UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
þ☑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, 2023

OR
o☐TRANSITION REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _____ to _____


Commission file number: 001-31822
ACCELERATE DIAGNOSTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware84-1072256
(State or other jurisdiction(I.R.S. Employer Identification No.)
of incorporation or organization)
Delaware84-1072256
(State or other jurisdiction(I.R.S. Employer Identification No.)
of incorporation or organization)
3950 South Country Club Road,Suite 470
Tucson, ArizonaArizona85714
(Address of principal executive offices)(Zip Code)


(520) 365-3100
(Registrant’s telephone number, including area code)


N/A
(Former name, former address and former fiscal year, if changed since last report)

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

Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 parAXDXThe Nasdaq Stock Market LLC
value per share(The Nasdaq Capital Market)

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


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

Large accelerated filero☐
Accelerated filerþ☐
Non-accelerated filefiler
o (Do not check if a smaller reporting company)
☑
Smaller reporting companyo☑
Emerging growth companyo☐


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


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


As of November 1, 2017 there were 55,397,563At May 11, 2023, 99,831,533 shares of the registrant’s common stock outstanding.

were outstanding, net of treasury shares.



TABLE OF CONTENTS

Item 1. Financial Statements
3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2138
Item 3. Quantitative and Qualitative Disclosures About Market Risk
2550
Item 4. Controls and Procedures
2650
Item 1. Legal Proceedings
2651
Item 1A. Risk Factors
2651
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
2752
Item 3. Defaults Upon Senior Securities
2752
Item 4. Mine Safety Disclosures
2752
Item 5.  Other Information
2752
Item 6. Exhibits
2853




2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETSHEETS
Unaudited
(in thousands)thousands, except share data)
March 31,December 31,
20232022
Unaudited
ASSETS
Current assets:
Cash and cash equivalents$29,408 $34,905 
Investments2,457 10,656 
Trade accounts receivable, net2,427 2,416 
Inventory5,270 5,194 
Prepaid expenses1,697 818 
Other current assets1,575 2,025 
Total current assets42,834 56,014 
Property and equipment, net3,216 3,478 
Finance lease assets, net2,161 2,422 
Operating lease right of use assets, net1,696 1,859 
Other non-current assets1,095 1,242 
Total assets$51,002 $65,015 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable$3,524 $4,501 
Accrued liabilities4,836 2,682 
Accrued interest707 472 
Deferred revenue468 547 
Current portion of convertible notes56,595 56,413 
Finance lease, current1,113 1,113 
Operating lease, current882 829 
Total current liabilities68,125 66,557 
Finance lease, non-current705 782 
Operating lease, non-current1,308 1,545 
Other non-current liabilities1,055 874 
Accrued interest related-party1,104 663 
Long-term debt related-party17,430 16,858 
Total liabilities$89,727 $87,279 
Commitments and contingencies (see Note 14)
 September 30,December 31,
 20172016
ASSETS
Current assets:  
Cash and cash equivalents$34,431
$19,244
Investments86,889
58,519
Trade accounts receivable1,111
34
Inventory7,341
—
Prepaid expenses1,048
468
Other current assets460
183
Total current assets131,280
78,448
Property and equipment, net4,690
4,258
Intellectual property, net137
146
Total assets$136,107
$82,852
   
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Accounts payable$1,369
$992
Accrued liabilities3,733
3,009
Deferred revenue and income1,081
35
Total current liabilities6,183
4,036
Long-term deferred income—
1,000
Total liabilities$6,183
$5,036
   
Commitments and contingencies see Note 16, Commitments



   
Stockholders’ equity:  
Common stock, $0.001 par value;  
75,000,000 common shares authorized with 55,397,563 shares issued and outstanding on September 30, 2017 and 75,000,000 authorized with 51,516,309 shares issued and outstanding on December 31, 201655
52
Preferred shares, $0.001 par value;  
5,000,000 preferred shares authorized and none outstanding as of September 30, 2017 and December 31, 2016—
—
Contributed capital355,458
255,257
Accumulated deficit(225,676)(177,289)
Accumulated other comprehensive (loss)87
(204)
Total stockholders’ equity129,924
77,816
Total liabilities and stockholders’ equity$136,107
$82,852

See accompanying notes to condensed consolidated financial statements.



3

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS (CONTINUED)
(in thousands, except share data)
March 31,December 31,
20232022
Unaudited
Stockholders’ deficit:
Preferred shares, $0.001 par value;
5,000,000 preferred shares authorized and 3,954,546 outstanding as of March 31, 2023 and December 31, 20224 4 
Common stock, $0.001 par value;
200,000,000 common shares authorized with 99,628,248 shares issued and outstanding on March 31, 2023 and 200,000,000 common shares authorized with 97,477,546 shares issued and outstanding on December 31, 2022100 97 
Contributed capital630,903 630,341 
Treasury stock(45,067)(45,067)
Accumulated deficit(624,034)(607,239)
Accumulated other comprehensive loss(631)(400)
Total stockholders’ deficit(38,725)(22,264)
Total liabilities and stockholders’ deficit$51,002 $65,015 

See accompanying notes to condensed consolidated financial statements.

4

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Unaudited
(in thousands, except per share data)
Three Months Ended
March 31,March 31,
20232022
Net sales$2,812 $2,958 
Cost of sales1,801 2,156 
Gross profit1,011 802 
Costs and expenses:
Research and development6,968 6,024 
Sales, general and administrative10,105 10,673 
Total costs and expenses17,073 16,697 
Loss from operations(16,062)(15,895)
Other (expense) income:
Interest expense(418)(917)
Interest expense related-party(1,013)— 
Gain on extinguishment of debt— 3,366 
Foreign currency exchange loss233 9 
Interest income420 22 
Other income (expense), net45 (50)
Total other (expense) income, net(733)2,430 
Net loss before income taxes(16,795)(13,465)
Provision for income taxes— — 
Net loss$(16,795)$(13,465)
Basic and diluted net loss per share$(0.17)$(0.20)
Weighted average shares outstanding98,301 67,755 
Other comprehensive loss:
Net loss$(16,795)$(13,465)
Net unrealized gain (loss) on debt securities available-for-sale24 (93)
Foreign currency translation adjustment(255)(79)
Comprehensive loss$(17,026)$(13,637)
 Three Months Ended Nine Months Ended
 September 30,September 30, September 30,September 30,
 20172016 20172016
Net sales$828
$24
 $2,058
$207
      
Cost of sales191
—
 352
—
Gross Profit637
24
 1,706
207
      
Costs and expenses:     
Research and development6,351
7,874
 16,166
23,974
Sales, general and administrative11,601
9,566
 33,589
26,710
Total costs and expenses17,952
17,440
 49,755
50,684
      
Loss from operations(17,315)(17,416) (48,049)(50,477)
      
Interest expense and other2
—
 (3)—
Foreign currency exchange loss(40)(42) (73)(115)
Interest and dividend income323
159
 612
353
Total other income285
117
 536
238
      
Net loss before income taxes(17,030)(17,299) (47,513)(50,239)
Provision from income taxes(45)—
 (220)—
Net loss$(17,075)$(17,299) $(47,733)$(50,239)
      
Basic and diluted net loss per share$(0.31)$(0.34) $(0.89)$(0.98)
Weighted average shares outstanding55,316
51,239
 53,603
51,216
      
Other comprehensive loss:     
Net loss$(17,075)$(17,299) $(47,733)$(50,239)
Net unrealized gain loss on available-for-sale investments(7)(70) (4)11
Foreign currency translation adjustment91
(8) 295
(8)
Comprehensive loss$(16,991)$(17,377) $(47,442)$(50,236)


See accompanying notes to condensed consolidated financial statements.




5

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTSTATEMENTS OF CASH FLOWS
Unaudited
(in thousands)
Three Months Ended
March 31,March 31,
20232022
Cash flows from operating activities:
Net loss$(16,795)$(13,465)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization802 616 
Amortization of investment discount— 54 
Equity-based compensation555 2,979 
Amortization of debt discount and issuance costs182 162 
Amortization of debt discount related-party572 — 
Loss (gain) on disposal of property and equipment11 152 
Unrealized (gain) on equity investments(50)— 
Gain on extinguishment of debt— (3,366)
(Increase) decrease in assets:
Contributions to deferred compensation plan— (5)
Accounts receivable(11)206 
Inventory(140)(653)
Prepaid expense and other(239)(714)
Increase (decrease) in liabilities:
Accounts payable(977)1,154 
Accrued liabilities and other1,945 1,081 
Accrued interest235 (751)
Accrued interest from related-party441 — 
Deferred revenue and income(79)(53)
Deferred compensation181 (3)
Net cash used in operating activities(13,367)(12,606)
Cash flows from investing activities:
Purchases of equipment(12)(447)
Purchase of marketable securities— (24,144)
Maturities of marketable securities8,221 10,950 
Net cash provided (used) by investing activities8,209 (13,641)
Cash flows from financing activities:
Payments on finance leases(77)— 
Proceeds from issuance of common stocks under employee purchase plan— 77 
Net cash (used) provided by financing activities(77)77 
 Nine Months Ended
 September 30,September 30,
 20172016
Cash flows from operating activities:  
Net loss$(47,733)$(50,239)
Adjustments to reconcile net loss to net cash used in operating activities:



Depreciation1,595
1,745
Amortization of intangible assets9
8
Amortization of investment discount298
251
Equity-based compensation10,970
6,591
Realized (gain) on sale of investments—
(6)
Loss on disposal of property & equipment3
—
(Increase) decrease in assets:



Accounts receivable(1,077)(82)
Inventory(7,079)—
Prepaid expense and other(392)525
Other current assets(277)(90)
Increase (decrease) in liabilities:



Accounts payable359
103
Accrued liabilities780
670
Deferred revenue and income46
(83)
Net cash used in operating activities(42,498)(40,607)
Cash flows from investing activities:  
Purchases of equipment(2,055)(2,301)
Purchases of available-for-sale securities(68,423)(73,585)
Sales of available-for-sale securities9,522
8,716
Maturity of available-for-sale securities30,049
14,955
Net cash used in investing activities(30,907)(52,215)
Cash flows from financing activities:  
Issuance of common stock net issuance costs83,741
80
Exercise of options and warrants4,562
864
Common stock issuance costs—
(814)
Payments on capital lease obligations—
(13)
Recovery of related party short-swing profits—
866
Net cash provided by financing activities88,303
983
   
Effect of exchange rate on cash:289
(15)
   
Increase (decrease) in cash and cash equivalents15,187
(91,854)
Cash and cash equivalents, beginning of period19,244
120,585
Cash and cash equivalents, end of period$34,431
$28,731


See accompanying notes to condensed consolidated financial statements.




6

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
Unaudited
(in thousands)
Three Months Ended
March 31,March 31,
20232022
Effect of exchange rate on cash(262)(74)
Decrease in cash and cash equivalents(5,497)(26,244)
Cash and cash equivalents, beginning of period34,905 39,898 
Cash and cash equivalents, end of period$29,408 $13,654 
Non-cash investing activities:
Net transfer of instruments from inventory to property and equipment$71 $220 
Non-cash financing activities:
Extinguishment of convertible senior notes through issuance of common stock$— $1,258 
Supplemental cash flow information:
Interest paid$— $1,506 

See accompanying notes to condensed consolidated financial statements.

7

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
Unaudited
(in thousands)
Three Months Ended
March 31,
20232022
Preferred stock shares outstanding
Beginning3,955 3,955 
Ending3,955 3,955 
Preferred stock
Beginning$4 $4 
Ending$4 $4 
Common stock shares outstanding
Beginning97,478 67,649 
Restricted stock awards released2,150 154 
Issuance of common stock under employee purchase plan— 59 
Issuance of shares to retire convertible notes— 850 
Ending99,628 68,712 
Common stock
Beginning$97 $68 
Restricted stock awards released3 — 
Issuance of shares to retire convertible notes— 1 
Ending$100 $69 
Contributed capital
Beginning$630,341 $580,652 
Cumulative effect of accounting changes— (37,438)
Issuance of common stock under employee purchase plan— 77 
Issuance of shares to retire Convertible Notes— 1,257 
Equity-based compensation562 2,833 
Ending$630,903 $547,381 

See accompanying notes to condensed consolidated financial statements.

8


ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
Unaudited
(in thousands)
Three Months Ended
March 31,
20232022
Accumulated deficit
Beginning$(607,239)$(570,668)
Cumulative effect of accounting changes— 25,922 
Net loss(16,795)(13,465)
Ending$(624,034)$(558,211)
Treasury stock
Beginning$(45,067)$(45,067)
Ending$(45,067)$(45,067)
Accumulated other comprehensive (loss) income
Beginning$(400)$(60)
Net unrealized gain (loss) on debt securities available-for-sale24 (93)
Foreign currency translation adjustment(255)(79)
Ending$(631)$(232)
Total stockholders' deficit$(38,725)$(56,056)

See accompanying notes to condensed consolidated financial statements.

9

ACCELERATE DIAGNOSTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited


NOTE 1. ORGANIZATION AND NATURE OF BUSINESS; BASIS OF PRESENTATION; PRINCIPLES OF CONSOLIDATION; SIGNIFICANT ACCOUNTING POLICIES


Accelerate Diagnostics, Inc. (“we” or “us” or “our” or “Accelerate” or “the Company”the “Company”) is an in vitro diagnostics company dedicated to providing solutions whichthat improve patient outcomes and lower healthcare costs through the rapid diagnosis of serious infections.


Basis of Presentation


The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and applicable rules and regulations of the United StatesU.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2022, as filed with the SEC on February 28, 2017.March 31, 2023.


The condensed consolidated balance sheet as of December 31, 20162022 included herein was derived from the audited financial statements as of that date but does not include all disclosures such as notes required by U.S. GAAP.


The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the entire year ending December 31, 2017,2023, or any future period.


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

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


Principles of Consolidation


The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of intercompany transactions and balances.


Liquidity and Going Concern

Since inception, the Company has not achieved profitable operations or positive cash flows from operations. The Company’s accumulated deficit totaled $624.0 million as of March 31, 2023. During the three months ended March 31, 2023, the Company had a net loss of $16.8 million and negative cash flows from operations of $13.4 million. The Company had a working capital deficit of $25.3 million as of March 31, 2023. The Company’s 2.5% Convertible Senior Notes (the “Notes”) matured on March 15, 2023 and became due and payable.

On March 9, 2023, the Company entered into a forbearance agreement (the “Forbearance Agreement”), which became effective on March 13, 2023, with the holders of approximately 85% of the Company’s outstanding Notes (collectively, the “Ad Hoc Noteholder Group”) and the trustee for the Notes (the “Trustee”). Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the indenture governing the Notes (the “Indenture”) in connection with certain events of default under the Indenture, including, but not limited to, the failure to timely pay in full the principal of any Note due and payable on March 15, 2023 and the failure to pay any interest on any Note due and payable. The Forbearance Agreement was initially effective for the period commencing on March 13, 2023 and ending on March 29, 2023, which was subsequently extended by the parties to April 21, 2023. On April 21, 2023, the Company entered into a restructuring support agreement (the “Restructuring Support Agreement”) with certain holders of the Notes, the holder of the Company’s secured promissory note in an aggregate principal amount of $34.9 million (the “Secured Note”) and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure (the “Restructuring Transactions”), including the
10

Notes, the Secured Note and the Company’s Series A Preferred Stock, as well as a contemplated amendment to the March 2022 Securities Purchase Agreement (as defined in Note 17), as an out-of-court restructuring and not involve any judicial proceeding or approval (the “Out-of-Court Restructuring”). See Note 9, Convertible Notes and Note 19, Subsequent Events for additional information.

As of March 31, 2023, the Company had $31.9 million in cash and cash equivalents and investments, a decrease of $13.7 million from $45.6 million at December 31, 2022. The primary reason for the decrease was due to cash used in operations during the period. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations.

The Company is subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching the Company’s products, development and market acceptance of the Company’s product candidates, development by its competitors of new technological innovations, protection of proprietary technology, and raising additional capital. Historically, the Company has funded its operations primarily through multiple equity raises and the issuance of debt.

The Company’s primary use of capital has been for the development and commercialization of the Accelerate Pheno system and development of complementary products. While the Company continues to explore additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, as well as non-cash means to settle and/or refinance the Notes in accordance with the Restructuring Support Agreement, there can be no assurance the necessary financing will be available on terms acceptable to the Company, or at all.

Although the Company is actively considering all available strategic alternatives to maximize value, if we are unable to obtain adequate capital resources to fund operations, we would not be able to continue to operate our business pursuant to our current plans. Additionally, if the Company is unable to consummate the Restructuring Transactions contemplated by the Restructuring Support Agreement, including in the event that the requisite consents for the contemplated Out-of-Court Restructuring are not obtained by the date provided for in the Restructuring Support Agreement, the Company and the Consenting Stakeholders (as defined in Note 19) have agreed to consummate the Restructuring Transactions pursuant to a pre-packaged plan of reorganization under chapter 11 of the U.S. Bankruptcy Code.

The Company is required to evaluate its financial condition as of the date of filing this Form 10-Q pursuant to the requirements of Accounting Standards Codification (“ASC”) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

Based on its evaluation pursuant to ASC 205-40, the Company has determined that, as of the date of this Form 10-Q filing, there is substantial doubt about its ability to continue as a going concern, as the Company does not currently have adequate financial resources to pay its outstanding debt obligation under the Notes and to fund its forecasted operating costs for at least twelve months from the date of issuance of these condensed consolidated financial statements.

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.

11

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to accounts receivable, inventory, property and equipment, accrued liabilities, warranty liabilities, convertible notes, notes from related parties, tax valuation accounts, equity-based compensation, warrants, revenue and leases. Actual results could differ materially from those estimates.

Estimated Fair Value of Financial Instruments

The Company follows ASC 820, Fair Value Measurement, which has defined fair value and requires the Company to establish a framework for measuring and disclosing fair value. The framework requires the valuation of assets and liabilities subject to fair value measurements using a three-tiered approach and fair value measurement be classified and disclosed in one of the following three categories:

•Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

•Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The carrying amounts of financial instruments such as cash and cash equivalents, trade accounts receivable, prepaid expenses, other current assets, accounts payable, accrued liabilities, and other current liabilities approximate the related fair values due to the short-term maturities of these instruments.

See Note 4, Fair Value of Financial Instruments, for further information and related disclosures regarding the Company’s fair value measurements.

As of March 31, 2023, the Notes are instruments measured at fair value using Level 3 inputs. The Notes matured on March 15, 2023 and became due and payable on such date. As of March 31, 2023 the Notes were no longer traded on an active market with observable inputs which resulted in the Notes being reclassified from a Level 2 measurement to a Level 3 measurement. As of December 31, 2022, the Notes were instruments measured at fair value using Level 2 inputs, as the Notes were traded on an active market with observable inputs. See Note 9, Convertible Notes for further detail on the Notes.

The long-term debt with a related-party consisting of the Secured Note are instruments measured at fair value using Level 3 inputs and was initially measured at fair value using Level 3 inputs. As of March 31, 2023, the debt is measured at amortized cost and the fair value is only disclosed. See Note 10, Long-Term Debt Related-Party for further detail on the Secured Note.

Cash and Cash Equivalents


All highly liquid investments with an original maturity of three months or less at time of purchase are considered to be cash equivalents. Cash and cash equivalents include overnight repurchase agreement accounts and other investments. As part of ourthe Company’s cash management process, excess operating cash is invested in overnight repurchase agreements with ourits bank. Repurchase agreements and other investments classified as cash and cash equivalents are not deposits and are not insured by the U.S. Government, the FDIC or any other government agency and involve investment risk including possible loss of principal. WeNotwithstanding the possibility of bank failures, we believe however,that as a result of the Company’s selected banks, diversified holdings strategy, and the U.S. Government’s continued support to stabilize the banking system, such as steps taken in March 2023 as a result of bank failures, that the market risk arising from holding these financial instruments is minimal.


12

Investments


The Company invests excess funds in various investmentsdebt and equity securities which are primarily held in the custody of major financial institutions. InvestmentsDebt securities consist of debt securities incertificates of deposit, U.S. government and agency securities, commercial paper, and corporate debtnotes and bonds. Equity securities and certificatesconsist of deposit. Management classifies its investments as available-for-sale investments and


mutual funds. The Company records these investments in the condensed consolidated balance sheet at fair value. Unrealized gains or losses for debt securities available-for-sale are included in accumulated other comprehensive loss, a component of stockholders’ deficit. Unrealized gains or losses for equity securities are included in other income (expense), net, a component of condensed consolidated statements of operations and comprehensive loss. The Company considers all debt securities available-for-sale, securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs. Unrealized gains or losses for available-for-sale securities are included in accumulated other comprehensive income or loss, a component of stockholders’ equity. The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations.


