UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			☒QUARTERLY ~~REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~ ~~For the quarterly period ended June 30, 2020~~ or ¨ ~~TRANSITION~~ REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34753

GenMark Diagnostics, Inc.

(Exact name of registrant as specified in its charter)


Delaware			27-2053069
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

5964 La Place Court
Carlsbad, California			~~92008-8829~~92008
(Address of principal executive offices)			(Zip code)

(760) 448-4300

(Registrant’s telephone number, including area ~~code: 760-448-4300~~code)

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

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

GNMK

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes x☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

~~Table of Contents~~

Large accelerated filer

¨☐

Accelerated ~~filer~~Filer

x☒

Non-accelerated filer

¨☐

Smaller reporting company

x☒

Emerging growth company

¨☐

~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2~~Table of ~~the Exchange Act). Yes~~ ¨ No xContents

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 ☒

The number of outstanding shares of the registrant’s common stock on ~~July 30,~~October 23, 2020 was ~~71,071,323.~~71,721,004.

Table of Contents

GENMARK DIAGNOSTICS, INC.

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3031
Item 4.	Controls and Procedures	3031
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3132
Item 1A.	Risk Factors	3132
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4445
Item 3.	Defaults Upon Senior Securities	4445
Item 4.	Mine Safety Disclosures	4445
Item 5.	Other Information	4445
Item 6.	Exhibits	4546

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENMARK DIAGNOSTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
ASSETS:	ASSETS:									ASSETS:
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	82,421	$	44,360	Cash and cash equivalents	$	57,809	$	44,360
Short-term marketable securities	Short-term marketable securities	50,374		9,100		Short-term marketable securities	79,468		9,100
Accounts receivable, net of allowances of $1,132 and $376, respectively		17,867		16,759
Accounts receivable, net of allowances of $511 and $376, respectively						Accounts receivable, net of allowances of $511 and $376, respectively	16,231		16,759
Inventories, net	Inventories, net	14,927		11,301		Inventories, net	19,570		11,301
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,823		1,877		Prepaid expenses and other current assets	2,836		1,877
Total current assets	Total current assets	167,412		83,397		Total current assets	175,914		83,397

Property and equipment, net	Property and equipment, net	19,420		20,419		Property and equipment, net	26,210		20,419
Intangible assets, net	Intangible assets, net	1,137		1,432		Intangible assets, net	989		1,432
Restricted cash	Restricted cash	1,646		758		Restricted cash	1,646		758
Noncurrent operating lease right-of-use assets	Noncurrent operating lease right-of-use assets	4,372		4,642		Noncurrent operating lease right-of-use assets	8,845		4,642
Other long-term assets	Other long-term assets	1,026		825		Other long-term assets	986		825
Total assets	Total assets	$	195,013	$	111,473	Total assets	$	214,590	$	111,473

LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES AND STOCKHOLDERS’ EQUITY:						LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	15,421	$	12,249	Accounts payable	$	21,241	$	12,249
Accrued compensation	Accrued compensation	8,609		7,493		Accrued compensation	13,074		7,493

Current operating lease liability	Current operating lease liability	1,870		1,842		Current operating lease liability	2,741		1,842
Other current liabilities	Other current liabilities	3,245		2,732		Other current liabilities	3,614		2,732
Total current liabilities	Total current liabilities	29,145		24,316		Total current liabilities	40,670		24,316

Long-term debt	Long-term debt	70,189		69,145		Long-term debt	70,743		69,145
Noncurrent operating lease liability	Noncurrent operating lease liability	5,217		5,796		Noncurrent operating lease liability	8,912		5,796
Other noncurrent liabilities	Other noncurrent liabilities	285		53		Other noncurrent liabilities	308		53
Total liabilities	Total liabilities	104,836		99,310		Total liabilities	120,633		99,310

Stockholders' equity:
Preferred stock, $0.0001 par value; 5,000 authorized, none issued		—		—
Common stock, $0.0001 par value; 100,000 authorized; 70,693 and 60,255 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		7		6
Stockholders’ equity:						Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000 authorized, NaN issued						Preferred stock, $0.0001 par value; 5,000 authorized, NaN issued	0		0
Common stock, $0.0001 par value; 100,000 authorized; 71,286 and 60,255 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively						Common stock, $0.0001 par value; 100,000 authorized; 71,286 and 60,255 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	7		6
Additional paid-in capital	Additional paid-in capital	615,995		526,294		Additional paid-in capital	622,951		526,294
Accumulated deficit	Accumulated deficit	(525,925)		(514,233)		Accumulated deficit	(529,153)		(514,233)
Accumulated other comprehensive income	Accumulated other comprehensive income	100		96		Accumulated other comprehensive income	152		96
Total stockholders’ equity	Total stockholders’ equity	90,177		12,163		Total stockholders’ equity	93,957		12,163
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	195,013	$	111,473	Total liabilities and stockholders’ equity	$	214,590	$	111,473

See accompanying notes to unaudited condensed consolidated financial statements.

GENMARK DIAGNOSTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share data)


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Revenue:	Revenue:									Revenue:
Product revenue	Product revenue	$	39,460	$	18,071	$	77,813	$	39,282	Product revenue	$	41,985	$	20,659	$	119,798	$	59,941
Other revenue	Other revenue	626		303		1,015		625		Other revenue	661		259		1,676		884
Total revenue	Total revenue	40,086		18,374		78,828		39,907		Total revenue	42,646		20,918		121,474		60,825
Cost of revenue	Cost of revenue	24,235		11,801		46,825		27,471		Cost of revenue	26,103		13,868		72,928		41,339
Gross profit	Gross profit	15,851		6,573		32,003		12,436		Gross profit	16,543		7,050		48,546		19,486
Operating expenses:	Operating expenses:									Operating expenses:
Sales and marketing	Sales and marketing	6,285		5,803		12,425		11,712		Sales and marketing	4,979		6,279		17,404		17,991
General and administrative	General and administrative	4,622		4,931		13,560		9,452		General and administrative	5,367		4,765		18,927		14,217
Research and development	Research and development	7,637		7,749		13,716		14,092		Research and development	7,463		6,294		21,179		20,386
Total operating expenses	Total operating expenses	18,544		18,483		39,701		35,256		Total operating expenses	17,809		17,338		57,510		52,594
Loss from operations	Loss from operations	(2,693)		(11,910)		(7,698)		(22,820)		Loss from operations	(1,266)		(10,288)		(8,964)		(33,108)
Other income (expense):	Other income (expense):									Other income (expense):
Interest income	Interest income	109		179		241		312		Interest income	81		126		322		438
Interest expense	Interest expense	(2,037)		(1,528)		(4,128)		(2,804)		Interest expense	(2,073)		(1,527)		(6,201)		(4,331)
Other expense		—		(4)		(29)		(15)
Other income (expense)										Other income (expense)	13		(19)		(16)		(34)
Total other expense	Total other expense	(1,928)		(1,353)		(3,916)		(2,507)		Total other expense	(1,979)		(1,420)		(5,895)		(3,927)
Loss before provision for income taxes	Loss before provision for income taxes	(4,621)		(13,263)		(11,614)		(25,327)		Loss before provision for income taxes	(3,245)		(11,708)		(14,859)		(37,035)
Income tax expense		63		45		78		61
Income tax expense (benefit)										Income tax expense (benefit)	(17)		(33)		61		28
Net loss	Net loss	$	(4,684)	$	(13,308)	$	(11,692)	$	(25,388)	Net loss	$	(3,228)	$	(11,675)	$	(14,920)	$	(37,063)
Net loss per share, basic and diluted	Net loss per share, basic and diluted	$	(0.07)	$	(0.23)	$	(0.18)	$	(0.45)	Net loss per share, basic and diluted	$	(0.05)	$	(0.20)	$	(0.23)	$	(0.65)
Weighted average number of shares outstanding, basic and diluted	Weighted average number of shares outstanding, basic and diluted	66,528		57,171		63,597		56,878		Weighted average number of shares outstanding, basic and diluted	71,103		57,718		66,117		57,161

Other comprehensive loss:	Other comprehensive loss:									Other comprehensive loss:
Net loss	Net loss	$	(4,684)	$	(13,308)	$	(11,692)	$	(25,388)	Net loss	$	(3,228)	$	(11,675)	$	(14,920)	$	(37,063)
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax	Foreign currency translation adjustments, net of tax	10		15		(29)		9		Foreign currency translation adjustments, net of tax	56		(46)		27		(37)
Net unrealized gains on marketable securities, net of tax		29		6		33		8
Net unrealized gain (loss) on marketable securities, net of tax										Net unrealized gain (loss) on marketable securities, net of tax	(4)		0		29		8
Total other comprehensive income (loss)	Total other comprehensive income (loss)	39		21		4		17		Total other comprehensive income (loss)	52		(46)		56		(29)
Total comprehensive loss	Total comprehensive loss	$	(4,645)	$	(13,287)	$	(11,688)	$	(25,371)	Total comprehensive loss	$	(3,176)	$	(11,721)	$	(14,864)	$	(37,092)

See accompanying notes to unaudited condensed consolidated financial statements.

GENMARK DIAGNOSTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

(In thousands)


	Common Stock			Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total stockholders’ equity
	Shares	Par Value
Balance—June 30, 2020	70,693	7		615,995		100		(525,925)		90,177
Stock-based compensation expense	—	—		2,426		—		—		2,426

Restricted stock awards issued, net of cancellations	192	—		—		—		—		—
Shares issued under stock-based compensation plans	401	—		4,530		—		—		4,530

Net loss	—	—		—		—		(3,228)		(3,228)

Foreign currency translation adjustments	—	—		—		56		—		56
Unrealized gain on marketable securities	—	—		—		(4)		—		(4)
Balance—September 30, 2020	71,286	$	7	$	622,951	$	152	$	(529,153)	$	93,957

See accompanying notes to unaudited condensed consolidated financial statements.

GENMARK DIAGNOSTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

(In thousands)


	Common Stock			Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total stockholders’ equity
	Shares	Par Value
Balance—June 30, 2019	57,430	6		506,949		97		(492,271)		14,781
Stock-based compensation expense	—	—		3,129		—		—		3,129

Restricted stock awards issued, net of cancellations	219	—		—		—		—		—
Shares issued under stock-based compensation plans	3	—		0		—		—		0
Issuance of common stock, net of offering costs	392	—		2,373		—		—		2,373
Net loss	—	—		—		—		(11,675)		(11,675)

Foreign currency translation adjustments	—	—		—		(46)		—		(46)

Balance—September 30, 2019	58,044	$	6	$	512,451	$	51	$	(503,946)	$	8,562

See accompanying notes to unaudited condensed consolidated financial statements.

GENMARK DIAGNOSTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

(In thousands)


	Common Stock			Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total stockholders’ equity
	Shares	Par Value
Balance—December 31, 2019	60,255	6		526,294		96		(514,233)		12,163
Stock-based compensation expense	—	—		10,474		—		—		10,474
Issuance of employee stock purchase plan shares	103	—		488		—		—		488
Restricted stock awards issued, net of cancellations	1,163	—		—		—		—		—
Shares issued under stock-based compensation plans	1,060	—		8,105		—		—		8,105
Issuance of common stock, net of offering costs	8,705	1		77,590		—		—		77,591
Net loss	—	—		—		—		(14,920)		(14,920)

Foreign currency translation adjustments	—	—		—		27		—		27
Unrealized gain on marketable securities	—	—		—		29		—		29
Balance—September 30, 2020	71,286	$	7	$	622,951	$	152	$	(529,153)	$	93,957

See accompanying notes to unaudited condensed consolidated financial statements.

GENMARK DIAGNOSTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

(In thousands)


	Common Stock			Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total stockholders’ equity
	Shares	Par Value
Balance—December 31, 2018	56,240	6		500,344		80		(466,883)		33,547
Stock-based compensation expense	—	—		8,840		—		—		8,840
Issuance of employee stock purchase plan shares	105	—		464		—		—		464
Restricted stock awards issued, net of cancellations	1,233	—		—		—		—		—
Shares issued under stock-based compensation plans	74	—		430		—		—		430
Issuance of common stock, net of offering costs	392	—		2,373		—		—		2,373
Net loss	—	—		—		—		(37,063)		(37,063)

Foreign currency translation adjustments	—	—		—		(37)		—		(37)
Unrealized gain on marketable securities	—	—		—		8		—		8
Balance—September 30, 2019	58,044	$	6	$	512,451	$	51	$	(503,946)	$	8,562

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

GENMARK DIAGNOSTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


		Six Months Ended June 30,							Nine Months Ended September 30, 2020
		2020		2019			2020		2019
Operating activities:	Operating activities:					Operating activities:
Net loss	Net loss	$	(11,692)	$	(25,388)	Net loss	$	(14,920)	$	(37,063)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:						Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	3,479		3,616		Depreciation and amortization	5,439		5,393
Net amortization (accretion) of premiums/discounts on investments	Net amortization (accretion) of premiums/discounts on investments	34		(98)		Net amortization (accretion) of premiums/discounts on investments	138		(134)

Amortization of deferred debt issuance costs	Amortization of deferred debt issuance costs	1,145		816		Amortization of deferred debt issuance costs	1,699		1,266
Stock-based compensation	Stock-based compensation	8,048		5,711		Stock-based compensation	10,474		8,840
Provision for bad debt		766		46
Provision for bad debt, net of recoveries						Provision for bad debt, net of recoveries	156		93
Non-cash inventory adjustments	Non-cash inventory adjustments	850		897		Non-cash inventory adjustments	1,238		1,653
Other non-cash adjustments	Other non-cash adjustments	(49)		125		Other non-cash adjustments	71		175
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(1,866)		4,720		Accounts receivable	376		993
Inventories	Inventories	(4,960)		(1,387)		Inventories	(10,156)		(5,471)
Prepaid expenses and other assets	Prepaid expenses and other assets	(382)		(784)		Prepaid expenses and other assets	(1,076)		(857)

Accounts payable	Accounts payable	3,598		(1,143)		Accounts payable	7,382		345
Accrued compensation	Accrued compensation	624		(2,490)		Accrued compensation	4,862		(406)
Operating lease liabilities						Operating lease liabilities	(188)		0
Other current and non-current liabilities	Other current and non-current liabilities	790		(257)		Other current and non-current liabilities	1,176		(398)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	385		(15,616)		Net cash provided by (used in) operating activities	6,671		(25,571)
Investing activities:	Investing activities:					Investing activities:

Purchases of property and equipment	Purchases of property and equipment	(1,703)		(467)		Purchases of property and equipment	(7,874)		(1,193)
Purchases of marketable securities	Purchases of marketable securities	(52,123)		(19,440)		Purchases of marketable securities	(89,340)		(26,735)
Proceeds from sales of marketable securities	Proceeds from sales of marketable securities	1,193		—		Proceeds from sales of marketable securities	1,193		0
Maturities of marketable securities	Maturities of marketable securities	9,655		10,800		Maturities of marketable securities	17,670		26,880
Net cash used in investing activities	Net cash used in investing activities	(42,978)		(9,107)		Net cash used in investing activities	(78,351)		(1,048)
Financing activities:	Financing activities:					Financing activities:
Proceeds from issuance of common stock, net of offering costs	Proceeds from issuance of common stock, net of offering costs	78,078		464		Proceeds from issuance of common stock, net of offering costs	78,079		2,837

Principal repayment of borrowings	Principal repayment of borrowings	(33)		(35,140)		Principal repayment of borrowings	(45)		(35,070)
Proceeds from borrowings	Proceeds from borrowings	—		50,000		Proceeds from borrowings	0		50,000
Payments associated with debt issuance	Payments associated with debt issuance	(100)		(3,588)		Payments associated with debt issuance	(100)		(3,588)
Proceeds from stock option exercises	Proceeds from stock option exercises	3,575		432		Proceeds from stock option exercises	8,105		432
Net cash provided by financing activities	Net cash provided by financing activities	81,520		12,168		Net cash provided by financing activities	86,039		14,611
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	22		2		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(22)		30
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	38,949		(12,553)		Net increase (decrease) in cash, cash equivalents, and restricted cash	14,337		(11,978)
Cash, cash equivalents, and restricted cash at beginning of year	Cash, cash equivalents, and restricted cash at beginning of year	45,118		37,044		Cash, cash equivalents, and restricted cash at beginning of year	45,118		37,044
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	84,067	$	24,491	Cash, cash equivalents, and restricted cash at end of period	$	59,455	$	25,066
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Transfer of systems to property and equipment from inventory	Transfer of systems to property and equipment from inventory	$	483	$	822	Transfer of systems to property and equipment from inventory	$	649	$	1,492
Property and equipment included in accounts payable	Property and equipment included in accounts payable	$	807	$	18	Property and equipment included in accounts payable	$	2,843	$	147
Right-of-use assets obtained in exchange for new operating lease liabilities						Right-of-use assets obtained in exchange for new operating lease liabilities	$	4,689	$	0

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid for income taxes, net	Cash paid for income taxes, net	$	48	$	104	Cash paid for income taxes, net	$	94	$	85
Cash paid for interest	Cash paid for interest	$	3,080	$	1,837	Cash paid for interest	$	4,611	$	2,890

See accompanying notes to unaudited condensed consolidated financial statements.

