UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~March 3031, ~~2022~~2023

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

Commission File Number: 001-37369

HTG Molecular Diagnostics, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	86-0912294
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3430 E. Global Loop Tucson, AZ	85706
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (877) 289-2615

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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	HTGM	The Nasdaq Stock Market LLC

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

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

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

As of May ~~November 3~~5, ~~2022~~2023, the registrant had 112,~~049~~214,~~948~~233 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	1
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021	2
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022	2
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2023 and 2022	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022	5
	Notes to Unaudited Condensed Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Consolidated Results of Operations	2320
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3228
Item 4.	Controls and Procedures	3228
PART II.	OTHER INFORMATION	3330
Item 1.	Legal Proceedings	3330
Item 1A.	Risk Factors	3330
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6864
Item 5.	Other Information	6864
Item 6.	Exhibits	6965
Signatures		7167

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

HTG Molecular Diagnostics, Inc.

Condensed Consolidated Balance Sheets

	September 30,		December 31,
	March 31,		December 31,
	2022		2021
	2023		2022
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	32,~~212~~996,~~451~~409	$	912,~~599~~210,~~950~~857
Short-term investments available-for-sale, at fair value		3,317,627		12,343,456
Investments available-for-sale, at fair value		3,566,628		—
Accounts receivable, net of allowance of $20,315 at September 30, 2022 and December 31, 2021		960,414		2,092,466
Accounts receivable		1,131,980		1,421,695
Inventory, net		1654,~~690,234~~917		1909,~~987,753~~328
Prepaid directors and officers insurance		654,772		365,453
Prepaid expenses and other		837,170		1,109,571
Prepaid expenses and other		936,358		797,886
Total current assets		9,187,104		15,651,451
Total current assets		10,771,856		27,186,964
Operating lease right-of-use assets		892,685		1,007,202
Operating lease right-of-use assets		1,039,999		1,345,361
Property and equipment, net		528,527		598,006
Property and equipment, net		654,813		1,118,886
Other non-current assets		257,312		520,996
Inventory - non-current, net		1,007,811		711,296
Total assets	$	10,865,628	$	17,777,655
Other non-current assets		135,824		98,180
Total assets	$	13,610,303	$	30,460,687

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	~~709~~1,~~905~~097,538		$	1,~~649~~157,~~440~~449
Accrued liabilities		1,~~378~~321,~~302~~771			2,~~022~~209,~~569~~606
Current portion of long-term debt		3,694,979			5,167,586
SVB Term Loan, net of discount and debt issuance costs		3,075,506			3,812,498
NuvoGen obligation - current		~~472~~446,~~624~~031			~~548~~446,~~301~~031
Operating lease liabilities - current		~~435~~481,~~377~~967			~~413~~475,~~865~~126
Other current liabilities		~~129~~136,~~437~~074			~~141~~170,~~749~~047
Total current liabilities		6,~~820~~558,~~624~~887			98,~~943~~270,~~510~~757
NuvoGen obligation - non-current, net of discount		3,~~595~~370,~~276~~279			3,~~900~~519,~~880~~058
Long-term debt, net of current portion, discount and debt issuance costs		1,302,021			5,178,629
Operating lease liabilities - non-current, net of discount		423,237			546,324
Operating lease liabilities - non-current, net of discount		620,607			949,461
Other non-current liabilities		38,723			49,819
Other non-current liabilities		63,399			88,383
Total liabilities		10,391,126			12,385,958
Total liabilities		12,401,927			20,060,863
Commitments and Contingencies (Note 15)
Stockholders’ equity:
Series A convertible preferred stock, $0.001 par value; no shares authorized, issued and outstanding at September 30, 2022; 23,770 shares authorized, issued and outstanding at December 31, 2021		—			24
Common stock, $0.001 par value; 26,666,667 shares authorized at March 31, 2023 and December 31, 2022; 2,214,077 shares issued and outstanding at March 31, 2023 and 2,213,897 shares issued and outstanding at December 31, 2022		2,214			2,214
Common stock, $0.001 par value; 26,666,667 shares authorized at September 30, 2022 and December 31, 2021, 11,048,111 shares issued and outstanding at September 30, 2022 and 7,588,085 shares issued and outstanding at December 31, 2021		11,048			7,588
Additional paid-in-capital		235,450,053			235,314,311
Additional paid-in-capital		226,442,794			218,723,349
Accumulated other comprehensive income		4,514			2,679
Accumulated other comprehensive (loss) income		(10,559	)		1,894
Accumulated deficit		(234,982,279	)		(229,927,507	)
Accumulated deficit		(225,234,907	)		(208,333,031	)
Total stockholders’ equity		474,502			5,391,697
Total stockholders’ equity		1,208,376			10,399,824
Total liabilities and stockholders' equity	$	10,865,628		$	17,777,655
Total liabilities and stockholders' equity	$	13,610,303		$	30,460,687

See notes to the unaudited condensed consolidated financial statements.

HTG Molecular Diagnostics, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2022			2021			2022			2021
	2023			2022
Product and product-related services revenue	$	1,~~250~~032,~~879~~510		$	21,~~520~~184,~~410~~454		$	~~3,926,915~~		$	~~6,029,760~~
Operating expenses:
Cost of product and product-related services revenue		~~670~~1,~~863~~149,608			~~983~~855,~~761~~048			~~2,540,380~~			~~2,740,004~~
Selling, general and administrative		3,~~400~~282,~~998~~948			4,~~232~~663,~~313~~011			~~12,370,925~~			~~11,995,747~~
Research and development		1,~~527~~612,~~036~~553			1,~~534~~920,~~818~~430			~~5,294,567~~			~~4,188,219~~
Total operating expenses		56,~~598~~045,~~897~~109			67,~~750~~438,~~892~~489			~~20,205,872~~			~~18,923,970~~
Operating loss		(45,~~348~~012,~~018~~599	)		(46,~~230~~254,~~482~~035	)		~~(16,278,957~~	)		~~(12,894,210~~	)
Other income (expense):
Interest expense		(~~200~~138,~~483~~399	)		(~~266~~249,~~593~~312	)		~~(688,310~~	)		~~(797,239~~	)
Interest income		2598,~~595~~444			86,~~387~~214			~~63,899~~			~~22,419~~
Other income		8,330			—			8,330			—
Total other income (expense)		(39,955	)		(243,098	)
Gain on forgiveness of PPP Loan		—			—			—			1,735,792
Net loss before income taxes		(5,052,554	)		(6,497,133	)
Total other income (expense)		(166,558	)		(258,206	)		(616,081	)		960,972
Provision for income taxes		(2,218	)		(386	)
Net loss before income taxes		(4,514,576	)		(4,488,688	)		(16,895,038	)		(11,933,238	)
Net loss	$	(5,054,772	)	$	(6,497,519	)
Provision for income taxes		(1,572	)		(1,934	)		(6,838	)		(20,643	)
Net loss per share, basic and diluted	$	(2.28	)	$	(9.73	)
Net loss	$	(4,516,148	)	$	(4,490,622	)	$	(16,901,876	)	$	(11,953,881	)
Shares used in computing net loss per share, basic and diluted		2,214,082			667,647
Net loss per share, basic and diluted	$	(0.41	)	$	(0.60	)	$	(1.68	)	$	(1.78	)
Shares used in computing net loss per share, basic and diluted		11,048,171			7,440,287			10,031,923			6,727,916

See notes to the unaudited condensed consolidated financial statements.

HTG Molecular Diagnostics, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2022			2021			2022			2021
	2023			2022
Net loss	$	(45,~~516~~054,~~148~~772	)	$	(46,~~490~~497,~~622~~519	)	$	~~(16,901,876~~	)	$	~~(11,953,881~~	)
Other comprehensive loss, net of tax effect:
Other comprehensive income (loss), net of tax effect:
Unrealized gain (loss) on short-term investments		8,298			—			(3,916	)		—
Foreign currency translation adjustment		780			(2,293	)
Foreign currency translation adjustment		(3,147	)		(1,013	)		(8,537	)		(2,715	)
Unrealized gain on investments and cash equivalents		1,055			—
Total other comprehensive income (loss)		51,~~151~~835			(12,~~013~~293	)		~~(12,453~~	)		~~(2,715~~	)
Comprehensive loss	$	(45,~~510~~052,~~997~~937	)	$	(46,~~491~~499,~~635~~812	)	$	~~(16,914,329~~	)	$	~~(11,956,596~~	)

See notes to the unaudited condensed consolidated financial statements.

HTG Molecular Diagnostics, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Three and Nine Months Ended September 30, 2022
	Three Months Ended March 31, 2023
	Series A ConvertiblePreferred Stock						Common Stock						AdditionalPaid-In			AccumulatedOtherComprehensive			Accumulated			TotalStockholders'
	Shares			Amount			Shares			Amount			Capital			Income ~~(Loss)~~			Deficit			Equity
Balance at January 1, 2022		23,770		$	24			7,588,085		$	7,588		$	218,723,349		$	1,894		$	(208,333,031	)	$	10,399,824
Balance at January 1, 2023		—		$	—			2,213,897		$	2,214		$	235,314,311		$	2,679		$	(229,927,507	)	$	5,391,697
Stock-based compensation expense		—			—			—			—			~~251~~129,~~214~~332			—			—			~~251~~129,~~214~~332
Release of restricted stock awards		—			—			~~4,148~~312			4—			(4—	)		—			—			—
Net share settlement of restricted stock awards		—			—			(~~1,500~~54	)		(1—	)		(~~8,128~~215	)		—			—			(~~8,129~~215	)
Employee stock purchase plan expense		—			—			—			—			167,~~591~~776			—			—			167,~~591~~776
Issuance of common stock from March 2022 Purchase Agreement, net of approximately $0.4 million of issuance costs		—			—			834,054			834			7,107,952			—			—			7,108,786
Issuance costs related to December 2022 Securities Purchase Agreement		—			—			—			—			(511	)		—			—			(511	)
Conversion of Series A convertible preferred stock for common stock		(23,770	)		(24	)		158,466			158			(134	)		—			—			—
Cash in lieu of fractional shares		—			—			(78	)		—			(640	)		—			—			(640	)
Net loss		—			—			—			—			—			—			(65,~~497~~054,~~519~~772	)		(65,~~497~~054,~~519~~772	)
Foreign currency translation adjustment		—			—			—			—			—			(2,293	)		—			(2,293	)
Unrealized gain on investments and cash equivalents		—			—			—			—			—			1,055			—			1,055
Balance at March 31, 2022		—		$	—			8,583,253		$	8,583		$	226,090,840		$	(399	)	$	(214,830,550	)	$	11,268,474
Foreign currency translation adjustment		—			—			—			—			—			780			—			780
Stock-based compensation expense		—			—			—			—			214,742			—			—			214,742
Balance at March 31, 2023		—		$	—			2,214,077		$	2,214		$	235,450,053		$	4,514		$	(234,982,279	)	$	474,502
Release of restricted stock awards		—			—			4,148			4			(4	)		—			—			—
Net share settlement of restricted stock awards		—			—			(1,355	)		(1	)		(1,884	)		—			—			(1,885	)
Employee stock purchase plan expense		—			—			—			—			16,592			—			—			16,592
Stock issued under stock purchase plans		—			—			49,007			49			23,278									23,327
Exercise of pre-funded warrants		—			—			2,410,933			2,411			—			—			—			2,411
Issuance costs related to March 2022 Purchase Agreement		—			—			—			—			(50,452	)		—			—			(50,452	)
Net loss		—			—			—			—			—			—			(5,888,209	)		(5,888,209	)
Unrealized loss on short-term investments		—			—			—			—			—			(12,214	)		—			(12,214	)
Foreign currency translation adjustment		—			—			—			—			—			(3,097	)		—			(3,097	)
Balance at June 30, 2022		—		$	—			11,045,986		$	11,046		$	226,293,112		$	(15,710	)	$	(220,718,759	)	$	5,569,689
Stock-based compensation expense		—			—			—			—			171,165			—			—			171,165
Release of restricted stock awards		—			—			2,881			3			(3	)		—			—			—
Net share settlement of restricted stock awards		—			—			(756	)		(1	)		(777	)		—			—			(778	)
Employee stock purchase plan expense		—			—			—			—			3,582			—			—			3,582
Issuance costs related to March 2022 Purchase Agreement		—			—			—			—			(24,285	)		—			—			(24,285	)
Net loss		—			—			—			—			—			—			(4,516,148	)		(4,516,148	)
Unrealized gain on short-term investments		—			—			—			—			—			8,298			—			8,298
Foreign currency translation adjustment		—			—			—			—			—			(3,147	)		—			(3,147	)
Balance at September 30, 2022		—		$	—			11,048,111		$	11,048		$	226,442,794		$	(10,559	)	$	(225,234,907	)	$	1,208,376


	Three Months Ended March 31, 2022
	Series A Convertible Preferred Stock						Common Stock					Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares			Amount			Shares			Amount		Capital			Income (Loss)			Deficit			Equity
Balance at January 1, 2022		23,770		$	24			632,340		$	632	$	218,730,305		$	1,894		$	(208,333,031	)	$	10,399,824
Stock-based compensation expense		—			—			—			—		251,214			—			—			251,214
Release of restricted stock awards		—			—			346			—		—			—			—			—
Net share settlement of restricted stock awards		—			—			(126	)		—		(8,129	)		—			—			(8,129	)
Employee stock purchase plan expense		—			—			—			—		16,591			—			—			16,591
Issuance of common stock and pre-funded warrants from March 2022 Securities Purchase Agreement, net of issuance costs of $0.4 million		—			—			69,505			70		7,108,716			—			—			7,108,786
Conversion of Series A convertible preferred stock for common stock		(23,770	)		(24	)		13,206			13		11			—			—			—
Net loss		—			—			—			—		—			—			(6,497,519	)		(6,497,519	)
Foreign currency translation adjustment		—			—			—			—		—			(2,293	)		—			(2,293	)
Balance at March 31, 2022		—		$	—			715,271		$	715	$	226,098,708		$	(399	)	$	(214,830,550	)	$	11,268,474

	Three and Nine Months Ended September 30, 2021
	Series A ConvertiblePreferred Stock				Common Stock					AdditionalPaid-In			AccumulatedOtherComprehensive			Accumulated			TotalStockholders'
	Shares		Amount		Shares			Amount		Capital			Income (Loss)			Deficit			Equity
Balance at January 1, 2021		23,770	$	24		5,199,997		$	5,200	$	205,661,999		$	5,298		$	(191,187,861	)	$	14,484,660
Stock-based compensation expense		—		—		—			—		337,823			—			—			337,823
Release of restricted stock awards		—		—		1,390			1		—			—			—			1
Net share settlement of restricted stock awards		—		—		(250	)		—		(1,197	)		—			—			(1,197	)
Employee stock purchase plan expense		—		—		—			—		13,115			—			—			13,115
Issuance of common stock from ATM offering, net of commissions of approximately $0.2 million		—		—		1,058,045			1,058		6,854,140			—			—			6,855,198
Exercise of stock options		—		—		75			—		326			—			—			326
Net loss		—		—		—			—		—			—			(4,848,307	)		(4,848,307	)
Foreign currency translation adjustment		—		—		—			—		—			(1,557	)		—			(1,557	)
Balance at March 31, 2021		23,770	$	24		6,259,257		$	6,259	$	212,866,206		$	3,741		$	(196,036,168	)	$	16,840,062
Stock-based compensation expense		—		—		—			—		339,369			—			—			339,369
Release of restricted stock awards		—		—		992			1		—			—			—			1
Net share settlement of restricted stock awards		—		—		(127	)		—		(695	)		—			—			(695	)
Employee stock purchase plan expense		—		—		—			—		13,116			—			—			13,116
Stock issued under stock purchase plans		—		—		13,637			13		53,424			—			—			53,437
Issuance of common stock from ATM offering, net of commissions of approximately $0.1 million		—		—		992,834			993		3,809,628			—			—			3,810,621
Exercise of pre-funded warrants				—		144,881			145		(145	)		—			—			—
Net loss		—		—		—			—		—			—			(2,614,952	)		(2,614,952	)
Foreign currency translation adjustment		—		—		—			—		—			(145	)		—			(145	)
Balance at June 30, 2021		23,770	$	24		7,411,474		$	7,411	$	217,080,903		$	3,596		$	(198,651,120	)	$	18,440,814
Stock-based compensation expense		—		—		—			—		323,172			—			—			323,172
Release of restricted stock awards		—		—		1,158			2		—			—			—			2
Net share settlement of restricted stock awards		—		—		(117	)		—		(679	)		—			—			(679	)
Employee stock purchase plan expense		—		—		—			—		15,719			—			—			15,719
Issuance of common stock in connection with LP Purchase Agreement		—		—		101,218			101		599,878			—			—			599,979
Net loss		—		—		—			—		—			—			(4,490,622	)		(4,490,622	)
Foreign currency translation adjustment		—		—		—			—		—			(1,013	)		—			(1,013	)
Balance at September 30, 2021		23,770	$	24		7,513,733		$	7,514	$	218,018,993		$	2,583		$	(203,141,742	)	$	14,887,372

See notes to the unaudited condensed consolidated financial statements.