The Company assessesWe perform an assessment to determine whether there have been any events or economic circumstances to indicate that a debt security available-for-sale in an other-than-temporaryunrealized loss position has suffered impairment as a result of credit loss has occurred due to declines inor other factors. A debt security is considered impaired if its fair value or other market conditions when an investment’s fair value remainsis less than its cost for more than twelve months. This assessment includes a determination of whether the investment is expected to recover in value and whether the Company has the intent and ability to hold the investment until the anticipated recovery in value occurs. When an investment is identified as having an other-than-temporary impairment loss, we adjust theamortized cost basis at the reporting date. If we intend to sell the debt security or if it is more-likely-than-not that we will be required to sell the debt security before the recovery of its amortized cost basis, the impairment is recognized and the unrealized loss is recorded as a direct write-down of the investment down to fair value resulting in a realized loss. The newsecurity's amortized cost basis with an offsetting entry to earnings. If we do not intend to sell the debt security or believe we will not be required to sell the debt security before the recovery of its amortized cost basis, the impairment is not changed for subsequent recoveries in fair value and temporary future increases or decreases in fair value are included in other comprehensive income.

Reclassification

Certain prior year amounts have been reclassified for consistency withassessed to determine if a credit loss component exists. We use a discounted cash flow method to determine the current year presentation and had no effect on our net income, stockholders’ equity or cash flows.credit loss component. In the current period presentation andevent a credit loss exists, an allowance for credit losses is recorded in earnings for the revised prior period presentation, depreciation and amortization expenses are reported as acredit loss component of the individual costs and expenses as partimpairment while the remaining portion of the condensed consolidated statementsimpairment attributable to factors other than credit loss is recognized, net of operations andtax, in accumulated other comprehensive loss.income (loss). The amount of depreciation and amortization expenses now reported as a component of research and development costs forimpairment recognized due to credit factors is limited to the three months endedSeptember 30, 2017 and 2016 were $303,000 and $342,000, respectively, and for the nine months endedSeptember 30, 2017 and 2016 were $1,086,000 and $1,026,000, respectively. The amount of depreciation and amortization expenses now reported as a component of sales, general and administrative costs for the three months endedSeptember 30, 2017 and 2016 were $168,000 and $259,000, respectively, and for the nine months endedSeptember 30, 2017 and 2016 were $435,000 and $727,000, respectively.

In the current and revised prior period presentation, product sales and licensing and royalty revenues are reported as net sales as partexcess of the condensed consolidated statementsamortized cost basis over the fair value of operations and comprehensive loss. The amounts that have been reclassified had no effect on our net income, stockholders’ equity or cash flows.the security.


Inventory


Inventory is stated at the lesser of cost or net realizable value, with cost determined on the first-in-first-out method. The allocation of production overhead to inventory costs is based on normal production capacity. Abnormal amounts of idle facility expense and spoilage are expensed as incurred and not included in overhead subject to capitalization. The Company maintains provisions for excess and obsolete inventory based on management’s estimates of forecasted demand and, where applicable, product expiration. The Company adopted Accounting Standards Update (“ASU”) 2015-11, Simplifying the Measurement of Inventory (Topic 310) Inventory on January 1, 2017. This ASU simplifies the subsequent measurement of inventory by using only the lower of cost or net realizable value. The adoption didCompany determines the cost of inventory using the first-in, first-out method. The Company estimates the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value and records a charge to expense for such inventory as appropriate.

We charge cost of sales for inventory provisions to write-down our inventory to the lower of cost or net realizable value or for obsolete or excess inventory. Most of our inventory provisions relate to excess quantities of products, based on our inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions. Once inventory has been written-off or written-down, it creates a new cost basis for the inventory that is not have an effectsubsequently written-up.

See Note 6, Inventory, for further information and related disclosures.

Accounts Receivable

Accounts receivable consist of amounts due to the Company for sales to customers and are based on what we expect to collect in exchange for goods and services. Receivables are considered past due based on the contractual payment terms and are written off if reasonable collection efforts prove unsuccessful.

We maintain an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the consolidated statements of operations. We assess collectibility by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectibility issues. In determining the amount of the allowance for credit losses, we consider historical collectibility and make judgments about the creditworthiness of customers based on credit evaluations. Our customers typically have good credit quality. We also consider customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data.

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The allowance for credit losses for the three months ended March 31, 2023 and 2022 is comprised of the following (in thousands):

Three Months Ended March 31,
20232022
Beginning balance$324 $140 
Provisions, net— 23 
Write-offs(10)(4)
$314 $159 

The Company’s consolidated financial statements.three months ended March 31, 2023 beginning balance increased when compared to the three months ended March 31, 2022 beginning balance due to provisions recorded during the year ended December 31, 2022. These provisions were in connection with aged net investment in sales-type leases.


Property and Equipment


Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized. Gains and losses from retirement or replacement are included in costs and expenses. Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the assets, ranging from greater than one year to seven years. Leasehold improvements are depreciated over the remaining life of the lease or the life of the asset, whichever is less.


Instruments Classified as Property and Equipment

Property and equipment includes diagnosticAccelerate Pheno systems (also referred to as instruments) used for sales demonstrations, instruments under rental agreements and instruments used for research and development. Depreciation expense for instruments used for sales demonstrations is recorded as a component of sales, general and administrative expense. Depreciation expense for instruments underplaced at customer sites pursuant to reagent rental agreements.agreements is recorded as a component of cost of sales. Depreciation expense for instruments used in our laboratory and research is recorded as a component of research and development expense. The Company retains title to these instruments and depreciates them over five years. Losses from the retirement of returned instruments underare included in costs and expenses.

The Company evaluates the recoverability of the carrying amount of its instruments whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, and at least annually. This evaluation is based on our estimate of future cash flows and the estimated fair value of such long-lived assets, and provides for impairment if such undiscounted cash flows or the estimated fair value are insufficient to recover the carrying amount of instruments. No impairment charges have been recorded for the three months ended March 31, 2023 and 2022.

See Note 7, Property and Equipment, for further information and related disclosures.

Long-lived Assets

Long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows from and the estimated fair value of such long-lived assets, and provides for impairment if such undiscounted cash flows or the estimated fair value are insufficient to recover the carrying amount of the long-lived asset.

Warranty Reserve

Instruments are typically sold with a one year limited warranty, while kits and accessories are typically sold with a sixty days limited warranty. Accordingly, a provision for the estimated cost of the limited warranty repair is recorded at the time revenue is recognized. Our estimated warranty provision is based on our estimate of future repair events and the related estimated cost of repairs. The Company periodically assesses the adequacy of the
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warranty reserve and adjusts the amount as necessary. The cost incurred for these arrangements.provisions is included in cost of sales on the condensed consolidated statements of operations and comprehensive loss.


Warranty reserve activity for the three months ended March 31, 2023 and 2022 is as follows (in thousands):

Three Months Ended March 31,
20232022
Beginning balance$225 $139 
Provisions (reversals), net34 46 
Warranty cost incurred(38)(9)
Ending balance$221 $176 

Convertible Notes

The Company follows Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The Notes are accounted for as a single liability measured at their amortized cost. Interest expense is comprised of (1) cash interest payments, (2) amortization of any debt discounts or premiums based on the original offering, and (3) amortization of any debt issuance costs. Gain or loss on extinguishment of Notes is calculated as the difference between the (i) fair value of the consideration transferred and (ii) the sum of the carrying value of the debt at the time of repurchase.

Revenue Recognition


The Company recognizes revenue when control of the promised good or service is transferred to its customers, in accordancean amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales taxes are excluded from revenues.

The Company determines revenue recognition through the following steps:

•Identification of the contract with ASC 605, Revenue Recognition, when persuasive evidencea customer

•Identification of an arrangement exists, the price is fixed or determinable, collection is reasonably assured and delivery of products has occurred or services have been rendered. Additional considerations include whether the applicable fee arrangement contains future delivery or performance obligations that should be divided into separate accountingin the contract



units, whether the arrangement requires the Company to retain risks consistent with a collaborative arrangement, and/or whether any•Determination of the fees are contingent ontransaction price

•Allocation of the achievementtransaction price to the performance obligations

•Recognition of future milestones.revenue as we satisfy a performance obligation


Product revenue is derived from the sale or rental of our instruments and sales of related consumable products. When an instrument is sold, revenue is generally recognized upon installation of the unit consistent with contract terms, which do not include a right of return. When a consumable product is sold, revenue is generally recognized upon shipment.

We also provide instruments to customers under bundled rental agreements. Under these agreements, we install Invoices are generally issued when revenue is recognized. Payment terms vary by the instrument in the customer’s facilitytype and provide service. The customer agrees to purchase consumable products at a stated price over the termlocation of the agreement which is typically less than seven years. Contracts sometimes have renewal clauses but such clauses do not provide for a bargain renewal option or penalizecustomer and the customer if they do not renew. The instrument remains the Company’s property throughout the term of the agreement and there is no transfer of title upon expiration. Revenue is recognized as consumable products are shipped or delivered, depending on contract terms.

For multiple element arrangements, the total consideration for an arrangement is allocated among the separate elements in the arrangement based on a selling price hierarchy. The selling price hierarchy for a deliverable 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) an estimated selling price, if neither VSOE nor third party evidence is available. Estimated selling price is our best estimate of the selling price of an element in a transaction. The Company limits the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services or other futureoffered. The term between invoicing and when payment is due is not significant.

Service revenue is derived from the sale of extended service agreements which are generally non-cancellable. This revenue is recognized on a straight-line basis over the contract term beginning on the effective date of the contract because the Company is standing ready to provide services. Invoices are generally issued annually and coincide with the beginning of individual service terms.

The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines relative standalone selling prices based on the price charged to customers for each individual performance obligation.


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Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. The Company has determined these costs would have an amortization period of less than one year and has elected to recognize them as an expense when incurred. Contract asset opening and closing balances were immaterial for the three months ended March 31, 2023.

Gross Profit and Gross Margin

Gross profit consists of total revenue, net of allowances, less cost of sales. Cost of sales includes cost of materials, direct labor, equity-based compensation, facility and other manufacturing overhead costs for consumable tests and instruments sold to customers. Cost of sales for instruments also includes depreciation on revenue generating instruments that have been placed with our customers under a reagent rental agreement. Cost of sales includes repair and maintenance cost for instruments covered by a service agreement or instruments covered by a reagent rental agreement. Cost of sales also includes warranty related costs.

The Company’s overall gross margin was 36% and 27% for the three months ended March 31, 2023 and 2022, respectively. The increase in gross margin is primarily due to reductions in costs to manufacture consumables. The Company’s gross margin also increased due to select instruments being sold to certain customers with more favorable than usual gross margins, which included instruments that were expensed in a previous year.

The Company manufactures pre-launch inventory in advance of regulatory approval. This inventory is expensed before an economic benefit is probable. Pre-launch inventory sold to customers (not capitalized and expensed in a previous year) during each of the three months ended March 31, 2023 and 2022 was $0.1 million.

Shipping and Handling

Shipping and handling costs billed to customers are included as a component of revenue. The corresponding expense incurred with third party carriers is included as a component of sales, general and administrative costs on the consolidated statements of operations and comprehensive loss.

Leases


The Company accounts for leases in accordance with ASC 840, Leases, which requires leases to be classified as either operating842, Leases. The Company determines if an arrangement is or capital leases. In general,contains a lease and the type of lease at inception. The Company classifies leases as capitalfinance leases (lessee) or sales-type leases (lessor) when there is either a transfer of ownership atof the underlying asset by the end of the lease term, the lease contains a bargainan option to purchase option,the asset that we are reasonably certain will be exercised, the lease term is seventy-five percent or morefor the major part of the estimatedremaining economic life of the leased property orasset, the minimumpresent value of the lease payments are ninety percentand any residual value guarantee equals or more ofsubstantially exceeds all the fair value of the asset, or the asset is of such a specialized nature that it will have no alternative use to the lessor at the end of the lease inception. Otherterm. Payments contingent on future events (i.e. based on usage) are considered variable and excluded from lease payments for the purposes of classification and initial measurement. Several of our leases include options to renew or extend the term upon mutual agreement of the parties and others include one-year extensions exercisable by the lessee. None of our leases contain residual value guarantees, restrictions, or covenants.

To determine whether a contract contains a lease, the Company uses its judgment in assessing whether the lessor retains a material amount of economic benefit from an underlying asset, whether explicitly or implicitly identified, which party holds control over the direction and use of the asset, and whether any substantive substitution rights over the asset exist.

Leases as Lessee

Operating leases are classified as operating leases.

Operatingincluded in right-of-use (“ROU”) assets and corresponding lease rent is recorded asliabilities, and finance leases are included in ROU assets and corresponding lease liabilities within our condensed consolidated balance sheets. These assets represent our right to use an operating expense monthly. For capital leases, both anunderlying asset and liability are recorded at the inception offor the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and their related liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Typically, we use our incremental borrowing rate based on the information available at commencement in determining the present value of lease payments. We use the implicit rate when readily determinable. ROU assets are net of lease payments made and exclude lease incentives. Lease expense for lease payments is recognized on a straight-line
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basis over the lease term, which may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

Our operating leases consist primarily of leased office, factory, and laboratory space in the U.S. and office space in Europe, have between two and six-year terms, and typically contain penalizing, early-termination provisions. Our finance leases consist of leased equipment and have three-year terms.

Leases as Lessor

The Company leases instruments to customers under “reagent rental” agreements, whereby the customer agrees to purchase consumable products over a stated term, typically five years or less, for a volume-based price that includes an embedded rental for the instruments. When collectibility is probable, that amount is recognized as income at lease commencement for sales-type leases and as product is shipped, typically in a straight–line pattern, over the term for operating leases, which typically include a termination without cause or penalty provision given a short notice period.

Consideration is allocated between lease and non-lease components based on stand-alone selling price in accordance with ASC 606, Revenue from Contracts with Customers.

Net investment in sales-type leases are included within our condensed consolidated balance sheets as a component of other current assets and other non-current assets, which include the present value of lease payments not yet received and the present value of the residual asset, which are determined using the information available at commencement, including the lease term, estimated useful life, rate implicit in the lease, and expected fair value of the instrument.

Nonqualified Cash Deferral Plan

The Company's Cash Deferral Plan (the “Deferral Plan”) provides certain key employees with an opportunity to defer the receipt of such participant's base salary. The Deferral Plan is intended to be a nonqualified deferred compensation plan that complies with the provisions of Section 409A of the Internal Revenue Code. All of the investments held in the Deferral Plan are equity securities consisting of mutual funds and recorded at fair value with changes in the investments’ fair value recognized as earnings in the period they occur. The corresponding liability for the Deferral Plan is included with property and equipment onin other non-current liabilities in the condensed consolidated balance sheet and amortization is recorded on a straight-line basis over the term of the lease reported as a component of the individual costs and expenses as part of the condensed consolidated statements of operations and comprehensive loss. For the liability, the amount due within the next year is recorded as capital lease obligations and the amount due in more than a year is recorded as long-term capital lease obligation on the condensed consolidated balance sheet. Interest expense is recorded based on the implicit or explicit interest rate used in the lease and is included as non-operating interest expense on the condensed consolidated statements of operations and comprehensive loss.


Equity-Based Compensation


The Company awardsmay award stock options, restricted stock units (“RSU”), performance-based awards and other equity-based instruments to its employees, directors and consultants. Compensation cost related to equity-based instruments is based on the fair value of the instrument on the grant date, and is recognized over the requisite service period on a straight-line basis over the vesting period for each tranche (an accelerated attribution method). For unvested consultant grants,Performance-based awards vest based on the achievement of performance targets. Compensation costs associated with performance-based awards are recognized over the requisite service period based on probability of achievement. Performance-based awards require management to make assumptions are updated atregarding the endlikelihood of each reporting period until the grant is vested. achieving performance targets.

The Company estimates the fair value of service based and performance-based stock option awards, including modifications of stock option awards, using the Black-Scholes option pricing model. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield.


•Volatility: The expected volatility is based on the historical volatility of the Company’sCompany's stock price over the most recent period commensurate with the expected term of the stock option award.


•Expected term: The estimated expected term for employee awards is based on the calculation published by the SEC in SAB110 for use when there is not a sufficientsimplified method that considers an insufficient history of employee exercise patterns.exercises. For consultant awards, the estimated expected term is the same as the life of the award.




•Risk-free interest rate: The risk-free interest rate is based on published U.S. Treasury rates for a term commensurate with the expected term.

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•Dividend yield: The dividend yield is estimated as zero as the Company has not paid dividends in the past and does not have any plans to pay any dividends in the foreseeable future.


The Company implemented ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accountingrecords the fair value of RSUs or stock grants based on January 1, 2017. Pursuant to this guidance, we made a policy election to accountthe published closing market price on the day before the grant date.

The Company accounts for forfeitures as they occur rather than on an estimated basis. For periods prior to the adoption of this ASU, the Company estimated the forfeiture rate of unvested awards based on the forfeitures in the previous twelve-month period. The rate was calculated separately for awards to the board of directors/executives and all other awards. Further information regarding this change is included in Note 14, Employee Equity-Based Compensation.


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


See Note 14,12, Employee Equity-Based Compensation for further information.


Cost of SalesDeferred Tax


Cost of sales consists of raw materials, depreciation, direct laborDeferred tax assets and stock-based compensation expense, manufacturing overhead, facility costs and warranty costs.

Warranty

Instrumentsliabilities are typically sold with a one year limited warranty, while kits and accessories are typically sold with a sixty days limited warranty. Accordingly, a provisionrecorded for the estimated costfuture tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying condensed consolidated balance sheet. The change in deferred tax assets and liabilities for the period represents the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws in deferred tax assets and liabilities are reflected as an adjustment to the tax provision or benefit in the period of enactment.

The Company follows the provisions of ASC 740, Income Taxes, to account for any uncertainty in income taxes with respect to the accounting for all tax positions taken (or expected to be taken) on any income tax return. This guidance applies to all open tax periods in all tax jurisdictions in which the Company is required to file an income tax return. Under U.S. GAAP, in order to recognize an uncertain tax benefit the taxpayer must be more likely than not certain of sustaining the position, and the measurement of the limited warranty repairbenefit is recorded atcalculated as the time revenuelargest amount that is recognized. Our estimated warranty provision is based on our estimate of future repair events and the related estimated cost of repairs. The Company periodically assesses the adequacymore likely than not to be realized upon resolution of the warranty reserveposition. Interest and adjusts the amount as necessary. The expense incurred for these provisions is included in cost of sales on the condensed consolidated statements of operations and comprehensive loss.penalties, if any, would be recorded within tax expense.

Shipping and Handling

Shipping and handling costs billed to customers are included as a component of revenue. The corresponding expense incurred with third party carriers is included as a component of sales, general and administrative costs on the condensed consolidated statements of operations and comprehensive loss.


Foreign Currency Translation and Foreign Currency Transactions


The Company follows ASC 830, Foreign Currency Matters, which provides guidance on foreign currency transactions and translation of financial statements. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollarsDollars are included in the foreign currency translation adjustment, withina component of accumulated other comprehensive loss in the condensed consolidated statements of operations and comprehensive loss.stockholders’ deficit.


The Company has assets and liabilities, primarilyincluding receivables and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, the impact of which is recorded in foreign currency exchange gain orand loss, within the condensed consolidated statementsstatement of operations and comprehensive loss.




Loss Per Share

Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Potentially dilutive common shares consist of shares issuable from stock options, unvested RSUs and the Warrant (as defined in Note 10). Potentially dilutive common shares would also include common shares that would be outstanding if the Notes and the Series A Preferred Stock outstanding at the balance sheet date were converted and shares issuable in connection with the March 2022 Securities Purchase Agreement. Diluted earnings are not presented when the effect of adding such additional common shares is antidilutive.

See Note 11, Loss Per Share, for further information.

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Comprehensive Loss

In addition to net loss, comprehensive loss includes all changes in equity during a period, except those resulting from investments by and distributions to owners. The Company holds debt securities as available-for-sale and records the change in fair market value as a component of comprehensive loss. The Company also has adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars which is included as a component of comprehensive loss.

NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS


Standards that were recently adopted

In May 2017,March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-09, Compensation—Stock Compensation2022-01, Derivatives and Hedging (Topic 718)Scope of Modification Accounting. This amendment clarifies when to account for a change815): Fair Value Hedging - Portfolio Layer Method. ASU 2022-01 is related to the terms or conditionsportfolio layer method of a share-based payment award as a modification. Underhedge accounting. The amendments in this update clarify the new guidance, modification accounting and promote consistency in reporting for hedges where the portfolio layer method is required only ifapplied. This ASU was adopted January 1, 2023, and did not impact the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is effective prospectively for the annual period ending December 31, 2018 and interim periods within that annual period. Early adoption is permitted. Historically, modifications to our share-based awards is rare. As such, we do not expect the application of this standard to have a significant impact on ourCompany’s consolidated financial statements.statements at January 1, 2023.


In March 2017,2022, the FASB issued ASU 2017-08, Receivable-Nonrefundable Fees and Other Costs (Topic 310-20) Premium Amortization on Purchased Callable Debt Securities. This amendment shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendment requires premiums to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We are currently assessing the impact this will have on our consolidated financial statements and the timing of adoption.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory. The update amends accounting guidance for intra-entity transfers of assets other than inventory to require the recognition of income tax consequences when the transfer occurs. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A modified retrospective approach should be applied. We are currently assessing the impact this will have on our consolidated financial statements and the timing of adoption.

In June 2016, the FASB issued ASU 2016-13,2022-02, Financial Instruments-Credit Losses (Topic 326) Measurement: Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 relates to troubled debt restructurings (“TDRs”) and vintage disclosures for financing receivables. The amendments in this update eliminate the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require disclosure of Credit Losses on Financial Instruments, which amends the guidance on measuring credit losses on financial assets (including trade accounts receivable and availablecurrent-period gross write-offs by year of origination for sale debt securities) held at amortized cost. Currently, an “incurred loss” methodology is used for recognizing credit losses, which delays recognition until it is probable a loss has been incurred. The amendment requires assets valued at amortized cost to be presented at the net amount expected to be collected using an allowance for credit losses. Reversal of credit losses on available-for-sale debt securities will be recorded in the current period net income. The amendment will be effective for us onfinancing receivables. This ASU was adopted January 1, 2020, with early adoption permitted. We do2023, and did not anticipate this guidance will have a significant impact on ourthe Company's consolidated financial statements and plan to adopt on the effective date.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This replaces the existing standards relating to leases for both lessees and lessors. For lessees, the new standard requires most leases to be recorded on the balance sheet with expenses recognized much like the existing standard. For lessors, the new standard modifies the classification criteria and accounting for sales-type and direct financing leases and eliminates leveraged leases. For both lessees and lessors, the standard eliminates real estate-specific provisions, changes some of the presentation and disclosure requirements, and changes sale and leaseback criteria. The ASU is required for us onat January 1, 2019, with early adoption permitted. We are currently assessing the impact this will have on our consolidated financial statements.2023.


In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers Deferral of the Effective Date, which deferred the effective date resulting in a new effective date for us of January 1, 2018. Early adoption is permitted. FASB has issued several other ASU’s which provide further guidance on Topic 606 and have the same effective date. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period


presented in the financial statements. We will implement ASU 2014-09 and all relevant subsequently issued ASU’s on Topic 606 concurrently on January 1, 2018, and are currently evaluating the transition method. We are carefully evaluating our existing revenue recognition practices to determine the extent to which our contracts in the scope of the guidance will be affected by the new requirements. The effects may include identifying performance obligations in existing arrangements, determining the transaction price and allocating the transaction price to each separate performance obligation. We will also establish practices to determine when a performance obligation has been satisfied, and recognize revenue in accordance with the new requirements. Given limited revenues have been recognized to date, we have not yet determined the effect of the standard on our future consolidated financial statements.

NOTE 3. FDA CLEARANCE

On February 23, 2017, the U.S. Food and Drug Administration (“FDA”) granted Accelerate’s de novo request to market the Accelerate Pheno™ system and Accelerate PhenoTest™ BC kit for identification and antibiotic susceptibility testing of pathogens directly from positive blood culture samples.

Due to various factors, the Company manufactured inventory in advance of regulatory approval (pre-launch inventory).

On January 1, 2017, the regulatory review process had progressed to a point that objective and persuasive evidence of approval was sufficiently probable, and a future economic benefit existed. On January 1, 2017, the Company started capitalizing pre-launch inventory. Additional information regarding inventory is included in Note 7, Inventory.

Prior to January 1, 2017, all pre-launch inventory was not capitalized because a future economic benefit could not be asserted. Costs associated with the Company’s purchase of inventory were reported as research and development costs, or if the inventory was used in marketing evaluations, as sales, general and administrative costs on the consolidated statements of operations and comprehensive loss.



NOTE 3. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and accounts receivable.

The Company has financial institutions for banking operations that hold 10% or more of the Company’s cash and cash equivalents. As of March 31, 2023, four of the Company's financial institutions held 44%, 20%, 18% and 13% of the Company’s cash and cash equivalents. As of December 31, 2022, three of the Company’s financial institutions held 52%, 24% and 21% of the Company’s cash and cash equivalents.

The Company grants credit to domestic and international customers. Exposure to losses on accounts receivable is principally dependent on each client's financial position. The Company had one customer that accounted for 15% and 15% of the Company’s net accounts receivable balance as of March 31, 2023 and December 31, 2022, respectively.

The Company did not have any customers that represented 10% or more of the Company’s total revenue for the three months ended March 31, 2023 and 2022.

19

NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS


The following tables represent the financial instruments measured at fair value on a recurring basis onin the financial statements of the Company and the valuation approach applied to each class of financial instruments at September 30, 2017,March 31, 2023 and December 31, 2016.2022 (in thousands):


March 31, 2023
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Assets:
Cash and cash equivalents:
Money market funds$18,058 $— $— $18,058 
Total cash and cash equivalents18,058 — — 18,058 
Equity investments:
Mutual funds978 — — 978 
Total equity investments978 — — 978 
Debt securities available-for-sale:
Certificates of deposit— 333 — 333 
Commercial paper— 125 — 125 
Corporate notes and bonds— 1,021 — 1,021 
Debt securities available-for-sale— 1,479 — 1,479 
Total assets measured at fair value$19,036 $1,479 $— $20,515 
 September 30, 2017
 (in thousands)
 Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Assets: 
 
 
 
Cash and cash equivalents    
Money market funds$19,610
$—
$—
$19,610
Commercial paper—
1,800
—
1,800
Total cash and cash equivalents19,610
1,800
—
21,410
Investments:    
Certificates of deposit—
14,367
—
14,367
US Treasury securities12,009
—
—
12,009
US Agency securities—
7,485
—
7,485
Commercial paper—
10,456
—
10,456
Asset-backed securities—
5,024
—
5,024
Corporate notes and bonds—
37,548
—
37,548
Total investments12,009
74,880
—
86,889
Total assets measured at fair value$31,619
$76,680
$—
$108,299


December 31, 2022
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Assets:
Cash and cash equivalents:
Money market funds$7,194 $— $— $7,194 
Total cash and cash equivalents7,194 — — 7,194 
Equity investments:
Mutual funds928 — — 928 
Total equity investments928 — — 928 
Debt securities available-for-sale:
Certificates of deposit— 2,541 — 2,541 
U.S. Treasury securities3,009 — — 3,009 
Commercial paper— 424 — 424 
Corporate notes and bonds— 3,754 — 3,754 
Debt securities available-for-sale3,009 6,719 — 9,728 
Total assets measured at fair value$11,131 $6,719 $— $17,850 

 December 31, 2016
 (in thousands)
 Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Assets: 
 
 
 
Cash and cash equivalents:    
Money market funds$10,970
$—
$—
$10,970
Investments:    
Certificates of deposit—
7,257
—
7,257
US Treasury securities8,544
—
—
8,544
US Agency securities—
4,501
—
4,501
Asset-backed securities—
5,557
—
5,557
Corporate notes and bonds—
32,660
—
32,660
Total investments8,544
49,975
—
58,519
Total assets measured at fair value$19,514
$49,975
$—
$69,489

Money market fundsHighly liquid investments with an original maturity of three months or less at time of purchase are included in cash and cash equivalents on the condensed consolidated balance sheet.


20

Level 1 assets are priced using quoted prices in active markets for identical assets which include money market funds, and U.S. Treasury securities and mutual funds as these specific assets are liquid.


Level 2 available-for-sale securities are priced using quoted market prices for similar instruments or nonbinding


market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs. There were no transfers between levels during

As of March 31, 2023, the nine months ended September 30, 2017.Notes represented a Level 3 measurement with an outstanding principal amount of $56.6 million, and a fair value of $16.9 million.


As of December 31, 2022, the Notes represented a Level 2 measurement with an outstanding principal amount of $56.6 million, and a fair value of $51.9 million.
NOTE 5. CONCENTRATION OF CREDIT RISK

See Note 9, Convertible Notes for further detail on the Notes.
Financial instruments that potentially subject the Company to concentrations
As of credit risk consist primarily of cash equivalents, investments and accounts receivable including receivables from major customers.

The Company’s main financial institution for banking operations held 76% and 57% of the Company’s cash and cash equivalents as of September 30, 2017,March 31, 2023 and December 31, 2016,2022, the Company’s Secured Notes represented a Level 3 measurement with a fair value of $6.2 million and $16.0 million, respectively. See Note 10, Long-Term Debt Related-Party for further detail on the Secured Note.


NOTE 6.5. INVESTMENTS


The following tables summarize the Company’s debt securities classified as available-for-sale investments at September 30, 2017,March 31, 2023 and December 31, 2016:2022 (in thousands):


March 31, 2023
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
Certificates of deposit$333 $— $— $333 
Commercial paper125 — — 125 
Corporate notes and bonds1,025 — (4)1,021 
Total$1,483 $— $(4)$1,479 

December 31, 2022
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
Certificates of deposit$2,548 $— $(7)$2,541 
U.S. Treasury securities3,015 — (6)3,009 
Commercial paper425 — (1)424 
Corporate notes and bonds3,769 — (15)3,754 
Total$9,757 $— $(29)$9,728 

21
AVAILABLE-FOR-SALE INVESTMENTS
September 30, 2017
(in thousands)
 
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Certificates of deposit$14,367
$—
$—
$14,367
US Treasury securities12,035
—
(26)12,009
US Agency securities7,511
—
(26)7,485
Commercial paper10,456
—
—
10,456
Asset-backed securities5,023
1
—
5,024
Corporate notes and bonds37,577
—
(29)37,548
Total$86,969
$1
$(81)$86,889


AVAILABLE-FOR-SALE INVESTMENTS
December 31, 2016
(in thousands)
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
Certificates of deposit$7,257
$—
$—
$7,257
US Treasury securities8,553
1
(10)8,544
US Agency securities4,514
—
(13)4,501
Asset-backed securities5,554
3
—
5,557
Corporate notes and bonds32,717
3
(60)32,660
Total$58,595
$7
$(83)$58,519

The following table summarizes the maturities of the Company’s debt securities classified as available-for-sale securitiesinvestments at September 30, 2017,March 31, 2023 and December 31, 2016:2022 (in thousands):



March 31, 2023December 31, 2022
Amortized
Cost		Fair ValueAmortized
Cost		Fair Value
Due in less than 1 year$1,483 $1,479 $9,757 $9,728 
Total$1,483 $1,479 $9,757 $9,728 


AVAILABLE-FOR-SALE INVESTMENT MATURITIES
(in thousands)
 September 30, 2017December 31, 2016
 Amortized
Cost		Fair ValueAmortized
Cost		Fair Value
Due in less than 1 year$60,999
$60,974
$45,391
$45,344
Due in 1-5 years25,970
25,915
13,204
13,175
Total$86,969
$86,889
$58,595
$58,519

ProceedsThere were no proceeds from sales of marketabledebt securities available-for-sale (including principal paydowns), for the three months endedSeptember 30, 2017 March 31, 2023 and 2016 were $3.0 million and $7.7 million, respectively, and for the for the nine months endedSeptember 30, 2017 and 2016 were $9.5 million and $8.7 million, respectively.2022. The Company determines gains and losses of marketable securities based on specific identification of the securities sold. There were $6,000 of realized gains from sales of marketable securities for the three and nine months ended September 30, 2016, and no grossmaterial realized gains or losses from sales of marketabledebt securities available-for-sale for the three and nine months ended SeptemberMarch 31, 2023 and 2022. No material balances were reclassified out of accumulated other comprehensive loss for the three months ended March 31, 2023 and 2022. No unrealized losses on debt securities available-for-sale have been recognized in income for the three months ended March 31, 2023 and 2022, as the issuers of such securities held by us were of high credit quality.

As of March 31, 2023, there were five single issuers of debt securities classified as available-for-sale investments with an amount greater than 10%, which ranged from $0.2 million to $0.3 million per holding.

As of March 31, 2023 the Company did not carry any debt securities available-for-sale that were below the Company's minimum credit rating. All debt securities available-for-sale had a credit rating of A- or better as of March 31, 2023.

Equity securities are comprised of investments in mutual funds. The fair value of equity securities for each of the periods ended March 31, 2023 and December 31, 2022 was $1.0 million and $0.9 million, respectively.

Unrealized gains or losses on equity securities recorded in income during the three months ended March 31, 2023 and 2022 were as follows (in thousands):

Three Months Ended March 31,
20232022
Unrealized gain (loss) on equity investments$50 $— 

These unrealized gains or losses are recorded as a component of other income (expense), net. There were no realized gains or losses from equity securities for each of the three months ended March 31, 2023 and 2022.

NOTE 6. INVENTORY

Inventories consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):

March 31,December 31,
20232022
Raw materials$1,810 $1,827 
Work in process1,651 2,115 
Finished goods1,809 1,252 
$5,270 $5,194 

22

NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):

March 31,December 31,
20232022
Computer equipment$3,553 $3,551 
Technical equipment3,238 3,236 
Facilities3,688 3,663 
Instruments3,812 3,735 
Capital projects in progress60 114 
Total property and equipment$14,351 $14,299 
Accumulated depreciation(11,135)(10,821)
Property and equipment, net$3,216 $3,478 

Depreciation expense for the three months ended March 31, 2023 and 2022 were as follows (in thousands):

Three Months Ended March 31,
20232022
Depreciation expense$355 $460 

Instruments at cost and accumulated depreciation where the Company is the lessor under operating leases consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):

March 31,December 31,
20232022
Instruments at cost under operating leases$2,611 $2,585 
Accumulated depreciation under operating leases(1,338)(1,209)
Net property and equipment under operating leases$1,273 $1,376 

NOTE 8. DEFERRED REVENUE AND REMAINING PERFORMANCE OBLIGATIONS

Deferred revenue consists of amounts received for products or services not yet delivered or earned. If we anticipate revenue will not be earned within the following twelve months, the amount is reported as other non-current liabilities. A summary of the balances as of March 31, 2023 and December 31, 2022 follows (in thousands):

March 31,December 31,
20232022
Products and services not yet delivered$468 $547 

We recognized $0.2 million of revenues that were included in the beginning contract liabilities balances for each of the three months ended March 31, 2023 and March 31, 2022. No material amount of revenue recognized during the period was from performance obligations satisfied in prior periods.

23

Transaction Price Allocated to Remaining Performance Obligations

As of March 31, 2023, $7.0 million of revenue is expected to be recognized from remaining performance obligations. This balance primarily relates to product shipments for reagents sold to customers under sales-type lease agreements. These agreements have between two and four year terms and revenue is recognized as product is shipped, typically on a straight-line basis. The remaining balance relates to executed service contracts that begin as warranty periods expire. These service contracts typically provide for four-year terms and revenue is recognized on a straight-line basis.

The Company elects not to disclose the value of unsatisfied performance obligations for (i) contracts with an expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

NOTE 9. CONVERTIBLE NOTES

On March 27, 2018, the Company issued $150.0 million aggregate principal amount of 2.50% Senior Convertible Notes due 2023. In connection with the offering of the Notes, the Company granted the initial purchasers of the Notes a 13-day option to purchase up to an additional $22.5 million aggregate principal amount of the Notes on the same terms and conditions. On April 4, 2018 the option was partially exercised, which resulted in $21.5 million of additional proceeds, for total proceeds of $171.5 million. The Notes matured on March 15, 2023 (the “Maturity Date”) and became due and payable.

The Company incurred issuance costs related to the issuance of the Notes which was amortized over the five-year contractual term of the Notes using the effective interest method. The effective interest rate on the Notes, including accretion of the Notes to par was 3.2%.

The Notes include customary terms and covenants, including certain events of default upon which the Notes may be due and payable immediately. Holders had the option to convert the Notes in multiples of $1,000 principal amount at any time prior to December 15, 2022, but only in the following circumstances:

•if the Company’s stock price exceeds 130% of the conversion price for 20 of the last 30 2017trading days of any calendar quarter after June 30, 2018;

•during the 5 business day period after any 5 consecutive trading day period in which the Notes’ trading price is less than 98% of the product of the common stock price times the conversion rate; or

•the occurrence of certain corporate events, such as a change of control, merger or liquidation.

At any time on or after December 15, 2022, a holder could have converted its Notes in multiples of $1,000 principal amount. Holders of the Notes who convert their Notes in connection with a make-whole fundamental change (as defined in the Indenture) were, under certain circumstances, entitled to an increase in the conversion rate. In addition, in the event of a fundamental change or event of default prior to the Maturity Date, holders, subject to certain conditions, had the right, at their option, to require the Company to repurchase for cash all or part of the Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the repurchase date.

As of March 31, 2023, $56.6 million aggregate principal amount of the Notes were outstanding and are no longer convertible pursuant to their original terms. None of the Notes converted prior to the Maturity Date.

As of March 31, 2023, the Company carried $0.7 million of accrued interest which was payable on March 15, 2023.

Forbearance Agreement

On March 9, 2023, the Company entered into the Forbearance Agreement, which became effective on March 13, 2023, with the Ad Hoc Noteholder Group holding approximately 85% of the Company’s outstanding Notes, the Trustee and any other owner of the Notes who executes and delivers to the Company a joinder to the Forbearance Agreement (collectively with the Trustee and Ad Hoc Noteholder Group, the “Counterparties”). Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the
24

Trustee, to forbear from exercising their rights and remedies under the Indenture in connection with certain events of default under the Indenture, such as (i) failure to timely pay in full the principal of any Note when due and payable on March 15, 2023, (ii) failure to pay any interest on any Note when due and payable, (iii) failure to convert any Notes, (iv) default under any agreement with outstanding indebtedness for money borrowed in excess of $15.0 million and (v) any other breach, default or event of default under the Indenture arising from the failure of the Company to timely pay in full the principal of any Note when due and payable on the Maturity Date. The gross proceedsForbearance Agreement was initially effective for the period commencing on March 13, 2023 and ending on March 29, 2023, which was subsequently extended by the parties to April 21, 2023. The notes associated with the realized gainsremaining approximately 15% of holders that did not join the Ad Hoc Noteholder Group is considered in default as of March 31, 2023.

The holders of the Notes that joined the Forbearance Agreement received a fee (the “Forbearance Premium”) equal to $5.00 per $1,000 principal amount of Notes held by such party, by executing and delivering a joinder to the Forbearance Agreement to the Company. As of March 31, 2023 the Ad Hoc Noteholder Group held $48.3 million aggregate principal amount of the Notes and received $0.2 million in Forbearance Premiums. As of March 31, 2023, holders of $8.3 million aggregate principal amount of the Notes had not joined the Ad Hoc Noteholder Group and did not receive a Forbearance Premium. The Forbearance Premium of $0.2 million paid during the three months ended March 31, 2023 was capitalized and amortized to expense for the threeperiod commencing on March 13, 2023 through March 29, 2023.

Restructuring Support Agreement

On April 21, 2023, the Company entered into the Restructuring Support Agreement with certain holders of the Notes, the holder of the Secured Note and ninethe holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure, including the Notes, the Secured Note and the Company’s Series A Preferred Stock, as well as a contemplated amendment to the March 2022 Securities Purchase Agreement, as an Out-of-Court Restructuring. See Note 19, Subsequent Events for additional information.