~~Table of Contents~~

~~GENMARK DIAGNOSTICS, INC.~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY~~

~~FOR THE THREE MONTHS ENDED JUNE 30, 2020~~

~~(In thousands)~~

Common Stock Additional paid-in
capital Accumulated other
comprehensive loss Accumulated
deficit Total stockholders' equity
Shares Par Value
Balance—March 31, 2020 61,333 6 534,177 61 (521,241) 13,003
Stock-based compensation expense — — 2,428 — — 2,428
Issuance of employee stock purchase plan shares 103 — 488 — — 488
Restricted stock awards issued, net of cancellations 277 — — — — —
Shares issued under stock-based compensation plans 638 — 3,472 — — 3,472
Net loss — — — — (4,684) (4,684)
Issuance of common stock, net of offering costs 8,342 1 75,430 — — 75,431
Foreign currency translation adjustments — — — 10 — 10
Unrealized gain on marketable securities — — — 29 — 29
Balance—June 30, 2020 70,693 $ 7 $ 615,995 $ 100 $ (525,925) $ 90,177

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Table of Contents~~

~~GENMARK DIAGNOSTICS, INC.~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY~~

~~FOR THE THREE MONTHS ENDED JUNE 30, 2019~~

~~(In thousands)~~

Common Stock Additional paid-in
capital Accumulated other
comprehensive loss Accumulated
deficit Total stockholders' equity
Shares Par Value
Balance—March 31, 2019 57,026 6 503,318 76 (478,963) 24,437
Stock-based compensation expense — — 3,167 — — 3,167
Issuance of employee stock purchase plan shares 105 — 464 — — 464
Restricted stock awards issued, net of cancellations 299 — — — — —
Net loss — — — — (13,308) (13,308)
Foreign currency translation adjustments — — — 15 — 15
Unrealized gain on marketable securities — — — 6 — 6
Balance—June 30, 2019 57,430 $ 6 $ 506,949 $ 97 $ (492,271) $ 14,781

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Table of Contents~~

~~GENMARK DIAGNOSTICS, INC.~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY~~

~~FOR THE SIX MONTHS ENDED JUNE 30, 2020~~

~~(In thousands)~~

Common Stock Additional paid-in
capital Accumulated other
comprehensive loss Accumulated
deficit Total stockholders' equity
Shares Par Value
Balance—December 31, 2019 60,255 6 526,294 96 (514,233) 12,163
Stock-based compensation expense — — 8,048 — — 8,048
Issuance of employee stock purchase plan shares 103 — 488 — — 488
Restricted stock awards issued, net of cancellations 971 — — — — —
Shares issued under stock-based compensation plans 659 — 3,575 — — 3,575
Net loss — — — — (11,692) (11,692)
Issuance of common stock, net of offering costs 8,705 1 77,590 — — 77,591
Foreign currency translation adjustments — — — (29) — (29)
Unrealized gain on marketable securities — — — 33 — 33
Balance—June 30, 2020 70,693 $ 7 $ 615,995 $ 100 $ (525,925) $ 90,177

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Table of Contents~~

~~GENMARK DIAGNOSTICS, INC.~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY~~

~~FOR THE SIX MONTHS ENDED JUNE 30, 2019~~

~~(In thousands)~~

Common Stock Additional paid-in
capital Accumulated other
comprehensive loss Accumulated
deficit Total stockholders' equity
Shares Par Value
Balance—December 31, 2018 56,240 6 500,344 80 (466,883) 33,547
Stock-based compensation expense — — 5,711 — — 5,711
Issuance of employee stock purchase plan shares 105 — 464 — — 464
Restricted stock awards issued, net of cancellations 1,014 — — — — —
Shares issued under stock-based compensation plans 71 — 430 — — 430
Net loss — — — — (25,388) (25,388)
Foreign currency translation adjustments — — — 9 — 9
Unrealized gain on marketable securities — — — 8 — 8
Balance—June 30, 2019 57,430 $ 6 $ 506,949 $ 97 $ (492,271) $ 14,781

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

Table of Contents

GENMARK DIAGNOSTICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

GenMark Diagnostics, Inc., the Company or GenMark, was formed by Osmetech plc as a Delaware corporation in February 2010, and had no operations prior to its initial public offering, which was completed in June 2010. The Company is a provider of multiplex molecular diagnostic solutions designed to enhance patient care, improve key quality metrics, and reduce the total cost-of-care.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, and applicable regulations of the U.S. Securities and Exchange Commission, or the SEC, and should be read in conjunction with the audited financial statements included in the ~~Company's~~Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 2, 2020. These unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for the full year or any future period.

In June 2020, the Company made a policy election to reclassify freight revenue from product revenue to other revenue. The Company reclassified freight revenue of ~~$149,000~~$163,000 and ~~$309,000~~$472,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2019 from product revenue to other revenue to conform with the current year presentation. The reclassification had no impact to total revenue for the periods presented.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The Company has experienced net losses and negative cash flows from operating activities since its inception and had an accumulated deficit of ~~$525,925,000~~$529.2 million as of ~~June~~September 30, 2020. The ~~Company's~~Company’s ability to transition to profitable operations is dependent upon achieving a level of revenues adequate to support its cost structure through expanding its product offerings and consequently increasing its product revenues. As of ~~June~~September 30, 2020, the Company had available cash, cash equivalents, and marketable securities of ~~$132,795,000~~$137.3 million and working capital of ~~$138,267,000~~$135.2 million available to fund future operations. The Company has prepared cash flow forecasts which indicate, based on the ~~Company's~~Company’s current cash resources available and working capital, that the Company will have sufficient resources to fund its operations for at least one year after the date the financial statements are issued.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes thereto. The Company’s significant estimates included in the preparation of the financial statements are related to accounts receivable, inventories, property and equipment, leases, intangible assets, employee-related compensation accruals, warranty liabilities, tax valuation accounts, and stock-based compensation. Actual results could differ from those estimates.

Segment Information

The Company currently operates in 1 reportable business segment, which encompasses the development, manufacturing, sales and support of instruments and molecular tests based on its proprietary eSensor^® detection technology. Substantially all of the Company’s operations and assets are in the United States.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or the FASB, or other standard setting bodies that the Company adopts as of the specified effective date.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases,~~ which outlines a comprehensive lease accounting model and supersedes the prior lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use, or ROU, assets for all leases with lease terms of greater than 12 months. The guidance also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and is effective for annual periods beginning after December 15, 2018. The Company adopted the new standard in the first quarter of 2019 using the package of transition practical expedients. The Company recognized non-current ROU assets of $5,097,000 and current and non-current lease liabilities of $1,780,000 and $6,832,000, respectively, upon adoption. Deferred rent is now presented as an offset to the Company's non-current operating lease ROU assets. The new lease standard did not have a material impact on the Company's unaudited condensed consolidated statements of operations, cash flows, or stockholders' equity.

~~Table of Contents~~

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which introduced a new methodology for recognizing credit losses on financial instruments. The new standard requires entities to measure financial instruments at their amortized cost basis, net of an allowance for credit losses. The allowance for credit losses must reflect an entity's current estimate of all expected credit losses. The new guidance also requires entities to present credit losses on debt securities accounted for under the available-for-sale method as an allowance rather than a ~~write down.~~write-down. The Company adopted the new standard in the first quarter of 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s unaudited condensed consolidated financial statements for the three and ~~six~~nine months ended ~~June~~September 30, 2020.

Table of Contents

Revenue

The Company recognizes revenue from operations through the sale of products and other services. Product revenue comprises the sale of diagnostic tests and instruments. Other revenue primarily consists of freight revenue and revenue from extended service agreements.

Revenue is recognized when control of products and services is transferred to the customer in an amount that reflects the consideration that the Company expects to receive from the customer in exchange for those products and services. This process involves identifying the contract with the customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. The Company recognizes revenue for satisfied performance obligations only when it determines there are no uncertainties regarding payment terms or transfer of control.

Revenue from product sales is recognized generally upon shipment to the end customer, which is when control of the product is deemed to be transferred. Invoicing typically occurs upon shipment and the term between invoicing and when payment is due is not significant. Revenue from instrument services is recognized as the services are rendered, typically evenly over the contract term.

Revenue is recorded net of discounts and sales taxes collected on behalf of governmental authorities. Employee sales commissions are recorded as sales and marketing expense when incurred or amortized over the estimated contract term when resulting from new contract acquisition efforts.

The Company allocates contract price to each performance obligation in proportion to its stand-alone selling price. The stand-alone selling price is determined by the ~~Company's~~Company’s best estimate of stand-alone selling price using average selling prices over a rolling 12-month period along with a specific assessment of any unique circumstances of the contract. For those products for which there is limited sales history, the Company makes price determinations based on similar product sales data.

The following table represents disaggregated revenue by source (in thousands):

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Revenue Source:
ePlex product revenue $ 35,216 $ 11,935 $ 69,185 $ 27,466
XT-8 product revenue 4,244 6,136 8,628 11,816
Total product revenue 39,460 18,071 77,813 39,282
License and other revenue 626 303 1,015 625
Total revenue $ 40,086 $ 18,374 $ 78,828 $ 39,907


	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	2020		2019		2020		2019
Revenue Source:
ePlex product revenue	$	38,014	$	13,258	$	107,199	$	40,724
XT-8 product revenue	3,971		7,401		12,599		19,217
Total product revenue	41,985		20,659		119,798		59,941
License and other revenue	661		259		1,676		884
Total revenue	$	42,646	$	20,918	$	121,474	$	60,825

Cash, Cash Equivalents, and Marketable Securities

Cash and cash equivalents consist of cash on deposit with banks, money market instruments, and certificates of deposit with original maturities of three months or less at the date of purchase. Marketable securities consist of certificates of deposits that mature in greater than three months. Marketable securities are accounted for as ~~"available-for-sale"~~“available-for-sale” with the carrying amounts reported in the balance sheets stated at cost, which approximates their fair market value, with unrealized gains and losses, if any, reported as a separate component of ~~stockholders'~~stockholders’ equity and included in comprehensive loss.

~~Table of Contents~~

Restricted Cash

Restricted cash represents amounts designated for uses other than current operations and was ~~$1,646,000~~$1.6 million and ~~$758,000 as June~~$0.8 million at September 30, 2020 and December 31, 2019, respectively, which represented an amount held as security for the Company’s facility lease agreements.

The following table shows a reconciliation of the ~~Company's~~Company’s cash and cash equivalents in the ~~Unaudited Condensed Consolidated Balance Sheet~~unaudited condensed consolidated balance sheet to cash, cash equivalents, and restricted cash in the ~~Unaudited Condensed Consolidated Statement~~unaudited condensed consolidated statement of ~~Cash Flows~~cash flows as of ~~June~~September 30, 2020 and 2019 (in thousands):

June 30,
2020 2019
Cash and cash equivalents $ 82,421 $ 23,733
Restricted cash 1,646 758
Total cash, cash equivalents, and restricted cash $ 84,067 $ 24,491

Table of Contents


	September 30,
	2020		2019
Cash and cash equivalents	$	57,809	$	24,308
Restricted cash	1,646		758
Total cash, cash equivalents, and restricted cash	$	59,455	$	25,066

Receivables

Accounts receivable consists of amounts due to the Company from the sale of products and services to customers. Accounts receivable is recognized at amortized cost and is recorded net of an allowance for credit losses. The Company views its accounts receivable as a single portfolio and considers the period of delinquency, historical collection rates, and customer ~~specific factors~~specific-factors in determining its allowance for credit losses. The allowance for credit losses as of ~~June~~September 30, 2020 and 2019, comprised of the following (in thousands):

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Beginning balance $ 405 $ 75 $ 376 $ 75
Provision for credit losses 737 46 766 46
Write off of uncollectible accounts (10) (14) (10) (14)
Ending balance $ 1,132 $ 107 $ 1,132 $ 107


	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
	2020		2019		2020		2019
Beginning balance	$	1,132	$	107	$	376	$	75
Provision (recoveries) for credit losses, net	(610)		47		156		93
Write off of uncollectible accounts	(11)		(23)		(21)		(37)
Ending balance	$	511	$	131	$	511	$	131

Product Warranties

The Company generally offers a one-year warranty for instruments and a 60-day warranty for consumables sold to customers. Factors that affect the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty repairs, and the cost per repair. The Company periodically assesses the adequacy of its warranty reserve and adjusts the amount as appropriate.

Intangible Assets

Intangible assets consist of licenses or sublicenses to technology covered by patents owned by third parties, and are amortized on a straight-line basis over the expected useful lives of these assets, which is generally ten years. Amortization of licenses typically begins upon the Company obtaining access to the licensed technology and is recorded in cost of revenues for licenses supporting commercialized products.

Impairment of Long-Lived Assets

The Company assesses the recoverability of long-lived assets, including intangible assets, by periodically evaluating the carrying value whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If impairment is indicated, the Company writes down the carrying value of the asset to its estimated fair value. This fair value is primarily determined based on estimated discounted cash flows.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value and include direct labor, materials, and manufacturing overhead. The Company periodically reviews inventory for evidence of slow-moving or obsolete parts, and writes inventory down to net realizable value, as needed. This write-down is based on management’s review of inventories on hand, compared to estimated future usage and sales, shelf-life assumptions, and assumptions about the likelihood of obsolescence. If actual market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Inventory impairment charges establish a new cost basis for inventory and charges are not reversed subsequently to income, even if circumstances later suggest that increased carrying amounts are recoverable.

~~Table of Contents~~

Property and Equipment, net

Property, equipment and leasehold improvements are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which are identified below. Repair and maintenance costs are expensed as incurred.

Table of Contents


Machinery and laboratory equipment			3 - 5 years
Instruments			4 - 57 years
Office equipment			3 - 7 years
Leasehold improvements			Over the shorter of the remaining life of the lease or the useful economic life of the asset

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are recorded in the consolidated balance sheets as noncurrent operating lease right-of-use, or ROU, assets and current and noncurrent operating lease liabilities. Finance leases are recorded in the consolidated balance sheets as other noncurrent assets and other current and noncurrent liabilities.

ROU assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease liabilities are recognized at the commencement date based on the present value of the Company’s lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of its lease payments. ROU assets are recognized at the commencement date based upon the initial measurement of the operating lease liability less any lease incentives received.

The Company’s lease agreements can include both lease and non-lease components. The Company accounts for each lease component separately from the non-lease components within its lease agreements.

Income Taxes

Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. A full valuation allowance has been recorded against the Company’s net deferred tax assets due to the uncertainty surrounding the Company’s ability to utilize these assets in the future. The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. The Company recognizes accrued interest related to uncertain tax positions as a component of income tax expense.

A tax position that is more likely than not to be realized is measured at the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the taxing authority that has full knowledge of all relevant information. Measurement of a tax position that meets the more likely than not threshold considers the amounts and probabilities of the outcomes that could be realized upon settlement using the facts, circumstances and information available at the reporting date.

2. Net Loss per Common Share

Basic net loss per share is calculated by dividing loss available to stockholders of the ~~Company's~~Company’s common stock (the numerator) by the weighted average number of shares of the ~~Company's~~Company’s common stock outstanding during the period (the denominator). Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted loss per share is calculated in a similar way to basic loss per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the dilutive potential shares had been issued, unless the effect would be anti-dilutive.

The calculations of diluted net loss per share for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 did not include the effects of the following stock options and other equity awards which were outstanding as of the end of each period because the inclusion of these securities would have been anti-dilutive (in thousands):

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Options outstanding to purchase common stock 1,305 2,130 1,305 2,130
Other unvested equity awards 3,645 3,846 3,645 3,846
Total 4,950 5,976 4,950 5,976


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
	2020	2019	2020	2019
Options outstanding to purchase common stock	926	2,052	926	2,052
Other unvested equity awards	3,322	3,635	3,322	3,635
Total	4,248	5,687	4,248	5,687

3. Stock-Based Compensation

Equity awards may be granted at the discretion of the Compensation Committee of the Board of Directors under the Company's equity plans, in connection with the hiring or retention of personnel and are subject to certain conditions. In May 2020, the Company’s stockholders approved the Company's 2020 Equity Incentive Plan, or the 2020 Plan. Prior to the adoption of the 2020 Plan, the Company granted equity awards under its 2010 Equity Incentive Plan, as amended, or the 2010 Plan, which expired in May 2020. The Company recognizes stock-based compensation expense related to stock options, restricted stock units, and market-based stock units granted to employees, directors, and non-employee advisors in exchange for services under the 2020 Plan and 2010 Plan, or together the Equity Plans, and employee stock purchases under the Company's Amended and Restated 2013 Employee Stock Purchase Plan, or the ESPP. Employee participation in the Equity Plans is at the discretion of the Compensation Committee of the Board of Directors of the Company. Each equity award reduces the number of shares available for grant under the ~~Plans.~~applicable Equity Plan. Stock-based compensation expense is recorded in cost of sales, sales and marketing, research and development, and general and administrative expense based on employees' respective function. During the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, the Company recognized stock-based compensation expense of ~~$8,048,000~~$10.5 million and ~~$5,711,000,~~$8.8 million, respectively. The Company recognized stock-based compensation expense of ~~$2,428,000~~$2.4 million and ~~$3,167,000,~~$3.1 million, respectively, during the three months ended ~~June~~September 30, 2020 and 2019.

Stock Options

The fair value of stock options granted is derived from the Black-Scholes Option Pricing Model, which uses several judgment-based variables to calculate the expense. The inputs include the expected term of the stock option, the expected volatility, and other factors.

• Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding and is determined by using the simplified method.

• Expected Volatility. Expected volatility represents the estimated volatility in the Company’s stock price over the expected term of the stock option and is determined by review of the Company’s historical experience.

• Expected Dividend. The Black-Scholes Option Pricing Model calls for a single expected dividend yield as an input. The Company has assumed no dividends as it has never paid dividends and has no current plans to do so.

• Risk-Free Interest Rate. The risk-free interest rate used in the Black-Scholes Option Pricing Model is based on published U.S. Treasury rates in effect at the time of grant for periods corresponding with the expected term of the option.

All stock options granted under the Equity Plans are exercisable at a per share price equal to the closing quoted market price of a share of the Company’s common stock on the NASDAQ ~~Global Market~~stock market on the grant date and generally vest over a period of four years. Stock options are generally exercisable for a period of up to ten years after grant and are typically forfeited if employment is terminated before the options vest.

Table of Contents

The ~~Company's~~Company’s stock option activity for the ~~six~~nine months ended ~~June~~September 30, 2020 was as follows:


		Number of Shares	Weighted Average Exercise Price			Number of Shares	Weighted Average Exercise Price
Outstanding at December 31, 2019	Outstanding at December 31, 2019	2,037,132	$	9.53	Outstanding at December 31, 2019	2,037,132	$	9.53

Exercised	Exercised	(716,312)	$	5.63	Exercised	(1,095,951)	$	7.81
Cancelled	Cancelled	(15,444)	$	12.07	Cancelled	(15,444)	$	12.07
Outstanding at June 30, 2020		1,305,376	$	11.64
Vested and expected to vest at June 30, 2020		1,305,376	$	11.64
Exercisable at June 30, 2020		1,305,376	$	11.64
Outstanding at September 30, 2020					Outstanding at September 30, 2020	925,737	$	11.52
Vested and expected to vest at September 30, 2020					Vested and expected to vest at September 30, 2020	925,737	$	11.52
Exercisable at September 30, 2020					Exercisable at September 30, 2020	925,737	$	11.52

There were ~~1,305,376~~925,737 stock options exercisable and outstanding as of ~~June~~September 30, 2020, all of which were granted under the 2010 Plan and which had a remaining weighted average contractual term of ~~3.85~~3.66 years and an aggregate intrinsic value of ~~$4,007,000.~~$2.5 million. The Company has recognized all compensation expense related to stock options granted under the 2010 Plan. The Company ~~has~~did not ~~granted~~grant any stock options under the 2020 ~~Plan.~~Plan during the nine months ended September 30, 2020.

Restricted Stock Units

Restricted stock units granted under the Equity Plans generally vest over a period of between one and four years and are typically forfeited if service to the Company ceases before the restricted stock units vest. The compensation expense related to the restricted stock units is calculated as the fair market value of the Company's stock on the grant date and is adjusted for estimated forfeitures. Restrictions expire after the grant date in accordance with specific provisions in the applicable award agreement.

