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 SeptemberJune 30, 20172023

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 August 10, 2023, 14,367,971 shares of common stock were outstanding, net of treasury shares. All common stock share data and share-based calculations set forth in this report have been adjusted to reflect the registrant’s common1-for-10 reverse stock outstanding.

split, which was effective July 11, 2023, on a retroactive basis for the periods presented.




TABLE OF CONTENTS

Item 1. Financial Statements
3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2144
Item 3. Quantitative and Qualitative Disclosures About Market Risk
2555
Item 4. Controls and Procedures
2655
Item 1. Legal Proceedings
2657
Item 1A. Risk Factors
2657
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
2759
Item 3. Defaults Upon Senior Securities
2759
Item 4. Mine Safety Disclosures
2759
Item 5.  Other Information
2759
Item 6. Exhibits
2860




2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETSHEETS
Unaudited
(in thousands)thousands, except share data)
June 30,December 31,
20232022
Unaudited
ASSETS
Current assets:
Cash and cash equivalents$29,282 $34,905 
Investments1,423 10,656 
Trade accounts receivable, net2,342 2,416 
Inventory5,106 5,194 
Prepaid expenses1,274 818 
Other current assets2,812 2,025 
Total current assets42,239 56,014 
Property and equipment, net2,896 3,478 
Finance lease assets, net2,091 2,422 
Operating lease right of use assets, net1,527 1,859 
Other non-current assets1,125 1,242 
Total assets$49,878 $65,015 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable$4,033 $4,501 
Accrued liabilities3,229 2,682 
Accrued interest348 472 
Deferred revenue478 547 
Current portion of convertible notes726 56,413 
Finance lease, current1,180 1,113 
Operating lease, current936 829 
Derivative liability42,786 — 
Total current liabilities53,716 66,557 
Finance lease, non-current375 782 
Operating lease, non-current1,064 1,545 
Other non-current liabilities1,097 874 
Accrued interest related-party— 663 
Long-term debt related-party— 16,858 
Convertible notes32,289 — 
Total liabilities$88,541 $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)
June 30,December 31,
20232022
Unaudited
Stockholders’ deficit:
Preferred shares, $0.001 par value;
5,000,000 preferred shares authorized with no shares issued and outstanding on June 30, 2023 and 5,000,000 preferred shares authorized with 3,954,546 shares issued and outstanding on December 31, 2022— 4 
Common stock, $0.001 par value;
450,000,000 common shares authorized with 14,357,953 shares issued and outstanding on June 30, 2023 and 200,000,000 common shares authorized with 9,747,755 shares issued and outstanding on December 31, 202214 10 
Contributed capital663,812 630,428 
Treasury stock(45,067)(45,067)
Accumulated deficit(656,769)(607,239)
Accumulated other comprehensive loss(653)(400)
Total stockholders’ deficit(38,663)(22,264)
Total liabilities and stockholders’ deficit$49,878 $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 EndedSix Months Ended
June 30,June 30,June 30,June 30,
2023202220232022
Net sales$2,921 $3,861 $5,733 $6,820 
Cost of sales2,122 2,781 3,923 4,937 
Gross profit799 1,080 1,810 1,883 
Costs and expenses:
Research and development5,820 7,576 12,788 13,600 
Sales, general and administrative7,564 11,493 17,669 22,167 
Total costs and expenses13,384 19,069 30,457 35,767 
Loss from operations(12,585)(17,989)(28,647)(33,884)
Other (expense) income:
Interest expense(1,175)(713)(1,593)(1,630)
Interest expense related-party(804)— (1,817)— 
(Loss) gain on extinguishment of debt(6,550)199 (6,550)3,565 
(Loss) on extinguishment of debt with related party(6,755)— (6,755)— 
(Loss) on fair value adjustment(5,030)— (5,030)— 
Foreign currency exchange gain25 31 258 40 
Interest income255 56 675 78 
Other income (expense), net40 (107)85 (157)
Total other (expense) income, net(19,994)(534)(20,727)1,896 
Net loss before income taxes(32,579)(18,523)(49,374)(31,988)
Provision for income taxes(156)— (156)— 
Net loss$(32,735)$(18,523)$(49,530)$(31,988)
Basic and diluted net loss per share$(2.97)$(2.43)$(4.75)$(4.44)
Weighted average shares outstanding11,009 7,623 10,420 7,200 
Other comprehensive loss:
Net loss$(32,735)$(18,523)$(49,530)$(31,988)
Net unrealized gain (loss) on debt securities available-for-sale4 (39)28 (132)
Foreign currency translation adjustment(26)(161)(281)(240)
Comprehensive loss$(32,757)$(18,723)$(49,783)$(32,360)
 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)
Six Months Ended
June 30,June 30,
20232022
Cash flows from operating activities:
Net loss$(49,530)$(31,988)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,617 1,435 
Amortization of investment discount— 79 
Equity-based compensation2,208 6,950 
Amortization of debt discount and issuance costs692 284 
Amortization of debt discount related-party1,033 — 
Loss on disposal of property and equipment68 283 
Unrealized (gain) loss on equity investments(90)157 
Loss (gain) on extinguishment of debt6,550 (3,565)
Loss on extinguishment of debt with related party6,755 — 
Loss on fair value adjustments5,030 — 
(Increase) decrease in assets:
Contributions to deferred compensation plan— (110)
Accounts receivable74 (615)
Inventory(30)(416)
Prepaid expense and other(77)(719)
Increase (decrease) in liabilities:
Accounts payable(451)658 
Accrued liabilities and other125 2,288 
Accrued interest900 (159)
Accrued interest from related-party784 — 
Deferred revenue and income(69)(116)
Deferred compensation223 (51)
Net cash used in operating activities(24,188)(25,605)
Cash flows from investing activities:
Purchases of equipment(167)(447)
Purchase of marketable securities— (27,504)
Maturities of marketable securities9,291 18,738 
Net cash provided (used) by investing activities9,124 (9,213)
Cash flows from financing activities:
Proceeds from issuance of common stock to related party4,000 — 
Payments on finance leases(540)(424)
Proceeds from exercise of options— 7 
Proceeds from issuance of common stock under employee purchase plan— 137 
Proceeds from issuance of convertible notes10,000 — 
Transaction costs related to debt and equity issuances(3,731)— 
Net cash provided (used) by financing activities9,729 (280)
 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)
Six Months Ended
June 30,June 30,
20232022
Effect of exchange rate on cash(288)(219)
Decrease in cash and cash equivalents(5,623)(35,317)
Cash and cash equivalents, beginning of period34,905 39,898 
Cash and cash equivalents, end of period$29,282 $4,581 
Non-cash investing activities:
Net transfer of instruments from inventory to property and equipment$88 $202 
Non-cash financing activities:
Extinguishment of 2.50% Convertible Senior Notes through issuance of common stock$— $10,180 
Capital contribution from the exchange of secured note and accrued interest through the issuance of common stock with related party$25,363 $— 
Exchange of 2.50% Convertible Senior Notes and accrued interest for 5.00% Convertible Senior Secured Notes$56,893 $— 
Debt premium on issuance of 5.00% Convertible Senior Secured Notes$6,023 $— 
Derivative liability$38,160 $— 
Supplemental cash flow information:
Interest paid$— $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 EndedSix Months Ended
June 30,June 30,
2023202220232022
Preferred stock shares outstanding
Beginning3,955 3,955 3,955 3,955 
Conversion of preferred stock into common stock with related party(3,955)— (3,955)— 
Ending— 3,955 — 3,955 
Preferred stock
Beginning$4 $4 $4 $4 
Conversion of preferred stock into common stock with related party(4)— (4)— 
Ending$— $4 $— $4 
Common stock shares outstanding
Beginning9,964 6,873 9,749 6,767 
Issuance of common stock to a related party488 — 488 — 
Conversion of preferred stock into common stock with related party396 — 396 — 
Restricted stock awards released78 97 293 112 
Issuance of shares to retire senior promissory notes with related party3,432 — 3,432 — 
Issuance of common stock under employee purchase plan— 7 — 13 
Issuance of shares to retire convertible notes— 995 — 1,080 
Ending14,358 7,972 14,358 7,972 
Common stock
Beginning$10 $7 $10 $7 
Issuance of common stock to a related party1 — 1 — 
Issuance of shares to retire senior promissory notes with related party3 — 3 — 
Issuance of common stock under employee purchase plan— — — — 
Issuance of shares to retire convertible notes— 1 — 1 
Ending$14 $8 $14 $8 

See accompanying notes to condensed consolidated financial statements.

8


ACCELERATE DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
Unaudited
(in thousands)
Three Months EndedSix Months Ended
June 30,June 30,
2023202220232022
Contributed capital
Beginning$630,992 $547,444 $630,428 $580,714 
Cumulative effect of accounting changes— — — (37,438)
Proceeds from issuance of common stock3,996 — 3,996 — 
Capital contribution from modification of securities purchase agreement with related party1,805 — 1,805 — 
Exercise of options— 6 — 6 
Issuance of shares to retire senior promissory notes with related party25,363 — 25,363 — 
Issuance of common stock under employee purchase plan— 60 — 137 
Issuance of shares to retire convertible notes— 8,912 — 10,169 
Equity-based compensation1,615 3,826 2,177 6,659 
Reclassification of common stock par value due to reverse stock split41 10 43 11 
Ending$663,812 $560,258 $663,812 $560,258 
Accumulated deficit
Beginning$(624,034)$(558,211)$(607,239)$(570,668)
Cumulative effect of accounting changes— — — 25,922 
Net loss(32,735)(18,523)(49,530)(31,988)
Ending$(656,769)$(576,734)$(656,769)$(576,734)
Treasury stock
Beginning$(45,067)$(45,067)$(45,067)$(45,067)
Ending$(45,067)$(45,067)$(45,067)$(45,067)
Accumulated other comprehensive (loss) income
Beginning$(631)$(232)$(400)$(60)
Net unrealized gain (loss) on debt securities available-for-sale3 (39)27 (132)
Foreign currency translation adjustment(25)(161)(280)(240)
Ending$(653)$(432)$(653)$(432)
Total stockholders' deficit$(38,663)$(61,963)$(38,663)$(61,963)

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 affectOn July 11, 2023, the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities asCompany effected a one-for-ten reverse stock split. Consequently, on the Company’s condensed consolidated balance sheet, the aggregate par value of the dateissued common stock was reduced by reclassifying the par value amount of the eliminated shares of common stock to additional paid-in capital. All per share amounts and outstanding shares, including all common stock equivalents (stock options), have been retroactively restated in the condensed consolidated financial statements and in the reported amounts of revenues and expenses duringNotes to the reporting period. Actual results could differ from those estimates.condensed consolidated financial statement for all periods presented to reflect the reverse stock split.


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 $656.8 million as of June 30, 2023. During the six months ended June 30, 2023, the Company had a net loss of $49.5 million and negative cash flows from operations of $24.2 million. The Company had a working capital deficit of $11.5 million as of June 30, 2023.

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 2.50% Convertible Senior Notes due 2023 (the “2.50% Notes”) (collectively, the “Ad Hoc Noteholder Group”) and the trustee for the 2.50% Notes (the “Trustee”). On March 15, 2023, the 2.50% Notes matured and became due and payable. Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the indenture governing the 2.50% Notes (the “2.50% Notes Indenture”) in connection with certain events of default under the 2.50% Notes Indenture,
10

including, but not limited to, the failure to timely pay in full the principal of any 2.50% Note due and payable on March 15, 2023 and the failure to pay any interest on any 2.50% 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 2.50% 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”).

On June 9, 2023, the Company completed the Restructuring Transactions contemplated by the Restructuring Support Agreement whereby the Company (i) exchanged approximately $55.9 million aggregate principal amount of 2.50% Notes for approximately $56.9 million aggregate principal amount of newly issued 5.00% Senior Secured Convertible Notes due 2026 (the “5.00% Notes”), which was inclusive of additional 5.00% Notes in respect of interest accrued on the 2.50% Notes from September 15, 2022; (ii) issued and sold an additional $10.0 million aggregate principal amount of 5.00% Notes; (iii) repurchased the Secured Note, plus accrued interest, by issuing approximately 3.4 million shares of the Company’s common stock; (iv) issued approximately 0.4 million shares of the Company’s common stock upon conversion of all of the Company’s outstanding Series A Preferred Stock; (v) amended the March 2022 Securities Purchase Agreement (as defined in Note 17) and issued and sold approximately 0.5 million shares of the Company’s common stock for proceeds of $4.0 million; and (vi) entered into a new securities purchase agreement with the Jack W. Schuler Living Trust (the “Schuler Trust”) pursuant to which the Schuler Trust is required, prior to December 15, 2023, to either purchase an aggregate of $10.0 million of the Company’s common stock from the Company or to backstop an underwritten public offering by the Company of its common stock for aggregate proceeds of $10.0 million, at the Company’s option. See Note 9, Convertible Notes, Note 10, Long-Term Debt Related-Party, Note 17, Stockholders' Equity and Note 18, Related-Party Transactions for additional information.

