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

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

For the quarterly period ended September 30, 2017March 31, 2024

OR

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

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: 001-36571

T2 Biosystems, Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-4827488

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

101 Hartwell Avenue

Lexington, Massachusetts

02421

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (781) (781) 761-4646

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 $0.001

TTOO

The Nasdaq Capital Market

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes No

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant of Section 13(a) of the Exchange Act

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

As of October 30, 2017,May 2, 2024, the registrant had 35,824,9608,792,950 shares of common stock outstanding.



T2 BIOSYSTEMS, INC.

TABLE OF CONTENTS

Page

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

1

Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2024 and December 31, 20162023

1

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2017March 31, 2024 and September 30, 20162023

2

Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2024 and 2023

3

Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2024 and September 30, 20162023

34

Notes to Condensed Consolidated Financial Statements

45

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1628

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

3040

Item 4.

Controls and Procedures

3040

PART II OTHER INFORMATION

41

Item 1.

Legal Proceedings

3141

Item 1A.

Risk Factors

3141

Item 2.

Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities

3141

Item 3.

Defaults Upon Senior Securities

3141

Item 4.

Mine Safety Disclosures

3141

Item 5.

Other Information

3142

Item 6.

Exhibits, Financial Statement Schedules

3243

SIGNATURES

3345

i


PART I.

i


PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

September 30,

2017

 

 

December 31,

2016

 

 

March 31,
2024

 

 

December 31,
2023

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,897

 

 

$

73,488

 

 

$

6,208

 

 

$

15,689

 

Accounts receivable

 

 

442

 

 

 

327

 

Accounts receivable, net

 

 

1,588

 

 

 

1,420

 

Inventories

 

 

4,670

 

 

 

4,819

 

Prepaid expenses and other current assets

 

 

754

 

 

 

820

 

 

 

3,094

 

 

 

3,261

 

Inventories, net

 

 

1,254

 

 

 

803

 

Total current assets

 

 

55,347

 

 

 

75,438

 

 

 

15,560

 

 

 

25,189

 

Property and equipment, net

 

 

13,854

 

 

 

13,589

 

 

 

1,611

 

 

 

1,658

 

Operating lease right-of-use assets

 

 

7,031

 

 

 

7,395

 

Restricted cash

 

 

260

 

 

 

260

 

 

 

551

 

 

 

551

 

Other assets

 

 

218

 

 

 

281

 

 

 

2

 

 

 

4

 

Total assets

 

$

69,679

 

 

$

89,568

 

 

$

24,755

 

 

$

34,797

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable to related party

 

$

41,666

 

 

$

41,284

 

Accounts payable

 

$

993

 

 

$

962

 

 

 

1,887

 

 

 

1,527

 

Accrued expenses and other current liabilities

 

 

5,513

 

 

 

4,908

 

 

 

4,231

 

 

 

4,905

 

Current portion of notes payable

 

 

1,416

 

 

 

1,269

 

Accrued final payment fee on Term Loan with related party

 

 

4,767

 

 

 

4,807

 

Operating lease liability

 

 

1,651

 

 

 

1,616

 

Derivative liability related to Term Loan with related party

 

 

1,662

 

 

 

1,554

 

Warrant liabilities

 

 

207

 

 

 

235

 

Deferred revenue

 

 

2,076

 

 

 

2,445

 

 

 

185

 

 

 

224

 

Current portion of lease incentives

 

 

247

 

 

 

301

 

Total current liabilities

 

 

10,245

 

 

 

9,885

 

 

 

56,256

 

 

 

56,152

 

Notes payable, net of current portion

 

 

40,089

 

 

 

39,504

 

Lease incentives, net of current portion

 

 

751

 

 

 

792

 

Other liabilities

 

 

467

 

 

 

49

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and

outstanding at September 30, 2016 and December 31, 2016

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 35,796,722 and

30,482,712 shares issued and outstanding at September 30, 2017 and December 31,

2016, respectively

 

 

36

 

 

 

30

 

Operating lease liabilities, net of current portion

 

 

6,180

 

 

 

6,598

 

Deferred revenue, net of current portion

 

 

92

 

 

 

83

 

Total liabilities

 

 

62,528

 

 

 

62,833

 

Commitments and contingencies (see Note 14)

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized: Series B
Convertible Preferred Stock,
10,875 shares designated on March 31, 2024,
10,875 and 93,297 shares issued and outstanding to related party on March 31, 2024
and December 31, 2023, respectively

 

 

 

 

 

 

Common stock, $0.001 par value; 400,000,000 shares authorized; 5,512,332 and
4,058,381 shares issued and outstanding on March 31, 2024 and
December 31, 2023, respectively

 

 

6

 

 

 

4

 

Additional paid-in capital

 

 

266,014

 

 

 

242,997

 

 

 

560,051

 

 

 

556,256

 

Accumulated deficit

 

 

(247,923

)

 

 

(203,689

)

 

 

(597,830

)

 

 

(584,296

)

Total stockholders’ equity

 

 

18,127

 

 

 

39,338

 

Total liabilities and stockholders’ equity

 

$

69,679

 

 

$

89,568

 

Total stockholders’ deficit

 

 

(37,773

)

 

 

(28,036

)

Total liabilities and stockholders’ deficit

 

$

24,755

 

 

$

34,797

 

See accompanying notes to condensed consolidated financial statements.


1


T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

Three Months Ended
March 31,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2024

 

 

2023

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

739

 

 

$

580

 

 

$

2,105

 

 

$

1,168

 

 

$

2,061

 

 

$

1,655

 

Research revenue

 

 

369

 

 

 

504

 

 

 

900

 

 

 

2,003

 

Contribution revenue

 

 

 

 

 

423

 

Total revenue

 

 

1,108

 

 

 

1,084

 

 

 

3,005

 

 

 

3,171

 

 

 

2,061

 

 

 

2,078

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

2,106

 

 

 

1,894

 

 

 

5,722

 

 

 

4,701

 

 

 

4,202

 

 

 

3,995

 

Research and development

 

 

5,880

 

 

 

5,200

 

 

 

19,577

 

 

 

18,160

 

 

 

3,721

 

 

 

4,471

 

Selling, general and administrative

 

 

5,559

 

 

 

5,935

 

 

 

17,192

 

 

 

18,282

 

 

 

6,738

 

 

 

7,299

 

Total costs and expenses

 

 

13,545

 

 

 

13,029

 

 

 

42,491

 

 

 

41,143

 

 

 

14,661

 

 

 

15,765

 

Loss from operations

 

 

(12,437

)

 

 

(11,945

)

 

 

(39,486

)

 

 

(37,972

)

 

 

(12,600

)

 

 

(13,687

)

Interest expense, net

 

 

(1,718

)

 

 

(876

)

 

 

(5,008

)

 

 

(2,416

)

Other income, net

 

 

79

 

 

 

38

 

 

 

260

 

 

 

133

 

Net loss and comprehensive loss

 

$

(14,076

)

 

$

(12,783

)

 

$

(44,234

)

 

$

(40,255

)

Other income (expense):

 

 

 

 

 

 

Interest expense to related party

 

 

(1,179

)

 

 

(1,522

)

Change in fair value of derivative related to Term Loan with related party

 

 

(108

)

 

 

(770

)

Change in fair value of warrant liabilities

 

 

28

 

 

 

(1,304

)

Other, net

 

 

325

 

 

 

(682

)

Total other income (expense)

 

 

(934

)

 

 

(4,278

)

Net loss

 

$

(13,534

)

 

$

(17,965

)

Net loss per share — basic and diluted

 

$

(0.45

)

 

$

(0.51

)

 

$

(1.43

)

 

$

(1.64

)

 

$

(2.66

)

 

$

(131.77

)

Weighted-average number of common shares used in computing

net loss per share — basic and diluted

 

 

31,420,726

 

 

 

25,027,751

 

 

 

30,873,930

 

 

 

24,524,508

 

 

 

5,094,809

 

 

 

136,333

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(13,534

)

 

$

(17,965

)

Total other comprehensive income, net of taxes

 

 

 

 

 

 

Comprehensive loss

 

$

(13,534

)

 

$

(17,965

)

See accompanying notes to condensed consolidated financial statements.


2


T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWSSTOCKHOLDERS’ DEFICIT

(In thousands)thousands, except share data)

(Unaudited)

 

 

Nine Months Ended

September 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(44,234

)

 

$

(40,255

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,194

 

 

 

1,626

 

Stock-based compensation expense

 

 

3,806

 

 

 

3,659

 

Loss on sale of T2 owned equipment

 

 

134

 

 

 

 

Non-cash interest expense

 

 

1,968

 

 

 

459

 

Deferred rent

 

 

(95

)

 

 

(187

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(115

)

 

 

(10

)

Prepaid expenses and other assets

 

 

129

 

 

 

(118

)

Inventories, net

 

 

(451

)

 

 

(654

)

Accounts payable

 

 

31

 

 

 

(132

)

Accrued expenses and other liabilities

 

 

361

 

 

 

797

 

Deferred revenue

 

 

(369

)

 

 

(1,328

)

Net cash used in operating activities

 

 

(36,641

)

 

 

(36,143

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(843

)

 

 

 

Purchases of T2-owned equipment

 

 

(1,758

)

 

 

(4,594

)

Net cash used in investing activities

 

 

(2,601

)

 

 

(4,594

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payment of offering costs for issuance of common stock in public offering

 

 

(37

)

 

 

(385

)

Proceeds from issuance of common stock and stock options exercises, net

 

 

717

 

 

 

736

 

Proceeds from issuance of common stock in connection with private offering, net of

   offering costs

 

 

37

 

 

 

 

Proceeds from private investment in public entity

 

 

 

 

 

39,723

 

Proceeds from confidentially marketed public offering

 

 

18,832

 

 

 

 

Proceeds from notes payable, net of issuance costs

 

 

 

 

 

4,593

 

Repayments of note payable

 

 

(898

)

 

 

(2,481

)

Net cash provided by financing activities

 

 

18,651

 

 

 

42,186

 

Net decrease in cash and cash equivalents

 

 

(20,591

)

 

 

1,449

 

Cash and cash equivalents at beginning of period

 

 

73,488

 

 

 

73,662

 

Cash and cash equivalents at end of period

 

$

52,897

 

 

$

75,111

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,967

 

 

$

1,881

 

Supplemental disclosures of noncash investing and financing activities

 

 

 

 

 

 

 

 

Accrued property and equipment

 

$

90

 

 

$

133

 

 

 

Series B Convertible

 

 

Common

 

 

Additional

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Preferred Stock

 

 

Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Deficit

 

Balance on December 31, 2022

 

 

 

 

$

 

 

 

77,165

 

 

$

 

 

$

494,564

 

 

$

(534,219

)

 

$

 

 

$

(39,655

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,833

 

 

 

 

 

 

 

 

 

1,833

 

Issuance of common stock from vesting of restricted stock,
   exercise of stock options and employee stock purchase plan

 

 

 

 

 

 

 

 

643

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock from secondary offering, net

 

 

 

 

 

 

 

 

6,528

 

 

 

 

 

 

930

 

 

 

 

 

 

 

 

 

930

 

Issuance of common stock and Pre-Funded Warrant from
   public offering, net

 

 

 

 

 

 

 

 

90,173

 

 

 

 

 

 

4,031

 

 

 

 

 

 

 

 

 

4,031

 

Issuance of common stock upon Common Stock Warrant
   cashless exercises

 

 

 

 

 

 

 

 

11,718

 

 

 

 

 

 

938

 

 

 

 

 

 

 

 

 

938

 

Issuance of common stock upon Pre-Funded Warrant exercises

 

 

 

 

 

 

 

 

17,406

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,965

)

 

 

 

 

 

(17,965

)

Balance on March 31, 2023

 

 

 

 

$

 

 

 

203,633

 

 

$

 

 

$

502,298

 

 

$

(552,184

)

 

$

 

 

$

(49,886

)

 

 

Series B Convertible

 

 

Common

 

 

Additional

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Preferred Stock

 

 

Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Deficit

 

Balance on December 31, 2023

 

 

93,297

 

 

$

 

 

 

4,058,381

 

 

$

4

 

 

$

556,256

 

 

$

(584,296

)

 

$

 

 

$

(28,036

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,595

 

 

 

 

 

 

 

 

 

1,595

 

Issuance of common stock from vesting of restricted stock,
   exercise of stock options and employee stock purchase plan

 

 

 

 

 

 

 

 

1,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surrender of shares for tax withholding

 

 

 

 

 

 

 

 

(288

)

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Issuance of common stock from secondary offering, net

 

 

 

 

 

 

 

 

628,470

 

 

 

1

 

 

 

2,202

 

 

 

 

 

 

 

 

 

2,203

 

Conversion of Series B Convertible Preferred Stock into common stock by related party

 

 

(82,422

)

 

 

 

 

 

824,220

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,534

)

 

 

 

 

 

(13,534

)

Balance on March 31, 2024

 

 

10,875

 

 

$

 

 

 

5,512,332

 

 

$

6

 

 

$

560,051

 

 

$

(597,830

)

 

$

 

 

$

(37,773

)

See accompanying notes to condensed consolidated financial statements.


3


T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(13,534

)

 

$

(17,965

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

64

 

 

 

256

 

Non-cash lease expense

 

 

364

 

 

 

321

 

Stock-based compensation expense

 

 

1,595

 

 

 

1,833

 

Change in fair value of derivative related to Term Loan with related party

 

 

108

 

 

 

770

 

Change in fair value of warrant liabilities

 

 

(28

)

 

 

1,304

 

Issuance costs related to Common Stock Warrants

 

 

 

 

 

682

 

Loss on disposal of property and equipment

 

 

 

 

 

3

 

Non-cash interest expense to related party

 

 

341

 

 

 

526

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(168

)

 

 

840

 

Prepaid expenses and other assets

 

 

156

 

 

 

138

 

Inventories

 

 

149

 

 

 

(949

)

Accounts payable

 

 

358

 

 

 

1,833

 

Accrued expenses and other liabilities

 

 

(675

)

 

 

(2,211

)

Deferred revenue

 

 

(30

)

 

 

(1

)

Operating lease liabilities

 

 

(383

)

 

 

(320

)

Net cash used in operating activities

 

 

(11,683

)

 

 

(12,940

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases and manufacture of property and equipment

 

 

 

 

 

(120

)

Net cash used in investing activities

 

 

 

 

 

(120

)

Cash flows from financing activities

 

 

 

 

 

 

Payment of employee restricted stock tax withholdings

 

 

(1

)

 

 

 

Proceeds from public offering, net of issuance costs

 

 

 

 

 

10,918

 

Proceeds from secondary offering, net of issuance costs

 

 

2,203

 

 

 

930

 

Net cash provided by financing activities

 

 

2,202

 

 

 

11,848

 

Net change in cash, cash equivalents and restricted cash

 

 

(9,481

)

 

 

(1,212

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

16,240

 

 

 

11,880

 

Cash, cash equivalents and restricted cash at end of period

 

$

6,759

 

 

$

10,668

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Reconciliation of cash, cash equivalents and restricted cash at end of period

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,208

 

 

$

10,117

 

Restricted cash

 

 

551

 

 

 

551

 

Total cash, cash equivalents and restricted cash

 

$

6,759

 

 

$

10,668

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Cash paid for interest to related party

 

$

839

 

 

$

1,009

 

Supplemental disclosures of noncash activities

 

 

 

 

 

 

Transfer of T2 owned instruments and components from inventory

 

$

 

 

$

(298

)

Cashless exercise of Common Stock Warrants

 

$

 

 

$

(938

)

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

4

 

 

$

136

 

See accompanying notes to condensed consolidated financial statements.

4


T2 BIOSYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business

T2 Biosystems, Inc. and its subsidiary (the “Company”“Company,” “we,” or “T2”) have operations based in Lexington, Massachusetts. T2 Biosystems, Inc. was incorporated on April 27, 2006 as a Delaware corporation with operations based in Lexington, Massachusetts.corporation. The Company is an in vitro diagnostics company that has developed an innovative and proprietary technology platform that offers a rapid, sensitive and simple alternative to existing diagnostic methodologies. The Company is using its T2 Magnetic Resonance technology (“T2MR”) to develophas developed a broad set of applications aimed at lowering mortality rates, improving patient outcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisions earlier. T2MRThe Company’s technology enables rapid detection of pathogens, biomarkers and other abnormalities in a variety of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum, cerebral spinal fluid and urine, and can detect cellular targets at limits of detection as low as one colony forming unit per milliliter (“CFU/mL”). We are currently targeting a range of critically underserved healthcare conditions, focusing initially on those for which a rapid diagnosis will serve an important dual role – saving lives and reducing costs. The Company’s initialcurrent development efforts primarily target sepsis, bioterrorism and lymeLyme disease, which are areas of significant unmet medical need in which existing therapies could be more effective with improved diagnostics.

Liquidity and Going Concern

On September 22, 2014, the Company received market clearance from the U.S. Food and Drug Administration (“FDA”) for its first two products, the T2Dx Instrument (the “T2Dx”) and T2Candida Panel (“T2Candida”). On June 30, 2017 the Company received a CE Mark for its T2Bacteria Panel (“T2Bacteria”). On September 8, 2017 the Company filed a 510(k) premarket submission for the T2Bacteria Panel with the U.S. Food and Drug Administration (FDA).

Liquidity

At September 30, 2017,March 31, 2024, the Company had cash, and cash equivalents, and restricted cash of $52.9$6.8 million, and an accumulated deficit of $247.9 million.$597.8 million, stockholders’ deficit of $37.8 million, and has experienced cash outflows from operating activities since its inception. The future success of the Company is dependent on its ability to successfully commercialize its FDA approved products, obtain regulatory clearance for and successfully launch its future product candidates, including T2Bacteria, obtain additional capital and ultimately attain profitable operations. Historically, the Company has funded its operations primarily through itspublic equity and private debt financings, including the Company's August 2014 initial public offering, itsthe December 2015 confidentially marketed public offering, (“CMPO”), itsthe September 2016 private investment in public equity (“PIPE”) financing, itsthe September 2017 CMPO,public offering, the June 2018 public offering, the July 2019 establishment of an equity distribution agreement and equity purchase agreement, the March 2021 establishment of an Equity Distribution Agreement (Note 9), the February 2023 public offering (Note 8), private placements of redeemable convertible preferred stock and through debt financing arrangements.

The Company believes its cash position is insufficient to fund future operations without financings by the first half of 2024, which may include public or private equity or debt financings. These financings may not be successful, however, or on terms favorable to the Company or its stockholders, which would have a negative impact on the Company’s business, results of operations, financial condition and the Company’s ability to develop and commercialize its products and ultimately operate as a going concern.

The Company is subject to a number of risks similar to other newlyearly commercial stage life science companies, including, but not limited to commercially launching the Company’s products, development and market acceptance of the Company’s product candidates, development by its competitors of new technological innovations, protection of proprietary technology, and raising additional capital.

Having obtained authorization from the FDA to market T2Dx and T2Candida, the Company has incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution. The Company will continue the research and development of other product candidates and maintain, expand and protect its intellectual property portfolio. The Company may seek to fund its operations through public equity or private equity or debt financings, as well as other sources. However, the Company may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. The Company’s failure to raise capital or enter into such other arrangements if and when needed would have a negative impact onIn September 2023, the Company’s business, results of operationsmilestone-based product development contract with the Biomedical Advanced Research and financial condition andDevelopment Authority (“BARDA”) (Note 12) expired, which may impact the Company’s ability to developcontinue to fund the development of its next-generation products.

The Company’s T2Dx Instrument and commercialize T2Dx, T2Candida, T2Bacteria, and other product candidates.the T2Biothreat Panels are authorized for use in the United States by the U.S. Food and Drug Administration (“FDA”).

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

5


The Company believes that its existing cash, and cash equivalents, at September 30, 2017, together with the additional remaining liquidityand restricted cash of $6.8 million on the Company’s Term Loan Agreement of up to an additional $10.0 million,March 31, 2024 will not be sufficient to allow the Company to fund its current operating plan through early 2019.  for at least one year from issuance of these financial statements, as certain elements of its operating plan cannot be considered probable. Absent any reductions in current operating expenses, the Company believes it will require additional financing during the first half of 2024, which may include public or private equity or debt financings. Under ASC 205-40, the future receipt of potential funding from co-development partners and other resources cannot be considered probable at this time because none of the plans are entirely within the Company’s control.

The borrowing onCompany's Term Loan Agreement (the “Term Loan Agreement”) with certain entities managed by CR Group L.P., a Delaware limited partnership (each entity, a “CRG entity” and collectively, “CRG”) (Note 6) has a minimum liquidity covenant, which initially required the Company to maintain a minimum cash balance of $5.0 million. In May 2023, CRG reduced the minimum liquidity covenant under the Term Loan Agreement is available at any time throughfrom $5.0 million to $500,000 until December 31, 2023. In July 27, 2018,2023, the Company also converted $10.0 million of the outstanding debt with CRG to equity. In October 2023, the Term Loan Agreement was amended to extend both the interest-only period and is subject the maturity date by one year from December 30, 2024 to certain conditions includingDecember 31, 2025, and permanently reduce the minimum liquidity covenant from $5.0 million to $500,000. There can be no assurances that the Company receive 510(k) clearancewill continue to be in compliance with the cash covenant in future periods without additional funding.

On March 30, 2023, the Company received notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the marketinglast thirty consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 555(a)(2) (the “Minimum Bid Price Rule”). On May 23, 2023, Nasdaq notified the Company that its securities were subject to delisting due to non-compliance with the Minimum Bid Price Rule and to maintain a minimum value of T2Bacterialisted securities (the “MVLS Rule”) of at least $35 million. The Company requested a hearing with Nasdaq and, on July 6, 2023, appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule and the Minimum Bid Price Rule. On July 26, 2023, we filed a definitive proxy statement to effect a reverse stock split of our common stock in connection with our annual meeting that occurred in September 2023 as required by the FDA by April 30, 2018 (see Note 5). ShouldNasdaq Hearings Panel. On August 9, 2023, the Company received written notice from Nasdaq informing the Company that it had regained compliance with the MVLS Rule. On September 15, 2023, at the Company’s current operating planannual meeting of stockholders, the Company’s stockholders approved an amendment to the Company’s restated certificate of incorporation to effect a reverse stock split of the Company’s common stock. On October 12, 2023, the Company announced that its board of directors had approved the reverse stock split at the ratio of 1 post-split share for every 100 pre-split shares, which was effective as of October 12, 2023.

On October 31, 2023, the Company received written notice from Nasdaq informing the Company that it has regained compliance with the Minimum Bid Price Rule. The Company will be subject to a Mandatory Panel Monitor for a period of one year. If, within that one-year monitoring period, the Company fails to comply with the Minimum Bid Price Rule, the Company will not materializebe permitted additional time to regain compliance with the Minimum Bid Price Rule. However, the Company will have an opportunity to request a new hearing with the Nasdaq Listing Qualifications Hearing Panel prior to the Company’s securities being delisted from Nasdaq.

On November 20, 2023, the Company received written notice from Nasdaq informing the Company that it no longer satisfied the MVLS Rule. In accordance with the terms of the Mandatory Panel Monitor, the Company was not granted a grace period but rather issued a delist determination, which will be stayed if the Company exercises its right to appeal by requesting a hearing and paying a non-refundable $20,000 fee. The Company paid the $20,000 applicable fee and requested a new hearing, which will stay any further action by Nasdaq at least pending the issuance of its decision and the expiration of any extension that may be granted to the Company as expected, includinga result of the hearing. The Company’s common stock will remain listed and eligible to trade on Nasdaq pending the outcome of the hearing. On February 15, 2024, the Company appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule. On March 11, 2024, the Company received notice from the Nasdaq Hearings Panel that it had granted the Company’s request for continued listing on Nasdaq, subject to the Company demonstrating compliance with Nasdaq’s MVLS Rule on or before May 20, 2024.

These conditions raise substantial doubt regarding the Company’s ability to drawcontinue as a going concern for a period of one year after the date that the financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include raising additional borrowings on the Term Loan Agreement on a timely basis, the Company would delayfunding, delaying certain research projects and capital expenditures, and reduce or eliminateeliminating certain future operating expenses in order to fund operations at reduced levels for the Company to continue as a going concern for a period of 12 months from the date thethese audited consolidated financial statements are issued.

For Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more information, referof these sources or maintain reduced expenditures, while reasonably possible, is less than probable. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these financial statements.

6


The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the section titled “Liquidityrecoverability and Capital Resources” in Item 2, Management’s Discussionclassification of recorded asset amounts or the amounts and Analysisclassification of Financial Condition and Resultsliabilities that might result from the outcome of Operations and the section entitled “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2016, for additional risks associated with our capital needs.uncertainties described above.


2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States GAAPgenerally accepted accounting principles as definedfound in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, T2 Biosystems Securities Corporation. All intercompany balances and transactions have been eliminated.

We have evaluated subsequent events from September 30, 2017 throughOn October 12, 2023, the dateCompany effected a 1-for-100 reverse stock split. One share of the issuancecommon stock was issued for every 100 shares of theseissued and outstanding common stock, and fractional shares were settled in cash. All references to share and per share amounts (excluding authorized shares) in the condensed consolidated financial statements and accompanying notes have determined that no material subsequent events have occurred that would havebeen retroactively restated to account for the reverse split.

Prior to this, on October 12, 2022, the Company effected a material effect on the information presented1-for-50 reverse stock split. One share of common stock was issued for every 50 shares of issued and outstanding common stock, and fractional shares were settled in these consolidated financial statements.cash.

Unaudited Interim Financial Information

Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2023.

The accompanying interim condensed consolidated balance sheet as of September 30, 2017,March 31, 2024, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2017March 31, 2024 and 2016,2023, the condensed consolidated statements of stockholders’ deficit for the three months ended March 31, 2024 and 2023, the condensed consolidated statements of cash flows for the ninethree months ended September 30, 2017March 31, 2024 and 20162023 and the related financial data and other information disclosed in these notes are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2017,March 31, 2024, and the results of its operations for the three months ended March 31, 2024 and 2023 and its cash flows for the three and nine months ended September 30, 2017March 31, 2024 and 2016.2023. The results for the three and nine months ended September 30, 2017March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2017,2024, any other interim periods, or any future year or period.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-makingdecision‑making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company views its operations and manages its business in one operating segment, which is the business of developing and, upon regulatory clearance, commercially launching commercially its diagnostic products aimed at lowering mortality rates, improving patient outcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisions earlier.