The Company’s restricted stock unit activity for the ~~six~~nine months ended ~~June~~September 30, 2020 was as follows:


		Number of Shares	Weighted Average Grant Date Fair Value			Number of Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2019		2,669,499	$	6.42
Outstanding at December 31, 2019					Outstanding at December 31, 2019	2,669,499	$	6.42
Granted	Granted	1,911,136	$	4.24	Granted	1,956,136	$	4.50
Vested	Vested	(1,181,901)	$	6.42	Vested	(1,365,857)	$	6.44
Cancelled	Cancelled	(278,083)	$	6.14	Cancelled	(409,366)	$	5.86
Unvested at June 30, 2020		3,120,651	$	5.11
Outstanding at September 30, 2020					Outstanding at September 30, 2020	2,850,412	$	5.18

As of ~~June~~September 30, 2020, there was ~~$12,733,000~~$12.1 million of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted average period of ~~2.32~~2.13 years. The total grant date fair value of restricted stock units that vested during the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 was ~~$5,337,000~~$7.8 million and ~~$5,047,000,~~$7.5 million, respectively.

Market-Based Stock Units

The Company granted market-based stock units in each of February 2020, 2019, and 2018, which may result in the recipient receiving shares of stock equal up to 200% of the target number of units granted. The vesting and issuance of Company stock pursuant to market-based stock units depends on the Company's stock performance as compared to the NASDAQ Composite Index over the three-year period following the grant, subject to the recipient's continued service with the Company. As of ~~June~~September 30, 2020, there was ~~$1,444,000~~$1.4 million of unrecognized stock-based compensation expense related to market-based stock unit awards, which is expected to be recognized over a weighted average period of ~~2.00~~1.8 years.

The Company’s market-based stock unit activity for the ~~six~~nine months ended ~~June~~September 30, 2020 was as follows:


		Number of Shares	Weighted Average Grant Date Fair Value			Number of Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2019		454,229	$	9.40
Outstanding at December 31, 2019					Outstanding at December 31, 2019	454,229	$	9.40
Granted	Granted	321,250	$	4.39	Granted	321,250	$	4.39
Vested	Vested	(181,667)	$	9.52	Vested	(189,167)	$	9.32
Cancelled	Cancelled	(69,378)	$	9.17	Cancelled	(114,466)	$	8.53
Unvested at June 30, 2020		524,434	$	6.32
Outstanding at September 30, 2020					Outstanding at September 30, 2020	471,846	$	6.32

Table of Contents

The fair value of these market-based stock units was estimated on the grant date using the Monte Carlo Simulation Valuation Model, which estimates the potential outcome of achieving the market conditions based on simulated future stock prices, with the following assumptions for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019:


		Six Months Ended June 30,										Nine Months Ended September 30,
		2020			2019				2020			2019
Expected volatility	Expected volatility	62		%	64		%	Expected volatility	62		%	64		%
Risk-free interest rate	Risk-free interest rate	1.16		%	2.50		%	Risk-free interest rate	1.16		%	2.50		%
Expected dividend	Expected dividend	—		%	—		%	Expected dividend	0		%	0		%
Weighted average fair value	Weighted average fair value	$	4.39		$	10.22		Weighted average fair value	$	4.39		$	10.22

Employee Stock Purchase Plan

The Company's stockholders originally approved the ESPP in May 2013. In May 2018, the Company's stockholders approved the amendment and restatement of the ESPP, which increased the shares authorized for issuance under the ESPP from 650,000 shares to 1,750,000 shares.

The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the Company's common stock on the first or the last day of the offering period, whichever is lower. Generally, each offering under the ESPP will be for a period of six months as determined by the Company's Board of Directors; provided that no offering period may exceed 27 months. Employees may invest up to 10% of their qualifying gross compensation through payroll deductions. In no event may an employee purchase more than 1,500 shares of common stock during any six-month offering period. As of ~~June~~September 30, 2020, there were 627,886 shares of common stock available for issuance under the ESPP. The ESPP is a compensatory plan as defined by the authoritative guidance for stock compensation; therefore, stock-based compensation expense related to the ESPP has been recorded during each of the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.

Stock-Based Compensation Expense Recognition

Stock-based compensation was recognized in the ~~Unaudited Condensed Consolidated Statements~~unaudited condensed consolidated statements of ~~Comprehensive Loss~~comprehensive loss as follows (in thousands):


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
		2020		2019		2020		2019			2020		2019		2020		2019
Cost of revenue	Cost of revenue	$	310	$	248	$	549	$	452	Cost of revenue	66		248		615		700
Sales and marketing	Sales and marketing	628		792		1,281		1,411		Sales and marketing	714		801		1,995		2,212
General and administrative										General and administrative	1,041		1,644		6,286		4,620
Research and development	Research and development	553		449		973		872		Research and development	605		436		1,578		1,308
General and administrative		937		1,678		5,245		2,976
Total stock-based compensation expense	Total stock-based compensation expense	$	2,428	$	3,167	$	8,048	$	5,711	Total stock-based compensation expense	$	2,426	$	3,129	$	10,474	$	8,840

~~Stock-based~~The Company did 0t capitalize stock-based compensation ~~capitalized~~expense during the periods presented ~~was not material~~ and there was no0 unrecognized tax benefit related to stock-based compensation for either of the ~~six~~nine months ended ~~June~~September 30, 2020 ~~and~~or 2019.

4. Stockholders' Equity

On May 6, 2020, the Company entered into an Underwriting Agreement, or the Underwriting Agreement, with Cowen and Company, LLC and William Blair & Company, LLC acting as joint book-running managers and as representatives of the underwriters named therein, or collectively, the Underwriters, relating to the issuance and sale of 7,253,886 shares of the Company’s common stock, ~~par value $0.0001 per share,~~ or the Offering. Under the terms of the Underwriting Agreement, the Company granted the Underwriters an option, exercisable for 30 days, to purchase up to an additional 1,088,082 shares of common stock. The ~~Company~~Offering closed ~~the Offering~~ on May 11, 2020 and the Company sold 8,341,968 shares of common stock, including the full exercise of the Underwriters' option, at a public offering price of $9.65 per share before underwriting ~~fees~~discounts and ~~discounts.~~commissions. The Company raised ~~$80,500,000~~$80.5 million in gross proceeds from the Offering and incurred ~~$4,830,000~~$4.8 million in ~~underwriters’~~Underwriters’ discounts and ~~$240,000~~commissions and $0.2 million in professional services related to the Offering.

On August 5, 2019, the Company entered into an Equity Distribution Agreement, or the Distribution Agreement, with Canaccord Genuity LLC, or Canaccord, pursuant to which the Company may offer and sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to ~~$35,000,000.~~$35.0 million. Under the Distribution Agreement, Canaccord may sell shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 under the U.S. Securities Act of 1933, as amended, or any other method permitted by law, including in privately negotiated transactions. The Company is not obligated to sell any shares under the Distribution Agreement. Canaccord is entitled to a commission of 3% of the aggregate gross proceeds from each sale of shares

~~from each sale of shares~~ occurring pursuant to the Distribution Agreement. During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company sold 363,120 shares of common stock under the Equity Distribution Agreement at a weighted average price per share of $6.13 resulting in aggregate gross proceeds of ~~$2,227,000.~~$2.2 million. The Company incurred $67,000 in commissions paid to Canaccord in connection with such sales. As of ~~June~~September 30, 2020, the Company may issue up to an additional ~~$19,714,000~~$19.7 million of its common stock under the Distribution Agreement.

5. Condensed Consolidated Financial Statement Details

The following tables show the Company's unaudited condensed consolidated financial statement details as of ~~June~~September 30, 2020 and December 31, 2019 (in thousands):

~~Inventory~~Inventories, Net


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Raw materials	Raw materials	$	6,761	$	3,408	Raw materials	$	8,636	$	3,408
Work-in-process	Work-in-process	4,548		3,776		Work-in-process	6,805		3,776
Finished goods	Finished goods	3,618		4,117		Finished goods	4,129		4,117
Total inventories	Total inventories	$	14,927	$	11,301	Total inventories	$	19,570	$	11,301

Property and Equipment, Net


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Property and equipment — at cost:	Property and equipment — at cost:					Property and equipment — at cost:
Machinery and laboratory equipment	Machinery and laboratory equipment	$	18,099	$	16,551	Machinery and laboratory equipment	$	19,466	$	16,551
Instruments	Instruments	14,708		16,796		Instruments	13,693		16,796
Office equipment	Office equipment	2,236		2,150		Office equipment	2,328		2,150
Leasehold improvements	Leasehold improvements	11,993		11,896		Leasehold improvements	19,223		11,896
Total property and equipment — at cost	Total property and equipment — at cost	47,036		47,393		Total property and equipment — at cost	54,710		47,393
Less: accumulated depreciation	Less: accumulated depreciation	(27,616)		(26,974)		Less: accumulated depreciation	(28,500)		(26,974)
Property and equipment, net	Property and equipment, net	$	19,420	$	20,419	Property and equipment, net	$	26,210	$	20,419

6. Intangible Assets, Net

Intangible assets as of each of ~~June~~September 30, 2020 and December 31, 2019 comprised the following (in thousands):

June 30, 2020 December 31, 2019
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Licensed intellectual property $ 4,750 $ (3,613) $ 1,137 $ 4,750 $ (3,318) $ 1,432


	September 30, 2020						December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Licensed intellectual property	$	4,750	$	(3,761)	$	989	$	4,750	$	(3,318)	$	1,432

Intellectual property licenses have a weighted average remaining amortization period of ~~1.94~~1.69 years as of ~~June~~September 30, 2020. Amortization expense for these licenses was ~~$147,000 and $148,000 for~~$0.1 million during both the three months ended ~~June~~September 30, 2020 and 2019, respectively, and was ~~$295,000 and $296,000~~$0.4 million during both the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~2019, respectively.~~2019.

Estimated future amortization expense for these licenses is as follows (in thousands):


Fiscal Years Ending	Fiscal Years Ending	Future Amortization Expense		Fiscal Years Ending	Future Amortization Expense
Remaining in 2020	Remaining in 2020	$	296	Remaining in 2020	$	148
2021	2021	591		2021	591
2022	2022	250		2022	250

Total	Total	$	1,137	Total	$	989

7. Marketable Securities

The following table summarizes the Company’s marketable securities as of each of ~~June~~September 30, 2020 and December 31, 2019 (in thousands):


June 30, 2020		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2020										September 30, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Corporate notes and bonds	Corporate notes and bonds	$	21,791	$	31	$	—	$	21,822	Corporate notes and bonds	$	29,887	$	11	$	(2)	$	29,896
U.S. government and agency securities		1,500		—		—		1,500

Commercial paper	Commercial paper	27,051		1		—		27,052		Commercial paper	49,551		21		0		49,572
Total	Total	$	50,342	$	32	$	—	$	50,374	Total	$	79,438	$	32	$	(2)	$	79,468

December 31, 2019	December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Corporate notes and bonds	Corporate notes and bonds	$	9,099	$	2	$	(1)	$	9,100	Corporate notes and bonds	$	9,099	$	2	$	(1)	$	9,100

Total	Total	$	9,099	$	2	$	(1)	$	9,100	Total	$	9,099	$	2	$	(1)	$	9,100

All of the Company's marketable securities have a maturity of one year or less.

8. Fair Value of Financial Instruments

The carrying amounts of financial instruments, such as cash equivalents, restricted cash, accounts receivable, and accounts payable approximate the related fair values due to the short-term maturities of these instruments.

The Company uses a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last is considered unobservable, to measure fair value:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table presents the financial instruments measured at fair value on a recurring basis and the valuation approach applied to each class of financial instruments as of ~~June~~September 30, 2020 and December 31, 2019 (in thousands):


		June 30, 2020															September 30, 2020
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash equivalents	Cash equivalents									Cash equivalents
Money market funds	Money market funds	$	64,230	$	—	$	—	$	64,230	Money market funds	$	35,075	$	0	$	0	$	35,075

Marketable securities	Marketable securities									Marketable securities
Corporate notes and bonds	Corporate notes and bonds	—		21,822		—		21,822		Corporate notes and bonds	0		29,896		0		29,896
U.S. government and agency securities		—		1,500		—		1,500

Commercial paper	Commercial paper	—		27,052		—		27,052		Commercial paper	0		49,572		0		49,572
Total	Total	$	64,230	$	50,374	$	—	$	114,604	Total	$	35,075	$	79,468	$	0	$	114,543

		December 31, 2019															December 31, 2019
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash equivalents	Cash equivalents									Cash equivalents
Money market funds	Money market funds	$	19,647	$	—	$	—	$	19,647	Money market funds	$	19,647	$	0	$	0	$	19,647

Marketable securities	Marketable securities									Marketable securities
Corporate notes and bonds	Corporate notes and bonds	—		9,100		—		9,100		Corporate notes and bonds	0		9,100		0		9,100

Total	Total	$	19,647	$	9,100	$	—	$	28,747	Total	$	19,647	$	9,100	$	0	$	28,747

Level 2 marketable securities are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs.

9. ~~Long-term debt~~Long-Term Debt

As of ~~June~~September 30, 2020 and December 31, 2019, long-term debt consisted of the following (in thousands):


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Term Loan	Term Loan	70,000		70,000		Term Loan	70,000		70,000
Final fee obligation	Final fee obligation	4,865		4,165		Final fee obligation	4,865		4,165
Unamortized issuance costs	Unamortized issuance costs	(4,676)		(5,020)		Unamortized issuance costs	(4,122)		(5,020)
Total debt, net	Total debt, net	70,189		69,145		Total debt, net	70,743		69,145
Current portion of long-term debt	Current portion of long-term debt	—		—		Current portion of long-term debt	0		0
Long-term debt	Long-term debt	$	70,189	$	69,145	Long-term debt	$	70,743	$	69,145

Term Loans

On February 1, 2019, or the Effective Date, the Company entered into a Loan and Security Agreement, or the LSA, with Solar Capital Ltd. and certain other financial institutions, or, collectively, the Lenders. Pursuant to the LSA, the Lenders have provided the Company with a total of ~~$70,000,000~~$70.0 million in a series of term loans, or collectively, the Term Loans, of which ~~$50,000,000,~~$50.0 million was funded on the Effective Date, and an additional ~~$20,000,000,~~$20.0 million was funded in December 2019 upon the Company's achievement of a designated amount of product revenues on a trailing six-month basis.

The Term Loans under the LSA accrue interest at a floating per annum rate in effect from time-to-time equal to (a) the greater of 2.51% or the one-month Intercontinental Exchange Benchmark Administration, Ltd. rate then in effect as of the applicable payment date, plus (b) 5.90% per annum. The Company is only required to make interest payments on amounts borrowed pursuant

to the Term Loans from the applicable funding date until February 28, 2022, or the Interest Only Period. Following the Interest Only Period,

monthly installments of principal and interest under the Term Loans will be due until the original principal amount and applicable interest is fully repaid by February 1, 2023.

Under the LSA, the Company is required to comply with certain affirmative and negative covenants, including, without limitation, delivering reports and notices relating to the Company’s financial condition and certain regulatory events and intellectual property matters, as well as limiting the creation of liens, the incurrence of indebtedness, and the making of certain investments, dividends, payments and acquisitions, other than as specifically permitted by the ~~New~~ LSA. As of ~~June~~September 30, 2020, the Company was in compliance with all covenants under the LSA.

The LSA also contains customary events of default (subject, in certain instances, to specified cure periods), including, but not limited to, the failure to make payments of interest or premium when due, the failure to comply with certain covenants and agreements specified in the LSA, and the occurrence of a material adverse change, certain regulatory events, or certain insolvency events. Upon the occurrence of an event of default, the Lenders may declare all outstanding principal and accrued but unpaid interest under the LSA immediately due and payable and may exercise the other rights and remedies as set forth in the LSA.

Debt Issuance Costs

As of ~~June~~September 30, 2020 and December 31, 2019, the Company had ~~$4,676,000~~$4.1 million and ~~$5,020,000,~~$5.0 million, respectively, of unamortized debt issuance discount, which is offset against borrowings in long-term and short-term debt.

Amortization of debt issuance costs was ~~$549,000~~$0.6 million and ~~$450,000~~$0.5 million for the three months ended ~~June~~September 30, 2020 and 2019, respectively, and ~~$1,145,000~~$1.7 million and ~~$816,000~~$1.3 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively. Amortization of debt issuance costs is included in interest expense in the Company's unaudited condensed consolidated statements of comprehensive loss for the periods presented.

Letter of Credit

The Company has provided an aggregate of ~~$1,604,000~~$1.6 million in letters of credit to the landlords of certain of its leased facilities and maintains $42,000 in required minimum account balances with the financial institutions issuing such letters of credit. As a result, the Company maintains ~~$1,646,000~~$1.6 million of restricted cash in connection with these lease agreements as of ~~June~~September 30, 2020.

10. Leases

On July 2, 2020, the Company entered into a Single Tenant Industrial Triple Net Lease, or the Lease, with Icon Owner Pool 1 West/Southwest, LLC, as landlord, or the Landlord. Pursuant to the Lease, the Company has leased an approximately 73,000 square foot facility in Carlsbad, California, or the Facility, which the Company may use for manufacturing, research and development, office, and/or distribution purposes. The original term of the Lease runs through June 30, 2031. In addition, subject to the terms and conditions of the Lease, the Landlord has granted the Company an ongoing right of first refusal to lease two additional buildings located adjacent to the Facility. Under the Lease, the Company will pay the Landlord base rent commencing on February 1, 2021 of approximately $0.1 million per month, which base rent amount will increase annually at a rate of 3%. The base rent amount payable by the Company is in addition to “triple net” operating expenses payable by the Company, as set forth in the Lease. In addition, the Company has provided the Landlord a standby letter of credit in the amount of approximately $0.8 million as security for the Company’s full performance of its obligations under the Lease. In connection with entering into the Lease, and subject to the terms and conditions set forth therein, the Landlord has agreed to provide the Company a tenant improvement allowance for the Facility in an amount up to $4.2 million.

The Company has operating lease agreements for its office, manufacturing, warehousing and laboratory space. Rent and operating expenses charged under these arrangements was ~~$468,000~~$0.8 million and ~~$483,000~~$0.5 million for the three months ended ~~June~~September 30, 2020 and 2019, respectively, and ~~$952,000~~$1.7 million and ~~$1,009,000~~$1.5 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.

The Company reported noncurrent operating lease ROU assets of ~~$4,372,000~~$8.8 million and ~~$4,642,000,~~$4.6 million, current operating lease liabilities of ~~$1,870,000~~$2.7 million and ~~$1,842,000,~~$1.8 million, and noncurrent operating lease liabilities of ~~$5,217,000~~$8.9 million and ~~$5,796,000,~~$5.8 million, respectively, as of ~~June~~September 30, 2020 and December 31, 2019. The ~~Company's~~Company’s operating lease liabilities were measured at a weighted average discount rate of ~~11.2%~~11.4% and have a weighted average remaining term of ~~4.49~~8.0 years.