As of June 30, 2023, the Company had $30.7 million in cash and cash equivalents and investments, a decrease of $14.9 million from $45.6 million at December 31, 2022. The primary reason for the decrease was due to cash used in operations, cash used for nonrecurring legal and professional services in connection with the restructuring activities of the 2.50% Notes and common stock issuances, offset by the proceeds from the issuance of the 5.00% Notes and such common stock issuances. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations.

The Company’s primary use of capital has been for the development and commercialization of the Accelerate Pheno system and development of complementary products. 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 Note 9, Convertible Notes, Note 10, Long-Term Debt Related-Party and Note 17, Stockholders' Equity for additional information.

While the Company continues to explore additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, there can be no assurance the necessary financing will be available on terms acceptable to the Company, or at all. If the Company raises funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of common stock. If the Company raises funds by issuing additional debt, it is likely any new debt would have rights, preferences and privileges senior to common stockholders. The terms of borrowing could impose significant restrictions on the Company’s operations. The capital markets have in the past, and may in the future, experience periods of upheaval that could impact the availability and cost of equity and debt financing. In addition, 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 the Company is actively considering all available strategic alternatives to maximize value, if the Company is unable to obtain adequate capital resources to fund operations, the Company would not be able to continue to operate its business pursuant to its current plans. This may require the Company to, among other
11

things, materially modify its operations to reduce spending; sell assets or operations; delay the implementation of, or revising certain aspects of, its business strategy; or discontinue its operations entirely.

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 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.

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, derivatives, convertible notes, 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.

12

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

The 2.50% Notes matured on March 15, 2023 and became due and payable on such date. As of June 30, 2023, $0.7 million of the 2.50% Notes had not been converted and remained outstanding and in default. The carrying amount of these 2.50% Notes approximates the related fair value due to the instrument being fully matured and payable on June 30, 2023. 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 details on the 2.50% Notes.

The 5.00% Notes are instruments measured at fair value at initial measurement using Level 3 inputs. As of June 30, 2023, the debt is carried at amortized cost and the fair value is disclosed. See Note 9, Convertible Notes for further details on the 5.00% Notes.

The Company’s 5.00% Notes conversion option (the “Conversion Option”) met the bifurcation criteria under, Derivatives and Hedging (“Topic 815”), at inception and through June 30, 2023, and must be recorded at fair value, and marked to market at each reporting period until it becomes fixed. The Conversion Option is considered a derivative that is measured at fair value using Level 3 inputs. See Note 9, Convertible Notes for further details on the Conversion Option.

During the three months ended June 30, 2023, the Company entered into a securities purchase agreement with the Schuler Trust to purchase common stock from the Company at the Company’s option (the “Schuler Purchase Obligation”). The Schuler Purchase Obligation was determined to be a freestanding financial instrument that must be recorded as an asset at fair value, and marked to market at each reporting period that is outstanding using Level 3 inputs. See Note 17, Stockholders' Equity for further details on the Schuler Purchase Obligation.

During the three months ended June 30, 2023, the Company fully extinguished the Secured Notes held by the Schuler Trust by exchanging the Secured Notes for common stock. As of December 31, 2022, the Secured Notes were instruments carried at amortized cost while fair value was disclosed using Level 3 inputs. See Note 10, Long-Term Debt Related-Party for further details on the Secured Notes.

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 certain bank failures, that the market risk arising from holding these financial instruments is minimal.


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 to be available-for-sale, securities, including those with maturity dates beyond 12 months, as they are 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
13

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 collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, we consider historical collectability and make judgments about the creditworthiness of customers based on credit evaluations. Our customers typically have good credit quality. We also consider customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data.

The allowance for credit losses for the three and six months ended June 30, 2023 and 2022 is comprised of the following (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Beginning balance$314 $159 $324 $140 
Provisions, net— 7 — 30 
Write-offs— (16)(10)(20)
$314 $150 $314 $150 

14

The Company’s consolidated financial statements.three and six months ended June 30, 2023 beginning and ending balances increased when compared to the three and six months ended June 30, 2022 beginning and ending balances 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 thethese instruments under these arrangements.

Revenue

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition, when persuasive evidence 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 accounting


units, whether the arrangement requires the Company to retain risks consistent with a collaborative arrangement, and/or whether any of the fees are contingent on the achievement of future milestones.

Product revenue is deriveddepreciates them over five years. Losses from the sale or rentalretirement of ourreturned 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 the instrumentare included in the customer’s facility and provide service. The customer agrees to purchase consumable products at a stated price over the term 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 penalize 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 future performance obligations.

Leases

The Company accounts for leases in accordance with ASC 840, Leases, which requires leases to be classified as either operating or capital leases. In general, the Company classifies leases as capital leases when there is either a transfer of ownership at the end of the lease term, the lease contains a bargain purchase option, the lease term is seventy-five percent or more of the estimated economic life of the leased property or the minimum lease payments are ninety percent or more of the fair value at lease inception. Other leases are classified as operating leases.

Operating lease rent is recorded as an operating expense monthly. For capital leases, both an asset and liability are recorded at the inception of the lease based on the present value of lease payments. The asset is included with property and equipment on 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.expenses.

Equity-Based Compensation


The Company awards stock optionsevaluates 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 other equity-based instruments to its employees, directors and consultants. Compensation cost related to equity-based instrumentsat 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 instrument onestimated fair value are insufficient to recover the grant date,carrying amount of instruments. No impairment charges have been recorded for the three and is recognized oversix months ended June 30, 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 requisite service period on a straight-line basis overCompany are reviewed for impairment whenever events or changes in circumstances indicate that the vesting period for each tranche (an accelerated attribution method). For unvested consultant grants, the assumptions are updated at the endcarrying amount of each reporting period until the grant is vested.an asset may not be recoverable. The Company estimatescontinuously evaluates the recoverability of its long-lived assets based on estimated future cash flows from and the estimated fair value of stock option awards, including modifications of stock option awards, usingsuch long-lived assets, and provides for impairment if such undiscounted cash flows or the Black-Scholes option pricing model. This model derives theestimated fair value of stock options based on certain assumptions relatedare insufficient to expected stock price volatility, expected option life, risk-free interest rate and dividend yield.

Volatility: The expected volatility is based onrecover the historical volatilitycarrying amount of the Company’s stock price over the most recent period commensurate with the expected term of the stock option award.long-lived asset.

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 sufficient history of employee exercise patterns. For consultant awards, the estimated expected term is the same as the life of the award.



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

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

The Company implemented ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting on January 1, 2017. Pursuant to this guidance, we made a policy election to account 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 not incorporate option features that would require compensation to be recorded.

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

Cost of Sales

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


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 warranty reserve and adjusts the amount as necessary. The expensecost incurred for these provisions is included in cost of sales on the condensed consolidated statements of operations and comprehensive loss.


15

Warranty reserve activity for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Beginning balance$221 $176 $225 $139 
Provisions (reversals), net153 93 187 139 
Warranty cost incurred(192)(14)(230)(23)
Ending balance$182 $255 $182 $255 

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 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 carrying value of the debt at the time of repurchase, conversion or settlement.

Revenue Recognition

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

The Company determines revenue recognition through the following steps:

•Identification of the contract with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations

•Recognition of revenue as we satisfy a performance obligation

Product revenue is derived from the sale or rental of instruments and sales of related consumable products. When an instrument is sold, revenue is generally recognized upon installation 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. Invoices are generally issued when revenue is recognized. Payment terms vary by the type and location of the customer and the products or services offered. The term between invoicing and when payment is due is not significant.

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

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

16

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 and six months ended June 30, 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 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 instead expensed in a previous year) during each of the three and six months ended June 30, 2023 was none and $0.1 million, respectively. Pre-launch inventory sold to customers (not capitalized and instead expensed in a previous year) during each of the three and six months ended June 30, 2022 was $0.2 million and $0.3 million, respectively.

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.


Commercial Agent Relationship with Becton, Dickinson and Company (“BD”)

The Company has entered into an exclusive commercial agreement with BD to act as the Company’s agent and representative. The purpose of this agreement is to establish an on-going commercialization of the Company’s products. The Company is classified as the principal and BD as the agent. BD shall pay the Company a fee in multiple installments for exclusive rights, while the Company will pay BD an agent fee based on the Company’s revenues.

The Company accounts for agent fees consistent with how it accounts for sales commissions as described above. In most instances the agent fees are determined to be costs that would have an amortization period of less than one year and the Company has elected to recognize them as an expense when incurred. The agent fee is a component of sales, general and administrative expenses, within the condensed consolidated statement of operations and comprehensive loss.

The Company accounts for the fee from BD as a deferred liability when the cash is received. The deferred liability is then amortized using estimates to reduce the amount of agent fee expense for the period. The Company uses forecasted revenue to estimate the amount of deferred liability to amortize within a period. The deferred liability is a component of deferred revenue, within the condensed consolidated balance sheet, while the corresponding amortization is charged to sales, general and administrative expenses, within the condensed consolidated statement of operations and comprehensive loss.

See Note 8, Deferred Revenue and Remaining Performance Obligations, for further information and related disclosures.

Leases

The Company accounts for leases in accordance with ASC 842, Leases. The Company determines if an arrangement is or contains a lease and the type of lease at inception. The Company classifies leases as finance leases (lessee) or sales-type leases (lessor) when there is either a transfer of ownership of the underlying asset by the end of the lease term, the lease contains an option to purchase the asset that we are reasonably certain will be exercised, the lease term is for the major part of the remaining economic life of the asset, the present value of the
17

lease payments and any residual value guarantee equals or substantially exceeds all the fair value of the asset, or the asset is of such a specialized nature that it will have no alternative use to the lessor at the end of the lease term. Payments contingent on future events (i.e., based on usage) are considered variable and excluded from lease payments for the purposes of classification and initial measurement. Several of our leases include options to renew or extend the term upon mutual agreement of the parties and others include one-year extensions exercisable by the lessee. None of our leases contain residual value guarantees, restrictions, or covenants.

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

Leases as Lessee

Operating leases are included in right-of-use (“ROUs”) assets and corresponding lease liabilities, 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 underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and their related liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Typically, we use our incremental borrowing rate based on the information available at commencement in determining the present value of lease payments. We use the implicit rate when readily determinable. ROU assets are net of lease payments made and exclude lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term, which may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

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 collectability 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 in other non-current liabilities in the condensed consolidated balance sheet.

18

Equity-Based Compensation

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

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

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

•Expected term: The estimated expected term for employee awards is based on a simplified method that considers an insufficient history of employee exercises. For consultant awards, the estimated expected term is the same as the life of the award.

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

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

The Company records the fair value of RSUs or stock grants based on the 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.

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

Accounting for Derivatives

The Company identified a derivative financial instrument in connection with the Company’s 5.00% Notes Conversion Option. The Company’s derivative is recorded at fair value on the condensed consolidated balance sheet as a current derivative liability and changes in the fair value of the derivative financial instrument is recognized in gain (loss) on financial instruments, within the condensed consolidated statement of operations and comprehensive loss, depending on the changes in fair value.

See Note 9, Convertible Notes for further information.

Deferred Tax

Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying condensed consolidated balance 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 benefit is calculated as the largest
19

amount that is more likely than not to be realized upon resolution of the position. Interest and penalties, if any, would be recorded within tax expense.

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 (see Note 10). Other potentially dilutive common shares would also include common shares that would be outstanding if the 5.00% Notes were converted. Diluted earnings are not presented when the effect of adding such additional common shares is antidilutive.

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

Comprehensive Loss

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

NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS


Standards that were recently adopted

In May 2017,March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method. ASU 2017-09, Compensation—Stock Compensation (Topic 718)Scope of Modification Accounting. This amendment clarifies when to account for a change2022-01 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 June 30, 2023, two of the Company's financial institutions held 79% and 12%, of the Company’s cash and cash equivalents. As of December 31, 2022, three of the Company’s financial institutions
20

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 16% and 15% of the Company’s net accounts receivable balance as of June 30, 2023 and December 31, 2022, respectively.

The Company had one customer that represented 10% of the Company’s total revenue for the three and six months ended June 30, 2023 and no customers that represented 10% or more of the Company’s total revenue for the three and six months ended June 30, 2022.

NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS


Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

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 SeptemberJune 30, 2017,2023 and December 31, 2016.2022 (in thousands):


June 30, 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$23,123 $— $— $23,123 
Total cash and cash equivalents23,123 — — 23,123 
Equity investments:
Mutual funds1,017 — — 1,017 
Total equity investments1,017 — — 1,017 
Debt securities available-for-sale:
Corporate notes and bonds— 406 — 406 
Debt securities available-for-sale— 406 — 406 
Total assets measured at fair value$24,140 $406 $— $24,546 

21

September 30, 2017
(in thousands)December 31, 2022
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		TotalQuoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
Assets: 
 
 
 
Assets:
Cash and cash equivalents 
Cash and cash equivalents:Cash and cash equivalents:
Money market funds$19,610
$—
$—
$19,610
Money market funds$7,194 $— $— $7,194 
Total cash and cash equivalentsTotal cash and cash equivalents7,194 — — 7,194 
Equity investments:Equity investments:
Mutual fundsMutual funds928 — — 928 
Total equity investmentsTotal equity investments928 — — 928 
Debt securities available-for-sale:Debt securities available-for-sale:
Certificates of depositCertificates of deposit— 2,541 — 2,541 
U.S. Treasury securitiesU.S. Treasury securities3,009 — — 3,009 
Commercial paper—
1,800
—
1,800
Commercial paper— 424 — 424 
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
Corporate notes and bonds— 3,754 — 3,754 
Total investments12,009
74,880
—
86,889
Debt securities available-for-saleDebt securities available-for-sale3,009 6,719 — 9,728 
Total assets measured at fair value$31,619
$76,680
$—
$108,299
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.


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

As of June 30, 2023, the Company’s Conversion Option, which is classified as a derivative liability, has a fair value of $42.8 million, using Level 3 measurement assumptions. See Note 9, Convertible Notes for further detail on the Conversion Option.

As of June 30, 2023, the Company’s Schuler Purchase Obligation, which is classified as a financial instrument asset, has a fair value of $0.9 million, using Level 3 measurement assumptions. See Note 17, Stockholders' Equity for further detail on the Schuler Purchase Obligation.

Liabilities for which Fair Value is only Disclosed

As of December 31, 2022, the Secured Notes had an outstanding principal amount of $34.9 million, and a fair value of $16.0 million, using Level 3 measurement assumptions. No Secured Notes were no transfers between levels duringoutstanding as of June 30, 2023. See Note 10, Long-Term Debt Related-Party for further detail on the nine months ended SeptemberSecured Note.

As of June 30, 2017.2023, the Company’s 5.00% Notes had an outstanding principal amount of $66.9 million, and a fair value of $35.2 million, using Level 3 measurement assumptions. See Note 9, Convertible Notes for further detail on the 5.00% Notes.


22

The 2.50% Notes matured on March 15, 2023 and became due and payable on such date. The amortized carrying amount of the 2.50% Notes is $0.7 million as of June 30, 2023 and approximates the related fair value due to the instrument being fully matured and payable. As of December 31, 2022, the 2.50% Notes represented a Level 2 measurement with an outstanding principal amount of $56.6 million, and a fair value of $51.9 million. See Note 9, Convertible Notes for further detail on the 2.50% Notes.

NOTE 5. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations 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, and December 31, 2016, respectively.

NOTE 6. INVESTMENTS


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


June 30, 2023
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
Corporate notes and bonds$406 $— $— $406 
Total$406 $— $— $406 
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


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 
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 SeptemberJune 30, 2017,2023 and December 31, 2016:2022 (in thousands):



June 30, 2023December 31, 2022
Amortized
Cost		Fair ValueAmortized
Cost		Fair Value
Due in less than 1 year$406 $406 $9,757 $9,728 
Total$406 $406 $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 and six months endedSeptember June 30, 20172023 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 ofon 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 salesdebt securities available-for-sale during the three and six months ended June 30, 2023 and 2022. No material balances were reclassified out of marketable securitiesaccumulated other comprehensive loss for the three and ninesix months ended SeptemberJune 30, 2017. The gross proceeds associated with the realized gains2023 and 2022. No unrealized losses on debt securities available-for-sale have been recognized in income for the three and ninesix months ended SeptemberJune 30, 20162023 and 2022, as the issuers of such securities were $7.2 million.of high credit quality.
No other-than-temporary impairments
As of June 30, 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 June 30, 2023.

23

Equity securities are comprised of investments in mutual funds. The fair value of equity securities at June 30, 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 and six months ended June 30, 2023 and 2022 were as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Unrealized (gain) loss on equity investments$(40)$107 $(90)$157 

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 and six months ended June 30, 2023 and 2022.

NOTE 6. INVENTORY

Inventories consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

June 30,December 31,
20232022
Raw materials$1,668 $1,827 
Work in process1,689 2,115 
Finished goods1,749 1,252 
$5,106 $5,194 

NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

June 30,December 31,
20232022
Computer equipment$3,611 $3,551 
Technical equipment3,246 3,236 
Facilities3,688 3,663 
Instruments3,402 3,735 
Capital projects in progress67 114 
Total property and equipment$14,014 $14,299 
Accumulated depreciation(11,118)(10,821)
Property and equipment, net$2,896 $3,478 

Depreciation expense for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Depreciation expense$354 $443 $709 $903 

24

Instruments at cost and accumulated depreciation where the Company is the lessor under operating leases consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

June 30,December 31,
20232022
Instruments at cost under operating leases$2,382 $2,585 
Accumulated depreciation under operating leases(1,325)(1,209)
Net property and equipment under operating leases$1,057 $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 June 30, 2023 and December 31, 2022 follows (in thousands):

June 30,December 31,
20232022
Products and services not yet delivered$478 $547 

We recognized $0.2 million of revenues that were included in the beginning contract liabilities balances for each of the three months ended June 30, 2023 and June 30, 2022 and $0.4 million and $0.3 million for the six months ended June 30, 2023 and June 30, 2022, respectively. No material investmentamount of revenue recognized during the period was from performance obligations satisfied in prior periods.

Transaction Price Allocated to Remaining Performance Obligations

As of June 30, 2023, $6.1 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.

Commercial Agent Relationship with BD

The Company has entered into an exclusive commercial agreement with BD to act as the Company’s agent and representative. As of June 30, 2023, BD has paid the Company exclusivity fees totaling $0.8 million, of which $0.7 million has been amortized as a credit to sales, general and administrative expenses. The remaining $0.1 million remains in deferred income to be amortized in future periods. The Company has recognized $0.5 million in agent fee expense in the six months ended June 30, 2023 associated with partnership-related commercial activity which is recorded to sales, general and administrative expenses.

25

NOTE 9. CONVERTIBLE NOTES

Convertible Notes

The information presented in this section summarizes the data for all of the Company’s convertible notes.

The carrying value of the convertible notes at June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

June 30,December 31,
20232022
Outstanding principal at par$67,619 $56,595 
Debt premium5,936 — 
Unamortized debt discount(37,606)— 
Unamortized debt issuance costs(2,934)(182)
Net carrying amount$33,015 $56,413 

At June 30, 2023 and December 31, 2022 the convertible notes were classified as follows (in thousands):

June 30,December 31,
20232022
Current portion of convertible notes$726 $56,413 
Non-current portion of convertible notes32,289 — 
Total convertible notes$33,015 $56,413 

Interest expense during the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Contractual coupon interest$656 $666 $892 $1,449 
Amortization of debt discount and issuance costs510 154 692 265 
Total interest expense on convertible notes$1,166 $820 $1,584 $1,714 

(Loss) gain on extinguishment of exchanged convertible notes during the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(Loss) gain on extinguishment$(6,550)$199 $(6,550)$3,565 

26

2.50% Convertible Senior Notes due 2023 (the “2.50% Notes”)

On March 27, 2018, the Company issued $150.0 million aggregate principal amount of 2.50% Notes. In connection with the offering of the 2.50% Notes, the Company granted the initial purchasers of the Notes a 13-day option to purchase up to an additional $22.5 million aggregate principal amount of the 2.50% Notes on the same terms and conditions. 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 2.50% Notes matured on March 15, 2023 (the “Maturity Date”).

As of June 30, 2023, approximately $0.7 million aggregate principal amount of 2.50% Notes remains outstanding and in default accruing interest at 2.5% per annum.

The Company incurred issuance costs related to the issuance of the 2.50% Notes which were amortized over the five-year contractual term of the 2.50% Notes using the effective interest method. The effective interest rate on the 2.50% Notes, including accretion of the 2.50% Notes to par was 3.2%.

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 trading 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 2.50% 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 2.50% Notes in multiples of $1,000 principal amount. Holders of the 2.50% Notes who convert their 2.50% 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 2.50% Notes at a repurchase price equal to 100% of the principal amount of the 2.50% Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the repurchase date.

As of June 30, 2023, none of the 2.50% Notes outstanding are convertible pursuant to their original terms. None of the 2.50% Notes converted prior to the Maturity Date. As of June 30, 2023, the Company will continue to accrue interest on the remaining outstanding 2.50% Notes. As of June 30, 2023 the amount of accrued interest on the remaining outstanding 2.50% Notes is immaterial.

27

The carrying value of the 2.50% Notes at June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

June 30,December 31,
20232022
Outstanding principal at par$726 $56,595 
Unamortized debt issuance— (182)
Net carrying amount$726 $56,413 

At June 30, 2023 and December 31, 2022 the 2.50% Notes were classified as follows (in thousands):

June 30,December 31,
20232022
Current portion of convertible notes$726 $56,413 
Non-current portion of convertible notes— — 
Total convertible notes$726 $56,413 

Interest expense for the 2.50% Notes during the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Contractual coupon interest$321 $666 $557 $1,449 
Amortization of debt issuance costs— 154 182 265 
Total interest expense on convertible notes$321 $820 $739 $1,714 

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 2.50% Notes, the Trustee and any other owner of the 2.50% 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 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 2.50% Note when due and payable on March 15, 2023, (ii) failure to pay any interest on any 2.50% Note when due and payable, (iii) failure to convert any 2.50% Notes, (iv) default under any agreement with outstanding indebtedness for money borrowed in excess of $15.0 million and (v) any other breach, default or event of default under the Indenture arising from the failure of the Company to timely pay in full the principal of any 2.50% Note when due and payable on the Maturity Date. The Forbearance Agreement was initially effective for the period commencing on March 13, 2023 and ending on April 21, 2023, the date of the Restructuring Support Agreement.

The holders of the 2.50% Notes that joined the Forbearance Agreement received a fee (the “Forbearance Premium”) equal to $5.00 per $1,000 principal amount of the 2.50% Notes held by such party, by executing and delivering a joinder to the Forbearance Agreement to the Company. During the six months ended June 30, 2023 the Ad Hoc Noteholder Group received $0.2 million in Forbearance Premiums. The Forbearance Premium of $0.2 million paid during the six months ended June 30, 2023, was capitalized and amortized to expense for the period commencing on March 13, 2023 through March 31, 2023.

Restructuring Support Agreement and June 2023 Exchange Transaction

On June 9, 2023, the Company completed the Restructuring Transactions contemplated by the Restructuring Support Agreement whereby the Company (i) exchanged approximately $55.9 million aggregate principal amount of the 2.50% Notes for approximately $56.9 million aggregate principal amount of newly issued
28

5.00% Notes, which was inclusive of additional 5.00% Notes in respect of interest accrued on the 2.50% Notes from September 15, 2022, for $1.0 million; (ii) issued and sold an additional $10.0 million aggregate principal amount of 5.00% Notes; (iii) repurchased the Secured Note, plus accrued interest, by issuing approximately 3.4 million shares of the Company’s common stock; (iv) issued approximately 0.4 million shares of the Company’s common stock upon conversion of all of the Company’s outstanding Series A Preferred Stock; (v) amended the March 2022 Securities Purchase Agreement (as defined in Note 17) and issued and sold approximately 0.5 million shares of the Company’s common stock for proceeds of $4.0 million; and (vi) entered into a new securities purchase agreement with the Schuler Trust pursuant to which the Schuler Trust is required, prior to December 15, 2023, to either purchase an aggregate of $10 million of the Company’s common stock from the Company or to backstop an underwritten public offering by the Company of its common stock for aggregate proceeds of $10 million, at the Company’s option. See Note 10, Long-Term Debt Related-Party, Note 17, Stockholders' Equity and Note 18, Related-Party Transactions for additional information.

As described above, on June 9, 2023, the Company entered into an exchange agreement (the “June 2023 Exchange Transaction”) with certain holders of the Notes. On June 9, 2023 the June 2023 Exchange Transaction was accounted for as an extinguishment which resulted in the $56.9 million in aggregate principal of the 5.00% Notes replacing the $55.9 million of the 2.50% Notes and the $1.0 million of accrued interest expense. The 5.00% Notes were recorded at fair value on initial measurement, while the $55.9 million of the 2.50% Notes and the $1.0 million of accrued interest expense was retired. During the three and six months ended June 30, 2023 the extinguishment of the 2.50% Notes resulted in a loss of $6.6 million. See further discussion of the 5.00% Notes below.