HTG Molecular Diagnostics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2022			2021
	2023			2022
Operating activities
Net loss	$	(165,~~901~~054,~~876~~772	)	$	(116,~~953~~497,~~881~~519	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		~~487~~86,~~116~~104			~~568~~185,~~380~~492
Accretion of discount on NuvoGen obligation		(8,657	)		(9,206	)
Accretion of interest on NuvoGen obligation		(2,747	)		(2,983	)
Provision for excess inventory		184,540			60,143
Write off deferred offering costs		80,692			—
Amortization of SVB Term Loan discount and issuance costs		328,850			351,068
Provision for excess inventory		409,670			59,353
Stock-based compensation expense		637,121			1,000,368
Amortization of SVB Term Loan discount and issuance costs		71,832			117,727
Employee stock purchase plan expense		36,765			41,950
Stock-based compensation expense		129,332			251,214
Non-cash operating lease expense		305,362			359,014
Employee stock purchase plan expense		7,776			16,591
Accrued interest on available-for-sale securities investments		(17,363	)		(18,394	)
Non-cash operating lease expense		114,517			100,316
Gain on forgiveness of PPP Loan		—			(1,735,792	)
Accrued interest on available-for-sale securities investments		(27,183	)		(5,128	)
(Gain) loss on abandonment and disposal of assets, net		(104,000	)		178,925
Changes in operating assets and liabilities:
Accounts receivable		1289,~~132,052~~715			~~(597~~1,~~489~~343,246	)
Inventory		~~(183~~5,~~536~~511	)		(~~892~~120,~~655~~164	)
Prepaid expenses and other		~~(386~~278,~~353~~042	)		~~(300~~93,~~469~~299	)
Accounts payable		(~~937~~25,~~550~~921	)		(50352,~~230~~934	)
Accrued liabilities		(~~629~~571,~~072~~519	)		~~205~~(1,~~015~~069,543	)
Contract liabilities		(2038,~~652~~394	)		5340,~~062~~279
Operating lease liabilities		(~~307~~116,~~342~~246	)		(~~378~~98,~~355~~809	)
Net cash used in operating activities		(164,~~384~~363,~~595~~591	)		(135,~~118~~939,~~546~~563	)
Investing activities
Purchase of property and equipment		(236,~~043~~238	)		(~~590~~8,~~736~~415	)
Proceeds from the sale of property and equipment		104,000			—
Maturities of available-for-sale securities		—			5,400,000
Maturities of available-for-sale securities		16,650,000			9,000,000
Purchase of available-for-sale securities		(3,538,390	)		—
Purchase of available-for-sale securities		(7,610,724	)		(17,871,203	)
Net cash (used in) provided by investing activities		(3,544,628	)		5,391,585
Net cash (used in) provided by investing activities		9,120,233			(9,461,939	)
Financing activities
Proceeds from ATM Offering, net of commissions of $0.3 million		—			10,665,819
Proceeds from March 2022 Securities Purchase Agreement, net of issuance costs of $0.4 million		—			7,207,499
Proceeds from March 2022 Purchase Agreement, net of $0.5 million of issuance costs		7,034,049			—
Payments on SVB Term Loan		(808,824	)		(1,250,000	)
Proceeds from LP Purchase Agreement		—			599,979
Payments of December 2022 Securities Purchase Agreement issuance costs		(350,523	)		—
Payments on NuvoGen obligation		(~~372~~146,~~624~~032	)		(~~379~~172,~~431~~624	)
Payments on SVB Term Loan		(5,955,882	)		—
Payments of deferred offering costs		—			(38,500	)
Payments on SVB Term Loan Amendment issuance costs		(14,282	)		—
Payments on financing leases		(3,866	)		(4,635	)
Payments on deferred offering costs		(80,692	)		—
Taxes paid for net share settlement of restricted stock awards		(215	)		(8,129	)
Payments on financing leases		(13,033	)		(18,040	)
Cash in lieu of fractional shares related to reverse stock split		(640	)		—
Proceeds from exercise of stock options		—			326
Payments on 2021 Insurance Note		—			(167,586	)
Taxes paid for net share settlement of restricted stock awards		(10,792	)		(2,571	)
Net cash (used in) provided by financing activities		(1,310,100	)		5,566,025
Proceeds from shares purchased under stock purchase plans		23,327			53,437
Effect of exchange rates on cash		3,871			(3,570	)
Proceeds from exercise of pre-funded warrants		2,411			—
(Decrease) increase in cash and cash equivalents		(9,214,448	)		5,014,477
Proceeds from insurance note		822,889			—
Cash and cash equivalents at beginning of period		12,210,857			9,599,950
Payments on insurance notes		(530,790	)		(494,352	)
Cash and cash equivalents at end of period	$	2,996,409		$	14,614,427
Net cash provided by financing activities		904,581			10,425,167
Effect of exchange rates on cash		(27,718	)		(12,848	)
Decrease in cash and cash equivalents		(6,387,499	)		(12,168,166	)
Cash and cash equivalents at beginning of period		9,599,950			22,397,812
Cash and cash equivalents at end of period	$	3,212,451		$	10,229,646
Supplemental disclosure of noncash investing and financing activities
Issuance of common stock upon conversion of Series A convertible preferred stock		1,402,430			—
Net reclassification of instruments from inventory to property and equipment, net	$	16,625		$	—
Issuance of common stock from cashless exercise of pre-funded warrants		—			145
Deferred financing costs payable and accrued at period end		—			98,713
2021 Insurance Note issued for insurance premiums		—			746,360
Issuance costs payable at period end		447
Gain on forgiveness of PPP Loan		—			1,735,792
Disposal of fully depreciated assets		177,451			—
Operating lease right-of-use assets obtained in exchange for operating lease liabilities		—			1,302,457
Issuance of common stock upon conversion of Series A convertible preferred stock		—			1,402,430
Carrying value of demonstration units transferred from property and equipment to inventory		—			16,128
Supplemental cash flow information
Cash paid for interest	$	~~389~~74,~~911~~976		$	~~450~~139,~~344~~846
Cash paid for taxes		71,~~131~~838			~~12,665~~—

See notes to the unaudited condensed consolidated financial statements.

HTG Molecular Diagnostics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Description of Business, Basis of Presentation and Principles of Consolidation

HTG Molecular Diagnostics, Inc. (the “Company”) is a life science company whose mission is to advance precision medicine through its innovative transcriptome-wide profiling ~~technology~~ and advanced medicinal chemistry ~~technology~~technologies. The Company derives revenue primarily from sales of its HTG EdgeSeq system and integrated next-generation sequencing-based (“NGS-based”) HTG EdgeSeq research use only (“RUO”) assays and from sample processing services performed in its VERI/O laboratory.

The Company operates in one segment and its customers and distributors are located primarily in the United States and Europe. For ~~sales to distributors, their locations may be different from~~ the ~~locations of the end customers. For the~~ three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023, approximately 3651% ~~and 33%, respectively,~~ of the Company’s revenue was generated from sales originated by customers located outside of the United States, compared with 2418% ~~and 30%~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021, respectively~~2022.

COVID-19 Pandemic

The full impact of the COVID-19 pandemic ("COVID-19") continues to evolve as of the date of this report and management continues to actively monitor the potential impact of the global situation on its financial condition, liquidity, operations, suppliers, industry and workforce. Given the ongoing evolution of COVID-19, including resurgences in many areas of the world and the global responses to curb its spread, the Company is not able to fully estimate the effects of COVID-19 on its results of operations, financial condition or liquidity.

The Company experienced a significant slowing of product and product-related services revenue generation beginning in March 2020. The extent of this impact has varied from customer to customer depending upon how they have been directly or indirectly impacted by local stay-at-home orders and other social distancing measures, how they have prioritized studies and previously planned trials as the immediate impacts of the pandemic have passed, and how significantly their workforces and supplier networks have been impacted by the pandemic. The Company has not experienced delays in development even with its efforts to prioritize the safety of its employees during this pandemic. In addition, the impact of COVID-19 on the Company’s ability to source raw materials and other supplies has not been significant to date. However, a change in or loss of suppliers or other supply chain or distribution network partners due to the ongoing impacts of the pandemic on the global economy could adversely affect the Company’s business and the business of its vendors, partners and customers, and could result in future reductions in sales and operating results.

While there remains uncertainty as to the future impact of COVID-19, the Company has considered the known impacts on its business as of the date these condensed consolidated financial statements were issued and has reflected any known or expected impacts in its condensed consolidated financial statements, including consideration of potential impairment risks to its long-lived assets, potential accounts receivable collection risks and potential impacts to its overall liquidity position.

As a result of various government programs enacted to address the ongoing impacts of COVID-19, the Company was able to qualify for and receive Employee Retention Credits (“ERC”) during the year ended December 31, 2021. ERC benefits of approximately $0.2 million, $0.3 million, and $0.2 million were included in cost of product and product-related services revenue, selling, general and administrative and research and development, respectively, as an offset to the related compensation costs in the accompanying condensed consolidated statements of operations for the three months ended September 30, 2021. ERC benefits of approximately $0.5 million, $0.8 million, and $0.4 million were included in cost of product and product-related services revenue, selling, general and administrative and research and development, respectively, as an offset to the related compensation costs in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2021. In November 2021, the Infrastructure Investment and Jobs Act was signed into law, making wages paid after September 30, 2021 ineligible for these credits. As such, no further ERC benefits were received for the three and nine months ended September 30, 2022. ERC benefits receivable of $0.4 million were included in prepaid expenses and other in the accompanying condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.

In April 2020, the Company received proceeds from a loan pursuant to the Paycheck Protection Program (“PPP”) of the CARES Act (the “PPP Loan”) in the amount of $1.7 million from SVB, as lender. The Company applied for full forgiveness of the PPP Loan in October 2020. In May 2021, the Company received notification that the PPP Loan and related interest, totaling $1,735,792, were forgiven by the U.S. Small Business Administration (“SBA”), and that the PPP Loan had been canceled. Accordingly, the Company recorded a gain on forgiveness of the PPP Loan of $1.7 million for the nine months ended September 30, 2021, included in other income (expense) in the accompanying condensed consolidated statements of operations.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect the accounts of the Company as of ~~September~~March 3031, ~~2022~~2023 and for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The accompanying condensed consolidated financial statements reflect all normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and the results of its operations and cash flows, as of and for the periods presented. The accompanying condensed consolidated balance sheet at December 31, ~~2021~~2022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and disclosures required by GAAP for annual financial statements. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, ~~2021~~2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 2930, ~~2022~~2023.

In December 2022, the Company completed a reverse stock split of its outstanding shares of common stock pursuant to which every 12 shares of issued and outstanding common stock were exchanged for one share of common stock. All share and per share amounts within the condensed consolidated financial statements and notes thereto have been adjusted to reflect the reverse stock split for all periods and dates presented. See Note 14 for more information about the Company’s reverse stock split.

Going Concern and Liquidity

Management has assessed the Company’s ability to continue as a going concern within one year of issuance of these financial statements. The accompanying interim unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, the Company has had recurring operating losses and negative operating cash flows since its inception. ~~and~~The Company has an accumulated deficit of $~~225~~235.20 million ~~as of September 30~~, ~~2022. As of September 30, 2022, the Company had~~ working capital of $42.06 million and long-term liabilities of $53.68 million as of March 31, 2023. The Company’s liability balances consist primarily of its ~~debt obligations, including an~~ asset-secured loan (the "SVB Term Loan") with Silicon Valley Bank (now named Silicon Valley Bank, N.A., a division of First-Citizens Bank and Trust Company, following the closure of Silicon Valley Bank on March 10, 2023 by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Company ("FDIC") as receiver) ("SVB") (see Note 8), asand ~~well as~~ an obligation to NuvoGen Research, LLC (the “NuvoGen obligation”) (see Note 10). The Company currently expects that its existing resources will ~~only~~ be sufficient to fund its planned operations and expenditures through ~~January~~July 2023. In addition, potentially changing circumstances, including those related to a resurgence of COVID-19, ~~and~~ inflation or high interest rates, may result in the depletion of the Company’s capital resources more rapidly than it currently anticipates. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

The Company will need to raise additional capital to fund its operations and service its long-term debt obligations until its revenue reaches a level sufficient to provide for self-sustaining cash flows. There can be no assurance that additional capital will be available on acceptable terms, or at all, or that the Company’s revenue will reach a level sufficient to provide for self-sustaining cash flows. The current volatility in the equity markets, coupled with the trading price of the Company’s common stock and the limited number of authorized and available shares of the Company’s common stock, create additional challenges to raising a sufficient amount of capital through an equity financing in the near term. If the Company is not able to generate or raise additional capital, the Company may have to delay, scale back or discontinue one or more product development programs, curtail its commercial activities, significantly reduce expenses, sell assets (potentially at a discount to their fair value or carrying value), enter into relationships with third parties to develop or commercialize products or technologies that the Company otherwise would have sought to develop or commercialize independently, cease operations altogether, pursue a sale of the Company at a price that may result in a significant loss on investment for its stockholders, file for bankruptcy or seek other protection from creditors, or liquidate all assets. In addition, if the Company defaults under any of the provisions of the Loan and Security Agreement for the SVB Term Loan (the "Loan Agreement"), including as a result of a “material adverse change,” SVB could charge an interest rate of 5% above the otherwise applicable floating rate, accelerate payment of the SVB Term Loan and ultimately foreclose on the Company’s assets. Moreover, the definition of “material adverse change” is broad and includes a material impairment in the value of the collateral securing the SVB Term Loan, a material adverse change in the business, operations, or condition (financial or otherwise) of the Company, and a material impairment of the prospect of repayment of any portion of the SVB Term Loan. 6

The Company will need to raise additional capital to fund its operations and service its long-term debt obligations until its revenue reaches a level sufficient to provide for self-sustaining cash flows. There can be no assurance that additional capital will be available on acceptable terms, or at all, or that the Company’s revenue will reach a level sufficient to provide for self-sustaining cash flows. If the Company is not able to generate additional capital, the Company may have to delay, scale back or discontinue one or more of its therapeutics development programs, curtail its commercial activities, significantly reduce expenses, sell assets (potentially at a discount to their fair value or carrying value), enter into relationships with third parties to develop or commercialize products or technologies that the Company otherwise would have sought to develop or commercialize independently, cease operations altogether, pursue a sale of the Company at a price that may result in a significant loss on investment for its stockholders, file for bankruptcy or seek other protection from creditors. In addition, if the Company defaults under any of the provisions of the Loan and Security Agreement for the SVB Term Loan (the "Loan Agreement"), including as a result of a "material adverse change" as such term is defined in the Loan Agreement. SVB could charge an interest rate of 5% above the otherwise applicable floating rate, accelerate the payment of the SVB Term Loan and ultimately foreclose on the Company’s assets. The definition of “material adverse change” is broad and includes a material impairment in the value of the collateral securing the SVB Term Loan, a material adverse change in the Company's business, operations, or condition (financial or otherwise), and a material impairment of the prospect of repayment of any portion of the SVB Term Loan. Moreover, the determination as to whether a material adverse change has occurred is not within the Company's control and it is unclear how the current managers of SVB will view the SVB Term Loan from a risk standpoint and what actions they may elect to take under the SVB Term Loan to protect the financial interests of the lender.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, HTG Molecular Diagnostics France, SARL, after elimination of all intercompany transactions and balances.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures 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 Company’s estimates include revenue recognition, stock-based compensation expense, bonus and warranty accrual, income tax valuation allowances and reserves, recovery of long‑lived assets, lease liability, inventory valuation, allowance for credit losses and available-for-sale securities. Actual results could materially differ from those estimates.

Concentration Risks

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains the majority of its cash balances in the form of cash deposits in ~~bank~~ checking and money market accounts in amounts in excess of federally insured limits. ~~Management~~In ~~believes,~~accordance ~~based~~with ~~upon~~the Loan Agreement, the ~~quality~~Company's ofcash balances were held primarily in operating accounts at and in a custodial account at U.S. Bank, subject to a control agreement with SVB. On March 13, 2023, the ~~financial~~U.S. ~~institution~~Treasury, Federal Reserve and FDIC provided SVB depositors access to all of their money. Management believes that the credit risk with regard to these deposits is not significant based on the quality of the financial institution or as a result of the guarantee provided by the U.S. Treasury, Federal Reserve and FDIC.

The Company sells its instrument, related consumables, sample processing services and custom RUO assay design services primarily to biopharmaceutical companies, academic institutions and molecular labs. The Company routinely assesses the financial strength of its customers and credit losses have been minimal to date.