Table of Contents

As of ~~June~~September 30, 2020, the future minimum lease payments required under the Company's operating lease arrangements are as follows (in thousands):


Fiscal Years Ending	Fiscal Years Ending	Future Minimum Lease Payments		Fiscal Years Ending	Future Minimum Lease Payments
Remaining in 2020	Remaining in 2020	$	990	Remaining in 2020	$	495
2021	2021	2,015		2021	3,293
2022	2022	2,077		2022	3,509
2023	2023	1,939		2023	3,415
2024	2024	1,383		2024	2,902
2025				2025	2,266
Thereafter	Thereafter	701		Thereafter	9,491
Total	Total	9,105		Total	25,371
Less: imputed interest	Less: imputed interest	(2,018)		Less: imputed interest	(9,485)
Less: tenant improvement allowance receivable from landlord				Less: tenant improvement allowance receivable from landlord	(4,233)
Total operating lease liabilities	Total operating lease liabilities	$	7,087	Total operating lease liabilities	$	11,653

11. Income Taxes

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

As of ~~June~~September 30, 2020, the Company recorded a full valuation allowance against all of its net deferred tax assets due to the uncertainty surrounding the Company’s ability to utilize these assets in the future. Due to the Company's losses, it only records a tax provision or benefit related to uncertain tax positions and related interest and minimum tax payments or refunds. The Company recorded income tax ~~expense~~benefit of ~~$63,000~~$17,000 and ~~$45,000~~$33,000 for the three months ended ~~June~~September 30, 2020 and 2019, respectively, and ~~$78,000~~income tax expense of $61,000 and ~~$61,000~~$28,000 for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

The Company is subject to taxation in the United States and in various state and foreign jurisdictions. The ~~Company's~~Company’s federal and state tax returns since inception are subject to examination due to the carryover of net operating losses. The statute of limitations for the assessment and collection of income taxes related to other foreign tax returns varies by country. In the foreign countries where we have operations, these time periods generally range from three to five years after the year for which the tax return is due or the tax is assessed.

In March 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which includes modifications to the limitation on business interest expense and net operating loss provisions and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. The Company is currently evaluating the impact of the CARES Act on its unaudited condensed consolidated financial statements.

~~12. Subsequent Events~~

The original term of the Lease runs through June 30, 2031, provided that the Company may, subject to certain customary conditions as set forth in the Lease, extend the term of the Lease at fair market rental value for 2 additional ~~five~~-year periods upon at least 12-months’ written notice prior to the end of the then-current term of the Lease. In addition, subject to the terms and conditions of the Lease, the Landlord has granted the Company an ongoing right of first refusal to lease two additional buildings located adjacent to the Facility. Under the Lease, the Company will pay the Landlord base rent commencing on February 1, 2021 of approximately $116,200 per month, which base rent amount will increase annually at a rate of 3%. The base rent amount payable by the Company is in addition to “triple net” operating expenses payable by the Company, as set forth in the Lease. In addition, the Company has provided the Landlord a standby letter of credit in the amount of approximately $846,000 as security for the Company’s full performance of its obligations under the Lease. In connection with entering into the Lease, and subject to the terms and conditions set forth therein, the Landlord has agreed to provide the Company a tenant improvement allowance for the Facility in an amount up to $4,274,000.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

The following discussion of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements for the ~~six~~nine months ended ~~June~~September 30, 2020 and the notes thereto included in Part I, Item 1 of this Quarterly Report, as well as the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2019.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management, including, without limitation, our expectations regarding our results of operations, sales and marketing expenses, general and administrative expenses, research and development expenses, and the sufficiency of our cash for future operations. Words such as “expect,” “anticipate,” “target,” “project,” “believe,” “goals,” “estimate,” “potential,” “predict,” “plan,” “may,” “will,” “might,” “could,” “intend,” variations of these terms or the negative of those terms and similar expressions are intended to identify these forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in or implied by any forward-looking statements.

Among the important factors that could cause actual results to differ materially from those indicated by our forward-looking statements are those discussed under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report. We assume no obligation to update these forward looking statements to reflect future events or circumstances.

Trademarks and Trade Names

GenMark^®, eSensor^®, XT-8^®, and ePlex^® and our other logos and trademarks are the property of GenMark Diagnostics, Inc. or its subsidiaries. All other brand names or trademarks appearing in this Quarterly Report are the property of their respective holders. Our use or display of other parties’ trademarks, trade dress or products in this Quarterly Report does not imply that we have a relationship with, or the endorsement or sponsorship of, the trademark or trade dress owners.

Overview

GenMark was formed by Osmetech plc, or Osmetech, as a Delaware corporation in February 2010, and had no operations prior to its initial public offering, which was completed in June 2010. Immediately prior to the closing of the initial public offering, GenMark acquired all of the outstanding ordinary shares of Osmetech in a reorganization under the applicable laws of the United Kingdom. Following the reorganization, Osmetech became a wholly-owned subsidiary controlled by GenMark, and the former shareholders of Osmetech received shares of GenMark. Any historical discussion of GenMark relates to Osmetech and its consolidated subsidiaries prior to the reorganization. In September 2012, GenMark placed Osmetech into liquidation to simplify its corporate structure. The liquidation of Osmetech was competed in the fourth quarter of 2013.

We are a molecular diagnostics company focused on developing and commercializing multiplex solutions designed to enhance patient care, improve key quality metrics, and reduce the total cost-of-care. We currently develop and commercialize high-value, simple to perform, clinically relevant multiplex molecular tests based on our proprietary eSensor electrochemical detection technology.

Since inception, we have incurred net losses from operations each year, and we expect to continue to incur losses for the foreseeable future. Our net losses for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 were approximately ~~$11.7~~$14.9 million and ~~$25.4~~$37.1 million, respectively. As of ~~June~~September 30, 2020, we had an accumulated deficit of ~~$525.9~~$529.2 million. Our operations to date have been funded principally through sales of capital stock, borrowings, and cash from operations.

Our Products and Technology

We offer our ePlex sample-to-answer instrument and Respiratory Pathogen (RP) Panel, Respiratory Pathogen Panel 2 (RP2), Blood Culture Identification Gram-Positive (BCID-GP) Panel, Blood Culture Identification Gram-Negative (BCID-GN) Panel, and Blood Culture Identification Fungal Pathogen (BCID-FP) Panel for sale in the United States and internationally. In addition, in response to the COVID-19 outbreak, we received Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration, or the FDA, in March 2020 for our ePlex SARS-CoV-2 ~~test.~~Test. We ~~have~~ also ~~submitted an~~received CE Mark and FDA EUA ~~to the FDA~~ for ~~our ePlex Respiratory Pathogen Panel 2 (RP2) during June 2020,~~RP2, which is designed to provide results for SARS-CoV-2 in addition to the other respiratory viruses contained on our ePlex RP Panel. We are also developing our ePlex Gastrointestinal Pathogen Panel for the detection of pathogens associated with gastrointestinal infections. We continue to

Table of Contents

~~gastrointestinal infections. We continue to~~ actively evaluate the development of additional assay panels that we believe will meet important, unmet clinical needs, which our ePlex system is uniquely positioned to address.

We offer four FDA-cleared diagnostic tests which run on our XT-8 instrument: our Respiratory Viral Panel; our Cystic Fibrosis Genotyping Test; our Warfarin Sensitivity Test; and our Thrombophilia Risk Test. We also offer a Hepatitis C (HCV) Genotyping Test and associated custom manufactured reagents, as well as a 2C19 Genotyping Test, each of which is available for use with our XT-8 instrument for research use only (RUO). In addition, in August 2020 we submitted an EUA to the FDA for our eSensor SARS-CoV-2 Test.

COVID-19 Impact

Our priorities following the COVID-19 outbreak have been, among others, protecting the health and safety of our employees; and increasing our manufacturing capacity for our ePlex tests including RP2, which includes the SARS-CoV-2 pathogen target, and the SARS-CoV-2 single target test in order to assist our customers with the current pandemic. For the three months ended September 30, 2020, we continued to expand our manufacturing capacity to address demand for our tests.

During the quarter ended September 30, 2020, portions of our workforce continued to work remotely as their positions allowed. Our ability to continue to operate without any significant negative operational impact from the COVID-19 pandemic will, in part, depend on our ability to protect our employees and maintain our supply chain. The Company continues to endeavor to follow the recommended actions of government and health authorities to protect our employees, with particular measures in place for employees who manufacture our products. However, the complications resulting from the pandemic could result in unforeseen disruptions to our workforce and supply chain (for example, the inability of a key supplier or transportation supplier to source, transport and supply materials to the Company that are necessary for continued operations) that could negatively impact our operations.

We believe the extent of the COVID-19 pandemic’s impact on our operating results and financial condition will be driven by many factors, most of which are beyond our control and ability to forecast. Such factors include, but are not limited to, the severity and duration of the pandemic, our ability to timely develop, commercialize and manufacture solutions related to the pandemic, the extent and the effectiveness of responsive actions taken by authorities of impacted countries, the impact of these and other factors on our employees, customers and suppliers, as well as any resulting impact of the economic uncertainty and volatility that could affect demand for our products. Because of these and other uncertainties, we cannot estimate the length or extent of the impact of the pandemic on our business. For additional information on risk factors related to the pandemic or other risks that could impact our results, please refer to “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, and as updated by Part II, Item 1A of this Quarterly Report on Form 10-Q.

Revenue

Revenue from operations includes revenue from the sale of our products and other services. Product revenue comprises the sale of diagnostic tests and instruments. In addition to selling our instruments, we also place our instruments with customers through a reagent rental agreement, under which we retain title to the instrument and customers generally commit to purchasing minimum quantities of reagents and test cartridges over a period of one to five years. Under our reagent rental agreements, a portion of the price charged to customers from the sale of test cartridges is attributable to the usage fee for the instrument. Other revenue primarily consists of freight revenue and revenue from extended service agreements.

Cost of Revenues

Cost of revenues includes the cost of materials, direct labor, and manufacturing overhead costs used in the manufacture of our consumable tests. Cost of revenues also includes depreciation on revenue generating instruments that have been placed with our customers under a reagent rental agreement, cost of instruments sold to customers, amortization of licenses related to our products, and other costs such as warranty, royalty, and customer and product technical support. Any potential underutilized capacity may result in a high cost of revenues relative to revenue, if manufacturing volumes are not able to fully absorb operating costs. Our instruments are procured from contract manufacturers. We expect our cost of revenues to increase as we place additional instruments and manufacture and sell additional diagnostic panels; however, over time, we expect our cost per unit to decrease as production volume increases, manufacturing efficiencies are realized, improvements to procurement practices are made, product reliability increases, and other improvements decrease costs.

Sales and Marketing Expenses

Sales and marketing expenses include costs associated with our direct sales force, sales management, marketing, technical support, and business development activities. These expenses primarily consist of salaries, commissions, benefits, stock-based compensation, travel, advertising, promotions, product samples, and trade show expenses.

Table of Contents

Research and Development Expenses

Research and development expenses primarily include costs associated with the development and expansion of our ePlex instrument's diagnostic test menu. These expenses also include certain clinical study expenses incurred in preparation for FDA clearance for these products, intellectual property prosecution and maintenance costs, and quality assurance expenses. The expenses primarily consist of salaries, benefits, stock-based compensation, outside design and consulting services, laboratory supplies, costs of consumables and materials used in product development, and clinical studies and facility costs. We expense all research and development expenses in the periods in which they are incurred.

General and Administrative Expenses

Our general and administrative expenses include costs associated with our executive, accounting and finance, compliance, information technology, legal, facilities, human resources, administrative, and investor relations activities. These expenses consist primarily of salaries, benefits, stock-based compensation, independent auditor costs, legal fees, consultant costs, insurance premiums, and public company expenses, such as stock transfer agent fees and listing fees for NASDAQ.

Foreign Exchange Gains and Losses

Transactions in currencies other than our functional currency, the U.S. Dollar, are translated at the prevailing rates on the dates of the applicable transaction. Foreign exchange gains and losses arise from differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is settled or translated.

Interest Income and Interest Expense

Interest income includes interest earned on our cash and cash equivalents and investments. Interest expense represents interest incurred on our loan payable and on other liabilities.

Provision for Income Taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

~~Table of Contents~~

We assess the likelihood that we will be able to recover our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If it is more likely than not that we will not recover our deferred tax assets, we will increase our provision for income taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable.

Our income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable, and deferred taxes in the period in which the facts that give rise to a revision become known.

Results of Operations — Three and ~~six~~nine months ended ~~June~~September 30, 2020 compared to the three and ~~six~~nine months ended ~~June~~September 30, 2019:


		Three Months Ended June 30,														Six Months Ended June 30,
		2020		2019		$ Change		% Change		2020		2019		$ Change		% Change			Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)																	(dollars in thousands)	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change
Revenue	Revenue	$	40,086	$	18,374	$	21,712	118	%	$	78,828	$	39,907	$	38,921	98	%	Revenue	$	42,646	$	20,918	$	21,728	104	%	$	121,474	$	60,825	$	60,649	100	%

Our revenue consists primarily of revenue from the sale of test cartridges (which we refer to as consumables), instruments, and other revenues.

Revenue increased by $21.7 million, or ~~118%~~104%, during the three months ended ~~June~~September 30, 2020 when compared to the same period of the prior year, primarily driven by growth in ePlex product revenue. For the three months ended ~~June~~September 30, 2020, ePlex product

Table of Contents

revenue increased by ~~$23.3~~$24.8 million, or ~~195%~~187%, to ~~$35.2~~$38.0 million primarily due to increases in the sale of SARS-CoV-2 and RP2 test consumables and instrument sales to both new and existing customers. ~~Sales of SARS-CoV-2 test consumables represented 48% of total ePlex product revenue during the three months ended June 30, 2020.~~ XT-8 product revenue decreased by ~~$1.9~~$3.4 million over the prior year period, or ~~31%~~46%, to ~~$4.2~~$4.0 million during the three months ended ~~June~~September 30, 2020, primarily due to decreased sales volumes.

Revenue increased by ~~$38.9~~$60.6 million, or ~~98%~~100% during the ~~six~~nine months ended ~~June~~September 30, 2020 when compared to the same period of the prior year, primarily driven by growth in ePlex product revenue. For the ~~six~~nine months ended ~~June~~September 30, 2020, ePlex product revenue increased by ~~$41.7~~$66.5 million, or ~~152%~~163%, to ~~$69.2~~$107.2 million primarily due to increases in the sale of our ~~respiratory~~SARS-CoV-2 and ~~SARS-CoV-2~~RP2 test consumables and instrument sales to both new and existing customers. ~~Sales of SARS-CoV-2 test consumables represented 27% of total ePlex product revenue during the six months ended June 30, 2020.~~ XT-8 product revenue decreased by ~~$3.2~~$6.6 million over the prior year period, or ~~27%~~34%, to ~~$8.6~~$12.6 million during the ~~six~~nine months ended ~~June~~September 30, 2020, primarily due to decreased sales volumes.


		Three Months Ended June 30,																		Six Months Ended June 30,
		2020			2019			$ Change		% Change		2020			2019			$ Change		% Change			Three Months Ended September 30,										Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)																					(dollars in thousands)	2020			2019			$ Change		% Change		2020			2019			$ Change		% Change
Cost of revenue	Cost of revenue	$	24,235		$	11,801		$	12,434	105	%	$	46,825		$	27,471		$	19,354	70	%	Cost of revenue	$	26,103		$	13,868		$	12,235	88	%	$	72,928		$	41,339		$	31,589	76	%
Gross profit	Gross profit	$	15,851		$	6,573		$	9,278	141	%	$	32,003		$	12,436		$	19,567	157	%	Gross profit	$	16,543		$	7,050		$	9,493	135	%	$	48,546		$	19,486		$	29,060	149	%
Gross margin	Gross margin	40		%	36		%					41		%	31		%					Gross margin	39		%	34		%					40		%	32		%

The increase in cost of revenue for the three months ended ~~June~~September 30, 2020, compared to the same period of the prior year was a result of the growth in ePlex product revenue, which increased by ~~195%~~187% versus the same period of the prior year and represented ~~88%~~89% of total revenue for the current period. Standard product costs in the current quarter increased by ~~$11.1~~$10.6 million as compared to the same period of the prior year due to increases in ePlex product revenue. Cost of revenue in the current period also increased by ~~$935 thousand~~$1.0 million in royalties expense, ~~$220 thousand~~$0.5 million in overhead absorption, $0.3 million in freight expense, ~~$187 thousand in inventory reserve expense,~~ and ~~$158 thousand~~$0.2 million in customer and product and technical support ~~expense.~~expense, all as a result of the increases in ePlex product revenue. These increases were offset by a decrease of $0.4 million in inventory reserve expense in the current period as compared to the same period of the prior year.

Gross profit in the three months ended ~~June~~September 30, 2020 increased by ~~$9.3~~$9.5 million, or a gross margin increase of 4five percentage points when compared to the same period of the prior year. These increases were due to changes in the composition of ePlex product revenue and continued gains in the manufacture of ePlex consumables. The increase in gross margin to 39% in the current period was also attributable to sales mix as ePlex instrument sales comprised a higher percentage of

~~Table of Contents~~

total product revenue ~~and contributed to increased gross profit~~ during the three months ended ~~June~~September 30, 2020 when compared to the same period of the prior year. The increase in gross margin to 40% in the current period was also attributable to the realization of manufacturing efficiencies and improvements to overhead absorption, which resulted in a decrease of $310 thousand in cost of revenue and an increase of 1 gross margin point.

The increase in cost of revenue for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to the same period of the prior year was a result of the growth in ePlex product revenue, which increased by ~~152%~~163% versus the same period of the prior year and represented 88% of total revenue for the current period. Standard product costs increased by ~~$18.9~~$29.5 million in the current period when compared to the same period of the prior year due to increases in ePlex product revenue. Cost of revenue in the current period also increased by ~~$1.4~~$2.4 million in royalties expense, ~~$289 thousand~~$0.6 million in freight expense, ~~$277 thousand~~$0.5 million in customer and product technical support expense, and ~~$261 thousand~~$0.4 million in instrument repair ~~expense.~~expense, all as a result of the increases in ePlex product revenue. These increases were offset by decreases of $1.3 million attributable to the realization of manufacturing efficiencies and improvements to overhead absorption and $0.4 million in inventory reserve expense in the current period as compared to the same period of the prior year.