Geographic Information

The Company sells its products domestically and internationally. Total international sales were approximately $1.0 million, or 49% of total revenue, and $0.8 million, or 36% of total revenue, for the three months ended March 31, 2024 and 2023, respectively.

International sales to Italy were approximately $0.4 million, or 20% of total revenue, and $0.4 million, or 19% of total revenue, for the three months ended March 31, 2024 and 2023, respectively. International sales to Austria were approximately $0.3 million, or 14% of total revenue, and $0.2 million, or 7% of total revenue, for the three months ended March 31, 2024 and 2023, respectively.

7


The following table shows customers that represent greater than 10% of total revenue for the period presented:

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Entity A

 

 

%

 

 

20

%

Customer A

 

 

20

%

 

 

19

%

Customer B

 

 

14

%

 

 

%

Entity A is a U.S. government entity (BARDA). Customers A and B are international distributors.

The following table shows customers that represent greater than 10% of the accounts receivable balance for the period presented:

March 31,
2024

December 31,
2023

Customer A

22

%

%

Customer B

10

%

%

Customer C

%

13

%

Customer D

%

16

%

Customers A and B are international distributors. Customer C is a U.S. healthcare system comprised of multiple hospitals. Customer D is a clinical laboratory company.

As of March 31, 2024 and December 31, 2023, the Company had outstanding receivables of $0.9 million and $0.3 million, respectively, from customers located outside of the U.S.

Net Loss Per Share

As discussed in Note 7, the Company issued 93,297 shares of Series B Convertible Preferred Stock on July 3, 2023. As of March 31, 2024, 10,875 shares of Series B Convertible Preferred Stock remain issued and outstanding. The Company has reviewed the terms of the Series B Convertible Preferred Stock and noted that such stock has no preferential rights and that the liquidation preference for the Series B Convertible Preferred Stock would be on parity with that of the Company’s common shares. Because the Series B Convertible Preferred Stock has the same level of subordination and, in substance, the same characteristics as the Company’s common shares, the Company included the Series B Convertible Preferred Stock, on an if-converted basis of 108,750 shares, in the basic and diluted net loss per share attributable to common stockholders calculation.

The Company has also issued certain securities that are participating securities. Therefore, the Company must apply the two-class method to determine basic and diluted earnings per share. The two-class method is an earnings allocation method under which net loss per share is calculated for each class of common stock and participating security considering both dividends declared, if any, and participation rights in undistributed earnings as if all such earnings had been distributed for the period. The Company’s participating securities do not have an obligation to share in the losses of the Company; therefore, to the extent that the Company remains in a net loss position, the entire net loss will be allocated to common stockholders.

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration forin-substance common stock, and potential common shares exercisable for little to no consideration, and does not consider other common stock equivalents.

Diluted net loss per share is calculated by adjusting the weighted-average number of shares outstanding, in-substance common stock, and potential common shares exercisable for little to no consideration used to compute basic earnings per share for the dilutive effect of other common stock equivalents that were outstanding forduring the period, determined using either the if-converted method or the treasury-stock method. For purposes

Derivative Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives requiring bifurcation in accordance with ASC Topic 815, Derivatives and Hedging. Derivative instruments are measured at fair value at issuance and at each reporting date in accordance with ASC 820 with changes in fair value recognized in the period of change in the condensed consolidated statements of operations and comprehensive loss.

8


The Company determined that both the warrant issued in conjunction with the Series A Redeemable Convertible Preferred Stock in August of 2022 and the Common Stock Warrants issued in February 2023 are derivative instruments. The warrant liabilities are classified on the condensed consolidated balance sheets as current because settlement of the diluted net loss per share calculation, stock optionswarrant liability could be required by the holder within 12 months of the balance sheet date. Changes in fair value are recognized in change in fair value of warrant liabilities in the period of change in the condensed consolidated statements of operations and unvested restricted stockcomprehensive loss. See Notes 3 and 8.

The Company has identified a derivative liability related to its Term Loan Agreement with CRG that is classified as a current liability on the condensed consolidated balance sheets to match the classification of the related Term Loan Agreement. Changes in fair value are consideredrecognized in change in fair value of derivative related to be common stock equivalents, but have been excluded fromTerm Loan in the calculationperiod of diluted net loss per share,change in the condensed consolidated statements of operations and comprehensive loss. See Note 6.

The Company does not designate its derivative instruments as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share applicable to common stockholders was the same for all periods presented.hedging instruments.

Guarantees

Guarantees

As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while each such officer or director is, or was, serving at the Company’s request in such a capacity. The term of the indemnification is the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make is unlimited; however, the Company has directors’ and officers’ liability insurance coverage that limits its exposure and enables the Company to recover a portion of any future amounts paid.


The Company leases office, laboratory and manufacturing space under noncancelable operating leases. The Company has standard indemnification arrangements under the leases that require it to indemnify the landlords against all costs, expenses, fines, suits, claims, demands, liabilities, and actions directly resulting from any breach, violation or nonperformance of any covenant or condition of the Company’s leases. See Note 14 for a discussion about the Billerica, Massachusetts lease.

In the ordinary course of business, the Company enters into indemnification agreements with certain suppliers and business partners where the Company has certain indemnification obligations limited to the costs, expenses, fines, suits, claims, demands, liabilities and actions directly resulting from the Company’s gross negligence or willful misconduct, and in certain instances, breaches, violations or nonperformance of covenants or conditions under the agreements.

As of September 30, 2017March 31, 2024 and December 31, 2016,2023, the Company had not experienced any material losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.

Leases

Lessee

Pursuant to ASC Topic 842, Leases (“ASC 842”), at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. The exercise of lease renewal options is at the Company’s discretion and the periods subject to renewal options are not included in the measurement of the Company’s right-of-use assets and lease liabilities as the renewal options are not reasonably certain of exercise. The Company will continue to evaluate the renewal options and when they are reasonably certain of exercise, the Company will include the renewal period in its lease term. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued lease payments. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

In accordance with the guidance in ASC 842, components of a lease should be split into three categories: lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.). Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.

9


The Company made the policy election to not separate lease and associated non-lease components. Each lease component and the related non-lease components are accounted for together as a single component.

Lessor

The Company derives revenue from leasing its T2-owned instruments through reagent rental agreements (see the Revenue Recognition section below). Customers typically have the right to cancel every twelve months, resulting in a lease term of generally one year. These lease agreements impose no requirement on the customer to purchase the instrument, and the instrument is not transferred to the customer at the end of the lease term. The short-term nature of the lease agreements does not result in lease payments accumulating to an amount that exceeds substantially all of the fair value of the instrument nor is the lease term for the majority of the remaining economic life of the instrument. Instrument leases are generally classified as operating leases as they do not meet any of the sales-type lease or direct financing lease criteria per ASC 842 and are recognized ratably over the duration of the lease. In accordance with these contracts, customers only make payments when consumables are ordered and delivered thus making these payments variable by nature. The Company estimates the expected volume of consumables to be purchased by each customer over the lease term to measure and recognize rental and consumables revenue.

Generally, lease arrangements include both lease and non-lease components. The lease component relates to the customer’s right-to-use the T2-owned instrument over the lease term. The non-lease components relate to (1) consumables and (2) maintenance services. Because the timing and pattern of transfer for the operating lease component, the T2-owned instrument, and maintenance components of a reagent rental agreement are recognized over the same time period and in the same pattern, the Company elected the practical expedient to aggregate non-lease components with the associated lease component and account for the combined component as an operating lease for all instrument leases. In the evaluation of whether the lease component (T2-owned instrument) or the non-lease component associated with the lease component (maintenance) is the predominant component, the Company determined that the lease component is predominant as we believe the customer would ascribe more value to the use of the T2-owned instrument than that of the maintenance services. The T2-owned instrument lease and maintenance service performance obligations are classified as a single category of instrument rental revenue within product revenue in the condensed consolidated statements of operations and comprehensive loss (see disaggregated revenue table below in Revenue Recognition section). The consumables non-lease component does not meet the requirements to elect the practical expedient because of its point-in-time pattern of transfer (versus over time for the combined lease component) and therefore must apply ASC Topic 606, Revenue from Contracts with Customers, as described below in the Revenue Recognition section.

The Company considers the economic life of its T2-owned instruments to be five years. The Company believes five years is representative of the period during which the instrument is expected to be economically usable by one or more users, with normal service, for the purpose for which it is intended. The residual value is estimated to be the value at the end of the lease term based on the anticipated fair market value of the units. The Company mitigates residual value risk of its leased instrument by performing regular management and maintenance, as necessary.

Revenue Recognition

The Company generates revenue from product sales, which includes the sale of instruments, consumable diagnostic tests, and related services, reagent rental agreements and researchgovernment contributions. For arrangements in the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company determines revenue recognition through the following steps:

Identification of a contract with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations
Recognition of revenue as a performance obligation is satisfied

The amount of revenue recognized reflects the consideration the Company expects to be entitled to receive in exchange for these goods and development agreements with third parties.services.

Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes revenueas revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers either at a point in accordancetime, typically upon shipment, or over time, as services are performed. Contracts typically have net 30 payment terms in the U.S. and net 60 payment terms internationally.

10


Most of the Company’s contracts with FASB ASC Topic 605, Revenue Recognition (“ASC 605”). Accordingly,distributors in geographic regions outside the United States contain only a single performance obligation, whereas most of the Company’s contracts with direct sales customers in the United States contain multiple performance obligations. For these contracts, the Company recognizes revenue when all ofaccounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the following criteria have been met:

i.

Persuasive evidence of an arrangement exists

ii.

Delivery has occurred or services have been rendered

iii.

The seller’s price to the buyer is fixed or determinable

iv.

Collectability is reasonably assured

If any ofseparate performance obligations on a relative standalone selling price basis. Excluded from the above criteria have not been met, the Company defers revenue until such time each of the criteria have been satisfied.transaction price are sales tax and other similar taxes which are presented on a net basis.

Product revenue is generated by the sale of instruments and consumable diagnostic tests predominantly through the Company’s direct sales force in the United States and distributors in geographic regions outside the United States. The Company generally does not offer product returnreturns or exchange rights (other than those relating to defective goods under warranty) or price protection allowances to its customers, including its distributors. Payment terms granted to distributors are the same as those granted to end-user customers and payments are not dependent upon the distributors’ receipt of payment from their end-user customers.

The Company either sells instruments to customers and international distributors or retains title and places the instrument at the customer site pursuant to a reagent rental agreement. When thean instrument is directly purchased by a customer or international distributor, the Company recognizes revenue when all applicable revenue recognition criteria are met. the related performance obligation is satisfied (i.e., when the control of an instrument has passed to the customer; typically, at shipping point).

When the instrument is placed under a reagent rental agreement, the Company’s customers generally agree to fixed term agreements, which can be extended, certain of which may include minimum purchase commitments and/orand incremental charges on each consumable diagnostic test purchased, which varies based on the volume of test cartridges purchased. Revenue from the sale of consumable diagnostic tests which includes the incremental charge,(under a reagent rental agreement) is generally recognized upon delivery or shipmentshipment. The transaction price from consumables purchases is allocated between the lease and non-lease components when related performance obligations are satisfied, as a component of lease and product revenue, and is included as Instrument Rentals in the below table. Revenue associated with reagent rental consumables purchases is currently classified as variable consideration and constrained until a purchase order is received and related performance obligations have been satisfied.

Revenue from the sale of consumable diagnostic tests (under instrument purchase agreements) is recognized when control has passed to the customer, typically at shipping point.

Shipping and handling costs billed to customers in connection with a product sale are recorded as a component of the transaction price and allocated to product revenue in the Company’scondensed consolidated statements of operations and comprehensive loss.loss as they are incurred by the Company in fulfilling its performance obligations.

Direct sales of instruments include warranty, maintenance and technical support services typically for one year following the installation of the purchased instrument (“Maintenance Services”). Maintenance Services are separate performance obligations as they are service based warranties and are recognized on a straight-line basis over the service delivery period. After the completion of the initial Maintenance Services period, customers have the option to renew or extend the Maintenance Services typicallyfortypically for additional one yearone-year periods in exchange for additional consideration. In addition, the Company may provide training to customers.The extended Maintenance Services are also service based warranties that represent separate purchasing decisions. The Company defersrecognizes revenue from the initial sale of the instrument equalallocated to the relative fair value of the one year ofextended Maintenance Services and training and recognizes the amounts ratablyperformance obligation on a straight-line basis over the service delivery period.

Fees paid to member-owned group purchasing organizations (“GPOs”) are deducted from related product revenues.

The Company warrants that consumable diagnostic tests will be free from defects, when handled according to product specifications, for the stated life of the product. To fulfill valid warranty claims, the Company either provides a credit to its customersreplacement product free of charge. Warranty expense is recognized based on future orders or provides a replacement product. Accordingly, the Company defers revenue associated with the estimated defect rates of the consumable diagnostic tests.

Contribution Revenue

The government contract with BARDA was considered a government grant and not considered a contract with a customer and thus not subject to ASC 606. Revenue under the government BARDA contract was earned under a cost-sharing arrangement in which the Company does not offer rights of returnwas reimbursed for instruments or consumable diagnostic tests.


Shipping and handlingdirect costs incurred associated with products sold to customers are recordedplus allowable indirect costs. The government contract revenue was recognized as athe related reimbursable expenses were incurred. The cost reimbursement that was reported as revenue was presented gross of product revenuethe related reimbursable expenses in the consolidated statement of operations and comprehensive loss. Shipping and handling costs billed to customers in connection with a product sale are recorded as a component of product revenue in theCompany’s condensed consolidated statements of operations and comprehensive loss.

For multiple-element arrangements, the Company identifies the deliverables included within each agreement and evaluates which deliverables represent separate units of accounting. The determination that multiple elements in an arrangement meet the criteria for separate units of accounting requires the Company’s management to exercise judgment. The Company accounts for those components as separate elements when the following criteria are met: (1) the delivered items have value to the customer on a stand-alone basis; and, (2) if there is a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and within its control.

The consideration received is allocated among the separate units of accounting based on a selling price hierarchy. The selling price hierarchy is based on: (1) vendor specific objective evidence (“VSOE”), if available; (2) third party evidence of selling price if VSOE is not available; or (3) best estimated selling price (“BESP”) if neither VSOE nor third party evidence is available. The Company generally expects that it will not be able to establish selling price using third-party evidence due to the nature of our products and the markets in which the Company competes, and, as such, the Company typically will determine selling price using VSOE or BESP.

When the Company establishes selling price using BESP, consideration is given to both market and Company-specific factors, including the cost to produce the deliverable and the anticipated margin on that deliverable, as well as the characteristics of markets in which the deliverable is sold.

Revenue earned from activities performed pursuant to research and development agreements is reported as research revenue in the consolidated statements of operations and comprehensive loss, using the proportional performance method as the work is completed, limited to payments earned, andloss; the related costs arereimbursable expenses were expensed as incurred as research and development expense. The Company accounted for these contracts as a government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance.

The BARDA contract expired in September 2023.

11


Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers by type of products and services, as it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The following table disaggregates our revenue by major source (in thousands):

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Product revenue

 

 

 

 

 

 

Instruments

 

 

464

 

 

 

322

 

Consumables

 

 

1,405

 

 

 

1,177

 

Instrument rentals

 

 

63

 

 

 

55

 

Service

 

 

129

 

 

 

101

 

Total product revenue

 

 

2,061

 

 

 

1,655

 

Contribution revenue

 

 

 

 

 

423

 

Total revenue

 

$

2,061

 

 

$

2,078

 

Remaining Performance Obligations

Under ASC 606, the Company is required to disclose the aggregate amount of the transaction price that is allocated to unsatisfied or partially satisfied performance obligations as of March 31, 2024. However, the guidance provides certain practical expedients that limit this requirement, and therefore, the Company has elected to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The nature of the excluded unsatisfied performance obligations pursuant to the practical expedient include consumable shipments, service contracts, warranties and installation services that will be performed within one year. The amount of the transaction price that is allocated to unsatisfied or partially satisfied performance obligations, that has not yet been recognized as revenue and that does not meet the elected practical expedient is $0.2 million as of March 31, 2024. The Company expects to recognize 61% of this amount as revenue within one year and the remainder within three years.

Judgments

Certain contracts with customers include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once the performance obligations are determined, the Company determines the transaction price, which includes estimating the amount of variable consideration, based on the most likely amount, to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on a relative standalone selling price method. The corresponding revenue is recognized as the related performance obligations are satisfied as discussed in the revenue categories above.

Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as a range of selling prices, market conditions and the expected costs and margin related to the performance obligations.

Contract Assets and Liabilities

The Company's contract assets represent revenue recognized for performance obligations in advance of invoicing at the contract level based on the transaction price allocated to the respective performance obligations. The opening and closing balances of the Company's contract assets were $0.1 million and $0.1 million for the three months ended March 31, 2024, respectively, and $0.1 million and $0.2 million for the three months ended March 31, 2023, respectively.

The Company’s contract liabilities consist of upfront payments for maintenance services on instrument sales. Contract liabilities are classified in deferred revenue as current or non-current based on the timing of receipt of cash from the Company’s research and development agreements generally differs from when revenue is expected to be recognized.

Product Recall

In July 2016, The opening and closing balances of the Company initiated a voluntary recallCompany's contract liabilities were $0.3 million and replacement of its T2Candida cartridges at certain customer sites because T2Candida$0.3 million for the three months ended March 31, 2024, respectively, and $0.2 million and $0.2 million for the three months ended March 31, 2023, respectively. Revenue recognized during the three months ended March 31, 2024 relating to contract liabilities on December 31, 2023 was experiencing higher than normal invalid test rates as the T2Candida cartridges aged. As of September 30, 2016, as a result of this voluntary recall, the Company deferred revenue totaling $149,000$0.1 million and recorded additional costs of product revenue of $41,000 related to returned products, which are no longer usable. As of September 30, 2017, the Company had $20,000 of deferredstraight-line revenue recognition associated with maintenance agreements.

12


Accounts Receivable, Net

The opening and $2,000 of warranty reserve remaining, both related to this voluntary recall. The impactclosing balances of the voluntary recall on T2Candida cartridges in inventory was not material toCompany's accounts receivable, net were $1.4 million and $1.6 million for the condensed consolidated financial statements.  three months ended March 31, 2024, respectively, and $2.2 million and $1.3 million for the three months ended March 31, 2023, respectively.

Cost of Product Revenue

Cost of product revenue includes the cost of materials, direct labor and manufacturing overhead costs used in the manufacture of consumable diagnostic tests sold to customers, related warranty and related license and royalty fees. Cost of product revenue also includes depreciation on T2-owned revenue generating T2Dx instrumentsInstruments that have been placed with customers under reagent rental agreements; costs of materials, direct labor and manufacturing overhead costs on the T2Dx instrumentsInstruments sold to customers; and other costs such as customer support costs, royalties and license fees, warranty and repair and maintenance expense on the T2Dx instrumentsInstruments that have been placed with customers under reagent rental agreements.

Research and Development Costs

Costs incurred in the research and development of the Company’s product candidates are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including activities associated with performingdelivering products or services under researchassociated with contribution revenue, arrangements,clinical trials to evaluate the clinical utility of product candidates, and costs associated with the enhancements of developed products. These costs include salaries and benefits, stock compensation, research-relatedresearch related facility and overhead costs, laboratory supplies, equipment, depreciation on T2Dx Instruments used for research and development activities and contract services.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of costs for the Company’s sales and marketing, finance, legal, human resources, business development and general management functions, as well as professional services, such as legal, consulting and accounting services. Other selling, general and administrative expenses include commercial support activity, facility-related costs, fees and expenses associated with obtaining and maintaining patents, clinical and economic studies and publications, marketing expenses, and travel expenses. The Company expenses the majority of selling, general and administrative expenses as incurred.

Impairment of Long-lived Assets

The Company reviews long‑lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing the carrying value of the long-lived assets with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value, or the estimated discounted future cash flows, of the long-lived assets.

Recent Accounting Standards

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impactits adoption of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.at the respective effective dates.


Accounting Standards Issued, To Be Adopted

In August 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its financial obligations as they become due within one year after the date that the financial statements are issued (or are available to be issued). ASU No. 2014-15 provides guidance to an organization’s management, with principles and definitions intended to reduce diversity in the timing and content of disclosures commonly provided by organizations in the footnotes of their financial statements. ASU No. 2014-15 was effective for annual reporting periods ending after December 15, 2016, and for annual and interim periods thereafter. This standard has been adopted and reflected in the Company’s disclosures regarding liquidity.  

In July 2015,November 2023, the FASB issued ASU No. 2015-11, Inventory2023-07, Segment Reporting (Topic 330)280): Simplifying the Measurement of InventoryImprovements to Reportable Segment Disclosures (“ASU 2015-11”2023-07”). The standard simplifiesThis ASU was issued to improve the subsequent measurement of inventory by requiring inventory todisclosures about a public entity’s reportable segments and address requests from investors for more detailed information about a reportable segment’s expenses. This update will be measured ateffective for the lower of cost and net realizable value for entities using the first-in-first out method of valuing inventory. ASU 2015-11 eliminates other measures required by current guidance to determine net realizable value. ASU 2015-11 is effectiveCompany for fiscal years beginning after December 15, 20162023 and interim periods within those fiscal years and earlybeginning after December 15, 2024. Early adoption is permitted. The Company’s adoptionCompany is currently assessing the impact of this standard did not have a material effectupdate on its condensed consolidated financial statements.disclosures.

In March 2016,December 2023, the FASB releasedissued ASU No. 2016-09 2023-09, Income Taxes (Topic 740): Improvements to Employee Share-Based Payment AccountingIncome Tax Disclosures (“ASU 2016-09”2023-09”) which is intended. This ASU was issued to simplify income tax accounting for excess tax benefits, accounting for forfeitures,enhance the transparency and employer statutory withholding. Under the current guidance, excess tax benefits that result from an award vesting or settling are recognized in additional paid-in capital in the period that they reduce cash taxes payable. This requires the provision to be computed on a with and without option basis and may result in net operating loss and credit carryforwards on the balance sheet being less than what is available on the tax return. Under the new guidance, the income tax effects of awards will be recognized as a componentdecision usefulness of income tax expense when the awards vest or are settled (regardless if cash taxes are reduced). For interim reporting purposes, companiesdisclosures. This update will account for excess tax benefits and tax deficiencies as discrete items in the period during which they occurred. The guidance isbe effective for public entitiesthe Company for fiscal years beginning after December 15, 2016, and interim periods within those years.2024. Early adoption is permitted, however all of the guidance included in the update must be applied when adopted. The Company must use a modified retrospective transition method for adopting and record the cumulative effect of all unrecognized benefits and any change in valuation allowances at the end of the prior tax period as an adjustment to retained earnings. The Company’s adoption of this standard did not have a material effect on its condensed consolidated financial statements and prior periods have not been adjusted. As a result, the Company established a net operating loss deferred tax asset of $1.2 million to account for prior period excess tax benefits through retained earnings, however an offsetting valuation allowance of $1.2 million will also be established through retained earnings because it is not more likely than not that the deferred tax asset will be realized due to historical and expected future losses, such that there is no impact on the Company’s condensed consolidated financial statements. The Company also elected to maintain the use of estimated forfeitures in the calculation of stock based compensation.

In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (“ASU 2016-06”), which applies to all issuers of or investors in debt instruments with embedded call or put options. ASU 2016-06 clarifies the requirements for assessing whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. Entities performing the assessment under the guidance of ASU 2016-06 are required to assess the embedded call or put options solely in accordance with the four-step decision process. In addition, ASU 2016-06 clarifies what steps are required when assessing whether the economic characteristics and risks of call or put options are clearly and closely related to the economic characteristics and risks of their debt hosts. ASU 2016-06 is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years using the modified retrospective method for existing debt instruments. The Company’s adoption of this standard did not have a material effect on its condensed consolidated financial statements.

Accounting Standards Issued, Not Adopted

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASC 2016-15”), which provides guidance on the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. The standard requires the use of a retrospective approach to all periods presented, but may be applied prospectively if retrospective application would be impracticable. The guidance is effective for public entities for fiscal years beginning after


December 15, 2017, and interim periods within those years, and early application is permitted. The Company is currently evaluatingassessing the impact of its pending adoption of ASU 2016-15 on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which applies to all leases. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing leases, while the statement of operations will reflect lease expense for operating leases and amortization and interest expense for financing leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those years, which is the year ended December 31, 2019 for the Company. Entities are required to use a modified retrospective approach of adoption for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. The Company is evaluating the new guidance and the expected effect on the Company’s consolidated financial statements.

In June 2014, the FASB issued amended guidance, ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which is applicable to revenue recognition that will now be effective for the Company for the year ending December 31, 2018, as a result of the deferral of the effective date adopted by the FASB in July 2015. The new guidance must be adopted using either a full retrospective approach for all periods presented or a modified retrospective approach. Early adoption prior to the original adoption date of ASU 2014-09 is not permitted. The new guidance applies a more principles-based approach to revenue recognition. The Company currently anticipates adoption of the new standard effective January 1, 2018 under the modified retrospective method. The Company is analyzing the potential impact that ASU 2014-09 may havethis update on its financial position and results of operations; however, the Company anticipates significant changes to its financial statement disclosures. As of September 30, 2017, the Company has completed its revenue stream analysis and advanced its assessment of the impact of ASU 2014-09 on its revenue-generating arrangements, including its product sales made as direct sales, sales to distributors, reagent rental agreements and its research arrangements. The Company is in the process of finalizing the quantitative impact the ASUs will have on the financial statements, as well as its plan for implementation. In addition, the Company continues to monitor additional changes, modifications, clarifications or interpretations undertaken by the FASB, which may impact its conclusions.