One customer accounted for 1013% of the Company’s revenue for three months ended ~~September~~March 3031, ~~2022~~2023, compared with ~~two~~three customers accounting for 2724% ~~and 13% of the Company’s revenue for the three months ended September 30~~, ~~2021. One customer accounted for 13~~20% ~~of the Company’s revenue for the nine months ended September 30, 2022, compared with two customers accounting for 23%~~ and 12% of the Company’s revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022.

~~Three~~Two customers accounted for 1344%, ~~12%,~~ and 1112% of the Company’s accounts receivable, ~~net~~ as of ~~September~~March 3031, ~~2022.~~2023, ~~Three~~compared ~~additional~~with three customers ~~accounted~~accounting for approximately 1037% ~~each of the Company's accounts receivable~~, ~~net as of September 30, 2022. Two customers accounted for approximately 18~~24% and 1713% of the Company’s accounts receivable, ~~net~~ as of December 31, ~~2021~~2022. ~~Two additional customers accounted for approximately 10% each of the Company’s accounts receivable, net as of December 31, 2021.~~

Two vendors accounted for 1321% and 1012% of the Company’s accounts payable as of ~~September~~March 3031, ~~2022~~2023, compared with ~~two~~one ~~vendors~~vendor who accounted for 2813% ~~and 16%~~ of the Company’s accounts payable as of December 31, ~~2021~~2022.

The Company is also subject to supply chain risks related to the reliance on a single supplier to manufacture a subcomponent used in its HTG EdgeSeq instruments. Although there are a limited number of manufacturers for components of this type, the Company believes that other suppliers could provide similar products on comparable terms. However, a change in or loss of this supplier could significantly delay the delivery of products, which in turn would materially affect the Company’s ability to generate revenue.

Note 2. Summary of Significant Accounting Policies

~~Use~~There ofhave ~~Estimates~~been no changes to the Company's significant accounting policies from those previously disclosed in the consolidated financial statements included in the Company's Annual Report on Form 10-K, filed with the SEC on March 30, 2023, except those related to the recently adopted accounting pronouncements on January 1, 2023, as discussed below.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s estimates include revenue recognition, stock-based compensation expense, bonus and warranty accrual, income tax valuation allowances and reserves, recovery of long‑lived assets, lease liability, inventory valuation, accounts receivable, allowance for doubtful accounts and available-for-sale securities. Actual results could materially differ from those estimates, especially in light of the significant uncertainty that remains as to the full impact of COVID-19 on the Company’s operations, as well as those of its workforce, supply chains, distribution networks and those of its customers.7

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies from those previously disclosed in the consolidated financial statements included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 29, 2022.

Fair Value of Financial Instruments

The carrying value of financial instruments classified as current assets and current liabilities approximate fair value due to their liquidity and short-term nature. Investments that are classified as available-for-sale are recorded at fair value, which is determined using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The carrying value of the SVB Term Loan is estimated to approximate its fair value as the interest rate approximates the market rate for debt with similar terms and risk characteristics.

The Company’s obligation related to an asset purchase transaction with a then-common stockholder of the Company, (the “NuvoGen obligation”) had an estimated fair value of approximately $3.70 million as of ~~September~~March 3031, ~~2022~~2023. This estimated fair value represents a Level 3 measurement that has been determined using a Monte Carlo simulation with key assumptions including future revenue, volatility, discount and risk-free rates.

9Investments in Available-for-Sale Securities

~~Inventory~~The Company classifies its debt securities, which are reported at estimated fair value with unrealized gains and losses included in accumulated other comprehensive income, net of tax, as available-for-sale securities. Investments in securities with maturities of less than one year, or where management’s intent is to use the investments to fund current operations, or to make them available for current operations, are classified as short-term investments. Realized gains, realized losses and declines in value of securities judged to be other-than-temporary, are included in other income (expense) within the condensed consolidated statements of operations. The cost of investments for purposes of computing realized and unrealized gains and losses is based on the specific identification method. Interest earned on securities is also included in other income (expense) within the condensed consolidated statements of operations.

~~Inventory~~The isCompany's ~~stated~~investment atsecurities ~~the~~are ~~lower~~considered available-for-sale and currently consist of ~~cost~~short-term orU.S. ~~net~~Treasury ~~realizable~~securities with scheduled maturities within the next twelve months. These securities are considered “investment grade” and are carried at fair value. The Company ~~determines~~assesses its investment in available-for-sale debt securities for impairment each reporting period. If an unrealized loss exists, the ~~cost~~Company determines whether any portion of ~~inventory~~the ~~using~~decline in fair value below the ~~first~~carrying value is credit-~~in,~~related ~~first~~by ~~out~~reviewing ~~method.~~several ~~The~~factors, ~~Company~~including, ~~estimates~~but not limited to, the ~~recoverability~~extent of ~~inventory~~the byfair ~~reference~~value todecline ~~internal~~and ~~estimates~~changes in the financial condition of ~~future~~the ~~demands~~issuer and ~~product~~records ~~life~~an ~~cycles~~impairment for credit-related losses through an allowance, ~~including~~limited ~~expiration~~to the amount of the unrealized loss. ~~The~~If the Company ~~periodically~~either ~~analyzes~~intends ~~its~~to ~~inventory~~sell ~~levels~~or toit ~~identify~~is ~~inventory~~more ~~that~~likely ~~may~~than ~~expire~~not ~~prior~~it will be required to ~~expected~~sell ~~sale~~the ordebt ~~has~~security abefore its anticipated recovery, any allowance is written off and the amortized cost basis inis ~~excess~~written ofdown ~~its~~to ~~estimated~~fair ~~realizable~~ value ~~and~~through ~~records~~ a charge toagainst ~~expense~~net earnings. Unrealized gains and non-credit-related unrealized losses are recorded, net of tax, in other comprehensive (loss) income. The Company did not have any investments in available-for-sale ~~such~~debt ~~inventory~~securities in unrealized loss positions as ~~appropriate~~of either March 31, 2023 or December 31, 2022.

WeAccounts ~~charge~~Receivable 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~~Allowance ~~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~~Credit ~~inventory that is not subsequently written-up.~~Losses

Accounts receivable are stated net of an allowance for credit losses. The Company uses available information over the life of the receivables including analysis of past credit losses, recoveries of past credit losses, management's expectation of future economic positions, as well as market conditions and other extenuating factors to determine whether or not an allowance is necessary. The Company has considered all information and factors and noted no indicators that a credit loss exists as of March 31, 2023. The Company has not experienced any significant credit loss to date.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, which was subsequently amended by ASU 2018-19, ASU 2019-10 and ASU 2020-02, and requires the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting date based on historical experience, current conditions and reasonable forecasts. The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security's amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company's adoption of this standard on January 1, 2023 did not have a material impact on its condensed consolidated financial statements or related disclosures, given the high credit quality of the obligors to its available-for-sale debt securities and its history of minimal bad debt expense relating to trade accounts receivable.

In August 2020, the FASB issued ASU No. 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and also simplifies the diluted earnings per share calculation in certain areas. The Company early adopted this standard on January 1, 2023 using a modified retrospective approach. The Company's adoption of this standard did not have a material impact on its condensed consolidated financial statements or related disclosures.

New Accounting Pronouncements

The following are new Financial Accounting Standards Board ("FASB") Accounting Standard Updates ("ASU") that had not been adopted by the Company as of ~~September~~March 3031, ~~2022:~~2023. The Company's management does not believe that any other recently issued, but not yet effective, accounting standards updates, if currently adopted, would have a material effect on the accompanying condensed consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03"), which amends ~~Accounting Standards Codification ("~~ASC") 820 to clarify that a contractual sales restriction is not considered in measuring an equity security at fair value and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. ASU 2022-03 applies to both holders and issuers of equity and equity-linked securities measured at fair value. The amendments in this ASU are effective for the Company in fiscal years and interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is still evaluating the impact of this pronouncement on the financial statements.

In August 2020, the FASB issued ASU No. 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and also simplifies the diluted earnings per share calculation in certain areas. The standard became effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within those fiscal years, beginning after December 15, 2021. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, and adoption must be as of the beginning of the Company’s annual fiscal year. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, which was subsequently amended by ASU 2018-19, ASU 2019-10 and ASU 2020-02, and requires the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting date based on historical experience, current conditions and reasonable forecasts. The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. With the issuance of ASU 2019-10 in November 2019, the standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022. The Company will continue to assess the possible impact of this standard, but currently does not expect the adoption of this standard will have a significant impact on its consolidated financial statements, given the high credit quality of the obligors to its available-for-sale debt securities and its history of minimal bad debt expense relating to trade accounts receivable.

Note 3. Inventory

Inventory - current, net of allowance, consisted of the following as of the dates indicated:

	September 30,			December 31,
	March 31,			December 31,
	2022			2021
	2023			2022
Raw materials	$	~~741~~291,~~340~~094		$	1426,~~253,111~~516
Work in process		~~312~~135,~~864~~139			~~312~~113,~~803~~063
Finished goods		~~712~~236,~~684~~809			~~447~~394,~~145~~016
Total gross inventory - current		1663,~~766,888~~042			2933,~~013,059~~595
Less inventory allowance		(76,654	)		(25,306	)
Less general inventory allowance		(8,125	)		(24,267	)
	$	1654,~~690,234~~917		$	1909,~~987,753~~328

Inventory - non-current, net of excess inventory allowance, included in other non-current assets on the condensed consolidated balance sheets, consisted of the following as of the dates indicated:

	September 30,			December 31,
	March 31,			December 31,
	2022			2021
	2023			2022
Raw materials - non-current	$	1,058,250		$	711,296
Raw materials - non-current, net	$	75,544		$	244,915
Work in process - non-current		43,609			—
Work in process - non-current, net		—			81,958
Less excess inventory allowance		(94,048	)		—
Finished goods - non-current		147,864			73,930
	$	1223,~~007,811~~408		$	~~711~~400,~~296~~803

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023, the Company recorded ~~adjustments~~a toprovision ~~its~~for ~~specific~~excess inventory ~~reserve~~ of ($2422,~~815) and $49~~946,~~248,~~ ~~respectively,~~primarily related to ~~reflect~~ the ~~projected~~write-down ~~obsolescence~~of excess quantities of araw ~~specific~~materials, whose inventory ~~item,~~levels inwere ~~addition~~higher tothan ~~adjustments~~our toupdated ~~the~~forecasts ~~provision~~of ~~for~~future ~~excess~~demand ~~inventory~~for ofthose ~~$29,946~~products and ~~$41,244,~~reduced ~~respectively~~the general inventory allowance for ~~the~~estimated ~~three~~shrinkage, obsolescence and ~~nine~~cycle ~~months~~count ~~ended~~adjustments ~~September~~by 30$13, ~~2022~~276.

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021~~2022, the Company recorded adjustments to ~~provision~~its ~~for~~specific ~~excess~~ inventory reserve of $54,~~636~~033, to reflect the projected obsolescence of a specific inventory item and $605,~~143~~320 to the general inventory allowance for estimated shrinkage, ~~respectively~~obsolescence and cycle count adjustments. Adjustments in these periods to the allowance for estimated shrinkage, obsolescence and excess inventory have been included in cost of product and product-related services revenue in the accompanying condensed consolidated statements of operations.

InHTG ~~addition,~~EdgeSeq ~~for~~instruments ~~the~~at ~~nine~~customer ~~months~~locations ~~ended~~under ~~September~~evaluation ~~30,~~agreements ~~2022,~~are ~~the~~included ~~Company~~in ~~recorded~~finished agoods ~~provision~~inventory. ~~for~~Finished ~~excess~~goods inventory ofunder ~~$94,048,~~evaluation ~~primarily~~was ~~related~~$0.1 tomillion ~~the~~as ~~write-down~~ of ~~excess~~both ~~quantities~~March ~~of raw materials~~31, ~~whose~~2023 ~~inventory~~and ~~levels~~December ~~were~~31, ~~higher than our updated forecasts of future demand for those products~~2022.

HTG EdgeSeq instruments at customer locations under evaluation agreements are included in finished goods inventory. Finished goods inventory under evaluation was $0.2 million as of both September 30, 2022 and December 31, 2021.9

Note 4. Fair Value Instruments

Financial assets and liabilities measured at fair value are classified in their entirety in the fair value hierarchy based on the lowest level input significant to the fair value measurement. The following table classifies the Company’s financial assets and liabilities measured at fair value on a recurring basis as of ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022 in the fair value hierarchy:


	March 31, 2023
	Level 1		Level 2		Level 3		Total
Asset included in:
Cash and cash equivalents
Money market securities	$	998,534	$	—	$	—	$	998,534
U.S. Treasury securities		1,894,167		—		—		1,894,167
Investments available-for-sale at fair value
U.S. Treasury securities		3,566,628		—		—		3,566,628
Total	$	6,459,329	$	—	$	—	$	6,459,329

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Asset included in:
Cash and cash equivalents
Money market securities	$	10,753,684	$	—	$	—	$	10,753,684
Total	$	10,753,684	$	—	$	—	$	10,753,684

	September 30, 2022
	Level 1		Level 2		Level 3		Total
Asset included in:
Cash and cash equivalents
Money market securities	$	2,267,308	$	—	$	—	$	2,267,308
Investments available-for-sale at fair value
U.S. Treasury securities		3,018,027		—		—		3,018,027
Corporate debt securities		—		299,600		—		299,600
Total	$	5,285,335	$	299,600	$	—	$	5,584,935
	December 31, 2021
	Level 1		Level 2		Level 3		Total
Asset included in:
Cash and cash equivalents
Money market securities	$	9,083,302	$	—	$	—	$	9,083,302
Investments available-for-sale at fair value
Corporate debt securities		—		12,343,456		—		12,343,456
Total	$	9,083,302	$	12,343,456	$	—	$	21,426,758

There are no other financial instruments subject to fair value measurement on a recurring basis. Transfers to and from Levels 1, 2 and 3 are recognized at the end of the reporting period. There were no transfers between levels for the three months ended March 31, 2023 or the year ended December 31, 2022.

~~There~~Level ~~are~~1 ~~no other financial~~ instruments ~~subject~~include toinvestments ~~fair~~in ~~value~~money ~~measurement~~market onfunds aand ~~recurring~~U.S. ~~basis~~Treasuries. ~~Transfers~~These toinstruments ~~and~~are ~~from~~valued ~~Levels~~using 1,quoted 2market ~~and~~prices 3for ~~are~~identical ~~recognized~~unrestricted atinstruments ~~the~~in ~~end~~active ~~of the reporting period~~markets. ~~There~~The ~~were~~Company nodefines ~~transfers~~active ~~between~~markets ~~levels~~ for ~~the~~debt ~~three~~instruments ~~and~~based ~~nine~~on ~~months~~both ~~ended~~the ~~September~~average ~~30,~~daily ~~2022~~trading orvolume and the ~~year~~number ~~ended~~of ~~December~~days ~~31,~~with ~~2021~~trading activity.

~~Level~~Fair 1values ~~instruments~~of ~~include~~these ~~investments~~assets inare ~~money~~based ~~market~~on ~~funds~~prices ~~and~~provided ~~U.S.~~by ~~Treasuries.~~independent ~~These~~market ~~instruments~~participants that are ~~valued~~based ~~using~~on ~~quoted~~observable ~~market~~inputs ~~prices~~using ~~for~~market-based ~~identical~~valuation ~~unrestricted~~techniques. ~~instruments~~These invaluation ~~active~~models ~~markets.~~and ~~The~~analytical ~~Company~~tools ~~defines~~use ~~active~~market ~~markets~~pricing ~~for~~or ~~debt~~similar instruments ~~based~~that onare both ~~the~~objective ~~average~~and ~~daily~~publicly ~~trading~~available, ~~volume~~including ~~and~~matrix ~~the~~pricing ~~number~~or ofreported ~~days~~trades, ~~with~~benchmark ~~trading~~yields, ~~activity.~~broker/dealer ~~Level~~quotes, 2issuer ~~instruments~~spreads, ~~include~~two-sided ~~corporate~~markets, ~~debt~~benchmark securities, ~~including~~bids ~~commercial paper~~ and/or ~~corporate bonds~~offers. ~~Valuations~~The ofCompany ~~Level~~did 2not ~~instruments~~adjust ~~can~~any beof ~~verified~~the tovaluations ~~quoted~~received ~~prices,~~from ~~recent~~these ~~trading~~third ~~activity~~parties ~~for identical or similar instruments, broker or dealer quotations or alternative pricing sources~~ with ~~reasonable~~respect ~~levels~~to any of ~~price~~its ~~transparency.~~Level ~~Consideration~~1 issecurities ~~given~~for to the ~~nature~~three ofmonths ~~the~~ended ~~quotations~~March ~~(e.g.~~31, ~~indicative~~2023 or ~~firm) and~~ the ~~relationship~~year ofended ~~recent~~December ~~market~~31, ~~activity to the prices provided from alternative pricing sources~~2022.

