| ORGANIZATION AND NATURE OF BUSINESS; BASIS OF PRESENTATION; PRINCIPLES OF CONSOLIDATION; SIGNIFICANT ACCOUNTING POLICIES | NOTE 1. ORGANIZATION AND NATURE OF BUSINESS; BASIS OF PRESENTATION; PRINCIPLES OF CONSOLIDATION; SIGNIFICANT ACCOUNTING POLICIES Accelerate Diagnostics, Inc. (“we” or “us” or “our” or “Accelerate” or the “Company”) is an in vitro diagnostics company dedicated to providing solutions that improve patient outcomes and lower healthcare costs through the rapid diagnosis of serious infections. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on March 29, 2024. The condensed consolidated balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date but does not include all disclosures such as notes required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the entire year ending December 31, 2024, or any future period. All amounts are rounded to the nearest thousand dollars unless otherwise indicated. On July 11, 2023, the Company effected a one-for-ten reverse stock split (the “Reverse Stock Split”). Consequently, on the Company’s condensed consolidated balance sheets, the aggregate par value of the issued 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, have been retroactively restated in the condensed consolidated financial statements and in the notes to the condensed consolidated financial statements 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 $694.7 million as of June 30, 2024. During the six months ended June 30, 2024, the Company had a net loss of $25.8 million and negative cash flows from operations of $16.0 million. The Company had working capital of $3.8 million as of June 30, 2024. In March 2023, the Company entered into a forbearance agreement (the “Forbearance Agreement”) with the holders of approximately 85% of the Company’s outstanding 2.50% convertible senior notes (the “2.50% Notes”) (collectively, the “Ad Hoc Noteholder Group”) and the trustee for the 2.50% Notes (the “Trustee”). Pursuant to the Forbearance Agreement, the members of the Ad Hoc Noteholder Group agreed, and directed the Trustee, to forbear from exercising their rights and remedies under the indenture governing the 2.50% Notes (the “2.50% Notes Indenture”) in connection with certain events of default under the 2.50% Notes Indenture, including, but not limited to, the failure to timely pay in full the principal and any interest related to the 2.50% Notes that was due and payable on March 15, 2023. In April 2023, the Company entered into a restructuring support agreement (the “Restructuring Support Agreement”) with certain holders of the 2.50% Notes, the holder of a secured promissory note with the Jack W. Schuler Living Trust (the “Schuler Trust”) (the “Secured Note”) and the holders of the Company’s Series A Preferred Stock to negotiate in good faith to effect the restructuring of the Company’s capital structure (the “Restructuring Transactions”). In June 2023, the Company completed the Restructuring Transactions contemplated by the Restructuring Support Agreement. Further details of the Forbearance Agreement and Restructuring Transactions are included in Note 9, Convertible Notes. In January 2024, the Company completed an underwritten public offering (the “January 2024 Public Units Offering”) of Units and Pre-Funded Units (each, as defined in Note 17, Stockholders’ Deficit). Concurrently with the completion of the January 2024 Public Units Offering, the Company sold Units to the Schuler Trust and to the Company’s Chief Executive Officer and Chief Financial Officer in a private placement offering. Aggregate net proceeds after transaction expenses were $11.0 million. In connection with the January 2024 Public Units Offering, the Schuler Trust agreed to and subsequently purchased additional Units in May 2024 for net proceeds of $2.7 million. Further information and a description of the Units and the Pre-Funded Units are included in Note 17, Stockholders' Deficit. As of June 30, 2024, the Company had $9.7 million in cash and cash equivalents and investments, a decrease of $3.5 million from $13.2 million at December 31, 2023. The primary reason for the decrease was due to cash used in operations, partially offset by proceeds from the sale and issuance of Units and Pre-Funded Units during the six months ended June 30, 2024. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations. The Company’s primary use of capital has been for the development and commercialization of the Accelerate Pheno® system, development of complementary products and, most recently, development of its next generation technology, the Accelerate WAVE™ system. The Company is subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching the Company’s products, development and market acceptance of the Company’s product candidates, development by its competitors of new technological innovations, protection of proprietary technology and raising additional capital. Historically, the Company has funded its operations primarily through multiple equity raises and the issuance of debt. While the Company has funding to allow it to progress its development and operational goals discussed in this report, it is not expected to be sufficient to fund the Company’s operations through twelve months from the issuance of these financial statements. See Note 9, Convertible Notes, Note 10, Related-Party Transactions and Note 17, Stockholders' Deficit for additional detail. Management currently believes that it will be necessary for the Company to secure additional funds to continue its existing business operations and to fund its obligations. While the Company continues to explore additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, there can be no assurance the necessary financing will be available on terms acceptable to the Company, or at all. If the Company raises funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of common stock. If the Company raises funds by issuing additional debt, it is likely any new debt would have rights, preferences and privileges senior to common stockholders. The terms of borrowing could impose significant restrictions on the Company’s operations. The capital markets have in the past, and may in the future, experience periods of upheaval that could impact the availability and cost of equity and debt financing. In addition, increases in federal fund rates set by the Federal Reserve, such as the significant increases experienced throughout 2022 and 