13


3. Fair Value Measurements

The Company measures the following financial assets at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during any of the periods presented. The following tables set forth the Company’s financial assets and liabilities carried at fair value categorized using the lowest level of input applicable to each financial instrument as of September 30, 2017March 31, 2024 and December 31, 20162023 (in thousands):

 

 

Balance at
March 31,
2024

 

 

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

3,750

 

 

$

3,750

 

 

$

 

 

$

 

 

 

$

3,750

 

 

$

3,750

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

207

 

 

$

 

 

$

207

 

 

$

 

Derivative liability related to Term Loan with related party

 

 

1,662

 

 

 

 

 

 

 

 

 

1,662

 

 

 

$

1,869

 

 

$

 

 

$

207

 

 

$

1,662

 

 

 

Balance at
December 31,
2023

 

 

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

8,500

 

 

$

8,500

 

 

$

 

 

$

 

 

$

8,500

 

 

$

8,500

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

235

 

 

$

 

 

$

235

 

 

$

 

Derivative liability related to Term Loan with related party

 

 

1,554

 

 

 

 

 

 

 

 

 

1,554

 

 

$

1,789

 

 

$

 

 

$

235

 

 

$

1,554

 

The Company’s cash equivalents are comprised of money market funds and money market accounts as of March 31, 2024 and December 31, 2023. The Company also maintains money market accounts classified as restricted cash, which are Level 1 assets, for $0.6 million on both March 31, 2024 and December 31, 2023 (Note 4).

The Company estimated the fair value of the warrant issued in conjunction with the Series A Redeemable Convertible Preferred Stock in August of 2022 (the “Series A Warrant”) (Note 8) using the Black-Scholes Model, which uses multiple inputs including the Company’s stock price, the exercise price of the warrant, volatility of the Company’s stock price, the risk-free interest rate and the expected term of the warrant.

 

 

Balance at

September 30,

2017

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

19,644

 

 

$

19,644

 

 

$

 

 

$

 

Money market funds

 

 

33,253

 

 

 

33,253

 

 

 

 

 

 

 

Restricted cash

 

 

260

 

 

 

260

 

 

 

 

 

 

 

Total

 

$

53,157

 

 

$

53,157

 

 

$

 

 

$

 

The estimated fair value of the Series A Warrant on March 31, 2024 was determined using the following assumptions:

Risk-free interest rate

4.32

%

Expected dividend yield

0.00

%

Expected volatility

144.00

%

Expected term

3.88

The Company estimated the fair value of the Common Stock Warrant issued in February of 2023 (the “Common Stock Warrant”) (Note 8) using both the Black-Scholes Model and Monte Carlo simulation methods to model different potential settlement outcomes. These models use multiple inputs including the Company’s stock price, the exercise price of the warrant, volatility of the Company’s stock price, the risk-free interest rate and the expected term of the warrant. Such inputs may vary depending on the model applied and the underlying scenario assumptions. Key inputs included the warrant exercise price of $108.00 per share, a risk-free interest rate of 4.32%, expected volatility ranging from 90% to 219%, an expected dividend yield of 0.00%, a stock price of $3.63 (adjusted to reflect volume weighting) and an expected term ranging from zero years to 3.88 years, depending on the simulation.

 

 

Balance at

December 31,

2016

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

16,887

 

 

$

16,887

 

 

$

 

 

$

 

Money market funds

 

 

56,601

 

 

 

56,601

 

 

 

 

 

 

 

Restricted cash

 

 

260

 

 

 

260

 

 

 

 

 

 

 

Total

 

$

73,748

 

 

$

73,748

 

 

$

 

 

$

 

14


The following table provides a roll-forward of the fair value of the Common Stock Warrants (in thousands):

Balance on December 31, 2023

 

$

233

 

Change in fair value

 

 

(27

)

Balance on March 31, 2024

 

$

206

 

The Company has a single compound derivative instrument related to its Term Loan Agreement (Note 6) that requires the Company to pay additional interest of 4% per annum upon an event of default or if any obligation other than the unpaid principal amount of the Term Loan is not paid when due. Fair value is determined quarterly. The fair value of the derivative on March 31, 2024 and December 31, 2023 is $1.7 million and $1.6 million, respectively, and is classified as a current liability on the condensed consolidated balance sheets to match the classification of the related Term Loan Agreement (Note 6).

The estimated fair value of the derivative on March 31, 2024 was determined using a probability-weighted discounted cash flow model that includes contingent interest payments under the following scenarios:

Probability

4% contingent interest beginning in Q2 2024

50

%

Changes in assumptions regarding the probability of the 4% contingent interest feature being triggered and the timing of such a triggering event could significantly affect the estimated fair value of this derivative liability.

The following table provides a roll-forward of the fair value of the derivative liability (in thousands):

Balance on December 31, 2023

 

$

1,554

 

Change in fair value of derivative related to Term Loan with related party

 

 

108

 

Balance on March 31, 2024

 

$

1,662

 

The Company is required to disclose the fair value and the level within the fair value hierarchy for financial instruments that are not measured at fair value on a recurring basis. For certain financial instruments, including accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, the carrying amounts approximate their fair values as of September 30, 2017March 31, 2024 and December 31, 20162023 because of their short-term nature. At September 30, 2017Cash and December 31, 2016,cash equivalents were classified as Level 1 and all other financial instruments were classified as Level 2 within the fair value hierarchy. The Company used Level 3 inputs to measure the fair value of its Term Loan Agreement. Based on these measurements, the Company concluded that the carrying value of the Company’s debt approximatedTerm Loan Agreement approximates its fair value on March 31, 2024.

4. Restricted Cash

The Company is required to maintain security deposits for its office lease agreements. On both March 31, 2024 and December 31, 2023, the Company had lease security deposits, invested in money market accounts, aggregating $0.6 million. In January 2023, one of the Company's deposits of $1.0 million was claimed by a landlord as compensation for a lease dispute (Note 14). The remaining collateral deposits aggregating $0.6 million were held at Silicon Valley Bank, which was determined using Level 3 inputs, using market quotes from brokerstaken over by the FDIC in March 2023. The Company’s full exposure was ultimately covered by the FDIC and is based on current rates offered for similar debt (Note 5).no loss was incurred.


4.5. Supplemental Balance Sheet Information

Inventories

Inventories are stated at the lower of cost or net realizable value on a first-in, first-out basis and are comprised of the following (in thousands):

 

 

March 31,
2024

 

 

December 31,
2023

 

Raw materials

 

$

2,208

 

 

$

1,881

 

Work-in-process

 

 

1,725

 

 

 

1,441

 

Finished goods

 

 

737

 

 

 

1,497

 

Total inventories

 

$

4,670

 

 

$

4,819

 

 

 

September 30,

2017

 

 

December 31,

2016

 

Raw materials

 

$

500

 

 

$

389

 

Work-in-process

 

 

476

 

 

 

351

 

Finished goods

 

 

278

 

 

 

63

 

Total inventories, net

 

$

1,254

 

 

$

803

 

15


Property and Equipment, net

Property and equipment, net consists of the following (in thousands):

 

September 30,

2017

 

 

December 31,

2016

 

 

March 31,
2024

 

 

December 31,
2023

 

Office and computer equipment

 

$

409

 

 

$

409

 

 

$

710

 

 

$

710

 

Software

 

 

743

 

 

 

708

 

 

 

778

 

 

 

778

 

Laboratory equipment

 

 

4,094

 

 

 

4,516

 

 

 

5,094

 

 

 

5,104

 

Furniture

 

 

200

 

 

 

200

 

 

 

198

 

 

 

198

 

Manufacturing equipment

 

 

910

 

 

 

897

 

 

 

1,127

 

 

 

1,109

 

Manufacturing tooling and molds

 

 

160

 

 

 

154

 

 

 

371

 

 

 

371

 

T2-owned instruments and components

 

 

10,878

 

 

 

9,119

 

 

 

3,709

 

 

 

3,549

 

Leased T2-owned instruments

 

 

899

 

 

 

1,059

 

Leasehold improvements

 

 

3,378

 

 

 

3,353

 

 

 

3,608

 

 

 

3,608

 

Construction in progress

 

 

1,557

 

 

 

1,299

 

 

 

21

 

 

 

23

 

 

 

22,329

 

 

 

20,655

 

 

 

16,515

 

 

 

16,509

 

Less accumulated depreciation and amortization

 

 

(8,475

)

 

 

(7,066

)

 

 

(14,904

)

 

 

(14,851

)

Property and equipment, net

 

$

13,854

 

 

$

13,589

 

 

$

1,611

 

 

$

1,658

 

Construction in progress is primarily comprised of equipment and leasehold improvement projects that havehas not been placed in service. T2-owned instruments and components is primarily comprised of raw materials and work-in-process inventory that are expected to be used or used to produce T2-owned instruments, based on our business model and forecast, and completed instruments that will be used for internal research and development, clinical studies orand reagent rental agreementsagreement with customers. Completed T2-owned instruments are placed in service once installation procedures are completed and are depreciated over five years. The Company has approximately $7.9 million and $5.7 million of T2-owned instruments installed and depreciating as of September 30, 2017 and December 31, 2016, respectively. Depreciation expense, for T2-owned instruments placed at customer sites pursuant to reagent rental agreements is recorded as a component of cost of product revenue, and totaled approximately $0.2 million and $0.2from instruments under the T2-owned reagent rental pool was $0.1 million for the three months ended September 30, 2017March 31, 2024 and 2016, respectively, and $0.7 million and $0.4 millionimmaterial for the ninethree months ended September 30, 2017 and 2016, respectively. DepreciationMarch 31, 2023.

Total depreciation expense for T2-owned instruments used for internal research and development and clinical studies is recorded as a component of research and development expense. Depreciation and amortization expense of $0.1 million and $0.3 million was charged to operations for the three months ended March 31, 2024 and 2023, respectively.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

March 31,
2024

 

 

December 31,
2023

 

Accrued payroll and compensation

 

$

1,760

 

 

$

2,705

 

Accrued clinical trial and development expenses

 

 

529

 

 

 

285

 

Accrued professional services

 

 

496

 

 

 

554

 

Accrued interest

 

 

838

 

 

 

839

 

Other accrued expenses

 

 

608

 

 

 

522

 

Total accrued expenses and other current liabilities

 

$

4,231

 

 

$

4,905

 

 

 

September 30,

2017

 

 

December 31,

2016

 

Accrued payroll and compensation

 

$

2,875

 

 

$

2,479

 

Accrued research and development expenses

 

 

1,038

 

 

 

846

 

Accrued professional services

 

 

987

 

 

 

884

 

Other accrued expenses

 

 

613

 

 

 

699

 

Total accrued expenses

 

$

5,513

 

 

$

4,908

 


5.6. Notes Payable

Future principal payments on the notes payable are as follows (in thousands):

 

 

September 30,

2017

 

 

December 31,

2016

 

Term loan agreement, net of deferred issuance costs of $2.5

   million and $3.0 million, respectively

 

$

38,695

 

 

$

37,031

 

Equipment lease credit facility, net of deferred issuance cost

   of $29 thousand and $45 thousand, respectively

 

 

2,810

 

 

 

3,742

 

Total notes payable

 

 

41,505

 

 

 

40,773

 

Less: current portion of notes payable

 

 

(1,416

)

 

 

(1,269

)

Notes payable, net of current portion

 

$

40,089

 

 

$

39,504

 

Term Loan Agreement

In December 2016, the Company entered into athe Term Loan Agreement (the “Term Loan Agreement”) with CRG Servicing LLC (“CRG”).CRG. The Company initially borrowed $40.0$40.0 million pursuant tounder the Term Loan Agreement and mayhad the ability to borrow up to an additional $10.0$10.0 million at any time through and including July 27, 2018, provided that, among other conditions, the Company receives 510(k)upon receiving specified clearance for the marketing of T2Bacteria by the FDA on or before April 30, 2018 (the “Approval Milestone”). The Term Loan Agreement has a six-year term with three years (through December 30, 2019) of interest-only payments, which period shall be extended to four years (through December 30, 2020) if the Company achieves the Approval Milestone, after which quarterly principal and interest payments will be due through the December 30, 2022 maturity date. Interest on the amounts borrowed under the Term Loan Agreement accrues at an annual fixed rate of (a) prior to the Approval Milestone, 12.5%, 4.0% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount and (b) following the Approval Milestone, 11.5%, 3.5% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount. In addition, if the Company achieves certain financial performance metrics, the loan will convert to interest-only until the December 30, 2022 maturity, at which time all unpaid principal and accrued unpaid interest will be due and payable. The Company is requiredagreed to pay CRG(1) a financing fee based on the loanamount of principal amount drawn. The Company is also required to paydrawn and (2) a final payment fee of 8.0% ofbased on the principal outstanding upon repayment, which isrepayment. The debt discount related to the financing fee and the fees paid to CRG are being accretedamortized over the loan term as interest expense. Interest expense for the debt discount was less than $0.1 million for both the three months ended March 31, 2024 and 2023. The final payment fee is accrued as interest expense and is classified consistent with the classification of the debt as additionalTerm Loan. The effective interest expenses.

The Company may prepay all or a portionrate of the outstanding principal and accrued unpaid interest under the Term Loan Agreementwas 10.2% as of March 31, 2024.

The Term Loan’s principal is prepayable at any time upon prior notice subject topartially or in full without a prepayment fee during the first five years of the term and no prepayment fee thereafter. As security for its obligations under the Term Loan Agreement the Company entered into a security agreement with CRG whereby the Company grantedpenalty. Borrowings are collateralized by a lien on substantially all of itsCompany assets, including intellectual property. The Term Loan Agreement also contains customary provides for

16


affirmative and negative covenants, forincluding a credit facilityrequirement to maintain a minimum cash balance of this size and type. The Term Loan Agreement also requires the Company to achieve certain annual revenue targets, whereby the Company is required to pay double the amount of any shortfall as an acceleration of principal payments. The revenue target for fiscal 2017 is $5.0 million on this provision.$5.0 million. The Term Loan Agreement includes a subjective acceleration clause whereby an event of default, including a material adverse change in the business, operations, or conditions (financial or otherwise), could result, at CRG’s discretion, in the acceleration of the obligations under the Term Loan Agreement. Under certain circumstances, a default interest rate of an additional 4.0%4.0% per annum willmay apply, at the election of CRGCRG’s discretion, on all outstanding obligations during the occurrence and continuance of an event of default. CRG has not exercised its right under this clause, as there have been no such events.

The Company believesTerm Loan originally had a six-year term, with three years of interest-only payments accruing at a fixed rate of 12.5%, of which 4.0% could be paid in-kind by increasing the likelihood of CRG exercising this right is remote.

The Company assessed the terms and featuresprincipal balance. After achievement of the Term Loan Agreement in orderApproval Milestone, such rates would be reduced and a fourth year of interest-only payments would be granted, after which quarterly payments of principal and interest would be owed through the December 30, 2022 maturity date. Upon achievement of certain performance metrics, the loan would be converted to identify any potential embedded features thatinterest-only until its maturity, at which time all unpaid principal and interest would require bifurcation or any beneficial conversion features. As part of this analysis, the Company assessed the economic characteristicsbe due and risks of the Term Loan Agreement, including put and call features. The Company determined that the features of the Term Loan Agreement are either clearly and closely associated with a debt host and do not require bifurcation as a derivative liability, or the fair value of the feature is immaterial. Included in these features are principal payment acceleration clauses triggered by a developmental milestone. Should the Company’s assessment of this milestone change, there could be a non-cash charge in operations. The Company will continue to reassess the features to determine if they require separate accounting on a quarterly basis.payable.

In December 2016, pursuant to the Term Loan Agreement, the Company made an initial draw of $39.2 million, net of financing fees. The Company used approximately $28.0 million of the initial proceeds to repay approximately $27.5 million of outstanding debt pursuant to the Loan and Security Agreement and to repay approximately $0.5 million of outstanding debt pursuant to the Promissory Note. Upon the repayment of all amounts owed by the Company under these agreements, all commitments were terminated and all security interests granted by the Company were released.


In connection with the Term Loan Agreement, entered into in December 2016, the Company issued warrants to CRG four separate warrants to purchase a total of 528,958105 shares of the Company’s common stock. The warrants arestock, exercisable any time prior to December 30, 20262026.

Amendments

The Term Loan Agreement has been amended nine times as of March 31, 2024. As a result of those amendments, certain terms of the Term Loan have been revised as follows:

In 2018, upon the Company’s achievement of the Approval Milestone, interest on borrowings began accruing at a11.50% per year, 8% of which is payable in cash quarterly and 3.5% of which is deferred and added to principal until maturity.
In 2019:
The final payment fee was increased from 8% to 10% of the principal outstanding upon repayment.
The Company issued additional warrants to CRG to purchase 113 shares of its common stock, exercisable any time prior to September 9, 2029 at an exercise price of $8.06$7,750.00 per share, with typical provisions for termination upon a change of control or a sale of all or substantially all of the assets of the Company. Company (these warrants, along with the warrants to purchase 105 shares of common stock previously issued to CRG, are collectively referred to as the “CRG Warrants”).
The Company reduced the exercise price for the warrants are classified within shareholders’ equity,previously issued to CRG to $7,750.00.
In 2022, the principal maturity date was extended to December 30, 2024, and the proceeds were allocated betweenTerm Loan’s interest-only payment period was extended until that maturity date.
In 2023:
The Company and CRG entered into a waiver and consent that reduced the debtminimum liquidity covenant to $500,000 until December 31, 2023.
CRG waived certain specified events of default associated with the Company’s issuance of shares of Series A Redeemable Convertible Preferred Stock in August 2022 and warrants based on their relative fair value. The fair valuethe subsequent redemption (Note 7).
In July 2023, CRG canceled $10.0 million of the warrants was determined by the Black Scholes Merton option pricing model. The fair valueTerm Loan’s principal in exchange for 483,457 shares of the warrants at issuance on December 30, 2016 was $1.8 million.

Equipment Lease Credit Facility

common stock and 93,297 shares of Series B Convertible Preferred Stock.

In October 2015,2023, the Company signed a $10.0 million Credit Facility with Essex Capital Corporation (the “Lessor”) to fund capital equipment needs. As one of the conditionsinterest-only period and maturity of the Term Loan were extended to December 31, 2025 and the $500,000 liquidity covenant was made permanent.

The warrants to purchase 218 shares of the Company’s common stock remain outstanding on March 31, 2024. There were no covenant violations during the three months ended March 31, 2024.

Amendments made in February 2022, November 2022, October 2023, and the partial principal cancellation in July 2023 were accounted for as troubled debt restructurings. For all restructurings, at the time of the restructuring the future undiscounted cash outflows required under the amended agreement exceeded the carrying value of the debt and no gain was recognized as a result of the restructurings. The effects of each restructuring were accounted for prospectively.

Securities Purchase Agreement

On February 15, 2024, the Company entered into a Securities Purchase Agreement with CRG and affiliated entities pursuant to which the Credit Facility is cappedCompany will issue (i) shares of the Company’s common stock and (ii) to the extent that the issuance of the shares common

17


stock results in CRG beneficially owning greater than 49.99% of the Company’s outstanding shares of common stock (or in the case of one of the affiliated entities, greater than 9.99% of the Company’s outstanding shares of common stock, determined without regard to any convertible securities held by CRG or affiliated entities), shares of newly designated convertible preferred stock, par value $0.001 per share, at a maximumprice per share of $5.0 million. Under the Credit Facility, Essex will fund capital equipment purchases presented bylower of (a) the Company. The Company will repayclosing price for the amounts borrowed in 36 equal monthly installments fromCompany’s common stock on Nasdaq on the date immediately prior to the closing of the amount funded. Attransaction and (b) the endaverage closing price over the five business days prior to the closing of the 36 month lease term,transaction, in exchange for CRG surrendering for cancellation $15.0 million of outstanding borrowing under the Term Loan Agreement. The closing of the transaction was conditioned on the approval of the Company’s stockholders at a stockholder meeting held on April 11, 2024 and was expected to occur within 10 business days following the approval of the Company’s stockholders.

On April 11, 2024, the Company's stockholders voted for the approval of the conversion of $15.0 million of its Term Loan Agreement with CRG into equity. On April 12, 2024, the Company hasissued an aggregate of 3,280,618 shares of Common Stock and an aggregate of 17,160.48 shares of Series A Convertible Preferred Stock, par value $0.001 per share to CRG in exchange for the option to (a) repurchasecancellation of $15.0 million of outstanding loans under the leased equipmentTerm Loan Agreement. Each share of Series A Convertible Preferred Stock is convertible into 100 shares of our common stock at the lesser of fair market value or 10%holder’s election following issuance, subject to beneficial ownership limitations.

Related Party

Upon the close of the original equipment value, (b) extendJuly 2023 transaction in which CRG canceled $10.0 million of the applicable leaseTerm Loan’s principal in exchange for 483,457 shares of common stock and 93,297 shares of Series B Convertible Preferred Stock, CRG became a specifiedholder of more than ten percent of our common stock outstanding, and therefore determined to be a principal owner and related party. As of December 31, 2023, CRG held no shares of common stock and 93,297 shares of Series B Convertible Preferred Stock, which was convertible into more than ten percent of our common stock outstanding as of December 31, 2023. In February 2024, CRG converted 82,422 shares of its Series B Preferred Stock into 824,220 shares of common stock, which represented more than ten percent of our common stock outstanding. As of March 31, 2024, CRG held 824,220 shares of common stock which represented more than ten percent of our common stock outstanding as of March 31, 2024. As of March 31, 2024, CRG held 10,875 shares of Series B Preferred Stock which was convertible into 108,750 shares of common stock.

Classification

The Term Loan Agreement with CRG was classified as a current liability on both March 31, 2024 and December 31, 2023. In May 2023, the Company received a modification and waiver reducing the Term Loan’s minimum cash covenant from $5.0 million to $500,000 until December 31, 2023. In addition, in October 2023, the interest-only period and maturity of time, whichthe Term Loan were extended to December 31, 2025, and the $500,000 liquidity covenant was made permanent. Because management believes it is probable that the Company will not be less than one year, or (c) returnable to comply with the leased equipmentcovenant unless additional funds are raised, the Company concluded that the Term Loan and related liabilities should be classified as current on the condensed consolidated balance sheets.

Future Payments

Future principal payments on the notes payable are as follows (in thousands):

 

 

March 31,
2024

 

 

December 31,
2023

 

Term Loan Agreement due 2025 including PIK interest,
   before unamortized discount and issuance costs

 

$

44,457

 

 

$

44,457

 

Less: unaccrued paid-in-kind interest

 

 

(2,670

)

 

 

(3,037

)

Less: unamortized discount and deferred issuance costs

 

 

(121

)

 

 

(136

)

Total notes payable to related party

 

$

41,666

 

 

$

41,284

 

7. Preferred Stock

Series A Redeemable Preferred Stock

On July 5, 2023, the Company issued Series A Redeemable Preferred Stock (the “Series A Preferred Stock”) to help effect a Reverse Stock Split Proposal. Subject to the Lessor.

In April 2016terms and June 2016,conditions of a Securities Purchase Agreement, the Company completed the first two draws under the Credit Facility, of $2.1 millionagreed to issue and $2.5 million, respectively. The Company will make monthly payments of $67,000 under the first draw and $79,000 under the second draw. The borrowings under the Credit Facility are treated as capital leases. The amortization of the assets conveyed under the Credit Facility is included as a component of depreciation expense.

6. Stockholders’ Equity

Private Investment in Public Equity Financing

On September 21, 2016, Canon U.S.A., Inc. (“Canon”) became a related party when the Company sold 6,055,341sell to CRG 1,000 shares of its common stock (the “Canon Shares”) to Canon at $6.56newly designated Series A Preferred Stock, par value $0.001 per share, the closing price on this date, for an aggregate casha total purchase price of $39.7 million. As$100.00. A “Reverse Stock Split Proposal” means any proposal approved by the Company’s Board of September 21, 2016,Directors and submitted to the Canon Shares represented 19.9%Company’s

18


stockholders to adopt an amendment(s) to the Company’s Amended and Restated Certificate of Incorporation to combine the outstanding shares of common stock into a smaller number of shares of common stock at a ratio to be specified.

Voting Rights

Shares of the Series A Preferred Stock had the right to vote only on any Reverse Stock Split Proposal and as may have been required by law. The Series A Preferred Stock represented an aggregate of 400,000,000 votes, and CRG agreed to vote in the same proportion as shares of common stock of the Company were voted on any Reverse Stock Split Proposal.

Redemption

The Series A Preferred Stock were redeemable (i) at any time if such redemption was ordered by the Board of Directors in its sole discretion, automatically and effective on such time and date specified by the Board of Directors in its sole discretion, or (ii) automatically immediately following the approval by the stockholders of the Company of a Reverse Stock Split Proposal at a redemption price of $100.00. On September 15, 2023, the Company’s stockholders voted to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s common stock, par value $0.001 per share, at a reverse split ratio ranging from any whole number between and including 1-for-50 and 1-for-150, with the exact ratio to be determined at the discretion of the Board of Directors of the Company. As a result of that stockholder vote, the Series A Preferred Stock was redeemed on September 15, 2023, for $100. Upon its redemption, the Company’s Series A Preferred Stock ceased to be outstanding.

Series B Convertible Preferred Stock

On July 3, 2023, in conjunction with an agreement it reached with CRG to cancel $10.0 million of its Term Loan principal, the Company issued to CRG (i) an aggregate of 483,457 shares of common stock at a purchase price of $7.06 per share for a total purchase price of $3.4 million, and (ii) an aggregate of 93,297 shares of newly designated Series B Convertible Preferred Stock (the “Series B Preferred Stock”), par value $0.001 per share, at a purchase price of $70.60 per share (the “Stated Value”) for a total purchase price of $6.6 million.

Dividends

Holders of Series B Preferred Stock are entitled to receive dividends on such shares (other than common stock dividends) equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of Series B Preferred Stock. All declared but unpaid dividends on shares of Series B Preferred Stock will increase the Stated Value of such shares, but when such dividends are actually paid any such increase in the Stated Value will be rescinded.

Voting Rights

Except as may be required by law, the Series B Preferred Stock has no voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock, (ii) increase or decrease (other than by conversion) the number of authorized shares of Series B Preferred Stock, or (iii) enter into any agreement with respect to any of the foregoing.

Liquidation Preference

The Series B Preferred Stock ranks (i) senior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to any Series B Preferred Stock (collectively, the “Junior Securities”); (ii) on parity with the common stock; (iii) on parity with any class or series of capital stock of the Company hereafter created specifically ranking by its terms on parity with the Series B Preferred Stock (together with the common stock, the “Parity Securities”); and (iv) junior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms senior to any Series B Preferred Stock (“Senior Securities”), in each case, as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily (a “Liquidation”). No Junior Securities, Parity Securities or Senior Securities existed at March 31, 2024.