Fair values of these assets are based on prices provided by independent market participants that are based on observable inputs using market-based valuation techniques. These valuation models and analytical tools use market pricing or similar instruments that are both objective and publicly available, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers. The Company did not adjust any of the valuations received from these third parties with respect to any of its Level 1 or 2 securities for the nine months ended September 30, 2022 or the year ended December 31, 2021.

Note 5. Available-for-Sale Securities

The Company’s portfolio of available-for-sale securities consists of U.S. Treasuries ~~and high credit quality corporate debt securities~~. The following is a summary of the Company’s available-for-sale securities as of ~~September~~March ~~30, 2022 and December~~ 31, ~~2021~~2023:

	September 30, 2022
	March 31, 2023
			Gross		Gross			Fair Value
	Amortized		Unrealized		Unrealized			(Net Carrying
	Cost		Gains		Losses			Amount)
U.S. Treasury securities	$	3,~~021~~565,~~943~~990	$	—638	$	~~(3,916~~—	)	$	3,~~018~~566,~~027~~628
Corporate debt securities		299,600		—		—			299,600
Total available-for-sale securities	$	3,565,990	$	638	$	—		$	3,566,628
Total available-for-sale securities	$	3,321,543	$	—	$	(3,916	)	$	3,317,627

	December 31, 2021
			Gross		Gross		Fair Value
	Amortized		Unrealized		Unrealized		(Net Carrying
	Cost		Gains		Losses		Amount)
Corporate debt securities	$	12,343,456	$	—	$	—	$	12,343,456
Total available-for-sale securities	$	12,343,456	$	—	$	—	$	12,343,456

The Company did not have any investments in available-for-sale securities as of December 31, 2022.

12The net adjustment to unrealized holding gains on investments, net of tax in other comprehensive income totaled $638 for the three months ended March 31, 2023.

The net adjustment to unrealized holding gains (losses) on short-term investments, net of tax in other comprehensive income totaled $8,298 and $(3,916) for the three and nine months ended September 30, 2022. All investments that are in a gross unrealized loss position have been in a continuous unrealized loss position for less than one year as of September 30, 2022. 10

Contractual maturities of all of the Company’s available-for-sale securities investments were less than one year as of ~~September~~March 3031, ~~2022~~2023. Expected maturities may differ from contractual maturities where issuers of the securities have the right to prepay obligations without prepayment penalties.

Note 6. Property and Equipment

Property and equipment, net, ~~consists~~consisted of the following as of the dates indicated:

	September 30,			December 31,
	March 31,			December 31,
	2022			2021
	2023			2022
Furniture & fixtures	$	~~856~~756,~~331~~065		$	~~872~~756,~~877~~065
Leasehold improvements		1,~~940~~938,~~177~~981			1,~~931~~938,~~762~~981
Equipment used in manufacturing		1,~~872~~863,~~337~~976			21,~~432~~863,~~242~~976
Equipment used in research & development		2,~~358~~080,~~558~~319			2,~~343~~080,~~930~~319
Equipment used in the field		~~216~~124,~~218~~456			~~216~~159,~~218~~563
Software		~~480~~329,~~740~~160			~~480~~469,~~740~~408
Property and equipment		7,~~724~~092,~~361~~957			87,~~277~~268,~~769~~312
Less: accumulated depreciation and amortization		(76,~~069~~564,~~548~~430	)		(76,~~158~~670,~~883~~306	)
	$	~~654~~528,~~813~~527		$	1598,~~118,886~~006

Depreciation and leasehold improvement amortization expense was approximately $0.1 million ~~and $0.5 million, respectively,~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023, compared with $0.2 million ~~and $0.6 million, respectively,~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021~~2022.

Note 7. Accrued Liabilities

Accrued liabilities consisted of the following as of the dates indicated:

	September 30,		December 31,
	March 31,		December 31,
	2022		2021
	2023		2022
Accrued employee bonuses	$	~~870~~665,~~403~~241	$	1,~~254~~252,~~355~~622
Payroll and employee benefit accruals		~~253~~308,~~700~~890		~~389~~416,~~385~~070
Other accrued liabilities		~~254~~347,~~199~~640		~~378~~540,~~829~~914
	$	1,~~378~~321,~~302~~771	$	2,~~022~~209,~~569~~606

Note 8. Debt Obligations

Current portion of long-term debt consisted of the following as of the dates indicated:

	September 30,		December 31,
	2022		2021
SVB Term Loan	$	3,235,294	$	5,000,000
2022 Insurance Note		459,685		—
2021 Insurance Note		—		167,586
	$	3,694,979	$	5,167,586

Long-term debt, net of current portion, discount and debt issuance costs, consisted of the following as of the dates indicated:

	September 30,		December 31,
	2022		2021
SVB Term Loan, net of discount and debt issuance costs	$	1,302,021	$	5,178,629

SVB Term Loan

On June 24, 2020 (the “Closing Date”), the Company entered into the SVB Term Loan, by and among the Company and SVB, as lender, which ~~provides~~provided a secured term loan in the principal amount of $10.0 million. The proceeds from the SVB Term Loan were fully funded on June 25, 2020.

The SVB Term Loan bears interest at a floating rate equal to the greater of 2.50% above the Prime Rate (as defined in the Loan Agreement) and 5.75%. Interest on the SVB Term Loan is due and payable monthly in arrears. The SVB Term Loan originally required interest-only payments through June 30, 2021. As a result of the Company’s achievement of an equity milestone defined in the Loan Agreement during the quarter ended June 30, 2021, the interest-only period was extended for six months through December 31, 2021. Following the extended interest-only period, the Loan Agreement required equal monthly payments of principal and interest through the maturity date of December 1, 2023.

In ~~connection~~July ~~with~~2022, the Company and SVB entered into an amendment to the SVB Term Loan ~~Agreement~~(the "Term Loan Amendment"). Under the Term Loan Amendment, the Company ~~granted~~and SVB agreed to ~~SVB~~remove athe ~~warrant~~financial tocovenant ~~purchase~~under upthe toLoan ~~42,894~~Agreement ~~shares~~that ofhad required the Company’s ~~common~~to ~~stock~~maintain atunrestricted acash, ~~purchase~~including ~~price~~short ofterm ~~$11.6565~~investments ~~per~~available-for-sale, ~~share.~~of ~~The~~not ~~warrant~~less ~~will~~than ~~expire~~the ongreater ~~June~~of ~~24,~~(i) ~~2030~~$12.5 million and ~~may~~(ii) bean ~~exercised~~amount ~~for~~equal ~~cash~~to orsix attimes the ~~election~~amount of the ~~holder~~Company’s onaverage amonthly ~~cashless,~~Cash ~~net~~Burn ~~exercise~~(as ~~basis.~~defined ~~The~~in ~~fair~~the ~~value~~Loan ofAgreement) over the ~~warrant~~trailing onthree ~~the~~months. ~~date~~In ofexchange ~~issuance~~for ~~was~~this ~~approximately~~accommodation, the Company prepaid $02.45 million, ~~determined~~of ~~using~~outstanding principal under the ~~Black-Scholes~~Term ~~option-pricing~~Loan ~~model,~~(the ~~and~~“Prepayment”). ~~was~~SVB ~~recorded~~waived asthe aprepayment ~~discount~~fee that otherwise would have applied to the ~~SVB~~Prepayment. ~~Term~~The ~~Loan,~~remaining ~~with~~outstanding aprincipal ~~corresponding~~amount ~~credit~~due under the Term Loan will continue to ~~additional~~be paid in ~~capital~~equal ~~since~~monthly ~~the~~payments ~~warrant~~of ~~met~~principal and interest through the ~~requirements~~maturity todate beof ~~classified~~December 1, 2023. The Term Loan Amendment was accounted for as ~~equity~~a modification of the original SVB Term Loan.

The Company included $0.3 million and $0.6 million of debt discount associated with the SVB Term Loan, resulting from fees and debt issuance costs, inclusive of the fair value of warrants issued, in long-term debt, net of current portion, discount and debt issuance costs in the accompanying condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively. Amortization of the debt discount associated with the SVB Term Loan was approximately $0.1 million and $0.3 million for the three and nine months ended September 30, 2022, respectively, compared with $0.1 million and $0.4 million for the three and nine months ended September 30, 2021, respectively, and was included in interest expense in the accompanying condensed consolidated statements of operations. 11

InOn ~~July~~March ~~2022~~10, 2023, the ~~Company~~FDIC ~~and~~took ~~SVB~~control ~~entered~~and ~~into~~was anappointed ~~amendment~~receiver toof ~~the~~ SVB ~~Term Loan (the "Term Loan Amendment")~~. ~~Under the Term Loan Amendment, the Company and~~ SVB ~~agreed~~has tosince ~~remove~~been ~~the~~acquired ~~financial~~by ~~covenant~~First ~~under~~Citizens ~~the~~Bank ~~Loan~~and ~~Agreement~~is ~~that~~now ~~had~~operating ~~required~~as ~~the~~Silicon ~~Company~~Valley ~~to maintain unrestricted cash~~Bank, ~~including~~a ~~short~~division ~~term~~of ~~investments available~~First-~~for-sale,~~Citizens ofBank ~~not less than the greater of (i) $12.5 million~~ and ~~(ii)~~Trust ~~an amount equal to six times the amount of the~~ Company~~’s average monthly Cash Burn (as defined in the Loan Agreement) over the trailing three months~~. InThe ~~exchange~~SVB ~~for this accommodation, the Company prepaid $2.5 million of outstanding principal under the~~ Term Loan ~~(the~~remains ~~“Prepayment”).~~intact ~~SVB~~and ~~waived~~ the ~~prepayment~~Company ~~fee that otherwise would have applied to the Prepayment. The remaining outstanding principal amount due under the Term Loan~~ will continue to bemake ~~paid~~required ~~in equal monthly~~ payments ~~of principal and interest~~ through the ~~maturity~~end ~~date~~ of ~~December~~the 1current year, ~~2023.~~at ~~The~~which ~~Term~~time ~~Loan Amendment was accounted for as a modification of~~ the ~~original~~ SVB Term Loan ~~for~~will ~~the~~be ~~quarter~~repaid ~~ended~~in ~~September 30, 2022~~full.

~~Following~~The ~~the~~Company’s ~~Term~~obligations under the Loan ~~Amendment~~Agreement are secured by a security interest in substantially all of its assets, excluding intellectual property (which is subject to a negative pledge), and the ~~principal~~Company’s ~~repayment~~future ~~schedule~~subsidiaries, if any, may be required to become co-borrowers or guarantors under the Loan Agreement. If we default under our obligations under the SVB Term Loan, including as a result of ~~September~~a 30material adverse change, ~~2022~~as ~~was~~defined in the SVB Term Loan, the lender could proceed against the collateral granted to them to secure our indebtedness or declare all obligations under the SVB Term Loan to be due and payable. The determination as ~~follows~~to ~~for~~whether ~~each~~a ~~fiscal~~material ~~year:~~adverse change has occurred is not within the Company's control and it is unclear how the new owners of Silicon Valley Bridge Bank will view the SVB Term Loan from a risk standpoint and what actions they may elect to take under the SVB Term Loan to protect the financial interests of the lender.

2022	$	808,824
2023		3,235,294
Total SVB Term Loan payments		4,044,118
Less discount and deferred financing costs		(306,803	)
Plus final fee premium		800,000
Total SVB Term Loan, net	$	4,537,315

The Company included $0.2 million of debt discount associated with the SVB Term Loan, resulting from fees and debt issuance costs, inclusive of the fair value of warrants issued, in SVB Term Loan, net of discount and debt issuance costs in the accompanying condensed consolidated balance sheets as of both March 31, 2023 and December 31, 2022. Amortization of the debt discount associated with the SVB Term Loan was approximately $0.1 million for three months ended March 31, 2023 and 2022, and was included in interest expense in the accompanying condensed consolidated statements of operations.

Insurance Note

In May 2021, the Company entered into a commercial financing agreement to extend the payment period related to its directors and officers insurance policy (the “2021 Insurance Note”). The ~~2021 Insurance Note required a down payment to be made upon signing the agreement equal to approximately $0.4 million. The~~ remaining unpaid premium balance of approximately $0.7 million was ~~financed at an annual rate of 3.57% and was~~ repaid inprior ~~nine~~to ~~equal monthly payments of principal and interest through~~ February 2022. The 2021 Insurance Note contains customary events of default relating to, among other things, payment defaults and breaches of representations, warranties or terms of the 2021 Insurance Note documents, and may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

In May 2022, the Company entered into a new commercial financing agreement to extend the payment period related to its directors and officers insurance policy (the “2022 Insurance Note”). The 2022 Insurance Note required a down payment to be made upon signing the agreement equal to approximately $0.3 million. The remaining unpaid premium balance of approximately $0.8 million has been financed at an annual rate of 3.32% and is to be repaid in nine equal monthly payments of principal and interest beginning in June 2022. The 2022 Insurance Note contains customary events of default relating to, among other things, payment defaults and breaches of representations, warranties or terms of the 2022 Insurance Note documents, and may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

Note 9. Revenue from Contracts with Customers

Product and Product-Related Services Revenue

The Company had product and product-related services revenue consisting of revenue from the sale of instruments and consumables and the use of the HTG EdgeSeq proprietary technology to process samples and design custom RUO assays for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022 as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2022		2021		2022		2021
	2023		2022
Product revenue:
Instrument	$	6275,~~488~~821	$	~~407~~193,~~130~~186	$	~~433,486~~	$	~~1,028,348~~
Consumables		~~509~~568,~~994~~711		~~793~~471,~~542~~214		~~1,811,463~~		~~2,265,894~~
Total product revenue		~~572~~644,~~482~~532		1664,~~200,672~~400		~~2,244,949~~		~~3,294,242~~
Product-related services revenue:
Custom RUO assay design		—		—		—		48,350
RUO sample processing		387,978		520,054
RUO sample processing		678,397		1,319,738		1,681,966		2,687,168
Total product-related services revenue		387,978		520,054
Total product-related services revenue		678,397		1,319,738		1,681,966		2,735,518
Total product and product-related services revenue	$	1,032,510	$	1,184,454
Total product and product-related services revenue	$	1,250,879	$	2,520,410	$	3,926,915	$	6,029,760

Revenue is reported based upon the geographic locations of the customers or distributors who purchase the Company's products and services. For sales to certain customers and distributors, their locations may be different from the locations of the end customers. Revenue by primary geographic market for the three months ended March 31, 2023 and 2022 was as follows:


	March 31, 2023
	United States		Europe		Other		Total
Product revenue:
Instrument	$	40,538	$	30,283	$	5,000	$	75,821
Consumables		163,933		404,778		—		568,711
Total product revenue		204,471		435,061		5,000		644,532
Product-related services revenue:
RUO sample processing		298,926		70,084		18,968		387,978
Total product-related services revenue		298,926		70,084		18,968		387,978
Total product and product-related services revenue	$	503,397	$	505,145	$	23,968	$	1,032,510


	March 31, 2022
	United States		Europe		Other		Total
Product revenue:
Instrument	$	169,043	$	22,478	$	1,665	$	193,186
Consumables		285,380		185,834		—		471,214
Total product revenue		454,423		208,312		1,665		664,400
Product-related services revenue:
RUO sample processing		512,700		7,354		—		520,054
Total product-related services revenue		512,700		7,354		—		520,054
Total product and product-related services revenue	$	967,123	$	215,666	$	1,665	$	1,184,454

As the Company’s agreements for product and product-related services revenue have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.

Sale of Instruments and Consumables

The delivery of each instrument and the related installation and calibration are considered to be a single performance obligation, as the HTG EdgeSeq instrument must be professionally installed and calibrated prior to use. Instrument product revenue is generally recognized upon installation and calibration of the instrument by field service engineers, which represents the point at which the customer has the ability to use the instrument and has accepted the asset. Installation generally occurs within one month of instrument shipment.

The delivery of each consumable is a separate performance obligation. Consumables revenue is recognized upon transfer of control, which represents the point when the customer has legal title and the significant risks of ownership of the asset. The Company’s standard terms and conditions provide that no right of return exists for instruments and consumables, unless replacement is necessary due to delivery of defective or damaged product. Customer payment terms vary but are typically between 30 and 90 days of revenue being earned from shipment or delivery, as applicable.