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 2.50% 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 2.50% Notes held by it in eight equal tranches as follows for each tranche: (a) 2.26 shares per $1,000 principal amount of 2.50% Notes exchanged, plus (b) an additional number of shares of the Company’s common stock per $1,000 principal amount of 2.50% 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) $15.567 divided by (ii) the daily volume-weighted average price for such trading day (collectively, the “Exchange Transaction”). The closing of the March 2022 Exchange Agreement occurred in eight tranches (“2022 Obligation to Exchange”), with the first closing occurring on March 29, 2022 and the last closing on May 18, 2022.

On March 21, 2022 the 2022 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 “2022 New Notes”). The 2022 New Notes were elected to be carried using the fair value option. The 2022 New Notes were recorded at 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 was exclusive to the 2022 New Notes and did not extend to other 2.50% Notes. At June 30, 2022 the embedded feature was no longer outstanding as the 2022 New Notes were exchanged and the 2022 Obligation to Exchange was retired. As of June 30, 2023 and 2022 no 2.50% Notes were carried using the fair value option.

During the six months ended June 30, 2022 the holder of the Notes exchanged approximately $14.0 million in aggregate principal amount of Notes held by the holder for approximately 1.1 million shares of the Company's common stock pursuant to the Exchange Agreement. The legal exchange of the 2.50% Notes resulted in a gain of $3.6 million during the six months ended June 30, 2022. The Company’s common stock was determined to have a fair value that remained less thanof $10.2 million, which was recorded to contributed capital during the six months ended June 30, 2022.

Closing of Prepaid Forward

In connection with the initial offering of the 2.50% 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 2.50% Notes to pay the prepayment amount. The aggregate number of our common stock underlying the Prepaid Forward is approximately 0.2 million shares (based on the sale price of $24.25). On March 24, 2023, approximately 0.2 million shares of common stock were returned to the Company pursuant to our agreement with the counterparty. On March 27, 2018 and forward,
29

these shares purchased under the Prepaid Forward were treated as treasury stock on the condensed consolidated balance sheet (and not outstanding for purposes of the calculation of basic and diluted earnings per share), but remain outstanding for corporate law purposes, including for purposes of any future stockholders’ votes.

5.00% Convertible Senior Notes due 2026 (the “5.00% Notes”)

As described above, on June 9, 2023, the Company entered into the June 2023 Exchange Transaction with holders of the 2.50% Notes. The June 2023 Exchange Transaction was accounted for as an extinguishment which resulted in the 5.00% Notes replacing the 2.50% Notes and associated accrued interest expense. The 5.00% Notes were recorded at fair value on initial measurement, while the 2.50% Notes and the associated accrued interest expense were retired. In addition the Company issued an additional $10.0 million aggregate principal amount of 5.00% Notes, for cash proceeds with certain existing note holders. The 5.00% Notes have an aggregate principal amount of $66.9 million and a maturity date of December 15, 2026 (the “Maturity Date”).

The 5.00% Notes bear interest at a rate of 5.00% per annum. The Company shall pay interest on the 5.00% Notes by payment-in-kind (“PIK”), by the issuance of additional 5.00% Notes (“PIK Notes”). The amount shall be payable to holders by increasing the principal amount of each outstanding 5.00% Note by an amount equal to the interest payable for the applicable interest period. The Company will calculate PIK interest semi-annually which is June 15 and December 15, on a compound basis based on the stated rate of 5.00%. The PIK Notes will also incur interest at a rate of 5.00% per annum.

The 5.00% Note is secured by substantially all of the assets of the Company and its costsubsidiaries.

Holders of the 5.00% Notes who convert their 5.00% Notes in connection with a make-whole fundamental change (as defined in the Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. If a fundamental change occurs at any time prior to the Maturity Date, each holder shall have the right, at such holder’s option, to require the Company to repurchase for more than twelve monthscash all of such holder’s 5.00% Notes, at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.

The 5.00% Notes shall not be redeemable by the Company prior to June 15, 2025 except as set forth below:

•On or after June 15, 2025 the Company may, at its option, redeem for cash all or a portion of September 30, 2017, and there have been no other indicators of impairment. Thethe 5.00% Notes. If the Company does not intendredeem 100% of the 5.00% Notes then the redeemed amount is subject to sell investmentsminimums as outlined in the Indenture.

Redeeming the 5.00% Notes before June 15, 2025 could trigger a make-whole fundamental change as described above.

Each holder of the 5.00% Notes has the right at their option, to convert any portion of the 5.00% Notes at an initial conversion rate of 138.88889 shares of common stock per $1,000 principal amount of the 5.00% Notes. Effective October 18, 2023, the initial conversion rate shall be adjusted to a conversion rate calculated based on a conversion price of $7.20 per share of common stock plus 50% of the difference between the Post-Closing VWAP (as defined in the indenture governing the 5.00% Notes) and it$7.20 (if such difference is more likelya positive number), provided that in no event shall the adjusted conversion rate be lower than not that we120.48193 per $1,000 principal amount of the 5.00% Notes, based on a conversion price of $8.30 per share of common stock. The provision of the agreement is collectively referred to as the (“Conversion Option”).

The Company cannot require the holder of the 5.00% Notes to convert at any time. As of June 30, 2023 none of the 5.00% Notes have converted. The number of shares of common stock issuable upon conversion of the 5.00% Notes based on the initial conversion rate is 9.3 million shares as of June 30, 2023, and are available for conversion at the holder’s option.

The Conversion Option provides the note holders with the option to convert their notes to shares of the Company’s common stock at either the initial conversion rate or an adjusted conversion rate depending on the timing of conversion, and can be exercised at any time until maturity. The Conversion Option provides the Company with a choice of cash, shares, or combination settlement. Management determined the Conversion Option meets the derivative bifurcation criteria under ASC 815 at inception through October 17, 2023, the date at which the conversion rate will notbecome fixed, during which the derivative instrument will be required bifurcated and adjusted
30

to sell investments before recoveringfair value through earnings. From end of day October 17, 2023 and thereafter, the amortized cost.Conversion Option will no longer meet the bifurcation criteria and the derivative instrument will cease being bifurcated and will be accounted for based on applicable accounting guidance. The Derivative is an instrument measured at fair value using Level 3 inputs. The Company’s Conversion Option was recorded at fair value at inception, and marked to market as of June 30, 2023.


Additional information regardingChanges in the fair value of ourthe derivative financial instrument are recognized in gain (loss) on financial instruments, within the condensed consolidated statement of operations and comprehensive loss. The derivative financial instrument activity for the three and six months ended June 30, 2023 and 2022 is comprised of the following (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Beginning balance$— $— $— $— 
Derivative liability, June 9, 202338,160 — $38,160 $— 
Change in value - loss4,626 — 4,626 — 
Ending balance$42,786 $— $42,786 $— 

Under ASC 470-50-40, the June 2023 Exchange Transaction qualified as an extinguishment of debt. Under extinguishment accounting, the 2.50% Notes were derecognized and the new instruments, which include the 5.00% Notes and the Conversion Option derivative, were recorded at their respective fair values. The 5.00% Notes represent an instrument measured at fair value on a non-recurring basis using Level 3 inputs. The estimated fair value of the 5.00% Notes on June 9, 2023 is $34.8 million, which included ina $6.0 million debt premium.

The fair value of the Conversion Option derivative liability of $38.2 million as of the transaction date was recorded as a debt issuance discount at inception on June 9, 2023. The Company incurred issuance costs of $3.0 million. The debt premium, debt discount and debt issuance costs will be amortized using the effective interest method over 3.5 years which is the contractual term of the 5.00% Notes. The effective interest rate on the 5.00% Notes, to par is 27.30%.

The carrying value of the 5.00% Notes at June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

June 30,December 31,
20232022
Outstanding principal at par$66,893 $— 
Debt premium5,936 — 
Unamortized debt discount(37,606)— 
Unamortized debt issuance(2,934)— 
Net carrying amount$32,289 $— 

At June 30, 2023 and December 31, 2022 the 5.00% Notes were classified as follows (in thousands):

June 30,December 31,
20232022
Current portion of convertible notes$— $— 
Non-current portion of convertible notes32,289 — 
Total convertible notes$32,289 $— 

31

Interest expense for the 5.00% Notes during the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Contractual coupon interest$334 $— $334 $— 
Amortization of debt discount and issuance costs510 — 510 — 
Total interest expense on convertible notes$844 $— $844 $— 

As of June 30, 2023, the Company had recorded $0.3 million of accrued interest for the 5.00% Notes.

Future principal payments on the 5.00% Notes as of June 30, 2023 are as follows (in thousands):

2023$— 
2024— 
2025— 
202679,612 
2027— 
Total including PIK interest, before unamortized discount and issuance costs$79,612 
Less: unaccrued paid-in-kind interest(12,719)
Less: unamortized discount and deferred issuance costs(34,604)
Total notes payable$32,289 

Fair Value of the 5.00% Notes

The 5.00% Notes were measured at fair value on the issuance date of June 9, 2023, and are subsequently measured at fair value for disclosure purposes using Level 3 inputs. As of June 30, 2023, the debt is carried at amortized cost and the fair value is disclosed. The estimated fair value of the 5.00% Notes as of June 30, 2023 was $35.2 million. The fair value of the 5.00% Notes were estimated using a Monte Carlo simulation. The discounted cash flow analysis consisted of the following steps:

•The Company modeled the PIK interest of the 5.00% Notes through the Maturity Date;

•The Company used a discount rate of 25%, which is consistent with the typical venture capital discount rate; and

•The Company discounted the PIK interest and principal payments to determine the value of the 5.00% Notes without the Conversion Option

The table below summarizes the significant inputs used to estimate the fair value of the 5.00% Notes as of June 30, 2023:

June 30,June 9,
20232023
Coupon rate5.00%5.00%
Term (years)3.53.5
Volatility55.00 %55.00 %
Risk-free rate4.41 %4.15 %
Discount yield25.00 %25.00 %
Discount factor44.00 %44.00 %

32

The volatility used to fair value the Conversion Option is an unobservable input, as volatility is an estimate there are a range of values that could be considered appropriate, which could impact the fair value reported.

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


Fair Value of Conversion Option

The Company’s Conversion Option is classified as a derivative financial instrument and carried at fair value using Level 3 inputs. To determine the fair value of the Conversion Option, the Company calculated the difference in the value of the 5.00% Notes with and without the Conversion Option. The fair value of the Conversion Option was estimated using a Monte Carlo simulation. For each path, the Company simulated the stock price over time such that:

•At the Reset Date, the Company determined the 60-day average stock price to calculate the conversion price

•At each date after the call option start date, the Company used a Tsiveriotis and Fernandes model to determine the continuation value and compare it to the Call Price. If the continuation value exceeds the call price, the Company assumed exercise of the call option. When the call option is exercised, the holders will receive the maximum of the conversion value or the call price.

•The valuation also considered the reset conversion price as well as the accrued PIK, the Company determined whether the holder elects to convert the 5.00% Notes at the Maturity Date for the simulation paths where the 5.00% Notes has not been called prior to such date.

The table below summarizes the significant inputs used to estimate the fair value of the Conversion Option as of June 30, 2023 and June 9, 2023:

June 30,June 9,
20232023
Stock price$8.10$7.40
Initial conversion price$7.20$7.20
Conversion cap$8.30$8.30
Term (years)3.53.5
Time to call (years)2.02.0
Volatility55.00 %55.00 %
Risk-free rate4.41 %4.15 %
Discount yield25.00 %25.00 %

The volatility used to fair value the Conversion Option is an unobservable input, as volatility is an estimate there are a range of values that could be considered appropriate, which could impact the fair value reported.

See Note 4, Fair Value of Financial 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 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 $21.20 per share (the “Warrant”).

The Secured Note had a scheduled maturity date of August 15, 2027 and was repayable upon written demand at any time on or after such date. The Company could, at its option, repay the Secured Note in (i) cash or (ii) in the form of common stock of the Company, in a number of shares that is statedobtained by dividing the total amount of such payment by $21.20. The Secured Note bore interest at a rate of 5.00% per annum, payable at the lesseroption of cost or net realizable
33

the Company in the same form, at the earlier of (i) any prepayment of principal and (ii) maturity. The Secured Note was 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 did 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 August 2022 Exchange transaction qualified as an extinguishment of debt. Under extinguishment accounting, the 2.50% Notes exchanged by the Schuler Trust were derecognized and the new instruments were issued, which include the Secured Note and the Warrant, which 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 was 24.60%.