In a Liquidation, the Series B Preferred Stockholder will, subject to the prior and superior rights of the holders of any Senior Securities, be entitled to receive, in preference to any distributions of any of the assets or surplus funds of the Company to the holders of the Junior Securities and pari passu with any distribution to the holders of Parity Securities, an equivalent amount of any distributions as would be paid on the common stock underlying the Series B Preferred Stock, determined on an as-converted basis (without regard to

19


any limitations on conversion), plus an additional amount equal to any dividends declared but unpaid on such shares, before any payments shall be made or any assets distributed to holders of any class of Junior Securities.

Conversion Rights

Each share of Series B Preferred Stock is convertible, at any time and from time to time from and after the Reverse Split Amendment has been filed with the Secretary of State of the State of Delaware, at the option of the holder thereof, into a number of shares of common stock equal to the product of the Conversion Ratio (which is the $70.60 Stated Value of such shares divided by the $7.06 Conversion Price, subject to adjustment) and the number of shares of Series B Preferred Stock to be converted. The Reverse Split Amendment was filed on October 12, 2023. The conversion feature is subject to certain beneficial ownership limitations. The Conversion Price also is subject to adjustment for stock dividends and stock splits.

In February 2024, CRG converted 82,422 shares of its Series B Preferred Stock into 824,220 shares of common stock.

8. Warrants

Series A Warrant

On August 15, 2022, the Company issued an aggregate of 3,000 shares of Series A Redeemable Convertible Preferred Stock with a par value of $0.001 per share and the Series A Warrant to purchase up to an aggregate of 428 shares of common stock of the Company at an exercise price of $750.00 per share (such number of shares and exercise price are adjusted for the reverse stock split described in Note 2) for an aggregate subscription amount equal to $0.3 million, before deducting estimated offering expenses payable by the Company. In connectionthe fourth quarter of 2022, the Series A Redeemable Convertible Preferred Stock was redeemed. The Series A Warrant became exercisable on February 15, 2023 and expires on February 15, 2028. The Series A Warrant contains certain anti-dilution provisions to protect the holder.

On February 17, 2023, the Company issued and sold shares of common stock, pre-funded warrants to purchase common stock and warrants to purchase common stock to an underwriter pursuant to an underwriting agreement (see discussion below). The terms of that offering triggered an adjustment to the exercise price of the Series A Warrant to $54.00 effective as of February 17, 2023.

The Company is required to measure the Series A Warrant at fair value at inception and in subsequent reporting periods with changes in fair value recognized in change in fair value of warrant liabilities in the period of change in the condensed consolidated statements of operations and comprehensive loss. The fair value of the liability related to the Series A Warrant at inception was $0.4 million. The Series A Warrant was not exercised as of March 31, 2024 and remains outstanding. The change in fair value during the three months ended March 31, 2024 was immaterial.

Pre-Funded Warrants and Common Stock Warrants

On February 17, 2023, the Company sold 90,185 shares of $0.001 par value common stock, 20,925 Pre-Funded Warrants and 222,222 Common Stock Warrants through an offering underwritten by Craig-Hallum Capital Group LLC. Each of the shares and Pre-Funded Warrants were sold in combination with an accompanying Common Stock Warrant to purchase two shares of the Company’s common stock. The combined purchase price for each share and accompanying Common Stock Warrant is $108.00, and for each Pre-Funded Warrant and accompanying Common Stock Warrant is $107.90, which was equal to the combined purchase price for each share and accompanying Common Stock Warrant sold in the offering, minus the Pre-Funded Warrant’s exercise price per share of $0.10.

The total proceeds of $12.0 million from the February 17, 2023 offering were allocated between the common stock, Pre-Funded Warrants and Common Stock Warrants. Because the Common Stock Warrants are liability-classified, an amount of proceeds equal to the fair value of the liability were first allocated to the Common Stock Warrants. The remaining proceeds were allocated on a relative fair value basis to the common stock and the Pre-Funded Warrants and recognized in additional paid-in capital. Total issuance costs related to the offering of $1.1 million were allocated in a similar manner as the total proceeds. As a result, approximately $0.7 million of issuance costs were expensed at the issuance date and recognized as Other, net in the condensed consolidated statements of operations and comprehensive loss. The remaining issuance costs were recognized within additional paid-in-capital as a reduction to the proceeds received for the common stock and Pre-Funded Warrants.

The Pre-Funded Warrants had (i) an exercise price per share of common stock equal to $0.10 or (ii) a cashless exercise option, with the salenumber of shares received determined according to the formula set forth in the Pre-Funded Warrant. The Pre-Funded Warrants were exercisable upon issuance and did not expire. The exercise price and the number of shares of common stock issuable upon exercise of the Canon Shares,Pre-Funded Warrants was subject to adjustment in the event of certain stock dividends and distributions, splits, combinations, reclassifications or similar events affecting the common stock. Holders of Pre-Funded Warrants participated in any distributions to common stockholders as if the holders had exercised the Pre-Funded Warrants.

20


The Company agreed to grant Canon certain board designation rights, includingdetermined that the right to initially appoint a Class I directorPre-Funded Warrants were indexed to the Company’s boardown stock and met the requirements for equity classification. Proceeds allocated to such warrants totaled $0.8 million. No Pre-Funded Warrants remain outstanding on March 31, 2024.

The Common Stock Warrants have (i) an exercise price per share of directors.common stock equal to $108.00 per share, (ii) a cashless exercise option if, at the time of exercise, there is no effective registration statement registering or the prospectus is not available for the issuance of the warrant shares to the holder, with the number of shares received determined according to the formula set forth in the Common Stock Warrant or (iii) an alternate cashless exercise option, which became exercisable on March 15, 2023, equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cash exercise and (y) 0.5. The Common Stock Warrants are exercisable upon issuance and expire on February 17, 2028. The exercise price and the number of shares of common stock issuable upon exercise of the Common Stock Warrants is subject to adjustment in the event of certain stock dividends and distributions, splits, combinations, reclassifications or similar events affecting the common stock. Holders of the Common Stock Warrants will participate in any distributions to common stockholders as if the holders had exercised the Common Stock Warrants. The Common Stock Warrants are redeemable upon the occurrence of a Fundamental Transaction (as defined in the Common Stock Purchase Warrant Agreement).

The Company determined that the Common Stock Warrants are not indexed to the Company’s own stock and therefore are precluded from equity classification. In addition, the Common Stock Warrant liability meets the definition of a derivative instrument. The Common Stock Warrants will be measured at fair value at inception and in subsequent reporting periods with changes in fair value recognized in income as change in fair value of warrant liabilities in the period of change in the condensed consolidated statements of operations and comprehensive loss. The fair value of the Common Stock Warrant liability at inception was $7.6 million. During the three months ended March 31, 2024, no Common Stock Warrants were exercised. On March 20, 2017,31, 2024, 66,665 Common Stock Warrants remain outstanding. The change in fair value after issuance consisted of a reduction of expense of $0.1 million during the three months ended March 31, 2024.

The Company has also issued certain warrants in conjunction with its Term Loan Agreement. See Note 6.

9. Stockholders’ Deficit

Preferred Stock

The Company has authorized the issuance of up to 10,000,000 shares of $0.001 par value preferred stock. The Board of Directors will determine the preferred stock’s rights, preferences, privileges, restrictions, voting rights, dividend rights, conversion rights, redemption privileges, and liquidation preferences.

Common Stock

The Company has authorized the issuance of 400,000,000 shares of $0.001 par value common stock. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding. As of March 31, 2024, a total of 1,532 shares, 8,295 shares, and 67,311 shares of common stock were reserved for issuance upon (i) the exercise of outstanding stock options, (ii) the issuance of stock awards, and (iii) the exercise of warrants, respectively, under the Company's 2014 Incentive Award Plan, Inducement Award Plan and 2014 Employee Stock Purchase Plan.

Equity Distribution Agreement

On March 31, 2021, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Canaccord Genuity LLC (“Canaccord”), through which the Company may sell up to $75.0 million of gross proceeds of common stock. In July 2023, the Company filed an amendment to the prospectus supplement relating to the offer and sale of shares under the Equity Distribution Agreement to increase the maximum amount of shares that the Company may sell pursuant to its Equity Distribution Agreement with Canaccord by $65 million. At the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-3 for purposes of registering the resaletime of the Canon Shares withamendment, the SEC.

On September 15, 2017, the companyCompany had sold 5,031,250 shares of its common stock in a CMPO at $4.00 per share, for an aggregate gross cash purchase price of $20.1 million, or proceeds of $18.8$71.3 million.

Canaccord, as agent, sells shares at the Company’s request through “at the market” offerings, subject to shelf limitations, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices, or by any other method permitted by law, including negotiated transactions. Canaccord receives a fee of 3% of gross proceeds of common stock sold under the Equity Distribution Agreement for its services. Legal and accounting fees from sales under the Equity Distribution Agreement are charged to share capital. Under the Equity Distribution Agreement, the Company sold 628,470 shares of common stock during the three months ended March 31, 2024 for net proceeds of $2.2 million, after underwriters discount and expenses.6,528 shares of common stock during the three months ended March 31, 2023 for net proceeds of $0.9 million.

21


7.10. Stock-Based Compensation

Stock Incentive Plans

2006 Stock Incentive Plan

The Company’s Amended and Restated 2006 Employee, Director and Consultant Stock Option Plan (“2006(the “2006 Plan”) was established for granting stock incentive awards to directors, officers, employees and consultants of the Company. Upon closing of the Company’s IPO in August 2014, the Company ceased granting stock incentive awards under the 2006 Plan. The 2006 Plan provided for the grant of incentive and non-qualified stock options and restricted stock grants as determined by the Company’s boardBoard of directors.Directors. Under the 2006 Plan, stock options were generally granted with exercise prices equal to or greater than the fair value of the common stock as determined by the boardBoard of directors,Directors, expired no later than 10 years from the date of grant, and vest over various periods not exceeding 4 years.

2014 Stock Incentive Plan

The Company’s 2014 Incentive Award Plan (“2014 Plan”,(the “2014 Plan,” and together with the 2006 Plan, the “Stock Incentive Plans”), which was amended and restated in October 2023, provides for the issuance of shares of common stock in the form of stock options, awards of restricted stock, awards of restricted stock units, performance awards, dividend equivalent awards, stock payment awards and stock appreciation rights to directors, officers, employees and consultants of the Company. Since the establishment of the 2014 Plan, the Company has onlyprimarily granted stock options and restricted stock units. Generally, stock options are granted with exercise prices equal to or greater than the fair value of the common stock on the date of grant, expire no later than 10 years from the date of grant, and vest over various periods not exceeding 4 years.


The number of shares reserved for future issuance under the 2014 Plan is the sum of (1) 823,529 shares, (2) any shares that were granted under the 2006 Plan which are forfeited, lapsedlapse unexercised or are settled in cash subsequent to the effective date of the 2014 Plan and (3) an annual increase on the first day of each calendar year, beginning January 1, 2015 and ending on and including January 1, 2024,2026, equal to the lesser of (A) 4%4% of the shares outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (B) such smaller number of shares determined by the Company’s Board of Directors.Directors; provided, however, no more than 35 million shares may be issued upon the exercise of incentive stock options. As of September 30, 2017March 31, 2024, there were 979,124981,723 shares available for future grant under the 2014 Plan.

Inducement Award Plan

The Company’s Inducement Award Plan (the “Inducement Plan”), which was adopted in March 2018 without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq listing rules (“Rule 5635(c)(4)”) and most recently amended and restated in February 2023, provides for the grant of equity awards to new employees, including options, restricted stock awards, restricted stock units, performance awards, dividend equivalent awards, stock payment awards and stock appreciation rights. In accordance with Rule 5635(c)(4), awards under the Inducement Plan may only be made to a newly hired employee who has not previously been a member of the Company’s Board of Directors, or an employee who is being rehired following a bona fide period of non-employment by us as a material inducement to the employee’s entering into employment with us. The aggregate number of shares of common stock which may be issued or transferred pursuant to awards under the Inducement Plan is 6,925 shares. Any awards that forfeit, expire, lapse, or are settled for cash without the delivery of shares to the holder are available for the grant of an award under the Inducement Plan. Any shares repurchased by or surrendered to the Company that are returned shall be available for the grant of an award under the Inducement Plan. The payment of dividend equivalents in cash in conjunction with any outstanding award shall not be counted against the shares available for issuance under the Inducement Plan. As of March 31, 2024, there were 5,061 shares available for future grant under the Inducement Plan.

Stock Options

DuringThere were no stock options granted in the ninethree months ended September 30, 2017 and 2016, the Company granted stock options with anMarch 31, 2024. The aggregate fair value of $2.5 millionstock options granted during the three months ended March 31, 2023 was immaterial and $6.6 million, respectively, which areis being amortized into compensation expense over the vesting period of the stock options as the services are being provided.

22


The following is a summary of stock option activity under the Stock Incentive Plans and Inducement Plan (in thousands, except term, share and per share amounts):

 

Number of

Shares

 

 

Weighted-Average

Exercise Price Per

Share

 

 

Weighted-Average

Remaining

Contractual Term

(In years)

 

 

Aggregate Intrinsic

Value

 

Outstanding at December 31,2016

 

 

4,042,627

 

 

$

8.20

 

 

 

7.05

 

 

$

4,091

 

 

Number of
Shares

 

 

Weighted-Average
Exercise Price Per
Share

 

 

Weighted-Average
Remaining
Contractual Term
(In years)

 

 

Aggregate Intrinsic
Value

 

Outstanding on December 31, 2023

 

 

1,573

 

 

$

12,371.09

 

 

 

6.08

 

 

$

 

Granted

 

 

807,450

 

 

 

5.18

 

 

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(194,783

)

 

 

2.34

 

 

 

 

 

 

 

502

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(554,867

)

 

 

9.17

 

 

 

 

 

 

 

 

 

 

 

(23

)

 

 

1,591.63

 

 

 

 

 

 

 

Cancelled

 

 

(267,127

)

 

 

12.56

 

 

 

 

 

 

 

 

 

 

 

(18

)

 

 

10,374.44

 

 

 

 

 

 

 

Outstanding at September 30, 2017

 

 

3,833,300

 

 

 

7.42

 

 

 

6.67

 

 

 

1,040

 

Exercisable at September 30, 2017

 

 

2,440,070

 

 

 

7.24

 

 

 

5.57

 

 

 

976

 

Vested or expected to vest at September 30,

2017

 

 

3,600,971

 

 

 

7.35

 

 

 

5.77

 

 

 

1,024

 

Outstanding on March 31, 2024

 

 

1,532

 

 

$

12,556.38

 

 

 

5.72

 

 

$

 

Exercisable on March 31, 2024

 

 

1,258

 

 

$

15,062.76

 

 

 

5.03

 

 

$

 

Vested or expected to vest on March 31, 2024

 

 

1,466

 

 

$

13,091.28

 

 

 

5.57

 

 

$

 

IncludedThere were no options exercised in the three months ended March 31, 2024 and 2023. There were nostock options outstanding as of December 31, 2016 are 166,066 options to purchase common stock granted to certain executive officers of the Company that vest upon the achievement of certain performance conditions, which include the attainment of specified operating result and regulatory targets, by December 31, 2017, of which 20,000 options to purchase common stock upon the achievement of certain performance conditions were forfeited during the year ended December 31, 2016. There are 146,066 performance based stock options outstanding at September 30, 2017 and December 31, 2016. The Company will continually evaluate the probability of achievement of each performance condition and will commence recognition of stock-based compensation expense on these awards in the period the achievement of each performance condition is deemed probable, including a catch-up adjustment from the grant date.

three months ended March 31, 2024. The weighted-average grant date fair values of stock options granted in the nine month periodsthree months ended September 30, 2017 and 2016 were $3.04March 31, 2023 was $134.00 per share and $4.76 per share, respectively, and were calculated using the following estimated assumptions:

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Weighted-average risk-free interest rate

 

 

 

 

 

3.65

%

Expected dividend yield

 

 

 

 

 

%

Expected volatility

 

 

 

 

 

111

%

Expected terms

 

 

 

 

6.0 years

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

 

2016

 

Weighted-average risk-free interest rate

 

 

1.98

%

 

 

1.42

%

Expected dividend yield

 

 

%

 

 

%

Expected volatility

 

 

63

%

 

 

61

%

Expected terms

 

6.0 years

 

 

6.0 years

 

The total fair values of stock options that vested during the ninethree months ended September 30, 2017March 31, 2024 and 20162023 were $3.5$0.1 million and $3.7$0.3 million, respectively.

As of September 30, 2017,March 31, 2024, there was $5.2$0.2 million of total unrecognized compensation cost related to unvestednon-vested stock options granted under the Stock Incentive Plans including the unrecognized compensation expense of stock options with performance conditions deemed probable of vesting.and Inducement Plan. Total unrecognized compensation cost will be adjusted for future changes in the estimated forfeiture rate. The Company expects to recognize that cost over a remaining weighted-average period of 2.241.3 years as of September 30, 2017.March 31, 2024.


Restricted Stock Units

During the ninethree months ended September 30, 2017,March 31, 2024, the Company awarded shares of restricted stock units to certain employees and directors at no cost to them, which cannot be sold, assigned, transferred or pledged during the restriction period.them. The restricted stock andunits, excluding any restricted stock units with market conditions, vest through the passage of time, assuming continued employment.service. Restricted stock units are not included in issued and outstanding common stock until the underlying shares are vested and released. The fair value of the awardrestricted stock units, at the time of the grant, is expensed on a straight linestraight-line basis. The granted restricted stock units had an aggregate fair value of $2.9less than $0.1 million, which are being amortized into compensation expense over the vesting period of the optionsrestricted stock units as the services are being provided.

The following is a summary of restricted stock unit activity under the 2014 Plan (in thousands, except share and per share amounts):Inducement Plan:

 

Number of

Shares

 

 

Weighted-Average

Grant Date Fair

Value

 

Nonvested at December 31, 2016

 

 

272,195

 

 

 

5.83

 

 

Number of
Shares

 

 

Weighted-Average
Grant Date Fair
Value Per Share

 

Nonvested on December 31, 2023

 

 

3,691

 

 

$

1,202.65

 

Granted

 

 

552,925

 

 

 

5.17

 

 

 

6,369

 

 

 

6.28

 

Vested

 

 

 

 

 

 

 

 

(1,549

)

 

 

2,175.68

 

Forfeited

 

 

(74,800

)

 

 

5.87

 

 

 

(216

)

 

 

196.75

 

Canceled

 

 

 

 

 

 

Nonvested at September 30, 2017

 

 

750,320

 

 

 

5.34

 

Nonvested on March 31, 2024

 

 

8,295

 

 

$

127.45

 

There was no vesting of restricted stock units during the nine months ended September 30, 2017. As of September 30, 2017,March 31, 2024, there was $2.6$0.9 million of total unrecognized compensation cost related to unvestednonvested restricted stock units granted under the Stock Incentive Plans.granted. Total unrecognized compensation cost will be adjusted for future forfeitures.changes in the estimated forfeiture rate. The Company expects to recognize that cost over a remaining weighted-average period of 1.70.9 years, as of September 30, 2017.March 31, 2024.

23


Employee Stock Purchase Plan

Under the 2014 Employee Stock Purchase Plan (the “2014 ESPP”) participants may purchase the Company’s common stock during semi-annual offering periods at 85% of the lower of (i) the market value per share of common stock on the first day of the offering period or (ii) the market value per share of the common stock on the purchase date. Each participant can purchase up to a maximum of $25,000 per calendar year in fair market value as calculated in accordance with applicable tax rules. The first offering period began on August 7, 2014. Stock-based compensation expense from the 2014 ESPP was immaterial for both the three months ended March 31, 2024 and 2023.

The 2014 ESPP, which was amended and restated effective October 2023, provides for the issuance of up to 400,000 shares of the Company’s common stock to eligible employees. On March 31, 2024, there were 394,477 shares available for issuance under the 2014 ESPP.

Stock-Based Compensation Expense

The following table summarizes the stock-based compensation expense resulting from awards granted under stock incentive plans, includingStock Incentive Plans, the Inducement Plan and the 2014 ESPP, that was recorded in the Company’s results of operations for the periods presented (in thousands):

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

Three Months Ended
March 31,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2024

 

 

2023

 

Cost of product revenue

 

$

18

 

 

$

27

 

 

$

87

 

 

$

86

 

 

$

35

 

 

$

54

 

Research and development

 

 

340

 

 

 

292

 

 

 

1,047

 

 

 

902

 

 

 

249

 

 

 

280

 

Selling, general and administrative

 

 

862

 

 

 

779

 

 

 

2,555

 

 

 

2,572

 

 

 

1,296

 

 

 

1,462

 

Total stock-based compensation expense

 

$

1,220

 

 

$

1,098

 

 

$

3,689

 

 

$

3,560

 

 

$

1,580

 

 

$

1,796

 

For the three months ended September 30, 2017March 31, 2024 and 2016, $33,000 and $32,000 of2023, stock-based compensation expenses wereexpense capitalized as part of inventory or T2DxT2-owned instruments and components respectively. For the nine months ended September 30, 2017 and 2016, $117,000 and $99,000 of stock-based compensation expenses were capitalized as part of inventory or T2Dx instruments and components, respectively.

8. Warrants

In connection with the Term Loan Agreement entered into in December 2016, the Company issued to CRG four separate warrants to purchase a total of 528,958 shares of the Company’s common stock. The warrants are exercisable any time prior to December 30, 2026 at a price of $8.06 per share, with typical provisions for termination upon a change of control or a sale of all or substantially all of the assets of the Company. The warrants are classified within shareholders’ equity, and the proceeds were allocated between the debt and warrants based on their relative fair value. The fair value of the warrants was determined by the Black-Scholes-Merton option pricing model. The fair value of the warrants at issuance on December 30, 2016 was $1.8 million.immaterial.


9.11. Net Loss Per Share

The Company applies the two-class method for computing earnings per share because its Series A Warrants, Pre-Funded Warrants and Common Stock Warrants are participating securities. Because the Company incurred a net loss for the three months ended March 31, 2024 and 2023, and the holders of the participating securities do not have the contractual obligation to share in the losses of the Company, none of the net loss attributable to common stockholders was allocated to the participating securities when computing earnings per share. The basic and diluted net loss per share calculation includes the Series B Convertible Preferred Shares, on an if-converted basis, given that these instruments have essentially the same economic rights and privileges as the currently outstanding common stock.

The Pre-Funded Warrants allowed the holders to acquire a specified number of common shares at a nominal exercise price of $0.10 per share and were classified as equity. Since the shares underlying the Pre-Funded Warrants were exercisable for little or no consideration, the underlying shares were considered outstanding at the issuance of the Pre-Funded Warrants for purposes of calculating the weighted-average number of shares of common stock outstanding in basic and diluted earnings per share for common stock. At March 31, 2024, none of the Pre-Funded Warrants were outstanding.

The following shares were excluded from the calculation of diluted net loss per share applicable to common stockholders, prior to the application of the treasury stock method,or if-converted methods, because their effect would have been anti-dilutive for the periods presented:

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Options to purchase common shares

 

 

1,532

 

 

 

1,674

 

Restricted stock units

 

 

8,295

 

 

 

4,699

 

Term Loan Warrants

 

 

218

 

 

 

218

 

Series A Warrant

 

 

428

 

 

 

428

 

Common Stock Warrants

 

 

66,665

 

 

 

198,781

 

Total

 

 

77,138

 

 

 

205,800

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Options to purchase common shares

 

 

3,833,300

 

 

 

4,263,094

 

 

 

3,833,300

 

 

 

4,263,094

 

Restricted stock units

 

 

750,320

 

 

 

 

 

 

750,320

 

 

 

 

Warrants to purchase common stock

 

 

528,958

 

 

 

 

 

 

528,958

 

 

 

 

Total

 

 

5,112,578

 

 

 

4,263,094

 

 

 

5,112,578

 

 

 

4,263,094

 

24


Note that all net loss per share computations for all periods presented reflect the changes in the number of shares resulting from the 1-for-100 reverse stock split that was approved by shareholders on September 15, 2023 and became effective as of October 12, 2023.

12. U.S. Government Contract

10. Co-Development Agreements

Canon US Life Sciences

OnIn September 21, 2016, Canon became a related party when2019, BARDA awarded the Company sold the Canon Shares fora milestone-based product development contract, with an aggregate cash purchase priceinitial value of $39.7$6.0 million, and a potential value of up to $69.0 million, which represented 19.9%was amended with Option 3 to $62.0 million due to a change in scope, if BARDA exercises all contract options (the “U.S. Government Contract”). BARDA operates within the Office of the outstanding sharesAssistant Secretary for Preparedness and Response (“ASPR”) at the U.S. Department of common stockHealth and Human Services (“HHS”). If BARDA exercises and the Company completes all options, the Company’s management believes it will enable a significant expansion of the Company. Company’s current portfolio of diagnostics for sepsis-causing pathogen and antibiotic resistance genes. In September 2020, BARDA exercised the first contract option valued at $10.5 million. In September 2021, BARDA exercised an option valued at approximately $6.4 million.

In April 2021, BARDA agreed to accelerate product development by modifying the contract to advance future deliverables into the currently funded Option 1 of the BARDA contract for the T2Biothreat Panel and the T2Resistance Panel. The modification did not change the overall total potential value of the BARDA contract.

On FebruaryMarch 31, 2022, the Company announced that BARDA had exercised Option 2B under the existing multiple-year cost-share contract between BARDA and the Company and provided an additional $4.4 million in funding to the Company.

The option exercise occurred simultaneously on March 31, 2022 with a modification to the BARDA contract to make immaterial changes to, among other things, the statement of work.

In September 2022, BARDA exercised Option 3 2015,and agreed to provide an additional $3.7 million in funding for the multiple-year cost-share contract. The additional funding under Option 3 was used to advance the U.S. clinical trials for the T2Biothreat Panel and T2Resistance Panel, and to file submissions to the FDA for U.S. regulatory clearance.