The carrying value of the Notes at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):

March 31,December 31,
20232022
Outstanding principal at par$56,595 $56,595 
Unamortized debt issuance— (182)
Net carrying amount$56,595 $56,413 

At March 31, 2023 and December 31, 2022 the Notes were classified as follows (in thousands):

March 31,December 31,
20232022
Current portion of convertible notes$56,595 $56,413 
Non-current portion of convertible notes— — 
Total convertible notes$56,595 $56,413 

Interest expense during the three months ended SeptemberMarch 31, 2023 and 2022 were as follows (in thousands):

Three Months Ended March 31,
20232022
Contractual coupon interest$236 $753 
Amortization of debt issuance costs182 162 
Total interest expense on convertible notes$418 $915 

25

Gain on extinguishment of exchanged Notes during the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Three Months Ended March 31,
20232022
Gain on extinguishment$— $3,366 

March 2022 Exchange Transaction

On March 21, 2022, the Company entered into a privately negotiated exchange agreement (the “March 2022 Exchange Agreement”) with a holder of the Notes. Under the terms of the March 2022 Exchange Agreement, the note holder agreed to exchange with the Company $14.0 million in aggregate principal amount of Notes held by it in eight equal tranches as follows for each tranche: (a) 22.64 shares per $1,000 principal amount of Notes exchanged, plus (b) an additional number of shares of the Company’s common stock per $1,000 principal amount of Notes exchanged equal to the sum, for each of the trading days during a separate agreed upon reference period for each tranche commencing on March 21, 2022 for the first tranche, of the quotient of (i) $155.67 divided by (ii) the daily volume-weighted average price for such trading day (collectively, the “Exchange Transaction”).

The closing of the Exchange Transaction occurred in eight tranches (“Obligation to Exchange”), with the first closing occurring on March 29, 2022. The remaining seven tranches closed during the three months ended June 30, 20162022.

On March 21, 2022 the Obligation to Exchange the $14.0 million of Notes was accounted for as an extinguishment and was replaced by new notes with an embedded feature (the “New Exchange Notes”). The New Exchange Notes were $7.2 million.
No other-than-temporary impairmentselected to be carried using the fair value option. The New Exchange Notes are recorded as no material investment hadat fair value on initial measurement and remeasured at fair value (“mark to market”) at each reporting period with changes in fair value reported in other income and expense, net. This fair value election is exclusive to the New Exchange Notes and does not extend to other Notes.

On March 21, 2022, the New Exchange Notes were determined to have a fair value that remained less than its costof $11.5 million. The fair value of the New Exchange Notes was determined using a common share price of $1.86 per share, applied using the settlement method described above. After giving effect for more than twelveall mark to market adjustments during the three months ended March 31, 2022, the total net mark to market gain on extinguishment was $2.9 million.

On March 29, 2022, the holder of the New Exchange Notes legally exchanged approximately $1.8 million (the “Exchanged Principal”) in aggregate principal amount of New Exchange Notes held by the holder for 849,713 shares of the Company’s common stock pursuant to the March 2022 Exchange Agreement. The legal exchange of the New Exchange Notes resulted in an additional gain of $0.5 million. Using the closing stock price on March 29, 2022 of $1.48, the 849,713 shares of the Company's common stock were determined to have a value of $1.3 million, which was recorded to contributed capital during the three months ended March 31, 2022.

The total net gain recorded during the three months ended March 31, 2022 was $3.4 million. This gain was comprised of mark to market adjustments during the period and a legal exchange of the New Exchange Notes.

Closing of Prepaid Forward

In connection with the offering of the Notes, we entered into a prepaid forward stock repurchase transaction (the “Prepaid Forward”) with a financial institution. Pursuant to the Prepaid Forward, we used approximately $45.1 million of the proceeds from the offering of the Notes to pay the prepayment amount. The aggregate number of our common stock underlying the Prepaid Forward is approximately 1,858,500 shares (based on the sale price of $24.25). On March 24, 2023, 1,858,500 shares of common stock were returned to the Company pursuant to our agreement with the counterparty. As of March 31, 2022, these shares purchased under the Prepaid Forward were treated as treasury stock on the condensed consolidated balance sheet (and not outstanding for purposes of September 30, 2017,the calculation of basic and there have been no other indicatorsdiluted earnings per share), but remain outstanding for corporate law purposes, including for purposes of impairment.any future stockholders’ votes.

26

Fair Value of the Notes

As of December 31, 2022, the Notes were instruments measured at fair value using Level 2 inputs, as the Notes were traded on an active market with observable inputs. The Company does not intend to sell investments and it is more likely than not that we will not be required to sell investments before recoveringestimated fair value of the amortized cost.Notes at December 31, 2022 was $51.9 million.


Additional information regardingAt March 31, 2023, the fair value of our financial instruments isthe Notes are determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company used the Probability-Weighted Expected Return Method (“PWERM”) to value the Notes. This approach involved the estimation of future potential outcomes for the Company, as well as values and probabilities associated with each respective potential outcome, which consisted of the probability of the Notes remaining outstanding until the maturity date of the Forbearance Agreement and the probability of default on the Notes. The Company calculated the present value of the Notes payoff on the maturity date using the estimated effective interest rate of the Notes. Key assumptions used in the calculation included ina discount rate of 27.6%. After taking into consideration the PWERM of this scenario, the Company arrived at the estimated fair value of the Notes of $16.9 million as of March 31, 2023.

See Note 4, Fair Value of Financial Instruments.Instruments for additional information.


NOTE 7. INVENTORY10. LONG-TERM DEBT RELATED-PARTY


InventoryOn August 15, 2022, the Company entered into an exchange agreement (the “August 2022 Exchange Agreement”) with the Jack W. Schuler Living Trust (the “Schuler Trust”). Jack Schuler, who serves as a member of the Company’s board of directors, is statedthe sole trustee of the Schuler Trust. Under the terms of the August 2022 Exchange Agreement, the Schuler Trust agreed to exchange with the Company $49.9 million in aggregate principal amount of Notes held by it for (a) the Secured Note in an aggregate principal amount of $34.9 million and (b) a warrant to acquire the Company’s common stock at an exercise price of $2.12 per share (the “Warrant”).

The Secured Note has a scheduled maturity date of August 15, 2027 and is repayable upon written demand at any time on or after such date. The Company may, at its option, repay the Secured Note in (i) cash or (ii) in the form of common stock of the Company, in a number of shares that is obtained by dividing the total amount of such payment by $2.12. The Secured Note bears interest at a rate of 5.0% per annum, payable at the lesseroption of costthe Company in the same form, at the earlier of (i) any prepayment of principal and (ii) maturity. The Company may prepay the Secured Note at any time without premium or net realizablepenalty. The Secured Note is secured by substantially all of the assets of the Company, subject to customary exceptions and limitations, pursuant to a security agreement, dated as of August 15, 2022. The Secured Note does not restrict the incurrence of future indebtedness by the Company but shall become subordinated in right of payment and lien priority upon the request of any future senior lender.

On August 15, 2022, the transaction qualified as an extinguishment of debt. Under extinguishment accounting, the Notes exchanged by the Schuler Trust were derecognized and the new instruments were issued, which include the Secured Note and the Warrant, were recorded at their fair values. The estimated fair value with cost determinedof the Secured Note on August 15, 2022 was $16.0 million. This valuation estimated an issuance discount of $18.9 million. The effective interest rate on the first-in-first-out method. Secured Note is 24.60%.

The allocationcarrying value of production overhead to inventory costs is based on normal production capacity. Abnormal amountsthe Secured Note at March 31, 2023 and December 31, 2022 consisted of idle facilitythe following (in thousands):

March 31,December 31,
20232022
Outstanding principal$34,934 $34,934 
Unamortized debt issuance discount(17,504)(18,076)
Net carrying amount$17,430 $16,858 

27

Interest expense in connection with the Secured Note during the three months ended March 31, 2023 and spoilage are expensed as incurred, and not included in overhead subject to capitalization. The Company maintains provisions for excess and obsolete inventory based on management’s estimates of forecasted demand and, where applicable, product expiration. The components of inventories were2022 was as follows (in thousands):

Three Months Ended March 31,
20232022
Contractual interest$441 $— 
Amortization of the debt discount572 — 
Total interest expense$1,013 $— 

The Secured Note’s carrying amount of $17.4 million and accrued interest expense of $1.1 million are recorded in non-current liabilities on the Company’s condensed consolidated balance sheet as of March 31, 2023. Neither the principal amount nor the accrued interest are contractually payable within twelve months of the balance sheet date of March 31, 2023. The Secured Note’s interest is payable at the option of the Company in the same form as the principal, at the earlier of (i) any prepayment of principal and (ii) maturity. It is the Company’s intention to pay all interest at maturity.

No principal or accrued interest under the Secured Note have been paid or shares issued as of March 31, 2023.

The following presents maturities of future principal and accrued interest obligations of the Secured Note as of March 31, 2023 (in thousands):

PrincipalAccrued InterestTotal
2023$— $— $— 
2024— — — 
2025— — — 
2026— — — 
202734,934 1,104 36,038 
Thereafter— — — 
Total$34,934 $1,104 $36,038 

If the Company were to make a first and final interest payment on the maturity date of August 15, 2027, the interest payable amount would be $9.9 million.

Fair Value of the Secured Notes

The Secured Note is an instrument measured at fair value using Level 3 inputs. The estimated fair value of the Secured Note on March 31, 2023 and December 31, 2022 was $6.2 million and $16.0 million, respectively.

The fair value of the Secured Note was estimated using a Monte Carlo simulation which simulated the share price of the Company over the remaining term through the Secured Note’s maturity date. The simulated per-share price in a given iteration determined if the Company settled in cash or shares, and the mean present value of the iterations was concluded as the estimated fair value.

28

 September 30,December 31,
 20172016
Raw materials$4,607
$—
Work in process429
—
Finished goods2,305
—
Inventory, net$7,341
$—
The table below summarizes the significant assumptions and inputs used to estimate the fair value of the Secured Note as of March 31, 2023 and December 31, 2022:




March 31,December 31,
20232022
Stock price$0.70$2.68
Term (years)4.385
Volatility103.49 %84.30 %
Risk-free rate3.67 %2.91 %

See Note 4, Fair Value of Financial Instruments for additional information.

Warrant

The Warrant may be exercised from February 15, 2023 through the earlier of (i) August 15, 2029 and (ii) the consummation of certain acquisition transactions involving the Company, as set forth in the Warrant. The Warrant is exercisable for up to 2,471,710 shares of common stock. The Warrant meets the criteria for classification in stockholders’ equity and was recorded in equity and initially measured at fair value.

Restructuring Support Agreement

On April 21, 2023, the Company entered into the Restructuring Support Agreement with certain holders of the Notes, the holder of the Secured Note and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure, including the Notes, the Secured Note and the Company’s Series A Preferred Stock, as well as a contemplated amendment to the March 2022 Securities Purchase Agreement, as an Out-of-Court Restructuring. See Note 19, Subsequent Events for additional information.

NOTE 11. LOSS PER SHARE

Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period. Basic and diluted net loss per share are the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive due to the Company’s losses.

The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect for each of the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,
20232022
Shares issuable upon the release of RSUs3,343 3,610 
Shares issuable upon exercise of stock options5,276 6,818 
Shares issuable upon the exercise of the Warrant2,472 — 
11,091 10,428 

Potentially dilutive common shares also include the following:

Series A Preferred Stock

Potentially dilutive common shares include common shares that would be outstanding if Series A Preferred Stock were converted into common stock. Each share of Series A Preferred Stock is convertible, at the option of the holder, at any time into one share of the Company’s common stock. Additionally, each share of Series A Preferred Stock will automatically be converted into one share of the Company’s common stock immediately upon a sale of all outstanding stock of the Company or a merger of the Company into another corporation where the pre-
29

merger Company’s stockholders cease to be the controlling stockholders of the post-merger corporation. The number of shares of common stock issuable upon conversion of the Series A Preferred Stock is 3,954,546 as of March 31, 2023. The shares issuable upon conversion of the Series A Preferred Stock were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses.

March 2022 Securities Purchase Agreement

As discussed in Note 17, Stockholders' Equity, the Company entered into the March 2022 Securities Purchase Agreement with the Schuler Trust for the issuance and sale by the Company of an aggregate of 2,439,024 shares of the Company’s common stock. The shares to be issued from this agreement were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses.

Secured Note

As discussed in Note 10, Long-Term Debt Related-Party, the Company may, at its option, repay the Secured Note in (i) cash or (ii) in the form of common stock of the Company, in a number of shares that is obtained by dividing the total amount of such payment by $2.12. Additionally, the Secured Note bears interest at a rate of 5.0% per annum, payable at the option of the Company in the same form, at the earlier of (i) any prepayment of principal and (ii) maturity. The number of shares of common stock issuable upon conversion of the Secured Note and accrued interest was approximately 16,478,066 and 520,951 shares respectively, as of March 31, 2023. The shares issuable in connection with a repayment of the Secured Note or payment of accrued interest were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses.

See Note 19, Subsequent Events for additional information about the contemplated restructuring of the Company’s capital structure, including the Notes, the Secured Note and the Company’s Series A Preferred Stock, as well as a contemplated amendment to the March 2022 Securities Purchase Agreement, in connection with the Restructuring Support Agreement.

NOTE 8. PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and consisted of the following at September 30, 2017, and December 31, 2016.
PROPERTY AND EQUIPMENT
(in thousands)
 September 30,December 31,
 20172016
Computer equipment$2,865
$2,270
Technical equipment3,267
2,427
Facilities3,512
3,387
Instruments1,015
—
Capital projects in progress464
1,010
Total property and equipment$11,123
$9,094
Accumulated depreciation - other(6,433)(4,836)
Net property and equipment$4,690
$4,258

Depreciation expense (which includes amortization of capital lease assets) for the three months endedSeptember 30, 2017 and 2016 was $550,000 and $598,000, respectively, and for the nine months endedSeptember 30, 2017 and 2016 was $1.6 million and $1.7 million, respectively.
NOTE 9. LICENSE AGREEMENTS AND GRANTS

National Institute of Health Grant

In February 2015, the National Institute of Health awarded Denver Health and the Company a five-year, $5.0 million grant to develop a fast and reliable identification and categorical susceptibility test carbepenem-resistant Enterobacteriaceae directly from whole blood. The cumulative sub-award amount is $885,000, under which the Company has invoiced a total of $740,000, which is recorded as an offset to research and development expenses. The amounts invoiced for the three months ended September 30, 2017 and 2016 were $180,000 and $8,000, respectively, and for the nine months ended September 30, 2017 and 2016 were $183,000 and $67,000, respectively.

Arizona Commerce Authority

In August 2012, the Company entered into a Grant Agreement (the “Grant Agreement”) with the Arizona Commerce Authority, an agency of the State of Arizona (the “Authority”), pursuant to which the Authority provided certain state and county sponsored incentives for the Company to relocate its corporate headquarters to, and expand its business within, the State of Arizona (the “Project”). Pursuant to the Grant Agreement, the Authority agreed to provide a total grant in the amount of $1.0 million (the “Grant”) for the use by the Company in the advancement of the Project. The Grant is payable out of an escrow account in four installments, upon the achievement of the following milestones:

Milestone 1 – Relocation of Company’s operations and corporate headquarters to Arizona and creation of 15 Qualified Jobs (as defined below).

Milestone 2 – Creation of 30 Qualified Jobs (including Qualified Jobs under Milestone 1).

Milestone 3 – Creation of 40 Qualified Jobs (including Qualified Jobs under Milestones 1 and 2).

Milestone 4 – Creation of 65 Qualified Jobs (including Qualified Jobs under Milestones 1, 2 and 3) and capital investment of at least $4.5 million.

For purposes of the Grant Agreement, a “Qualified Job” is a job that is permanent, full-time, new to Arizona, and for which the Company pays average (across all Qualified Jobs identified by the Company in its discretion) annual wages of at least $63,000 and offers health insurance benefits and pays at least 65% of the premiums associated with


such benefits. The amount of each installment payment will be determined in accordance with a formula specified in the Grant Agreement. The Grant Agreement also contains other customary provisions, including representations, warranties and covenants of both parties. As of September 30, 2017, the Company has collected all of the $1.0 million in milestones. The full amount is recorded in current deferred revenue and income until the economic development provisions of the grant have been satisfied in full, as there are “claw-back” provisions which would require repayment of certain amounts received if employment levels are not sustained during the term of the arrangement. Once the “claw-back” provisions expire in January 2018, we will recognize the grant as an offset to expense. Further details are included in Note 10, Deferred Revenue and Income.

Arizona R&D Refundable Tax Credit Program

The Company received a “Certificate of Qualification” from the Authority, which allowed the Company a partial refund of research and development investments. The amounts incurred under this program are recorded as an offset to research and development expenses, and for the nine months ended September 30, 2017 and 2016 were $0 and $1.2 million, respectively, and no amounts were incurred for three months ended September 30, 2017 and 2016, respectively. If the amount received for this program is later determined to be incorrect or invalid, the excess may need to be repaid.

NOTE 10. DEFERRED REVENUE AND INCOME

Deferred revenue consists of amounts received for products or services not yet delivered or earned. Deferred income consists of amounts received for commitments not yet fulfilled. If we anticipate that the revenue or income will not be earned within the following twelve months, the amount is reported as long-term deferred income. A summary of the balances as of September 30, 2017, and December 31, 2016, follows:
Deferred Revenue and Income
(in thousands)
 September 30,December 31,
 20172016
Products and services not yet delivered$81
$35
Arizona Commerce Authority grant1,000
—
Total current deferred revenue and income$1,081
$35
   
Arizona Commerce Authority grant—
1,000
Total long-term deferred income$—
$1,000

We have received $1.0 million in milestone payments from the Authority under the Grant Agreement described in Note 9, License Agreements and Grants. As of September 30, 2017, no such payments have been recognized in income, and we do not anticipate recognizing such payments as income until the “claw-back” provisions under the Grant Agreement expire in January 2018.



NOTE 11. STOCK PURCHASE

In April 2012, we entered into a Securities Purchase Agreement with Abeja Ventures, LLC pursuant to which the Company agreed, among other things, to issue a warrant to purchase shares of the Company’s common stock. Further details of this agreement are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC on February 28, 2017. As of December 31, 2016, there were warrants to purchase 415,871 shares unexercised. During the nine months ended September 30, 2017, warrants to purchase 370,307 shares were exercised at an exercise price of $2.00 per share. Proceeds from the exercise of such warrants totaling $741,000 are recorded as common stock and contributed capital in the condensed consolidated balance sheet. The remaining warrants to purchase 45,564 shares expired unexercised on June 26, 2017.

NOTE 12. PUBLIC OFFERING

On May 9, 2017, the Company published a prospectus supplement underwritten by J.P. Morgan Securities LLC, William Blair & Company, L.L.C., Piper Jaffray & Co. and BTIG, LLC ("Underwriters") offering 2.8 million shares of common stock with an option for the Underwriters to purchase up to 413,000 additional shares of common stock for a total of 3.2 million shares. The public offering price was $28.850 per share and underwriting discounts and commissions were $1.731 per share for net proceeds of $27.119 per share.

The public offering was finalized and 2.8 million shares of common stock were delivered to the purchasers on or around May 15, 2017. The Underwriters partially exercised their option to purchase an additional 335,000 shares, with the sale closing on June 14, 2017, and the option as to the remaining shares expired June 15, 2017. Proceeds from the sales totaled $89.0 million less underwriting discounts, commissions and other costs of $5.8 million for net proceeds of $83.2 million. The net proceeds will be used for general corporate purposes and to fund our commercialization efforts. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, technologies, product candidates or other intellectual property, although we have no present commitments or agreements to do so. Accordingly, we will retain broad discretion over the use of these proceeds.

NOTE 13. EARNINGS PER SHARE

The financial statements show basic and diluted loss per share.

The Company’s net loss for the periods presented caused the inclusion of all outstanding warrants, restricted stock and options to purchase our common stock to be antidilutive. As of September 30, 2017, and December 31, 2016, there were common stock options, restricted stock units and warrants exercisable for 7,472,734 and 7,313,245 shares of common stock, respectively, which were not included in diluted loss per share as the effect was antidilutive.

