in 2023. The Company provided for a full reserve against the refundable R&D tax credits as sustainability of the credits upon potential examination by the Australian
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tax authority is uncertain. The Company does not currently believe it is probable that any penalties or interest would be assessed to the extent that the credit is not sustained.
NOTE 15. COMMITMENTS
In April 2022, the Company entered into a non-cancellable purchase obligation with a supplier to acquire raw materials related to the development and commercialization of its next generation Accelerate WAVE™ system for a total commitment of $11.9 million. Under the terms of this agreement the Company has until March 15, 2027 to take delivery of purchased items.
As of September 30, 2024, the commitment remains $11.9 million as the Company has taken no deliveries of the related inventory.
NOTE 16. LEASES
The following presents supplemental information related to leases in which the Company is the lessee for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
Cash paid for amounts included in lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | |||||||||||||
| Financing cash flows from finance leases | |||||||||||||||||
| ROU assets obtained in exchange for lease obligations: | |||||||||||||||||
| Operating leases | |||||||||||||||||
| Finance leases | |||||||||||||||||
Lease Cost: | |||||||||||||||||
| Operating leases | |||||||||||||||||
Finance leases | |||||||||||||||||
| Short-term leases | |||||||||||||||||
For the Company’s operating leases, the weighted average remaining lease term is 0.8 years with a weighted average discount rate of 7.1 % as of September 30, 2024. For the Company’s finance leases, the weighted average remaining lease term is 1.0 years with a weighted average discount rate of 6.2 % as of September 30, 2024.
The following presents maturities of lease liabilities in which the Company is the lessee as of September 30, 2024 (in thousands):
Operating | Finance | |||||||
Remainder of 2024 | $ | $ | ||||||
2025 | ||||||||
2026 | ||||||||
2027 | ||||||||
2028 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less imputed interest | ( | ( | ||||||
Total lease liabilities, net | $ | $ | ||||||
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The net investment in sales-type leases, where the Company is the lessor, is a component of other current assets and other non-current assets in the condensed consolidated balance sheets. As of September 30, 2024, the total net investment in these leases was $1.5 million. Lease income is a component of net sales in the condensed consolidated statements of operations and comprehensive loss. The following presents maturities of lease receivables under sales-type leases as of September 30, 2024 (in thousands):
| Sales-Type | |||||
Remainder of 2024 | $ | ||||
2025 | |||||
2026 | |||||
2027 | |||||
2028 | |||||
| Thereafter | |||||
Net investment in sales-type leases | |||||
| Allowances | ( | ||||
Net investment in sales-type leases, net of allowances | $ | ||||
For more information on leases, see Note 1, Organization and Nature of Business; Basis of Presentation; Principles of Consolidation; Significant Accounting Policies.
NOTE 17. GEOGRAPHIC AND REVENUE DISAGGREGATION
The Company operates as one operating segment. Sales to customers outside the U.S. represented 9 % and 12 % of net sales for the three months ended September 30, 2024 and 2023, respectively, and 11 % and 12 % for the nine months ended September 30, 2024 and 2023, respectively.
As of September 30, 2024 and December 31, 2023, accounts receivable balances due from foreign customers, in U.S. dollars, were $0.6 million and $0.9 million, respectively.
The following presents total net sales by geographic territory for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| Domestic | $ | $ | $ | $ | ||||||||||
| Foreign | ||||||||||||||
Net sales | $ | $ | $ | $ | ||||||||||
The following presents total net sales by products and services for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||
| Products | $ | $ | $ | $ | ||||||||||
| Services | ||||||||||||||
Net sales | $ | $ | $ | $ | ||||||||||
Lease income included in net sales in the condensed consolidated statements of operations and comprehensive income was $0.1 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively, and $0.7 million and $1.3 million for the nine months ended September 30, 2024 and 2023, respectively, and was recorded in accordance with ASC 842. This income does not represent revenue recognized from contracts with customers in accordance with ASC 606.
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The following presents long-lived assets, net by geographic territory as of September 30, 2024 and December 31, 2023 (in thousands):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Domestic | $ | $ | ||||||
| Foreign | ||||||||
Net long-lived assets | $ | $ | ||||||
NOTE 18. STOCKHOLDERS' DEFICIT
The Company has entered into a number of securities purchase and exchange agreements with affiliated and external parties throughout its history, and has provided equity-based compensation to its employees, officers, directors and affiliated parties. See Note 10, Convertible Notes, Note 11, Related-Party Transactions and Note 13, Employee Equity-Based Compensation for further discussion of transactions impacting the Company’s stockholders’ deficit.
January 2024 Units Offering
In January 2024, the Company completed the January 2024 Public Units Offering consisting of 6.8 million units (the “Units”), each consisting of one share of common stock and one warrant to purchase one share of common stock (each, a “Common Warrant”), and for certain investors in lieu thereof, pre-funded Units (the “Pre-Funded Units”), each consisting of one pre-funded warrant to purchase one share of common stock (each, a “Pre-funded Warrant”), and one Common Warrant to purchase one share of common stock. The public offering price for each Unit was $1.50 and the public offering price for each Pre-Funded Unit was $1.49 .
The Company granted the underwriters for the January 2024 Public Units Offering a 30-day option to purchase up to an additional 1.0 million shares of common stock and/or additional Common Warrants to purchase up to 1.0 million shares of common stock, in any combination thereof, at the public offering price, less underwriting discounts and commissions. The underwriters elected to purchase an additional 36,003 Common Warrants from the Company under this option.
Common Warrants issued to investors in the January 2024 Public Units Offering have an exercise price of $1.65 per share, were immediately exercisable upon issuance and will remain exercisable until the date that is five years after their original issuance. The Pre-Funded Warrants have an exercise price of $0.01 per share, are immediately exercisable and will remain exercisable until exercised in full. The gross proceeds from the January 2024 Public Units Offering, before deducting underwriting discounts and commissions and other public offering expenses payable by the Company were approximately $10.2 million (excluding any proceeds that may be received upon the exercise of the Common Warrants or the Pre-Funded Warrants).
Concurrently with the completion of the January 2024 Public Units Offering, the Company sold 1.2 million Units at a purchase price of $1.73 per Unit to the Schuler Trust, which satisfied the Schuler Purchase Obligation and an aggregate of 33,332 1.50 2.0 million (excluding any proceeds that may be received upon the exercise of the Common Warrants).