The Company recorded no contribution revenue for the three months ended March 31, 2024 and $0.4 million of contribution revenue for the three months ended March 31, 2023 under the BARDA contract.

The Company had no outstanding accounts receivable on March 31, 2024 and December 31, 2023 under the BARDA contract.

The BARDA contract expired in September 2023.

13. Leases

Operating Leases

The Company leases certain office space, laboratory space and equipment. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. The Company does not recognize right-of-use assets or lease liabilities for leases determined to have a term of 12 months or less. The Company has elected to account for the lease and associated non-lease components as a combined lease component.

In August 2010, the Company entered into an operating lease for office and laboratory space at its headquarters in Lexington, Massachusetts. The lease commenced in January 2011, with the Company providing a security deposit of $400,000. In accordance with the operating lease agreement, the Company reduced its security deposit to $160,000 in January 2018, which is recorded as restricted cash in the condensed consolidated balance sheets. In March 2017, the Company entered into an amendment to extend the term to December 2021. In October 2020, the Company entered into an amendment to extend the term to December 31, 2028. In accordance with the October 2020 amendment, the Company increased its security deposit to $420,438, which is classified as restricted cash on March 31, 2024 and December 31, 2023.

In May 2013, the Company entered into an operating lease for additional office, laboratory and manufacturing space in Wilmington, Massachusetts. In August 2018, the Company entered into an amendment to extend the term to December 2020. In October 2020, the Company entered into an amendment to extend the term to December 31, 2022. In September 2022, the Company entered into an amendment to extend the term to December 31, 2024.

In November 2014, the Company entered into a Co-Development Partnership Agreement (the “Co-Development Agreement”) with Canon U.S. Life Sciences, Inc. (“Canon US Life Sciences”) to develop a diagnostic test panel to rapidly detect Lyme disease. Under the termslease for additional laboratory space in Lexington, Massachusetts. The lease term commenced in April 2015 and extended for six years. The rent expense, inclusive of the Co-Development Agreement,escalating rent payments, is recognized on a

25


straight-line basis over the lease term. As an incentive to enter into the lease, the landlord paid approximately $1.4 million of the $2.2 million space build-out costs. The unamortized balance of the lease incentive as of January 1, 2019 was reclassified as a reduction to the initial recognition of the right-of-use asset related to this lease. In connection with this lease agreement, the Company received an upfront paymentpaid a security deposit of $2.0 million from Canon US Life Sciences, and the agreement includes an additional $6.5 million of consideration upon achieving certain development and regulatory milestones for total aggregate payments of up to $8.5 million. In October 2015, the Company achieved a specified technical requirement and received $1.5 million related to the achievement of the milestone. The Company is eligible to receive an additional $5.0 million under the arrangement, in two milestone payments of $2.0 million and $3.0 million, related to the achievement of additional development and regulatory milestones. All payments under the Co-Development Agreement are non-refundable once received. The Company will retain exclusive worldwide commercialization rights of any products developed under the Co-Development Agreement, including sales, marketing and distribution and Canon US Life Sciences will not receive any commercial rights and will be entitled to only receive royalty payments on the sales of all products developed under the Co-Development Agreement. Either party may terminate the Co-Development Agreement upon the occurrence of a material breach by the other party (subject to a cure period).

The Company evaluated the deliverables under the Co-Development Agreement and determined that the Co-Development Agreement included one unit of accounting, the research and development services, as the joint research and development committee deliverable$281,000, which was deemed to be de minimis. The Company is recognizing revenue for research and development servicesrecorded as a component of research revenueboth prepaid expenses and other current assets and other assets in the condensed consolidated financial statementsbalance sheets on December 31, 2019. In October 2020, the Company entered into an amendment to extend the term of the lease to October 31, 2025. In accordance with this amendment, the Company paid a replacement security deposit of $130,977, which is classified as restricted cash on March 31, 2024 and December 31, 2023 and received the services are delivered using the proportional performance method of accounting, limited to payments earned. Costs incurred to deliver the services under the Co-Development Agreement are recorded as research and development expenseinitial $281,000 security deposit in the condensed consolidated financial statements.return.

The Company recorded revenue of $0.0 and $0.4 million during the three months endedIn September 30, 2017 and September 30, 2016, respectively, and recorded revenue of $0.3 million and $1.5 million during the nine months ended September 30, 2017 and 2016, under the Co-Development Agreement, and expects to record revenue over the next two years, provided development milestones are achieved.

Allergan Sales, LLC

On November 1, 2016,2021, the Company entered into a Co-Development, Collaborationlease for office, research, laboratory and Co-Marketing Agreement (the “Allergan Agreement”) with Allergan Sales, LLC (“Allergan Sales”)manufacturing space in Billerica, Massachusetts. The lease had a term of 126 months from the commencement date. The Company opened a money market account for $1.0 million, which represented collateral as a security deposit for this lease and was classified as restricted cash on December 31, 2022. Occupancy of the building had been delayed due to develop (1) a direct detection diagnostic test panel that adds one additional bacteria species to the existing T2Bacteria product candidate (the “T2Bacteria II Panel”), and (2) a direct detection diagnostic test panel for testing drug resistance directly in whole blood (the “T2GNR Panel” and, together with the T2Bacteria II Panel, the “Developed Products”). In addition, bothdisagreement between the Company and Allergan Sales will participatethe landlord as to the parties’ obligations under the lease agreement. Included within accrued expenses and other current liabilities on the balance sheet on December 31, 2022 was a $1.0 million estimated liability pertaining to this lease. In January 2023, the Company was notified that the landlord terminated the lease because of the Company’s alleged failure to perform its obligations under the Lease in a jointtimely manner and the Company’s alleged breach of the covenant of good faith and fair dealing and exercised its right to draw upon the $1.0 million security deposit. In addition, the landlord is seeking damages for unpaid rent, brokerage fees, transaction costs, attorney’s fees and court costs. The Company filed a response to the landlord’s complaint and a counterclaim alleging that the landlord breached its obligations under the contract and unlawfully drew on the security deposit, in addition to breaching its covenants of good faith and fair dealing, making fraudulent misrepresentations, and engaging in deceptive and unfair trade practices. The matter is in dispute (Note 14). The Company intends to pursue legal remedies available under applicable laws. The Company believes it will continue to meet its current manufacturing needs with its operations at its Lexington and Wilmington, Massachusetts facilities.

Operating leases are amortized over the lease term and included in costs and expenses in the condensed consolidated statement of operations and comprehensive loss. Variable lease costs are recognized in costs and expenses in the condensed consolidated statement of operations and comprehensive loss as incurred. Variable lease costs may include costs such as common area maintenance, utilities, real estate taxes or other costs. Expenses related to short-term leases were not material for the periods presented.

14. Commitments and Contingencies

Contingencies

In September 2021, the Company entered into a lease for office, research, laboratory and manufacturing space in Billerica, Massachusetts. The lease had a term of 126 months from the commencement date. The Company opened a money market account for $1.0 million, which represented collateral as a security deposit for this lease and was classified as restricted cash on December 31, 2022. Occupancy of the building had been delayed due to disagreement between the Company and the landlord as to the parties’ obligations under the lease agreement. Included within accrued expenses and other current liabilities on the balance sheet on December 31, 2022 was a $1.0 million estimated liability pertaining to this lease. In January 2023, the Company was notified that the landlord terminated the lease because of the Company’s alleged failure to perform its obligations under the Lease in a timely manner and the Company’s alleged breach of the covenant of good faith and fair dealing and exercised its right to draw upon the $1.0 million security deposit. In addition, the landlord is seeking damages for unpaid rent, brokerage fees, transaction costs, attorney’s fees and court costs. The Company filed a response to the landlord’s complaint and a counterclaim alleging that the landlord breached its obligations under the contract and unlawfully drew on the security deposit, in addition to breaching its covenants of good faith and fair dealing, making fraudulent misrepresentations, and engaging in deceptive and unfair trade practices. The Company intends to pursue legal remedies available under applicable laws. The Company believes it will continue to meet its current manufacturing needs with its operations at its Lexington and Wilmington, Massachusetts facilities.

License Agreement

In 2006, the Company entered into a license agreement with a third party, pursuant to which the third party granted the Company an exclusive, worldwide, sublicensable license under certain patent rights to make, use, import and commercialize products and processes for diagnostic, industrial and research and development committee and Allergan Sales will receivepurposes. The Company agreed to pay an annual license fee ranging from $5,000 to $25,000 for the right to cooperatively market the T2Candida, T2Bacteria, and the Developed Products under the Allergan Agreementroyalty‑bearing license to certain agreed-upon customers. On June 1, 2017 thepatents. The Company and Allergan Sales entered into an Amendmentalso issued a total of 16 shares of common stock pursuant to the Allergan Agreementagreement in 2006 and 2007, which primarily modifiedwere recorded at fair value at the project plan to combine the T2Bacteria II Panel and T2GNR Panel into one test panel.

Under the termsdate of the Allergan Agreement, the Company received an upfront payment of $2.0 million from Allergan Sales and will receive additional milestone payments upon achieving certain developmental milestones for total aggregate payments of up to $4.0 million. All payments under the Allergan Agreement are non-refundable once received. The Company will retain exclusive


worldwide commercialization rights of any products developed under the Allergan Agreement, including distribution, subject to Allergan Sales’ right to co-market the Developed Products. Allergan Sales, at its election, may co-market T2Candida, T2Bacteria and the Developed Products worldwide to certain agreed-upon customers and will receive royalty based on its sales for a period of time.

The Company evaluated the deliverables under the Allergan Agreement and determined that the Allergan Agreement included two units of accounting, the research and development services for the T2Bacteria II Panel and the research and development services for the T2GNR Panel, as the joint research and development committee and right to cooperatively market deliverables were deemed to be de minimus.issuance. The Company is recognizing revenue for researchrequired to pay royalties on net sales of products and development servicesprocesses that are covered by patent rights licensed under the agreement at a percentage ranging between 0.5% - 3.5%, subject to reductions and offsets in certain circumstances, as well as a componentroyalty on net sales of research revenue inproducts that the consolidated financial statements as the services are delivered using the proportional performance methodCompany sublicenses at 10% of accounting, limited to payments earned. Costs incurred to deliver the servicesspecified gross revenue. Royalties that became due under the Allergan Agreement are recorded as research and development expense in the consolidated financial statements.

The Company recorded revenue of $0.4 million and $0.6 millionthis agreement for the three and nine months ended SeptemberMarch 31, 2024, and 2023 were immaterial.

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Letter Agreements

On March 31, 2024, the Company entered into letter agreements with Mr. Sprague and Mr. Gibbs that provide for the payment of a retention bonus in the total aggregate amount of $80,000, to be paid in two installments of $40,000. The first installment, in the amount of $40,000, shall be paid within five business days following June 30, 2017, respectively,2024, and the second installment, in the amount of $40,000, shall be paid within five business days following November 15, 2024. Each such installment payment is subject to the applicable executive's continued employment through such payment date.

On March 30, 2023, the Company entered into agreements with Mr. Sprague, Mr. Giffin, and Mr. Gibbs that provide for the payment of retention bonuses, subject to the respective executive’s continued employment through such payment dates, of $80,000 each, to be paid in two installments of $40,000. The first installment, of $40,000 each, was paid in July 2023, and the second installment, of $40,000 each, was paid in November 2023.

15. Subsequent Events

Issuances of Equity to CRG

On April 11, 2024, the Company's stockholders voted for the approval of the conversion of $15.0 million of its Term Loan Agreement with CRG into equity. On April 12, 2024, the Company issued an aggregate of 3,280,618 shares of Common Stock and an aggregate of 17,160.48 shares of Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Convertible Preferred Stock”) to CRG in exchange for the cancellation of $15.0 million of outstanding loans under the AllerganTerm Loan Agreement (the “Exchange”). The Exchange was completed pursuant to the Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of February 15, 2024, with CRG. Each share of Series A Convertible Preferred Stock is convertible into 100 shares of our common stock at the holder’s election following issuance, subject to beneficial ownership limitations.

On May 3, 2024, the Company entered into a Securities Purchase Agreement (the “May SPA”) with CRG pursuant to which the Company will issue to CRG in a private placement offering 4,748,335 shares of the Company’s common stock in exchange for the cancellation of $15.0 million of outstanding loans under the Term Loan Agreement (the "May Exchange").

Consents and expectsAmendments to record revenue overTerm Loan Agreement

On April 12, 2024, the next two years, provided developmentCompany entered into a Consent and regulatory milestones are achieved.Amendment No. 10 to the Term Loan Agreement (the “Consent”). The Consent provides for, among other things, (i) the consent of the Administrative Agent and CRG to the Exchange and (ii) the extension of the period in which the Company may elect to pay a portion of the accrued interest on the term loans in-kind to the earlier of (a) December 31, 2025 and (b) the date on which a default has occurred.

11. Subsequent Events.On May 3, 2024, the Company entered into a Consent and Amendment No. 11 to the Term Loan Agreement (“Consent No. 11”). Consent No. 11 provides for, among other things, (i) the consent of the Administrative Agent and CRG to the May Exchange and (ii) an amendment to the “Change of Control” definition to allow CRG or their affiliates to acquire a majority of shares in the Company without causing a Change of Control under the Term Loan Agreement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties.within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, and Section 21E of the Securities and Exchange Act of 1934, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our future results of operations and financial position, business strategy, prospective products and product candidates, their expected performance and impact on healthcare costs, marketing clearance from the U.S. Food and Drug Administration (“FDA”) regulatory clearance,, reimbursement for our product candidates, research and development costs, timing of regulatory filings, timing and likelihood of success, plans and objectives of management for future operations, availability of raw materials and components for our products, availability of funding for such operations and future results of anticipated products, are forward-looking statements. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described under the sections in this Quarterly Report on Form 10-Q entitled “Item 1A.—Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. These forward looking statements are subject to numerous risks, including, without limitation, the following:

our ability to continue as a going concern;

our ability to regain and maintain compliance with Nasdaq listing requirements;
our expectation tothat we will incur losses in the future;

future and be unable to utilize limited net operating losses against future profitability, if any;

compliance with the terms of our debt instruments;

our future capital needs and our ability to raise additional funds;
the impact of litigation, including our ability to adequately resolve current legal claims;
our status as an early-stage commercial company;
the market acceptance of our T2MR technology;

our ability to timely and successfully develop and commercialize our existing products and future product candidates;

the length and variability of our anticipated sales and adoption cycle;

our ability to gain the support of leading hospitals and key thought leaders and publish the results of our clinical trialsstudies in peer-reviewed journals;

our ability to successfully manage our growth;

our future capital needsfluctuations in demand for, and our need to raise additional funds;

prices of, raw materials and other supplies;

our ability to recruit, train and retain key personnel;

the performance of our diagnostics;

our ability to compete in the highly competitive diagnostics market;


manufacturing and other product risks, including unforeseen interruptions in the manufacturing of our products and backlogs in order fulfillment;

our dependence on third parties;

the impact of cybersecurity risks, including ransomware, phishing, and data breaches on our information technology systems;
our ability to obtain marketing clearance from the FDAU.S. Food and Drug Administration or regulatory clearance or certifications for new product candidates in other jurisdictions, including IVDR in the United States or any other jurisdiction;

European Union;

federal, state, and foreign regulatory requirements, including diagnostic product reimbursements and FDA regulation of our products and product candidates; and

28


our ability to protect and enforce our intellectual property rights, including our trade secret-protected proprietary rights in T2MR.

our technology;
an active trading market for our common stock;
volatility of our stock price which may be impacted by shortsellers and day traders; and
our ability to maintain an effective system of internal control over financial reporting.

These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q. Unless required by U.S. federal securities laws, we do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made or to conform these statements to actual results. The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors”Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q, and Part I, Item 1A "Risk Factors" and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2016,2023, as supplemented or amended from time to time under “Item 1A.—updated by Part II, Item 1A—“Risk Factors” in our Quarterly Reports on Form 10-Q, and elsewhere in this Quarterly Report on Form 10-Q.

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Some10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of the information containedFinancial Condition and Results of Operations included in this discussion and analysis or set forth elsewhere in this Quarterlyour Annual Report on Form 10-Q, including information with respect to our plans and strategy10-K for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Item 1A.—Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.year ended December 31, 2023.

Business Overview

Overview

We are an in vitro diagnostics company that has developed an innovative and proprietaryleader in the rapid detection of sepsis-causing pathogens and antibiotic resistance genes. Our technology platform that offers a rapid, sensitive and simple alternative to existing diagnostic methodologies. We are using our T2 Magnetic Resonance technology (“T2MR”) to develop a broad set of applications aimed at lowering mortality rates, improving patient outcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisions earlier. T2MR enables rapid detection of pathogens, biomarkers and other abnormalities in a variety of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum and urine, and can detect cellular targets at limits of detection as low as one colony forming unit per milliliter, (“or CFU/mL”).mL. We are currently targeting what we believe to be a range of critically underserved healthcare conditions, focusing initially on those for which rapid detection may enable faster targeted antimicrobial treatment, improve patient outcomes, and reduce cost. Our initial development efforts targetcurrent focus includes three areas – sepsis, bioterrorism, and Lyme disease which are areas of significant unmet medical need in which existing therapies could be more effective with improved diagnostics. On September 22, 2014, we receivedbelieve collectively represent a multi-billion dollar market clearance fromopportunity.

Our primary commercial products include the FDA for our first twoT2Dx® Instrument, the T2Bacteria® Panel, the T2Candida® Panel, the T2Resistance® Panel, and the T2Biothreat™ Panel. Our sepsis products – including the T2Dx Instrument, (the “T2Dx”)the T2Bacteria Panel, and the T2Candida Panel (“T2Candida”), which have the ability– are FDA-cleared products able to rapidly identify the five clinically relevant species of Candida, a fungal pathogen known to cause sepsis. In the United States, we have built a direct sales force that is primarily targeting the top 450 hospitals with the highest concentration of patients at risk for Candida infections. This target number of hospitals may be increased to an estimated over 1,200 with the introduction of T2Bacteria in the United States upon approval by the FDA. Outside of the United States, we have partnered with distributors that target large hospitals in their respective markets. Four additional diagnostic applications in various stages of development are called T2Bacteria, T2Candida auris, T2GNRdetect sepsis-causing pathogens directly from blood. Where traditional diagnostics like blood cultures and T2Lyme, which are focused on bacterial and fungal infections and Lyme disease, respectively. In late 2015, we initiated the collection of patient blood samples to support the clinical trial in the United States for T2Bacteria, and in early 2017, we initiated a multi-site clinical trial for T2Bacteria. The T2Bacteria Panel received authorization to affix a CE mark in July 2017 and is being commercially launched in Europe and other countries that accept the CE mark.  The multi-site clinical study was completed in the United States in August 2017.  On September 8, 2017, we filed a 510(k) premarket notification with the FDA requesting market clearance to enable commercial launch of T2Bacteria for clinical use in the United States. T2 Bacteria is currently available in the United States for Research Use Only (RUO). We believe that we may receive a determination from the FDA on our application for the T2Bacteria possibly as early as the end of 2017, although itpost-culture diagnostics may take longer for the FDAdays to reach a decision and there can be no assurance of such a determination within this timeframe or at all. We believe that T2Bacteria, if approved, may expand the number of high risk patients who could be candidates for testing with T2Candida and/or T2Bacteria. We expect that existing reimbursement codes will supportproduce results, our sepsis and Lyme disease products and product candidates, and that the anticipated economic savings associated with testing of hospital inpatientsare designed to detect these pathogens in the United States with our sepsis products will be realized directly by hospitals.

three to five hours. We believe our sepsis products which include T2Candidaprovide a significant and our product candidate, T2Bacteria, will redefine the standard of care in sepsis management while lowering healthcare costs by improving both the precision and the speed of detection of sepsis-causing pathogens. According to a study published in the Journal of Clinical Microbiology in 2010, targeted therapy for patients with bloodstream infections can be delayed up to 72 hours due to the wait time for blood culture results. In another study published in Clinical Infectious Diseases in 2012, the delayed administration of appropriate antifungal therapy was associated with higher mortality among patients with septic shock attributed to Candida infection and, on that basis, the study concluded that more rapid and accurate


diagnostic techniques are needed. Due to the high mortality rate associated with Candida infections, physicians often will place patients on antifungal drugs while they await blood culture diagnostic results which generally take at least five days to generate a negative test result. Antifungal drugs are toxic and may result in side effects and can cost over $50 per day. T2Candida’s speed to result coupled with its superior sensitivity assustainable competitive advantage compared to blood culture may help reduce the overuse of ineffective, or even unnecessary, antimicrobial therapy which may reduce side effects for patients, lower hospital costs and potentially counteract the growing resistance to antifungal therapy. The administration of inappropriate therapy is a driving force behind the spread of antimicrobial-resistant pathogens, which the United States Centers for Disease Control and Prevention (“CDC”) recently called “one ofother products in our most serious health threats.”  The T2Sepsis Solution refers to the approach of combining the standard of care for the management of sepsis patients with our products, including the T2Dx Instrument, or the T2Dx, T2Candida, and T2Bacteria, which is commercially available in Europe and other countries that accept the CE mark and available for research use only in the United States. The T2Sepsis Solution is designed to enable clinicians to potentially treat 95% of septic patients within the first twelve hours of developing the symptoms of disease. Currently, high risk patients are typically initially treated with broad spectrum antibiotic drugs that typically cover approximately 60% of patients with infections. Of the remaining 40% of patients, approximately 30% of the patients have a bacterial infection and 10% have Candida infections. T2Candida and our product candidate, T2Bacteria are designed to identify pathogens commonly not covered by broad spectrum antibiotic drugs, which we believe may enable physicians to effectively treat an additional 35% of septic patients beyond the 60% of patients covered by broad spectrum antibiotic drugs. markets.

We compete with traditional blood culture-based diagnostic companies, including Becton Dickinson & Co. and bioMerieux, Inc., as well as companies offering post-culture species identification using both molecular and non-molecular methods, including bioMerieux, Inc. (and its affiliate, BioFire Diagnostics, Inc.), Bruker Corporation, Accelerate Diagnostics, Luminex, Genmark, Cepheid and Beckman Coulter, a Danaher company.

We have never been profitable and have incurred net losses in each year since inception. Our accumulated deficit at September 30, 2017on March 31, 2024 was $247.9 million.$597.8 million and we have experienced cash outflows from operating activities since inception. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs, and from selling, general and administrative costs associated with our operations.operations, and costs of product revenue. We have incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution of our FDA-cleared products, the T2Dx Instrument, T2Candida Panel, T2Bacteria Panel, and T2Candida.T2Biothreat Panel. In addition, we expect thatwill continue to incur significant costs and expenses may increase as we continue to develop other product candidates, improve existing products and maintain, expand and protect our intellectual property portfolio. We may seek to fund our operations through public equity or private equity or debt financings, as well as other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business, results of operations and financial condition and our ability to develop, commercialize and drive adoption of the T2Dx Instrument and the T2Candida, T2Bacteria, T2Resistance, and T2Biothreat Panels and future products.

We are subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching our products, development and market acceptance of our product candidate, T2Bacteria,candidates, development by our competitors of new technological innovations, protection of proprietary technology, and future T2MR-based diagnostics.raising additional capital.

Management believes29


We believe that its existingour cash and cash equivalents at September 30, 2017, together withof $6.2 million on March 31, 2024 will not be sufficient to fund our current operating plan through the additional remaining liquiditythird quarter of 2024. Certain elements of our operating plan cannot be considered probable, and in order to support our business we initiated a process to explore a range of strategic alternatives focused on the Company’smaximizing value.

As part of our strategic restructuring program, we initiated a workforce reduction of nearly 30% in May 2023. Additionally, we are continuing to explore alternative strategic options, including an acquisition, merger, reverse merger, other business combination, sale of assets or licensing. We converted approximately 20% of our outstanding indebtedness into equity in July 2023 and a further approximately 35% in April 2024.

The Term Loan Agreement with CRG (See Note 6) has a minimum liquidity covenant which initially required us to maintain a minimum cash balance of up$5.0 million. In May 2023, CRG reduced the minimum liquidity covenant under the Term Loan Agreement from $5.0 million to an additional$500,000 until December 31, 2023. In July 2023, the Company also converted $10.0 million (which is available at any time through July 27, 2018, subjectof the outstanding debt with CRG to certain conditions including thatequity. In October 2023, the Company receives 510(k) clearance forTerm Loan Agreement was amended to extend both the marketing of T2Bacteriainterest-only period and the maturity date by one year from December 30, 2024 to December 31, 2025, and permanently reduce the FDA by April 30, 2018, see Note 5 for details) will be sufficientminimum liquidity covenant from $5.0 million to allow$500,000.

In September 2023, the CompanyCompany’s milestone-based product development contract with BARDA expired, which may impact the Company’s ability to continue to fund the development of its current operating plannext-generation products.

These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the first half of 2019. Should the Company’s current operating plans not materialize as expected, or it is unable to obtain additional capital on a timely basis, or on acceptable terms, the Company will be required to change its current operatingdate that these financial statements are issued. Management’s plans to reduce itsalleviate the conditions that raise substantial doubt include raising additional funding, delaying certain research projects and capital expenditures and eliminating certain future operating expenses in order to fund operations at reduced levels.

Our Commercial Products and the Unmet Clinical Need

Our initial FDA-cleared products, the T2Dx instrument and T2Candida, utilize T2MRlevels for us to detect species-specific Candida directly from whole blood incontinue as few as three hours versus the one to six or more days typically required by blood culture-based diagnostics. This allows the patient to potentially receive the correct treatment in four to six hours versus 24 to 144 hoursa going concern for blood culture. The T2Candida runs on the T2Dx and provides high sensitivity with a limitperiod of detection as low as 1 CFU/mL, even in the presence of antimicrobial therapy.

Our T2Candida Panel

Our direcT2 pivotal clinical trial was designed to evaluate the sensitivity and specificity of T2Candida on the T2Dx. The direcT2 trial consisted of two patient arms: a prospective arm with 1,501 samples from patients with a possible infection and a seeded arm with 300 samples, also obtained from patients with a possible infection. T2Candida and the T2Dx demonstrated a sensitivity of 91.1 percent and a specificity of 99.4 percent. In addition, the speed to a species-specific positive result with T2Candida was 4.4 hours versus 129 hours with blood culture. A negative result from T2Candida was obtained in just 4.2 hours versus greater than 120 hours with blood culture. The data and other information12 months from the direcT2 pivotal clinical trial was published in January 2015 in Clinical Infectious Diseases.