The Company provides instruments to certain customers under reagent rental agreements. Under these agreements, the Company installs an instrument in the customer’s facility without a fee and the customer agrees to purchase consumable products at a stated price over the term of the agreement; in some instances, the agreements do not contain a minimum purchase requirement. Terms range from several months to multiple years and may automatically renew in several month or multiple year increments unless either party notifies the other in advance that the agreement will not renew. The Company measures progress toward complete satisfaction of this performance obligation to provide the instrument and deliver the consumables using an output method based on the number of consumables delivered in relation to the total consumables to be provided under the reagent rental agreement. This is considered to be representative of the delivery of outputs under the arrangement and the best measure of progress because the customer benefits from the instrument only in conjunction with the consumables. The Company expects to recover the cost of the instrument under the agreement through the fees charged for consumables, to the extent sold, over the term of the agreement.

RUO Sample Processing

The Company also provides sample preparation and processing services and molecular profiling of retrospective cohorts for its customers through its VERI/O laboratory, whereby the customer provides samples to be processed using HTG EdgeSeq technology specified in the order. Customers are charged a per sample fee for sample processing services which is recognized as revenue upon delivery of a data file to the customer showing the results of testing and completing delivery of the agreed upon service. This is when the customer can use and benefit from the results of testing and the Company has the present right to payment.

Contract Liabilities

The Company may receive up-front payments from customers for ~~custom RUO assay design and~~ sample processing services. Inin addition, to payments for instrument extended warranty contracts which are required to be made in advance. The Company recognizes such up-front payments as contract liabilities. The contract liabilities are subsequently reduced as revenue is recognized. Contract liabilities of approximately $0.1 million were included in other current liabilities and an additional immaterial amount of contract liabilities were included in other non-current liabilities in the accompanying condensed consolidated balance sheets as of ~~September~~March 3031, ~~2022~~2023, reflecting the period in which the Company expects to realize the deferred revenue.

Changes in the Company’s contract ~~liability~~liabilities were as follows as of the dates indicated:

	Product Revenue			Sample Processing			Total Contract Liability
Balance at January 1, 2022	$	128,529		$	30,621		$	159,150
Balance at January 1, 2023	$	146,714		$	27,000		$	173,714
Deferral of revenue		~~224~~36,~~942~~630			426,~~697~~800			~~267~~43,~~639~~430
Recognition of deferred revenue		(~~220~~53,~~420~~649	)		(6728,~~872~~175	)		(~~288~~81,~~292~~824	)
Balance as of September 30, 2022	$	133,051		$	5,446		$	138,497
Balance at March 31, 2023	$	129,695		$	5,625		$	135,320

	Product Revenue			Sample Processing			Total Contract Liability
Balance at January 1, 2021	$	103,580		$	93,884		$	197,464
Balance at January 1, 2022	$	128,529		$	30,621		$	159,150
Deferral of revenue		~~261~~147,~~100~~893			~~525,899~~—			~~786~~147,~~999~~893
Recognition of deferred revenue		(~~198~~102,~~438~~812	)		(~~535~~4,~~501~~800	)		(~~733~~107,~~939~~612	)
Balance as of September 30, 2021	$	166,242		$	84,282		$	250,524
Balance at March 31, 2022	$	173,610		$	25,821		$	199,431

Note 10. Other Agreements

NuvoGen Obligation

Pursuant to the Company’s asset purchase agreement with NuvoGen Research, LLC (“NuvoGen”), as amended, the Company is obligated to pay NuvoGen annually the greater of $~~400,000~~0.4 million or 6% of annual revenue until the NuvoGen obligation is paid in full.

In addition to the fixed quarterly payment of $~~100~~0.1 million,~~000,~~ there was no revenue-based amount payable as of ~~September~~March 3031, ~~2022~~2023, compared with $7246,~~624~~031 of revenue-based payments due as of December 31, ~~2021~~2022. There have been no modifications to the terms and conditions of the NuvoGen obligation since the disclosures made in Part II, Item 8, Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 2930, ~~2022~~2023.

Remaining minimum payments to be made in ~~2022~~2023 and in the first, ~~second~~quarter ~~and third quarters~~ of ~~2023~~2024 as reflected in the table below include an estimate of additional revenue-based payments to be made in these quarters, estimated using actual revenue generated in the same quarter in the prior year. Remaining minimum payments include only the minimum quarterly payments to be made in each period. Actual payments could vary from what is shown in the table, to the extent that 6% of the Company’s revenue ~~for~~in ~~the~~2023 ~~remainder of 2022~~ and the first, ~~second~~quarter ~~and third quarters~~ of ~~2023~~2024 varies from the same periods in prior years and revenue in the ~~fourth~~second quarter of ~~2023~~2024 and later periods exceeds $400,000.

1613

The remaining minimum payments to be made to NuvoGen as of ~~September~~March 3031, ~~2022~~2023 are as follows for each fiscal year:

2022	$	100,000
2023	$	300,000
2023		472,624
2024		446,031
2024		400,000
2025		400,000
2026		400,000
2027 and beyond		2,236,846
2027		400,000
Total NuvoGen obligation payments		4,009,470
2028 and beyond		1,817,406
Plus interest accretion		58,430
Total NuvoGen obligation payments		3,763,437
Total NuvoGen obligation, net	$	4,067,900
Plus interest accretion		52,873
Total NuvoGen obligation, net	$	3,816,310

The Company has recorded the obligation at the estimated present value of the future payments using a discount rate of 2.5%, which represents the Company’s estimate of its effective borrowing rate for similar obligations. The unamortized interest accretion was $(5852,~~430~~873) and $(6755,~~088~~620) as of ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, respectively. Discount accreted during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 was $(2,~~807~~747) ~~and $(8~~,~~657),~~ ~~respectively,~~ compared with $(32,~~057~~983) ~~and $(9,206)~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021,~~2022 ~~respectively,~~ and was included in interest expense in the accompanying condensed consolidated statements of operations.

Note 11. Leases

Operating Leases

The Company leases office space under agreements classified as operating leases. The Company’s active leases as of ~~September~~March 3031, ~~2022~~2023 are for office and manufacturing space in Tucson, Arizona, which expire in 2025. The Company’s leases do not include any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees.

The components of lease cost for operating leases ~~were~~consisted of the following as ~~follows~~of the dates indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2022		2021		2022		2021
	2023		2022
Operating leases
Operating lease cost	$	~~119~~128,~~458~~645	$	~~107~~119,~~969~~458	$	~~358,374~~	$	~~383,672~~
Variable lease cost		2432,~~091~~459		2627,~~636~~526		~~75,703~~		~~73,120~~
Total rent expense	$	~~143~~161,~~549~~104	$	~~134~~146,~~605~~984	$	~~434,077~~	$	~~456,792~~

The table below summarizes other information related to the Company’s operating leases:

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2022			2021
	2023			2022
Cash paid for amounts included in measurement of operating lease liabilities	$	~~360~~130,~~355~~375		$	~~403~~117,~~012~~952
Establishment of operating lease liabilities arising from obtaining right-of-use- assets		—			1,302,457
Weighted-average remaining lease term – operating leases		1.8			2.8
Weighted-average remaining lease term – operating leases		2.3			3.3
Weighted-average discount rate – operating leases		5.8	%		5.8	%

Remaining maturities of the Company’s operating leases, included in operating lease liabilities – current and operating lease liabilities - non-current, net of discount, in the condensed consolidated balance sheets as of ~~September~~March 3031, ~~2022~~2023 are as follows:

2022	$	121,193
2023	$	391,093
2023		484,719
2024		521,379
2024		484,631
2025		43,444
2025		40,382
Total		955,916
Total		1,130,925
Less present value discount		(50,712	)
Less present value discount		(74,941	)
Total operating lease liabilities		905,204
Total operating lease liabilities		1,055,984
Less operating lease liabilities - current		(481,967	)
Less operating lease liabilities - current		(435,377	)
Operating lease liabilities - non-current	$	423,237
Operating lease liabilities - non-current	$	620,607

1714

Financing Leases

The Company has a small number of computer and copier equipment leases that are classified as financing leases. Incremental borrowing rates used to discount future lease payments in calculating lease liabilities were estimated by reference to information received by the Company from bankers regarding estimated current borrowing rates for collateralized loans with similar amount and duration as the leases. The Company does not have any material financing leases ~~where~~as itof ~~acts~~March as31, a2023 ~~lessor~~and December 31, 2022.

The components of lease cost for financing leases were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Financing leases
Amortization of right-of-use assets	$	3,855	$	5,444	$	12,836	$	18,501
Interest on lease liability		921		1,369		3,082		4,544
Total financing lease cost	$	4,776	$	6,813	$	15,918	$	23,045

The table below summarizes other information related to the Company’s financing leases:

	Nine Months Ended September 30,
	2022			2021
Weighted-average remaining lease term – financing leases		2.2			3.0
Weighted-average discount rate – financing leases		9.77	%		9.77	%

As of September 30, 2022, remaining maturities of the Company’s financing leases are as follows:

2022	$	4,599
2023		18,396
2024		16,080
Total		39,075
Less present value discount		(3,998	)
Financing lease liabilities, net	$	35,077

Financing lease liabilities net of discount of $15,658 and $19,419 were included in other current liabilities and other non-current liabilities, respectively, and financing right-of-use assets of $30,816 were included in property and equipment, net, in the condensed consolidated balance sheets as of September 30, 2022.

Note 12. Net Loss Per Share

Basic loss per common share is computed by dividing net loss allocable to common stockholders by the weighted average number of shares of common stock or common stock equivalents outstanding. Diluted loss per common share is computed similar to basic loss per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.

The following common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive:

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2022		2021
	2023		2022
Options to purchase common stock		~~936~~72,~~838~~904		~~494~~44,~~250~~788
Series A Preferred		—		158,545
Common stock warrants		3,164,267		544,917
Common stock warrants		6,539,011		58,688
Unvested restricted stock units		729		1,906
Unvested restricted stock units		15,000		6,301

Note 13. Warrants

In connection with certain of its redeemable convertible preferred stock issuances, debt agreements, convertible debt ~~financings~~ and other financing arrangements, the Company has issued warrants for shares of its common stock and various issues of its redeemable convertible preferred stock, which have since been converted to common stock warrants.

~~The~~In ~~Company~~connection ~~granted~~with tothe ~~SVB~~March a2022 ~~warrant~~Securities toPurchase ~~purchase~~Agreement up(see toNote 4214),~~894~~ ~~shares~~the Company issued and sold pre-funded warrants exercisable for an aggregate of ~~the~~200,911 ~~Company’s~~shares of common stock. atThe apre-funded ~~purchase~~warrants had an exercise price of $110.~~6565~~012 per share and were exercised in ~~connection~~full ~~with~~in ~~the~~May ~~SVB~~2022 ~~Term~~for ~~Loan~~proceeds of $2,411. The ~~warrant~~Company also issued and sold to the investor common warrants to purchase 270,415 shares of common stock that will expire on ~~June~~March 2417, ~~2030~~2024 and ~~may~~common bewarrants ~~exercised~~to ~~for~~purchase ~~cash~~an oradditional at270,415 ~~the~~shares ~~election~~ of ~~the~~common ~~holder~~stock that will expire on aSeptember ~~cashless~~17, ~~net~~2027. Each of these common warrants became exercisable commencing September 21, 2022 and has an exercise ~~basis~~price of $24.744 per share.

In connection with the ~~March~~December 2022 Securities Purchase Agreement (see Note 14), the Company issued and sold pre-funded warrants exercisable for an aggregate of 21,~~410~~188,~~933~~322 shares of common stock. The pre-funded warrants had an exercise price of $0.001 per share and were exercised in full in ~~May~~December 2022 for proceeds of $21,~~411~~188. The Company also issued and sold to the investor ~~common~~ warrants to purchase 31,~~244~~290,~~987~~322 shares of common stock that will expire on ~~March~~December 1723, ~~2024~~2027 and ~~common~~ warrants to purchase an additional 31,~~244~~290,~~987~~322 shares of common stock that will expire on ~~September~~December 1723, ~~2027~~2024. Each of these common warrants became exercisable commencing ~~September~~December 2123, 2022 and has an exercise price of $27.~~062~~50 per share.

~~The~~Also ~~following~~in ~~table~~connection ~~shows~~with the December 2022 Securities Purchase Agreement, the Company issued warrants to purchase up to an aggregate of 38,709 shares of common stock to designees of the placement agent for the transaction. The warrants ~~outstanding~~issued to the placement agent have substantially the same terms as the warrants above, except the placement agent warrants have an exercise price of ~~September~~$9.6875 30per share and expire on December 21, ~~2022:~~2027.

Warrant Issuance Date	Shares ofCommon StockUnderlyingWarrants		ExercisePrice/Share		Expiration Date
August 2014		1,914	$	352.65	2024
March 2016		3,021		41.40	2026
March 2018		1,208		115.95	2028
June 2020		42,894	11.6565		2030
March 2022		3,244,987		2.062	2024
March 2022		3,244,987		2.062	2027

The following table shows the common stock warrants outstanding as of March 31, 2023:


Warrant Issuance Date	Shares of Common Stock Underlying Warrants		Exercise Price/Share		Expiration Date
August 2014		159	$	4,231.80	2024
March 2016		251		496.80	2026
March 2018		100		1,391.40	2028
June 2020		3,574		139.878	2030
March 2022		270,415		24.744	2024
March 2022		270,415		24.744	2027
December 2022		1,290,322		7.50	2024
December 2022		1,290,322		7.50	2027
December 2022		38,709		9.6875	2027

Note 14. Stockholders’ Deficit

Reverse Stock Split

On December 20, 2022, the Company completed a reverse stock split of its outstanding shares of common stock pursuant to which every 12 shares of issued and outstanding common stock were exchanged for one share of common stock. No fractional shares were issued in the reverse stock split. Instead, fractional shares that would have otherwise resulted from the stock split were purchased by us at the applicable percentage of $8.20 per share. All share and per share amounts included within these condensed consolidated financial statements have been retrospectively adjusted to reflect the reverse stock split.

Equity Offerings

March 2022 Purchase Agreement

In March 2022, the Company entered into a Securities Purchase Agreement (the “March 2022 Purchase Agreement”) with a single investor pursuant to which it agreed to issue to the investor 3,244,987 units at a price of $2.312 per unit (less $0.001 for each pre-funded warrant purchased in lieu of a share of common stock) for gross proceeds, before deducting the placement agent fees and other estimated fees and expenses, of approximately $7.5 million. Each unit consists of one share of common stock (or one pre-funded warrant in lieu thereof), a common warrant to purchase one share of common stock with a term of 24 months from the issuance date, and a common warrant to purchase one share of common stock with a term of 66 months from the issuance date. Each of the common warrants is exercisable commencing on September 21, 2022 and has an exercise price of $2.062 per share. Each pre-funded warrant has an exercise price of $0.001 per share and does not expire until exercised in full. The pre-funded warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 9.99% immediately after exercise thereof. In May 2022, the 2,410,933 pre-funded warrants were exercised for proceeds of $2,411.

The common warrants issued in this transaction may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99% immediately after exercise thereof, which ownership cap may be increased by the holder up to 9.99% upon 61 days’ prior notice.

Cantor Fitzgerald & Co. (“Cantor”) served as the placement agent in connection with the March 2022 Purchase Agreement. The Company has paid Cantor a fee of approximately $0.3 million plus reimbursement for certain out-of-pocket expenses for its role as placement agent and has incurred approximately $0.2 million of additional transaction costs.

The securities issued to the investor under the March 2022 Purchase Agreement were offered in reliance on an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated thereunder. The Company relied on this exemption from registration based in part on representations made by the investor, including that the investor is an “accredited investor”, as defined in Rule 501(a) promulgated under the Securities Act. The securities sold pursuant to the March 2022 Purchase Agreement were subsequently registered for resale on a Form S-3 registration statement, filed with the SEC on April 8, 2022, which was declared effective by the SEC on April 19, 2022.

Series A Preferred

In March 2022, the remaining 23,770 shares of Series A convertible preferred stock (“Series A Preferred”) were converted by the holders into an aggregate of ~~158~~13,~~466~~206 shares of common stock. Accordingly, no shares of Series A Preferred are outstanding as of ~~September~~March 3031, ~~2022~~2023. All of the previously designated Series A Preferred have resumed the status of authorized, unissued and undesignated preferred stock, which may be designated from time to time by the Company’s Board of Directors.

March 2022 Securities Purchase Agreement

In March 2022, the Company entered into a Securities Purchase Agreement (the “March 2022 Securities Purchase Agreement”) with a single investor pursuant to which it agreed to issue to the investor 270,415 units at a price of $27.744 per unit (less $0.012 for each pre-funded warrant purchased in lieu of a share of common stock) for net proceeds, after deducting the placement agent fees and other estimated fees and expenses, of approximately $7.0 million. Each unit consists of one share of common stock (or one pre-funded warrant in lieu thereof), a common warrant to purchase one share of common stock with a term of 24 months from the issuance date, and a common warrant to purchase one share of common stock with a term of 66 months from the issuance date. Each of the common warrants became exercisable commencing on September 21, 2022 and has an exercise price of $24.744 per share. Each pre-funded warrant has an exercise price of $0.012 per share and does not expire until exercised in full. The pre-funded warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 9.99% immediately after exercise thereof. In May 2022, the 200,911 pre-funded warrants were exercised for proceeds of $2,411.