Pursuant to the subscription agreement entered into between the Schuler Trust and the Company in connection with the private placement offering of Units, the Schuler Trust also agreed to purchase an additional 1.6 million Units at a purchase price of $1.73 per Unit on or before May 20, 2024 (the “Forward Contract”). On May 20, 2024, the Company completed the sale of such additional Units to the Schuler Trust for gross proceeds of approximately $2.7 million (before deducting underwriting discounts and commissions and other expenses payable by the Company and excluding any proceeds that may be received upon the exercise of the Common Warrants).
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Aggregate net proceeds from the January 2024 Public Units Offering and private placement offering of Units (including the additional Units purchased by the Schuler Trust in May 2024) for the nine months ended September 30, 2024 were approximately $13.7 million.
The Company evaluated the Pre-Funded Warrants to determine whether they are equity-classified or liability-classified instruments. The Company concluded that the Pre-Funded Warrants are indexed to the Company’s own stock and meet all other criteria for equity classification. Therefore, the Pre-Funded Warrants were recorded in contributed capital on the condensed consolidated statements of stockholders’ deficit.
The Company also evaluated the Common Warrants and Forward Contract to determine whether they are equity-classified or liability-classified instruments. The Company concluded that the Common Warrants and Forward Contract are not indexed to the Company’s own stock and are therefore liability-classified. The Company further determined the Common Warrants and Forward Contract meet the definition of a derivative instrument and do not qualify for any scope exceptions to derivative accounting. Therefore, the Common Warrants and Forward Contract were initially recorded at fair value and are subsequently remeasured at fair value as of each reporting date.
Proceeds from the January 2024 Public Units Offering were first allocated to the liability-classified instruments based on their fair value with the residual proceeds allocated to the equity-classified instruments based on their relative fair values. Transaction expenses were allocated among the equity-classified and liability-classified instruments. Those transaction expenses allocated to the equity-classified instruments were recorded as an offset to the proceeds in contributed capital on the condensed consolidated statements of stockholders’ deficit. Those transaction expenses allocated to the liability-classified instruments were recorded to other expense on the condensed consolidated statement of operations and comprehensive loss.
Fair Value of the Common Warrants
The Common Warrants had a fair value of $5.0 million (liability) upon issuance in January 2024, and were subsequently measured at fair value using Level 3 inputs. The estimated fair value of the Common Warrant liability as of September 30, 2024 was $8.0 million. An adjustment of $3.2 million and $3.0 million to the fair value of the Common Warrants was recorded in loss on fair value adjustments on the unaudited condensed consolidated statements of operation and comprehensive loss for the three and nine months ended September 30, 2024, respectively.
The table below summarizes the significant inputs used to estimate the fair value of the Common Warrant liability as of September 30, 2024 and January 23, 2024:
| September 30, 2024 | January 23, 2024 | |||||||
| Exercise price | $ | $ | ||||||
| Term (years) | ||||||||
| Volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
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NOTE 19. SUBSEQUENT EVENTS
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introductory Note
Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to the “Company,” “Accelerate,” “we,” “us” or “our” are references to the combined business of Accelerate Diagnostics, Inc. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) summarizes the significant factors affecting our results of operations, liquidity, capital resources and contractual obligations. The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes included elsewhere herein.
All amounts in the MD&A have been rounded to the nearest thousand unless otherwise indicated.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements, which can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or “continue,” or variations thereon or comparable terminology, include but are not limited to, statements about our future development plans and growth strategy, including plans and objectives relating to our future operations, products, including the Accelerate WAVE™ system, and performance; projections as to when certain key business milestones may be achieved; expectations regarding the potential or benefits of our existing and future products and technologies; projections of future demand for our products; the growth of the market in which we operate; our estimates as to the size of our market opportunity and potential pricing; our competitive position and estimates of time reduction to results; our continued investment in new product development to both enhance our existing products and bring new ones to market; our expectations regarding research and development expenditures; our expectations relating to current supply chain impacts and inflationary pressures, including our belief that we currently have sufficient inventory of Accelerate Pheno® system instruments to limit the impact of cost increases on such devices; our expectations regarding our commercial partnership with Becton Dickinson and Company (“BD”), including anticipated benefits from such collaboration; our expectations and plans relating to regulatory approvals, including with respect to the U.S. Food and Drug Administration (“FDA”); our plans to continue marketing and distributing the Accelerate Arc Products in Europe pursuant to our existing CE In Vitro Diagnostic Regulation (IVDR) registration; and our liquidity and capital requirements, including, without limitation, as to our ability to continue as a going concern, our belief the we have funding to allow us to progress our development and operational goals discussed in this Form 10-Q, our belief that we currently do not have adequate financial resources to fund our forecasted operating costs for at least twelve months from the filing of this Form 10-Q and our belief that it will be necessary for us to secure additional funds to continue our existing business operations and to fund our obligations. In addition, all statements other than statements of historical facts that address activities, events, or developments we expect, believe, or anticipate will or may occur in the future, and other such matters, are forward-looking statements.
Future events and actual results could differ materially from those set forth in, contemplated or suggested by, or underlying the forward-looking statements. There can be no assurances that results described in forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements. The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties, including, among other things, volatility throughout the global economy and the related impacts to the businesses of our suppliers and customers, such as customer demand fluctuations, supply chain constraints and inflationary pressures, as well as difficulties in resolving our continuing financial condition and ability to obtain additional capital to meet our financial obligations, including, without limitation, difficulties in obtaining adequate capital resources to fund our operations. Other important factors that could cause our actual results to differ materially from those in our forward-looking statements include those discussed herein, and in other reports filed with the U.S. Securities and Exchange Commission (the “SEC”) including but not limited to the risks in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 10-K”), the section entitled “Risk Factors” in this Form 10-Q and in our subsequent filings with the SEC. These forward-looking statements are also based on certain additional assumptions, including, but not limited to,
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that we will retain key management personnel; we will be successful in the commercialization of our products; we will obtain sufficient capital to commercialize our products and continue development of complementary products; we will be successful in obtaining marketing authorization for our products from the FDA and other regulatory agencies and governing bodies; we will be able to protect our intellectual property; our ability to respond effectively to technological change; our ability to accurately anticipate market demand for our products; and that there will be no material adverse change in our operations or business and general market and industry conditions. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.
Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized. Any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
Accelerate is an in vitro diagnostics company dedicated to providing solutions that improve patient outcomes and lower healthcare costs through the rapid diagnosis of serious infections. Microbiology laboratories need new tools to address what the U.S. Centers for Disease Control and Prevention (the “CDC”) calls one of the most serious healthcare threats of our time, antibiotic resistance. A significant contributing factor to the rise of resistance is the overuse and misuse of antibiotics, which is exacerbated by a lack of timely diagnostic results. The delay of identification and antibiotic susceptibility results is often due to the reliance by microbiology laboratories on traditional culture-based tests that often take two to three days to complete. Our technology platform is intended to address these challenges by delivering significantly faster testing of infectious pathogens in various patient sample types.