Gross profit in the ~~six~~nine months ended ~~June~~September 30, 2020 increased by ~~$19.6~~$29.1 million, or a gross margin increase of 10eight percentage points when compared to the same period of the prior year. These increases were due to changes in the composition of ePlex product revenue and continued gains in the manufacture of ePlex consumables. ePlex instrument sales comprised a higher percentage of total product revenue and contributed to increased gross profit during the six months ended June 30, 2020 when compared to the same period of the prior year. The increase in gross margin to ~~41%~~40% in the current period was ~~also~~ attributable to the realization of manufacturing efficiencies and improvements to overhead absorption, which resulted in a decrease of ~~$1.8~~$1.3 million in cost of revenue. ePlex instrument sales also comprised a higher percentage of total product revenue and ~~an increase~~contributed to increased gross profit during the nine months ended September 30, 2020 when compared to the same period of ~~2 gross margin points.~~the prior year.


		Three Months Ended June 30,														Six Months Ended June 30,
		2020		2019		$ Change		% Change		2020		2019		$ Change		% Change			Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)																	(dollars in thousands)	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change
Sales and marketing	Sales and marketing	$	6,285	$	5,803	$	482	8	%	$	12,425	$	11,712	$	713	6	%	Sales and marketing	$	4,979	$	6,279	$	(1,300)	(21)	%	$	17,404	$	17,991	$	(587)	(3)	%

The ~~increase~~decrease in sales and marketing expense for the three months ended ~~June~~September 30, 2020, when compared to the same period of the prior year, was primarily driven by ~~increases~~decreases of ~~$691 thousand~~$0.7 million in evaluation kit expense resulting from the commercial launch of our ePlex BCID Panels during the prior year, a $0.7 million reduction of bad ~~debts~~debt expense related to recoveries during the current period, and ~~$355 thousand~~a decrease of $0.4 million in ~~personnel~~travel expense. ~~The increase in sales and marketing expense was~~These decreases were partially offset by ~~decreases~~increases of ~~$371 thousand~~$0.5 million in ~~travel expense and $249 thousand in marketing~~personnel expense.

Table of Contents

The ~~increase~~decrease in sales and marketing expense for the ~~six~~nine months ended ~~June~~September 30, 2020, when compared to the same period of the prior year, was primarily driven by increases of $775 thousand in personnel expense, including one-time charges of $319 thousand in severance payments and $170 thousand in additional non-cash stock-based compensation expense resulting from a reduction in headcount, $720 thousand in bad debts expense, and $211 thousand in supplies expense. The increase in sales and marketing expense was partially offset by decreases of ~~$514 thousand in travel expense, $352 thousand~~$1.0 million in evaluation kit expense ~~due to~~resulting from the commercial launch of our ePlex BCID ~~Panel~~Panels during the prior year, $0.9 million in travel expense, and ~~$137 thousand~~$0.2 million in marketing expense. These decreases were partially offset by increases of $1.3 million in personnel expense, and $0.2 million in supplies expense.


		Three Months Ended June 30,														Six Months Ended June 30,
		2020		2019		$ Change		% Change		2020		2019		$ Change		% Change			Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)																	(dollars in thousands)	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change
General and administrative	General and administrative	$	4,622	$	4,931	$	(309)	(6)	%	$	13,560	$	9,452	$	4,108	43	%	General and administrative	$	5,367	$	4,765	$	602	13	%	$	18,927	$	14,217	$	4,710	33	%

The ~~decrease~~increase in general and administrative expense for the three months ended ~~June~~September 30, 2020, compared to the same period of the prior year, was primarily driven by ~~decreases~~increases of ~~$401 thousand~~$0.2 million in personnel expense, ~~and $141 thousand in facilities and depreciation expense. The decrease in general and administrative expense was partially offset by increases of $91 thousand~~$0.2 million in professional services expense, and ~~$65 thousand~~$0.1 million in ~~legal~~supplies expense.

The increase in general and administrative expense for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to the same period of the prior year, was primarily driven by an increase of ~~$3.6~~$3.9 million in personnel expense, including $3$3.0 million in non-cash stock-based compensation expense resulting from the acceleration of the vesting of equity awards to our former CEO in connection with his departure, ~~and $489 thousand~~$0.5 million in professional services expense, and $0.2 million in supplies expense.

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 $ Change % Change 2020 2019 $ Change % Change
(dollars in thousands)
Research and development $ 7,637 $ 7,749 $ (112) (1) % $ 13,716 $ 14,092 $ (376) (3) %

~~Table of Contents~~


	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change
Research and development	$	7,463	$	6,294	$	1,169	19	%	$	21,179	$	20,386	$	793	4	%

The ~~decrease~~increase in research and development expense for the three months ended ~~June~~September 30, 2020, compared to the same period of the prior year, was primarily driven by ~~a decrease~~an increases of $1.0 million in personnel expense and $0.9 million in prototype materials used by our assay development ~~teams,~~teams. These increases were partially offset by ~~an increase~~a reduction in expense of ~~$900 thousand~~$0.7 million related to a grant from the Biomedical Advanced Research and Development Authority, or BARDA, received in ~~personnel expense.~~the current period.

The ~~decrease~~increase in research and development expense for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to the same period of the prior year, was primarily driven by ~~decreases~~an increase of ~~$1.1~~$1.5 million in ~~prototype materials used by our assay development teams. The decrease in research and development~~personnel expense, ~~was~~ partially offset by ~~an increase~~a reduction in expense of ~~$689 thousand~~$0.7 million related to a grant from BARDA received in ~~personnel expense.~~the current period.


		Three Months Ended June 30,														Six Months Ended June 30,
		2020		2019		$ Change		% Change		2020		2019		$ Change		% Change			Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)																	(dollars in thousands)	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change
Other expense	Other expense	$	(1,928)	$	(1,353)	$	(575)	42	%	$	(3,916)	$	(2,507)	$	(1,409)	56	%	Other expense	$	(1,979)	$	(1,420)	$	(559)	39	%	$	(5,895)	$	(3,927)	$	(1,968)	50	%

Other expense represents non-operating income and expense, including, but not limited to, earnings on cash, cash equivalents, restricted cash, marketable securities, exchange gains and losses of foreign currency denominated balances, and interest expense related to debt.

The change in other expense for the three and ~~six~~nine months ended ~~June~~September 30, 2020, compared to the same periods of the prior year, were primarily due to higher interest expense from borrowings from our loan and security agreement.


		Three Months Ended June 30,														Six Months Ended June 30,
		2020		2019		$ Change		% Change		2020		2019		$ Change		% Change			Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)																	(dollars in thousands)	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change
Income tax expense		$	63	$	45	$	18	40	%	$	78	$	61	$	17	28	%
Income tax expense (benefit)																		Income tax expense (benefit)	$	(17)	$	(33)	$	16	(48)	%	$	61	$	28	$	33	118	%

Due to net losses incurred, we have only recorded tax provisions related to minimum tax payments in the United States and tax liabilities generated by our foreign subsidiaries, which have remained immaterial.

Liquidity and Capital Resources

To date, we have funded our operations primarily from the sale of our common stock, borrowings, and cash from operations. We have incurred net losses from continuing operations each year and have not yet achieved profitability. As of ~~June~~September 30, 2020, we had ~~$138.3~~$135.2 million of working capital, including ~~$132.8~~$137.3 million in cash, cash equivalents, and marketable securities. We believe our

existing cash, cash equivalents, and marketable securities as of ~~June~~September 30, 2020 will enable us to fund our operations for at least the next 12 months.

The following table summarizes, for the periods indicated, selected items in our unaudited condensed consolidated statements of cash flows:


		June 30,							Nine Months Ended September 30,
Six months ended (in thousands):		2020		2019
(dollars in thousands)						(dollars in thousands)	2020		2019
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	385	$	(15,616)	Net cash provided by (used in) operating activities	$	6,671	$	(25,571)
Net cash used in investing activities	Net cash used in investing activities	(42,978)		(9,107)		Net cash used in investing activities	(78,351)		(1,048)
Net cash provided by financing activities	Net cash provided by financing activities	81,520		12,168		Net cash provided by financing activities	86,039		14,611
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	22		2		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(22)		30
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	$	38,949	$	(12,553)	Net increase (decrease) in cash, cash equivalents, and restricted cash	$	14,337	$	(11,978)

Cash provided by (used in) operating activities

Net cash provided by operating activities increased by ~~$16~~$32.2 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the same period of the prior year. The increase in cash provided by operating activities was primarily due to a decrease of ~~$13.7~~$22.1 million in net loss, ~~and an increase of $3.2 million in non-cash adjustments. The increase in cash provided by operating activities was partially offset by a decrease of $855 thousand from~~favorable changes in operating assets and ~~liabilities.~~liabilities of $8.2 million, and an increase of $1.9 million in non-cash adjustments. The changes in operating assets and liabilities was primarily a result of increases in accounts payable, accrued compensation, operating lease liabilities, and other liabilities, partially offset by increases in accounts receivable and inventory.

Cash used in investing activities

Net cash used in investing activities increased by ~~$33.9~~$77.3 million for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to the same period of the prior year, primarily due to increases of ~~$32.7~~$62.6 million in purchases of marketable securities, a decrease of $8.0 million in the sale and ~~$1.2~~maturities of marketable securities, and $6.7 million in purchases of property and equipment.

Cash provided by financing activities

Net cash provided by financing activities increased by ~~$69.4~~$71.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to the same period of the prior year, primarily due to increases of ~~$77.6~~$75.2 million in net proceeds from the issuance of common stock and ~~$3.1~~$7.7 million from stock option exercises. The increase in cash provided by financing activities was partially offset by ~~$11.4~~a decrease of $11.5 million from net borrowings under our loan and security agreement.

We have prepared cash flow forecasts which indicate, based on our current cash resources available, that we will have sufficient resources to fund our business for at least the next 12 months. Factors that could affect our capital requirements, in addition to those previously identified, include, but are not limited to:

• the level of revenues and the rate of our revenue growth;

• changes in demand from our customers;

• the level of cost of revenues and their impact to our gross margin;

• the level of expenses required to expand our commercial (sales and marketing) activities;

• the level of research and development investment required to develop our diagnostic systems and test menu;

• our need to acquire or license complementary technologies;

• the costs of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights;

• competing technological and market developments; and

• changes in regulatory policies or laws that affect our operations.

Loan and Security Agreement

On February 1, 2019, or the Effective Date, we entered into a Loan and Security Agreement, or the LSA, with Solar Capital Ltd. and certain other financial institutions, or, collectively, the Lenders. Pursuant to the LSA and certain subsequent amendments, the Lenders have provided us with ~~$70~~$70.0 million in a series of term loans, of which ~~$50~~$50.0 million was funded on the Effective Date and an additional ~~$20~~$20.0 million was funded in December 2019 upon our achievement of a designated amount of product revenues on a trailing six-month basis.

The term loans under the LSA accrue interest at a floating per annum rate in effect from time-to-time equal to (a) the greater of 2.51% or the one-month Intercontinental Exchange Benchmark Administration, Ltd. rate then in effect as of the applicable payment date, plus (b) 5.90% per annum. We are only required to make interest payments on amounts borrowed pursuant to the term loans from the applicable funding date until February 28, 2022, or the Interest Only Period. Following the Interest Only Period, monthly installments

of principal and interest under the term loans will be due until the original principal amount and applicable interest is fully repaid by February 1, 2023.

Pursuant to the terms of the LSA, the Lenders are granted a security interest in (a) all of our personal property, other than intellectual property (which is subject to a negative pledge), but including our rights to payment in respect of intellectual property, and (b) the stock of all of our subsidiaries; provided that if the pledge of 100% of the voting shares of our non-U.S. subsidiaries would result in adverse tax consequences, such pledge shall be limited to 65% of the voting stock and 100% of the non-voting stock of each of our non-U.S. subsidiaries.

The LSA contains customary affirmative and negative covenants, including, without limitation, delivering reports and notices relating to our financial condition and certain regulatory events and intellectual property matters, as well as limiting the creation of liens, the incurrence of indebtedness, and the making of certain investments, payments and acquisitions, other than as specifically permitted by the LSA. The LSA also contains customary events of default (subject, in certain instances, to specified cure periods), including, but not limited to, the failure to make payments of interest or premium when due, the failure to comply with certain covenants and agreements specified in the LSA, and the occurrence of a material adverse change, certain regulatory events, or certain insolvency events. Upon the occurrence of an event of default, the Lenders may declare all outstanding principal and accrued but unpaid interest under the LSA immediately due and payable and may exercise the other rights and remedies as set forth in the LSA.

Equity Distribution Agreement

On August 5, 2019, we entered into an Equity Distribution Agreement, or the Distribution Agreement, with Canaccord Genuity LLC, or Canaccord, pursuant to which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to ~~$35~~$35.0 million. Under the Distribution Agreement, Canaccord may sell shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 under the U.S. Securities Act of 1933, as amended, or any other method permitted by law, including in privately negotiated transactions. We are not obligated to sell any shares under the Distribution Agreement.

Canaccord is entitled to a commission of 3% of the aggregate gross proceeds from each sale of shares occurring pursuant to the Distribution Agreement. During the ~~six~~nine months ended ~~June~~September 30, 2020, we sold 363,120 shares of common stock under the ~~Equity~~ Distribution Agreement at a weighted average price per share of $6.13 resulting in aggregate gross proceeds of $2.2 million. We incurred ~~$67 thousand~~$67,000 in commissions paid to Canaccord in connection with such sales. As of ~~June~~September 30, 2020, the Company may issue up to an additional $19.7 million of its common stock under the Distribution Agreement.

Biomedical Advanced Research and Development Authority (BARDA) Funding

In March 2020, we were awarded ~~up to $749 thousand~~$0.7 million from the Biomedical Advanced Research and Development Authority (BARDA), part of the Department of Health and Human Services Office of the Assistant Secretary for Preparedness and Response, to develop and pursue FDA Emergency Use Authorization (EUA) of a diagnostic panel that incorporates the new SARS-CoV-2 viral target into our existing ePlex RP Panel. The full $0.7 million was received in September 2020. In June 2020, we submitted ~~our ePlex~~ RP2 ~~Panel~~ to the FDA for EUA. In October 2020, RP2 received EUA from the FDA.

Underwriting Agreement

On May 6, 2020, the Company entered into an Underwriting Agreement, or the Underwriting Agreement, with Cowen and Company, LLC and William Blair & Company, LLC acting as joint book-running managers and as representatives of the underwriters named therein, or collectively, the Underwriters, relating to the issuance and sale of 7,253,886 shares of common stock and an option, ~~exerciseable~~exercisable by the Underwriters for 30 days, to purchase up to an additional 1,088,082 shares of common ~~stock.~~stock, or the Offering. The ~~Company~~Offering closed ~~the Offering~~ on May 11, 2020 and the Company sold 8,341,968 shares of common stock, including the full exercise of the Underwriters' option, at a public offering price of $9.65 per share before underwriting ~~fees~~discounts and ~~discounts.~~commissions. The Company raised $75.4 million in net proceeds from the Offering, after deducting underwriters discounts and commissions and offering expenses.

Letter of Credit

The Company has provided an aggregate of $1.6 million in letters of credit to the landlords of certain of its leased facilities and maintains ~~$42 thousand~~$42,000 in required minimum account balances with the financial institutions issuing such letters of credit. As a result, the Company maintains $1.6 million of restricted cash in connection with these lease agreements as of ~~June~~September 30, 2020.

If we require additional capital, we cannot be certain that it will be available when needed or that our actual cash requirements will not be greater than anticipated. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences, or privileges senior to those of existing stockholders. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish significant rights to our technologies or products, or grant licenses on terms that are not favorable to us.

Contractual Obligations

Table of Contents

As of ~~June~~September 30, 2020, ~~there were no material changes to our~~we had the following contractual obligations from those disclosed within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.obligations:


	Payments due by period
	Less than 1 year		1-3 years		4-5 years		More than 5 years		Total
Operating lease obligations(1)	$	2,930	$	7,072	$	5,486	$	9,883	$	25,371
Supplier payment obligations(2)	5,346		10,168		1,119		—		16,633
Debt obligations(3)	5,969		80,087		—		—		86,056
Other contractual obligations	63		117		103		—		283
Total obligations	$	14,308	$	97,444	$	6,708	$	9,883	$	128,343



(1)			We enter into leases in the ordinary course of business with respect to our facilities. Our lease agreements have fixed payment terms based on the passage of time. Certain facility leases require payment of maintenance expenses and real estate taxes. Our future operating lease obligations could change if we terminate certain contracts or if we enter into additional leases.
(2)			We enter into supplier contracts in the ordinary course of our business. Certain supplier agreements require us to purchase minimum quantities of goods or services on an annual basis.
(3)			Our contractual obligations under the LSA consist of principal payments, interest, and fees due to the Lenders.

Critical Accounting Policies and Estimates

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 requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate our estimates on an ongoing basis, including those related to doubtful accounts, inventories, valuation of intangible assets and other long-term assets, income taxes, and stock-based compensation. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. There have been no material changes to our critical accounting policies and estimates during the ~~six~~nine months ended ~~June~~September 30, 2020.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements. The Company has provided $1.6 million in letters of credit to the landlords of certain of its leased facilities, which is recorded as restricted cash on our unaudited condensed consolidated balance sheets.

2930

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At ~~June~~September 30, 2020, there have been no material changes in our market risks described at December 31, 2019.

Our exposure to market risk is currently limited to our cash and cash equivalents, all of which have maturities of less than three months, and marketable securities, which have maturities of greater than three months. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs, and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we may in the future maintain a portfolio of cash equivalents and investments in a variety of securities that management believes to be of high credit quality. We currently do not hedge interest rate exposure. Because of the short-term nature of our cash equivalents and investments, we do not believe that an increase in market rates would have a material negative impact on the value of our portfolio.

Interest Rate Risk

As of ~~June~~September 30, 2020, based on current interest rates and total borrowings outstanding, a hypothetical 100 basis point increase or decrease in interest rates would have an insignificant pre-tax impact on our results of operations.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports we file under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer, with the participation of management, concluded that, as of ~~June~~September 30, 2020, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There has been no change in our internal controls over financial reporting that occurred in the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

3031

Table of Contents

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 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~~

ITEM 1A. RISK FACTORS

You should consider the risks described below and all of the other information set forth in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and the related notes and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in evaluating our business and prospects. If any of the risks described below occurs, our business, financial condition or results of operations could be negatively affected. In that case, the market price of our common stock could decline.

We have marked with an asterisk (*) those risks described below that reflect new risks or substantive changes from the risks described under Part I, Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019.

We may not successfully commercialize our ePlex system at the levels we anticipate.