The allocationcarrying value of production overhead to inventory costs is based on normal production capacity. Abnormal amountsthe Secured Note at June 30, 2023 and December 31, 2022 consisted of idle facilitythe following (in thousands):

June 30,December 31,
20232022
Outstanding principal$— $34,934 
Unamortized debt issuance discount— (18,076)
Net carrying amount$— $16,858 

Interest expense in connection with the Secured Note during the three and spoilage are expensed as incurred,six months ended June 30, 2023 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 June 30,Six Months Ended June 30,
2023202220232022
Contractual interest$343 $— $784 $— 
Amortization of the debt discount462 — 1,034 — 
Total interest expense$805 $— $1,818 $— 

Secured Note Amendment and Exchange

As discussed in Note 9, Convertible Notes, on June 9, 2023, the Company and the Schuler Trust amended the Secured Note (the “Secured Note Amendment”), which changed its settlement provisions. Pursuant to the Secured Note Amendment, the share conversion price was changed from $21.20 to $10.60, and the Secured Note was contemporaneously settled through the Company’s issuance of approximately 3.4 million shares of common stock.

Under ASC 470-50-40, the transaction qualified as an extinguishment of debt. The reacquisition price of the extinguished debt was determined as the fair value of the common stock issued. The closing price of the Company’s common stock on June 9, 2023, the date of the extinguishment, was $7.40 and was used to estimate the fair value of the common stock issued which was $25.4 million while the carrying amount of the Secured Note and associated accrued interest being extinguished was $19.3 million. This resulted in a net loss on extinguishment of $6.1 million, which was recorded to loss on extinguishment of debt with related party on the on the condensed consolidated statement of operations.

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 247,171 shares of common stock, at an exercise price of $21.20 per share. The Warrant meets the criteria for classification in stockholders’ equity and was initially measured at fair value and recorded in equity.

34
 September 30,December 31,
 20172016
Raw materials$4,607
$—
Work in process429
—
Finished goods2,305
—
Inventory, net$7,341
$—



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 and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Shares issuable upon the release of RSUs1,193 244 1,193 244 
Shares issuable upon exercise of stock options405 794 405 794 
Shares issuable upon the exercise of the Warrant247 — 247 — 
1,845 1,038 1,845 1,038 

As discussed in Note 9, Convertible Notes, each holder of the 5.00% Notes has the right at their option, to convert any portion of the 5.00% Notes at an initial conversion rate of 138.88889 shares of common stock per $1,000 principal amount of the 5.00% Notes. Effective October 18, 2023, the initial conversion rate shall be adjusted to a conversion rate calculated based on a conversion price of $7.20 per share of common stock plus 50% of the difference between the Post-Closing VWAP (as defined in the indenture governing the 5.00% Notes) and $7.20 (if such difference is a positive number), provided that in no event shall the adjusted conversion rate be lower than 120.48193 per $1,000 principal amount of the 5.00% Notes, based on a conversion price of $8.30 per share of common stock. Holders of the 5.00% Notes who convert their 5.00% Notes in connection with a make-whole fundamental change (as defined in the Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. The number of shares of common stock issuable upon conversion of the 5.00% Notes based on the initial conversion rate is 9.3 million shares as of June 30, 2023, and are available for conversion at the holders’ option.

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 Septembersix months ended June 30, 2017:2023:


Number of SharesWeighted Average Exercise Price per Share
Options outstanding January 1, 2023540,732 $146.03 
Granted10,000 5.10 
Forfeited(10,257)82.45 
Exercised— — 
Expired(135,377)128.71 
Options outstanding June 30, 2023405,098 $148.78 

35
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 SeptemberJune 30, 2017:2023:


Options
Outstanding		Options
Exercisable
Number of options405,098 331,878 
Weighted average remaining contractual term (in years)5.414.97
Weighted average exercise price$148.78 $160.57 
Weighted average fair value$90.46 $96.56 
Aggregate intrinsic value (in thousands)$22 $— 
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 Septembersix months ended June 30, 2017:2023:


Number of SharesWeighted Average Grant Date Fair Value per Share
Outstanding January 1, 2023435,488 $42.91 
Granted1,123,922 7.14 
Forfeited(71,301)42.65 
Released(294,779)25.38 
Outstanding June 30, 20231,193,330 $13.57 
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 and comprehensive loss relatedsix months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cost of sales$98 $228 $188 $403 
Research and development256 539 861 901 
Sales, general and administrative1,299 3,204 1,159 5,646 
$1,653 $3,971 $2,208 $6,950 

The table below summarizes share-based compensation cost capitalized to options is summarized below:inventory for the three and six months ended June 30, 2023 and 2022 (in thousands):


Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cost capitalized to inventory$35 $74 $109 $117 
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 SeptemberJune 30, 2017, $262,000 and $33,000 of2023, unrecognized equity-based compensation expense was a component of capitalized inventory and property and equipment respectively.

As of September 30, 2017, unrecognized equity-based compensation cost related to unvested stock options and unvested restricted stock unitsRSUs was $16.7$0.9 million and $216,000$8.8 million, respectively. This is expected to be recognized over the years 20172023 through 2022.2028.


As discussedIncluded 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.
36


During 2021, the Company granted performance-based RSUs of which 10,330 were outstanding as of June 30, 2023. No activity occurred during the six months ended June 30, 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 three and nineperformance-based RSUs for the six months ended SeptemberJune 30, 2017 has been calculated based on actual forfeitures in our condensed consolidated statements2023 and 2022.

2022 Omnibus Equity Incentive Plan

During the Company’s Annual Meeting of operationsStockholders, stockholders approved an amendment to the Company’s 2022 Omnibus Equity Incentive Plan increasing the number of shares of Common Stock reserved and comprehensive loss, rather than our previous approach which was net of estimated forfeitures. Share-based compensation expenseavailable 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 resultedgrant by 1.6 million, resulting in a cumulative-effect adjustment which increased our accumulated deficit and additional paid-in capital by $655,000 for all outstanding awardstotal of 3.0 million reserved shares as of January 1, 2017. We believe this election simplifies several aspects of the accounting for share-based payment transactions.June 30, 2023.


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 ninesix months ended SeptemberJune 30, 2017,2023, the Company recorded a provision for income taxes of $220,000, which primarily$0.2 million tax expense related to a profitableits foreign jurisdiction without any net operating loss carryforwards.operations. The Company does not recognize tax benefits from current year tax losses in the U.S. and other foreign jurisdictions. The Company’s tax expense for the ninesix months ended SeptemberJune 30, 20172023 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$49.4 million, as no tax benefits were recorded for tax losses generated in the U.S. and other foreign jurisdictions. At SeptemberJune 30, 2017,2023, 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 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 and six months ended June 30, 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 14. COMMITMENTS

During 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 June 30, 2023, the commitment remains $11.9 million as the Company has only taken immaterial deliveries of inventory.

37

NOTE 15. LEASES

The following presents supplemental information related to our leases in which we are the lessee for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cash paid for amounts included in lease liabilities:
Operating cash flows from operating leases$226 $203 $453 $266 
Financing cash flows from finance leases$462 $424 $540 $424 
ROU assets obtained in exchange for lease obligations:
Operating leases$— $— $— $— 
Finance leases$200 $2,760 $200 $2,760 
Lease Cost:
Operating leases$243 $259 $493 $564 
Finance leases$270 $97 $531 $97 
Short-term leases$19 $21 $43 $41 

The weighted average remaining lease term on our operating leases is 2.1 years. The weighted average discount rate on those leases is 7.1%. The weighted average remaining lease term on our finance leases is 1.8 years. The weighted average discount rate on those leases is 6.0%.

The following presents maturities of lease liabilities in which we are the lessee as of June 30, 2023 (in thousands):

OperatingFinance
Remainder of 2023$515 $497 
20241,051 1,048 
2025583 265 
2026— 36 
2027— — 
Thereafter— — 
Total lease payments2,149 1,846 
Less imputed interest(149)(291)
$2,000 $1,555 

38

The net investment in sales-type leases, where we are the lessor, is a component of other current assets and other non-current assets in our condensed consolidated balance sheet. As of June 30, 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 June 30, 2023 (in thousands):

Remainder of 2023$745 
2024995 
2025395 
2026209 
202746 
Thereafter— 
Total undiscounted cash flows2,390 
Less imputed interest— 
Present value of lease payments$2,390 

NOTE 16. COMMITMENTSGEOGRAPHIC AND REVENUE DISAGGREGATION

Leases

The Company has entered into lease agreements, lease amendments, and lease extensions the last of which expires in 2022. Total rent expense, including common area charges was $308,000 and $286,000 for the three months ended September 30, 2017 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:

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 sites in which we typically pay a set amount for start-up costs 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 included in research and development on the condensed consolidated statements of operations and comprehensive loss.

Legal Matters

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. SEGMENTS


The Company operates as one operating segment. Operating segments are defined as componentsSales to customers outside the U.S. represented 10% and 14% for the three months ended June 30, 2023 and 2022, respectively, and 12% and 14% for the six months ended June 30, 2023 and June 30, 2022, respectively.

As of June 30, 2023 and December 31, 2022, balances due from foreign customers, in U.S. dollars, were $0.6 million and $0.6 million, respectively.

The following presents total net sales by geographic territory for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Domestic$2,619 $3,321 $5,035 $5,839 
Foreign302 540 698 981 
$2,921 $3,861 $5,733 $6,820 

The following presents total net sales by line of business for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Accelerate Pheno revenue$2,853 $3,818 $5,665 $6,736 
Other revenue68 43 68 84 
$2,921 $3,861 $5,733 $6,820 

The following presents total net sales by products and services for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Products$2,565 $3,476 $5,009 $6,023 
Services356 385 724 797 
$2,921 $3,861 $5,733 $6,820 

39

Lease revenue included in net sales was $0.4 million and $0.6 million for the three months ended June 30, 2023 and 2022, respectively, and $0.6 million and $1.1 million for the six months ended June 30, 2023 and 2022, respectively.

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

June 30,December 31,
20232022
Domestic$2,577 $3,120 
Foreign319 358 
$2,896 $3,478 

NOTE 17. STOCKHOLDERS' EQUITY

March 2022 Exchange Transaction

During the six months ended June 30, 2022, a holder of the 2.50% Notes exchanged approximately $14.0 million in aggregate principal amount of 2.50% Notes held by the holder for approximately 1.1 million shares of the Company’s common stock pursuant to the March 2022 Exchange Agreement. The Company’s common stock was determined to have a value of $10.2 million, which was recorded to contributed capital during the six months ended June 30, 2022. See Note 9, Convertible Notes for additional information.

Conversion of Series A Preferred Stock to Common Stock

On September 22, 2021, the Company entered into a securities purchase agreement (the “September 2021 Securities Purchase Agreement”) with the Schuler Purchasers for the issuance and sale by the Company of an enterpriseaggregate of approximately 4.0 million shares of the Company’s Series A Preferred Stock, par value $0.001 per share (the “Series A Preferred Shares”). Pursuant to the September 2021 Securities Purchase Agreement, the Schuler Purchasers agreed to purchase the Series A Preferred Shares at a purchase price of $7.70 per share for an aggregate purchase price of approximately $30.5 million which separate financial information is evaluated regularlywas recorded to contributed capital when it was received in 2022. Each share of Series A Preferred Shares was convertible, at the option of the holder, into one share of the Company’s common stock.

As discussed in Note 9, Convertible Notes, on June 9, 2023, the Schuler Purchasers exercised their right to convert a total of approximately 4.0 million shares of Series A Preferred Shares to approximately 4.0 million shares of the Company’s common stock, which were subsequently restated to approximately 0.4 million shares in conjunction with the reverse stock split. All of the Company’s Series A Preferred Shares was converted into common stock and no Series A Preferred Shares was outstanding as of June 30, 2023. During the three and six months ended the amounts associated with the Company’s Series A Preferred Shares was reclassified to common stock as presented on the statement of stockholders’ deficit.

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 chief operating decision maker, whoCompany of an aggregate of approximately 0.2 million 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 $16.40 per share, for an aggregate purchase price of $4.0 million. On March 24, 2022, the Company classified the March 2022 Securities Purchase Agreement as an equity forward agreement that met the definition of a freestanding derivative financial instrument initially classified in stockholders’ deficit. The value of this equity forward agreement was considered immaterial at inception.

The Company and the Schuler Trust agreed to extend the closing date of the March 2022 Securities Purchase Agreement several times under the original terms of the Private Placement. As discussed in Note 9, Convertible Notes, on June 9, 2023, the Company and the Schuler Trust amended the March 2022 Securities
40

Purchase Agreement, which changed the terms of settlement. The amendment changed the closing date to June 9, 2023, amended the price per share from $16.40 to $8.20, upon which the Company issued approximately 0.5 million shares of common stock to the Schuler Trust for the same proceeds of $4.0 million.