Sepsis is one ofdate these financial statements are issued. Management has concluded the leading causes of death in the United States, claiming more lives annually than breast cancer, prostate cancer and AIDS combined, and it is the most expensive hospital-treated condition. Most commonly afflicting immunocompromised, critical care and elderly patients, sepsis is a severe inflammatory responselikelihood that its plan to a bacterial or fungal infection with a mortality rate of approximately 30%. According to data published by the U.S. Department of Health and Human Services for 2016, the cost of sepsis was over $23 billion in the United States, or approximately 5% of the total aggregate costs associated with domestic hospital stays. Sepsis is typically caused bysuccessfully obtain sufficient funding from one or more of five Candida speciesthese sources or over 25 bacterial pathogens, and effective treatment requiresadequately reduce expenditures, while reasonably possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the early detection and identificationdate of issuance of these specific target pathogensfinancial statements. See Part II, Item 1A—“Risk Factors” in a patient’s bloodstream. Today, sepsis is typically diagnosed through a series of blood cultures followed by post-blood culture species identification. These methods have substantial diagnostic limitations that lead to a high rate of false negative test results, a delay of up to several days in administration of targeted treatment and the incurrence of unnecessary hospital expense. this Quarterly Report on Form 10-Q.

Product History

In addition, the Survey of Physicians’ Perspectives and Knowledge About Diagnostic Tests for Bloodstream Infections in 2015 reported that negative blood culture results are only trusted by 36% of those physicians. Without the ability to rapidly identify pathogens, physicians typically start treatment of at-risk patients with broad-spectrum antibiotics, which can be ineffective and unnecessary and have contributed to the spread of antimicrobial resistance. According to a study published by Critical Care Medicine in 2006, in sepsis patients with documented hypotension, administration of effective antimicrobial therapy within the first hour of detection was associated with a survival rate of 79.9% and, over the ensuing six hours, each hour of delay in initiation of treatment was associated with an average decrease in survival of 7.6%.

We believe our sepsis products, which include T2Candida and our product candidate, T2Bacteria, will redefine the standard of care in sepsis management while lowering healthcare costs by improving both the precision and the speed of detection of sepsis-causing pathogens. According to a study published in the Journal of Clinical Microbiology in 2010, targeted therapy for patients with bloodstream infections can be delayed up to 72 hours due to the wait time for blood culture results. In another study published in Clinical Infectious Diseases in 2012, the delayed administration of appropriate antifungal therapy was associated with higher mortality among patients with septic shock attributed to Candida infection and, on that basis, the study concluded that more rapid and accurate diagnostic techniques are needed. Our pivotal clinical trial demonstrated that T2Candida can deliver actionable results in as few as three hours, with an average time to result during the trial of 4.2 hours, compared to the average time to result of one to six or more days typically required for blood-culture-based diagnostics, whichSeptember 2014, we believe will potentially enable physicians to make treatment decisions and administer targeted treatment to patients in four to six hours versus 24 to 144 hours for blood culture. We believe that T2Bacteria will also deliver actionable results in similar timeframes because this diagnostic panel operates similarly to T2Candida and is designed to run on the same instrument as T2Candida.

Candida is the fourth leading hospital-acquired bloodstream infection, afflicting more than 135,000 patients per year in the United States, and the most lethal form of common bloodstream infections that cause sepsis, with an average mortality rate of approximately 40%. This high mortality rate is largely due to a delay in providing targeted therapy to the patient due to the elapsed timereceived marketing authorization fromCandida infection to positive diagnosis. According to a study published in Antimicrobial Agents and Chemotherapy, the Candida mortality rate can be reduced to 11% with the initiation of targeted therapy within 12 hours of presentation of symptoms. Additionally, a typical patient with a Candida infection averages 40 days in the hospital, including nine days in intensive care, resulting in an average cost per hospital stay of more than $130,000 per patient. In a study published in the American Journal of Respiratory and Critical Care Medicine, providing targeted antifungal therapy within 24 hours of the presentation of symptoms decreased the length of hospital stay by approximately ten days and decreased the average cost of care by approximately $30,000 per patient. Furthermore, in April 2015, Future Microbiology published the results of an economic study regarding the use of T2Candida conducted by IMS Health, a healthcare economics agency. In that economic study, IMS demonstrated that an average hospital admitting 5,100 patients at risk for Candida infections could save approximately $5.8 million annually due to decreased hospital stays for patients, reduction in use of antifungal drugs, and other associated savings. The economic study further showed T2Candida can potentially reduce the costs of care by $26,887 per Candida patient and that rapid detection of Candida reduces patient deaths by 60.6%. Results from a data analysis of T2Candida for the detection and monitoring of Candida infection and sepsis were published comparing aggregated results from the use of T2Candida to blood culture-based diagnostics for the detection of invasive candidiasis and candidemia. The analysis included samples acquired from more than 1,900 patients. Out of 55 prospective patient cases that were tested with T2Candida and blood culture and determined to be positive or likely to be positive for a Candida infection, T2Candida detected 96.4% of the patients (53 cases) compared to detection of 60% of the patients (33 cases) with blood culture. During 2016, a number of T2Candida users presented data on their experiences with the T2Candida Panel which demonstrated both the clinical and economic benefits of use of the T2Candida Panel in the diagnostic regimen. The Henry Ford Health System in Detroit, Michigan reported data on a pre- and post-T2Candida implementation analysis that covered 6 months of clinical experience. The data showed a statistically significant (p = 0.009) seven day reduction in median Intensive Care Unit (“ICU”) length of stay per positive patient that was identified as positive for Candida after implementation of the T2Candida test panel and a trend (p = 0.164) of total hospital length of stay reduction of four days. The data also showed significant reductions in use of antifungal drugs for negative patients tested with T2Candida. The overall economic savings resulting from these clinical benefits was projected to be approximately $2.3 million on an annualized basis. The Lee Health System in Fort Myers, Florida compared patient and economic experience before and after T2Candida implementation. The data demonstrated that in the post-T2Candida cohort, median length of stay for patients with Candida infections was reduced by 7 days when detected by T2Candida while unnecessary antifungal therapy was avoided in 41% of patients


tested and was discontinued after one dose in another 15% of patients tested. The average economic savings derived solely from reduction in antifungal drug use was $195 per patient tested, net of the cost of the T2Candida test panel. Huntsville Hospital in Huntsville, Alabama, reported that the use of the T2Candida test panel resulted in a reduction in the duration of therapy and time to de-escalation in patients that tested negative for Candida on the T2Candida test panel, yielding net pharmacy savings of approximately $280 per patient tested. T2Candida also detected 56% more positive patients than blood culture. Finally, Riverside Community Hospital in Riverside, California, demonstrated improvements in time to appropriate therapy, increased sensitivity, and rapid discontinuation of antifungal therapy when using T2Candida. Specifically, 83% of patients who tested positive with T2Candida received appropriate therapy within six hours of the blood draw and 100% of patients received appropriate therapy in under nine hours. None of the patients who tested positive had been identified to have been treated with antifungals prior to T2Candida testing. In addition, antifungal therapy was discontinued for 100% of the patients who tested negative with T2Candida.

Due to the high mortality rate associated with Candida infections, physicians often will place patients on antifungal drugs while they await blood culture diagnostic results which generally take at least five days to generate a negative test result. Antifungal drugs are toxic and may result in side effects and can cost over $50 per day. T2Candida’s speed to result coupled with its superior sensitivity as compared to blood culture may help reduce the overuse of ineffective, or even unnecessary, antimicrobial therapy which may reduce side effects for patients, hospital costs and potentially, the growing resistance to antifungal therapy. This inappropriate therapy is a driving force behind the spread of antimicrobial-resistant pathogens, which the CDC recently called “one of our most serious health threats.”

Our T2Candida auris Panel

On September 6, 2017, we announced that the Centers for Disease Control and Prevention (CDC) has agreed to utilize the T2Dx Instrument and the T2Candida auris investigational use only panel in their laboratory for testing and monitoring the emergence and outbreaks of the superbug Candida auris in hospitals around the country. Candida auris is a multi-drug resistant pathogen recognized by the CDC as a “serious global health threat” because it can be resistant to “all three major classes of antifungal drugs” and difficult to identify. The CDC has also reported that more than one in three patients with Candida auris infections have died. Unlike most other species of Candida, Candida auris can spread quickly in a hospital making rapid identification and hospital environment surveillance a critical component of containing these outbreaks. Existing laboratory methods that detect Candida auris, including blood culture, suffer from prolonged detection times and low accuracy, which exacerbates the challenge in the fight to contain the superbug. Recently, reported cases have surged internationally, and the CDC has reported a significant increase in infected patients in the United States. According to the European Centre for Disease Prevention and Control, hospital outbreaks have occurred in the United Kingdom and Spain. Because Candida auris can be resistant to most treatment options and can spread so quickly, these hospital outbreaks have been difficult to contain by even the most enhanced control measures. We are also conducting a study in Europe that has demonstrated the ability to detect Candida auris directly in patient blood specimens.

Our T2Bacteria Panel

We have also developed a product candidate named T2Bacteria, a multiplex diagnostic panel that detects six major bacterial pathogens associated with sepsis and, in conjunction with T2Candida and standard empiric therapy regimens, may enable the early, appropriate treatment of 95% of sepsis patients. T2Bacteria, which will also run on the T2Dx, is expected to address the same approximately 6.75 million symptomatic high-risk patients as T2Candida and also a new population of patients who are at increased risk for bacterial infections, including an additional two million patients presenting with symptoms of infection in the emergency room setting. The T2Bacteria Panel received authorization to affix a CE mark in July 2017 and is being commercially launched in Europe and other countries that accept the CE mark.  

On August 4, 2017 we completed a pivotal clinical study of the T2Bacteria® Panel, run on the T2Dx® Instrument (T2Dx), which is a qualitative T2 Magnetic Resonance (T2MR®) assay designed for the direct detection of bacterial species in EDTA human whole blood specimens from patients with suspected bacteremia. The T2Bacteria Panel is designed to identify six species of bacteria directly from human whole blood specimens: Acinetobacter baumannii, Enterococcus faecium, Escherichia coli, Klebsiella pneumoniae, Pseudomonas aeruginosa, and Staphylococcus aureus.

The performance characteristics of the T2Bacteria Panel were evaluated through a series of analytical studies as well as a multi-center clinical study.  The clinical study evaluated the performance of the T2Bacteria Panel in comparison to the current standard of care, blood culture.  All of the data generated in the analytical studies and the clinical study were submitted to the United States Food and Drug Administration, or FDA, for our first two products, the T2Dx Instrument and the T2Candida Panel, or T2Candida. T2Candida, which runs on the T2Dx Instrument, has the ability to rapidly identify the five most clinically relevant species of Candida, a fungal pathogen known to cause sepsis, directly from blood specimens. The T2Dx Instrument and T2Candida were CE marked in the European Union, or the EU, in July 2014.

In May 2018, we received market clearance from the FDA for the T2Bacteria Panel, or T2Bacteria, which runs on the T2Dx Instrument and has the ability to rapidly identify six of the most common and deadly sepsis-causing bacteria directly from blood specimens. T2Bacteria was CE marked in the EU in June 2017.

In February 2019, our T2Resistance Panel, or T2Resistance, was granted FDA Breakthrough Device designation and, in November 2019, was CE marked in the EU. In December 2021, we initiated a U.S. clinical trial for T2Resistance. The clinical trial is expected to be completed in 2024, and we believe the data from this trial may enable submission of a marketing application to the FDA in 2024.

In September 2019, the Biomedical Advanced Research and Development Authority, or BARDA, an office of the U.S. Department of Health and Human Services, or HHS, awarded us a milestone-based contract for the development of a next-generation diagnostic instrument, a comprehensive sepsis panel and a multi-target biothreat panel. In September 2020, BARDA exercised the first contract option valued at $10.5 million. In April 2021, BARDA agreed to modify the contract to accelerate product development by advancing future deliverables and adding a U.S. T2Resistance Panel into Option 1 of the contract. In September 2021, BARDA exercised Option 2A valued at approximately $6.4 million to further advance the new product development initiatives. In December 2021, we initiated the U.S. clinical trials for T2Resistance and the T2Biothreat Panel, or T2Biothreat. In March 2022, BARDA exercised Option 2B valued at approximately $4.4 million. In May 2022, BARDA exercised Option 3 valued at approximately $3.7 million to complete the U.S. clinical trials for T2Resistance and T2Biothreat and subsequently submit applications to the FDA for U.S. regulatory clearance for those product candidates. In December 2022 the T2Biothreat clinical evaluation was completed. In May 2023, we submitted a 510(k) premarket notification onto the FDA for T2Biothreat and in September 8, 2017.2023, we received 510(k) clearance from the FDA to market T2Biothreat. The BARDA contract expired in September 2023.

The clinical study consisted of two arms,In June 2020, we launched a prospective arm and a seeded arm. InCOVID-19 molecular diagnostic test, the prospective arm, a total of 1,427 subjects were tested at eleven geographically dispersed and demographically diverse sites in the United States.   In the seeded arm, 300 specimens of known bacterial composition were evaluated at three sites. Seeded specimens were prepared by spiking whole blood


with multiple strainsT2SARS-CoV-2 Panel, or T2SARS-CoV-2, after validation of the bacterial species detected bytest pursuant to the T2Bacteria Panel at defined concentrations (CFU/mL). Fifty negative blood samples also were evaluated as partFDA’s policy permitting COVID-19 tests to be marketed prior to receipt of an Emergency Use Authorization, or EUA, subject to certain prerequisites. In August 2020, the seeded arm FDA granted an EUA to T2SARS-CoV-2 for the qualitative direct detection

30


of the study.  In total, 1,777 (1,427 prospectivenucleic acid from SARS-CoV-2 in upper respiratory specimens and 350 seededbronchoalveolar lavage specimens from individuals suspected of COVID-19 by their healthcare provider. We marketed and negative) clinical samples were tested to evaluate the clinical performance of T2Bacteria Panel.

T2Bacteria is currently available in the United States for Research Use Only (RUO).

Our Sepsis Solution

We believe our T2 Magnetic Resonance technology, or T2MR, delivers what no conventional technology currently available can: a rapid, sensitivesold T2SARS-CoV-2 between 2020 and simple diagnostic platform to enable sepsis applications that can identify specific sepsis pathogens directly from an unpurified blood sample in hours instead of days at a level of accuracy equal to or better than blood culture-based diagnostics. The T2Sepsis Solution refers to the approach of combining the standard of care2023, with peak sales occurring during 2021. In 2023, we experienced decreased demand for the managementproduct as the incidence of sepsis patients with our products, includingCOVID-19 infections decreased significantly and, as a result, we have stopped marketing, selling and manufacturing T2SARS-CoV-2.

In July 2022, we received Breakthrough Device designation for the T2Lyme Panel, or T2Lyme, a direct-from-blood molecular diagnostic test designed to run on the T2Dx Instrument or the T2Dx, T2Candida, and T2Bacteria, which is commercially available in Europe and other countries that accept the CE mark and available for research use only in the United States. The T2Sepsis Solution is designed to enable clinicians to potentially treat 95% of septic patients within the first twelve hours of developing the symptoms of disease. Currently, high risk patients are typically initially treated with broad spectrum antibiotic drugs that typically cover approximately 60% of patients with infections. Of the remaining 40% of patients, approximately 30% of the patients have a bacterial infection and 10% have Candida infections. T2Candida and product candidate, T2Bacteria are designed to identify pathogens commonly not covered by broad spectrum antibiotic drugs, which we believe may enable physicians to effectively treat an additional 35% of septic patients beyond the 60% of patients covered by broad spectrum antibiotic drugs.

We believe the T2Sepsis Solution provides a pathway for more rapid and targeted treatment of infections, potentially reducing the mortality rate by as much as 75% if a patient is treated within 12 hours of suspicion of infection and significantly reducing the cost burden of sepsis. Each year, approximately 500,000 patients in the United States die from sepsis. According to a study published by Critical Care Medicine in 2006, in sepsis patients with documented hypotension, administration of effective antimicrobial therapy within the first hour of detection was associated with a survival rate of 79.9% and, over the ensuing six hours, each hour of delay in initiation of treatment was associated with an average decrease in survival of 7.6%. According to such study, the survival rate for septic patients who remained untreated for greater than 36 hours was approximately 5%. The toll of sepsis on a patient’s health can be severe: more than one-in-five patients die within two years as a consequence of sepsis. Sepsis is also the most prevalent and costly cause of hospital readmissions.

We believe the T2Sepsis Solution addresses a significant unmet need in in vitro diagnostics by providing:

Limits of Detection as Low as 1 CFU/mL. T2MR is the only technology currently available that can enable identification of sepsis pathogens directly from a patient’s blood sample at limits of detection as low as 1 CFU/mL.

Rapid and Specific Results in as Few as Three Hours. T2MR is the only technology that can enable species-specific results for pathogens associated with sepsis, directly from a patient’s blood sample, without the need for blood culture, to deliver an actionable result in three hours.

Accurate Results Even in the Presence of Antimicrobial Therapy. T2MR is the only technology that can reliably detect pathogens associated with sepsis, including slow-growing pathogens, such as C. glabrataBorrelia burgdorferi, directly from a patient’s blood sample, even in the presence of an antimicrobial therapy.

Easy-to-Use Platform. T2MR eliminates the need for sample purification or extraction of target pathogens, enabling sample- to-result instruments that can be operated on-site by hospital staff, without the need for highly skilled technicians.

Our T2Dx Instrument

Our FDA-cleared T2Dx instrument is an easy-to-use, fully-automated, benchtop instrument utilizing T2MR for use in hospitals and labs for a broad range of diagnostic tests. To operate the system, a patient’s sample tube is snapped onto a disposable test cartridge, which is pre-loaded with all necessary reagents. The cartridge is then inserted into the T2Dx instrument, which automatically processes the sample and then delivers a diagnostic test result. Test results are displayed on screen or directly through the lab information system.

By utilizing our proprietary T2MR technology for direct detection, the T2Dx eliminates the need for sample purification and analyte extraction, which are necessary for other optical-detection devices. Eliminating these sample processing steps increases diagnostic sensitivity and accuracy, enables a broad menu of tests to be run on a single platform, and greatly reduces the complexity of the consumables. The T2Dx incorporates a simple user interface and is designed to efficiently process up to seven specimens simultaneously.


Our T2MR Platform

T2MR is a miniaturized, magnetic resonance-based approach that measures how water molecules react in the presence of magnetic fields. For molecular and immunodiagnostics targets, T2MR utilizes advances in the field of magnetic resonance by deploying particles with magnetic properties that enhance the magnetic resonance signals of specific targets. When particles coated with target-specific binding agents are added to a sample containing the target, the particles bind to and cluster around the target. This clustering changes the microscopic environment of water in that sample, which in turn alters the magnetic resonance signal, or the T2 relaxation signal that we measure, indicating the presence of the target.

We believe that T2MR can also address the significant unmet need associated with Lyme disease, a tick-borne illness that can cause prolonged neurological disease and musculoskeletal disease. For patients with Lyme disease, early diagnosis and appropriate treatment significantly reduces both the likelihood of developing neurological and musculoskeletal disorders, as well as the significant costs associated with treating these complications. Our product candidate, T2Lyme, will identify the bacteria that cause Lyme disease. T2Lyme is intended to test individuals with signs and symptoms of Lyme disease directlyand aid in the diagnosis of early Lyme disease. In November 2022, the HHS and the Steven & Alexandra Cohen Foundation, or Cohen Foundation, selected T2 Biosystems as a Phase 1 winner in the LymeX Diagnostics Prize, a LymeX Innovation Accelerator prize competition intended to accelerate the development of Lyme disease diagnostics. As a Phase 1 winner, we received $100,000 and an invitation to participate in a second phase. In February 2024, we were selected as a Phase 2 winner and received $265,000.

In July 2023, we received Breakthrough Device Designation for our Candida auris (C. auris) test, a direct-from-blood molecular diagnostic test designed to run on the T2Dx Instrument and detect C. auris. C. auris is a multidrug-resistant fungal pathogen recognized as a serious global health threat with a mortality rate of up to 60%, and is difficult to identify with standard laboratory methods, which can lead to inappropriate treatment. We plan to expand the test menu on the T2Dx Instrument by seeking 510(k) clearance from the patient’s blood, withoutFDA to add C. auris detection to the need for blood cultureFDA-cleared T2Candida Panel.

In October 2023, we submitted a 510(k) premarket notification to the FDA to expand the number of pathogens detected on the FDA-cleared T2Bacteria Panel to include the detection of Acinetobacter baumannii (A. baumannii). A. baumannii is a cause of bloodstream infections especially in critically ill patients, which can range from a benign transient bacteremia to septic shock.

In December 2023, we submitted a 510(k) premarket notification to the FDA to expand the use of the T2Candida Panel to include pediatric testing. Candida species are a major contributor to morbidity and mortality in hospitalized children.

Nasdaq Compliance Update

On March 30, 2023, the Company received notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the bacteria associatedlast thirty consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 555(a)(2) (the “Minimum Bid Price Rule”). On May 23, 2023, Nasdaq notified the Company that its securities were subject to delisting due to non-compliance with Lyme disease, can take several weeks. Our Lyme product candidate is currently in pre-clinical developmentthe Minimum Bid Price Rule and we expect to initiatemaintain a T2Lyme clinical trial in 2018.

Another significant unmet clinical need isminimum value of listed securities (the “MVLS Rule”) of at least $35 million. The Company requested a hearing with Nasdaq and, on July 6, 2023, appealed to the diagnosis and management of impaired hemostasis, which is a life-threatening conditionNasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule and the Minimum Bid Price Rule. On July 26, 2023, we filed a patient is unabledefinitive proxy statement to promoteeffect a reverse stock split of our common stock in connection with our annual meeting that occurred in September 2023 as required by the formationNasdaq Hearings Panel. On August 9, 2023, the Company received written notice from Nasdaq informing the Company that it had regained compliance with the MVLS Rule. On September 15, 2023, at the Company’s annual meeting of blood clotsstockholders, the Company’s stockholders approved an amendment to stabilize excessive bleeding. Within the broader populationCompany’s restated certificate of patientsincorporation to effect a reverse stock split of the Company’s common stock. On October 12, 2023, the Company announced that its board of directors had approved the reverse stock split at the ratio of 1 post-split share for every 100 pre-split shares, which was effective as of October 12, 2023.

On October 31, 2023, the Company received written notice from Nasdaq informing the Company that it has regained compliance with symptoms of impaired hemostasis, there are over ten million trauma patients in the United States annually. These trauma patients typically face life-threatening injuries or invasive surgical procedures. Approximately 25% of trauma patients have impaired hemostasis, which frequently goes undetected during the initial hospitalization. AccordingMinimum Bid Price Rule. The Company will be subject to a study inMandatory Panel Monitor for a period of one year. If, within that one-year monitoring period, the JournalCompany fails to comply with the Minimum Bid Price Rule, the Company will not be permitted additional time to regain compliance with the Minimum Bid Price Rule. However, the Company will have an opportunity to request a new hearing with the Nasdaq Hearings Panel prior to the Company’s securities being delisted from Nasdaq.

On November 20, 2023, the Company received written notice from Nasdaq informing the Company that it no longer satisfied the MVLS Rule. In accordance with the terms of the American CollegeMandatory Panel Monitor, the Company was not granted a grace period but rather issued a delist determination, which will be stayed if the Company exercises its right to appeal by requesting a hearing and paying a non-refundable $20,000 fee. The Company has paid the $20,000 applicable fee and requested a new hearing, which will stay any further action by Nasdaq at least pending the issuance of Surgeons, for trauma patients with symptomsits decision and the expiration of impaired hemostasis, mortality rates were reduced from 45% to 19% with more rapid delivery of therapy. The T2Plex and T2HemoStat are being designed to utilize T2MR and are designed to provide hemostasis measurements in less than 45 minutes. Our product candidate, T2HemoStat, is a comprehensive panel of diagnostic testsany extension that can provide data across the hemostasis spectrum, including measurements of fibrinogen, platelet activity, and clot lysis. We believe that T2HemoStat may be granted to the first panel capableCompany as a result of rapidly identifying key coagulation, plateletthe hearing. The Company’s common stock will remain listed and other hematologic factors directly from whole bloodeligible to trade on a single, easy-to-operate, compact instrument. We are exploring partnership opportunitiesNasdaq pending the outcome of the hearing. On February 15, 2024, the Company appealed to complete the development and commercialization of these products.

We believe T2MR isNasdaq Hearings Panel for an extension to the first technologytime period in which to regain compliance with the abilityMVLS Rule. On March 11, 2024, the Company received notice from the Nasdaq Hearings Panel that it had granted the Company’s request for continued listing on Nasdaq, subject to detect directly from a clinical sample of whole blood, plasma, serum, saliva, sputumthe Company demonstrating compliance with Nasdaq’s MVLS Rule on or urine, saving time and potentially improving sensitivity by eliminating the need for purification or the extraction of target pathogens. T2MR has been demonstrated to detect cellular targets at limits of detection as low as one colony-forming unit per milliliter (CFU/mL). More than 100 studies published in peer reviewed journals have featured T2MR in a breadth of applications.before May 20, 2024.

31


Financial Overview

Revenue

We generate revenue from the sale of our products, related services, reagent rental agreements and from activities performed pursuantgovernment contributions.

Grants received, including cost reimbursement agreements, are assessed to research and development agreements.determine if the agreement should be accounted for as an exchange transaction or a contribution. An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred.

Revenue earned from activities performed pursuant to research and development agreements is reported as research revenue using the proportional performance method as the work is completed, limited to payments earned, and the related costs are expensed as incurred as research and development expense.