Cantor Fitzgerald & Co. ("Cantor") served as the placement agent in connection with the March 2022 Securities Purchase Agreement. The Company paid Cantor a fee of approximately $0.3 million plus reimbursement for certain out-of-pocket expenses for its role as placement agent and has incurred approximately $0.2 million of additional transaction costs.

December 2022 Securities Purchase Agreement

In December 2022, in connection with a best-efforts public offering, the Company entered into a Securities Purchase Agreement (the "December 2022 Securities Purchase Agreement") with a certain institutional investor, pursuant to which the Company sold the investor 1,290,322 units at a combined public offering price of $7.75 per share (less $0.001 for each pre-funded warrant purchased in lieu of a share of common stock) for net proceeds, after deducting the Placement Agent fees and expenses and other estimated fees and expenses, of approximately $8.7 million. Each unit consisted of one share of common stock (or one pre-funded warrant in lieu thereof), a common warrant to purchase one share of common stock with a term of 24 months from the issuance date, and a common warrant to purchase one share of common stock with a term of 60 months from the issuance date.

Each pre-funded warrant had an exercise price of $0.001 per share and did not expire until exercised in full. In December 2022, the 1,188,322 pre-funded warrants were exercised for proceeds of $1,188. Each of the common warrants became immediately exercisable upon issuance and has an exercise price of $7.50 per share. The exercise price of the warrants issued in this agreement is subject to adjustment for stock split, reverse splits and similar capital transactions as described in the warrants.

H.C. Wainwright & Co., LLC (the "Placement Agent") served as the exclusive placement agent in connection with the December 2022 Securities Purchase Agreement. The Company paid the Placement Agent a cash fee of 6.5% of the aggregate gross proceeds raised at the closing of the December 2022 Securities Purchase Agreement, plus a management fee equal to 0.5% of the gross proceeds raised at the closing, and reimbursement of certain expenses and legal fees in the amount of $125,000. The Company also issued to designees of the Placement Agent warrants to purchase up to an aggregate of 38,709 shares of common stock (the "Placement Agent warrants"). The Placement Agent warrants have substantially the same terms as the warrants issued under the December 2022 Securities Purchase Agreement, except the Placement Agent warrants have an exercise price of $9.6875 per share and expire on December 21, 2027

Stock-based Compensation

The Company incurs stock-based compensation expense relating to the grants of RSUs and stock options to employees, non-employee directors and consultants under its equity incentive plans and through stock purchase rights granted under the employee stock purchase plan. Stock-based compensation expense (including employee stock purchase plan expense) recorded in the accompanying condensed consolidated statements of operations for three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022 was as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

2022

2021

2022

2021

2023

2022

Selling, general and administrative

~~115~~91,~~912~~523

~~293~~192,~~916~~903

~~488,394~~

~~934,446~~

Research and development

5542,~~858~~173

3566,~~566~~904

~~163,276~~

~~83,108~~

Cost of product and product-related services revenue

23,~~977~~412

97,~~411~~998

~~22,216~~

~~24,764~~

~~174~~137,~~747~~108

~~338~~267,~~893~~805

~~673,886~~

~~1,042,318~~

Equity Compensation Plans

In August 2020, the Company’s stockholders, upon the recommendation of the Company’s Board of Directors, approved the 2020 Equity Incentive Plan (the “2020 Plan”) as a successor to and continuation of the previous 2001 Stock Option Plan, 2011 Equity Incentive Plan and 2014 Equity Incentive Plan (the "2014 Plan"). Upon approval of the 2020 Plan, ~~744~~62,~~685~~057 shares ~~of common stock~~, including 685,~~552~~712 remaining shares reserved for issuance under the 2014 Plan (excluding shares available for the granting of inducement awards under the 2014 Plan’s inducement share pool), were reserved for issuance under the 2020 Plan. No new awards, ~~including inducement awards,~~ may be granted under the ~~2014~~2001, ~~Plan.~~2011 ~~The~~or ~~2020~~2014 ~~Plan~~equity ~~does not contain an evergreen provision~~plans.

There were ~~176~~19,~~363~~446 shares of the Company’s common stock available for issuance under the 2020 Plan ~~(excluding shares available for granting of inducement awards under the 2021 Inducement Plan)~~ as of ~~September~~March 3031, ~~2022,~~2023 in addition to shares that may become available from time to time as shares of ~~the~~our ~~Company’s~~ common stock subject to outstanding awards granted under the 2014 Plan (excluding ~~inducement~~Inducement ~~awards~~Awards) ~~issued~~or ~~from~~ the ~~2014~~2011 Plan’s ~~inducement share pool)~~that, following the ~~2011~~effective ~~Equity~~date ~~Incentive~~of the 2020 Plan (i) are not issued because such award or any portion thereof expires or otherwise terminates without all of the shares covered by such award having been issued; (ii) are not issued because such award or any portion thereof is settled in cash; or (iii) are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required for the vesting of such shares. The 2020 Plan does not contain an evergreen provision.

In July 2021, the Company’s Board of Directors adopted the Company’s 2021 Inducement Plan (the “2021 Inducement Plan”), pursuant to which 300,000 shares were initially authorized and reserved for issuance exclusively for the grant of awards to individuals who were not previously employees or non-employee directors of the Company, as inducement material to the individuals’ entering into employment with the Company (“Inducement Awards”). There were 167,500 shares of common stock available for issuance under the 2021 Inducement Plan as of September 30, 2022, in addition to shares that may become available from time to time as shares of common stock subject to outstanding awards granted under the 2021 Inducement Plan are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required for the vesting of such shares. 17

20In July 2021, the Company’s Board of Directors adopted the Company’s 2021 Inducement Plan (the “2021 Inducement Plan”), pursuant to which 25,000 shares were initially authorized and reserved for issuance exclusively for the grant of awards to individuals who were not previously employees or non-employee directors of the Company, as inducement material to the individuals’ entering into employment with the Company (“Inducement Awards”). There were 14,378 shares of common stock available for issuance under the 2021 Inducement Plan as of March 31, 2023, in addition to shares that may become available from time to time as shares of common stock subject to outstanding awards granted under the 2021 Inducement Plan are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required for the vesting of such shares.

A summary of the Company’s stock option activity (including inducement award activity) for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 is as follows:

	Number of Shares			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Balance at December 31, 2021		559,336		$	13.93		8.2	$	30,267
Balance at December 31, 2022		76,099		$	84.73		8.3	$	—
Granted		~~476,000~~666			14.0835
Exercised		-—			-—
Forfeited		(583,~~922~~693	)		510.57
Expired/Cancelled		(~~39,576~~168	)		31117.1529
Balance at September 30, 2022		936,838		$	7.20		8.7	$	-
Balance at March 31, 2023		72,904		$	87.67		8.2	$	—
Exercisable at September 30, 2022		399,745		$	13.75		7.6	$	-
Exercisable at March 31, 2023		43,268		$	128.21		7.6	$	—

As of ~~September~~March 3031, ~~2022~~2023, total unrecognized compensation cost related to stock option awards was approximately $0.97 million, which is expected to be recognized over approximately 21.1067 years.

The following table summarizes restricted stock unit (“RSU”) award activity for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023:

	Number of Shares			Weighted-Average Grant Date Fair ValuePer Share
Balance at December 31, 2021		31,177		$	6.93
Balance at December 31, 2022		1,249		$	44.40
Granted		~~5,000~~—			~~0.69~~—
Released		(~~11,177~~312	)		1044.0238
Forfeited		~~(7,500~~—	)		~~5.20~~—
Balance at September 30, 2022		17,500		$	3.91
Balance at March 31, 2023		937		$	44.40
Vested and unissued at September 30, 2022		2,500		$	5.20
Vested and unissued at March 31, 2023		208		$	62.42

Vested and unissued awards at ~~September~~March 3031, ~~2022~~2023 represents RSU awards for which the vesting date was ~~September~~March 3031, ~~2022~~2023, but for which issuance of the awards occurred in ~~October~~April ~~2022~~2023. As of ~~September~~March 3031, ~~2022~~2023, the total unrecognized compensation cost related to RSU awards was approximately $~~0.1 million~~28,400, which is expected to be recognized over approximately 10.1371 years.

Note 15. Commitments and Contingencies

Legal Matters

The Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property and product liability. As a result, the Company may be subject to various legal proceedings from time to time. The results of any ~~current or~~ future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. ~~Any current litigation is considered immaterial and counter claims have been assessed as remote.~~

Product Warranty

The following is a summary of the Company’s general product warranty liability. Product warranty liability of approximately $0.1 million was included in accrued liabilities and an additional immaterial amount of product warranty liability was included in other non-current liabilities in the accompanying condensed consolidated balance sheets as of ~~September~~March 3031, ~~2022~~2023. Expense relating to the recording of this reserve is ~~recorded~~included in cost of product and product-related services revenue within the accompanying condensed consolidated statements of operations.

	Nine Months Ended September 30,
	Three months ended March 31,
	2022			2021
	2023			2022
Beginning balance	$	~~120~~88,~~385~~282		$	92120,~~696~~385
Cost of warranty claims		(5233,~~696~~723	)		(~~141~~15,~~648~~005	)
Increase in warranty reserve		1648,~~581~~571			~~169~~19,~~337~~820
Ending balance	$	84103,~~270~~130		$	~~120~~125,~~385~~200

2119

Note 16. Subsequent Events

Series A Preferred Stock

On October 21, 2022, the Company entered into a Purchase Agreement (the "Purchase Agreement") with Ann Hanham, Ph.D., the Chair of the Company's Board of Directors ("Purchaser"), pursuant to which the Company agreed to issue and sell one share of the Company's newly designated Series A Preferred Stock, par value $0.001 per share (the "Series A Preferred"), to the Purchaser for a purchase price of $100.00. The closing of the sale and purchase of the share of Series A Preferred was completed on October 21, 2022.

Pursuant to the Purchase Agreement, the Purchaser has agreed to cast the votes represented by the share of Series A Preferred on any Reverse Stock Split Proposal in the same proportion as shares of common stock are voted (excluding any shares of common stock that are not voted, whether due to abstentions, broker non-votes or otherwise) on such proposal; provided, however, that unless and until at least one-third of the outstanding shares of common stock on the record date established for the meeting of stockholders at which the Reverse Stock Split Proposal is presented are present in person or represented by proxy at such meeting, the Purchaser will not vote the share of Series A Preferred on such Reverse Stock Split Proposal. A "Reverse Stock Split Proposal" means any proposal approved by the Company's Board of Directors (the "Board of Directors") and submitted to the stockholders of the Company to adopt an amendment, or a series of alternate amendments, to the Company's Amended and Restated Certificate of Incorporation to combine the outstanding shares of common stock into a smaller number of shares of common stock at a ratio specified in or determined in accordance with the terms of such amendment or series of alternate amendments.

The Company also filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock (the "Series A Certificate of Designation") with the Secretary of State of Delaware, effective as of the time of filing, designating the rights, preferences, privileges and restrictions of the share of Series A Preferred. The Certificate of Designation provides that the share of Series A Preferred will have 300,000,000 votes but has the right to vote only on any Reverse Stock Split Proposal as outlined in the Purchase Agreement. The share of Series A Preferred will vote together with the outstanding shares of the common stock as a single class on any Reverse Stock Proposal and has no other voting rights, except as may be required by the General Corporation Law of the State of Delaware.

The Series A Preferred is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. Upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or other winding up of the Company pursuant to which assets of the Company or consideration received by the Company are to be distributed to the stockholders, the holder of the Series A Preferred will be entitled to receive, before any payment is made to the holders of common stock by reason of their ownership thereof, an amount equal to $100.00. The share of Series A Preferred shall be entitled to receive dividends on a pari passu basis with the outstanding shares of common stock and may not be transferred at any time prior to stockholder approval of a Reverse Stock Split Proposal without the prior written consent of the Board of Directors.

The outstanding share of Series A Preferred shall be redeemed in whole, but not in part, at any time (i) if such redemption is ordered by the Board of Directors in its sole discretion or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation implementing a reverse stock split. Upon such redemption, the holder of the Preferred Stock will receive consideration of $100.00 in cash.

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

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, ~~2021~~2022, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 2930, ~~2022~~2023. This discussion and analysis 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”). These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward looking statements include, but are not limited to, statements about:

•

our ability to successfully commercialize our products, services and technology, including our HTG EdgeSeq assays and corresponding automation systems and our transcriptomic profiling technology;

•

the expected benefits of our drug discovery platform, including the ability of the platform to better-inform the design and selection of drug candidate molecules with lower risk profiles and increased opportunities for development success, all while being faster and more cost-efficient than traditional approaches;

•

our expectation of progressing through lead optimization studies and entering into preclinical development for our most advanced discovery molecules in the next several months;

•

our plan to identify partners to carry forward the development of our early portfolio of candidate molecules in oncology and neurodegenerative disease indications, as well as with pharmaceutical companies interested in using our drug discovery engine with their own targets and libraries;

•

the potential of our artificial intelligence ("AI")-driven drug discovery engine;

•

the ability of our engine to design novel compounds based on transcriptomic data and our belief that doing so will open other applications of the platform (including drug repurposing);

•

our expected pipeline advancement;

•

expected future scalability and flexibility in our platform;

•

our ability to generate sufficient revenue or raise additional capital to meet our working capital needs;

•

our ability to generate revenue from our products and services and drive revenue streams;

•

the impact ofthat ~~the~~a resurgence of COVID-19 or another health epidemic or pandemic ~~(“COVID-19”)~~could have on our business;

•

the activities anticipated to be performed by us and third parties under design and development projects and programs, and the expected benefits and outcomes of such projects and programs;

•

the implementation of our business model and strategic plans for our business, including, without limitation, our drug discovery business unit, HTG Therapeutics;

•

the expected capabilities and performance of our profiling technology and HTG Therapeutics business unit;

•

the regulatory landscape for our products, domestically and internationally;

•

our strategic relationships, including with holders of intellectual property relevant to our technologies, manufacturers of next-generation sequencing (“NGS”) instruments and consumables, critical component suppliers, distributors of our products, and third parties who conduct our clinical studies;

•

our intellectual property position;

•

our ability to comply with the restrictions of our debt facility and meet our debt obligations;

•

our expectations regarding the market size and growth potential for our profiling and drug discovery businesses;

•

our expectations regarding trends in the demand for sample processing by our biopharmaceutical company customers;

•

our ability to secure regulatory clearance or approval, domestically and internationally, for the clinical use of our products;

•

any estimates regarding expenses, future revenue and capital requirements; and

•

our ability to sustain and manage growth, including our ability to develop new products and enter new markets.

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “continue,” “seek,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this filing and are subject to risks and uncertainties, including, without limitation, risks associated with our ability to enter into licensing, partnering or other transactions for programs or candidates arising from our drug discovery platform, which transactions may not occur when anticipated, or at all; the risk that our drug discovery approach may not result in the selection or development of a drug candidate; various risks associated with drug discovery and development; the risk that our technologies may not provide the benefits that we expect; risks associated with our ability to develop and commercialize our products; the risk that our products and services may not be adopted by biopharmaceutical companies or other customers as anticipated, or at all; and risks related to our need for additional capital. We discuss ~~many~~these ofand ~~these~~other risks in greater detail in Part II, Item 1A - “Risk Factors” and elsewhere in this filing. You should carefully read the “Risk Factors” section of this filing to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. These statements, like all statements in this report, speak only as of their date, and except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

Overview

We are afocused ~~life~~on ~~sciences company~~ advancing precision medicine and drug discovery through our innovative transcriptome-wide profiling and ~~our~~ advanced ~~medicinal~~drug ~~chemistry~~discovery ~~technology~~platform technologies. Building on more than a decade of pioneering innovation, our proprietary next-generation HTG EdgeSeq ~~platform~~ technology is the basis for our tech-driven hybrid business model ~~which~~allowing ~~continues~~our ~~to make~~ RNA molecular profiling applications to be more effective, efficient and relevant and ~~serves~~also serving as a key component of the engine behind our platform-based drug discovery process. WeCentral ~~believe~~to ~~that~~our business strategy is our ~~technology~~proprietary ~~provides~~platform-based aapproach ~~differentiated~~to improve drug discovery through transcriptome-informed drug discovery and ~~disruptive~~design. At the center of this approach is the application of our RNA profiling technologies and advanced medicinal chemistry, functionally brought together using a novel AI-based platform. This unique drug candidate optimization platform allows for more ~~efficient~~biologically relevant insight into drug ~~discovery,~~candidate selection and ~~that~~design much earlier in the discovery process than is currently possible using other technologies. We believe this approach ~~will~~can ~~allow~~result usin higher efficiency, improved risk management and ~~our~~lower ~~partners~~cost to bring ~~more~~novel ~~efficacious~~drug candidate molecules from early discovery through entry into development. To make this potentially disruptive and ~~less~~transformative ~~toxic~~approach available more broadly, we are actively engaging in partnering discussions to identify potential investors to license our early-stage portfolio molecules ~~into~~and ~~clinical~~customers ~~development~~interested in using our AI-based platform to screen their own target molecules.