NOTE 14. EMPLOYEE EQUITY-BASED COMPENSATION


The following table summarizes option activity under allthe Company's equity-based compensation plans duringfor the nine-month period ending September 30, 2017:three months ended March 31, 2023:


Number of SharesWeighted Average Exercise Price per Share
Options outstanding January 1, 20235,408,661 $14.60 
Granted100,000 0.51 
Forfeited(99,934)8.15 
Exercised— — 
Expired(132,874)13.15 
Options outstanding March 31, 20235,275,853 $14.49 

30
Stock Option Activity
 Number of SharesWeighted Average Exercise Price per Share
Options outstanding December 31, 20166,857,124
$7.72
Granted1,113,861
24.49
Forfeited(131,167)21.41
Exercised(384,812)9.93
Expired(6,422)24.45
Options Outstanding September 30, 20177,448,584
9.86

The table below summarizes the resulting weighted average inputs used to calculate the estimated fair value of options awarded during the periods shown below:




Black-Scholes Assumptions for Options Granted
 Three Months Ended
 September 30, 2017September 30, 2016
Expected term (in years)6.46
6.46
Volatility74%89%
Expected dividends—
—
Risk free interest rates2.02%1.30%
Weighted average fair value$15.74
$15.40

The following table shows summary information for outstanding options and options that are exercisable (vested) as of September 30, 2017:March 31, 2023:


Options
Outstanding		Options
Exercisable
Number of options5,275,853 4,422,198 
Weighted average remaining contractual term (in years)4.624.06
Weighted average exercise price$14.49 $15.37 
Weighted average fair value$9.01 $9.50 
Aggregate intrinsic value (in thousands)$20 $— 
Stock Option Supplemental Information
 
Options
Outstanding
Options
Exercisable
Number of options7,448,584
5,214,464
Weighted average remaining contractual term (in years)6.32
5.40
Weighted average exercise price$9.86
$6.02
Weighted average fair value$7.31
$4.51
Aggregate intrinsic value (in thousands)$96,074
$86,005


The following table summarizes restricted stock unitRSU and restricted stock award activity duringfor the nine-month period ending September 30, 2017:three months ended March 31, 2023:


Number of SharesWeighted Average Grant Date Fair Value per Share
Outstanding January 1, 20234,355,420 $4.29 
Granted1,833,230 0.62 
Forfeited(695,050)4.30 
Released(2,150,702)1.88 
Outstanding March 31, 20233,342,898 $3.82 
Restricted Stock Unit (RSU) and Restricted Stock Award (RSA) Activity
 Number of SharesWeighted Average Grant Date Fair Value per Share
RSUs & RSAs Outstanding December 31, 201640,250
$20.91
Granted1,911
22.40
Forfeited—
—
Vested/released(18,011)21.07
RSUs & RSAs outstanding September 30, 201724,150
20.91


The table below summarizes equity-based compensation expense recognized onfor the Company’s condensed consolidated statements of operationsthree months ended March 31, 2023 and comprehensive loss related2022 (in thousands):

Three Months Ended March 31,
20232022
Cost of sales$90 $175 
Research and development605 362 
Sales, general and administrative(140)2,442 
$555 $2,979 

Equity-based compensation expense decreased for the three months ended March 31, 2023 when compared to options is summarized below:

Equity-Based Compensation Expenses
(in thousands)
 Three Months EndedNine Months Ended
 September 30, 2017September 30, 2016September 30, 2017September 30, 2016
Cost of sales$22
$—
$44
$—
Research and development994
504
2,886
1,168
Sales, general and administrative2,504
2,166
8,040
5,423
Equity-based compensation expense$3,520
$2,670
$10,970
$6,591



As of September 30, 2017, $262,000 and $33,000the three months ended March 31, 2022, primarily due to the reversal of equity-based compensation expense was a componentfrom forfeitures. Employees separating from the Company forfeited an increased number of stock options and RSUs than in the previous period.

The table below summarizes share-based compensation cost capitalized to inventory for the three months ended March 31, 2023 and property and equipment respectively.2022 (in thousands):


Three Months Ended March 31,
20232022
Cost capitalized to inventory$74 $43 

As of September 30, 2017,March 31, 2023, unrecognized equity-based compensation costexpense related to unvested stock options and unvested restricted stock unitsRSUs was $16.7$1.2 million and $216,000$3.3 million, respectively. This is expected to be recognized over the years 20172023 through 2022.2027.


As discussed
31

Included in Notethe above-noted RSU and restricted stock award outstanding amounts are performance-based RSUs which vest only upon the achievement of certain targets. Performance-based RSUs contingently vest over a period of 1 we implemented ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting3 years, depending on January 1, 2017. Pursuant to this guidance, we made a policy election to account for forfeituresthe nature of the performance goal, and have contractual lives of 10 years. These units were valued in the same manner as they occur rather thanother RSUs, based on an estimated basis and, therefore, equity basedthe published closing market price on the day before the grant date. However, the Company only recognizes stock compensation expense to the extent that the targets are determined to be probable of being achieved, which triggers the vesting of the performance options.

During 2021, the Company granted performance-based RSUs of which 103,299 were outstanding as of March 31, 2023. No activity occurred during the three months ended March 31, 2023, and the targets associated with the performance-based RSUs are not considered probable of being achieved. No share-based compensation cost was recorded for the performance-based RSUs for the three and nine months ended September 30, 2017 has been calculated based on actual forfeitures in our condensed consolidated statements of operationsMarch 31, 2023 and comprehensive loss, rather than our previous approach which was net of estimated forfeitures. Share-based compensation expense for the three and nine months ended September 30, 2016 is recorded net of estimated forfeitures, which were based on historical forfeitures and adjusted to reflect changes in facts and circumstances, if any. This change was accounted for using the modified retrospective transition method. This election resulted in a cumulative-effect adjustment which increased our accumulated deficit and additional paid-in capital by $655,000 for all outstanding awards as of January 1, 2017. We believe this election simplifies several aspects of the accounting for share-based payment transactions.2022.


This new guidance requires that we record excess tax benefits and tax deficiencies related to the settlement of employee stock-based compensation to the income tax expense line item on our condensed consolidated statements of operations and comprehensive loss. The new guidance also states that previously unrecognized excess tax benefits should be recognized on a modified retrospective basis as of the beginning of the annual period of adoption. At January 1, 2017, we recorded approximately $1.5 million of additional deferred tax assets, which are fully offset by a valuation allowance. Accordingly, the adoption of ASU 2016-09 did not result in an adjustment to retained earnings for the cumulative effect of the tax benefit of the stock compensation.

The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. Additionally, ASU 2016-09 requires that the minimum tax withholding paid on behalf of employees for share-based awards be classified as a financing activity in the statement of cash flows. Adoption of ASU 2016-09 did not result in any adjustments to prior period disclosures on the condensed consolidated statement of cash flows.

NOTE 15.13. INCOME TAXES


For the ninethree months ended September 30, 2017,March 31, 2023, the Company recorded adid not carry an income tax provision for income taxes of $220,000, which primarily related to a profitableamount as the Company does not recognize tax benefits from current year tax losses in the U.S. and other foreign jurisdiction without any net operating loss carryforwards.jurisdictions. The Company’s tax expense for the ninethree months ended September 30, 2017March 31, 2023 differs from the tax expense computed by applying the U.S. statutory tax rate to its year-to-date pre-tax loss of $47.5$16.8 million, as no tax benefits were recorded for tax losses generated in the U.S. and other foreign jurisdictions.jurisdictions due to the valuation allowance. At September 30, 2017,March 31, 2023, the Company had deferred tax assets primarily related to U.S. federal and state tax loss carryforwards.carryforwards and a deferred tax liability related to amortization of the Notes. The Company provided a full valuation allowance against its net deferred tax assets as future realization of such assets is not more likely than not to occur.


At September 30, 2017, the Company had gross unrecognized tax benefits of $1.1 million. The Company isaccounts for uncertain tax positions pursuant to the recognition and measurement criteria under ASC 740, Income Taxes. For the three months ended March 31, 2023, we did not currently under examination by taxing authorities and doesnote any significant changes to our uncertain tax positions. We do not believe the amount of unrecognizedanticipate significant changes to uncertain tax benefits will significantly increase or decrease overpositions within the next 12 months.




NOTE 16.14. COMMITMENTS


LeasesDuring April 2022, the Company entered into a non-cancellable purchase obligation with a supplier to acquire raw materials for a total commitment of $11.9 million. Under the terms of this agreement the Company has until March 15, 2027 to take delivery of purchased items. This commitment was entered into to ensure proper material quantities to develop and commercialize our next generation AST platform.


As of March 31, 2023, the commitment remains $11.9 million as the Company has not taken delivery of any inventory.

32

NOTE 15. LEASES

The Company has entered into lease agreements, lease amendments, and lease extensionsfollowing presents supplemental information related to our leases in which we are the last of which expires in 2022. Total rent expense, including common area charges was $308,000 and $286,000lessee for the three months ended September 30, 2017March 31, 2023 and 2016, respectively, and for the nine months ended September 30, 2017 and 2016 was $933,000 and $826,000, respectively. Future minimum lease payments under operating lease agreements are as follows:2022 (in thousands):


Three Months Ended March 31,
20232022
Cash paid for amounts included in lease liabilities:
Operating cash flows from operating leases$226 $205 
Financing cash flows from finance leases$77 $— 
ROU assets obtained in exchange for lease obligations:
Operating leases$— $— 
Finance leases$— $240 
Lease Cost:
Operating leases$249 $305 
Finance leases$261 $7 
Short-term leases$24 $20 
Operating Lease Obligations
(in thousands)
Year ending December 31: 
2017$264
20181,022
2019180
202065
202130
Thereafter4
Total operating lease obligations$1,565

Clinical Trial Agreements


The Company has entered into master agreements with clinical trial sitesweighted average remaining lease term on our operating leases is 2.3 years. The weighted average discount rate on those leases is 7.1%. The weighted average remaining lease term on our finance leases is 1.9 years. The weighted average discount rate on those leases is 6.2%.

The following presents maturities of lease liabilities in which we typically payare the lessee as of March 31, 2023 (in thousands):

OperatingFinance
Remainder of 2023$741 $923 
20241,051 976 
2025583 193 
2026— — 
2027— — 
Thereafter— — 
Total lease payments2,375 2,092 
Less imputed interest(185)(273)
$2,190 $1,819 

33

The net investment in sales-type leases, where we are the lessor, is a set amount for start-up costscomponent of other current assets and then pay for work performed. These agreements typically indemnify the clinical trial sites from any and all losses arising from third party claims as a result of the Company’s negligence, willful misconduct or misrepresentation. The Company incurred clinical trial expense of $0 and $354,000 for the three months ended September 30, 2017 and 2016, respectively, and $27,000 and $1.8 million for the nine months ended September 30, 2017 and 2016, respectively. The expense incurred as part of the clinical trial is includedother non-current assets in research and development on theour condensed consolidated statementsbalance sheet. As of operations and comprehensive loss.March 31, 2023, the total net investment in these leases was $2.4 million. The following presents maturities of lease receivables under sales-type leases as of March 31, 2023 (in thousands):


Legal Matters
Remainder of 2023$1,082 
2024867 
2025280 
2026130 
202743 
Thereafter— 
Total undiscounted cash flows2,402 
Less imputed interest— 
Present value of lease payments$2,402 


On March 19, 2015, a putative securities class action lawsuit was filed against Accelerate Diagnostics, Inc., Lawrence Mehren, and Steve Reichling, Rapp v. Accelerate Diagnostics, Inc., et al., U.S. District Court, District of Arizona, 2:2015-cv-00504. The complaint alleges that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, by making false or misleading statements about our Accelerate Pheno™ system, formerly called the BACcel System. Plaintiff purports to bring the action on behalf of a class of persons who purchased or otherwise acquired our stock between March 7, 2014, and February 17, 2015. On June 9, 2015, Julia Chang was appointed Lead Plaintiff of the purported class. On June 23, 2015, Plaintiff filed an amended complaint alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, by making false or misleading statements or omissions about our ID/AST System and by allegedly employing schemes to defraud. Plaintiff sought certification of the action as a class action, compensatory damages for the class in an unspecified amount, legal fees and costs, and such other relief as the court may order. Defendants moved to dismiss the amended complaint on July 21, 2015. The Court granted the motion and dismissed the case with prejudice on January 28, 2016. On February 26, 2016, Plaintiff filed a notice of appeal with the United States Court of Appeals for the Ninth Circuit, which challenges the dismissal of the amended complaint. Chang v. Accelerate Diagnostics, Inc., et al., No. 2:15-CV-00504-SPL (9th Cir. filed Feb. 26, 2016). On September 13, 2017, Plaintiff voluntarily dismissed the appeal and the case has been dismissed with prejudice.



NOTE 17. SEGMENTS16. GEOGRAPHIC AND REVENUE DISAGGREGATION


The Company operates as one operating segment. Operating segments are defined as componentsSales to customers outside the U.S. represented 14% and 15% for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and December 31, 2022, balances due from foreign customers, in U.S. dollars, were $0.7 million and $0.6 million, respectively.

The following presents total net sales by geographic territory for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,
20232022
Domestic$2,416 $2,517 
Foreign396 441 
$2,812 $2,958 

The following presents total net sales by line of business for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,
20232022
Accelerate Pheno revenue$2,812 $2,918 
Other revenue— 40 
$2,812 $2,958 

The following presents total net sales by products and services for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,
20232022
Products$2,444 $2,546 
Services368 412 
$2,812 $2,958 

34

Lease revenue included in net sales was $0.2 million and $0.5 million for the three months ended March 31, 2023 and 2022, respectively.

The following presents property and equipment, net by geographic territory (in thousands):

March 31,December 31,
20232022
Domestic$2,872 $3,120 
Foreign344 358 
$3,216 $3,478 

NOTE 17. STOCKHOLDERS' EQUITY

March 2022 Exchange Transaction

On March 29, 2022, the holder of the New Exchange Notes legally exchanged approximately $1.8 million in aggregate principal amount of New Exchange Notes held by the holder for 849,713 shares of the Company’s common stock pursuant to the March 2022 Exchange Agreement. Using the closing stock price on March 29, 2022 of $1.48, the 849,713 shares of the Company's common stock were determined to have a value of $1.3 million, which was recorded to contributed capital during the three months ended March 31, 2022. See Note 9, Convertible Notes for additional information.

March 2022 Securities Purchase Agreement

On March 24, 2022, the Company entered into a securities purchase agreement (the “March 2022 Securities Purchase Agreement”) with the Schuler Trust for the issuance and sale by the Company of an enterpriseaggregate of 2,439,024 shares of the Company’s common stock to the Schuler Trust in an offering (the “Private Placement”) exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. Pursuant to the March 2022 Securities Purchase Agreement, the Schuler Trust agreed to purchase the shares at a purchase price (determined in accordance with Nasdaq rules relating to the “market value” of the Company’s common stock) of $1.64 per share, for an aggregate purchase price of $4.0 million. The Company and the Schuler Trust agreed to extend the closing date of the Private Placement from March 24, 2023 to April 20, 2023, which separate financialwas further extended in accordance with the terms of the Restructuring Support Agreement. See Note 19, Subsequent Events for additional information is evaluated regularlyabout the contemplated restructuring of the Company’s capital structure, including the Notes, the Secured Note and the Company’s Series A Preferred Stock, as well as a contemplated amendment to the March 2022 Securities Purchase Agreement , in connection with the Restructuring Support Agreement.

NOTE 18. RELATED-PARTY TRANSACTIONS

March 2022 Securities Purchase Agreement

As discussed in Note 17, Stockholders' Equity, on March 24, 2022, the Company entered into the March 2022 Securities Purchase Agreement with the Schuler Trust for the issuance and sale by the chief operating decision maker, whoCompany of 2,439,024 shares of the Company’s common stock. Jack Schuler serves as a member of the Company’s board of directors and is the chief executive officer,sole trustee of the Schuler Trust. Pursuant to the March 2022 Securities Purchase Agreement, the Schuler Trust agreed to purchase the shares at a purchase price of $1.64 per share, for an aggregate purchase price of $4.0 million.

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August 2022 Exchange Transaction

As discussed in deciding how to allocate resources and assessing performance. The Company’s business operates in one operating segment becauseNote 10, Long-Term Debt Related-Party, on August 15, 2022, the Company entered into the August 2022 Exchange Agreement with the Schuler Trust. Jack Schuler serves as a member of the Company’s chief operating decision maker evaluatesboard of directors and is the sole trustee of the Schuler Trust. Under the terms of the August 2022 Exchange Agreement, the Schuler Trust agreed to exchange with the Company $49.9 million in aggregate principal amount of Notes held by it for the Secured Note in an aggregate principal amount of $34.9 million and the Warrant. The Secured Note’s carrying amount is $17.4 million and accrued interest expense is $1.1 million. The Secured Note’s interest is payable at the option of the Company in the same form as the principal, at the earlier of (i) any prepayment of principal and (ii) maturity. It is the Company’s intention to pay all interest at maturity. No principal or accrued interest under the Secured Note have been paid or shares issued as of March 31, 2023.

See Note 19, Subsequent Events for additional information about the contemplated restructuring of the Company’s capital structure, including the Notes, the Secured Note and the Company’s Series A Preferred Stock, as well as a contemplated amendment to the March 2022 Securities Purchase Agreement, in connection with the Restructuring Support Agreement.

NOTE 19. SUBSEQUENT EVENTS

The Company evaluates events that have occurred after the balance sheet date but before the financial information and resources and assesses the performance of these resources on a consolidated basis. Sincestatements are issued.

Restructuring Support Agreement

On April 21, 2023, the Company operates in one operating segment, all required financial segment information can be foundentered into the Restructuring Support Agreement with (i) certain holders of the Notes (together with holders that subsequently execute a Joinder or Transferee Agreement (each as defined in the consolidated financial statements.Restructuring Support Agreement, the “Consenting Noteholders”), (ii) the holder (together with any holders that subsequently execute a Transferee Agreement, the “Consenting Senior Secured Lenders”) of claims arising from the Secured Note (the “Senior Secured Claims”) and (iii) the holders (together with any holders that subsequently execute a Transferee Agreement the “Consenting Preferred Shareholders,” and collectively with the Consenting Noteholders and Consenting Senior Secured Lenders, the “Consenting Stakeholders”) of the Company’s Series A Preferred Stock (the “Existing Preferred Interests”). Pursuant to the transactions contemplated by the Restructuring Support Agreement, the Company will be relieved of approximately $92.2 million of outstanding indebtedness and will incur approximately $67.3 million of indebtedness in the form of New Senior Secured Convertible Notes (as defined below) which are expected to have a term of 3.5 years, in each case subject to increase on account of interest accrued from March 15, 2023, and will receive up to approximately $14 million of additional funding (plus up to an additional $20 million of equity funding pursuant to the additional securities purchase agreement referred below). These transactions are expected to result in the issuance of significant amounts of common Stock and securities convertible into significant amounts of common Stock as described below.


On the Effective Date (as defined in the Restructuring Support Agreement), the Company expects to enter into the transactions described in this paragraph pursuant to the Restructuring Support Agreement. The Company expects to issue approximately $57.3 million aggregate principal amount of New Senior Secured Convertible Notes to the Consenting Noteholders in exchange for a like aggregate amount of the outstanding existing Notes (plus additional New Senior Secured Convertible Notes in respect of interest accrued on the from March 15, 2023). Separately, subject to agreed allocations, certain Consenting Noteholders have committed to purchase $10 million of additional New Senior Secured Convertible Notes, in the aggregate. The New Senior Secured Convertible Notes are expected to have a term of 3.5 years and would be convertible at the election of the holder into up to approximately 93.5 million shares of Company’s common stock (without giving effect to interest accrued on the Notes since March 15, 2023) at a conversion price of approximately $0.72 per share and would bear interest at a rate of 5% per annum, payable in kind. Interest on the New Senior Secured Convertible Notes would be convertible into up to approximately 18.0 million shares of the Company’s common stock if held to maturity. The conversion price is subject to adjustment based on the difference between the 31 to 90 day volume-weighted average price, subject to a cap of $0.83 per share. The foregoing amounts are based on the amount of principal and accrued but unpaid interest on the Notes as of March 15, 2023 and the final amounts will be adjusted based on interest accrued on the Notes after March 15, 2023. Pursuant to the Restructuring Support Agreement, the Senior Secured Claims in the aggregate principal amount of $35.9 million (inclusive of accrued interest) would be converted into the Company’s common stock at a price of $1.06 per share or approximately 34.0 million shares valued at $1.06 per share and the Existing Preferred Interests would be converted into 3,954,546 shares of the Company’s common
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stock. Also pursuant to the Restructuring Support Agreement, the Company would enter into an amendment to the March 2022 Securities Purchase Agreement that it entered into with the Schuler Trust in March 2022. Pursuant to this amendment, the Company would issue approximately 5.0 million shares of the Company’s common stock valued at $0.82 per share to the Schuler Trust for proceeds of $4.0 million, with the closing date under the March 2022 Securties Purchase Agreement also being extended to the effective date. Also pursuant to the Restructuring Support Agreement, the Company would enter into an additional securities purchase agreement with the Schuler Trust that would require the Schuler Trust at the Company’s option to either purchase approximately 14.0 million shares of common stock from the Company for aggregate proceeds of $10.0 million or to backstop a public offering by the Company of common stock at market prices for proceeds of $10.0 million. If other investors purchase $10 million of common stock in the public offering, the Schuler Trust will have the right, but not the obligation, to purchase up to $10 million of additional shares of common stock at the public offering price for the backstopped offering.