2023, which serve as benchmark rates on borrowing, and other general economic conditions have impacted, and in the future may impact, the cost of debt financing or refinancing existing debt. Although the Company is actively considering all available strategic alternatives to maximize value, if the Company is unable to obtain adequate capital resources to fund operations, the Company would not be able to continue to operate its business pursuant to its current plans. This may require the Company to, among other things, materially modify its operations to reduce spending; sell assets or operations; delay the implementation of, or revise certain aspects of, its business strategy; or discontinue its operations entirely. The Company is required to evaluate its financial condition as of the filing date of this report pursuant to the requirements of Accounting Standards Codification (“ASC”) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Based on its evaluation pursuant to ASC 205-40, the Company has determined that, as of the filing date of this report, there is substantial doubt about its ability to continue as a going concern, as the Company does not currently have adequate financial resources to fund its forecasted operating costs for at least twelve months from the date of the filing date of this report. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above. Use of Estimates The preparation of the Company’s condensed consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to the collectability of receivables and related credit loss allowances, inventory valuation and related reserves, impairment of property and equipment, accrued liabilities, warranty liabilities, convertible notes, derivative instruments, fair value instruments, tax valuation accounts and uncertain tax positions, equity–based compensation, revenue and leases. Actual results could differ materially from those estimates. Estimated Fair Value of Financial Instruments The Company follows ASC 820, Fair Value Measurement, which has defined fair value and requires the Company to establish a framework for measuring and disclosing fair value. The framework requires the valuation of assets and liabilities subject to fair value measurements using a three-tiered approach and fair value measurement be classified and disclosed in one of the following three categories: • Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; • Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; • Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The carrying amounts of financial instruments such as cash and cash equivalents, trade accounts receivable, prepaid expenses, other current assets, accounts payable, accrued liabilities and other current liabilities approximate the related fair values due to the short-term maturities of these instruments. See Note 4, Fair Value of Financial Instruments, for further information and related disclosures regarding the Company’s fair value measurements. Cash and Cash Equivalents All highly liquid investments with an original maturity of three months or less at time of purchase are considered to be cash equivalents. Cash and cash equivalents include overnight repurchase agreement accounts and other investments. As part of the Company’s cash management process, excess operating cash is invested in overnight repurchase agreements with its bank. Repurchase agreements and other investments classified as cash and cash equivalents are not deposits and are not insured by the U.S. government, the Federal Deposit Insurance Corporation (the “FDIC”) or any other government agency and involve investment risk including possible loss of principal. The Company diversifies its cash holdings, but does have deposits at three institutions in excess of the FDIC coverage limit. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations, and cash flows. Investments The Company invests in various debt and equity securities which are primarily held in the custody of major financial institutions. Debt securities consist of certificates of deposit, U.S. government and agency securities, commercial paper, and corporate notes and bonds. Equity securities consist of mutual funds. The Company records these investments in the condensed consolidated balance sheets at fair value. Unrealized gains or losses for debt securities available-for-sale are included in accumulated other comprehensive loss, a component of stockholders’ deficit. Unrealized gains or losses for equity securities are included in other income (expense), net, a component of condensed consolidated statements of operations and comprehensive loss. The Company considers all debt securities to be available-for-sale, including those with maturity dates beyond 12 months, as they are available to support current operational liquidity needs. The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations. We perform an assessment to determine whether there have been any events or economic circumstances to indicate that a debt security available-for-sale in an unrealized loss position has suffered impairment as a result of credit loss or other factors. A debt security is considered impaired if its fair value is less than its amortized cost basis at the reporting date. If we intend to sell the debt security or if it is more-likely-than-not that we will be required to sell the debt security before the recovery of its amortized cost basis, the impairment is recognized and the unrealized loss is recorded as a direct write-down of the security's amortized cost basis with an offsetting entry to earnings. If we do not intend to sell the debt security or believe we will not be required to sell the debt security before the recovery of its amortized cost basis, the impairment is assessed to determine if a credit loss component exists. We use a discounted cash flow method to determine the credit loss component. In the event a credit loss exists, an allowance for credit losses is recorded in earnings for the credit loss component of the impairment while the remaining portion of the impairment attributable to factors other than credit loss is recognized, net of tax, in accumulated other comprehensive loss. The amount of impairment recognized due to credit factors is limited to the excess of the amortized cost basis over the fair value of the security. Accounts Receivable Accounts receivable consist of amounts due to the Company for sales to customers and are based