Accelerate Pheno
Our first system to address these challenges is the Accelerate Pheno® system. The Accelerate PhenoTest® BC Kit, which is the first test kit for the system, is indicated as an aid, in conjunction with other clinical and laboratory findings, in the diagnosis of bacteremia and fungemia, both life-threatening conditions with high morbidity and mortality risk. The device provides identification (“ID”) results followed by antibiotic susceptibility testing (“AST”) for certain pathogenic bacteria commonly associated with or causing bacteremia. This test kit uses genotypic technology to identify infectious pathogens and phenotypic technology to conduct AST, which determines whether live bacterial cells are resistant or susceptible to a particular antimicrobial. This information can be used by physicians to rapidly modify antibiotic therapy to lessen adverse events, improve clinical outcomes and help preserve the useful life of antibiotics.
In June 2015, we declared our conformity to the European In Vitro Diagnostic Directive 98/79/EC and applied a CE mark to the Accelerate Pheno system and the Accelerate PhenoTest BC Kit for in vitro diagnostic use. On February 23, 2017, the FDA granted our de novo classification request to market the first version of our Accelerate Pheno system and Accelerate PhenoTest BC Kit.
In 2017, we began selling the Accelerate Pheno system in hospitals in the United States, Europe and the Middle East. Consistent with our “razor” / “razor-blade” business model, revenues to date have principally been generated from the sale or leasing of the instruments, and the sale of single use consumable test kits.
In August 2022, we entered into a sales and marketing agreement (the “Sales and Marketing Agreement”) with BD. We entered into the Sales and Marketing Agreement in order to leverage BD’s expansive global sales team, benefit from natural synergies between BD’s existing products and our products, and reduce our sales and marketing expenses.
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Accelerate Arc
In 2022, we announced the launch and commercialization of the Accelerate Arc™ system and BC Kit (“Accelerate Arc Products”). This instrument and associated one-time-use test kit automates the clean-up and concentration of microbial cells from positive blood culture samples. In May 2022, we announced IVDR registration of the Accelerate Arc Products, and in June 2022 we received CE IVDR registration for use in Europe.
In September 2024, we received FDA approval for our Accelerate Arc Products in the United States as a 510(k) IVD Class II Device.
A technology receiving wide attention is mass spectrometry, and particularly the matrix-assisted laser desorption ionization time of flight version (“MALDI-TOF”). These systems build an empiric database from protein spectra acquired from many thousands of purified bacterial and fungal strains. They require a pure strain isolate for analysis and enrichment culturing to produce enough material to analyze.
MALDI-TOF systems have a major advantage over other methods in identifying a very broad range of organisms. Cost of ownership is also substantially below that of older molecular methods, although the requirement for extensive organism enrichment and purification, as well as the inability to quantify live organisms or distinguish samples derived from viable organisms, substantially limits this technology from time-critical decision support. Also, as with the older molecular methods, MALDI-TOF systems cannot identify major drug resistance expression and face the same fundamental biological barriers as gene detection.
In November 2023, we announced a collaboration and quality agreement with Bruker Corporation (“Bruker”), the provider of the MALDI Biotyper MALDI-TOF system for microbial identification, which has agreements with a number of companies for distribution, including BD, Danaher Corporation’s subsidiary Beckman Coulter, Thermo Fisher Scientific’s subsidiary TREK Diagnostics Systems, Inc. (“TREK”) and Siemens. This agreement allows us to partner with Bruker to validate the use of our Accelerate Arc system with Bruker’s MALDI Biotyper system for subsequent registration in both the U.S. and Europe, Middle East and Africa (“EMEA”) markets.
We continue to invest in product development to enhance our existing products. Our current research and development areas of focus include the potential addition, if authorized by the FDA, of new AST content for our Accelerate Pheno system and of additional applications for our Accelerate Arc Products.
Accelerate WAVE
The Accelerate WAVETM system, currently in clinical trials, performs AST directly from positive blood culture (“PBC”) bottles and bacterial isolate colonies (“Isolates”) to report minimum inhibitory concentrations (“MICs”) with a goal of delivering results within 4.5 hours, on average. The fully automated system is based on the principle of digital holographic microscopy, which allows for simultaneous volumetric imaging of a sample suspension at a high spatial resolution, enabling direct observation of phenotypic responses of individual bacterial cells in relatively short time periods versus more traditional AST methods. The Accelerate WAVE system uses a time series of holograms to provide microbial quantitation under antimicrobial stress, enabling rapid determination of minimum inhibitory concentration. Additionally, Accelerate WAVE holograms provide morphological information at the level of individual cells. For some bug-drug combinations, morphology is a leading indicator of future MIC.
A key differentiator of the Accelerate WAVE system to current on-market and emerging AST competitors is the system’s ability to process PBC as well as Isolates for AST diagnostic results. Our initial launch of menu items is expected to include a PBC assay that can be run on the Accelerate WAVE system. This is expected to be followed by development of an Isolate assay. We believe our ability to process Isolates with the Accelerate WAVE system expands our addressable market today with our Accelerate Pheno system and Accelerate Arc Products with PBC samples to include a much larger sample volumes segment, Isolates, within the microbiology testing market. Based on our on-market experience with our Accelerate Pheno system, we anticipate seeing significant workflow benefits to microbiology labs by offering consolidated PBC and Isolate susceptibility testing on a single, rapid, AST diagnostic. Further, recent voice-of-customer interviews highlight the value that Accelerate WAVE brings to the global marketplace with a high percentage of interviewed customers expressing interest in evaluating the Accelerate Wave system once available. The Accelerate WAVE system AST modules will be able to test five PBC assays or ten Isolated Colony assays per module and can scale to have five modules per system, which we believe will address the vast majority of microbiology lab volumes and workflows. Additionally, the cost to produce Accelerate WAVE assays is expected to be significantly lower than our standard costing for the Accelerate PhenoTest BC Kit, which
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could improve the Company’s margin profile as we seek FDA regulatory clearance for the Accelerate WAVE system and assays.
While we will continue to seek out ways to improve upon the utility of our existing products, the primary focus of our current research and development efforts is our next generation AST platform, Accelerate WAVE, which is being developed with the goal to have lower cost, higher throughput, and the capability to test a broader set of sample types when compared to our Accelerate Pheno system.