The Company determined the amendment was a modification of a freestanding equity classified instrument financial instrument. The share price change from $16.44 to $8.20, with no changes to the total proceeds of $4.0 million, resulted in the Schuler Trust receiving approximately 0.2 million more shares than the Schuler Trust would have received prior to the modification. The closing price of the Company’s common stock on June 9, 2023, the date of the modification was $7.40 and was used to estimate the fair value of the additional common stock issued. The fair value of the additional shares issued is $1.8 million, which was recorded to loss on extinguishment of debt with related party on the condensed consolidated statement of operations.

Schuler Purchase Obligation

As discussed in Note 9, Convertible Notes, on June 9, 2023, the Company and the Schuler Trust entered into the Schuler Purchase Obligation. Pursuant to the Schuler Purchase Obligation, the Schuler Trust is required, at the Company’s option, to either purchase approximately 1.4 million shares of common stock from the Company at $7.20 per share for an aggregate purchase price of $10.0 million or to backstop a public offering by the Company of common stock for aggregate proceeds of $10.0 million at the public offering stock price. If the Company elects to conduct a public offering of common stock and other investors purchase less than $10.0 million shares of common stock by December 15, 2023, the Schuler Trust will have the obligation to purchase $10.0 million shares of common stock at the public offering stock price, less the amount of common stock purchased by other investors, and will have the right to purchase additional shares of common stock such that the total amount of common stock is equal to $10.0 million of shares of common stock. If the Company elects to conduct a public offering of common stock and other investors purchase $10.0 million of shares of common stock by December 15, 2023, the Schuler Trust shall have the right, but not the obligation, to purchase up to $10.0 million of shares of common stock at the public offering stock price for the backstopped offering up to a maximum aggregate purchase by the Schuler Trust of $10.0 million of common stock.

Management determined the Schuler Purchase Obligation meets the criteria of a freestanding financial instrument at inception on June 9, 2023 through December 15, 2023, which is the chief executive officer,date the Schuler Purchase Obligation expires. The Schuler Purchase Obligation is recorded as an asset at fair value, and marked to market at each reporting period. At inception, June 9, 2023 the value of the Schuler Purchase Obligation was $1.3 million, which was recorded to loss on extinguishment of debt with related party on the on the condensed consolidated statement of operations. The Company recorded marked to market losses of $0.4 million during the three and six months June 30, 2023, which was recorded to losses on financial instruments on the condensed consolidated statement of operations. As of June 30, 2023 the carrying value of the Schuler Purchase Obligation was $0.9 million, which was carried in deciding howother current assets on the condensed consolidated balance sheet.

To determine the fair value of the Schuler Purchase Obligation, the Company used a Cox-Ross-Rubinstein binomial tree model to allocate resourcesvalue the American put option. The table below summarizes the significant inputs used to estimate the fair value of the Schuler Purchase Obligation as of June 30, 2023 and assessing performance.June 9, 2023:

June 30,June 9,
20232023
Stock price$8.10$7.40
Exercise price$7.20$7.20
Term (years)0.460.52
Volatility55.00 %55.00 %
Risk-free rate5.46 %5.38 %
Fixed commitment purchase price (in thousands)$10,000$10,000
Number of Shares1,387,9491,387,949

41

The volatility used to fair value the Conversion Option is an unobservable input, as volatility is an estimate there are a range of values that could be considered appropriate, which could impact the fair value reported.

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

Increase in the Total Number of Authorized Shares

In May 2023, we sought and obtained authorization from stockholders to increase the total number of authorized shares of common stock under our certificate of incorporation by 250.0 million for a total of 450.0 million shares. The Company’s business operatesauthorized shared of common stock was unaffected by the reverse stock split.

NOTE 18. RELATED-PARTY TRANSACTIONS

March 2022 Securities Purchase Agreement

As discussed in one operating segment becauseNote 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 Company of an aggregate of 0.2 million shares of the Company’s chief operating decision maker evaluatescommon stock to the Schuler Trust in a Private Placement. Pursuant to the March 2022 Securities Purchase Agreement, the Schuler Trust agreed to purchase the shares at a purchase price of $16.40 per share, for an aggregate purchase price of $4.0 million.

On June 9, 2023, the Company and the Schuler Trust amended the March 2022 Securities Purchase Agreement, which changed the terms of settlement. The amendment changed the closing date to June 9, 2023, amended the price per share from $16.40 to $8.20, upon which the Company issued approximately 0.5 million shares of common stock to the Schuler Trust for the same proceeds of $4.0 million.

Jack Schuler, who serves as a member of the Company’s financial informationboard of directors, is the sole trustee of the Schuler Trust.

Secured Note Amendment and resources and assesses the performance of these resourcesExchange

As discussed in Note 10, Long-Term Debt Related-Party, on a consolidated basis. SinceJune 9, 2023, the Company operatesand the Schuler Trust amended the Secured Note, which changed its settlement provisions. Pursuant to the Secured Note Amendment, the share conversion price was changed from $21.20 to $10.60, and the Secured Note was contemporaneously settled through the Company’s issuance of approximately 3.4 million shares of common stock.

Conversion of Series A Preferred Stock to Common Stock

As discussed in one operating segment,Note 17, Stockholders' Equity, on June 9, 2023, the Schuler Purchasers exercised their right to convert a total of approximately 4.0 million shares of Series A Preferred Shares to approximately 4.0 million shares of the Company’s common stock which were subsequently restated to approximately 0.4 million shares in conjunction with the reverse stock split. The Schuler Purchasers are related to Jack W. Schuler but are not affiliates of his.

Schuler Purchase Obligation

As discussed in Note 17, Stockholders' Equity, on June 9, 2023, the Company and the Schuler Trust entered into the Schuler Purchase Obligation. Pursuant to the Schuler Purchase Obligation, the Schuler Trust is required, at the Company’s option, to either purchase approximately 1.4 million shares of common stock from the Company at $7.20 per share for an aggregate purchase price of $10.0 million or to backstop a public offering by the Company of common stock for aggregate proceeds of $10.0 million at the public offering stock price. If the Company elects to conduct a public offering of common stock and other investors purchase less than $10.0 million shares of common stock by December 15, 2023, the Schuler Trust will have the obligation to purchase $10.0 million shares of common stock at the public offering stock price, less the amount of common stock purchased by other investors, and will have the right to purchase additional shares of common stock such that the total amount of common stock purchased by the Schuler Trust equals $10.0 million of shares of common stock. If the Company elects to conduct a public offering of common stock and other investors purchase $10.0 million of shares of common stock by December 15, 2023, the Schuler Trust shall have the right, but not the obligation, to purchase up
42

to $10.0 million of shares of common stock at the public offering stock price for the backstopped offering up to a maximum aggregate purchase by the Schuler Trust of $10.0 million of common stock.

Schuler Trust Issuance Costs

As part of the Restructuring Transactions discussed in Note 9, Convertible Notes, the Company incurred and paid legal fees of $0.1 million on behalf of the Schuler Trust.

NOTE 19. SUBSEQUENT EVENTS

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued.

Nasdaq Minimum Bid Price Requirement

On January 5, 2023, the Company received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the closing bid price for the Company’s common stock had been below the minimum $1.00 per share requirement for continued inclusion on The Nasdaq Capital Market (the “Capital Market”) pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). At that time, the Company was granted a period of 180 calendar days, or until July 5, 2023, to regain compliance with the Minimum Bid Price Requirement.

On July 6, 2023, the Company received a determination letter from the Staff notifying the Company that it had not regained compliance with the Minimum Bid Price Requirement as of July 5, 2023 in compliance with Nasdaq Listing Rule 5550(a)(2). The Company requested a hearing before the Panel to appeal the Staff’s determination and present a plan to regain compliance with the Minimum Bid Price Requirement. As part of the Company’s compliance plan to regain compliance with the Minimum Bid Price Requirement, the Company implemented a reverse stock split.

On July 11, 2023, the Company effected a one-for-ten reverse stock split (“Reverse Stock Split”) of the Company’s common stock.

On July 31, 2023, the Company received a letter from the Nasdaq Office of General Counsel notifying the Company that the previously reported bid price deficiency had been cured and that the Company was in compliance with all required financial segment information canapplicable Nasdaq listing standards. Accordingly, the previously reported hearing request by the Company before a Nasdaq Hearings Panel was cancelled, and the Company’s common stock will continue to be foundlisted and traded on The Nasdaq Capital Market.

Conversion of 5.00% Notes into Common Stock

Starting July 7, 2023, certain holders of the 5.00% Notes exercised their right, to convert a portion of their 5.00% Notes at an initial conversion rate of 138.88889 shares of common stock per $1,000 principal amount of the 5.00% Notes, pursuant to the terms outlined in Note 9, Convertible Notes, further described as the consolidated financial statements.Conversion Option. The various holders of the Company’s 5.00% Notes converted an aggregate principal amount of $0.7 million, for approximately 0.1 million shares of common stock.

43


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; 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 our 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 fund our forecasted operating costs for at least twelve months from the filing of this Form 10-Q. 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, among other things, volatility throughout the global economy and the related impacts to the businesses of our suppliers and customers, such as customer demand fluctuations, supply chain constraints and inflationary pressures as well as difficulties in resolving our continuing financial condition and ability to obtain additional capital to meet our financial obligations, including, without limitation, difficulties in obtaining adequate capital resources to fund our operations. Other important factors that could cause our actual results to differ materially from those in our forward-looking statements include those discussed herein, and in other reports filed with the U.S. Securities and Exchange Commission (the “SEC”) including but not limited to the risks in the section entitled “Risk Factors” in 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
44

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, the sale of single use consumable test kits and service and maintenance agreements.

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.

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 Accelerate Arc Products in the United States as a Class I device exempt from 510(k) clearance requirements.
45

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 (as amended to date, 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.

Supply Chain and Inflationary Environment

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.

Changes in Results of Operations: Three and six months ended June 30, 2023 compared to three and six months ended June 30, 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 June 30,Six Months Ended June 30,
(in thousands)(in thousands)
20232022$ Change% Change20232022$ Change% Change
Net sales$2,921 $3,861 $(940)(24)%$5,733 $6,820 $(1,087)(16)%


46

For the three and six months ended June 30, 2023, total revenues decreased due to lower sales of Accelerate PhenoTest instruments compared to the three and six months ended June 30, 2022.

Three Months Ended June 30,Six Months Ended June 30,
(in thousands)(in thousands)
20232022$ Change% Change20232022$ Change% Change
Cost of sales$2,122 $2,781 $(659)(24)%$3,923 $4,937 $(1,014)(21)%
Non-cash equity-based compensation as a component of cost of sales98 228 (130)(57)%188 403 (215)(53)%
Cost of sales less non-cash equity-based compensation$2,024 $2,553 $(529)(21)%$3,735 $4,534 $(799)(18)%

For the three and six months ended June 30, 2023, cost of sales decreased as compared to the three and six months ended June 30, 2022. This decrease is primarily due to lower sales of Accelerate PhenoTest instruments and a decrease in non-cash equity-based compensation expense.

Cost of sales includes non-cash equity-based compensation of $0.1 million and $0.2 million for the three months ended June 30, 2023 and 2022, respectively, and $0.2 million and $0.4 million for the six months ended June 30, 2023 and 2022, respectively. Non-cash equity-based compensation expense decreased for the three and six months ended June 30, 2023 when compared to the three and six months ended June 30, 2022, due to a decrease in the fair value of awards being granted. Non-cash equity-based compensation expense is a component of manufacturing overhead and service cost of sales. Manufacturing overhead is capitalized as inventory and relieved to cost of sales when products are sold to customers, or when instruments under reagent rentals are amortized to cost of sales.

Cost of sales expenses excluding non-cash equity-based compensation expense for the three and six months ended June 30, 2023 decreased compared to the three and six months ended June 30, 2022. This decrease is primarily due to lower sales of Accelerate PhenoTest instruments.

Three Months Ended June 30,Six Months Ended June 30,
(in thousands)(in thousands)
20232022$ Change% Change20232022$ Change% Change
Gross profit$799 $1,080 $(281)(26)%$1,810 $1,883 $(73)(4)%
Non-cash equity-based compensation as a component of gross profit98 228 (130)(57)%188 403 (215)(53)%
Gross profit less non-cash equity-based compensation$897 $1,308 $(411)(31)%$1,998 $2,286 $(288)(13)%

For the three and six months ended June 30, 2023, gross profit decreased as compared to the three and six months ended June 30, 2022, due to lower sales of Accelerate PhenoTest instruments, partially offset by a decrease in non-cash equity-based compensation expense.

The Company’s overall gross margin was 27% and 28% for the three months ended June 30, 2023 and 2022, respectively, and is consistent period over period.

The Company’s overall gross margin was 32% and 28% for the six months ended June 30, 2023 and 2022, respectively. The increase in gross margin is primarily due to a decrease in non-cash equity-based compensation expense.