on what we expect to collect in exchange for goods and services. Receivables are considered past due based on the contractual payment terms and are written off if reasonable collection efforts prove unsuccessful. We maintain an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the condensed consolidated statements of operations and comprehensive loss. We assess collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, we consider historical collectability and make judgments about the creditworthiness of customers based on credit evaluations. Our customers typically have good credit quality. We also consider customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. The allowance for credit losses over trade receivables and net investment in sales-type leases for the three and six months ended June 30, 2024 and 2023 is comprised of the following (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Beginning balance $ 559 $ 314 $ 590 $ 324 Provisions, net 59 — 78 — Write-offs (33) — (83) (10) Ending balance $ 585 $ 314 $ 585 $ 314 Inventory Inventory is stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out method. The Company estimates the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale, has a cost basis in excess of its estimated realizable value, or is considered in excess of demand. These types of inventory events could result in a charge to expense as appropriate. We charge cost of sales for inventory provisions to write-down our inventory to the lower of cost or net realizable value or for obsolete or excess inventory. Most of our inventory provisions relate to excess quantities of products, based on our inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions. Once inventory has been written-off or written-down, it creates a new cost basis for the inventory that is not subsequently written-up. The Company manufactures pre-launch inventory in advance of regulatory approval. This inventory is expensed before an economic benefit is probable. See Note 6, Inventory, for further information and related disclosures. Property and Equipment Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized. When property and equipment are retired, sold or otherwise disposed of, the cost and accumulated depreciation are removed and any resulting gain or loss is included in the results of operations in the same line item as the underlying depreciation of the disposed asset. Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the assets, ranging from one Instruments Classified as Property and Equipment Property and equipment includes Accelerate Pheno® and Accelerate Arc™ systems (also referred to as instruments) used for sales demonstrations, instruments under rental agreements and instruments used for research and development. Depreciation expense and losses from retirement of instruments used for sales demonstrations are recorded as a component of sales, general and administrative expenses. Depreciation expense and losses from retirement of instruments placed at customer sites pursuant to reagent rental agreements are recorded as a component of cost of sales. Depreciation expense and losses from retirement of instruments used in our laboratory and research are recorded as a component of research and development expense. The Company retains title to these instruments and depreciates them over five years. The Company evaluates the recoverability of the carrying amount of its instruments whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, and at least annually. This evaluation is based on our estimate of future cash flows and the estimated fair value of such long-lived assets, and provides for impairment if such undiscounted cash flows or the estimated fair value are insufficient to recover the carrying amount of instruments. Annually, the Company identifies potential impairment indicators related to instruments installed at customer sites under rental agreements that have not yet generated revenue and the length of time from when these instruments are installed to when revenue is initially generated. The Company’s evaluation for impairment includes consideration of the cash flows of current revenue generating instruments, the length of time to recover the carrying value, the historical rate of returned instruments from customers and the Company’s ability to resell or repurpose used instruments. No material impairment charges were recorded for the three and six months ended June 30, 2024 and 2023. See Note 7, Property and Equipment, for further information and related disclosures. Long-lived Assets Long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows from and the estimated fair value of such long-lived assets, and provides for impairment if such undiscounted cash flows or the estimated fair values are insufficient to recover the carrying amount of the long-lived asset. Warranty Reserve Instruments are typically sold with a one year limited warranty, while kits and accessories are typically sold with a sixty-day limited warranty. Accordingly, a provision for the estimated cost of the limited warranty repair is recorded at the time revenue is recognized. Our estimated warranty provision is based on our estimate of future repair events and the related estimated cost of repairs. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. The cost incurred for these provisions is included in cost of sales on the condensed consolidated statements of operations and comprehensive loss. Product warranty reserve activity for the three and six months ended June 30, 2024 and 2023 is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Beginning balance $ 168 $ 221 $ 194 $ 225 Provisions (reversals), net 52 153 84 187 Warranty cost incurred (39) (192) (97) (230) Ending balance $ 181 $ 182 $ 181 $ 182 Convertible Notes The Company follows Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) in accounting for its outstanding convertible notes. The convertible notes are accounted for as a liability measured at their amortized cost. Interest expense is comprised of (1) cash interest payments, (2) amortization of any debt discounts or premiums based on the original offering, and (3) amortization of any debt issuance costs. Gain or loss on extinguishment of such notes is calculated as the difference between the (i) fair value of the consideration transferred and (ii) the sum of the carrying value of the debt at the time of repurchase, conversion or settlement. Accounting