Changes in Results of Operations: Three and nine months ended September 30, 2024 compared to three and nine months ended September 30, 2023
The Company has provided enhanced information in a tabular format which presents some of the captions presented on the condensed consolidated statements of operations and comprehensive loss less non-cash equity-based compensation expense. These figures are reconciled to the condensed consolidated statements of operations and comprehensive loss and are intended to add additional clarity on the operating performance of the business. The Company believes providing such figures without the impact of the current period non-cash equity-based compensation expense provides helpful information for investors in understanding and evaluating our operating results in the same manner as our management and our Board of Directors.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 2,975 | $ | 3,299 | $ | (324) | (10) | % | $ | 8,882 | $ | 9,032 | $ | (150) | (2) | % | |||||||||||||
For the three and nine months ended September 30, 2024, net sales decreased primarily as a result of lower sales of Accelerate PhenoTest instruments compared to the three and nine months ended September 30, 2023.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||||
| Cost of sales | $ | 2,119 | $ | 3,192 | $ | (1,073) | (34) | % | $ | 6,627 | $ | 7,115 | $ | (488) | (7) | % | |||||||||||||
Inventory write-down | — | 1,184 | $ | (1,184) | (100) | % | — | 1,184 | $ | (1,184) | (100) | % | |||||||||||||||||
Non-cash equity-based compensation as a component of cost of sales | 10 | 58 | (48) | (83) | % | 102 | 247 | (145) | (59) | % | |||||||||||||||||||
Cost of sales less non-cash equity-based compensation and inventory write-down | $ | 2,109 | $ | 1,950 | $ | 159 | 8 | % | $ | 6,525 | $ | 5,684 | $ | 841 | 15 | % | |||||||||||||
For the three and nine months ended September 30, 2024, cost of sales decreased as compared to the three and nine months ended September 30, 2023 primarily as a result of an inventory write-down recorded in the prior year related to excess quantities of instrument inventory on hand above and beyond our forecast of future demand for those products.
Cost of sales included non-cash equity-based compensation of $0.01 million and $0.1 million for the three and nine months ended September 30, 2024, respectively, and $0.1 million and $0.2 million for the three and nine months ended September 30, 2023, respectively. Non-cash equity-based compensation expense decreased for the three and nine months ended September 30, 2024 when compared to same periods in 2023, due to a decrease in the number and the estimated fair value of awards being granted. Non-cash equity-based compensation expense is a component of manufacturing overhead and service cost of sales. Manufacturing overhead is capitalized as inventory and relieved to cost of sales when products are sold to customers, or when instruments under reagent rentals are amortized to cost of sales.
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||||
| Gross profit | $ | 856 | $ | 107 | $ | 749 | 700 | % | $ | 2,255 | $ | 1,917 | $ | 338 | 18 | % | |||||||||||||
Non-cash equity-based compensation as a component of gross profit | 10 | 58 | (48) | (83) | % | 102 | 247 | (145) | (59) | % | |||||||||||||||||||
Gross profit less non-cash equity-based compensation | $ | 866 | $ | 165 | $ | 701 | 425 | % | $ | 2,357 | $ | 2,164 | $ | 193 | 9 | % | |||||||||||||
Gross profit for the three and nine months ended September 30, 2024 increased compared to the three and nine months ended September 30, 2023. Overall gross margin was 29% and 3% for the three months ended September 30, 2024 and 2023, respectively, and 25% and 21% for the nine months ended September 30, 2024 and 2023, respectively. The primary driver of the changes in gross margin and gross profit was an inventory write-down recorded in the prior year as discussed above.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||||
| Research and development | $ | 3,838 | $ | 6,996 | $ | (3,158) | (45) | % | $ | 12,914 | $ | 19,783 | $ | (6,869) | (35) | % | |||||||||||||
Non-cash equity-based compensation as a component of research and development | 182 | 269 | (87) | (32) | % | 725 | 1,130 | (405) | (36) | % | |||||||||||||||||||
Research and development less non-cash equity-based compensation | $ | 3,656 | $ | 6,727 | $ | (3,071) | (46) | % | $ | 12,189 | $ | 18,653 | $ | (6,464) | (35) | % | |||||||||||||
Research and development expenses for the three and nine months ended September 30, 2024 decreased as compared to the three and nine months ended September 30, 2023, primarily due to decreases in third party costs for the development of our Accelerate WAVE system during the current year periods.
Research and development expenses includes non-cash equity-based compensation of $0.2 million and $0.3 million for the three months ended September 30, 2024 and 2023, respectively, and $0.7 million and $1.1 million for the nine months ended September 30, 2024 and 2023, respectively. Non-cash equity-based compensation expense decreased for the three and nine months ended September 30, 2024 when compared to same periods in 2023, due to a decrease in the number and the estimated fair value of awards being granted.
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||||
| Sales, general and administrative | $ | 5,636 | $ | 7,761 | $ | (2,125) | (27) | % | $ | 16,719 | $ | 25,432 | $ | (8,713) | (34) | % | |||||||||||||
Non-cash equity-based compensation as a component of sales, general and administrative | 963 | 1,488 | (525) | (35) | % | 2,591 | 2,646 | (55) | (2) | % | |||||||||||||||||||
Sales, general and administrative less non-cash equity-based compensation | $ | 4,673 | $ | 6,273 | $ | (1,600) | (26) | % | $ | 14,128 | $ | 22,786 | $ | (8,658) | (38) | % | |||||||||||||
Sales, general and administrative expenses for the three and nine months ended September 30, 2024 decreased as compared to the three and nine months ended September 30, 2023, due to lower legal and professional services fees and a decrease in employee-related expenses. Legal and professional services fees were higher for the three and nine months ended September 30, 2023 as a result of such fees incurred in connection with the Restructuring Transactions (as defined in Item 1, Note 10, Convertible Notes) during the prior year periods.
Sales, general and administrative expenses includes non-cash equity-based compensation of $1.0 million and $1.5 million for the three months ended September 30, 2024 and 2023, respectively, and $2.6 million for each of the nine months ended September 30, 2024 and 2023. Non-cash equity-based compensation expense decreased for the three and nine months ended September 30, 2024 when compared to same periods in 2023, due to a decrease in the estimated fair value of awards being granted.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||||
| Loss from operations | $ | (8,618) | $ | (14,650) | $ | 6,032 | (41) | % | $ | (27,378) | $ | (43,298) | $ | 15,920 | (37) | % | |||||||||||||
| Inventory write-down | — | 1,184 | $ | (1,184) | (100) | % | — | 1,184 | $ | (1,184) | (100) | % | |||||||||||||||||
Non-cash equity-based compensation as a component of loss from operations | 1,155 | 1,815 | (660) | (36) | % | 3,418 | 4,023 | (605) | (15) | % | |||||||||||||||||||
Loss from operations less non-cash equity-based compensation and inventory write-down | $ | (7,463) | $ | (11,651) | $ | 4,188 | (36) | % | $ | (23,960) | $ | (38,091) | $ | 14,131 | (37) | % | |||||||||||||
For the three and nine months ended September 30, 2024, loss from operations decreased as compared to the three and nine months ended September 30, 2023. These decreases were primarily driven by increases in gross profit and decreases in sales, general and administrative expenses and research and development expenses compared to the prior year periods.