~~Our~~The ~~profiling~~training ~~product~~data ~~and~~sets ~~service~~for ~~solutions~~our ~~enable~~machine ~~targeted~~learning ~~RNA~~platform ~~profiling~~utilize ~~using~~our aown ~~small~~primary ~~amount~~data ofgenerated ~~biological~~specifically ~~sample,~~for use in ~~liquid~~our orAI-based ~~solid~~drug ~~forms~~discovery process. ~~Our~~This ~~menu~~high ~~of HTG EdgeSeq assays~~quality, ~~including~~standardized ~~our~~data ~~HTG~~provides ~~Transcriptome~~a ~~Panel,~~clear ~~which~~advantage ~~has~~over ~~been~~other ~~designed~~platform toapproaches ~~measure~~which ~~approximately~~are ~~20,000~~typically ~~mRNA~~dependent ~~targets~~upon ~~using~~publicly ~~our~~available ~~HTG~~data. ~~EdgeSeq~~The ~~technology~~medicinal ~~("HTP"),~~chemistry isportion ~~automated~~of on our ~~HTG~~platform ~~EdgeSeq~~allows ~~system,~~for ~~which~~rapid ~~applies~~design ~~NGS~~and ~~tools,~~in ~~enabling~~silico ~~the~~evaluation ~~generation~~ of ~~gene~~large ~~expression~~chemical ~~data~~libraries in aorder ~~timely~~to ~~manner~~prioritize ~~utilizing~~and ~~our~~select ~~simplified~~compounds ~~workflow.~~for Wesynthesis ~~seek~~and toadvancement ~~leverage~~into ~~key~~early ~~business~~testing. ~~drivers~~These indata ~~molecular~~are ~~profiling~~then ~~for~~integrated ~~biomarker~~and ~~analysis~~processed ~~and~~into ~~diagnostics,~~an ~~including~~iterative ~~the~~loop ~~acceleration~~using ofa ~~precision~~series ~~medicine,~~of ~~the~~proprietary ~~migration~~machine oflearning ~~molecular~~algorithms ~~testing~~prior to ~~NGS-based~~further ~~applications,~~advancing the ~~movement~~molecules to ~~smaller~~more ~~and~~traditional ~~less~~drug ~~invasive~~discovery ~~biopsies,~~studies. ~~the~~We ~~need~~expect ~~for~~that ~~greater~~this ~~diagnostic~~will ~~sensitivity,~~allow ~~the~~for ~~need~~rapid toidentification, ~~conform~~selection toand ~~challenging~~optimization ~~healthcare~~of ~~economics~~drug ~~and~~candidates ~~the need~~ for ~~automation~~entrance ~~and~~into andevelopment. ~~easily deployable workflow~~Further, ~~including~~we ~~simplified~~believe ~~bioinformatics.~~that ~~These~~our ~~capabilities~~ability ~~enable customers~~ to ~~extend~~rapidly ~~the~~iterate ~~use~~between ofprimary ~~limited~~data ~~biological~~and ~~samples~~computational ~~for~~analyses ~~retrospective~~provides orus ~~prospective~~valuable ~~analysis,~~information ~~gaining~~and ~~further~~insights ~~understanding~~for ofcandidate ~~the~~molecule ~~molecular~~design ~~drivers~~and ~~of disease with the goal of developing biomarker-driven targeted therapies~~selection.

Our ~~existing~~business ~~products~~strategy ~~include~~is ~~instruments,~~to ~~consumables~~build and software that, as an integrated platform, automate sample processing and can quickly, robustly and simultaneously profile hundreds, thousands or tens of thousands of molecular targets from samples which are a fraction of the size required by many prevailing technologies. Customers can access our ~~technology~~drug bydiscovery ~~purchasing~~pipeline ~~our~~in ~~HTG~~order ~~EdgeSeq~~to ~~system and assays for their internal use or through our Tucson~~out-~~based~~license ~~VERI/O~~certain ~~service~~drug ~~laboratory,~~candidates ~~including molecular profiling of cohorts~~ and ~~development~~potentially ofadvance ~~custom~~other ~~RUO~~candidates ~~panels~~into topreclinical ~~support~~and early~~-stage~~ ~~clinical~~development ~~programs and investigational-use-only assays for clinical trials~~ourselves. ~~However,~~In ~~with the release of the HTP~~addition, ~~revenue~~we ~~from~~would ~~our~~expect ~~RUO assay design services is expected~~ to beretain ~~lower than historical levels, as our RUO assay design services revenue is replaced by HTP consumables purchases~~ and ~~sample~~potentially ~~processing~~capitalize ~~laboratory~~upon ~~services~~CDx ~~using~~rights through the ~~HTP.~~clinical ~~Our~~development ~~product~~ and ~~service~~commercialization ~~solutions have enabled us to access a number~~ of ~~early-stage~~these ~~biomarker~~assets ~~discovery~~where ~~programs~~appropriate. ~~We believe this approach allows us access to new opportunities collaborating with biopharmaceutical companies in their future drug development programs.~~

Biopharmaceutical companies are continually seeking to improve their drug development processes and the efficacy and safety of their drugs, as existing processes are expensive, extremely risky and very time consuming. HTG Therapeutics, our drug discovery business unit, leverages our HTP and transcriptomic profiling technologies, applying them early in the drug discovery process and in conjunction with our machine learning-based chemical library design platform, with the goal of ultimately yielding de-risked drug candidate molecules with greater potential for development success. HTG Therapeutics uses our medicinal chemistry platform to build an initial chemical library for early-stage validated target molecules. We then conduct cell-based screening and use our transcriptomic profiling capabilities to inform molecule optimization with a goal to use primary data from model systems to enhance chemical structure redesign to optimize for efficacy and toxicity and de-risk the drug candidate for clinical development. We expect to license certain of the drug candidates and carry other candidates into early clinical development. In addition, we expect to retain and capitalize upon CDx rights through the clinical development of these assets and post commercialization of an approved drug.21

24To date, we have used our transcriptome-informed drug discovery engine to develop an early pipeline of drug candidate molecules for two known pharmacologic targets, both of which can target several potential therapeutic indications. Our initial focus is on oncology and neurodegenerative diseases. The most advanced discovery program in oncology is a small molecule program for treatment of liquid tumors for which lead optimization has been advanced throughout the first quarter of 2023, with further advancement supporting potential entry into preclinical development later in the year. We believe that our technology provides a differentiated and potentially disruptive approach to drug discovery, that may allow ourselves and our partners to potentially improve upon key attrition factors, namely efficacy and toxicity, early in the discovery process, thereby allowing for better chances for candidate success when entering development.

We also operate a gene expression profiling business in life science tools. Our profiling product and service solutions enable targeted RNA profiling using a small amount of biological sample, in liquid or solid forms. Our menu of HTG EdgeSeq assays, including our HTP, which has been designed to measure approximately 20,000 mRNA targets using our HTG EdgeSeq technology, is automated on our HTG EdgeSeq system, which applies NGS tools agnostically, enabling the generation of gene expression data in a timely manner utilizing our simplified workflow. We seek to leverage key business drivers in molecular profiling for biomarker analysis and diagnostics, including the acceleration of precision medicine, the migration of molecular testing to NGS-based applications, the movement to smaller and less invasive biopsies, the need for greater diagnostic sensitivity, the need to conform to challenging healthcare economics and the need for automation and an easily deployable workflow, including simplified bioinformatics. These capabilities enable customers to extend the use of limited biological samples for retrospective or prospective analysis, gaining further understanding of the molecular drivers of disease with the goal of developing biomarker-driven targeted therapies.

Our existing profiling products include instruments, consumables and software that, as an integrated platform, automate sample processing and can quickly, robustly and simultaneously profile hundreds, thousands or tens of thousands of molecular targets from samples which are a fraction of the size required by many prevailing technologies. Customers can access our technology by purchasing our HTG EdgeSeq system and assays for their internal use or through our Tucson, Arizona-based VERI/O service laboratory, including molecular profiling of cohorts and development of custom RUO panels to support early-stage clinical programs and investigational-use-only assays for clinical trials. Our product and service solutions have enabled us to access a number of early-stage biomarker discovery programs. We believe this approach will enable new opportunities collaborating with biopharmaceutical companies in their future drug development programs.

Our Drug Discovery Approach

In ~~June~~Since ~~2021, we announced~~ the ~~formation~~initiation of ~~HTG~~our ~~Therapeutics, with the addition of several highly experienced~~ drug ~~development~~discovery ~~professionals~~business toin ~~our~~2021, ~~leadership~~we ~~team.~~have ~~This~~worked ~~team has since been joined by several external collaborators who are expected~~ to ~~contribute~~integrate ~~meaningful sample cohorts across multiple disease and therapy areas to support the discovery, design and selection of~~ our ~~early~~proprietary ~~candidate molecules with therapeutic promise. HTG Therapeutics is leveraging our existing HTP and transcriptomic~~ profiling technologies ~~and~~into ~~applying these technologies early in~~ the drug discovery process, inusing ~~conjunction~~an ~~with~~advanced ~~our~~ machine learning-based ~~chemical~~medicinal ~~library~~chemistry ~~design platform~~approach, to ~~ultimately~~establish ~~yield~~a denovel AI-~~risked~~based ~~drug~~transcriptome-informed ~~candidate~~small ~~molecules~~molecule ~~with~~discovery ~~a greater potential for development success~~engine. ~~Through~~We ~~the~~believe ~~use~~that of our ~~Transcriptome~~AI-~~Informed~~based ~~Drug Discovery model, we expect to accelerate the~~ drug discovery ~~and~~approach ~~development~~will ~~process~~result ~~by further uncovering and understanding biological mechanisms and making more thorough assessments of on- and off-target effects of drug candidates earlier~~ in the ~~discovery process to enable more well-informed candidate~~ design and selection. ~~During the first quarter~~ of ~~2022,~~drug wecandidate ~~released~~molecules ~~our~~that ~~first~~are ~~proof-of-approach~~intrinsically ~~white~~lower ~~paper~~risk ~~(“WP1”),~~and ~~demonstrating~~will ~~the~~therefore ~~utility~~have ofgreater ~~our~~potential ~~proprietary~~for ~~profiling~~success ~~technologies~~in asdevelopment awhen ~~key~~compared ~~component~~to ofcurrently ~~our~~existing ~~novel~~early-stage drug discovery ~~and~~methods ~~design platform. We followed WP1 with a second white paper (“WP2”)~~ in the ~~second~~biopharmaceutical ~~quarter of 2022~~industry. ~~WP2~~We further ~~established~~expect ~~the~~that ~~utility~~this offlexible ~~our~~and ~~transcriptome-informed~~scalable approach to ~~drug~~small ~~design~~molecule ~~and~~ discovery bycan ~~applying~~be ~~our~~applied ~~planned~~agnostically ~~approach~~across ~~to our initial~~ therapeutic ~~target. As anticipated~~areas, ~~the~~allowing results of the studies summarized in WP2 revealed several indication-specific effects as well as potential undesirable effects of the initial therapeutic target through analysis of the transcriptomic profiles from compound-treated human cell line test systems. Throughout the third quarter, we strengthened our drug discovery core platform technology, including advancing the machine-learning component of our platform with the refinement of key proprietary algorithms while continuing to generate our own internal data supporting training sets. In addition, we made capital investments to establish internal cell culture capabilities. Such lab-based capabilities provide us ~~with the ability~~ to ~~conduct~~adapt ~~investigative studies on site, supporting the development and evolution of~~ our ~~transcriptome-informed~~strategic ~~drug discovery platform more efficiently~~ and ~~with~~therapeutic ~~greater~~focus ~~flexibility.~~rapidly ~~Our~~as ~~medicinal~~new ~~chemistry~~information ~~effort~~emerges ~~has~~on produced a series of chemical libraries for our first target, and our most advanced library for this target has entered preclinical characterization, with a series of data generated including early efficacy in two different disease states. We will continue to characterize the ~~most~~pathogenesis ~~promising candidate molecules for measures~~ of efficacy, safety and pharmaceutical considerations, deductively leading to specific candidate selections for recommendation to enter preclinical development through potential licensing and/or partnering opportunities in the near termdiseases.

We believe that our approach will potentially provide multiple revenue opportunities, including collaboration or out-licensing arrangements for small molecule drug candidates we generate from as early as lead optimization through early preclinical development, the out-licensing of our technology to pharmaceutical companies to enable them to implement our advanced drug discovery approach into their own internal discovery efforts, and potentially leverage this novel platform for drug repurposing.

In the first quarter of 2023, we successfully completed three key milestones relating to our drug discovery business in addition to further advancing our AI-based drug discovery platform. These first quarter efforts have significantly advanced our initial candidate molecules for our first oncology indication in liquid tumors up to lead optimization, with an additional program in solid tumors following closely behind.

First, as a result of additional studies completed during the period, we were able to demonstrate the power of our medicinal chemistry platform by showing in vitro efficacy of the initial lead compounds in our target portfolio, both as a standalone therapy and in combination with the current standard of care. We consider this result a powerful demonstration of our medicinal chemistry platform.

In addition, we were able to successfully use our HTG EdgeSeq profiling technology to biologically interrogate these lead compounds. This data, along with other primary and secondary data, was then introduced into our AI-driven drug discovery engine, resulting in the creation of a second generation of molecules. The second generation of molecules has been subjected to the same in vitro experiments as the first and exhibited improved efficacy over the first generation of molecules. These results also demonstrate

the utility of the AI-based drug discovery engine in combination with the high-quality full transcriptome data that is available through the use of our proprietary profiling technology.

Finally, we were able to use our AI-based drug discovery engine to design compounds using transcriptomic data as the starting point. These system-designed compounds showed highly similar characteristics to our initial lead compounds that were designed starting with the resultant transcriptomic profiles associated with cellular perturbation that resulted from target engagement. These results demonstrated the ability of our engine to design novel compounds based on transcriptomic data alone, which we believe will open other applications for our platform, including drug repurposing.

We expect to initiate several early discovery-stage programs evaluating small molecule candidates against a variety of different cancers, from which we plan to select candidates for additional indications to continually expand our drug discovery pipeline. As additional candidates are identified, we may choose to retain certain candidates internally for advancement through early development, with the intention to increase the value of these pipeline assets before moving to license or partner for further development. In parallel to these therapy-area specific programs, we continue to enrich the proprietary dataset that supports our transcriptome-informed drug discovery platform and to further evolve and refine the complementary AI and machine learning portions of this engine.

Revenue and Commercialization of our Profiling Products

WeAs ~~believe~~a ~~the~~result ~~future financial performance~~ of ~~our~~post-pandemic ~~profiling~~trends ~~business~~such ~~will~~as ~~continue~~the toreduction ~~be driven by adoption and utilization~~ of ~~our HTG EdgeSeq instruments~~ and ~~consumables,~~delay ~~and~~in anclinical ~~overall~~trial ~~increase~~activities induring the ~~number~~pandemic ~~and~~generating ~~type~~lower quantities of ~~customers~~retrospective ~~using~~samples ~~our~~for ~~technology. As such~~testing, webudget ~~believe~~reductions ~~the~~and ~~primary~~labor ~~measures~~shortages ofand ~~adoption~~supply ~~for~~chain ~~our~~issues ~~profiling~~experienced ~~technology~~by ~~are~~a ~~the~~ number of ~~total~~our ~~active~~ customers, ~~the~~we ~~number~~have ~~of active programs in our biopharmaceutical company customer pipeline~~taken, ~~the~~and ~~number~~continue ofto ~~instruments~~consider ~~actively~~further ~~producing~~actions ~~revenue~~to inreduce our ~~installed~~operating ~~base~~expenses and ~~revenue~~minimize ~~growth~~the ~~relating~~impact toof ~~new~~reduced ~~and~~revenue ~~existing~~on ~~customers.~~our ~~Total~~operating ~~active~~loss ~~customers~~ and ~~active~~cash ~~installed~~utilization, ~~base~~including ~~reflect~~a ~~customers~~significant ~~and~~reduction ~~instruments~~in ~~that~~force ~~have~~in ~~generated revenue for~~ the ~~Company~~second ~~within~~quarter ~~the~~of ~~last 12 months~~2022. ToWe behave ~~included~~continued into ~~our~~closely ~~active~~monitor ~~programs~~profiling ~~metric~~customer needs, astudy ~~program~~trends ~~needs~~and topurchasing bepatterns ~~associated~~and ~~with~~to amake ~~pharma~~additional ~~sponsored~~operating ~~clinical~~adjustments ~~trial,~~as beappropriate ~~traceable~~ to adetermine ~~program~~the onmost ~~clinicaltrials.gov~~appropriate ~~and~~strategy ~~have generated revenue~~ for the ~~Company~~future ~~within the last 12 months. As~~ of ~~September~~our ~~30,~~profiling ~~2022,~~business weand ~~had~~to 77allow ~~active~~us ~~customers,~~to 57ensure ~~active~~that ~~programs~~we ~~and~~can 50continue ~~instruments~~to ~~actively~~progress ~~producing~~our ~~revenue~~quickly inevolving ~~our~~drug ~~installed~~discovery ~~base~~business.