Our current plan for achieving positive cash flow and our future growth projections relies upon the successful commercialization of our ePlex system at the levels we project. Our ePlex system integrates automated nucleic acid extraction and amplification with our eSensor technology to allow operators to place raw or minimally prepared patient samples directly into our test cartridges and obtain clinically relevant results. We believe that our ePlex system offers certain advantages over competitive systems, including superior multiplexing capability, reduced hands-on processing time, and testing capacity and flexibility, among other attributes. However, the commercial success of ePlex will depend on a number of factors, including, but not limited to:

•Our ability to consistently manufacture highly complex products that deliver valid and accurate results at the level required for large-scale market adoption;

•product reliability;

•overall market acceptance;

•our ability to offer a broad and clinically relevant test menu at a competitive price;

•our ability to overcome technical limitations in connection with the development of new products;

•our ability to effectively sell our products into integrated delivery networks and group purchasing organizations;

•adequate reimbursement for our products; and

•the development of clinical utility and health economic evidence to support adoption of our products.

If we are unsuccessful in effectively commercializing our ePlex system at the levels we project within our expected time frame, or at all, our investment in anticipation of growth that does not materialize, or which develops more slowly than we expect, may harm our financial results, reduce our cash balances, and result in overcapacity, which may adversely affect our business and future prospects.

Our business is subject to risks associated with widespread public health crises, including the current COVID-19 pandemic.*

Our business could be adversely affected by the widespread outbreak of a contagious disease, such as the recent outbreak of respiratory illness caused by the novel coronavirus (COVID-19). In March 2020, we received Emergency Use Authorization (EUA) from the FDA for our ePlex SARS-CoV-2 ~~test.~~Test. We have also experienced a recent increase in demand for our respiratory products, including our ePlex Respiratory Pathogen (RP) Panel and SARS-CoV-2 test due to the COVID-19 pandemic. In addition, we were recently awarded up to $749,000 from the Biomedical Advanced Research and Development Authority (BARDA), part of the Department of Health and Human Services (HHS) Office of the Assistant Secretary for Preparedness and Response (ASPR), to develop and pursue an EUA of a diagnostic panel ~~(ePlex RP2 Panel)~~(RP2) that incorporates the novel SARS-CoV-2 viral target into our existing ePlex RP Panel. ~~We submitted our ePlex~~In October 2020, we received EUA for RP2 ~~Panel to~~from the FDA ~~for EUA in June 2020.~~and have transitioned almost all of our customers from the ePlex SARS-COV-2 Test to RP2. If the FDA were to revoke the EUA for our ePlex SARS-CoV-2 Test or RP2, or if the FDA determines that an EUA is no longer an appropriate regulatory pathway for orour ePlex SARS-CoV-2 Test or RP2, ~~Panel,~~ it may be more complex, time-consuming, and costly to obtain regulatory approval for such products and our business results and financial performance may be adversely affected.

~~Table of Contents~~

We are monitoring the global pandemic of COVID-19 and have implemented mitigation measures for potential risks to our employees. It is critical that we keep our employees safe and informed in order to maintain our ongoing business operations and

Table of Contents

employee safety. We have taken precautions related to employee screening, social distancing, and facility hygiene, as well as imposed certain travel limitations on our employees and encouraged our employees to work remotely, if possible. Nevertheless, an outbreak of COVID-19 or any other contagious disease among our critical employee population, or travel restrictions or other actions imposed by governmental authorities as a result of the pandemic, could materially and adversely disrupt our ability to manufacture and distribute our products, develop additional products, and/or service and support our customers.

We are also evaluating the potential impacts of the current pandemic on our global supply chain and are working closely with our suppliers and governmental authorities to ensure continued access to key raw materials, supplies, and personal protective equipment needed to manufacture our products. This is a rapidly evolving situation, and we will continue to monitor developments affecting our customers, employees and suppliers and take additional precautions we believe are warranted. The extent of the impact of COVID-19 on our business, financial condition, and results of operations remains uncertain.

If our essential employees who are unable to telework become ill or otherwise incapacitated, our operations may be adversely impacted.*

Consistent with rapidly changing federal, state and local governmental orders and recommendations, we have implemented telework policies wherever possible for appropriate categories of our employees. Employees that are unable to telework continue to work at our facilities, and we have implemented appropriate safety measures, including social distancing, face covering, temperature checking, and increased sanitation standards in an attempt to maintain the health and safety of our workforce. We are following guidance from the Center for Disease Control (CDC) and the Occupational Safety and Health Administration (OSHA) regarding suspension of nonessential travel, self-isolation recommendations for employees returning from certain geographic areas, confirmed reports of any COVID-19 diagnosis among our employees, and the return of such employees to our workplace. Pursuant to updated guidance from the Equal Employment Opportunity Commission, we are engaging in limited and appropriate inquiries of employees regarding potential COVID-19 exposure, based on the direct threat that such exposure may present to our workforce. We continue to address other unique situations that arise among ~~its~~our workforce due to the COVID-19 pandemic on a case-by-case basis. While we believe that we have taken appropriate measures to ensure the health and wellbeing of our employees, there can be no assurances that our measures will be sufficient to protect our employees in our workplace or that they may not otherwise be exposed to COVID-19 outside of our workplace. If a number of our essential employees become ill, incapacitated or are otherwise unable to continue working during the current or any future epidemic, our operations may be adversely impacted.

~~Our financial results will depend on the acceptance and increased demand among our target customers and the medical community of our molecular diagnostic technologies and products.~~

Our future success depends on the belief by our target customers and the medical community that our molecular diagnostic products, including our ePlex instrument and its panel test menu, are a reliable, medically-relevant, accurate and cost-effective replacement for other diagnostic testing methods. Our business success depends on our ability to convince our target customers to perform these tests internally with our products if they have historically outsourced their testing needs or have historically used non-molecular methods to perform such testing, or to replace their current molecular testing platforms with our system and its related test panel offerings.

~~Many other factors may affect the market acceptance and commercial success of our molecular diagnostic technology and products, including:~~

•~~the relative convenience, ease of use, accuracy, reliability, validity, scalability, cost, and time-to-result of our diagnostic products over competing products;~~

•~~the introduction of new technologies and competing products that may make our technologies and products a less attractive solution for our target customers;~~

•~~the breadth and relevance of our menu of available diagnostic test panels relative to our competitors;~~

•~~our success in training our customers in the proper use of our products;~~

•~~the acceptance in the medical community and key opinion leaders of our molecular diagnostic technology and products;~~

•~~the extent and success of our marketing and sales efforts; and~~

•~~general economic conditions.~~

Professional societies, government agencies, practice management groups, private health/science foundations and organizations involved in healthcare issues may publish guidelines, recommendations, or studies for the healthcare and patient communities. Recommendations of government agencies or these other organizations may relate to such matters as cost-effectiveness and use of related products. Organizations like these have in the past made recommendations about our competitors’ products, such as the need for less frequent screening tests, which could result in reduced product sales. Moreover, the perception by the investment community or stockholders that recommendations, guidelines, or studies will result in decreased use of our products could adversely affect the prevailing market price for our common stock.

~~Table of Contents~~

We face intense competition from established and new companies in the molecular diagnostics field and expect to face increased competition in the future.*

The markets for our technologies and products are highly competitive and we expect the competitive intensity to increase. We compete with companies engaged in the development, commercialization and distribution of similar products intended for clinical molecular diagnostic applications. Categories of our competitors include:

•companies developing and marketing multiplex molecular diagnostics systems, including: Luminex (which acquired Nanosphere, Inc.); bioMerieux (which acquired BioFire Diagnostics, Inc.); Abbott Molecular Diagnostics; Qiagen NV (which acquired Stat-Dx); Siemens (which acquired Fast Track Diagnostics); T2 BioSystems; Accelerate Diagnostics; Hologic, Inc.; Seegene; and Danaher Corporation (which acquired Cepheid);

•large hospital-based laboratories and reference laboratories who provide large-scale testing using their own proprietary testing methods, including Quest Diagnostics Incorporated and Laboratory Corporation of America; and

•~~companies that manufacture laboratory-based tests and analyzers, including: Danaher; Siemens; Hologic, Inc.; Qiagen; bioMérieux; Roche Diagnostics; and Abbott Molecular Diagnostics.~~

Our diagnostic test panels also face competition from LDTs developed by national and regional reference laboratories and hospitals. LDTs may not currently be subject to the same regulatory requirements, including those requiring clinical studies and FDA review and clearance or approval that may apply to our diagnostic products. In addition, our ePlex SARS-CoV-2 Test and our ePlex RP2 Panel are and/or will face significant competition by numerous companies that have received or are expected to receive EUA from the FDA for tests or multiplex panels that are designed to detect the virus which leads to COVID-19.

We anticipate that we will face increased competition in the future as new companies enter the market with new technologies, our competitors improve their current products and expand their menu of diagnostic tests, and as we expand our operations internationally. Many of our current and potential competitors have greater name recognition, more substantial intellectual property portfolios, longer operating histories, additional test menu, significantly greater resources to invest in new technologies, more substantial experience in new product development, greater regulatory expertise, and more extensive manufacturing and distribution capabilities. It is critical to our success that we anticipate changes in technology and customer requirements and successfully introduce enhanced and competitive technology to meet our customers’ and prospective customers’ needs on a timely basis.

In addition, we have limited marketing, sales and distribution experience and capabilities. Our ability to achieve profitability depends on attracting customers for our products and building brand loyalty. To successfully perform sales, marketing, distribution, and customer support functions ourselves, we face a number of risks, including:

•~~our ability to attract and retain the skilled support team, marketing staff and sales force necessary to commercialize and gain market acceptance for our technology and our products;~~

•the ability of our sales and marketing team to identify and penetrate the potential customer base, including hospitals, national and regional reference laboratories, group purchasing organizations, and integrated delivery networks; and

•~~the difficulty of establishing brand recognition and loyalty for our products.~~

Some hospital-based and reference laboratories may not consider adopting our instrument systems unless we offer a broader menu of diagnostic test panels or may choose not to convert from competitive products. In addition, in order to commercialize our products, we are required to undertake time consuming and costly development activities, including clinical studies for which the outcome is uncertain. Products that appear promising during early development and preclinical studies may, nonetheless, fail to demonstrate the results needed to support regulatory approval or, if approved, may not generate the demand we expect. If we are unable to effectively compete, our revenues and our ability to achieve profitability will be significantly impaired.

~~We may not expand sales of our ePlex system outside the United States at the levels or within the time frame we anticipate.~~

We have obtained CE Mark for our ePlex Instrument and the following ePlex assays: the ePlex RP Panel, the ePlex BCID-GP Panel, the ePlex BCID-GN Panel, and the ePlex BCID-FP Panel. We are commercializing our ePlex system internationally via a network of distribution partners, which is augmented by a limited set of direct sales and technical support personnel based in Europe. If we are unable to establish the infrastructure or recruit highly qualified personnel to support our international sales and support organization, if we fail to identify new distribution partners, or if we are unsuccessful in developing awareness and acceptance of our products and technology internationally, our anticipated revenue growth internationally may not materialize at the levels or within the time frame we expect, our customers may not receive the level of service or product dependability they expect from us, and our future financial performance may be adversely affected. Furthermore, the distributors we establish in particular geographic regions may not commit the necessary resources to market and sell our products to meet our expectations. If our distributors do not perform adequately or in compliance with applicable laws and regulations in particular geographic areas, or if we are unable to locate distributors in particular geographic areas, our ability to realize revenue growth based on sales outside the

~~Table of Contents~~

United States would be harmed. We also must comply with applicable foreign regulatory agency post-market requirements, including routine Notified Body conformity assessments to quality system standards (e.g. ISO 13485). Any failure to maintain post-market compliance with foreign regulatory requirements could harm our business, operations, and/or financial condition.

~~If our customers are not adequately reimbursed or compensated for the use of our products, we may have difficulty selling our products~~.

Our ability to sell our products depends in part on the extent to which reimbursement related to performing tests using our products is available from governmental authorities, such as Medicare and other domestic and foreign governmental programs, private insurance plans, managed care organizations, and other organizations. There are ongoing efforts by governmental and third party-payors to contain or reduce the costs of healthcare coverage. For example, a number of Medicare Administrative Contractors (MACs) recently issued final local coverage determinations limiting or eliminating Medicare coverage for the use of certain multiplex molecular respiratory tests such as our ePlex RP Panel and XT-8 Respiratory Viral Panel (RVP) in an outpatient setting. As a result, this determination may negatively impact the use of our and certain of our competitors’ multiplex respiratory tests within the geographic regions covered by these MACs. In addition, if other MACs and private payors take a similar approach, this potential negative impact could affect the available market for our ePlex RP Panel and XT-8 RVP Panel in additional geographic regions and patient populations. Furthermore, if our competitors are able to obtain product-specific reimbursement levels higher than those for our similarly situated products, or if the scope of coverage applicable to our competitors’ products exceeds the scope of coverage applicable to our products, the overall demand for our products or the prices at which we are able to sell our products may be negatively impacted.

In addition, efforts to reform the healthcare delivery system in the United States and Europe have increased pressure on healthcare providers to reduce costs. For example, implementation of certain provisions of the Protecting Access to Medicare Act (PAMA) in the United States had a negative impact on reimbursement payments from the Centers for Medicare and Medicaid Services (CMS) for our diagnostics test panels paid under the Clinical Laboratory Fee Schedule (CLFS). Under these provisions of PAMA, payments under the CLFS are likely to be reduced annually for the next several years. If purchasers or users of our products are not able to obtain adequate reimbursement for the cost of using our products, either directly or indirectly, they may forego or reduce their purchase and use of our products or the price we may be able to charge for our products could be reduced.

Obtaining coverage and reimbursement approval for a product from each government or third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical, and cost-effectiveness data for the use of our products to each government or third-party payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. In addition, eligibility for coverage does not imply that any product will be covered and reimbursed in all cases or reimbursed at a rate that allows our potential customers to make a profit or even cover their costs. Further, third-party payors may choose to reimburse our customers per test based on individual biomarker detection, rather than on the basis of the number of results given by the test panel. This may result in our customers electing to use separate tests to screen for each disease or condition so that they can receive reimbursement for each test they conduct. In that event, these entities may purchase separate tests for each disease, rather than products, such as ours, that can be used to return highly multiplexed test panel results.

From time to time we and our key suppliers experience, and may in the future experience, difficulties scaling manufacturing operations to the levels required to support our anticipated growth in a timely and cost effective manner.*

To date, we have produced our products in limited quantities relative to the quantities necessary to achieve our desired revenue growth. In addition, we have experienced a significant increase in demand for our ePlex RP Panel, ePlex SARS-CoV-2 Test, and ~~our ePlex~~ RP2 ~~Panel~~ as a result of the current COVID-19 pandemic. Developing the necessary manufacturing and quality procedures internally and in conjunction with our key suppliers for a significant number of our newly developed, highly complex products and product components is a challenging process. From time to time we and our suppliers experience, and may in the future experience, manufacturing variability and may not be able to consistently produce sufficient quantities of high quality products and product components at the levels necessary to achieve our revenue growth expectations or to support customer demand or our product development timelines. We recently leased a new 73,000 square foot facility, which we are currently in the process of building out to significantly increase our production capacity. Nevertheless, if we or our key suppliers encounter difficulties in producing sufficient yields of high quality products or product components, or scaling manufacturing operations as a result of, among other things, process and manufacturing transfer complexities, quality control and quality assurance issues, rapid increases in demand, and/or availability or the quality of subcomponents, equipment, and raw material supplies, our reputation may be harmed and we may not achieve our anticipated financial results or product development goals within the time frame we expect, or at all. In addition, we may encounter difficulties managing our supply chain and ensuring timely delivery of sufficient quantities of our products. If we are unable to manage such difficulties, we may be unable to meet our product supply commitments and/or customer expectations, which would adversely impact our financial results and our reputation may ~~suffer.~~suffer and could subject us to potential financial liability.

Finding solutions to product quality, reliability, variability, and raw material sourcing issues is time consuming and expensive, and we may incur significant additional costs or lose revenue as a result of, among other things, delayed product introduction, product recalls, shipment holds, scrapped material, manufacturing delays, scale-up challenges, or inefficiencies, and warranty and service obligations. In

~~Table of Contents~~

addition, we are implementing a number of measures to reduce the cost of manufacturing our ePlex products. If these efforts are unsuccessful, or if these efforts prove less successful than we anticipate or do not deliver the results within the timeframes we expect, we may not achieve our profitability targets in a timely manner, or at all.

To manage our anticipated future growth effectively, we must enhance our manufacturing and supply chain capabilities, infrastructure and manufacturing operations, information technology infrastructure, and financial and accounting systems and controls.

Table of Contents

Organizational growth and scale-up of operations could strain our existing managerial, operational, financial, and other resources. If our management is unable to effectively prepare for our expected future growth, our expenses may increase more than anticipated, our revenue could grow more slowly than expected, and we may not be able to achieve our commercialization, profitability, or product development goals. Our failure to effectively implement the necessary processes and procedures and otherwise prepare for our anticipated growth could have a material adverse effect on our future financial condition and prospects.

Disruptions in the supply of raw materials, consumable goods, or other key product components, or issues associated with their cost or quality from our single source suppliers, could result in delays or difficulties successfully commercializing our ePlex system or a significant disruption in sales and profitability.

We must manufacture or engage third parties to manufacture components of our products in sufficient quantities and on a timely basis, while maintaining product quality and acceptable manufacturing costs and complying with regulatory requirements. Our instrument systems and certain critical components are custom-made by only a few outside suppliers. In certain instances, we and our suppliers have a sole source supply for certain key products, product components, ancillary items, and raw materials used to run our tests. If we are unable to satisfy our forecasted demand from existing suppliers for our products, or we or our suppliers are unable to find alternative suppliers for key product components, ancillary items or raw materials at reasonably comparable prices, it could have a material adverse effect on our financial condition and results of operations. Additionally, although we have entered into supply agreements with most of our suppliers of strategic reagents and parts to help ensure component availability and flexible purchasing terms with respect to the purchase of such components, if our suppliers discontinue production of a key component for one or more of our products, we may be unable to identify or secure a viable, cost-effective alternative on reasonable terms, or at all, which could limit our ability to manufacture our products.

In determining the required quantities of our products and the manufacturing schedule, we must make significant judgments and estimates based on seasonality, inventory levels, current market trends, product development timelines, overall capacity, and other related factors. Because of the inherent nature of estimates and our limited experience in marketing our products, there could be significant differences between our estimates and the actual amounts of products we require. This can result in shortages if we fail to anticipate demand, or excess inventory and write-offs if we order more than we need.

Reliance on third-party manufacturers entails risk to which we would not be subject if we manufactured these components ourselves, including:

•reliance on third parties for regulatory compliance and quality assurance;

•possible breaches of manufacturing agreements by the third parties because of factors beyond our control;

•possible regulatory violations or manufacturing problems experienced by our suppliers;

•possible termination or non-renewal of agreements by third parties, based on their own business priorities, at times that are costly or inconvenient for us;

•the potential obsolescence and/or inability of our suppliers to obtain required components;

•the potential delays and expenses of seeking alternate sources of supply or manufacturing services;

•the inability to qualify alternate sources without impacting performance claims of our products;

•reduced control over pricing, quality and timely delivery due to the difficulties in switching to alternate suppliers or assemblers;

•the imposition of tariffs on certain product components based on our ~~suppliers'~~suppliers’ location;

•the potential for financial hardship or other detrimental circumstances at key suppliers that may impact our ability to source key materials or services required for the manufacturing of our products; and

•increases in prices of raw materials and key components.