This loss and further losses are anticipated and are the result of our continued investments in key research and development program costs, and commercialization of the Company’s products.
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||||
| Total other income (expense), net | $ | (6,021) | $ | 15,691 | $ | (21,712) | (138) | % | $ | (13,078) | $ | (5,036) | $ | (8,042) | 160 | % | |||||||||||||
For the three and nine months ended September 30, 2024, the Company reported a increase in other income (expense), net compared to the three and nine months ended September 30, 2023. This increase was primarily due to the third quarter 2023 fair-value adjustment of the derivative liability related to our convertible notes, which resulted in a gain of $18.1 million.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||||
| Provision for income taxes | $ | — | $ | (131) | $ | 131 | (100) | % | $ | — | $ | (286) | $ | 286 | (100) | % | |||||||||||||
For the three and nine ended September 30, 2023, the Company recorded a provision for income taxes as the Company reversed a receivable associated with an income tax refund recorded in a prior period.
Capital Resources and Liquidity
Since inception, the Company has not achieved profitable operations or positive cash flows from operations. The Company’s accumulated deficit totaled $709.3 million as of September 30, 2024. During the nine months ended September 30, 2024, the Company had a net loss of $40.5 million and negative cash flows from operations of $19.1 million. The Company had working capital of $9.2 million as of September 30, 2024.
In March 2023, the Company entered into a forbearance agreement (the “Forbearance Agreement”) with the holders of approximately 85% of the Company’s outstanding 2.50% convertible senior notes (the “2.50% Notes”) (collectively, the “Ad Hoc Noteholder Group”) and the trustee for the 2.50% Notes (the “Trustee”). Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the indenture governing the 2.50% Notes (the “2.50% Notes Indenture”) in connection with certain events of default under the 2.50% Notes Indenture, including, but not limited to, the failure to timely pay in full the principal and any interest related to the 2.50% Notes that was due and payable on March 15, 2023. In April 2023, the Company entered into a restructuring support agreement (the “Restructuring Support Agreement”) with certain holders of the 2.50% Notes, the holder of a secured promissory note with the Jack W. Schuler Living Trust (the “Schuler Trust”) (the “Secured Note”) and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure (the “Restructuring Transactions”). In June 2023, the Company completed the Restructuring Transactions contemplated by the Restructuring Support Agreement. Further details of the Forbearance Agreement and Restructuring Transactions are included in Item 1, Note 10, Convertible Notes.
In January 2024, the Company completed an underwritten public offering (the “January 2024 Public Units Offering”) of Units and Pre-Funded Units (each, as defined below). Concurrently with the completion of the January 2024 Public Units Offering, the Company sold Units to the Schuler Trust and to the Company’s Chief Executive Officer and Chief Financial Officer in a private placement offering. Aggregate net proceeds after transaction expenses were $11.0 million. In connection with the January 2024 Public Units Offering, the Schuler Trust agreed to and subsequently purchased additional Units in May 2024 for net proceeds of $2.7 million. Further information and a description of the Units and the Pre-Funded Units are included in Item 1, Note 18, Stockholders' Deficit.
In August 2024, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) , with certain investors named therein pursuant to which the Company issued $15.0. million aggregate principal amount of the Company’s 16.00% Super-Priority Senior Secured PIK Notes due 2025 (the “16.00% Notes”). Further information and a description of the 16.00% Notes are included below and in Note 9, Long Term Debt.
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As of September 30, 2024, the Company had $20.9 million in cash and cash equivalents and investments, an increase of $7.7 million from $13.2 million at December 31, 2023. The primary reason for the increase was due to proceeds from the sale and issuance of Units and Pre-Funded Units and proceeds from the issuance of 16.00% Notes during the nine months ended September 30, 2024, partially offset by cash used in operations. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations.
The Company’s primary use of capital has been for the development and commercialization of the Accelerate Pheno® system, development of complementary products and development of its next generation technology, the Accelerate WAVE™ system. The Company is subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching the Company’s products, development and market acceptance of the Company’s product candidates, development by its competitors of new technological innovations, protection of proprietary technology and raising additional capital.
Historically, the Company has funded its operations primarily through multiple equity raises and the issuance of debt. While the Company believes it has funding to allow it to progress its development and operational goals discussed in this Form 10-Q, it is not expected to be sufficient to fund the Company’s operations through twelve months from the filing date of this Form 10-Q. See Note 9, Long Term Debt, Note 10, Convertible Notes, Note 11, Related-Party Transactions and Note 18, Stockholders' Deficit for additional detail.
Management currently believes that it will be necessary for the Company to secure additional funds to continue its existing business and to fund its obligations. While the Company continues to explore additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, there can be no assurance the necessary financing will be available on terms acceptable to the Company, or at all. If the Company raises funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of common stock. If the Company raises funds by issuing additional debt, it is likely any new debt would have rights, preferences and privileges senior to common stockholders. The terms of borrowing could impose significant restrictions on the Company’s operations. The capital markets have in the past, and may in the future, experience periods of upheaval that could impact the availability and cost of equity and debt financing. In addition, changes in federal fund rates set by the Federal Reserve, such as the significant increases experienced throughout 2022 and 2023, which serve as benchmark rates on borrowing, and other general economic conditions have impacted, and in the future may impact, the cost of debt financing or refinancing existing debt.
In September 2024, the Company announced that it has retained Perella Weinberg Partners to assist with the review of strategic alternatives. Although the Company is actively considering all available strategic alternatives to maximize value, if the Company is unable to obtain adequate capital resources to fund operations, the Company would not be able to continue to operate its business pursuant to its current plans. This may require the Company to, among other things, materially modify its operations to reduce spending; sell assets or operations; delay the implementation of, or revise certain aspects of, its business strategy; or discontinue its operations entirely.
The Company is required to evaluate its financial condition as of the filing date of this Form 10-Q pursuant to the requirements of Accounting Standards Codification (“ASC”) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
Based on its evaluation pursuant to ASC 205-40, the Company has determined that, as of the filing date of this Form 10-Q, there is substantial doubt about its ability to continue as a going concern, as the Company does not
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currently have adequate financial resources to fund its forecasted operating costs for at least twelve months from the filing date of this Form 10-Q.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
For additional information, see “Risk Factors—Risks Related to Our Financial Condition, Liquidity and Indebtedness” in Part I, Item 1A of the 2023 10-K.