The Company and the Consenting Stakeholders agreed to negotiate in good faith to effect the Restructuring Transactions as an Out-of-Court Restructuring. The Consenting Noteholders party to the Restructuring Support Agreement held 91% in aggregate principal amount of the Notes as of April 21, 2023. In connection with the Out-of-Court Restructuring, holders of no less than 99% (the “Consent Condition Milestone”) in principal amount of the outstanding Notes must agree to exchange their existing Notes for a like aggregate amount of senior secured convertible notes (“New Senior Secured Convertible Notes”). In the event that the requisite consents for the Out-of-Court Restructuring are not obtained by the date provided for in the Restructuring Support Agreement, the Company and Consenting Stakeholders have agreed to consummate the Restructuring Transactions pursuant to a pre-packaged plan of reorganization under chapter 11 of the U.S. Bankruptcy Code.

The Restructuring Support Agreement may be mutually terminated by the Company and certain Consenting Stakeholders by written agreement. The Restructuring Support Agreement will automatically terminate immediately upon (a) the date that is 10 days after any third party files involuntary bankruptcy petitions in respect of the Company unless such petitions have been dismissed or (b) the consummation of the Restructuring Transactions on the terms and conditions set forth in the Restructuring Support Agreement. The Company and the Consenting Stakeholders each have termination rights if certain conditions are not met.

In connection with the Restructuring Support Agreement and the transactions contemplated thereby, on April 14, 2023, the Company’s board of directors approved an amendment to the Company’s Certificate of Incorporation to increase the total number of authorized shares of the Company’s capital stock to 455,000,000 shares, of which 450,000,000 shares are to be designated as common stock and 5,000,000 shares are to be designated as preferred stock. The adoption of this amendment is subject to the consent of the stockholders of the Company. The Company filed a Preliminary Proxy Statement on April 21, 2023 and a Definitive Proxy Statement on May 1, 2023 (the “Proxy Statement”) seeking stockholder approval of the amendment in order to enable the Company to restructure the Company’s outstanding Notes, including to be able to reserve for issuance shares of common stock that would underlie the New Senior Secured Convertible Notes to be issued in connection with the restructuring. In the Proxy Statement, the Company is also seeking stockholder approval prior to the issuance of the Company’s common stock or securities convertible or exercisable into common stock in connection with the restructuring in accordance with the NASDAQ Listing Rule 5635(d). These proposals in the Proxy Statement provide additional details concerning the transactions contemplated by the Restructuring Support Agreement.

On May 12, 2023, the Company and the Consenting Noteholders agreed to extend the Consent Condition Milestone to no later than 11:59 P.M. (Eastern Daylight Time) on May 16, 2023.

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NOTE 18. RELATED PARTY TRANSACTIONSItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


In June 2016,
Introductory Note

Except as otherwise indicated by the Company recorded a net amount of $866,000 relatedcontext, references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to the recovery“Company,” “Accelerate,” “we,” “us” or “our” are references to the combined business of short-swing profits underAccelerate Diagnostics, Inc. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) summarizes the significant factors affecting our results of operations, liquidity, capital resources and contractual obligations. The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes included elsewhere herein.

All amounts in the MD&A have been rounded to the nearest thousand unless otherwise indicated.

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements within the meaning of Section 16(b)27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements, which can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or “continue,” or variations thereon or comparable terminology, include but are not limited to, statements about our future development plans and growth strategy, including plans and objectives relating to our future operations, products and performance; projections as to when certain key business milestones may be achieved; expectations regarding the potential or benefits of our products and technologies; projections of future demand for our products; our continued investment in new product development to both enhance our existing products and bring new ones to market; the anticipated impacts from the COVID-19 pandemic on the Company, including to our business, results of operations, cash flows and financial position, as well as our future responses to the COVID-19 pandemic; our expectations relating to current supply chain impacts and inflationary pressures, including our belief that we currently have sufficient inventory of Accelerate Pheno system instruments to limit the impact of cost increases on such devices; our expectations regarding our commercial partnership with Becton, Dickinson and Company (“BD”), including anticipated benefits from such collaboration; our expectations and plans relating to regulatory approvals, including with respect to the U.S. Food and Drug Administration (“FDA”) and 510(k) clearance for our Accelerate Arc Products (as defined in this Form 10-Q); our plans to continue marketing and distributing the Accelerate Arc Products in Europe pursuant to its existing CE In Vitro Diagnostic Regulation (IVDR) registration; our liquidity and capital requirements, including, without limitation, as to our ability to continue as a going concern and our belief that we do not currently have adequate financial resources to pay our outstanding debt obligation under the Company’s 2.50% Convertible Senior Notes (the “Notes”) and to fund our forecasted operating costs for at least twelve months from the filing of this Form 10-Q; and our plans and expectations relating to the terms and consummation of the Restructuring Transactions contemplated by the Restructuring Support Agreement, including, but not limited to, the anticipated issuance of significant amounts of common stock and securities convertible into significant amounts of common stock and the resulting impact to the Company’s capital structure. In addition, all statements other than statements of historical facts that address activities, events, or developments the Company expects, believes, or anticipates will or may occur in the future, and other such matters, are forward-looking statements.

Future events and actual results could differ materially from those set forth in, contemplated or suggested by, or underlying the forward-looking statements. There can be no assurances that results described in forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements. The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties, including the duration of the diminished COVID-19 pandemic, including any new variants that may become predominant; government and other third-party responses to it and the consequences for the global economy and the businesses of our suppliers and customers, such as the possibility of customer demand fluctuations, supply chain constraints and inflationary pressures; and its ultimate effect on our business, results of operations, cash flows and financial position, as well as difficulties in resolving our continuing financial condition and ability to obtain additional capital to meet our financial obligations, including, without limitation, difficulties in obtaining adequate capital resources to fund our operations and whether we will be successful in consummating the Restructuring Transactions contemplated by the Restructuring Support Agreement,
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including, among other things, obtaining the requisite consents for the contemplated Out-of-Court Restructuring. Other important factors that could cause our actual results to differ materially from those in our forward-looking statements include those discussed herein, and in other reports filed with the U.S. Securities and Exchange Commission (the “SEC”) including but not limited to the risks in the section entitled “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 10-K”), the section entitled “Risk Factors” in this Form 10-Q and in the Company’s subsequent filings with the SEC. These forward-looking statements are also based on certain additional assumptions, including, but not limited to, that we will retain key management personnel; we will be successful in the commercialization of our products; we will obtain sufficient capital to commercialize our products and continue development of complementary products; we will be successful in obtaining marketing authorization for our products from the FDA and other regulatory agencies and governing bodies; we will be able to protect our intellectual property; our ability to respond effectively to technological change; our ability to accurately anticipate market demand for our products; and that there will be no material adverse change in our operations or business and general market and industry conditions. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized. Any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

Accelerate is an in vitro diagnostics company dedicated to providing solutions that improve patient outcomes and lower healthcare costs through the rapid diagnosis of serious infections. Microbiology laboratories need new tools to address what the U.S. Centers for Disease Control and Prevention (the “CDC”) calls one of the most serious healthcare threats of our time, antibiotic resistance. A significant contributing factor to the rise of resistance is the overuse and misuse of antibiotics, which is exacerbated by a lack of timely diagnostic results. The delay of identification and antibiotic susceptibility results is often due to the reliance by microbiology laboratories on traditional culture-based tests that often take two to three days to complete. Our technology platform is intended to address these challenges by delivering significantly faster testing of infectious pathogens in various patient sample types.

Our first system to address these challenges is the Accelerate Pheno® system. The Accelerate PhenoTest® BC Kit, which is the first test kit for the system, is indicated as an aid, in conjunction with other clinical and laboratory findings, in the diagnosis of bacteremia and fungemia, both life-threatening conditions with high morbidity and mortality risk. The device provides identification (“ID”) results followed by antibiotic susceptibility testing (“AST”) for certain pathogenic bacteria commonly associated with or causing bacteremia. This test kit utilizes genotypic technology to identify infectious pathogens and phenotypic technology to conduct AST, which determines whether live bacterial cells are resistant or susceptible to a particular antimicrobial. This information can be used by physicians to rapidly modify antibiotic therapy to lessen adverse events, improve clinical outcomes, and help preserve the useful life of antibiotics.

On June 30, 2015, we declared our conformity to the European In Vitro Diagnostic Directive 98/79/EC and applied a CE mark to the Accelerate Pheno system and the Accelerate PhenoTest BC Kit for in vitro diagnostic use. On February 23, 2017, the FDA granted our de novo classification request to market the first version of our Accelerate Pheno system and Accelerate PhenoTest BC Kit.

In 2017, we began selling the Accelerate Pheno system in hospitals in the United States, Europe, and the Middle East. Consistent with our “razor” / “razor-blade” business model, revenues to date have principally been generated from the sale or leasing of the instruments and the sale of single use consumable test kits.

In July 2021, we launched our second test for use on the Accelerate Pheno system, the Accelerate PhenoTest BC Kit, AST configuration. This test kit runs antibiotic susceptibility testing following the input of an ID result from another system or methodology. In August 2021, we announced that this new AST only configuration had been CE marked for use in Europe. We believe this new AST only configuration may be attractive to prospective customers who already have a rapid ID system but still need fast susceptibility results to support getting patients on an optimal antibiotic therapy as soon as possible.
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In March and May 2022, we announced the launch and commercialization of the Accelerate ArcTM system and BC Kit (“Accelerate Arc Products”). This instrument and associated one-time-use test kit automates the clean-up and concentration of microbial cells from positive blood culture samples. In May 2022, we announced IVD registration of the Accelerate Arc system and BC Kit with the FDA as a Class I device exempt from FDA clearance requirements, and in June 2022 we received CE IVDR registration for use in Europe.

On October 21, 2022, the “Company announced it has been in discussions with the FDA regarding its Accelerate Arc Products. Pursuant to such discussions, the FDA has challenged the Company’s commercialization of this product in the United States as a Class I device exempt from 510(k) clearance requirements. The Company recognizedis in active dialogue with the FDA to determine the appropriate regulatory pathway. While these discussions are ongoing the Company has put on hold in the United States its sales and marketing efforts of Accelerate Arc Products. The Company will continue marketing and distributing the Accelerate Arc Products in Europe pursuant to its existing CE In Vitro Diagnostic Regulation (IVDR) registration.

In August 2022, we entered into a sales and marketing agreement (the “Sales and Marketing Agreement”) with BD pursuant to which BD will perform certain sales, tactical marketing, technical service call forwarding, order preparation, research and development support and/or regulatory activities on our behalf as our exclusive sales agent for certain of our products, including the Accelerate Pheno system, Accelerate Arc Products. The Sales and Marketing Agreement also grants to BD certain other rights to certain of our future products. We entered into the Sales and Marketing Agreement in order to leverage BD’s expansive global sales team, benefit from natural synergies between BD’s existing products and those from us, and reduce our sales and marketing expenses. The Company and BD subsequently agreed to modify certain terms of the Sales and Marketing Agreement in 2022 and in 2023.

We continue to invest in new product development to both enhance our existing products and bring new ones to market. Current research and development areas of focus include the potential addition, if authorized by the FDA, of new AST content to our Accelerate Pheno system, additional applications for the Accelerate Arc Products, and a next generation AST platform, which is being developed with the goal to have lower costs, higher throughput, and capability to test a broader set of sample types compared to the current Accelerate Pheno system.

COVID-19 and Supply Chain Impacts Update

In late 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China, and spread globally. In March 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 outbreak resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place, stay-at-home or total lock-down (or similar) orders and business limitations and shutdowns. New cases and hospitalizations have risen and fallen throughout the course of this pandemic. Since the initial outbreak, the emergence and spread of new variants of COVID-19 that are significantly more contagious than previous strains initially led many government authorities and businesses to reimplement prior restrictions in an effort to lessen the spread of COVID-19 and its variants. While most of these restrictions have been lifted, uncertainty remains as to whether additional restrictions may be initiated or again reimplemented in response to surges in COVID-19 cases. The lingering impact of the COVID pandemic continues to create significant volatility throughout the global economy, including supply chain constraints, labor supply issues and higher inflation. Accordingly, it is unclear at this point the full impact COVID-19 and its variants will have on the global economy and on our Company.

The COVID-19 pandemic, containment measures, and downstream impacts to hospital staffing and financial stability have caused, and are continuing to cause, business slowdowns in affected areas, both regionally and worldwide, as well as disruptions to global supply chains and workforce participation. These effects have significantly impacted our business and results of operations, starting in the first quarter of 2020 and continuing through the current quarter, albeit to a lesser degree. For example, we have experienced diminished access to our customers, including hospitals, which has severely limited our ability to sell and, to a lesser degree, implement previously contracted Accelerate Pheno systems. Hospital turnover resulting from burnout and vaccine mandates have further diverted the attention of hospital decision makers. In addition, in certain months with high rates of COVID-19 hospitalization, our Accelerate PhenoTest BC Kit orders declined as many hospitals curtailed elective surgeries to respond to COVID-19.

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The reduced new instrument sales and implementations caused by the COVID-19 pandemic lowered our realized and expected revenue growth for 2020 and 2021. In 2022, we began to see many of the detrimental effects of the pandemic on our business discussed above start to ease. For example, in recent quarters, we have seen bloodstream infection testing regain normalcy, which has in turn lessened the adverse impact of the COVID-19 pandemic on our recurring revenues through the sale of Accelerate PhenoTest BC Kits. However, with the emergence of new COVID-19 variants, vaccine hesitancy and the prevalence of breakthrough cases of infection among fully vaccinated people, there remains uncertainty regarding our access to customers and prospects, demand for our products, and ability to implement our products.

As a medical device company, we have not experienced any disruptions to our ability to manufacture our products at our Tucson, Arizona headquarters under the various State of Arizona executive orders relating to the COVID-19 pandemic because we were classified as an essential service. We continue to expect that, should future orders be issued, we would be able to sustain our essential operations. Our third-party manufacturing supply chain for Accelerate Pheno systems and consumable test kits remains stable despite a high-degree of unpredictability in the broader supply chain environment. However, like many industries experiencing inflationary pressures in raw materials, the direct costs to manufacture our products are increasing and delivery schedules elongating.

For example, we are currently experiencing unprecedented cost increases from many of our suppliers primarily as a result of labor and supply disruptions and increased inflation. The areas of cost increases include raw materials, components, and value-add supplier labor. We believe that we currently have sufficient inventory of Accelerate Pheno system instruments to limit the impact of cost increases on such devices. However, we are being impacted by cost increases to components and raw materials necessary for the production of our Accelerate Pheno kits. Our ability to pass increased material costs to many of our customers is limited because of long-term sales agreements with limits on price increases. Accordingly, we are closely monitoring the ability of all our suppliers to provide us with necessary materials and services at reasonable costs. See “Risk Factors - Risks Related to Our Business and Strategy - Disruptions in the supply of raw materials, consumable goods or other key product components, or issues associated with their quality from our single source suppliers, could result in a significant disruption in sales and profitability” in Part I, Item 1A of 2022 10-K for additional information.

We continue to monitor the evolving impacts to our business caused by the COVID-19 pandemic, supply chain issues and inflationary cost increases. The degree to which the these issues ultimately impact our business, results of operations, cash flows and financial position will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to the financial impact of COVID-19 on hospitals, including to their budget priorities; hospital staffing issues; general economic factors, such as increased inflation; global supply chain constraints and the related increase in costs; labor supply issues; and how quickly and to what extent normal economic and operating conditions can resume.

Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends. Refer to the section entitled “Risk Factors” in the 2022 10-K for additional risks we face due to the COVID-19 pandemic, including risks relating to our supply chain.

Changes in Results of Operations: Three months ended March 31, 2023 compared to three months ended March 31, 2022

The Company has provided enhanced information in a tabular format which presents some of the captions presented on the statement of operations less non-cash equity-based compensation expense. These figures are reconciled to the statement of operations and are intended to add additional clarity on the operating performance of the business. The Company believes providing such figures less non-cash equity-based compensation expense provides helpful information for investors in understanding and evaluating our operating results in the same manner as our management and our board of directors.

Three Months Ended March 31,
(in thousands)
20232022$ Change% Change
Net sales$2,812 $2,958 $(146)(5)%

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For the three months ended March 31, 2023, total revenues decreased due to lower sales of Accelerate PhenoTest instruments compared to the three months ended March 31, 2022 which was partially offset by an increase in revenue from sales of Accelerate PhenoTest BC Kits as customers completed their instrument verifications and began purchasing kits.

Three Months Ended March 31,
(in thousands)
20232022$ Change% Change
Cost of sales$1,801 $2,156 $(355)(16)%
Non-cash equity-based compensation as a component of cost of sales90 175 (85)(49)%
Cost of sales less non-cash equity-based compensation$1,711 $1,981 $(270)(14)%

For the three months ended March 31, 2023, cost of sales decreased as compared to the three months ended March 31, 2022. This decrease is primarily due to lower sales of Accelerate PhenoTest instruments. Other factors include the reduction in costs to manufacture consumables, instruments being sold to customers that were expensed in a previous year and a decrease in non-cash equity-based compensation expense.

Cost of sales includes non-cash equity-based compensation expense of $0.1 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively. Non-cash equity-based compensation expense decreased for the three months ended March 31, 2023 when compared to the three months ended March 31, 2022. Non-cash equity-based compensation expense is a component of manufacturing overhead and service cost of sales. Manufacturing overhead is capitalized as inventory and relieved to cost of sales when products are sold to a customers, or when instruments under reagent rentals are amortized to cost of sales.

Cost of sales expenses excluding non-cash equity-based compensation expense for the three months ended March 31, 2023 decreased compared to the three months ended March 31, 2022. This decrease is primarily due to lower sales of Accelerate PhenoTest instruments. Other factors include the reduction in costs to manufacture consumables and instruments being sold to customers that were expensed in a previous year.

Three Months Ended March 31,
(in thousands)
20232022$ Change% Change
Gross profit$1,011 $802 $209 26 %
Non-cash equity-based compensation as a component of gross profit90 175 (85)(49)%
Gross profit less non-cash equity-based compensation$1,101 $977 $124 13 %

The Company’s overall gross margin was 36% and 27% for the three months ended March 31, 2023 and 2022, respectively. The increase in gross margin is primarily due to reductions in costs to manufacture consumables. Other contributing factors include increased margin from select instruments being sold to certain customers with more favorable gross margins, which included instruments that were expensed in a previous year. The Company also incurred a decrease in non-cash equity-based compensation expense which also benefited gross margin.

Gross profit excluding non-cash equity-based compensation expense for the three months ended March 31, 2023 increased compared to the three months ended March 31, 2022. The increase in gross margin is primarily due to reductions in costs to manufacture consumables. Other contributing factors include increased margin from select instruments being sold to certain customers with more favorable gross margins, which included instruments that were expensed in a previous year.

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Three Months Ended March 31,
(in thousands)
20232022$ Change% Change
Research and development$6,968 $6,024 $944 16 %
Non-cash equity-based compensation as a component of research and development605 362 243 67 %
Research and development less non-cash equity-based compensation$6,363 $5,662 $701 12 %

Research and development expenses for the three months ended March 31, 2023 increased as compared to the three months ended March 31, 2022 primarily due to increases in contracted service costs for the development of our next generation AST platform.

Research and development expenses include non-cash equity-based compensation expense of $0.6 million and $0.4 million for the three months ended March 31, 2023 and 2022, respectively. Non-cash equity-based compensation expense increased for the three months ended March 31, 2023 when compared to the three months ended March 31, 2022, due to a large number of stock awards being granted during the three months ended March 31, 2023.

Research and development expenses excluding non-cash equity-based compensation expense for the three months ended March 31, 2023 increased compared to the three months ended March 31, 2022, primarily due to increases in contracted service costs for the development of our next generation AST platform.

Three Months Ended March 31,
(in thousands)
20232022$ Change% Change
Sales, general and administrative$10,105 $10,673 $(568)(5)%
Non-cash equity-based compensation as a component of sales, general and administrative(140)2,442 (2,582)(106)%
Sales, general and administrative less non-cash equity-based compensation$10,245 $8,231 $2,014 24 %

Sales, general and administrative expenses for the three months ended March 31, 2023 decreased as compared to the three months ended March 31, 2022, primarily due to a decrease in non-cash equity-based compensation expense, partially offset by increased legal and professional services in connection with the restructuring activities relating to the Notes.