Product revenue is derived fromgenerated by the sale of our instruments and related consumable diagnostic tests predominantly through our direct sales force in the United States and distributors in geographic regions outside the United States. We generally do not offer product returnreturns or exchange rights (other than those relating to defective goods under warranty) or price protection allowances to our customers, including our distributors. Payment terms granted to distributors are the same as those granted to end-user customers and payments are not dependent upon the distributors’ receipt of payment from their end-user customers. We recognize product revenue fromeither sell instruments to customers and international distributors or retain title and place the sale of our instruments as soon as all applicable revenue recognition criteria have been met. Ininstrument at the majority of cases, we expectcustomer site pursuant to place our instruments, undera reagent rental agreement. When the instrument is placed under a reagent rental agreement, our customers generally agree to fixed term agreements, in hospitals, certain of which may include minimum commitments and/or ancan be extended, and incremental chargecharges on the purchase of oureach consumable diagnostic tests. Under this business model, we believe we will recovertest purchased. Shipping and handling costs are billed to customers in connection with a product sale.

Fees paid to member-owned group purchasing organizations (“GPOs”) are deducted from related product revenues.

Direct sales of instruments include warranty, maintenance and technical support services typically for one year following the costinstallation of placing our instrumentsthe purchased instrument (“Maintenance Services”). Maintenance Services are separate performance obligations as they are service based warranties and are recognized on a straight-line basis over the service delivery period. After the completion of the initial Maintenance Services period, customers have the option to renew or extend the Maintenance Services typically for additional one-year periods in hospitals through the margins realized from our consumable diagnostic tests. Ourexchange for additional consideration. The extended Maintenance Services are also service based warranties that represent separate purchasing decisions.

We warrant that consumable diagnostic tests can onlywill be used withfree from defects, when handled according to product specifications, for the stated life of the product. To fulfill valid warranty claims, we provide replacement product free of charge.

Our current sales strategy is to drive adoption of our instruments, and accordingly, as thetest platform installed base ofin hospitals and to increase test use by our instruments grows,existing hospital customers. Accordingly, we expect the following to occur:

recurring revenue from our consumable diagnostic tests will increaseincrease; and become subject to less period-to-period fluctuation;

consumable revenue will become an increasinglya more predictable and important contributor to oursignificant component of total revenue; and

we will gain manufacturing economies of scale through the growth in our sales, resulting in improving gross margins and operating margins.

Revenue from consumables is based on the volume of tests sold and the price of each consumable unit.The BARDA contract expired in September 2023.

Cost of Product Revenue

Cost of product revenue includes the cost of materials, direct labor and manufacturing overhead costs used in the manufacture of our consumable diagnostic tests sold to customers and related license and royalty fees. Cost of product revenue also includes depreciation on the revenue-generating T2Dx Instruments that have been placed with our customers under reagent rental agreements; costs of materials, direct labor and manufacturing overhead costs on the T2Dx Instruments sold to customers; and other costs such as customer support costs, warranty and repair and maintenance expense on the T2Dx Instruments that have been placed with our customers under reagent rental agreements. We manufacture the T2Dx Instruments and part of our consumable diagnostic tests in our facilities. We outsource the manufacturing of components of our consumable diagnostic tests to contract manufacturers.

We expect cost of product revenue to continue to represent a high percentage of our product revenue as we continue to invest in our manufacturing capabilities, infrastructure and customer service organization and grow our installed customer base. We plan to continue to expand our capacity to support our growth, which will result in higher cost of revenue in absolute dollars. However, we expect cost of product revenue,decrease as a percentage of revenue to decline as a result of the cost of product revenue grows in the future.improvement initiatives.

Research and development expenses

Our research and development expenses consist primarily of costs incurred for the development of our technology and product candidates, technology improvements and enhancements, clinical trials to evaluate the clinical utility of our product candidates, and laboratory development and expansion, and include salaries and benefits, including stock-based compensation, research-relatedresearch related facility and overhead costs, laboratory supplies, equipment, depreciation on T2Dx Instruments used in research and development activities and

32


contract services. Research and development expenses also include costs of delivering products or services associated with researchcontribution revenue. We expense all research and development costs as incurred.

We anticipate our overall research and development expensesexpect to continue to be flat to down over the next several quarters in part due to the completion of our T2Bacteria clinical trial. Research and development costs include costs to support research partnerships, clinical trials and new product development. We have committed, and expect to commit, significant resources toward developing additional product candidates, improving existing products, and conducting ongoing and new clinical trials and expanding our laboratory capabilities.trials.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of costs for our sales, and marketing, service, medical affairs, finance, legal, human resources, business developmentinformation technology, and general management functions, as well as professional services, such as legal, consulting and accounting services. We expect selling, general and administrative expenses to increase in future periods as we commercialize products and future product candidates and as our needs for sales, marketing and administrative personnel grow. Other selling, general and administrative expenses include commercial support activity, facility-related costs, fees and expenses associated with obtaining and maintaining patents, clinical and economic studies and publications, marketing expenses, and travel expenses. We expense allthe majority of selling, general and administrative expenses as incurred. We expect selling, general and administrative expenses to decrease as a percentage of revenue in future periods.


Interest expense netto related party

Interest expense net,to related party consists primarily of interest expense on our notes payable, and the amortization of deferred financing costs partially offset byand debt discount.

Change in fair value of derivative related to Term Loan with related party

The change in fair value of derivative related to Term Loan with related party consists of the change in fair value of the derivative associated with the CRG Term Loan Agreement.

Change in fair value of warrant liabilities

The change in fair value of warrant liabilities consists of the changes in fair value of the Common Stock Warrants, Pre-Funded Warrants and Series A Warrant.

Other, net

Other, net consists of dividend income, other investment income, interest income earned on our cash and cash equivalents.equivalents, non-recurring expenses and non-recurring gains and losses.

Other income, net

Other income, net, consists of dividend and other investment income, government grant income and the gain or loss associated with the change in the fair value of our liability for warrants to purchase redeemable securities.

Critical Accounting Policies and Use of Estimates

We have prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States. Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the condensed consolidated financial statements, as well as revenue and expenses recorded during those periods. We evaluated our estimates and judgments on an ongoing basis. We based our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

The items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2016 remain2023 remained materially consistent. For a description of those critical accounting policies, please refer to our Annual Report on Form 10-K filing for the year ended December 31, 2016.2023.

33


Results of Operations for the Three Months Ended September 30, 2017March 31, 2024 and 20162023

 

Three Months Ended

September 30,

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

2017

 

 

2016

 

 

Change

 

 

2024

 

 

2023

 

 

Change

 

 

(in thousands)

 

 

(in thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

739

 

 

$

580

 

 

$

159

 

 

$

2,061

 

 

$

1,655

 

 

$

406

 

Research revenue

 

 

369

 

 

 

504

 

 

 

(135

)

Contribution revenue

 

 

 

 

 

423

 

 

 

(423

)

Total revenue

 

 

1,108

 

 

 

1,084

 

 

 

24

 

 

 

2,061

 

 

 

2,078

 

 

 

(17

)

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

2,106

 

 

 

1,894

 

 

 

212

 

 

 

4,202

 

 

 

3,995

 

 

 

207

 

Research and development

 

 

5,880

 

 

 

5,200

 

 

 

680

 

 

 

3,721

 

 

 

4,471

 

 

 

(750

)

Selling, general and administrative

 

 

5,559

 

 

 

5,935

 

 

 

(376

)

 

 

6,738

 

 

 

7,299

 

 

 

(561

)

Total costs and expenses

 

 

13,545

 

 

 

13,029

 

 

 

516

 

 

 

14,661

 

 

 

15,765

 

 

 

(1,104

)

Loss from operations

 

 

(12,437

)

 

 

(11,945

)

 

 

492

 

 

 

(12,600

)

 

 

(13,687

)

 

 

1,087

 

Interest expense, net

 

 

(1,718

)

 

 

(876

)

 

 

(842

)

Other income, net

 

 

79

 

 

 

38

 

 

 

41

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense to related party

 

 

(1,179

)

 

 

(1,522

)

 

 

343

 

Change in fair value of derivative related to Term Loan with related party

 

 

(108

)

 

 

(770

)

 

 

662

 

Change in fair value of warrant liabilities

 

 

28

 

 

 

(1,304

)

 

 

1,332

 

Other, net

 

 

325

 

 

 

(682

)

 

 

1,007

 

Total other expense

 

 

(934

)

 

 

(4,278

)

 

 

3,344

 

Net loss

 

$

(14,076

)

 

$

(12,783

)

 

$

(1,293

)

 

$

(13,534

)

 

$

(17,965

)

 

$

4,431

 

Product revenue

Product revenue was $0.7 million for the three months ended September 30, 2017 compared to $0.6 million for the three months ended September 30, 2016, an increase of $0.1 million or 27.4%.  The increase was driven primarily by higher comparable sales of T2Candida consumables of $0.2 million and slightly higher support contract revenue plus sales of the new T2Bacteria consumables product in Europe.  The increases were partially offset by lower instrument sales of $0.1 million.

Research revenue

Research revenue was $0.4 million for the three months ended September 30, 2017, compared to $0.5 million for the three months ended September 30, 2016, a decrease of $0.1 million or 26.8%.  The decrease was primarily the result of lower revenue recognized under our Co-Development Agreement with Canon US Life Sciences, which decreased $0.4 million over the prior year


comparable period, as well as a decrease in revenue from research and development agreements utilizing T2MR technology with other third parties of $0.1 million.  These decreases were offset by an increase in revenue from services delivered under our Co-Development Agreement with Allergan Sales, LLC of $0.4 million.

Cost of product revenue

Cost of product revenue was $2.1 million for the three months ended September 30, 2017,March 31, 2024 compared to $1.9$1.7 million for the three months ended March 31, 2023, an increase of $0.4 million, which was driven by higher consumables sales of $0.2 million and higher instrument and service revenue sales of $0.2 million.

Contribution revenue

Contribution revenue relates to our BARDA agreement and we had no contribution revenue for the three months ended March 31, 2024, compared to $0.4 million for the three months ended March 31, 2023. The decrease of $0.4 million was due to the BARDA agreement expiring in September 30, 2016,2023.

Cost of product revenue

Cost of product revenue was $4.2 million for the three months ended March 31, 2024, compared to $4.0 million for the three months ended March 31, 2023, an increase of $0.2 million. The increase in costwas driven by $0.5 million of costs related to higher instrument sales and $0.2 million of increased costs primarily correlatedrelated to increased product revenue and continued expansion of manufacturing activities and certain manufacturing costs ofhigher consumable sales, partially offset by $0.4 million overof decreased costs due to the prior year comparable period. The increases were offset by lower costs for consumableseffect of a change in build plan and instruments ofmanufacturing inefficiencies and $0.1 million andof lower service related and miscellaneous costs of $0.1 million.repair costs.

Research and development expenses

Research and development expenses were $5.9$3.7 million for the three months ended September 30, 2017,March 31, 2024, compared to $5.2$4.5 million for the three months ended September 30, 2016, an increaseMarch 31, 2023, a decrease of $0.7 million over the prior year comparable period. Clinical trial and related expenses increased by $0.3 million primarily from the T2Bacteria clinical trial.  Facilities$0.8 million. Payroll related and otherstock-based compensation expenses decreased by $0.9 million due to lower employee headcount, lab and facility expenses decreased by $0.4 million due to lower employee headcount and material purchases, clinical expenses decreased by $0.2 million, and consulting expenses decreased by $0.1 million, partially offset by increased research and development expenses increased by $0.2 million which includes increased depreciation, lab related and engineering prototype expenses.  Outside service and travel expenses increased by $0.3 million, primarily from increased work on the T2Bacteria clinical trial.  Payroll and related expenses increased by $0.2 million.  Partially offsetting these increases is a decrease in preclinicalproject related expenses of $0.3$0.8 million.

Selling, general and administrative expenses

Selling, general and administrative expenses were $5.6$6.7 million for the three months ended September 30, 2017,March 31, 2024, compared to $5.9$7.3 million for the three months ended September 30, 2016,March 31, 2023, a decrease of $0.3 million over the prior year comparable period.$0.6 million. The decrease was due primarily to decreaseddriven by lower payroll related and relatedstock-based compensation expenses of approximately $0.2$0.8 million primarily due to a reduction inlower employee headcount decreased traveland lower other expenses of $0.1 million, and decreased outside services of $0.1 million.  The decreases were partially offset by $0.2 million of increased costs related to IT support services and facilities and a $0.1 million increase in consulting expenses and legal expenses of $0.1 million.expenses.

34


Interest expense netto related party

Interest expense net,to related party was $1.7$1.2 million and $1.5 million for the three months ended September 30, 2017,March 31, 2024 and 2023, respectively.

Change in fair value of derivative related to Term Loan with related party

The change in fair value of the derivative instrument associated with the CRG Term Loan Agreement (see Note 6 of the notes to our condensed consolidated financial statements) was $0.1 million of expense for the three months ended March 31, 2024, compared to $0.9$0.8 million of expense for the three months ended March 31, 2023.

Change in fair value of warrant liabilities

The change in fair value of warrant liabilities consists of a less than $0.1 million reduction of expense primarily associated with the Common Stock Warrants (See Note 8 of the notes to our condensed consolidated financial statements) for the three months ended March 31, 2024. The change in fair value of the warrant liabilities consists of $1.3 million of expense during the three months ended March 31, 2023.

Other, net

Other, net was a reduction of expense of $0.3 million for the three months ended September 30, 2016. Interest expense, net, increased by $0.8March 31, 2024, primarily consisting of a $0.3 million primarily fromcash prize received for the refinancingPhase 2 LymeX Diagnostics Prize and $0.1 million of debt with CRG.

dividend income. Other, income, net

Other income, net was $79,000an expense of net income$0.7 million for the three months ended September 30, 2017, comparedMarch 31, 2023, consisting of issuance costs allocated to $38,000 for the three months ended September 30, 2016. Other income, net, increased by $41,000 due primarily to increased dividend and other investment income earned on higher average levels of invested cash over the prior comparable period.


Results of Operations for the Nine Months Ended September 30, 2017 and 2016Common Stock Warrants.

 

 

Nine Months Ended

September 30,

 

 

 

 

 

 

 

2017

 

 

2016

 

 

Change

 

 

 

(in thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

2,105

 

 

$

1,168

 

 

$

937

 

Research revenue

 

 

900

 

 

 

2,003

 

 

 

(1,103

)

Total revenue

 

 

3,005

 

 

 

3,171

 

 

 

(166

)

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

5,722

 

 

 

4,701

 

 

 

1,021

 

Research and development

 

 

19,577

 

 

 

18,160

 

 

 

1,417

 

Selling, general and administrative

 

 

17,192

 

 

 

18,282

 

 

 

(1,090

)

Total costs and expenses

 

 

42,491

 

 

 

41,143

 

 

 

1,348

 

Loss from operations

 

 

(39,486

)

 

 

(37,972

)

 

 

(1,514

)

Interest expense, net

 

 

(5,008

)

 

 

(2,416

)

 

 

2,592

 

Other income, net

 

 

260

 

 

 

133

 

 

 

127

 

Net loss

 

$

(44,234

)

 

$

(40,255

)

 

$

(3,979

)

Product revenue

Product revenue was $2.1 million for the nine months ended September 30, 2017 compared to $1.2 million for the nine months ended September 30, 2016, an increase of $0.9 million or 80.2%. The increase was driven by an increase in sales volume of our products, primarily the sale of T2Candida and T2Bacteria (in Europe) consumable diagnostic tests of $0.6 million plus higher instrument sales of $0.1 million and an increase in service contract revenue.

Research revenue

Research revenue was $0.9 million for the nine months ended September 30, 2017, compared to $2.0 million for the nine months ended September 30, 2016, a decrease of $1.1 million or 55.0%.  This decrease was primarily the result of lower revenue recognized under our Co-Development Agreement with Canon of $1.2 million as well as a decrease in revenue from research and development agreements utilizing our T2MR technology with other third parties over the prior year comparable period.  These decreases were offset by revenue recognized under our Co-Development Agreement with Allergan Sales, LLC.    

Cost of product revenue

Cost of product revenue was $5.7 million for the nine months ended September 30, 2017, compared to $4.7 million for the nine months ended September 30, 2016, an increase of $1.0 million. $0.3 million of the increase in cost correlates to increased product revenue. In addition, other cost increases relate to continued expansion of manufacturing activities and certain manufacturing costs of $0.2 million, depreciation of $0.2 million and increase in reserves of $0.3 million over the prior year comparable period.            

Research and development expenses

Research and development expenses were $19.6 million for the nine months ended September 30, 2017, compared to $18.2 million for the nine months ended September 30, 2016, an increase of $1.4 million over the prior year comparable period. Clinical trial and related expenses increased by $1.1 million primarily from the T2Bacteria clinical trial.  Facilities related and other expenses increased by $0.4 million which includes higher depreciation, lab related and engineering prototype expenses.  Outside service and travel expenses increased by $0.4 million, primarily from increased work on the T2Bacteria clinical trial.  Partially offsetting these increases is a decrease in preclinical related expenses of $0.3 million, a decrease in payroll and related expenses of $0.1 million.

Selling, general and administrative expenses

Selling, general and administrative expenses were $17.2 million for the nine months ended September 30, 2017, compared to $18.3 million for the nine months ended September 30, 2016, a decrease of $1.1 million. The decrease was due primarily to decreased payroll and related expenses of approximately $1.1 million, due to a reduction in headcount, decreased travel expenses of $0.3 million related to headcount reduction, and decreased legal expenses of $0.1 million. These decreases were partially offset by increased


outside services expenditures of $0.2 million and increased facility and other selling, general and administrative expenses of $0.2 million.

Interest expense, net

Interest expense, net, was $5.0 million for the nine months ended September 30, 2017, compared to $2.4 million for the nine months ended September 30, 2016. Interest expense, net, increased by $2.6 million primarily from the refinancing of debt with CRG.

Other income, net

Other income, net, was $260,000 for the nine months ended September 30, 2017, compared to $133,000 for the nine months ended September 30, 2016. Other income, net, increased by $127,000 due primarily to increased dividend and other investment income earned on higher average levels of invested cash over the prior comparable period.

Liquidity and Capital Resources

We have incurred losses and cumulative negative cash flows from operations since our inception, and as of September 30, 2017,March 31, 2024 and December 31, 20162023, we had an accumulated deficit of $247.9$597.8 million and $203.7$584.3 million, respectively. We anticipate that we willhave incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We may seek to continue to incur losses for at least the next few years. We expect that our operating expenses will continue to increase and, as a result, we will need additional capital to fund our operations whichthrough public equity or private equity or debt financings, as well as other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business, results of operations and financial condition.

Historically, the Company has primarily funded its operations through public equity and private debt financings. The Company believes its cash position is insufficient to fund future operations without financings by the first half of 2024. Financings may include public or private equity or debt financings. These financings may not be successful, however, or on terms favorable to the Company or its stockholders which would have a combinationnegative impact on the Company’s business, results of equity offerings, debt financings, other third-party funding, marketingoperations, financial condition and distribution arrangementsthe Company’s ability to develop and other collaborations, strategic alliancescommercialize its products and licensing arrangements.ultimately operate as a going-concern.

Equity Distribution Agreement

On March 31, 2021, the Company entered into an Equity Distribution Agreement (“Equity Distribution Agreement”) with Canaccord Genuity LLC, as agent (“Canaccord”), pursuant to which the Company may offer and sell shares of common stock, for aggregate gross sale proceeds of up to $75.0 million from time to time from the effective date of the respective registration statement through Canaccord. In July 2023, the Company filed an amendment to the prospectus supplement relating to the offer and sale of shares under the Equity Distribution Agreement to increase the maximum amount of shares that the Company may sell pursuant to its Equity Distribution Agreement with Canaccord Genuity by $65 million. At the time of the amendment, the Company had sold shares of its common stock for gross proceeds of $71.3 million. Under the Equity Distribution Agreement, the Company sold 628,470 shares of common stock during the three months ended March 31, 2024 for net proceeds of $2.2 million, and 6,528 shares of common stock during the three months ended March 31, 2023 for net proceeds of $0.9 million.

We have historically funded our operations principallypay Canaccord for its services of acting as agent 3% of the gross proceeds from the sale of common stockthe shares pursuant to the Equity Distribution Agreement. Legal and preferred stock,accounting fees are reclassified to share capital upon issuance of shares under the incurrence of indebtedness, and revenue from research and development agreements.  In September 2017 we raised net proceeds of $18.8 million through our confidentially marketed public offering (“CMPO”).Equity Distribution Agreement.

Plan of operations and future funding requirements

As of September 30, 2017 and DecemberMarch 31, 20162024, we had unrestricted cash and cash equivalents of approximately $52.9 million and $73.5 million respectively. Currently, our funds are primarily held in money market funds invested in U.S. government agency securities.$6.2 million. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, costs related to our products, clinical trials, laboratory and related supplies, supplies and materials used in manufacturing, legal and other regulatory expenses and general overhead costs.

Management believes that the existing cash and cash equivalents at September 30, 2017, together with the additional remaining liquidity on our Term Loan Agreement of up to an additional $10.0 million, will be sufficient to fund our current operating plan into the first half of 2019.  The borrowing on the Term Loan Agreement is available at any time through July 27, 2018, and is subject to certain conditions including that we receive 510(k) clearance for the marketing of T2BacteriaTM by the FDA by April 30, 2018 (see Note 5 to our unaudited condensed consolidated financial statements for details). Should our current operating plan not materialize as expected, including our ability to draw additional borrowings on the Term Loan Agreement on a timely basis, we would delay certain research projects and capital expenditures and reduce or eliminate certain future operating expenses in order to fund operations at reduced levels to continue as a going concern for a period of 12 months from the date the financial statements are issued. The Term Loan Agreement also requires us to achieve certain annual revenue targets, whereby we are required to pay double the amount of any shortfall as an acceleration of principal payments. The revenue target for fiscal 2017 is $5.0 million. Should we fall short of the revenue target we would seek a waiver of this provision. There can be no assurances that we would be successful in obtaining a waiver.35


Until such time as we can generate substantial product revenue, we expect to finance our cash needs, beyond what is currently available or on hand, through a combination of equity offerings, debt financings and revenue from existing and potential research and development and other collaboration agreements. If we raise additional funds in the future, we may need to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable to us.

Going Concern

We believe that our cash and cash equivalents of $6.2 million on March 31, 2024 will not be sufficient to fund our current operating plan at least a year from issuance of these condensed consolidated financial statements unless additional funds are raised in the first half of 2024. Certain elements of our operating plan cannot be considered probable.

The Company's Term Loan Agreement (See Note 6 of the notes to our condensed consolidated financial statements) has a minimum liquidity covenant, which initially required the Company to maintain a minimum cash balance of $5.0 million. In May 2023, CRG reduced the minimum liquidity covenant under the Term Loan Agreement from $5.0 million to $500,000 until December 31, 2023. In July 2023, the Company also converted $10.0 million of the outstanding debt with CRG to equity. In October 2023, the Term Loan Agreement was amended to extend both the interest-only period and the maturity date by one year from December 30, 2024 to December 31, 2025, and permanently reduce the minimum liquidity covenant from $5.0 million to $500,000. There can be no assurances that the Company will continue to be in compliance with the cash covenant in future periods without additional funding.

On March 30, 2023, the Company received notice from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 555(a)(2) (the “Minimum Bid Price Rule”). On May 23, 2023, Nasdaq notified the Company that its securities were subject to delisting due to non-compliance with the Minimum Bid Price Rule and to maintain a minimum value of listed securities (the “MVLS Rule”) of at least $35 million. The Company requested a hearing with Nasdaq and, on July 6, 2023, appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule and the Minimum Bid Price Rule. On July 26, 2023, we filed a definitive proxy statement to effect a reverse stock split of our common stock in connection with our annual meeting that occurred in September 2023 as required by the Nasdaq Hearings Panel. On August 9, 2023, the Company received written notice from Nasdaq informing the Company that it had regained compliance with the MVLS Rule. On September 15, 2023, at the Company’s annual meeting of stockholders, the Company’s stockholders approved an amendment to the Company’s restated certificate of incorporation to effect a reverse stock split of the Company’s common stock. On October 12, 2023, the Company announced that its board of directors had approved the reverse stock split at the ratio of 1 post-split share for every 100 pre-split shares, which was effective as of October 12, 2023.

On October 31, 2023, the Company received written notice from Nasdaq informing the Company that it has regained compliance with the Minimum Bid Price Rule. The Company will be subject to a Mandatory Panel Monitor for a period of one year. If, within that one-year monitoring period, the Company fails to comply with the Minimum Bid Price Rule, the Company will not be permitted additional time to regain compliance with the Minimum Bid Price Rule. However, the Company will have an opportunity to request a new hearing with the Nasdaq Hearings Panel prior to the Company’s securities being delisted from Nasdaq.

On November 20, 2023, the Company received written notice from Nasdaq informing the Company that it no longer satisfied the MVLS Rule. In accordance with the terms of the Mandatory Panel Monitor, the Company was not granted a grace period but rather issued a delist determination, which will be stayed if the Company exercises its right to appeal by requesting a hearing and paying a non-refundable $20,000 fee. The Company has paid the $20,000 applicable fee and requested a new hearing, which will stay any further action by Nasdaq at least pending the issuance of its decision and the expiration of any extension that may be granted to the Company as a result of the hearing. On February 15, 2024, the Company appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule. On March 11, 2024, the Company received notice from the Nasdaq Hearings Panel that it had granted the Company’s request for continued listing on Nasdaq, subject to the Company demonstrating compliance with Nasdaq’s MVLS Rule on or before May 20, 2024.

These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that these financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include raising additional funding and maintaining reduced operating expenses in order to continue as a going concern for a period of 12 months from the date these financial statements are issued. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources or maintain reduced expenditures, while reasonably possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these financial statements.