Contractual Obligations
As of September 30, 2024, our contractual material cash requirements were as follows:
| Payments due by Period (in thousands) | |||||||||||||||||||||||
| Contractual Material Cash Requirements | Total | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | ||||||||||||||||
| Operating lease obligations | $ | 833 | $ | 250 | $ | 583 | $ | — | $ | — | $ | — | $ | — | |||||||||
Purchase obligation 1) | 11,858 | — | — | — | 11,858 | — | — | ||||||||||||||||
| Finance lease obligations | 187 | 71 | 86 | 30 | — | — | — | ||||||||||||||||
| Deferred compensation | 1,221 | — | 444 | 476 | 301 | — | — | ||||||||||||||||
5.00% Notes 2) | 69,243 | — | — | 69,243 | — | — | — | ||||||||||||||||
5.00% Notes interest 3) | 9,099 | — | — | 9,099 | — | — | — | ||||||||||||||||
16.00% Notes 4) | 14,995 | — | 14,995 | — | — | — | — | ||||||||||||||||
16.00% Notes interest 5) | 11,635 | — | 11,635 | — | — | — | — | ||||||||||||||||
| Total | $ | 119,071 | $ | 321 | $ | 27,743 | $ | 78,848 | $ | 12,159 | $ | — | $ | — | |||||||||
1) The Company entered into a non-cancellable purchase obligation with a supplier to acquire raw materials and has until March 15, 2027 to take delivery of purchased items. Further details are included in Item 1, Note 15, Commitments
2) The amount shown here represents the outstanding principal at par of the Company’s 5.00% Convertible Senior Notes due 2026 issued in June 2023 (the “5.00% Notes”), including subsequently issued 5.00% PIK Notes (as defined below).
3) The 5.00% Notes bear interest at a rate of 5.00% per annum. The Company will pay interest on the 5.00% Notes by payment-in-kind, through the issuance of additional 5.00% Notes (“5.00% PIK Notes”). The amount shown here represents interest for which 5.00% PIK Notes have not yet been issued.
4) The amount shown here represents the outstanding principal at par of the 16.00% Notes issued in August 2024, including previously issued 16.00% PIK Notes (as defined below).
5) The 16.00% Notes bear interest at a rate of 16.00% per annum. The Company will pay interest on the 16.00% Notes by payment-in-kind, through the issuance of additional 16.00% Notes (“16.00% PIK Notes”). The amount shown here represents interest for which 16.00% PIK Notes have not yet been issued.
Until such time as we can generate substantial product revenue, we expect to finance our cash requirements, beyond what is currently available or on hand, through a combination of equity offerings and debt financings, or collection of the exclusivity fee from BD in accordance with the Sales and Marketing Agreement with BD.
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Summary of Cash Flows
The following summarizes selected items in the Company’s condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023:
| Cash Flow Summary | |||||||||||
| Nine Months Ended September 30, | |||||||||||
(in thousands) | |||||||||||
| 2024 | 2023 | $ Change | |||||||||
| Net cash used in operating activities | $ | (19,126) | $ | (32,441) | $ | 13,315 | |||||
| Net cash (used in) provided by investing activities | (509) | 8,770 | (9,279) | ||||||||
| Net cash provided by financing activities | 27,639 | 8,912 | 18,727 | ||||||||
Cash flows from operating activities
During the nine months ended September 30, 2024, net cash used in operating activities was primarily the result of net losses, partially offset by losses on fair value adjustments, amortization of debt discount, equity-based compensation, depreciation and amortization, and paid-in-kind interest.
During the nine months ended September 30, 2023, net cash used in operating activities was primarily the result of net losses and a gain on fair value adjustment, partially offset by losses on extinguishment of debt, equity-based compensation, depreciation and amortization and inventory write-down.
Cash flows from investing activities
Net cash used in investing activities was $0.5 million for the nine months ended September 30, 2024, resulting from the purchases of equipment.
Net cash provided by investing activities was $8.8 million for the nine months ended September 30, 2023, primarily resulting from maturities of marketable securities.
Cash flows from financing activities
Net cash provided by financing activities was $27.6 million for the nine months ended September 30, 2024, which was primarily related to proceeds from the sale and issuance of Units and Pre-Funded Units and issuance of 16.00% Notes, partially offset by debt and equity issuance costs of $1.4 million and payments on finance leases of $0.7 million.
Net cash provided by financing activities was $8.9 million for the nine months ended September 30, 2023, which was primarily related to proceeds from issuance of common stock of $4.0 million and proceeds from issuance of 5.00% Notes of $10.0 million, partially offset by debt and equity issuance costs of $3.7 million and payments on finance leases.
Financing Activity
Convertible Notes
On June 9, 2023, the Company issued $66.9 million aggregate principal amount of 5.00% Notes in connection with the Restructuring Transactions described in Item 1, Note 10, Convertible Notes. The 5.00% Notes mature on December 15, 2026 and bear interest at a rate of 5.00% per annum, payable in kind. Interest is payable semi-annually in arrears June 15 and December 15 of each year, commencing on December 15, 2023. The 5.00% Notes, including any 5.00% Notes issued as a result of the payment of interest in kind, will be convertible into shares of the Company’s common stock at an initial conversion price of approximately $7.20 per share, which reflects the initial conversion rate of 138.88889 shares of common stock per $1,000 principal amount of 5.00% Notes. The initial conversion price was subject to adjustment based on the positive difference between the 31 to 90 day volume-weighted average price, subject to a cap of $8.30 per share. On October 18, 2023, the Company evaluated the conversion rate in accordance with the terms of the 5.00% Notes and determined the initial
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conversion rate of 138.88889 shares of common stock per $1,000 principal amount will continue to be the conversion rate through the remaining term of the 5.00% Notes. Upon conversion of the 5.00% Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of common stock, at the Company's election.
The indenture governing the 5.00% Notes (the “5.00% Notes Indenture”) contains customary events of default, including, but not limited to, non-payment of principal or interest, breach of certain covenants, defaults under or failure to pay certain other indebtedness and certain events of bankruptcy, insolvency and reorganization. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Collateral Agent (as defined below), by notice to the Company, or the holders of the 5.00% Notes representing at least 25% in aggregate principal amount of the outstanding 5.00% Notes, by notice to the Company and the Collateral Agent, may declare 100% of the principal of, and all accrued and unpaid interest on, all of the then outstanding 5.00% Notes to be due and payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of, and all accrued and unpaid interest on, all of the then outstanding 5.00% Notes will automatically become immediately due and payable.