Sales, general and administrative expenses includes a non-cash equity-based compensation reversal of $0.1 million and expense of $2.4 million for the three months ended March 31, 2023 and 2022, respectively. Non-cash equity-based compensation expense decreased for the three months ended March 31, 2023 when compared to the three months ended March 31, 2022, primarily due to the reversal of non-cash equity-based compensation expense from forfeitures. Employees separating from the Company forfeited an increased number of stock options and RSUs than in the previous period.

Sales, general and administrative expenses excluding non-cash equity-based compensation expense for the three months ended March 31, 2023 increased compared to the three months ended March 31, 2022, primarily due to increased legal and professional services in connection with the restructuring activities relating to the Notes.

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Three Months Ended March 31,
(in thousands)
20232022$ Change% Change
Loss from operations$(16,062)$(15,895)$(167)1 %
Non-cash equity-based compensation as a component of loss from operations555 2,979 $(2,424)(81)%
Loss from operations less non-cash equity-based compensation$(15,507)$(12,916)$(2,591)20 %

For the three months ended March 31, 2023, our loss from operations increased as compared to the three months ended March 31, 2022. The increase was primarily the result of increased sales, general and administrative expenses in connection with the restructuring activities relating to the Notes along with increases in research and development expenses to develop our next generation AST platform. These increases were partially offset by a decrease in non-cash equity-based compensation expense for the three months ended March 31, 2023.

Loss from operations excluding non-cash equity-based compensation expense for the three months ended March 31, 2023 increased compared to the three months ended March 31, 2022. The increase was primarily the result of increased sales, general and administrative expenses in connection with the restructuring activities relating to the Notes along with increases in research and development expenses to develop our next generation AST platform.

This loss and further losses are anticipated and was the result of our continued investments in sales and marketing, key research and development personnel, related costs associated with product development, and commercialization of the Company’s products.

Three Months Ended March 31,
(in thousands)
20232022$ Change% Change
Total other (expense) income, net$(733)$2,430 $(3,163)(130)%

For the three months ended March 31, 2023 the Company incurred other expense, net compared to other income, net for the three months ended March 31, 2022. This change was the result of a gain on extinguishment relating to certain Notes that were exchanged for the Company’s common stock during the three months ended March 31, 2022. After giving effect for mark to market adjustments and the legal exchange of such Notes the Company recorded a gain on extinguishment of $3.4 million during the three months ended March 31, 2022.

Three Months Ended March 31,
(in thousands)
20232022$ Change% Change
Provision for income taxes$— $— $— NM

NM indicates percentage is not meaningful

For the three months ended March 31, 2023 and 2022, the Company did not carry an income tax provision amount as the Company does not recognize tax benefits from current period tax losses in the U.S. and other foreign jurisdictions.

Capital Resources and Liquidity

Since inception, the Company has not achieved profitable operations or positive cash flows from operations. The Company’s accumulated deficit totaled $624.0 million as of March 31, 2023. During the three months ended March 31, 2023, the Company had a net loss of $16.8 million and negative cash flows from operations of $13.4 million. The Notes matured on March 15, 2023 and became due and payable.

44

On March 9, 2023, the Company entered into a forbearance agreement (the “Forbearance Agreement”), which became effective on March 13, 2023, with the holders of approximately 85% of the Company’s outstanding Notes (collectively, the “Ad Hoc Noteholder Group”) and the trustee for the Notes (the “Trustee”). Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the indenture governing the Notes (the “Indenture”) in connection with certain events of default under the Indenture, including, but not limited to, the failure to timely pay in full the principal of any Note due and payable on March 15, 2023 and the failure to pay any interest on any Note due and payable. The Forbearance Agreement was initially effective for the period commencing on March 13, 2023 and ending on March 29, 2023, which was subsequently extended by the parties to April 21, 2023. On April 21, 2023, the Company entered into a restructuring support agreement (the “Restructuring Support Agreement”) with certain holders of the Notes, the holder of the Company’s secured promissory note in an aggregate principal amount of $34.9 million (the “Secured Note”) and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure (the “Restructuring Transactions”), including the Notes, the Secured Note and the Company’s Series A Preferred Stock, as well as a contemplated amendment to the March 2022 Securities Purchase Agreement (as defined below), as an out-of-court restructuring and not involve any judicial proceeding or approval (the “Out-of-Court Restructuring”). See Part I, Item 1, Note 19, Subsequent Events for additional information.

As of March 31, 2023, the Company had $31.9 million in cash and cash equivalents and investments, a decrease of $13.7 million from $45.6 million at December 31, 2022. The primary reason for the decrease was due to cash used in operations during the period. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations.

The Company is subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching the Company’s products, development and market acceptance of the Company’s product candidates, development by its competitors of new technological innovations, protection of proprietary technology, and raising additional capital. Historically, the Company has funded its operations primarily through multiple equity raises and the issuance of debt (see below and Note 9, Convertible Notes, Note 10, Long-Term Debt Related-Party and Note 17, Stockholders' Equity in Part I, Item 1 of this Form 10-Q for additional information).

Based on its evaluation pursuant to ASC 205-40, the Company has determined that, as of the date of this Form 10-Q filing, there is substantial doubt about its ability to continue as a going concern, as the Company does not currently have adequate financial resources to pay its outstanding debt obligation under the Notes and to fund its forecasted operating costs for at least twelve months from the filing of this Form 10-Q.

Our primary use of capital has been for the development and commercialization of the Accelerate Pheno system and development of complementary products. While the Company continues to explore additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, as well as non-cash means to settle and/or refinance the Notes in accordance with the Restructuring Support Agreement, there can be no assurance the necessary financing will be available on terms acceptable to the Company, or at all. If the Company raises funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of common stock. If the Company raises funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of preferred and common stockholders. The terms of debt securities or borrowings could impose significant restrictions on our operations. The capital markets have in the past, and may in the future, experience periods of upheaval that could impact the availability and cost of equity and debt financing. In addition, recent and anticipated future increases in federal fund rates set by the Federal Reserve, which serve as benchmark rates on borrowing, and other general economic conditions may impact the cost of debt financing or refinancing existing debt.

Although we are actively considering all available strategic alternatives to maximize value, if we are unable to obtain adequate capital resources to fund operations, we would not be able to continue to operate our business pursuant to our current plans. This may require us to, among other things, materially modify our operations to reduce spending; sell assets or operations; delay the implementation of, or revising certain aspects of, our business strategy; or discontinue our operations entirely. Additionally, if the Company is unable to consummate the Restructuring Transactions contemplated by the Restructuring Support Agreement, including in the event that the requisite consents for the contemplated Out-of-Court Restructuring are not obtained by the date provided for in the Restructuring Support Agreement, the Company and the Consenting Stakeholders (as defined elsewhere in this
45

Form 10-Q) have agreed to consummate the Restructuring Transactions pursuant to a pre-packaged plan of reorganization under chapter 11 of the U.S. Bankruptcy Code.

In connection with the preparation of this Form 10-Q, the Company is required to evaluate its financial condition as of the date of filing this Form 10-Q pursuant to the requirements of ASC 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

The Company is subject to lease agreements. The future minimum lease payments under these lease agreements are included in Part I, Item 1, Note 15, Leases.

For more information on the Company’s liquidity please see Part I, Item 1, Note 1, Organization and Nature of Business; Basis of Presentation; Principles of Consolidation; Significant Accounting Policies.

As of March 31, 2023, our contractual material cash requirements were as follows:

Payments due by Period
(in thousands)
Material Cash RequirementsTotal20232024202520262027Thereafter
Operating lease obligations$2,375 $741 $1,051 $583 $— $— $— 
Purchase obligation 1)
11,900 — — — — 11,900 — 
Finance lease obligations2,092 923 976 193 — — — 
Deferred compensation978 — — 356 381 241 — 
Convertible notes56,595 56,595 — — — — — 
Convertible notes interest707 707 — — — — — 
Related party secured note 2)
34,934 — — — — 34,934 — 
Related party secured note interest 3)
9,863 — — — — 9,863 — 
Total$119,444 $58,966 $2,027 $1,132 $381 $56,938 $— 

1) The Company entered into a non-cancellable purchase obligation with a supplier to acquire raw materials for a total commitment of $11.9 million. Under the terms of this agreement the Company has until March 15, 2027 to take delivery of purchased items. As of March 31, 2023 the commitment remains $11.9 million as the Company has not taken delivery of any inventory.

2) The Company may, at its option, repay the note in (i) cash or (ii) in the form of common stock of the Company. However, the amount of shares to repay the Secured Notes, shall not exceed an aggregate amount of 19.99% of the Company’s outstanding shares of common stock, and any remainder amount due will be paid in cash.

3) The Company may, at its option, repay the interest in (i) cash or (ii) in the form of common stock of the Company, which is due on or after August 15, 2027. The Secured Note bears interest at a rate of 5.0% per annum and if the Company were to make a first and final interest payment on the maturity date of August 15, 2027, the interest payable amount would be $9.9 million. As of March 31, 2023, accrued interest is $1.1 million.

Until such time as we can generate substantial product revenue, we expect to finance our cash requirements, beyond what is currently available or on hand, through a combination of equity offerings and debt financings, or contributed partnership fees.

46

Summary of Cash Flows

The following summarizes selected items in the Company’s condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022:

Cash Flow Summary
Three Months Ended March 31,
(in thousands)
20232022$ Change
Net cash used in operating activities$(13,367)$(12,606)$(761)
Net cash provided (used) by investing activities8,209 (13,641)21,850 
Net cash (used) provided by financing activities(77)77 (154)

Cash flows from operating activities

During the three months ended March 31, 2023, net cash used in operating activities was primarily the result of net losses, partially offset by the amortization of a debt discount from a related party, depreciation and amortization, and equity-based compensation.

During the three months ended March 31, 2022, net cash used in operating activities was primarily the result of net losses and gain on extinguishment of debt, partially offset by equity-based compensation, and depreciation and amortization.

Cash flows from investing activities

The net cash provided by investing activities was $8.2 million for the three months ended March 31, 2023, resulting from maturities of marketable securities.

The net cash used by investing activities was $13.6 million for the three months ended March 31, 2022. The Company had purchases of marketable securities of $24.1 million which were offset in part by maturities of marketable securities of $11.0 million.

Cash flows from financing activities

The net cash used by financing activities was $0.1 million for the three months ended March 31, 2023, resulting from the payments of finance leases.

The net cash provided by financing activities was $0.1 million for the three months ended March 31, 2022, resulting from proceeds from the issuance of common stock under the Company’s employee stock purchase plan.

Convertible Notes

On March 27, 2018, the Company issued $150.0 million aggregate principal amount of 2.50% Convertible Senior Notes. In connection with the offering of the Notes, the Company granted the initial purchasers an option to purchase additional amounts. The option was partially exercised, which resulted in $21.5 million of additional proceeds, for total proceeds of $171.5 million. After giving effect to various exchange transactions described below, the Notes had an outstanding principal amount of $56.6 million as of March 31, 2023. The Notes matured on March 15, 2023 and became due and payable.

As discussed above, on March 9, 2023, the Company entered into the Forbearance Agreement with respect to the Notes, and on April 21, 2023, the Company entered into the Restructuring Support Agreement to negotiate in good faith to effect the restructuring of the Company’s capital structure, including the Notes, the Secured Note and the Company’s Series A Preferred Stock, as well as a contemplated amendment to the March 2022 Securities Purchase Agreement, in connection with the Restructuring Support Agreement. See Part I, Item 1, Note 9, Convertible Notes and Part I, Item 1, Note 19, Subsequent Events for additional information.

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2021 Exchange Transactions

On September 22, 2021, the Company entered into separate exchange agreements with certain holders of the Notes. Under the terms of the exchange agreements, such holders agreed to exchange Notes held by it for shares of the Company’s common stock. During the year ended December 31, 2021, $51.0 million in aggregate principal amount of Notes were exchanged for 6,602,974 shares of the Company's common stock in these exchange transactions.

March 2022 Exchange Transaction

On March 21, 2022, the Company entered into an increaseexchange agreement with one holder of the Notes. Under the terms of the exchange agreement, the holder agreed to contributed capitalexchange Notes held by them for shares of the Company’s common stock. During the year ended December 31, 2022, $14.0 million in aggregate principal amount of Notes were exchanged for 10,798,482 shares of the Company's common stock in this exchange transaction.

See Part I, Item 1, Note 9, Convertible Notes for additional information.

August 2022 Exchange Transaction

On August 15, 2022, the Company entered into an exchange agreement (the “August 2022 Exchange Agreement”) with the Jack W. Schuler Living Trust (the “Schuler Trust”). Under the terms of the August 2022 Exchange Agreement, the Schuler Trust agreed to exchange with the Company $49.9 million in aggregate principal amount of Notes held by it for (a) the Secured Note in an aggregate principal amount of $34.9 million and (b) a warrant (the “Warrant”) to acquire the Company’s common stock at an exercise price of $2.12 per share (the “Exercise Price”). See “Capital Resources and Liquidity-Secured Note” below for additional information regarding the Secured Note.

After giving effect to the exchange transactions described above, the Notes had an outstanding principal amount of $56.6 million as of March 31, 2023.

The Warrant may be exercised from February 15, 2023 through the earlier of (i) August 15, 2029 and (ii) the consummation of certain acquisition transactions involving the Company, as set forth in the Warrant. The Warrant is exercisable for up to 2,471,710 shares, or 15% of the principal amount of the Secured Note, divided by the Exercise Price. Such number of shares and the Exercise Price are subject to certain customary proportional adjustments for fundamental events, including stock splits and recapitalizations, as set forth in the Warrant.

See Part I, Item 1, Note 9, Convertible Notes and Note 10, Long-Term Debt Related-Party for additional information.

Prepaid Forward

In connection with the offering of the Notes, we entered into a prepaid forward stock repurchase transaction (the “Prepaid Forward”) with a financial institution. Pursuant to the Prepaid Forward, we used approximately $45.1 million of the proceeds from the offering of the Notes to pay the prepayment amount. The aggregate number of our common stock underlying the Prepaid Forward is approximately 1,858,500 shares (based on the sale price of $24.25). During March 2023, 1,858,500 shares of common stock were returned to the Company pursuant to our agreement with the counterparty.

See Part I, Item 1, Note 9, Convertible Notes for additional information.

At-The-Market Equity Sales Agreement

On May 28, 2021, the Company entered into a Sales Agreement with William Blair pursuant to which it may sell shares of the Company’s common stock having an aggregate offering price of up to $50 million, from time to time, through an “at-the-market” equity offering program under which William Blair will act as sales agent. Subject to the terms and conditions of the Sales Agreement, William Blair may sell shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 under the Securities Act. The Company is not obligated to sell any shares under the Sales Agreement. William Blair is entitled to a commission of 3% of the aggregate gross proceeds from each sale of shares occurring pursuant to the Sales Agreement. During the three months ended March 31,
48

2023, no shares of common stock were sold under the Sales Agreement. As of March 31, 2023, the Company had an aggregate of $39.1 million available for future sales under its at-the-market equity offering program.

2021 Sales of Equity Securities

On December 24, 2020, the Company entered into a securities purchase agreement (the “December 2020 Securities Purchase Agreement”) with certain purchasers for the issuance and sale by the Company of shares of its common stock. The purchasers were comprised of certain directors and officers of the Company, or entities affiliated or related to such persons. On September 17, 2021, the Company entered into a rescission agreement with certain of the purchasers (the “Schuler Purchasers”) in order to, among other things, rescind and unwind the December 2020 Securities Purchase Agreement for all legal, tax and financial purposes ab initio as if the related transactions, including the issuance and sale of the shares, had never occurred with respect to the Schuler Purchasers and the Company. During the year ended December 31, 2022, the Company issued 201,820 shares of common stock to the other purchasers and received total proceeds of approximately $1.5 million under the December 2020 Securities Purchase Agreement after giving effect to the rescission agreement.

On September 22, 2021, the Company entered into a new securities purchase agreement (the “September 2021 Securities Purchase Agreement”) with the Schuler Purchasers for the issuance and sale by the Company of the Company’s newly designated Series A Preferred Stock. During the year ended December 31, 2021, the Company issued 3,954,546 shares of Series A Preferred Stock to the Schuler Purchasers and received total proceeds of approximately $30.5 million under the September 2021 Securities Purchase Agreement.

March 2022 Securities Purchase Agreement

On March 24, 2022, the Company entered into a securities purchase agreement (the “March 2022 Securities Purchase Agreement”) with the Schuler Trust for the issuance and sale by the Company of an aggregate of 2,439,024 shares of the Company’s common stock to the Schuler Trust (the “Private Placement”). Jack Schuler, serves as a member of the Company’s board of directors and is the sole trustee of the Schuler Trust.

Pursuant to the March 2022 Securities Purchase Agreement, the Schuler Trust has agreed to purchase the Shares at a purchase price (determined in accordance with Nasdaq rules relating to the “market value” of the Company’s common stock) of $1.64 per share, which is equal to the consolidated closing bid price reported by Nasdaq immediately preceding the time the Company entered into the March 2022 Securities Purchase Agreement, for an aggregate purchase price of $4.0 million. The Company and the Schuler Trust agreed to extend the closing date of the Private Placement from March 24, 2023 to April 20, 2023, which was further extended in accordance with the terms of the Restructuring Support Agreement. See Part I, Item 1, Note 19, Subsequent Events for additional information about the contemplated restructuring of the Company’s capital structure, including the Notes, the Secured Note and the Company’s Series A Preferred Stock, as well as a contemplated amendment to the March 2022 Securities Purchase Agreement, in connection with the Restructuring Support Agreement.

2022 Sales of Equity Securities

On August 23, 2022, the Company completed a public offering of 17,500,000 shares of its common stock at a public offering price of $2.00 per share. The Company received net proceeds of approximately $32.9 million from the offering after deducting underwriting discounts and commissions and offering expenses paid by the Company.

Secured Note

The Secured Note has a scheduled maturity date of August 15, 2027 and will be repayable upon written demand at any time on or after such date. The Company may, at its option, repay the note in (i) cash or (ii) in the form of common stock of the Company, in a number of shares that is obtained by dividing the total amount of such payment by $2.12. The Secured Note bears interest at a rate of 5.0% per annum, payable at the option of the Company in the same form, at the earlier of (i) any prepayment of principal and (ii) maturity. The Company may prepay the Secured Note at any time without premium or penalty. The Secured Note is secured by substantially all of the assets of the Company, subject to customary exceptions and limitations, pursuant to a security agreement, dated as of August 15, 2022. The Secured Note does not restrict the incurrence of future indebtedness by the Company but shall become subordinated in right of payment and lien priority upon the request of any future senior lender.
49


See Part I, Item 1, Note 10, Long-Term Debt Related-Party for additional information.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2023.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated balance sheet.financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate our estimates on an ongoing basis, including those related to accounts receivable, inventories, property and equipment, intangible assets, accruals, warranty liabilities, tax valuation accounts and stock-based compensation. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources. Actual results may differ from these estimates. There have been no material changes to our critical accounting policies and estimates discussed in Part II, Item 7 of the 2022 10-K.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for a smaller reporting company.


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

Introductory Note

Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to the “Company,” “Accelerate,” “we," “us” or “our” are references to the combined business of Accelerate Diagnostics, Inc.


Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements, which can be identified by the use of words such as “may,” “will,” “expect,” “anticipate,” “estimate,” or “continue,” or variations thereon or comparable terminology, include the plans and objectives of management for future operations, including plans and objectives relating to the products and future economic performance of the Company. In addition, all statements other than statements of historical facts that address activities, events, or developments the Company expects, believes, or anticipates will or may occur in the future, and other such matters, are forward-looking statements.

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are based on assumptions that the Company will retain key management personnel, the Company will be successful in the commercialization of the Accelerate Pheno™ system, the Company will obtain sufficient capital to commercialize the Accelerate Pheno™ system and continue development of complementary products, the Company will be able to protect its intellectual property, the Company’s ability to respond to technological change, that the Company will accurately anticipate market demand for the Company’s products and that there will be no material adverse change in the Company’s operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) summarizes the significant factors affecting our results of operations, liquidity, capital resources and


contractual obligations. The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes included elsewhere herein. Certain information contained in the discussion and analysis set forth below and elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. The Company’s future operating results may be affected by various trends and factors which are beyond the Company’s control. These include, among other factors, general public perception of issues and solutions, and other uncertain business conditions that may affect the Company’s business. The Company cautions the reader that a number of important factors discussed herein, and in other reports filed with the SEC including but not limited to the risks in the section entitled “Risk Factors” in its Annual Report on Form 10-K for the period ended December 31, 2016, could affect the Company’s actual results and cause actual results to differ materially from those discussed in forward-looking statements.