36


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

Cash flows

The following is a summary of cash flows for each of the periods set forth below:

 

Nine Months Ended

September 30,

 

 

Three Months Ended
March 31,

 

 

2017

 

 

2016

 

 

2024

 

 

2023

 

 

(in thousands)

 

 

(in thousands)

 

Net cash (used in) provided by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

(36,641

)

 

$

(36,143

)

 

$

(11,683

)

 

$

(12,940

)

Investing activities

 

 

(2,601

)

 

 

(4,594

)

 

 

 

 

 

(120

)

Financing activities

 

 

18,651

 

 

 

42,186

 

 

 

2,202

 

 

 

11,848

 

Net decrease in cash and cash equivalents

 

$

(20,591

)

 

$

1,449

 

Net change in cash, cash equivalents and restricted cash

 

$

(9,481

)

 

$

(1,212

)

Net cash used in operating activities

Net cash used in operating activities was approximately $36.7$11.7 million for the ninethree months ended September 30, 2017,March 31, 2024 and consisted primarily of a net loss of $44.2$13.5 million adjusted for non-cash items including stock-based compensation expense of $3.8$1.6 million, non-cash lease expense of $0.4 million, non-cash interest expense to related party of $0.3 million, a change in fair value of warrant liabilities of less than $0.1 million, depreciation and amortization expense of $2.2$0.1 million, non-cash interest expensea change in fair value of $2.0 million, loss on sale of T2 owned equipment of $0.2 million, offset by deferred rentthe derivative related to Term Loan with related party of $0.1 million, and a net change in operating assets and liabilities of $0.4 million,$0.6 million. The net change in operating assets and liabilities was primarily related to an increasedriven by a decrease in accrued expenses and accounts payableof $0.7 million, a decrease in operating lease liabilities of $0.4 million, and an increase in accounts receivable of $0.1$0.2 million due to the timing and volume of instrument and consumable sales, partially offset by an increase in accounts payable of $0.4 million due to the timing of invoices and payments, a decrease in prepaid expenses and other assets of $0.2 million due to the timing of deposits for goods and services, and a decrease in inventory of $0.1 million due to the timing of purchases and shipments.

Net cash used in operating activities was approximately $12.9 million for the three months ended March 31, 2023 and consisted of a net loss of $18.0 million adjusted for non-cash items including stock-based compensation expense of $1.8 million, a change in fair value of the derivative related to Term Loan with related party of $0.8 million, non-cash interest expense to related party of $0.5 million, non-cash lease expense of $0.3 million, depreciation and amortization expense of $0.3 million, a change in fair value of warrant liabilities of $1.3 million, issuance costs related to support our commercial demand, an increase in deferred revenueCommon Stock Warrants of $0.4$0.7 million, and a net change in operating assets and liabilities of $0.7 million. The net change in operating assets and liabilities was primarily driven by a decrease in accrued expenses of $2.2 million primarily due to the payout of 2022 bonuses, a decrease in accounts receivable of $0.8 million due to payment from BARDA and the timing and volume of instrument and consumable sales, a decrease in operating lease liabilities of $0.3 million, a decrease in prepaid expenses and other assets of $0.1 million.

Net cash used in operating activities was approximately $36.1 million due to expensing of the $0.1 million rent deposit for the nine months ended September 30, 2016, and consisted primarily of a net loss of $40.3 million adjusted for non-cash items including depreciation and amortization expense of $1.6 million, stock-based compensation expense of $3.7 million, non-cash interest expense of $0.5 million, deferred rent of $0.2 million, and a net change in operating assets and liabilities (use of cash) of $1.4 million, primarily related to an increase in inventory of $0.7 million to support our commercial demand, prepaid expenses of $0.1 million related to the amortization of insurance premiums and a decrease in deferred revenue of approximately $1.3 million primarily related to the recognition of revenue from our Co-Development Agreement with Canon US Life Sciences,Billerica lease, partially offset by an increase in accounts payable of $1.8 million due to the timing of invoices and accrued expensespayments and an increase in inventory of $0.7$0.9 million relateddue to increased audit, clinical studymarket increases for securing raw materials and payroll accruals.bulk materials purchases.

Net cash used in investing activities

There was no net cash provided by or used in investing activities for the three months ended March 31, 2024.

Net cash used in investing activities was approximately $2.6$0.1 million for the ninethree months ended September 30, 2017March 31, 2023, and consisted of costs to acquire property and equipment and purchases of T2-owned instruments of $0.9 and $1.8 million, respectively, which are classified as property and equipment, less $0.1 million cash received from sale of T2-owned instruments.purchases.

Net cash used in investing activities was approximately $4.6 million for the nine months ended September 30, 2016 and consisted of costs to acquire components of and manufacture Company-owned instruments of $3.7 million, which are classified as property and equipment, $0.7 million of purchases of laboratory and manufacturing equipment incurred to support commercialization efforts and research and development programs and $0.2 million of other equipment and software purchases to support internal functions.

Net cash provided by financing activities

Net cash provided by financing activities was approximately $18.7$2.2 million for the ninethree months ended September 30, 2017,March 31, 2024, and consisted primarily of $18.8 million in net proceeds from our September 2017 CMPO and by $0.7 million of proceeds from the exercisesales of stock options and sale ofour common stock under our 2014 Employee Stock Purchase Plan partially offset by $0.9 millionthe Equity Distribution Agreement, net of repaymentsissuance costs, of notes payable.$2.2 million.

Net cash provided by financing activities was approximately $42.2$11.8 million for the ninethree months ended September 30, 2016,March 31, 2023, and consisted primarily of proceeds from our September 21, 2016 PIPE financing with Canonpublic offering, net of $39.7issuance costs, of $10.9 million in which we sold 6,055,341 shares of common stock at the closing price of $6.56 per share.  Net cash provided by financing activities also consisted of $0.7 million ofand proceeds from the exercisesales of stock options and sale ofour common stock under our 2014 Employee Stock Purchase Plan and $4.6 million of proceeds from the Credit Facility.  Partially offsetting these sources of cash were $2.5 million of repayments of notes payable and $0.3 million of paymentsEquity Distribution Agreement, net of issuance costs, from our December 2015 secondary offering. of $0.9 million.


37


Borrowing Arrangements

Term Loan Agreement

In December 2016, we entered into athe Term Loan Agreement (the “Term Loan Agreement”) with CRG. We initially borrowed $40.0 million pursuant tounder the Term Loan Agreement and mayhad the ability to borrow up to an additional $10.0 million at any time through and including July 27, 2018, provided that, among other conditions, we receive 510(k)upon receiving specified clearance for the marketing of T2Bacteria by the FDA on or before April 30, 2018 or the Approval Milestone. The Term Loan Agreement has a six-year term with three years (through December 30, 2019) of interest-only payments, which period shall be extended to four years (through December 30, 2020) if we achieve the Approval Milestone, after which quarterly principal and interest payments will be due through the December 30, 2022 maturity date. Interest on the amounts borrowed under the Term Loan Agreement accrues at an annual fixed rate of (a) prior to the Approval Milestone, 12.5%, 4.0% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount and (b) following the Approval Milestone, 11.5%, 3.5% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount. In addition, if we achieve certain financial performance metrics, the loan will convert to interest-only until the December 30, 2022 maturity, at which time all unpaid principal and accrued unpaid interest will be due and payable.(the “Approval Milestone”). We are requiredagreed to pay CRG(1) a financing fee based on the loanamount of principal amount drawn. We are also required to paydrawn and (2) a final payment fee of 8.0% ofbased on the principal outstanding upon repayment.

We may prepay all or a portion The debt discount related to the financing fee and the fees paid to CRG are being amortized over the loan term as interest expense. The final payment fee is accrued as interest expense and is classified consistent with the classification of the outstandingTerm Loan.

The Term Loan’s principal and accrued unpaid interest under the Term Loan Agreementis prepayable at any time upon prior notice subject topartially or in full without a prepayment fee during the first five years of the term and no prepayment fee thereafter. As security for our obligations under the Term Loan Agreement we entered into a security agreement with CRG whereby we grantedpenalty. Borrowings are collateralized by a lien on substantially all of itsour assets, including intellectual property. The Term Loan Agreement also contains customaryprovides for affirmative and negative covenants, forincluding a credit facilityrequirement to maintain a minimum cash balance of this size and type. The Term Loan Agreement also requires us to achieve certain revenue targets, whereby we are required to pay double the amount of any shortfall as an acceleration of principal payments.$5.0 million. The Term Loan Agreement includes a subjective acceleration clause whereby an event of default, including a material adverse change in the business, operations, or conditions (financial or otherwise), could result, at CRG’s discretion, in the acceleration of the obligations under the Term Loan Agreement. Under certain circumstances, a default interest rate of an additional 4.0% per annum willmay apply, at the election of CRGCRG’s discretion, on all outstanding obligations during the occurrence and continuance of an event of default. CRG has not exercised its right under this clause, as there have been no such events. We believe

The Term Loan originally had a six-year term, with three years of interest-only payments accruing at a fixed rate of 12.5%, of which 4.0% could be paid in-kind by increasing the likelihood of CRG exercising this right is remote.

We assessed the terms and featuresprincipal balance. After achievement of the Term Loan Agreement in orderApproval Milestone, such rates would be reduced and a fourth year of interest-only payments would be granted, after which quarterly payments of principal and interest would be owed through the December 30, 2022 maturity date. Upon achievement of certain performance metrics, the loan would be converted to identify any potential embedded features thatinterest-only until its maturity, at which time all unpaid principal and interest would require bifurcation or any beneficial conversion features. As part of this analysis, we assessed the economic characteristicsbe due and risks of the Term Loan Agreement, including put and call features. We determined that the features of the Term Loan Agreement are either clearly and closely associatedpayable.

In connection with a debt host and do not require bifurcation as a derivative liability, or the fair value of the feature is immaterial. Included in these features are principal payment acceleration clauses triggered by a developmental milestone. Should our assessment of this milestone change, there could be a non-cash charge in operations. We will continue to reassess the features to determine if they require separate accounting on a quarterly basis.

In December 2016, pursuant to the Term Loan Agreement, we madeissued warrants to CRG to purchase a total of 105 shares of our common stock, exercisable any time prior to December 30, 2026.

Amendments

The Term Loan Agreement has been amended eleven times. As a result of those amendments, certain terms of the Term Loan have been revised as follows:

In 2018, upon our achievement of the Approval Milestone, interest on borrowings began accruing at 11.50% per year, 8% of which is payable in cash quarterly and 3.5% of which is deferred and added to principal until maturity.
In 2019:
The final payment fee was increased from 8% to 10% of the principal outstanding upon repayment.
We issued additional warrants to CRG to purchase 113 shares of our common stock, exercisable any time prior to September 9, 2029 at an initial drawexercise price of $39.2 million, net$7,750.00 per share, with provisions for termination upon a change of financing fees. control or a sale of all or substantially all of our assets (these warrants, along with the warrants to purchase 105 shares of common stock previously issued to CRG, are collectively referred to as the “CRG Warrants”).
We used approximately $28.0reduced the exercise price for the warrants previously issued to CRG to $7,750.00.
In 2022, the principal maturity date was extended to December 30, 2024, and the Term Loan’s interest-only payment period was extended until that maturity date.
In 2023:
We entered into a waiver and consent with CRG that reduced the minimum liquidity covenant to $500,000 until December 31, 2023.
CRG waived certain specified events of default associated with our issuance of shares of Series A Redeemable Convertible Preferred Stock in August 2022 and the subsequent redemption (See Note 7 of the notes to our condensed consolidated financial statements).
In July 2023, CRG canceled $10.0 million of the initial proceedsTerm Loan’s principal in exchange for 483,457 shares of common stock and 93,297 shares of Series B Convertible Preferred Stock.
In October 2023, the interest-only period and maturity of the Term Loan were extended to repay approximately $27.5 millionDecember 31, 2025 and the $500,000 liquidity covenant was made permanent.

38


The warrants to purchase 218 shares of our common stock remain outstanding on March 31, 2024. There were no covenant violations during the three months ended March 31, 2024.

Amendments made in February 2022, November 2022, October 2023, and the partial principal cancellation in July 2023 were accounted for as troubled debt pursuant torestructurings. For all restructurings, at the Loantime of the restructuring the future undiscounted cash outflows required under the amended agreement exceeded the carrying value of the debt and Security Agreement and to repay approximately $0.5 millionno gain was recognized as a result of outstanding debt pursuant to the Promissory Note. Upon the repaymentrestructurings. The effects of all amounts owed by us under these agreements, all commitmentseach restructuring were terminated and all security interests granted by us were released.accounted for prospectively.

Promissory NoteSecurities Purchase Agreements

In May 2011,On February 15, 2024, the Company entered into a promissory agreement (the “Promissory Note”)Securities Purchase Agreement with CRG and affiliated entities pursuant to which the Company will issue (i) shares of the Company’s common stock and (ii) to the extent that the issuance of the shares common stock results in CRG beneficially owning greater than 49.99% of the Company’s outstanding shares of common stock (or in the case of one of the affiliated entities, greater than 9.99% of the Company’s outstanding shares of common stock, determined without regard to any convertible securities held by CRG or affiliated entities), shares of newly designated convertible preferred stock, par value $0.001 per share, at a separate lender to borrow up to $1.7 millionprice per share of the lower of (a) the closing price for the purchase of laboratory equipment and office equipment through December 2013. The Company borrowed a total of $1.4 million under the Promissory Note. The Company paid interest onlyCompany’s common stock on Nasdaq on the borrowings through December 2013date immediately prior to the closing of the transaction and was required(b) the average closing price over the five business days prior to make equal monthly paymentsthe closing of principal and interest through the maturity date. In December 2016, the Company used approximately $0.5transaction, in exchange for CRG surrendering for cancellation $15.0 million of the proceeds fromoutstanding borrowing under the Term Loan agreementAgreement. The closing of the transaction was conditioned on the approval of the Company’s stockholders at a stockholder meeting held on April 11, 2024 and was expected to repayoccur within 10 business days following the approval of the Company’s stockholders.

On April 11, 2024, the Company's stockholders voted for the approval of the conversion of $15.0 million of its Term Loan Agreement with CRG into equity. On April 12, 2024, the Company issued an aggregate of 3,280,618 shares of Common Stock and an aggregate of 17,160.48 shares of Series A Convertible Preferred Stock, par value $0.001 per share to CRG in exchange for the cancellation of $15.0 million of outstanding debtloans under the Term Loan Agreement. Each share of Series A Convertible Preferred Stock is convertible into 100 shares of our common stock at the holder’s election following issuance, subject to beneficial ownership limitations.

On May 3, 2024, the Company entered into a Securities Purchase Agreement with CRG pursuant to the Promissory Note. Upon the repayment of all amounts owed bywhich the Company will issue to CRG in a private placement offering 4,748,335 shares of the Company’s common stock in exchange for the cancellation of $15.0 million of outstanding loans under the Promissory Note, all commitments were terminatedTerm Loan Agreement.

Consents and all security interests granted byAmendments to Term Loan Agreement

On April 12, 2024, the Company were released. 

entered into a Consent and Amendment No. 10 to the Term Loan Agreement. The amounts borrowed were collateralized byConsent provides for, among other things, (i) the associated equipmentconsent of the Administrative Agent and bear interest at 6.5%. The Promissory Note included financial covenants that requiredCRG to the Exchange and (ii) the extension of the period in which the Company may elect to maintainpay a portion of the accrued interest on the term loans in-kind to the earlier of (a) December 31, 2025 and (b) the date on which a default has occurred.

On May 3, 2024, the Company entered into a Consent and Amendment No. 11 to the Term Loan Agreement. Consent No. 11 provides for, among other things, (i) the consent of the Administrative Agent and CRG to the May Exchange and (ii) an amendment to the “Change of Control” definition to allow CRG or their affiliates to acquire a majority of shares in the Company without causing a Change of Control under the Term Loan Agreement.

Classification

The Term Loan Agreement with CRG was classified as a current liability both March 31, 2024 and December 31, 2023. In May 2023, we received a modification and waiver reducing the Term Loan’s minimum cash balance of $0.3 million.covenant from $5.0 million to $500,000 until December 31, 2023. In addition, in October 2023, the Promissory Note containedinterest-only period and maturity of the Term Loan were extended to December 31, 2025, and the $500,000 liquidity covenant was made permanent. Because management believes it is probable that we will not be able to comply with the covenant unless additional funds are raised, we concluded that the Term Loan and related liabilities should be classified as current.

We have a subjective acceleration clause wherebysingle compound derivative instrument related to our Term Loan Agreement that requires us to pay additional interest of 4% per annum upon an event of default and immediate acceleration ofor if any obligation other than the borrowing occurs if there was a material adverse change in the business, operations, or condition of the Company or a material impairment of the prospect of repayment of any portion of the obligations. In the event of default, the lender had first priority on the laboratory equipment and office equipment purchased with the proceeds.


Equipment Lease Credit Facility

In October 2015, we signed a $10.0 million Equipment Lease Credit Facility, or the Credit Facility, with Essex Capital Corporation (the “Lessor”) to fund capital equipment needs. As one of the conditionsunpaid principal amount of the Term Loan Agreement, the Credit Facility is capped at a maximum of $5.0 million. Under the Credit Facility, Essex will fund capital equipment purchases presented by us. We will repay the amounts borrowed in 36 equal monthly installments from the datenot paid when due. Fair value is determined quarterly. The fair value of the amount funded. Atderivative was $1.7 million and $1.6 million as of March 31, 2024 and December 31, 2023, respectively, and is classified as a current liability on the endcondensed consolidated balance sheets to match the classification of the 36 month lease term, we have the option to (a) repurchase the leased equipment at the lesser of fair market value or 10% of the original equipment value, (b) extend the applicable lease for a specified period of time, which will not be less than one year, or (c) return the leased equipment to the Lessor.related Term Loan Agreement.

In April 2016 and June 2016, we completed the first two draws under the Credit Facility, of $2.1 million and $2.5 million, respectively. We will make monthly payments of $67,000 under the first draw and $79,000 under the second draw. The borrowings under the Credit Facility are treated as capital leases. The amortization of the assets conveyed under the Credit Facility is included as a component of depreciation expense.39


Contractual Obligations and Commitments

There were no other material changes to our contractual obligations and commitments from those described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K for the year ended December 31, 2016.  During the quarter ended September 30, 2017 we entered into a new Lease Indenture Agreement (the “Lease”) relating to office space we currently lease at 91 Hartwell Ave, Lexington, MA, pursuant to which we reduced the square footage of leased space from 13,233 square feet to 10,900 square feet.  Under the terms of the Lease, beginning on January 1, 2018 and ending on December 31, 2021, the Company is obligated to pay the landlord monthly rent of $29,066.    2023.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

WeAs a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, we are exposednot required to market risk related to changes in interest rates. As of September 30, 2017 and December 31, 2016, we had cash and cash equivalents of $52.9 million and $73.5 million, respectively, held primarily in money market funds consisting of U.S. government agency securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate one percent change in interest rates would not have a material effect on the fair market value of our portfolio. As of September 30, 2017 and December 31, 2016, we had no outstanding debt exposed to variable market interest rates.provide this information.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Management, of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of September 30, 2017.March 31, 2024. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported on a timely basis and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

Based upon thison the evaluation theof our disclosure controls and procedures as of March 31, 2024, our Chief Executive Officer and the Chief Financial Officer have concluded that, as of such date, the Company’s disclosure controls and procedures were not effective due to material weaknesses in our internal control over (1) the timeliness of assumptions and accounting conclusions reached for unusual transactions, (2) the accounting impact of changes in our sales demand forecast, (3) our year-end reagent inventory count process, and (4) the review of the year-end tax provision and 382 study prepared by third-party experts. Each of these material weaknesses were included in the Form 10-K for the year ended December 31, 2023 and remain unremediated as of September 30, 2017.March 31, 2024.

The Company took actions to remediate the deficiencies in its internal controls over financial reporting and implemented additional processes designed to address the underlying causes associated with the above-mentioned material weaknesses. These include (1) enhanced evaluation considerations of unusual transactions including the timely use of third-party experts, (2) enhanced evaluation procedures to consider the effect of changes in our sales demand forecast, (3) enhanced physical inventory count procedures, and (4) enhanced review procedures of the year-end tax provision and 382 study prepared by third-party experts.

Management will monitor the progress of the remediation plan and report regularly to the audit committee on the progress and results of the remediation plan, including the identification, status and resolution of internal control deficiencies. As the Company continues to evaluate and work to improve its internal control over financial reporting, management may determine to take additional measures to address the material weaknesses or determine to modify the remediation plans described above. Until the remediation steps set forth above are fully implemented and operating for a sufficient period of time, the material weaknesses described above will continue to exist.

(b) Changes in Internal Control over Financial Reporting

ThereExcept as noted above, there have been no material changes to the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


40


PART II.

OTHER INFORMATION

We may be from timeOn September 8, 2021, the Company entered into a 10-year lease agreement (the “Lease”) with Farley White Concord Road, LLC (the “Landlord”), pursuant to time subjectwhich the Company leased approximately 70,125 square feet for its occupancy and use as office, laboratory and commercial manufacturing space at 290 Concord Road, Billerica, Massachusetts (the “Premises").

On January 17, 2023, the Landlord sent a Notice of Termination (the “Notice”) of the Lease to various claimsthe Company. The Notice provides that the Landlord terminated the Lease because of the Company’s alleged failure to perform its obligations under the Lease in a timely manner and legal actions during the ordinary courseCompany’s alleged breach of our business. There are currently no claims or legal actions, individually orthe covenant of good faith and fair dealing. In connection with the Notice, on January 18, 2023, the Landlord filed a complaint in the aggregate,Massachusetts Superior Court and has unilaterally deducted the Company’s $1,000,000 security deposit for its alleged damages. In addition, the Landlord is seeking damages for unpaid rent, brokerage fees, transaction costs, attorney's fees and court costs.

On March 1, 2023, the Company filed a response to the Landlord’s complaint and a counterclaim alleging that would have a material adverse effectthe Landlord breached its obligations under the contract and unlawfully drew on our resultsthe security deposit, in addition to breaching its covenants of operations or financial condition.good faith and fair dealing, making fraudulent misrepresentations, and engaging in deceptive and unfair trade practices.

The Company intends to pursue legal remedies available under applicable laws.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition or future results. There2023. Other than as set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2023.

Our management has performed an analysis of our ability to continue as a going concern and has identified substantial doubt about our ability to continue as a going concern.

As of March 31, 2024, we had $6.2 million in unrestricted cash and cash equivalents which, without additional funding, will not be sufficient to meet our obligations within the next twelve months from the date of issuance of this Quarterly Report. Based on their assessment, our management has raised concerns about our ability to continue as a going concern. As substantial doubt about our ability to continue as a going concern exists, our ability to finance our operations through equity financing or otherwise could be impaired. Our ability to fund working capital, make capital expenditures, and service our debt depends on our ability to generate cash from operating activities, which is subject to its future operating success, and obtain financing on reasonable terms, which is subject to factors beyond our control, including general economic, political, and financial market conditions. The capital markets have in the past experienced, are currently experiencing, and may in the future experience, periods of upheaval that could impact the availability and cost of financing and there can be no assurances that such financing will be available to the Company on satisfactory terms, or at all. Management continues to explore raising additional capital through equity financing to supplement the Company’s capitalization and liquidity, but there can be no assurance that such financing will be available on terms commercially acceptable to the Company, or at all.

Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities

None.Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

41


Item 5. Other Information

None


(a)
None.
(b)
None.
(c)
None of the Company's directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's fiscal quarter ended March 31, 2024, as such terms are defined under Item 408(a) of Regulation S-K under the Exchange Act.

42


Item 6. Exhibits, FinancialFinancial Statement Schedules

Exhibit Number

Exhibit Description

   3.1

Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K (File No. 001-36571) filed on August 12, 2014)

   3.2

Amended andCertificate of Amendment of Restated BylawsCertificate of Incorporation of the Company dated July 23, 2021 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K (File No. 001-36571) filed on July 23, 2021)

   3.3

Certificate of Amendment of Restated Certificate of Incorporation of the Company dated October 12, 2022 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K (File No. 001-36571) filed on October 12, 2022)

   3.4

Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K (File No. 001-36571) filed on July 6, 2023)

   3.5

Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K (File No. 001-36571) filed on August 12, 2014)July 6, 2023)

  10.1   3.6

Lease Indenture Agreement, dated September 21, 2017, between 91 Hartwell Ave. Trust andCertificate of Amendment of Restated Certificate of Incorporation of the Company relatingdated October 12, 2023 (incorporated by reference to office space located for property at 91 Harwell Avenue, Lexington, MA, MassachusettsExhibit 3.1 of the Company’s Form 8-K (File No. 001-36571) filed on October 12, 2023)

  31.1*   3.7

Third Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.4 of the Company’s Form 10-Q (File No. 001-36571) filed on August 16, 2022)

   4.1

Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A (File No. 333-197193) filed on July 28, 2014)

   4.2

Fourth Amended and Restated Investors’ Rights Agreement, dated as of March 22, 2013, as amended (incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-1/A (File No. 333-197193) filed on July 28, 2014)

   4.3

Registration Rights Agreement dated as of July 29, 2019 by and between T2 Biosystems Inc. and Lincoln Park Capital Fund, LLC (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-36571) filed on July 30, 2019)

   4.4

Form of Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Form 10-Q (File No. 001-36571) filed on August 16, 2022)

   4.5

Pre-Funded Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-36571) filed on February 16, 2023)

   4.6

Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K (File No. 001-36571) filed on February 16, 2023)

   10.1

Securities Purchase Agreement, dated February 15, 2024 by and between the Company and the Lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (File No. 001-36571) filed on February 15, 2024)

   31.1*

Certification of principleprincipal executive officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

   31.2*

Certification of principal financial officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

   32.1**

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

   32.2**

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1*101.INS

The following financial statements fromInline XBRL Instance Document – the Company’s Quarterly Report on Form 10-Q forinstance document does not appear in the quarter ended September 30, 2017, formatted in XBRL: (i) Condensed Consolidated Balance Sheets (unaudited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited), (iii) Condensed Consolidated Statements of Cash Flows (unaudited), and (v) Notes of Condensed Consolidated Financial Statements.Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

43


*Exhibit Number

Filed herewith

Exhibit Description

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*

Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith

** Furnished herewith

† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933, or the Securities Act.

44


**

Furnished herewith


SIGNATURESSIGNATURES

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.

T2 BIOSYSTEMS, INC.

Date: November 3, 2017May 6, 2024

By:

/s/ JOHN MCDONOUGHSPERZEL

John McDonoughSperzel

President, Chief Executive Officer and DirectorChairman of the Board

(principal executive officer)Principal Executive Officer)

Date: November 3, 2017May 6, 2024

By:

/s/ DARLENE DEPTULA-HICKSJOHN M. SPRAGUE

Darlene Deptula-HicksJohn M. Sprague

SVP and Chief Financial Officer

(principal financial officer)Principal Accounting Officer and Principal Financial Officer)

45

33