Additionally, the Company and certain of its subsidiaries granted U.S. Bank Trust Company, National Association, a national banking association, as collateral agent (the “Collateral Agent”), a security interest in certain of their assets, including but not limited to certain accounts, equipment, fixtures and intellectual property, in order to secure the payment and performance of all of their Obligations (as defined in the 5.00% Notes Indenture) relating to the 5.00% Notes.
In March and April 2018, the Company issued $171.5 million aggregate principal amount of 2.50% Notes. In September 2021 and March 2022, the Company entered into exchange agreements with certain holders of 2.50% Notes pursuant to which $65.0 million aggregate principal amount of 2.50% Notes were exchanged for an aggregate of approximately 1.7 million shares of the Company’s common stock. On March 15, 2023, the remaining 2.50% Notes matured and became due and payable.
In August 2022, the Company entered into an exchange agreement with the Schuler Trust pursuant to which the Schuler Trust agreed to exchange with the Company $49.9 million aggregate principal amount of 2.50% Notes held by it for (a) the Secured Note in an aggregate principal amount of $34.9 million and (b) a warrant (the “2022 Warrant”) to acquire up to approximately 0.2 million shares of the Company’s common stock at an exercise price of $21.20 per share (the “Exercise Price”). The 2022 Warrant may be exercised from February 15, 2023 through the earlier of (i) August 15, 2029 and (ii) the consummation of certain acquisition transactions involving the Company, as set forth in the 2022 Warrant. The number of shares underlying the 2022 Warrant and the Exercise Price are subject to certain customary proportional adjustments for fundamental events, including stock splits and recapitalizations, as set forth in the 2022 Warrant. The Secured Note, plus accrued interest, was repurchased by the Company in connection with the Restructuring Transactions through the issuance of approximately 3.4 million shares of common stock.
In connection with the Restructuring Transactions, approximately $55.9 million aggregate principal amount of 2.50% Notes were exchanged for approximately $56.9 million aggregate principal amount of 5.00% Notes, which was inclusive of additional 5.00% Notes in respect of interest accrued on the 2.50% Notes from September 15, 2022. In April 2024, the Company settled the outstanding balance of its 2.50% Notes. The payment of approximately $0.8 million satisfied all outstanding principal and accrued interest remaining on the 2.50% Notes.
During the year ended 2023 and through the nine months ended September 30, 2024, certain holders of 5.00% Notes converted a portion of the 5.00% Notes held by them for the Company's common stock. See Item 1, Note 10, Convertible Notes for additional information.
As of September 30, 2024, $69.2 million aggregate principal amount of 5.00% Notes were outstanding.
See Item 1, Note 10, Convertible Notes for additional information.
Sales of Equity Securities
The Company has historically completed multiple equity raises through sales of its common stock and preferred stock in both public and private offerings, including the recent transactions below.
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In March 2022, the Company entered into a securities purchase agreement (the “March 2022 Securities Purchase Agreement”) with the Schuler Trust for the issuance and sale by the Company of approximately 0.2 million shares of the Company’s common stock to the Schuler Trust for an aggregate purchase price of $4.0 million. In June 2023 in connection with the Restructuring Transactions, the Company amended the March 2022 Securities Purchase Agreement and issued and sold approximately 0.5 million shares of the Company’s common stock to the Schuler Trust for proceeds of $4.0 million.
In June 2023, the Company entered into a purchase agreement with the Schuler Trust (the “Schuler Purchase Obligation”) pursuant to which the Schuler Trust was required, at the Company’s option, to either purchase approximately 1.4 million shares of common stock from the Company valued at $7.20 per share for an aggregate purchase price of $10.0 million or to backstop a public offering by the Company of common stock for aggregate proceeds of $10.0 million. If the Company elected to conduct a public offering of common stock and other investors purchased less than $10.0 million of common stock by December 15, 2023, the Schuler Trust would have the obligation to purchase $10.0 million of shares of common stock, less the amount of common stock purchased by other investors, and would have the right to purchase additional shares of common stock such that the total amount of common stock purchased by the Schuler Trust equaled $10.0 million of shares of common stock. If the Company elected to conduct a public offering of common stock and other investors purchased $10.0 million of shares of common stock by December 15, 2023, the Schuler Trust would have the right, but not the obligation, to purchase up to $10.0 million of shares of common stock at the public offering price for the backstopped offering up to a maximum aggregate purchase by the Schuler Trust of $10.0 million of common stock.
In December 2023, the Company and the Schuler Trust entered into an amendment to the Schuler Purchase Obligation extending the deadline for the investment or public offering backstop through February 15, 2024, and the Schuler Trust agreed to purchase $2.0 million at the public offering price if the aggregate gross proceeds to the Company resulting from the public offering was more than $10.0 million.
In January 2024, the Company completed the January 2024 Public Units Offering consisting of 6.8 million units (the “Units”), each consisting of one share of common stock and one warrant to purchase one share of common stock (each, a “Common Warrant”), and for certain investors in lieu thereof, pre-funded Units (the “Pre-Funded Units”), each consisting of one pre-funded warrant to purchase one share of common stock (each, a “Pre-Funded Warrant”), and one Common Warrant to purchase one share of common stock. The public offering price for each Unit was $1.50 and the public offering price for each Pre-Funded Unit was $1.49.
The Company granted the underwriters for the January 2024 Public Units Offering a 30-day option to purchase up to an additional 1.0 million shares of common stock and/or additional Common Warrants to purchase up to 1.0 million shares of common stock, in any combination thereof, at the public offering price, less underwriting discounts and commissions. The underwriters elected to purchase an additional 36,003 Common Warrants from the Company under this option.
Common Warrants issued to investors in the January 2024 Public Units Offering have an exercise price of $1.65 per share, were immediately exercisable upon issuance and will remain exercisable until the date that is five years after their original issuance. The Pre-Funded Warrants have an exercise price of $0.01 per share, are immediately exercisable and will remain exercisable until exercised in full. The gross proceeds from the January 2024 Public Units Offering, before deducting underwriting discounts and commissions and other public offering expenses payable by the Company were approximately $10.2 million (excluding any proceeds that may be received upon the exercise of the Common Warrants or the Pre-Funded Warrants).
Concurrently with the completion of the January 2024 Public Units Offering, the Company sold 1.2 million Units at a purchase price of $1.73 per Unit to the Schuler Trust, which satisfied the Schuler Purchase Obligation and an aggregate of 33,332 Units at a purchase price of $1.50 per Unit to the Company’s Chief Executive Officer and Chief Financial Officer, in each case, in a private placement offering. The gross proceeds from the private placement offering, before deducting underwriting discounts and commissions and other expenses payable by the Company were approximately $2.0 million (excluding any proceeds that may be received upon the exercise of the Common Warrants).