Our MD&A is composed of the following sections: Overview, Changes in Results of Operations, Capital Resources and Liquidity and Off-Balance Sheet Arrangements. All amounts have been rounded to the nearest thousand unless otherwise indicated.

Overview

Accelerate Diagnostics, Inc. is an in vitro diagnostics company dedicated to providing solutions that improve patient outcomes and lower healthcare costs through the rapid diagnosis of serious infections. Microbiology laboratories are in need of new tools to address what the U.S. Centers for Disease Control and Prevention calls one of the most serious healthcare threats of our time, antibiotic resistance. A significant contributing factor to the rise of resistance is the overuse and misuse of antibiotics, which is exacerbated by a lack of timely diagnostic results. The delay of these results is often due to the reliance by microbiology laboratories on traditional culture-based tests that often take two to three days to complete. Our technology platform is built to address these challenges by delivering significantly faster and accurate testing of infectious pathogens in various patient sample types.

Since 2004, we have focused our efforts on research into and the development of an innovative rapid diagnostic platform, the Accelerate Pheno™ system, intended for the rapid diagnosis of infectious pathogens. Our goal is to reduce the failure rate of initial antibiotic drug therapy by shortening lab turnaround time to hours rather than the two to three days now required to deliver identification and susceptibility results.

The Accelerate Pheno™ system utilizes genotypic technology to identify, or “ID,” infectious pathogens and phenotypic technology to conduct antibiotic susceptibility testing, or “AST,” which determines whether live bacterial or fungal cells are resistant or susceptible to a particular antimicrobial agent. The Accelerate PhenoTest™ BC Kit provides ID and AST results for patients suspected of bacteremia or fungemia, both life-threatening conditions with high morbidity and mortality risk. The Accelerate PhenoTest™ BC Kit is a highly multiplexed panel targeting over 80% of the routine and significant pathogens causing blood stream infections and over 90% of the antibiotics useful in treating those pathogens.

On June 30, 2015, we declared our conformity to the European In Vitro Diagnostic Directive 98/79 EC and applied a CE Mark to the Accelerate Pheno™ system and the Accelerate PhenoTest™ BC Kit for in vitro diagnostic use. On February 23, 2017, the FDA granted our de novo request to market our Accelerate Pheno™ system and Accelerate PhenoTest™ BC Kit in the United States. The Accelerate PhenoTest™ BC kit includes 140 assays for both identification and susceptibility testing, of which 116 were cleared by the FDA and 24 assays are available in a Research Use Only mode of the software.

Changes in Results of Operations: Three and nine months ended September 30, 2017 compared to three and nine months ended September 30, 2016

 Three Months Ended Nine Months Ended
 September 30, September 30,
 (in thousands) (in thousands)
 20172016$ Change% Change 20172016$ Change% Change
Net sales$828
$24
$804
3,350% $2,058
$207
$1,851
894%



For the three and nine months ended September 30, 2017, total revenues increased due to sales of Accelerate Pheno™ systems and Accelerate PhenoTest™ BC kits.

 Three Months Ended Nine Months Ended
 September 30, September 30,
 (in thousands) (in thousands)
 20172016$ Change% Change 20172016$ Change% Change
Cost of sales$191
$—
$191
100% $352
$—
$352
100%
Gross Profit$637
$24
$613
2,554% $1,706
$207
$1,499
724%

For the three and nine months ended September 30, 2017, cost of sales and gross profit increased as a result of the Company capitalizing inventory in connection with the FDA granting Accelerate’s de novo request to market the Accelerate Pheno™ system and Accelerate PhenoTest™ BC kit.

Inventory without a cost basis was sold to customers during the three and nine months ended September 30, 2017. This inventory was comprised of pre-launch inventory previously not capitalized, and expensed in a previous period. Cost of sales associated with this inventory during the three and nine months ended September 30, 2017, would have been an additional $244,000 and $611,000, respectively.

 Three Months Ended Nine Months Ended
 September 30, September 30,
 (in thousands) (in thousands)
 20172016$ Change% Change 20172016$ Change% Change
Research and development$6,351
$7,874
$(1,523)(19)% $16,166
$23,974
$(7,808)(33)%

Research and development expenses for the three and nine months ended September 30, 2017, decreased as compared to the same periods in the prior year as a result of clinical trial expenses not recurring in the current periods. Additionally, on January 1, 2017, the regulatory review process had progressed to a point that objective and persuasive evidence of approval was sufficiently probable, and a future economic benefit existed for the Accelerate Pheno™ system and Accelerate PhenoTest™ BC kit. As a result, the Company started capitalizing pre-launch inventory for the Accelerate Pheno™ system and Accelerate PhenoTest™ BC kit on January 1, 2017. Prior to January 1, 2017, all pre-launch inventory was not capitalized, because a future economic benefit couldn’t be asserted.

Pre-launch inventory not capitalized in accordance with U.S. GAAP, which included instruments and consumables charged to research and development were $225,000 and $795,000 for the three months ended September 30, 2017 and 2016, respectively, and $376,000 and $3.9 million for the nine months ended September 30, 2017 and 2016, respectively.

Research and development expenses include non-cash equity-based compensation of $1.0 million and $504,000 for the three months ended September 30, 2017 and 2016, respectively, and $2.9 million and $1.2 million for the nine months ended September 30, 2017 and 2016, respectively. The increase in non-cash equity-based compensation was primarily driven by an increase in the number of employees and stock option grants.

 Three Months Ended Nine Months Ended
 September 30, September 30,
 (in thousands) (in thousands)
 20172016$ Change% Change 20172016$ Change% Change
Sales, general and administrative$11,601
$9,566
$2,035
21% $33,589
$26,710
$6,879
26%



Sales, general and administrative expenses for the three and nine months ended September 30, 2017, increased due to an increase in salaries and related expenses as we ramp up our sales and marketing operations globally.

Pre-launch inventory not capitalized in accordance with U.S. GAAP, which included instruments and consumables charged to sales, general and administrative expenses were $11,000 and $1.2 million for the three months ended September 30, 2017 and 2016, respectively, and $40,000 and $2.5 million for the nine months ended September 30, 2017 and 2016, respectively.

Sales, general and administrative expenses include non-cash equity-based compensation of $2.5 million and $2.2 million for the three months ended September 30, 2017 and 2016, respectively, and $8.0 million and $5.4 million for the nine months ended September 30, 2017 and 2016, respectively. The increase in non-cash equity-based compensation was primarily driven by an increase in the number of employees and stock option grants.

 Three Months Ended Nine Months Ended
 September 30, September 30,
 (in thousands) (in thousands)
 20172016$ Change% Change 20172016$ Change% Change
Loss from operations$(17,315)$(17,416)$101
(1)% $(48,049)$(50,477)$2,428
(5)%

For the three and nine months end September 30, 2017, loss from operations decreased as a result of the Company capitalizing inventory in connection with the FDA granting Accelerate’s de novo request to market the Accelerate Pheno™ system and Accelerate PhenoTest™ BC kit.

Loss from operations include non-cash equity-based compensation of $3.5 million and $2.7 million for the three months ended September 30, 2017 and 2016, respectively, and $11.0 million and $6.6 million for the nine months ended September 30, 2017 and 2016, respectively. This loss and further losses are anticipated and was the result of our continued investments in research and development, expanded laboratory and operational space, increased employee headcount and other factors as we develop and commercialize the Company’s products.

 Three Months Ended Nine Months Ended
 September 30, September 30,
 (in thousands) (in thousands)
 20172016$ Change% Change 20172016$ Change% Change
Total other income$285
$117
$168
144% $536
$238
$298
125%

Other non-operating income during the three and nine months ended September 30, 2017, increased due to an increase in interest and dividends, which were offset by other components of other income.

 Three Months Ended Nine Months Ended
 September 30, September 30,
 (in thousands) (in thousands)
 20172016$ Change% Change 20172016$ Change% Change
Provision from income taxes$(45)$—
$(45)100% $(220)$—
$(220)100%

Due to net losses incurred, we have only recorded tax provisions related to tax liabilities generated by our foreign subsidiaries.
Capital Resources and Liquidity

Our primary source of liquidity has been from sales of shares of common stock. As of September 30, 2017, the Company had $121.3 million in cash and cash equivalents and available-for-sale securities, an increase of $43.6


million from $77.8 million at December 31, 2016. The primary reason for the change in these assets was a public offering that occurred during the nine months ended September 30, 2017.

The Company is subject to lease agreements. The future minimum lease payments under theses lease agreements is included in Item 1, Note 16, Commitments.

As of September 30, 2017, management believes that current cash balances will be more than sufficient to fund our capital and liquidity needs for the next twelve months.

The following summarizes selected items in the Company’s consolidated statements of cash flows for the nine months ended September 30, 2017, and 2016:

Cash Flow Summary
(in thousands)
 Nine Months Ended 
 September 30,September 30,Increase (Decrease)
 20172016
Net cash used in operating activities$(42,498)$(40,607)$(1,891)
Net cash used in investing activities(30,907)(52,215)21,308
Net cash provided by financing activities88,303
983
87,320

The net cash used in operating activities was $42.5 million and $40.6 million for the nine months ended September 30, 2017, and 2016, respectively. These losses are the result of our continued investments in research and development, expanded laboratory and operational space, increased employee headcount and other factors as we develop and prepare to commercialize the Company’s products.

The net cash used in investing activities was $30.9 million for the nine months ended September 30, 2017, and is primarily comprised of purchases of available-for-sales securities, offset by sales and maturities of available-for-sale securities. Net cash used in investing activities was $52.2 million for the nine months ended September 30, 2016, and is primarily comprised of purchases of available-for-sale investments, offset by sales and maturities of available-for-sale investments.

The net cash provided by financing activities was $88.3 million for the nine months ended September 30, 2017, and is primarily comprised of proceeds from a public offering. The net cash provided by financing activities was $983,000 for the nine months ended September 30, 2016, and was primarily comprised of the recovery of short swing profits from related parties, offset by common stock issuance cost and the exercise of options and warrants.

Our primary use of capital has been for development and commercialization of the Accelerate Pheno™ system. We believe our capital requirements will continue to be met with our existing cash balance and those provided under grants, exercises of warrants and stock options and/or additional issuance of equity or debt securities. However, if capital requirements vary materially from those currently planned, we may require additional capital sooner than expected. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us, if at all. Additional issuances of equity or convertible debt securities will result in dilution to our current common stockholders.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2017.


Item 3. Quantitative and Qualitative Disclosures

Interest Rate Risk

Our investment portfolio is exposed to market risk from changes in interest rates. The fair market value of fixed rate securities may be adversely impacted by fluctuations in interest rates while income earned on floating rate


securities may decline as a result of decreases in interest rates. We have historically maintained a relatively short average maturity for our investment portfolio, and we believe a hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would change the fair value of our interest-sensitive financial instruments by approximately $789,000.
Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we maintain a portfolio of cash equivalents and investments in a variety of securities that management believes to be of high credit quality. Further information regarding our investments is included in Item 1, Note 6, Investments.


Item 4. Controls and Procedures


Evaluation of Disclosure Controls and Procedures


Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Company’s Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2023 as a result of the material weakness in the Company’s internal control over financial reporting (as defined in Rules 13a-15(e)13a-15(f) and 15d-15(e)15d-15(f) under the Exchange Act were effectiveAct) described in Part II, Item 9A of the 2022 10-K and that continued to exist as of September 30, 2017, to ensure that information required to be disclosed byMarch 31, 2023 (the “Material Weakness”).

Remediation Plan

With oversight from the Audit Committee of the Company’s board of directors and input from management, the Company has begun designing and implementing changes in reports that it files or submits underprocesses and controls to remediate the Exchange Act is (i) recorded, processed, summarizedMaterial Weakness and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to enhance the Company’s management,internal control over financial reporting, including its Principal Executive Officer and Principal Financial Officer, as appropriatea control to allow timely decisions regarding required disclosure.review the accounting treatment of outstanding debt instruments on a quarterly basis in accordance with applicable accounting guidance.


Changes in Internal Control Over Financial Reporting


During the nine months ended September 30, 2017,Other than as described above, there was no change in connection with the Company’s preparationsinternal control over financial reporting during the quarter ended March 31, 2023 that materially affected, or is reasonably likely to commercializematerially affect, the Accelerate Pheno™ system and Accelerate PhenoTest™ BC Kit the Company implemented additionalCompany’s internal controls related to revenue recognition and inventory.control over financial reporting.

50

PART II - OTHER INFORMATION


Item 1. Legal Proceedings


On March 19, 2015,We are from time to time subject to various claims and legal actions in the ordinary course of our business. We believe that there are currently no claims or legal actions that would reasonably be expected to have a putative securities class action lawsuit was filed against Accelerate Diagnostics, Inc., Lawrence Mehren, and Steve Reichling, Rapp v. Accelerate Diagnostics, Inc., et al., U.S. District Court, Districtmaterial adverse effect on our results of Arizona, 2:2015-cv-00504. The complaint alleges that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, by making falseoperations or misleading statements about our Accelerate Pheno™ system, formerly called the BACcel System. Plaintiff purports to bring the action on behalf of a class of persons who purchased or otherwise acquired our stock between March 7, 2014, and February 17, 2015. On June 9, 2015, Julia Chang was appointed Lead Plaintiff of the purported class. On June 23, 2015, Plaintiff filed an amended complaint alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, by making false or misleading statements or omissions about our ID/AST System and by allegedly employing schemes to defraud. Plaintiff sought certification of the action as a class action, compensatory damages for the class in an unspecified amount, legal fees and costs, and such other relief as the court may order. Defendants moved to dismiss the amended complaint on July 21, 2015. The Court granted the motion and dismissed the case with prejudice on January 28, 2016. On February 26, 2016, Plaintiff filed a notice of appeal with the United States Court of Appeals for the Ninth Circuit, which challenges the dismissal of the amended complaint. Chang v. Accelerate Diagnostics, Inc., et al., No. 2:15-CV-00504-SPL (9th Cir. filed Feb. 26, 2016). On September 13, 2017, Plaintiff voluntarily dismissed the appeal and the case has been dismissed with prejudice.financial condition.




Item 1A. Risk Factors




There have been no material changesIn addition to the risk factors that were disclosedother information set forth in this Form 10-Q, you should carefully consider the risks discussed in the section entitled “Risk Factors” in the 2022 10-K and the risk factor described below, which could materially affect our business, financial condition or future results. The risks described in the 2022 10-K and below are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, results of operations, cash flows and financial position.

Risks Related to Our Financial Condition, Liquidity and Indebtedness

We are in default of payment obligations under the terms of our Notes, which matured on March 15, 2023 and became due and payable.

On March 9, 2023, the Company entered into a forbearance agreement (the “Forbearance Agreement”), which became effective on March 13, 2023, with the holders of approximately 85% of the Company’s Annual Report on Form 10-Koutstanding Notes (collectively, the “Ad Hoc Noteholder Group”) and the trustee for the fiscal year ended December 31, 2016Notes (the “Trustee”). Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the indenture governing the Notes (the “Indenture”) in connection with certain events of default under the Indenture, including, but not limited to, the failure to timely pay in full the principal of any Note due and payable on March 15, 2023 and the failure to pay any interest on any Note due and payable. The Forbearance Agreement was initially effective for the period commencing on March 13, 2023 and ending on March 29, 2023, which was subsequently extended by the parties to April 21, 2023. On April 21, 2023, the Company entered into a restructuring support agreement (the “Restructuring Support Agreement”) with certain holders of the Notes, the holder of the Company’s secured promissory note (the “Secured Note”) and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure (the “Restructuring Transactions”) on the terms described in the Restructuring Support Agreement. The Restructuring Transactions involve a restructuring of the Notes, conversion of the Company’s Series A Preferred Stock in accordance with its terms, and amendments to the Secured Note and the March 2022 Securities Purchase Agreement. The Restructuring Support Agreement contemplates that so long as certain conditions are met, the Restructuring Transactions will be effectuated as an out-of-court restructuring and without any judicial proceeding or approval (the “Out-of-Court Restructuring”). See Part I, Item 1, Note 19, Subsequent Events for additional information.


These transactions are expected to result in the issuance of significant amounts of common Stock and securities convertible into significant amounts of common stock, which could result in substantial dilution to existing holders of our common stock.


In connection with the Restructuring Support Agreement, to effectuate the Out-of-Court Restructuring, holders of no less than 99% in principal amount of the outstanding Notes must agree to exchange their existing Notes for a like aggregate amount of New Senior Secured Convertible Notes. In the event that the requisite consents for the Out-of-Court Restructuring are not obtained by the date provided for in the Restructuring Support Agreement, the Company and Consenting Stakeholders have agreed to consummate the Restructuring Transactions pursuant to a pre-packaged plan of reorganization under chapter 11 of the U.S. Bankruptcy Code. Seeking Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity.

51

In connection with the Restructuring Support Agreement, the Company’s board of directors approved amendments to the Company’s Certificate of Incorporation. The Company filed with the SEC a Preliminary Proxy Statement on April 21, 2023 and a Definitive Proxy Statement on May 1, 2023 seeking stockholder approval. The following shareholder proposals are critical to the Restructuring Support Agreement becoming effective:

•approval to increase the total number of authorized shares, and
•approval to issue Common Stock in a non-public offering at a price below the “minimum price” and in a number that would exceed 20% of the Company’s outstanding shares of Common Stock in accordance with Nasdaq Listing Rule 5635(d)

As of the date of this 10-Q the Company has not obtained the necessary stockholder approval. Failure to obtain the necessary votes could prevent the Restructuring Support Agreement from becoming effective and could have a material adverse effect on our business.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


None.There were no unregistered sales of equity securities during the quarter ended March 31, 2023 other than as reported in our Current Reports on Form 8-K filed with the SEC.




Item 3. Defaults Upon Senior Securities


Not applicable.The Notes matured on March 15, 2023 and became due and payable. As of the date of the filing of this Form 10-Q, there was approximately $57.3 million of Notes outstanding, inclusive of accrued and unpaid interest. On March 9, 2023, the Company entered into the Forbearance Agreement with respect to the Notes, and on April 21, 2023, the Company entered into the Restructuring Support Agreement to negotiate in good faith to effect the restructuring of the Company’s capital structure, including the Notes, the Secured Note and the Company’s Series A Preferred Stock, as well as a contemplated amendment to the March 2022 Securities Purchase Agreement, in connection with the Restructuring Support Agreement. See Part I, Item 1, Note 9, Convertible Notes and Part I, Item 1, Note 19, Subsequent Events for additional information.




Item 4. Mine Safety Disclosures


Not applicable.




Item 5. Other Information


None.

52





Item 6. Exhibits


Exhibit No.DescriptionFiling Information
3.1
Incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on November 13, 2012
3.1.1
Incorporated by reference to Exhibit A to the Registrant’s Definitive Information Statement on Schedule 14C filed on July 12, 2013
3.1.2
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on March 15, 2016
3.2
3.1.3		Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 15, 2019
3.1.4Incorporated by reference to Exhibit 3.2 filed with3.1 to the Registrant’s AnnualCurrent Report on Form 10-K for the fiscal year ended July 31, 20128-K filed on May 13, 2021
3.1.5Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on September 23, 2021
3.1.6Incorporate by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2022
3.2Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on August 8, 2019
3.2.1Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 3, 2022
10.1Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 14, 2023
10.2Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 24, 2023
10.3Filed herewith
31.1Filed herewith
31.2
Filed herewith
32
FiledFurnished herewith

53



101**101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documentFiled herewith
101**101.SCHInline XBRL Taxonomy Extension Schema DocumentFiled herewith
101**101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith
101**101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
101**101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentFiled herewith
101**101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith
104Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)Filed herewith


** Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.
54




SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Reportreport to be signed on its behalf by the undersigned thereunto duly authorized.



ACCELERATE DIAGNOSTICS, INC.

May 15, 2023/s/ Jack Phillips
Jack Phillips
President and Chief Executive Officer
(Principal Executive Officer)
November 7, 2017May 15, 2023/s/ Lawrence MehrenDavid Patience
Lawrence Mehren
President and Chief Executive Officer
(Principal Executive Officer)
November 7, 2017/s/ Steve Reichling
Steve Reichling
David Patience
Chief Financial Officer
(Principal Financial and Accounting Officer)


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