for Derivatives Upon issuance of the Company’s 5.00% Convertible Senior Notes due senior secured convertible notes due 2026 (the “5.00% Notes”), each holder has the right, at their option, to convert any portion to common stock (“Conversion Option”). The conversion price initially was not fixed and therefore, the Conversion Option represented a derivative financial instrument and was recorded at its estimated fair value as a derivative liability in the condensed consolidated balance sheets through October 17, 2023, the date at which the conversion price was fixed. Changes in the fair value of the derivative financial instrument were recognized in gain on fair value adjustment within the condensed consolidated statements of operations and comprehensive loss. The derivative liability was derecognized and reclassified to equity as of October 17, 2023 once the conversion price was fixed and after completion of the final mark-to-market fair value adjustment as of that date. See Note 9, Convertible Notes for further information regarding the Conversion Option. Warrants The Company accounts for its warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants considering the authoritative guidance in ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. The assessment considers whether the warrants meet the definition of a liability pursuant to ASC 480 and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and satisfy additional conditions for equity classification. Warrants that are liability-classified, meet the definition of a derivative instrument, and do not qualify for any scope exceptions for derivative instrument accounting are measured at fair value at each reporting date in accordance with the guidance in ASC 820, Fair Value Measurement, with any subsequent changes in fair value recognized in the condensed consolidated statements of operations and comprehensive loss. Warrants that are equity-classified are recorded as contributed capital on the condensed consolidated statements of stockholders’ deficit without further remeasurement. See Note 17, Stockholders' Deficit for further information and related disclosures. Revenue Recognition The Company recognizes revenue when control of the promised good or service is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales taxes are excluded from revenue. The Company determines revenue recognition through the following steps: • Identification of the contract with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations • Recognition of revenue as we satisfy a performance obligation Product revenue is derived from the sale or rental of instruments and sales of related consumable products. When an instrument is sold, revenue is generally recognized upon installation or transfer of control in sales to third party distributors consistent with contract terms, which do not include a right of return. When a consumable product is sold, revenue is generally recognized upon shipment. Invoices are generally issued when revenue is recognized. Payment terms vary by the type and location of the customer and the products or services offered. The term between invoicing and when payment is due is not significant. Service revenue is derived from the sale of extended service agreements which are generally non-cancellable. This revenue is recognized on a straight-line basis over the contract term beginning on the effective date of the contract because the Company is standing ready to provide services. Invoices are generally issued annually and coincide with the beginning of individual service terms. The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines relative standalone selling prices based on the price charged to customers for each individual performance obligation. Sales commissions earned by the Company’s sales force and external sales agents are considered incremental and recoverable costs of obtaining a contract with a customer. The Company has determined these costs would have an amortization period of less than one year and has elected to recognize them as an expense when incurred. Contract asset opening and closing balances were immaterial for the three and six months ended June 30, 2024. Shipping and Handling Shipping and handling costs billed to customers are included as a component of revenue. The corresponding expense incurred with third party carriers is included as a component of sales, general and administrative costs on the condensed consolidated statements of operations and comprehensive loss. Leases The Company accounts for leases in accordance with ASC 842, Leases. The Company determines if an arrangement is or contains a lease and the type of lease at inception. The Company classifies leases as finance leases (lessee) or sales-type leases (lessor) when there is either a transfer of ownership of the underlying asset by the end of the lease term, the lease contains an option to purchase the asset that we are reasonably certain will be exercised, the lease term is for the major part of the remaining economic life of the asset, the present value of the lease payments and any residual value guarantee equals or substantially exceeds all the fair value of the asset, or the asset is of such a specialized nature that it will have no alternative use to the lessor at the end of the lease term. Payments contingent on future events (i.e., based on usage) are considered variable and excluded from lease payments for the purposes of classification and initial measurement. Several of our leases include options to renew or extend the term upon mutual agreement of the parties and others include one-year extensions exercisable by the lessee. None of our leases contain residual value guarantees, restrictions, or covenants. To determine whether a contract contains a lease, the Company uses its judgment in assessing whether the lessor retains a material amount of economic benefit from an underlying asset, whether explicitly or implicitly identified, which party holds control over the direction and use of the asset, and whether any substantive substitution rights over the asset exist. Leases as Lessee Operating and finance leases are included in right-of-use (“ROU”) assets and corresponding lease liabilities within our condensed consolidated balance sheets. These assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and their related liabilities are recognized at commencement date based on the present v |