47

Gross profit excluding non-cash equity-based compensation expense for the three and six months ended June 30, 2023 decreased compared to the three and six months ended June 30, 2022, due to lower sales of Accelerate PhenoTest instruments.

Three Months Ended June 30,Six Months Ended June 30,
(in thousands)(in thousands)
20232022$ Change% Change20232022$ Change% Change
Research and development$5,820 $7,576 $(1,756)(23)%$12,788 $13,600 $(812)(6)%
Non-cash equity-based compensation as a component of research and development256 539 (283)(53)%861 901 (40)(4)%
Research and development less non-cash equity-based compensation$5,564 $7,037 $(1,473)(21)%$11,927 $12,699 $(772)(6)%

Research and development expenses for the three months ended June 30, 2023 decreased as compared to the three months ended June 30, 2022 primarily due to decreases in contracted service costs for the development of our next generation AST platform and a decrease in non-cash equity-based compensation expense.

Research and development expenses for the six months ended June 30, 2023 decreased as compared to the six months ended June 30, 2022 primarily due to decreases in contracted service costs for the development of our next generation AST platform.

Research and development expenses includes non-cash equity-based compensation of $0.3 million and $0.5 million for the three months ended June 30, 2023 and 2022, respectively, and $0.9 million for each of the six months ended June 30, 2023 and 2022, respectively. Non-cash equity-based compensation expense decreased for the three and six months ended June 30, 2023 when compared to the three and six months ended June 30, 2022, due to a decrease in the fair value of awards being granted.

Research and development expenses excluding non-cash equity-based compensation expense for the three and six months ended June 30, 2023 decreased compared to the three and six months ended June 30, 2022, primarily due to a decrease in contracted service costs for the development of our next generation AST platform.

Three Months Ended June 30,Six Months Ended June 30,
(in thousands)(in thousands)
20232022$ Change% Change20232022$ Change% Change
Sales, general and administrative$7,564 $11,493 $(3,929)(34)%$17,669 $22,167 $(4,498)(20)%
Non-cash equity-based compensation as a component of sales, general and administrative1,299 3,204 (1,905)(59)%1,159 5,646 (4,487)(79)%
Sales, general and administrative less non-cash equity-based compensation$6,265 $8,289 $(2,024)(24)%$16,510 $16,521 $(11)— %

Sales, general and administrative expenses for the three months ended June 30, 2023 decreased as compared to the three months ended June 30, 2022, primarily due to decreases in non-cash equity-based compensation expense, and employee related expenses.

48

Sales, general and administrative expenses for the six months ended June 30, 2023 decreased as compared to the six months ended June 30, 2022, primarily due to decreases in non-cash equity-based compensation expense, and employee related expenses that were offset by increased, nonrecurring legal and professional services in connection with the Restructuring Transactions (as defined in this Form 10-Q).

Sales, general and administrative expenses includes non-cash equity-based compensation of $1.3 million and $3.2 million for the three months ended June 30, 2023 and 2022, respectively, and $1.2 million and $5.6 million for the six months ended June 30, 2023 and 2022, respectively. Non-cash equity-based compensation expense decreased for the three and six months ended June 30, 2023 when compared to the three and six months ended June 30, 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 compared to the previous year period.

Sales, general and administrative expenses excluding non-cash equity-based compensation expense for the three months ended June 30, 2023 decreased compared to the three months ended June 30, 2022, primarily due to a decrease in employee related expenses.

Sales, general and administrative expenses excluding non-cash equity-based compensation expense for the six months ended June 30, 2023 decreased compared to the six months ended June 30, 2022, primarily due to a decrease in employee related expenses that were offset by increased, nonrecurring legal and professional services in connection with the Restructuring Transactions.

Three Months Ended June 30,Six Months Ended June 30,
(in thousands)(in thousands)
20232022$ Change% Change20232022$ Change% Change
Loss from operations$(12,585)$(17,989)$5,404 (30)%$(28,647)$(33,884)$5,237 (15)%
Non-cash equity-based compensation as a component of loss from operations1,653 3,971 $(2,318)(58)%2,208 6,950 $(4,742)(68)%
Loss from operations less non-cash equity-based compensation$(10,932)$(14,018)$3,086 (22)%$(26,439)$(26,934)$495 (2)%

For the three and six months ended June 30, 2023, our loss from operations decreased as compared to the three and six months ended June 30, 2022. These decreases were primarily the result of decreases in sales general and administrative expenses and decreases in research and development expenses, partially offset by decrease in gross profit, as described above. In addition, non-cash equity-based compensation expense decreased for the three and six months ended June 30, 2023 when compared to the three and six months ended June 30, 2022.

Loss from operations excluding non-cash equity-based compensation expense for the three and six months ended June 30, 2023 decreased compared to the three and six months ended June 30, 2022. The decreases were primarily the result of decreases in sales, general and administrative expenses and decreases in research and development expenses, partially offset by decrease in gross profit, as described above.

These losses 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 June 30,Six Months Ended June 30,
(in thousands)(in thousands)
20232022$ Change% Change20232022$ Change% Change
Total other (expense) income, net$(19,994)$(534)$(19,460)3,644 %$(20,727)$1,896 $(22,623)(1,193)%

49

Other expense, net for the three months ended June 30, 2023 increased as compared to the three months ended June 30, 2022, primarily due to the consummation of Restructuring Transactions, which resulted in the Company recording a loss on extinguishment of debt of $6.6 million, loss on extinguishment of debt with related party proceedsof $6.8 million and losses on financial instruments of $5.0 million.

For the six months ended June 30, 2023, the Company incurred other expense, net compared to other income, net for the six months ended June 30, 2022. As described above, the Company consummated the Restructuring Transactions, which resulted in the Company recording a loss on extinguishment of debt of $6.6 million, loss on extinguishment of debt with related party of $6.8 million and losses on financial instruments of $5.0 million for the six months ended June 30, 2023.

Three Months Ended June 30,Six Months Ended June 30,
(in thousands)(in thousands)
20232022$ Change% Change20232022$ Change% Change
Provision for income taxes$(156)$— $(156)100 %$(156)$— $(156)100 %

For the three and six months ended June 30, 2023 and 2022, the Company recorded a provision for income taxes as the Company reversed a receivable associated with an increaseincome tax refund recorded in a prior period.

Capital Resources and Liquidity

Since inception, the Company has not achieved profitable operations or positive cash flows from operations. The Company’s accumulated deficit totaled $656.8 million as of June 30, 2023. During the six months ended June 30, 2023, the Company had a net loss of $49.5 million and negative cash flows from operations of $24.2 million. The Company had a working capital deficit of $11.5 million as of June 30, 2023.

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 2.50% Convertible Senior Notes due 2023 (the “2.50% Notes”) (collectively, the “Ad Hoc Noteholder Group”) and the trustee for the 2.50% Notes (the “Trustee”). On March 15, 2023, the 2.50% Notes matured and became due and payable. Pursuant to contributedthe Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the indenture governing the 2.50% Notes (the “2.50% Notes Indenture”) in connection with certain events of default under the 2.50% Notes Indenture, including, but not limited to, the failure to timely pay in full the principal of any 2.50% Note due and payable on March 15, 2023 and the failure to pay any interest on any 2.50% 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 2.50% 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”).

On June 9, 2023, the Company completed the Restructuring Transactions contemplated by the Restructuring Support Agreement whereby the Company (i) exchanged approximately $55.9 million aggregate principal amount of 2.50% Notes for approximately $56.9 million aggregate principal amount of newly issued 5.00% Senior Secured Convertible Notes due 2026 (the “5.00% Notes”), which was inclusive of additional 5.00% Notes in respect of interest accrued on the 2.50% Notes from September 15, 2022; (ii) issued and sold an additional $10 million aggregate principal amount of 5.00% Notes; (iii) repurchased the Secured Note, plus accrued interest, by issuing approximately 3.4 million shares of the Company’s common stock; (iv) issued approximately 0.4 million shares of the Company’s common stock upon conversion of all of the Company’s outstanding Series A Preferred Stock; (v) amended the March 2022 Securities Purchase Agreement (as defined below) and issued and sold approximately 0.5 million shares of the Company’s common stock for proceeds of $4 million; and (vi) entered into a new securities purchase agreement with the Jack W. Schuler Living Trust (the “Schuler Trust”) pursuant to which the Schuler Trust is required, prior to December 15, 2023, to either purchase an aggregate of $10.0 million of the Company’s common stock from the Company or to backstop an underwritten public offering by the Company of its common stock for aggregate proceeds of $10.0 million, at the Company’s option. See Part I, Note 9, Convertible
50

Notes, Note 10, Long-Term Debt Related-Party, Note 17, Stockholders' Equity and Note 18, Related-Party Transactions for additional information.

As of June 30, 2023, the Company had $30.7 million in cash and cash equivalents and investments, a decrease of $14.9 million from $45.6 million at December 31, 2022. The primary reason for the decrease was due to cash used in operations, including cash used for nonrecurring legal and professional services in connection with the Restructuring Transactions offset by proceeds from the issuance of common stock and the issuance of the 5.00% Notes for cash. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations.

The Company’s primary use of capital has been for the development and commercialization of the Accelerate Pheno system and development of complementary products. 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 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.

While the Company continues to explore additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, there can be no assurance the necessary financing will be available on terms acceptable to the Company, or at all. If the Company raises funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of common stock. If the Company raises funds by issuing additional debt, it is likely any new debt would have rights, preferences and privileges senior to common stockholders. The terms of borrowing could impose significant restrictions on the Company’s operations. The capital markets have in the past, and may in the future, experience periods of upheaval that could impact the availability and cost of equity and debt financing. In addition, 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 the Company is actively considering all available strategic alternatives to maximize value, if the Company is unable to obtain adequate capital resources to fund operations, the Company would not be able to continue to operate its business pursuant to its current plans. This may require the Company to, among other things, materially modify its operations to reduce spending; sell assets or operations; delay the implementation of, or revising certain aspects of, its business strategy; or discontinue its operations entirely.

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.

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 fund its forecasted operating costs for at least twelve months from the date of the filing of this Form 10-Q.

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.
51


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 June 30, 2023, our contractual material cash requirements were as follows:

Payments due by Period
(in thousands)
Material Cash RequirementsTotal20232024202520262027Thereafter
Operating lease obligations$2,149 $515 $1,051 $583 $— $— $— 
Purchase obligation 1)
11,884 — — — — 11,884 — 
Finance lease obligations1,846 497 1,048 265 36 — — 
Deferred compensation1,017 — — 370 396 251 — 
5.00% notes 2)
67,619 726 — — 66,893 — — 
5.00% notes interest 3)
12,719 — — — 12,719 — — 
Total$97,234 $1,738 $2,099 $1,218 $80,044 $12,135 $— 

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 June 30, 2023 the commitment remains $11.9 million as the Company has not taken material delivery of any inventory.

2) Each holder of the 5.00% Notes has the right at their option, to convert any portion of the 5.00% Notes at an initial conversion rate of 138.88889 shares of common stock per $1,000 principal amount of the 5.00% Notes. Effective October 18, 2023, the initial conversion rate shall be adjusted to a conversion rate calculated based on a conversion price of $7.20 per share of common stock plus 50% of the difference between the Post-Closing VWAP (as defined in the indenture governing the 5.00% Notes (the “5.00% Notes Indenture”)) and $7.20 (if such difference is a positive number), provided that in no event shall the adjusted conversion rate be lower than 120.48193 per $1,000 principal amount of the 5.00% Notes, based on a conversion price of $8.30 per share of common stock. The Company cannot require the holder of the 5.00% Notes to convert at any time.

3) The 5.00% Notes bears interest at a rate of 5.00% per annum. The Company shall pay interest on the 5.00% Notes by payment-in-kind, by the issuance of additional 5.00% Notes. The amount shall be payable to holders by increasing the principal amount of each outstanding 5.00% Note by an amount equal to the interest payable for the applicable interest period.

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.

Summary of Cash Flows

The following summarizes selected items in the Company’s condensed consolidated balance sheet.statements of cash flows for the six months ended June 30, 2023 and 2022:


Cash Flow Summary
Six Months Ended June 30,
(in thousands)
20232022$ Change
Net cash used in operating activities$(24,188)$(25,605)$1,417 
Net cash provided (used) by investing activities9,124 (9,213)18,337 
Net cash provided (used) by financing activities9,729 (280)10,009 


52

Cash flows from operating activities

During the six months ended June 30, 2023, net cash used in operating activities was primarily the result of net losses, partially offset by the losses on extinguishment of debt, extinguishment of debt with related party, losses on derivative, equity-based compensation, and depreciation and amortization.