The manufacturing operations for our test panel cartridges use highly technical processes involving unique, proprietary techniques. In addition, the manufacturing equipment we use would be costly and time consuming to repair or replace. Any interruption in our operations or decrease in the production capacity of our manufacturing facilities or the facilities of any of our key suppliers because of equipment failure, natural disasters such as earthquakes, tornadoes and fires, global health pandemics or otherwise, would limit our ability to meet customer demand for our products and would have a material adverse effect on our business, financial condition, and results of operations. In the event of a disruption, we may lose customers and we may be unable to regain those customers thereafter. Our insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.

Our financial results will depend on the acceptance and increased demand among our target customers and the medical community of our molecular diagnostic technologies and products.

Table of Contents

other diagnostic testing methods. Our business success depends on our ability to convince our target customers to perform these tests internally with our products if they have historically outsourced their testing needs or have historically used non-molecular methods to perform such testing, or to replace their current molecular testing platforms with our system and its related test panel offerings.

Many other factors may affect the market acceptance and commercial success of our molecular diagnostic technology and products, including:

•the relative convenience, ease of use, accuracy, reliability, validity, scalability, cost, and time-to-result of our diagnostic products over competing products;

•the introduction of new technologies and competing products that may make our technologies and products a less attractive solution for our target customers;

•the breadth and relevance of our menu of available diagnostic test panels relative to our competitors;

•our success in training our customers in the proper use of our products;

•the acceptance in the medical community and key opinion leaders of our molecular diagnostic technology and products;

•the extent and success of our marketing and sales efforts; and

•general economic conditions.

We face intense competition from established and new companies in the molecular diagnostics field and expect to face increased competition in the future.*

•companies that manufacture laboratory-based tests and analyzers, including: Danaher; Siemens; Hologic, Inc.; Qiagen; bioMérieux; Roche Diagnostics; and Abbott Molecular Diagnostics.

Our diagnostic test panels also face competition from LDTs developed by national and regional reference laboratories and hospitals. LDTs may not currently be subject to the same regulatory requirements, including those requiring clinical studies and FDA review and clearance or approval that may apply to our diagnostic products. In addition, RP2 will face significant competition by numerous companies that have received or are expected to receive EUA from the FDA for tests or multiplex panels that are designed to detect the virus which leads to COVID-19.

Table of Contents

•our ability to attract and retain the skilled support team, marketing staff and sales force necessary to commercialize and gain market acceptance for our technology and our products;

•the difficulty of establishing brand recognition and loyalty for our products.

We may not expand sales of our ePlex system outside the United States at the levels or within the time frame we anticipate.

We have obtained CE Mark for our ePlex Instrument and the following ePlex assays: the ePlex RP Panel, RP2, the ePlex BCID-GP Panel, the ePlex BCID-GN Panel, and the ePlex BCID-FP Panel. We are commercializing our ePlex system internationally via a network of distribution partners, which is augmented by a limited set of direct sales and technical support personnel based in Europe. If we are unable to establish the infrastructure or recruit highly qualified personnel to support our international sales and support organization, if we fail to identify new distribution partners, or if we are unsuccessful in developing awareness and acceptance of our products and technology internationally, our anticipated revenue growth internationally may not materialize at the levels or within the time frame we expect, our customers may not receive the level of service or product dependability they expect from us, and our future financial performance may be adversely affected. Furthermore, the distributors we establish in particular geographic regions may not commit the necessary resources to market and sell our products to meet our expectations. If our distributors do not perform adequately or in compliance with applicable laws and regulations in particular geographic areas, or if we are unable to locate distributors in particular geographic areas, our ability to realize revenue growth based on sales outside the United States would be harmed. We also must comply with applicable foreign regulatory agency post-market requirements, including routine Notified Body conformity assessments to quality system standards (e.g. ISO 13485). Any failure to maintain post-market compliance with foreign regulatory requirements could harm our business, operations, and/or financial condition.

If our customers are not adequately reimbursed or compensated for the use of our products, we may have difficulty selling our products.

Table of Contents

choose to reimburse our customers per test based on individual biomarker detection, rather than on the basis of the number of results given by the test panel. This may result in our customers electing to use separate tests to screen for each disease or condition so that they can receive reimbursement for each test they conduct. In that event, these entities may purchase separate tests for each disease, rather than products, such as ours, that can be used to return highly multiplexed test panel results.

If our products do not perform as expected our operating results and business would suffer.

~~Table of Contents~~

Our success depends on the market’s confidence that we can provide reliable, high quality, molecular diagnostic products. We believe that customers in our target markets are likely to be particularly sensitive to product defects and errors. As a result, our reputation and the public image of our products and technologies will be significantly impaired if our products fail to perform as expected. Although our diagnostic systems are designed to be user friendly, the functions they perform are complex and our products may develop or contain undetected defects or errors.

We currently manufacture our proprietary test cartridges at our Carlsbad, California manufacturing facilities. We outsource the manufacture of our ePlex instrument to Plexus, which specializes in the manufacturing of electronic and electro-mechanical devices. We currently maintain an inventory of XT-8 instruments and related components to satisfy the expected demand for our XT-8 system for the foreseeable future, as well as to service XT-8 instruments installed at customer locations. While we work closely with Plexus to ensure continuity of supply while maintaining high quality and reliability, and we believe our current stock of XT-8 instruments and related components will be sufficient for our and our customers’ anticipated needs, we cannot guarantee that these efforts will be successful.

If we experience a material defect or error in any of our current or future products, it could result in the loss or delay of revenues, increased costs, delayed or reduced market acceptance, damaged reputation, diversion of development and management resources, legal and/or regulatory claims, recalls, increased insurance costs, or increased service and warranty costs, any of which could materially harm our business, financial condition, and results of operations.

We also face the risk of product liability exposure related to the sale of our products. We currently carry product liability insurance that covers us against specific product liability claims. We also carry a separate general liability and umbrella policy that covers us against certain claims but excludes coverage for product liability. Any claim in excess of our insurance coverage, or for which we do not have insurance coverage, would need to be paid out of our cash reserves, which would harm our financial condition. We cannot assure you that we have obtained sufficient insurance or broad enough coverage to cover potential claims. Also, we cannot assure you that we can or will maintain our insurance policies on commercially acceptable terms, or at all. A product liability claim could significantly harm our business, financial condition, and results of operations.

We may need to raise additional funds in the future, and such funds may not be available on a timely basis, or at all.

Until such time, if ever, as we can generate positive cash flows from operations, we will be required to finance our operations with our cash resources and amounts made available under our credit facility and pursuant to our ongoing at-the-market (ATM) equity offering. We may need to raise additional funds in the future to support our operations. We cannot be certain that additional capital will be available as needed, on acceptable terms, or at all. If we require additional capital at a time when investment in our company, in molecular diagnostics companies, or the marketplace in general is limited, we may not be able to raise such funds at the time that we desire, or at all. If we do raise additional funds through the issuance of equity or convertible securities, the percentage ownership of holders of our common stock could be significantly diluted. In addition, newly issued securities may have rights, preferences or privileges senior to those of holders of our common stock. If we raise additional funds through collaborations and licensing arrangements, we could be required to relinquish significant rights to our technologies and products, or grant licenses on terms that are not favorable to us.

Our quarterly revenue and operating results may vary significantly and we may experience constraints or inefficiencies caused by unanticipated acceleration and deceleration of customer demand.*

Revenue from our infectious disease products fluctuates based upon the occurrence of related outbreaks and changes in testing recommendations and available therapies. For example, the recent COVID-19 pandemic has significantly increased the demand for our ePlex RP Panel, ePlex SARS-CoV-2 Test, and ~~ePlex RP2 Panel.~~RP2. Influenza and other respiratory-related outbreaks are usually more concentrated in the first and fourth quarters of the year within the Northern hemisphere. New information or the introduction of advanced treatment options with respect to a particular disease may also affect the rate of related diagnostic testing. Although certain infectious disease outbreaks tend to occur each year, the timing, severity, and length of these incidents varies from one year to another and can vary across different patient populations. In addition, we may not accurately predict the impact of new therapies or vaccines on disease prevalence or changes to infectious disease testing recommendations affecting our products. As a result of one or more of these factors, we may not be able to accurately forecast sales from our infectious disease products.

Table of Contents

Our revenue, results of operations, and cash flows would suffer upon the loss of a significant customer.

Our largest customer, Laboratory Corporation of America, Inc., accounted for approximately 14% and 16% of our total revenue for the fiscal years ended December 31, 2019 and 2018. The loss of a significant customer or a significant reduction in the amount of product ordered by our significant customers may adversely affect our revenue, results of operations, and cash flows.

We may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls.

~~Table of Contents~~

Our operating expenses may fluctuate significantly in the future as a result of a variety of factors, many of which may be outside of our control. These factors include, but are not limited to:

•the time and resources required to develop, and conduct clinical studies and obtain regulatory clearances for, our diagnostic panels;

•the expenses we incur to increase our manufacturing capabilities, including costs to lease new facilities and expenses to purchase capital equipment and increase our manufacturing capacity and yield;

•the expenses we incur for research and development required to maintain and improve our technology, including developing new ePlex test menu;

•the costs of preparing, filing, prosecuting, defending and enforcing patent claims and other patent related costs, including litigation costs and the results of such litigation;

•the expenses we incur in connection with commercialization activities, including product marketing, sales, and distribution expenses;

•the expenses we incur in licensing technologies or securing rights to new products from third parties to expand the menu of products and services we plan to offer;

•our sales strategy and whether the revenues from sales of our test cartridges or systems will be sufficient to offset our expenses;

•the costs to attract and retain personnel with the skills required for effective operations; and

•the costs associated with being a public company.

Our budgeted expense levels are based in part on our expectations concerning manufacturing costs and yield and future revenues from sales of our products, as well as our assessment of the future investments needed to expand our commercial organization and manufacturing capabilities to support our anticipated revenue growth and research and development activities. We may be unable to reduce our expenditures in a timely manner, we may incur expenses for unexpected events, or we may experience a shortfall in revenue. Accordingly, a shortfall in demand for our products or other unexpected costs or events could have an immediate and material impact on our business and financial condition.

The regulatory clearance or approval process for certain products is expensive, time consuming and uncertain, and the failure to obtain and maintain required clearances or approvals could prevent us from commercializing our products.*

We obtained 510(k) clearance from the FDA for our ePlex Instrument and the following ePlex assays: the ePlex RP Panel; the ePlex BCID-GP Panel; the ePlex BCID-GN Panel; and the ePlex BCID-FP Panel. We are also commercializing our ePlex SARS-CoV-2 Test and ~~ePlex~~ RP2 ~~Panel~~ under EUA. We are investing significantly in the development of new ePlex molecular diagnostic tests to expand our future product offerings, including our ePlex Gastrointestinal Pathogen ~~Panels,~~Panel, which will require clinical studies and subsequent 510(k) clearance, pre-market approval, or EUA by the FDA prior to marketing those tests for commercial use in the United States. There are a number of potential risks associated with conducting clinical studies and obtaining regulatory clearance. For example, we may have difficulty maintaining the level of reliability and clinical accuracy required to complete clinical studies and obtain FDA clearance or approval. In addition, the FDA may require that we conduct additional studies that could impact the cost associated with product clearance and could potentially delay commercial launch of new ePlex molecular diagnostic tests in the United States. We may be unsuccessful in obtaining FDA clearance for our expanding ePlex test menu within our expected time frame, or at all, which could adversely impact our future financial performance and cause our stock price to decline.

The regulatory environment is constantly evolving. For example, the FDA conducted a review of the pre-market clearance process in response to internal and external concerns regarding the 510(k) program and, in January 2011, announced 25 action items designed to make the process more rigorous and transparent. Some of these proposals, if enacted, could impose additional regulatory requirements for device manufacturers which could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, or restrict our ability to maintain our current clearances. Similarly, the European Union, or EU, is transitioning from the existing European Directive 98/79/EC on in vitro diagnostic medical devices, or IVD Directive (IVDD), to the In Vitro Diagnostic Device Regulation, or IVDR. Specifically, the IVDR repeals and replaces the IVDD. Unlike the directive, which must be implemented into the national laws of the European Economic Area, or EEA, Member States, the IVDR is directly applicable in all EEA Member States and is intended to eliminate current differences in regulation of IVDs among EEA Member States. Under the IVDR, the classifications of our molecular diagnostic products are impacted, and will result in additional regulatory requirements, which could delay our ability to CE Mark our

Table of Contents

products. Delays in receipt of, or failure to obtain, clearances or approvals for future products would result in delayed, or no, realization of revenues from such products and in substantial additional costs, which could decrease our profitability.

We must also comply with the applicable FDA and foreign regulatory agency post-market requirements, including routine Notified Body conformity assessments to quality system standards (e.g., ISO 13485). Any failure to maintain post-market compliance with FDA or foreign regulatory requirements could harm our business, operations, and/or financial condition.

~~Table of Contents~~

We derive revenues from the sale of research use only (RUO) tests and custom manufactured reagents, which are not intended for diagnostic purposes. Clinical laboratories are regulated under CLIA and may validate the clinical diagnostic use of an LDT specifically for use in their laboratory using any labeled products. While the FDA has traditionally practiced enforcement discretion regarding the use of the LDTs for clinical diagnostic purposes, there have been regulatory actions indicating a potential change in enforcement practices (e.g., the FDA has promulgated draft guidance which outlines stringent regulatory requirements for CLIA labs to use LDTs for clinical diagnostic application and the FDA has issued warning letters to labs marketing the clinical utility of LDTs). These proposed requirements, if implemented, may result in a significant reduction in the sale of our RUO or custom manufactured products, which could reduce our revenues and adversely affect our operations and/or financial condition.

We are subject to various federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims and fraud laws, and any violations by us of such laws could result in fines or other penalties.

Our commercial, research, and other financial relationships with healthcare providers and institutions are subject to various federal and state laws intended to prevent health care fraud and abuse. The federal anti-kickback statute prohibits the knowing offer, receipt, or payment of remuneration in exchange for or to induce the referral of patients or the use of products or services that would be paid for in whole or part by Medicare, Medicaid, or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. Many states have similar laws that apply to their state health care programs as well as private payors. Violations of the anti-kickback laws can result in exclusion from federal health care programs and substantial civil and criminal penalties.

The False Claims Act (FCA) imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. We have implemented procedures designed to ensure our compliance with relevant legal requirements. Nevertheless, if our marketing, sales, or other arrangements, including our reagent rental arrangements, were determined to violate anti-kickback or related laws, including the FCA, then our revenues could be adversely affected, which would likely harm our business, financial condition, and results of operations.

The Health Care Act also imposes reporting and disclosure requirements on device manufacturers for payments to healthcare providers and ownership of their stock by healthcare providers. In February 2013, the Centers for Medicare and Medicaid Services, or, CMS, released the final rule implementing the federal Physician Payments Sunshine Act, or the Sunshine Act. The law requires certain pharmaceutical, biologic, and medical device manufacturers to annually report to CMS payments or other transfers of value they furnish to physicians and teaching hospitals. These reporting requirements took effect on August 1, 2013. Failure to submit required information may result in significant civil monetary penalties.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing. Some states, such as California, Massachusetts, and Vermont, mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation, and other remuneration to physicians. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increases the possibility that a healthcare company may run afoul of one or more of the requirements.

We are also subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and other countries’ anti-corruption/anti-bribery regimes, such as the U.K. Bribery Act. The FCPA prohibits improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business. Safeguards we implement to discourage improper payments or offers of payments by our employees, consultants, sales agents, or distributors may be ineffective, and violations of the FCPA and similar laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against us, any of which would likely harm our reputation, business, financial condition, and results of operations.

Legislative or regulatory healthcare reforms may have a material adverse effect on our business and results of operations.

Federal and state governments in the United States are undertaking efforts to control growing health care costs through legislation, regulation, and voluntary agreements with medical care providers and third-party payors. In March 2010, Congress enacted the Patient

Table of Contents

Protection and Affordable Care Act, or the PPACA. While the PPACA involves expanding coverage to more individuals, it includes regulatory mandates and other measures designed to constrain medical costs. Among other requirements, the PPACA imposes a 2.3% excise tax on sales of medical devices by manufacturers. In December 2015, the excise tax was suspended for 2016 and 2017, and, in January 2018, the excise tax was further suspended until 2020. Taxable devices include certain medical devices intended for use by humans, with limited exclusions for retail devices purchased by the general public for individual use. There is no exemption for small companies, and we paid the tax from 2013 through 2015. Recently, Congress and the administration have proposed and taken various steps to revise, repeal, or delay implementation of various aspects of PPACA. If the PPACA is significantly revised, repealed, or if implementation of various aspects are delayed, such modification, repeal, or delay may impact our business, financial condition, results of operations, cash flows, and the trading price of our securities.

~~Table of Contents~~

Complying with PPACA may significantly increase our tax liabilities and costs, which could adversely affect our business and financial condition.

The Budget Control Act of 2011 provided, among other things, aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which began in 2013 and will remain in effect through 2025 unless additional Congressional action is taken. In addition to the potential impacts to PPACA under the current administration, there could be sweeping changes to the Budget Control Act and other healthcare reforms. For example, the Tax Cuts and Jobs Act enacted in December 2017 eliminated the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code of 1986, commonly referred to as the individual mandate, beginning in 2019. Additional changes to the PPACA remain possible. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure.

Both within and outside the United States, we are impacted by privacy and data security requirements at the international, national, and regional level, and on an industry-specific basis. More privacy and security laws and regulations are being adopted, and more are being enforced, with the potential for significant financial penalties. In the European Union (EU), increasingly stringent data protection and privacy rules have been enacted. The EU General Data Protection Regulation (GDPR) applies uniformly across the EU and includes, among other things, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances. The GDPR also requires companies processing personal data of individuals residing in the EU to comply with EU privacy and data protection rules. The State of California has also enacted a consumer privacy law which imposes similar data privacy and security requirements. Our failure to maintain the confidentiality and security of sensitive personal information in accordance with applicable regulatory requirements could subject us to financial penalties and breach of contract claims and could damage our reputation.

Our products could infringe patent rights of others, which may require costly litigation and, if we are not successful, could cause us to pay substantial damages or limit our ability to commercialize our products.