Pursuant to the subscription agreement entered into between the Schuler Trust and the Company in connection with the private placement offering of Units, the Schuler Trust also agreed to purchase an additional 1.6 million Units at a purchase price of $1.73 per unit on or before May 20, 2024. On May 20, 2024, the Company
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completed the sale of such additional Units to the Schuler trust for gross proceeds of approximately $2.7 million (before deducting underwriting discounts and commissions and other expenses payable by the Company and excluding any proceeds that may be received upon the exercise of the Common Warrants).
Aggregate net proceeds from the January 2024 Public Units Offering and private placement offering of Units (including the additional Units purchased by the Schuler Trust in May 2024) for the nine months ended September 30, 2024 were approximately $13.7 million.
16.00% Notes
On August 8, 2024, the Company entered into the Note Purchase Agreement with certain investors named therein pursuant to which the Company issued 15.0 million aggregate principal amount of the 16.00% Notes.
The 16.00% Notes will mature on December 31, 2025, and bear interest at a rate of 16.00% per annum, payable in kind. Interest on the 16.00% Notes is payable by the Company quarterly in arrears on the last business day of each March, June, September and December, beginning on September 30, 2024.
Contemporaneously with the Note Purchase Agreement, the Company also entered into an indenture, dated August 8, 2024 (the “16.00% Notes Indenture”), with a trustee that provides that the 16.00% Notes will be secured by a super-priority security interest in the same collateral that secures the Company’s outstanding 5.00% Notes.
The 16.00% Notes Indenture contains customary events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the trustee, by notice to the Company, or the holders of the 16.00% Notes representing at least a majority in aggregate principal amount of the outstanding 16.00% Notes, by notice to the Company and the trustee, may declare 100% of the principal of, the premium (including the Exit Premium (as defined below)), and all accrued and unpaid interest on, all of the then outstanding 16.00% Notes to be due and payable immediately.
Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal, the premium (including the Exit Premium (as defined below)), and all accrued and unpaid interest on, all of the then outstanding 16.00% Notes will automatically become immediately due and payable.
Upon the occurrence of a change of control, the Company will be required to make an offer to repurchase all or any portion of the outstanding 16.00% Notes at a price in cash equal to 100% of the aggregate principal amount of the 16.00% Notes repurchased, plus the premium (including the Exit Premium), and all accrued and unpaid interest to, but excluding, the date or repurchase.
Upon the occurrence of any repayment (including in connection with a change of control or an asset sale) or redemption or acceleration upon any event of default, the Company is required to pay the investors a fee equal to a certain percentage of the aggregate principal amount of the 16.00% Notes then outstanding plus accrued and unpaid interest thereon, which fee shall be equal to 30.00% if any such event occurs on or prior to June 30, 2025 and equal to 42.50% if any such event occurs on July 1, 2025 and thereafter (the “Exit Premium”).The Company also contemporaneously entered into other customary ancillary agreements in connection with the issuance of the 16.00% Notes.
The 16.00% Notes Indenture also contains various affirmative, negative and financial covenants that, among other things, may restrict the ability of the Company and its subsidiaries to incur additional indebtedness, create certain liens, merge or consolidate with another entity, pay dividends or repurchase stock, and sell all or substantially all of their assets.
Aggregate net proceeds from the issuance of the 16.00% Notes for the nine months ended September 30, 2024 were approximately $14.2 million.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2024.
Critical Accounting Policies and Estimates
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Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates discussed in Part II, Item 7 of the 2023 10-K, except as it relates to the accounting for the warrants issued in the January 2024 Public Units Offering and related private placement offerings as described in the notes to the accompanying condensed consolidated financial statements (see Item 1, Note 1, Organization and Nature of Business; Basis of Presentation; Principles of Consolidation; Significant Accounting Policies and Item 1, Note 18, Stockholders' Deficit for additional information).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of September 30, 2024 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2024 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are from time to time subject to various claims and legal actions in the ordinary course of our business. We believe that there are currently no claims or legal actions that would reasonably be expected to have a material adverse effect on our results of operations or financial condition.
Item 1A. Risk Factors
In addition to the other information set forth in this Form 10-Q, you should carefully consider the risks discussed in the section entitled “Risk Factors” in the 2023 10-K. The risks described in the 2023 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, results of operations, cash flows and financial position.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the quarter ended September 30, 2024, other than as reported in our Current Reports on Form 8-K filed with the SEC.
We did not purchase any shares of our common stock during the three months ended September 30, 2024.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended September 30, 2024, none of our directors or officers (as defined in Exchange Act Rule 16a-1(f)) adopted terminated
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Item 6. Exhibits
| Exhibit No. | Description | Filing Information | ||||||
| 3.1 | Incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on November 13, 2012 | |||||||
| 3.1.1 | Incorporated by reference to Exhibit A to the Registrant’s Definitive Information Statement on Schedule 14C filed on July 12, 2013 | |||||||
| 3.1.2 | Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on March 15, 2016 | |||||||
| 3.1.3 | Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 15, 2019 | |||||||
| 3.1.4 | Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 13, 2021 | |||||||
| 3.1.5 | Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on September 23, 2021 | |||||||
3.1.6 | Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2022 | |||||||
3.1.7 | Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 24, 2023 | |||||||
3.1.8 | Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 13, 2023 | |||||||
| 3.2 | Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on August 8, 2019 | |||||||
| 3.2.1 | Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 3, 2022 | |||||||
4.1 | Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on August 8, 2024 | |||||||
4.2 | Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on August 8, 2024 | |||||||
10.1* | Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 8, 2024 | |||||||
10.2 | Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on August 8, 2024 | |||||||
10.3* | Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on August 8, 2024 | |||||||
10.4 | Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on August 8, 2024 | |||||||
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10.5 | Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on August 8, 2024 | |||||||
| 31.1 | Filed herewith | |||||||
| 31.2 | Filed herewith | |||||||
| 32 | Furnished herewith | |||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | Filed herewith | ||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed herewith | ||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith | ||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith | ||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed herewith | ||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith | ||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | Filed herewith | ||||||
* Certain exhibits, schedules and annexes to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementarily a copy of any omitted exhibits, schedules or annexes to the SEC upon its request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ACCELERATE DIAGNOSTICS, INC.
| November 7, 2024 | /s/ Jack Phillips | ||||
| Jack Phillips President and Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| November 7, 2024 | /s/ David Patience | ||||
| David Patience Chief Financial Officer | |||||
| (Principal Financial and Accounting Officer) | |||||
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