During the six months ended June 30, 2022, net cash used in operating activities was primarily the result of net losses and a 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 $9.1 million for the six months ended June 30, 2023, resulting from maturities of marketable securities.

The net cash used by investing activities was $9.2 million for the six months ended June 30, 2022. The Company had purchases of marketable securities of $27.5 million which were offset in part by maturities of marketable securities of $18.7 million.

Cash flows from financing activities

The net cash provided by financing activities was $9.7 million for the six months ended June 30, 2023. The Company had proceeds from issuance of common stock of $4.0 million, proceeds from issuance of 5.00% Notes of $10.0 million, which were partially offset by debt and equity issuance costs of $3.7 million.

The net cash used by financing activities was $0.3 million for the six months ended June 30, 2022, primarily from payments on finance leases.

Convertible Notes

On June 9, 2023, the Company issued $66.9 million aggregate principal amount of 5.00% Notes in connection with the Restructuring Transactions described above. The 5.00% Notes mature on December 15, 2026 and bear interest at a rate of 5% per annum, payable in kind. Interest is payable semi-annually in arrears June 15 and December 15 of each year, commencing on December 15, 2023. The 5.00% Notes, including any 5.00% Notes issued as a result of the payment of interest in kind, will be convertible into shares of the Company’s common stock at an initial conversion price of approximately $7.20 per share, which reflects the initial conversion rate of 138.88889 shares of common stock per $1,000 principal amount of 5.00% Notes. The initial conversion price is subject to adjustment based on the positive difference between the 31 to 90 day volume-weighted average price, subject to a cap of $8.30 per share. Upon conversion of the 5.00% Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of common stock, at the Company's election.

The 5.00% Notes Indenture contains customary events of default, including, but not limited to, non-payment of principal or interest, breach of certain covenants in the 5.00% Notes Indenture, defaults under or failure to pay certain other indebtedness and certain events of bankruptcy, insolvency, and reorganization. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Collateral Agent (as defined below), by notice to the Company, or the holders of the 5.00% Notes representing at least 25% in aggregate principal amount of the outstanding 5.00% Notes, by notice to the Company and the Collateral Agent, may declare 100% of the principal of, and all accrued and unpaid interest on, all of the then outstanding 5.00% Notes to be due and payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of, and all accrued and unpaid interest on, all of the then outstanding 5.00% Notes will automatically become immediately due and payable.

Additionally, the Company and certain of its subsidiaries granted U.S. Bank Trust Company, National Association, a national banking association, as collateral agent (the “Collateral Agent”), a security interest in certain of their assets, including but not limited to certain accounts, equipment, fixtures and intellectual property, in order to secure the payment and performance of all of their Obligations (as defined in the 5.00% Notes Indenture) relating to the 5.00% Notes.
53


In March 2018, the Company issued $150.0 million aggregate principal amount of 2.50% Notes. On March 15, 2023, the 2.50% Notes matured and became due and payable. In September 2021 and March 2022, the Company entered into exchange agreements with certain holders of 2.50% Notes pursuant to which $65.0 million aggregate principal amount of 2.50% Notes were exchanged for an aggregate of approximately 1.7 million shares of the Company’s common stock.

In August 2022, the Company entered into an exchange agreement with the Schuler Trust pursuant to which the Schuler Trust agreed to exchange with the Company $49.9 million aggregate principal amount of 2.50% Notes held by it for (a) the Secured Note in an aggregate principal amount of $34.9 million and (b) a warrant (the “Warrant”) to acquire up to approximately 0.2 million shares of the Company’s common stock at an exercise price of $21.2 per share (the “Exercise Price”). 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 number of shares underlying the Warrant and the Exercise Price are subject to certain customary proportional adjustments for fundamental events, including stock splits and recapitalizations, as set forth in the Warrant. The Secured Note, plus accrued interest, was repurchased by the Company in connection with the Restructuring Transactions through the issuance of approximately 3.4 million shares of common stock.

In connection with the Restructuring Transactions, approximately $55.9 million aggregate principal amount of 2.50% Notes were exchanged for approximately $56.9 million aggregate principal amount of 5.00% Notes, which was inclusive of additional 5.00% Notes in respect of interest accrued on the 2.50% Notes from September 15, 2022.

As of June 30, 2023, approximately $0.7 million aggregate principal amount of 2.50% Notes remains outstanding and in default accruing interest at 2.5% per annum. As of June 30, 2023, $67.6 million aggregate principal amount of 5.00% Notes were outstanding.

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

Sales of Equity Securities

The Company has historically completed multiple equity raises through sales of its common stock and Series A Preferred Stock in both public and private offerings.

On August 23, 2022, the Company completed a public offering of approximately 1.8 million shares of its common stock at a public offering price of $20.00 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.

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 approximately 0.2 million shares of the Company’s common stock to the Schuler Trust for an aggregate purchase price of $4.0 million. In connection with the Restructuring Transactions, the Company amended the March 2022 Securities Purchase Agreement and issued and sold approximately 0.5 million shares of the Company’s common stock to the Schuler Trust for proceeds of $4.0 million.

On June 9, 2023, the Company entered into an additional securities purchase agreement (the “June 2023 Securities Purchase Agreement”) with the Schuler Trust. Pursuant to the June 2023 Securities Purchase Agreement, the Schuler Trust is required, at the Company’s option, to either purchase approximately 1.4 million shares of common stock from the Company valued at $7.20 per share for an aggregate purchase price of $10.0 million or to backstop a public offering by the Company of common stock for aggregate proceeds of $10.0 million. If the Company elects to conduct a public offering of common stock and other investors purchase less than $10.0 million of common stock by December 15, 2023, the Schuler Trust will have the obligation to purchase $10.0 million of shares of common stock, less the amount of common stock purchased by other investors, and will have the right to purchase additional shares of common stock such that the total amount of common stock purchased by the Schuler Trust equals $10.0 million of shares of common stock. If the Company elects to conduct a public offering of common stock and other investors purchase $10 million of shares of common stock by December 15, 2023, the Schuler Trust shall have the right, but not the obligation, to purchase up to $10.0 million of shares of common stock
54

at the public offering price for the backstopped offering up to a maximum aggregate purchase by the Schuler Trust of $10.0 million of common stock.

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 June 30, 2023, no shares of common stock were sold under the Sales Agreement. As of June 30, 2023, the Company had an aggregate of $39.1 million available for future sales under its at-the-market equity offering program.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 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 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 June 30, 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 SeptemberJune 30, 2017, to ensure that information required to be disclosed by2023 (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
55

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 June 30, 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.

56

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 Company’s Annual Reportsection 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

Our financial condition, including our substantial indebtedness, raises substantial doubt regarding our ability to continue as a going concern.

Since inception, we have not achieved profitable operations or positive cash flows from operations. Our accumulated deficit totaled $656.8 million as of June 30, 2023. During the six months ended June 30, 2023, we had a net loss of $49.5 million and negative cash flows from operations of $24.2 million. We had a working capital deficit of $11.5 million as of June 30, 2023. Additionally, we have a substantial amount of indebtedness primarily comprised of $67.6 million aggregate principal amount of 5.00% Notes outstanding.

As a result of our financial condition, we have determined that, as of the date of this Form 10-Q filing, there is substantial doubt about our ability to continue as a going concern, as we do not currently have adequate financial resources to fund its forecasted operating costs for at least twelve months from the date of the filing of this Form 10-Q. The report of our independent registered public accountant on Form 10-Kour financial statements as of and for the fiscal yearyears ended December 31, 2016.2022 and 2021 also includes explanatory language describing the existence of substantial doubt about our ability to continue as a going concern. The presence of this going concern explanatory language could adversely affect our ability to raise additional debt or equity financing, as well as to further develop and market our products, all of which could have a material adverse impact on our business, results of operations and financial condition. See Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity” of this Form 10-Q and Part I, Item 1, Note 1, Organization and Nature of Business; Basis of Presentation; Principles of Consolidation; Significant Accounting Policies for additional information.


Management currently believes that it will be necessary for us to secure additional funds to continue our existing business operations and to fund our obligations. While we continue to explore additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, there can be no assurance the necessary financing will be available on terms acceptable to us, or at all. If we raise 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 we raise funds by issuing additional debt, it is likely any new debt would have rights, preferences and privileges senior to common stockholders. The terms of borrowing could impose significant restrictions on 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.


57

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.

We have substantial indebtedness, which could have important consequences to our business.

We have a substantial amount of indebtedness primarily comprised of our 5.00% Notes. As of December 31, 2021, we had $67.6 million aggregate principal amount of 5.00% Notes outstanding, which mature on December 15, 2026. Holders of the 5.00% Notes have the right to require us to repurchase their 5.00% Notes upon the occurrence of a fundamental change at a purchase price equal to 100% of the principal amount of the 5.00% Notes to be purchased, plus accrued and unpaid interest, if any. In addition, our indebtedness could, among other things:

•heighten our vulnerability to adverse general economic conditions and heightened competitive pressures;

•require us to dedicate a larger portion of our cash flow from operations to interest payments, limiting the availability of cash for other purposes;

•limit our flexibility in planning for, or reacting to, changes in our business and industry; and

•impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes;

•heighten our vulnerability to adverse general economic conditions and heightened competitive pressures;

•require us to dedicate a larger portion of our cash flow from operations to interest payments, limiting the availability of cash for other purposes;

•limit our flexibility in planning for, or reacting to, changes in our business and industry; and

•impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes; and

•impact our ability to continue as a going concern.

Our failure to repurchase 5.00% Notes at a time when the repurchase is required by the 5.00% Notes Indenture (whether upon a fundamental change or otherwise under the 5.00% Notes Indenture) would constitute a default under the 5.00% Notes Indenture. A default under the 5.00% Notes Indenture or the fundamental change itself could also lead to a default under agreements governing our existing or future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness, repurchase the 5.00% Notes or make cash payments upon conversions thereof.

Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the 5.00% Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. For example, we were in default of payment obligations under the terms of our 2.50% Notes, which matured on March 15, 2023 and became due and payable. As a result, we consummated the Restructuring Transactions to restructure our capital structure, including the 2.50% Notes, the Secured Note and our Series A Preferred Stock, as well as an amendment to the March 2022 Securities Purchase Agreement, which resulted in significant dilution to the ownership interests of our existing stockholders.

58

Our ability to repay our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

We are in default of payment obligations under the terms of our 2.50% Notes, which matured on March 15, 2023 and became due and payable.

As discussed in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Capital Resources and Liquidity - Convertible Notes. The principal of the 2.50% Notes was due March 15, 2023. As of June 30, 2023, approximately $0.7 million remains in default and accruing interest at 2.5%.

To the extent we deliver shares upon conversion of the 5.00% Notes, the ownership interests of existing stockholders will be diluted and our stock price may be adversely impacted.

Upon conversion of the 5.00% Notes, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock. To the extent we choose to deliver shares upon conversion of some or all of the 5.00% Notes, this will result in a dilution to the ownership interests of existing stockholders and may depress our stock price.

We have significantly increased the total number of authorized shares of common stock under our certificate of incorporation, which could cause significant dilution.

Our management believes the successful achievement of our business objectives may require additional financing through one or a combination of the issuance of common stock in public or private equity offerings, debt financings, exercise of common stock warrants, collaborations, licensing arrangements, grants and government funding and strategic alliances. To effectuate that, in May 2023, we sought and obtained authorization from stockholders to increase the total number of authorized shares of common stock under our certificate of incorporation by 250,000,000 for a total of 450,000,000 shares. The future issuance of all or part of our remaining authorized common stock may result in substantial dilution to our stockholders and may adversely affect the market price of our common stock.


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


None.There were no unregistered sales of equity securities during the quarter ended June 30, 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.




Item 4. Mine Safety Disclosures


Not applicable.




Item 5. Other Information


None.

59





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
3.1.6Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2022
3.1.7Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 24, 2023
3.1.8Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 13, 2023
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
4.1Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on June 13, 2023
4.2Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on June 13, 2023
10.1*Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 24, 2023
10.2Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 24, 2023
10.3Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 13, 2023
10.4Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on June 13, 2023
60

10.5Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on June 13, 2023
10.6Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on June 13, 2023
10.7Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on June 13, 2023
10.8Incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on June 13, 2023
10.9Incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed on June 13, 2023
10.10Incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed on June 13, 2023
31.1Filed herewith
31.2
Filed herewith
32
FiledFurnished herewith
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 provisionsPortions of the federal securities laws as long as weexhibit have made a good faith attempt to comply withbeen redacted because it is both not material and is the submission requirements and promptly amend the interactive data files after becoming awaretype of information 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.Company treats as private or confidential.

61



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.

August 14, 2023/s/ Jack Phillips
Jack Phillips
President and Chief Executive Officer
(Principal Executive Officer)
November 7, 2017August 14, 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)


2962