Our commercial success depends on our ability to develop, manufacture, and market our systems and tests and use our proprietary technology without infringing the patents and other proprietary rights of third parties. As the molecular diagnostics industry expands and more patents are issued, the risk increases that there may be patents issued to third parties that relate to our products and technology of which we are not aware or that we must challenge to continue our operations as currently contemplated. Our products may infringe or may be alleged to infringe these patents.

The patent positions of medical device companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in patents in these fields has emerged to date in the United States or in many foreign jurisdictions. Both the U.S. Supreme Court and the Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. For example, three Supreme Court cases, Association for Molecular Pathology et al. v. Myriad Genetics, Inc., et al., Mayo Collaborative Services v. Prometheus Laboratories, and Alice v. CLS Bank, have introduced additional questions regarding the patentability of isolated naturally occurring genes and gene fragments, proteins, peptides, natural products, and related diagnostic and therapeutic methods, which are likely to be resolved only through continued litigation. The overall impact of these decisions and others on the molecular diagnostics industry remains uncertain and our interpretation of the scope of these rulings on existing or future patents may be inaccurate.

There is a significant amount of uncertainty regarding the extent of patent protection and infringement. Companies may have filed pending patent applications that cover technologies we incorporate in our products. As a result, we could be subjected to substantial damages for past infringement or be required to modify our products or stop selling them if it is ultimately determined that our products infringe a third party’s proprietary rights. Even if we are successful in defending against potential intellectual property infringement claims, we could incur substantial costs in doing so. Any litigation related to such claims could consume our resources and lead to significant damages, royalty payments, or an injunction on the sale of certain products. Any additional licenses to patented technology could obligate us to pay substantial additional royalties, which could adversely impact our product costs and harm our business.

Table of Contents

If we are unable to obtain, maintain, and enforce intellectual property protection covering our products, others may be able to make, use, or sell products substantially the same as ours, which could adversely affect our ability to compete in the market.

Our commercial success is dependent in part on obtaining, maintaining, and enforcing intellectual property rights, including our patents, key licenses, and other intellectual property rights. If we are unable to obtain, maintain and enforce intellectual property protection covering our products, others may be able to make, use or sell products that are substantially the same as ours without incurring the sizable development and licensing costs that we have incurred, which would adversely affect our ability to compete in the market.

~~Table of Contents~~

We seek to obtain and maintain patents and other intellectual property rights to restrict the ability of others to market products that compete with our products. Currently, our patent portfolio is comprised on a worldwide basis of more than 100 owned and exclusively licensed patents and approximately 25 additional pending patent applications. In general, patents have a term of at least 20 years from the application filing date or earlier claimed priority date. Several of our pending applications have the potential to mature into patents that may expire between 2028 and 2039. However, not all of the pending or future patent applications owned by or licensed to us are guaranteed to mature into patents, and, moreover, issued patents owned by or licensed to us now or in the future may be found by a court to be invalid or otherwise unenforceable. Also, even if our patents are determined by a court to be valid and enforceable, they may not be sufficiently broad to prevent others from marketing products similar to ours or designing around our patents, despite our patent rights, nor provide us with freedom to operate unimpeded by the patent rights of others.

We also rely on trade-secret protection to protect our interests in proprietary know-how and for processes for which patents are difficult to obtain or enforce. We may not be able to protect our trade secrets adequately. We have limited control over the protection of trade secrets used by our licensors, collaborators, and suppliers. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators, and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using our trade secrets is difficult, expensive, and time consuming, and the outcome is unpredictable. We rely, in part, on non-disclosure and confidentiality agreements with our employees, consultants, and other parties to protect our trade secrets and other proprietary technology. These agreements may be breached and we may not have adequate remedies for any breach. Moreover, others may independently develop equivalent proprietary information, and third parties may otherwise gain access to our trade secrets and proprietary knowledge. Any disclosure of confidential data into the public domain or to third parties could allow our competitors to learn our trade secrets and use the information in competition against us.

We and our suppliers, contract manufacturers, and customers are subject to various governmental regulations, and we may incur significant expenses to comply with, and experience delays in our product commercialization as a result of, these regulations.

Our manufacturing processes and facilities and those of some of our contract manufacturers must comply with QSR and certain foreign regulatory requirements, which cover the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage, and shipping of our devices. The FDA and other foreign regulatory bodies enforce the QSR and similar foreign regulatory requirements through periodic announced and/or unannounced inspections of manufacturing facilities. We and our contract manufacturers have been, and anticipate in the future being, subject to such inspections, as well as to inspections by other federal and state regulatory agencies.

We must also file reports of device corrections and removals and adhere to the domestic and foreign rules on labeling and promotion. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution.

Failure to comply with applicable regulatory requirements, or later discovery of previously unknown problems with our products or manufacturing processes, including our failure or the failure of one of our contract manufacturers to take satisfactory corrective action in response to an adverse regulatory inspection, can result in, among other things:

•administrative or judicially imposed sanctions;

•injunctions or the imposition of civil penalties;

•recall or seizure of our products;

•total or partial suspension of production or distribution;

•withdrawal or suspension of marketing clearances or approvals;

•clinical holds;

•warning letters;

•refusal to permit the import or export of our products; and

•criminal prosecution.

Table of Contents

Any of these actions, in combination or alone, could prevent us from marketing, distributing, or selling our products and would likely harm our business.

In addition, a product defect or regulatory violation could lead to a government-mandated or voluntary recall by us. We believe that the FDA would request that we initiate a voluntary recall if a product was defective or presented a reasonable risk of injury or gross deception. Regulatory agencies in other countries have similar authority to recall devices because of material deficiencies or defects in design or manufacture that could endanger health. Any recall would divert management attention and financial resources, could cause the price of our common stock to decline and expose us to product liability or other claims, including contractual claims from parties to whom we sold products, and harm our reputation with customers.

~~Table of Contents~~

The use of our diagnostic products by our customers is also affected by CLIA and related federal and state regulations that provide for regulation of laboratory testing. CLIA is intended to ensure the quality and reliability of clinical laboratories in the United States by mandating specific standards in the areas of personnel qualifications, administration, participation in proficiency testing, patient test management, quality assurance, quality control, and inspections. Current or future CLIA requirements or the promulgation of additional regulations affecting laboratory testing may prevent some laboratories from using some or all of our diagnostic products.

Our credit facility contains restrictions that limit our flexibility in operating our business.

We must comply with certain affirmative and negative covenants under our credit facility, including covenants that limit or restrict our ability to, among other things:

•incur additional indebtedness or issue certain preferred shares;

•pay dividends on, repurchase or make distributions in respect of, our capital stock or make other restricted payments;

•make certain investments or acquisitions;

•sell certain assets;

•create liens; or

•enter into certain transactions with our affiliates.

If we default under the agreement, because of a covenant breach or otherwise, the outstanding amounts thereunder could become immediately due and payable, and the lenders could terminate all commitments to extend further financing.

We have a history of net losses, and we may never achieve or maintain profitability.

We have a history of significant net losses and a limited history commercializing our molecular diagnostic products. Our net losses were approximately $47.4 million, $50.5 million and $61.9 million for the years ended December 31, 2019, 2018, and 2017, respectively. As of December 31, 2019, we had an accumulated deficit of $514.2 million. We expect to continue to incur significant expenses for the foreseeable future in connection with our ongoing operations, primarily related to expanding our commercial organization (sales and marketing) and manufacturing activities related to our ePlex system, maintaining our existing intellectual property portfolio, obtaining additional intellectual property rights, and investing in corporate infrastructure. We cannot provide any assurance that we will achieve profitability and, even if we achieve profitability, that we will be able to sustain or increase profitability on a quarterly or annual basis. Further, because of our limited commercialization history and the rapidly evolving nature of our target market, we have limited insight into the trends that may emerge and affect our business. We may make errors in predicting and reacting to relevant business trends, which could harm our business and financial condition.

We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, and failure to comply with these laws could harm our business and the price of our common stock.

As a public company listed in the United States, we incur significant legal, accounting, and other expenses. In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC, the Public Company Accounting Oversight Board (PCAOB), and The NASDAQ Global Market, may increase our legal and financial compliance costs and make some activities more time consuming. These laws, regulations, and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If we nevertheless fail to comply with new laws, regulations, and standards, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

4142

Table of Contents

Economic conditions and an uncertain economic outlook may adversely impact our business, results of operations, financial condition or liquidity.*

Global economic conditions may remain challenging and uncertain for the foreseeable future, particularly in light of the recent COVID-19 pandemic. These conditions may not only limit our access to capital but also make it extremely difficult for our customers, our vendors, and us to accurately forecast and plan future business activities, and they could cause U.S. and foreign businesses and consumers to experience operating disruptions or slow spending on our products and services, which would delay and lengthen sales cycles. Some of our customers rely on government research grants to fund technology purchases. If negative trends in the economy affect the government’s allocation of funds to research, there may be less grant funding available for certain of our customers to purchase technologies from us. Certain of our customers may face challenges gaining timely access to sufficient credit or may otherwise be faced with budget constraints, which could result in decreased purchases of our products or in an impairment of their ability to make timely payments to us. If our customers do not make timely payments to us, we may be required to assume greater credit risk relating to those customers, increase our allowance for doubtful accounts, and our days sales outstanding would be negatively impacted. Although we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments, we may not continue to experience the same loss rates that we have in the past. Additionally, these economic conditions and market turbulence may also impact our suppliers, causing them to be unable to supply sufficient quantities of customized components in a timely manner, thereby impairing our ability to manufacture on schedule and at commercially reasonable costs.

We are exposed to risks associated with long-lived and intangible assets that may become impaired and result in an impairment charge.

The carrying amounts of long-lived and intangible assets are affected whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. These events or changes might include an inability to successfully deliver an instrument to the marketplace and attain customer acceptance, a change in the rights or use of licensed intellectual property, adjustments to our depreciation assumptions, or other matters. Adverse events or changes in circumstances may affect the estimated discounted future cash flows expected to be derived from long-lived and intangible assets. If at any time we determine that an impairment has occurred, we will be required to reflect the impaired value as a charge, resulting in a reduction in earnings in the quarter such impairment is identified and a corresponding reduction in our net asset value. In the past we have incurred, and in the future we may incur, impairment charges. A material reduction in earnings resulting from such a charge could cause us to fail to meet the expectations of investors and securities analysts, which could cause the price of our stock to decline.

Providing instrument systems to our customers through reagent rental agreements may harm our liquidity.

Many of our systems are provided to customers via “reagent rental” agreements, under which customers are generally afforded the right to use the instrument in return for a commitment to purchase minimum quantities of reagents and test cartridges over a period of time. Accordingly, we must either incur the expense of manufacturing instruments well in advance of receiving sufficient revenues from test cartridges to recover our expenses or obtain third party financing sources for the purchase of our instrument. The amount of capital required to provide instrument systems to customers depends on the number of systems placed. Our ability to generate capital to cover these costs depends on the amount of our revenues from sales of reagents and test cartridges sold through our reagent rental agreements. We do not currently sell enough reagents and test cartridges to recover all of our fixed expenses, and therefore we currently have a net loss. If we cannot sell a sufficient number of reagents and test cartridges to offset our fixed expenses, our liquidity will continue to be adversely affected.

We use hazardous chemicals, biological materials and infectious agents in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Our research, product development and manufacturing processes involve the controlled use of hazardous materials, including chemicals, biological materials and infectious disease agents. Our operations produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge and any resulting injury from these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our insurance coverage and our total assets. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters. Our operations are regulated and may require that environmental permits and approvals be issued by applicable government agencies. Compliance with environmental laws and regulations may be expensive and may impair our research, development and production efforts. If we fail to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. In addition, we cannot predict the impact on our business of new or amended environmental laws or regulations or any changes in the way existing and future laws and regulations are interpreted and enforced.

Table of Contents

If we are unable to retain key employees or hire additional skilled employees, we may be unable to achieve our goals.

~~Table of Contents~~

Our performance is substantially dependent on the performance of our senior management. Competition for top management personnel is intense and we may not be able to recruit and retain the personnel we need. Our senior managers can terminate their relationship with us at any time. The loss of services of any of these key personnel could significantly reduce our operational effectiveness and investor confidence and our stock price could decline. We do not maintain key-man life insurance on any of our employees.

In addition, our product development and marketing efforts could be delayed or curtailed if we are unable to attract, train and retain highly skilled technical employees and scientific advisors. To expand our research, product development and commercial efforts, we will need to retain additional people skilled in areas such as electrochemical and molecular science, information technology, manufacturing, sales, marketing and technical support. Because of the complex and technical nature of our systems and the dynamic market in which we compete, any failure to attract and retain a sufficient number of qualified employees could materially harm our ability to develop and commercialize our technology. We may not be successful in hiring or retaining qualified personnel, and any failure to do so could have a material adverse effect on our business, financial condition and results of operations.

Cyberattacks and other security breaches could compromise our proprietary information which could harm our business and reputation.

In the ordinary course of our business, we generate, collect and store proprietary information, including intellectual property and business information. The secure storage, maintenance, and transmission of and access to this information is critical to our operations, business strategy, and reputation. Computer hackers may attempt to penetrate our computer systems or our third party IT service providers' systems and, if successful, misappropriate our proprietary information. In addition, an employee, contractor, or other third-party with whom we do business may attempt to circumvent our security measures in order to obtain such information, and may purposefully or inadvertently cause a breach involving such information. While we will continue to implement additional protective measures to reduce the risk of and detect cyberattacks, these incidents are becoming more sophisticated and frequent, and the techniques used in such attacks evolve rapidly and are difficult to detect. Despite our cybersecurity measures, our information technology networks and infrastructure may still be vulnerable to unpermitted access by hackers or other breaches, or employee error or malfeasance. Any such compromise of our, or our third party IT service providers' data security and access to, or public disclosure or loss of, confidential business or proprietary intellectual property information could disrupt our operations, damage our reputation, provide our competitors with valuable information, and subject us to additional costs which could adversely affect our business.

Information technology systems implementation issues could disrupt our internal operations and adversely affect our financial results.

Portions of our information technology infrastructure may experience interruptions, delays, or cessations of service or produce errors in connection with ongoing systems implementation work. In particular, we have implemented an enterprise resource planning software system. To more fully realize the potential of this system, we are continually reassessing and upgrading processes and this may be more expensive, time consuming, and resource intensive than planned. Any disruptions that may occur in the operation of this system or any future systems could increase our expenses and adversely affect our ability to report in an accurate and timely manner the results of our consolidated operations, our financial position, and cash flows and to otherwise operate our business in a secure environment, all of which could adversely affect our financial results, stock price, and reputation.

Our ability to use our net operating loss carryforwards may be limited.

As of December 31, 2019, we had pre-2018 net operating loss, or NOL, carryforwards available of approximately $264.6 million for U.S. federal income tax purposes. The federal NOL carryforwards generated prior to 2018 will begin to expire in 2025. The NOL generated in 2018 and 2019 of ~~$78,190,000~~$78.2 million will carry forward indefinitely and be available to offset up to 80% of future taxable income each year.

Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, generally imposes an annual limitation on the amount of NOL carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership. We have determined that we have experienced multiple ownership changes under Section 382 of the Code. Our ability to use the current federal and state NOL carryforwards may also be limited by the issuance of common stock in the future. To the extent our use of federal and state NOL carryforwards is limited, our income may be subject to corporate income tax earlier than it would if we were able to use the state or federal NOL carryforwards. We have recorded a full valuation allowance against our federal and state net deferred tax assets.

We also had state NOL carryforwards of approximately $249.7 million as of December 31, 2019. We have recorded a full valuation allowance against our net deferred tax assets.

4344

Table of Contents

Provisions of our certificate of incorporation, our bylaws, and Delaware law could make an acquisition of our Company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove the current members of our board and management.

Certain provisions of our certificate of incorporation and bylaws could discourage, delay, or prevent a merger, acquisition, or other change of control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove members of our Board of Directors. These provisions also could limit the price that investors might be willing to pay in the future for our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. These provisions:

•allow the authorized number of directors to be changed only by resolution of our Board of Directors;

•provide that our stockholders may remove our directors only for cause;

•establish a classified board of directors, such that not all members of the Board of Directors may be elected at one time;

•authorize our Board of Directors to issue without stockholder approval up to 100,000,000 shares of common stock, that, if issued, would dilute our stock ownership and could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our Board of Directors;

•authorize our Board of Directors to issue without stockholder approval up to 5,000,000 shares of preferred stock, the rights of which will be determined at the discretion of the Board of Directors that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our Board of Directors;

•require that stockholder actions must be effected at a duly called stockholder meeting or by unanimous written consent;

•establish advance notice requirements for stockholder nominations to our Board of Directors or for stockholder proposals that can be acted on at stockholder meetings;

•limit who may call stockholder meetings; and

•require the approval of the holders of 80% of the outstanding shares of our capital stock entitled to vote in order to amend certain provisions of our certificate of incorporation and bylaws.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our common stock, from merging or combining with us for a prescribed period of time.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

4445

ITEM 6. EXHIBITS


Exhibit		Description
3.1		Certificate of Incorporation (incorporated by reference to our Registration Statement on Form S-1 filed with the SEC on March 19, 2010).
3.2		Amended and Restated Bylaws (incorporated by reference to our Current Report on Form 8-K filed with the SEC on August 2, 2018).
10.1		~~Amended and Restated Executive Employment Agreement~~Single Tenant Industrial Triple Net Lease dated ~~as of June 1,~~July 2, 2020 by and between GenMark Diagnostics, Inc. and ~~Scott Mendel (incorporated by reference to our Current Report on Form 8-K filed with the SEC on June 2, 2020).~~Icon Owner Pool 1 West/Southwest, LLC. **
10.2		~~The~~General Release of Claims dated September 14, 2020 by and between Brian Mitchell and GenMark Diagnostics, Inc. ~~2020 Equity Incentive Plan (incorporated by reference to our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 15, 2020).~~***
~~10.3~~	~~Form of Restricted Stock Units Agreement under the 2020 Equity Incentive Plan (incorporated by reference to our Current Report on Form 8-K filed with the SEC on June 2, 2020).~~*
~~10.4~~	Form of Amendment of Restricted Stock Unit And/Or Stock Option Agreement(s) under the 2020 Equity Incentive Plan (incorporated by reference to our Current Report on Form 8-K filed with the SEC on June 2, 2020).*
31.1		Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


*			Pursuant to SEC rules, certain confidential portions of such document have been omitted.
**			Indicates a management contract or compensatory plan or arrangement in which any director or named executive officer participates.

4546

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.


			GENMARK DIAGNOSTICS, INC.


Date:	~~August 4,~~October 28, 2020	By:	/s/ SCOTT MENDEL
			Scott Mendel
			President and Chief Executive Officer
			(Principal Executive Officer)



Date:	~~August 4,~~October 28, 2020	By:	/s/ JOHNNY EK
			Johnny Ek
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

4647