~~Our~~In ~~ability~~response to ~~increase~~the ~~instrument~~trends ~~and~~seen ~~consumable~~in ~~revenue~~our ~~depends~~profiling onbusiness ~~several~~and ~~factors~~our organizational operating adjustments, ~~including~~our ~~(i)~~commercial focus has shifted from the quantity of customers adopting our ~~ability~~profiling technology to ~~increase~~the ~~adoption~~quality and sustainability of ~~our~~future ~~HTG~~revenue, ~~EdgeSeq~~including ~~platform~~higher ~~throughout~~revenue ~~the~~per ~~scientific~~sample, larger cohorts and minimum batch sizes for service in our VERI/O laboratory and at contract research ~~community;~~organizations (ii"CROs") ~~the~~who ~~efforts~~have ofadopted our ~~sales~~technology. ~~and~~This ~~marketing~~has ~~teams~~allowed us to ~~demonstrate~~reduce cost and focus the ~~utility~~efforts of our ~~products~~smaller ~~and~~organization ~~technology;~~as ~~(iii)~~well as to align our ~~ability~~profiling commercial focus more closely with the customer population that we project will be most likely to ~~develop~~utilize ~~and~~our ~~market~~AI-based ~~novel~~drug ~~molecular~~discovery engine for asset acquisition or development of their own targets. In addition, the slowing of retrospective sample profiling ~~panels~~volume toresulting ~~address~~from ~~unmet~~reduced ~~customer~~clinical ~~needs;~~trial ~~(iv)~~activity ~~our~~during ~~ability~~the topandemic ~~demonstrate~~together with the ~~benefits~~release of our ~~products~~HTP ~~compared~~in 2021 has begun to allow a shift in our ~~competitors~~profiling business strategy. Where we have historically generated revenue from retrospective testing of samples from past late stage trials for research purposes, our HTP has allowed us to ~~key~~begin ~~opinion~~to ~~leaders~~compete ~~and~~for ~~customers;~~phase I and ~~(v)~~II ~~our~~trials ~~ability~~with retrospective batch testing planned throughout the trials, some of which are expected to ~~expand~~span multiple years. While these opportunities are not expected to drive significant revenue in the ~~addressable~~early ~~market~~stages, ~~for~~we ~~our~~believe ~~HTG~~they ~~EdgeSeq~~will ~~platform~~provide ~~through~~ongoing ~~enhancement~~collaboration ofwith and revenue from our ~~existing~~biopharmaceutical ~~products~~company customers, potentially both in profiling and ~~services~~in drug discovery, ~~the~~leading ~~development~~to oflater ~~new~~stage ~~applications~~opportunities ~~and~~including ~~expansion~~the ~~into~~potential ~~new~~of ~~markets~~a companion diagnostic partnership opportunity.

In August 2021, we completed the commercial release of our HTG Transcriptome Panel, designed to provide extensive coverage of most human mRNA transcripts, simultaneously interrogating nearly 20,000 genes, while maintaining the sample efficiency, ease of use and robust results provided by our existing HTG EdgeSeq technology. The release of our HTP, coupled with our existing miRNA Whole Transcriptome Assay, which shares a harmonized sample preparation protocol, has further differentiated us from our competitors and has allowed us to expand our position in oncology and to diversify the use of our panels in other critical areas such as immunology, infectious disease, diabetes, cardiology and neurology. We expect to focus our future profiling-related development efforts on the expansion of the sample types available for use with both of these assays, as deemed appropriate based upon customer needs and the ability of these efforts to grow our active installed base and drive larger consumable annuities for our menu of proprietary panels.

We believe an increasing number of publications referencing our technology and the growing number of customers adopting our technology continues to reflect customer demand for and interest in our technology. In the second quarter of 2022, the first peer-reviewed journal article related to our HTP was published by one of our customers less than one year after the product’s initial commercial release. Two additional peer-reviewed articles on HTP were published in the third quarter of 2022. In this same period, three of our large pharma customers presented at bioscience conferences about their use of our technology as part of their biomarker strategies for retrospective studies and clinical trials. Publications and abstracts which referenced our HTG EdgeSeq technology exceeded 400 in the third quarter of 2022, ending the quarter at 407. Despite this progress reflecting the interest in and adoption of our technology, the length of our sales cycle and the continuing uncertainty of budget or post-COVID-19 clinical study prioritization by our customers, we expect that we will continue to see fluctuations in our profiling revenue on a period-to-period basis.

Results of Operations

Comparison of the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022

	Three Months Ended September 30,						Change						Nine Months Ended September 30,						Change
	Three Months Ended March 31,						Change
	2022			2021			$			%			2022			2021			$			%
	2023			2022			$			%
Product and product-related services revenue	$	1,~~250~~032,~~879~~510		$	21,~~520~~184,~~410~~454		$	(1151,~~269,531~~944	)		(5013	%)	$	~~3,926,915~~		$	~~6,029,760~~		$	~~(2,102,845~~	)		~~(35~~	%)
Operating expenses:
Cost of product and product-related services revenue		~~670~~1,~~863~~149,608			~~983~~855,~~761~~048			~~(312~~294,~~898~~560	)		~~(32~~34	%)		~~2,540,380~~			~~2,740,004~~			~~(199,624~~	)		(7	%)
Selling, general and administrative		3,~~400~~282,~~998~~948			4,~~232~~663,~~313~~011			(~~831~~1,~~315~~380,063	)		(2030	%)		~~12,370,925~~			~~11,995,747~~			~~375,178~~			3	%
Research and development		1,~~527~~612,~~036~~553			1,~~534~~920,~~818~~430			(7307,~~782~~877	)		(116	%)		~~5,294,567~~			~~4,188,219~~			~~1,106,348~~			26	%
Total operating expenses		56,~~598~~045,~~897~~109			67,~~750~~438,~~892~~489			(1,~~151~~393,~~995~~380	)		(1719	%)		~~20,205,872~~			~~18,923,970~~			~~1,281,902~~			7	%
Operating loss		(45,~~348~~012,~~018~~599	)		(46,~~230~~254,~~482~~035	)		~~(117~~1,~~536~~241,436	)		3(20	%)		~~(16,278,957~~	)		~~(12,894,210~~	)		~~(3,384,747~~	)		26	%
Gain on forgiveness of PPP Loan		—			—			—			---	%		—			1,735,792			(1,735,792	)		(100	%)
Other income (expense), net		(39,955	)		(243,098	)		203,143			(84	%)
Other income (expense), net		(166,558	)		(258,206	)		91,648			(35	%)		(616,081	)		(774,820	)		158,739			(20	%)
Net loss before income taxes	$	(5,052,554	)	$	(6,497,133	)	$	1,444,579			(22	%)
Net loss before income taxes	$	(4,514,576	)	$	(4,488,688	)	$	(25,888	)		1	%	$	(16,895,038	)	$	(11,933,238	)	$	(4,961,800	)		42	%

We continue to see a slower than anticipated return to pre-COVID-19 levels in our product and product-related services revenue. While the majority of our customers have now returned to full time operations in their facilities, the ongoing impacts of prior regional closures due to COVID-19, clinical trial delays, budget cuts and supply chain issues have continued to impact our business and that of our customers. Cancellations or delays of previously planned retrospective studies, customer staffing shortages and budget cuts have resulted in regular delays or loss of anticipated customer programs. In other instances, customers took longer than anticipated to complete data analysis for studies previously undertaken, causing delays to future planned activities. 23

Given the length of our sales cycle and ongoing concerns regarding the economy throughout our industry, we expect to continue to see fluctuations in our profiling revenue on a period-to-period basis despite our ongoing focus on continuing to identify new opportunities to effectively commercialize our profiling technology and seek expanded commercial partnering channels. As a result of these profiling revenue trends, we have taken actions to reduce operating expenses and minimize the impact of reduced revenue on our operating loss and cash utilization, including a significant reduction in force late in the second quarter of 2022. We will continue to make appropriate operating adjustments in support of what we believe to be a quickly evolving, best-in-class drug discovery company and our existing gene expression profiling business.

Product and Product-Related Services Revenue

Our product and product-related services revenue is generated primarily through the sale of our profiling instruments and consumables and sample processing services toperformed on behalf of pharmaceutical companies, academic research centers and molecular testing laboratories.

RUO profiling is ~~currently~~ made available to our customers through product ~~sales~~ and service offerings. Customers can purchase our HTG EdgeSeq instrument and related RUO consumables, which consist primarily of our proprietary molecular profiling panels and other assay components, for use in their own facilities or at CROs. They can also access our technology through contracted RUO profiling services using our ~~HTG EdgeSeq~~ instruments and ~~RUO~~ consumables to process their samples in our VERI/O laboratory ~~and through the development of custom RUO panels which are expected to generate future sample processing or RUO consumables revenue~~.

26Product and product-related services revenue, which includes revenue generated through the sale of our HTG EdgeSeq instruments and consumables and from services performed for customers using our proprietary RUO technology, decreased by 13% to $1.0 million for the three months ended March 31, 2023, compared with $1.2 million for the three months ended March 31, 2022, and was comprised of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2022		2021		2022		2021
	2023		2022
Product revenue:
Instrument	$	6275,~~488~~821	$	~~407~~193,~~130~~186	$	~~433,486~~	$	~~1,028,348~~
Consumables		~~509~~568,~~994~~711		~~793~~471,~~542~~214		~~1,811,463~~		~~2,265,894~~
Total product revenue		~~572~~644,~~482~~532		1664,~~200,672~~400		~~2,244,949~~		~~3,294,242~~
Product-related services revenue:
Custom RUO assay design		—		—		—		48,350
RUO sample processing		387,978		520,054
RUO sample processing		678,397		1,319,738		1,681,966		2,687,168
Total product-related services revenue		387,978		520,054
Total product-related services revenue		678,397		1,319,738		1,681,966		2,735,518
Total product and product-related services revenue	$	1,032,510	$	1,184,454
Total product and product-related services revenue	$	1,250,879	$	2,520,410	$	3,926,915	$	6,029,760

Product ~~and~~revenue, ~~product-related~~which ~~services~~includes gene expression profiling revenue generated through the sale of our HTG EdgeSeq instruments and consumables, decreased by 503% to $10.36 million for ~~the~~ three months ended ~~September~~March 3031, ~~2022~~2023, compared with $20.57 million for ~~the~~ three months ended ~~September~~March 3031, ~~2021~~2022. ~~Product~~This ~~and~~decrease primarily reflects a reduction in the number of instruments sold when compared with the same period in prior year, partially offset by an increase in consumables revenue over the period year. This increase reflects a shift in customer mix over the same period in prior year, with a larger number of customers outside of the United States, where customers primarily access our technology through product~~-related~~ ~~services~~purchases, making purchases in the first quarter of 2023. Consumables revenue ~~decreased~~generated byfrom 35the sale of our HTP, commercially launched in August 2021, represented 30% toof ~~$3.9~~our ~~million~~product revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023, compared with ~~$6.0~~45% ~~million~~of our product revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022, respectively.

Product-related services revenue, ~~which~~consisting ~~includes~~of ~~gene~~RUO ~~expression~~sample ~~profiling~~processing ~~revenue~~using ~~generated through the sale of~~ our HTG EdgeSeq instruments and consumables in our VERI/O laboratory and custom RUO assay design, decreased by 5225% to $0.64 million for the three months ended ~~September~~March 3031, ~~2022~~2023, compared with $10.25 million for the three months ended ~~September~~March 3031, ~~2021~~2022. ~~Product~~RUO sample processing revenue decreased byprimarily ~~32%~~due to ~~$2.2~~the ~~million~~timing ~~for~~of ~~the~~several ~~nine~~larger ~~months~~pharma ~~ended~~customer ~~September 30~~studies, ~~2022~~many ~~compared~~of ~~with~~which ~~$3.3~~were ~~million~~pending ~~for~~decisions ~~the~~from ~~nine~~data ~~months~~generated ~~ended~~in ~~September~~previous ~~30,~~studies ~~2021.~~using ~~This~~our ~~decrease~~technology, ~~primarily~~certain ~~reflects~~of aour ~~reduction~~customers inpurchasing ~~the~~kits ~~number~~through ofCROs ~~instruments~~who ~~sold~~are ~~when~~conducting ~~compared~~studies ~~with~~on ~~the~~their ~~same~~behalf ~~period~~and continued delays in ~~prior~~our ~~year.~~ability ~~Revenue~~to ~~from~~obtain ~~the~~customer ~~sale~~samples offor ~~our~~planned ~~HTP,~~sample ~~commercially~~processing ~~launched~~programs. inRevenue ~~August~~generated ~~2021,~~from ~~represented~~sample ~~38%~~processing ~~and~~services 42using the HTP represented 40% of ~~our~~ product-related services revenue for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023, ~~respectively,~~ compared with 1837% ~~and 12%~~ of our product-related services revenue for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021, respectively~~2022.

Product-related services revenue, consisting of RUO sample processing using our HTG EdgeSeq instruments and consumables in our VERI/O laboratory and custom RUO assay design, decreased by 49% to $0.7 million for the three months ended September 30, 2022, compared with $1.3 million for the three months ended September 30, 2021. Product-related services revenue decreased 39% to $1.7 million for the nine months ended September 30, 2022, compared with $2.7 million for the nine months ended September 30, 2021. RUO assay design services decreased to $0 for the nine months ended September 30, 2022, compared with approximately $48,000 for the nine months ended September 30, 2021. RUO sample processing revenue decreased primarily due to the timing of several biopharma programs pending decisions from data generated in previous studies using our technology, continued delays in our ability to obtain customer samples for planned sample processing programs, and our customers' reprioritizing their programs due to continuing COVID-19 impacts on their operations. Revenue generated from sample processing services using the HTP represented 43% and 41% of product-related services revenue for the three and nine months ended September 30, 2022, respectively, compared with 1% of our product-related services revenue for both the three and nine months ended September 30, 2021.

Cost of product and product-related services revenue

Cost of product and product-related services revenue includes both product-related and services-related costs. Product-related costs include the aggregate costs incurred in manufacturing, delivering, installing and servicing instruments and consumables. The components of our product-related costs of revenue include consumables and lab supplies, subcomponent and servicing costs, manufacturing costs incurred internally (which include direct labor costs), and equipment and infrastructure expenses associated with the manufacturing and distribution of our products. Due to the fixed nature of certain of these expenses, such as overhead, equipment and infrastructure, associated with our regulated industry and our expectations for further growth in customer demand, we expect our cost of product and product-related services revenue as a percentage to decrease over time as our product and product-related services revenue increases, further absorbing these fixed costs.

Cost of product and product-related services revenue decreased by 32% to $0.7 million for the three months ended September 30, 2022, compared with $1.0 million for the three months ended September 30, 2021. Cost of product and product-related services revenue decreased by 7% to $2.5 million for the nine months ended September 30, 2022, compared with $2.7 million for the nine months ended September 30, 2021. The decrease in cost of product and product-related services revenue for the three and nine months ended September 30, 2022 compared with the same periods in 2021 is the result of a decrease in product and product-related services revenue which decreased the amount of consumables used in our VERI/O laboratory combined with the gain on the sale of an asset during the three months ended September 30, 2022.24

27Cost of product and product-related services revenue increased by 34% to $1.1 million for the three months ended March 31, 2023, compared with $0.9 million for the three months ended March 31, 2022. This increase primarily reflects an excess inventory reserve recorded in the first quarter 2023 of $0.4 million, reflecting our estimation of inventory on hand in excess of our projections of future demand for certain of our products as a result of our shifting commercial focus, partially offset by a decrease in compensation expenses following the reduction in force completed in the second quarter of 2022.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of personnel costs for our sales and marketing, regulatory, legal, executive management and finance and accounting functions. The expenses also include third-party professional and consulting fees incurred by these functions, promotional expenses and facility and overhead costs for our administrative offices. Selling, general and administrative expenses decreased by 2030% to $3.43 million for the three months ended ~~September~~March 3031, ~~2022~~2023 compared with $4.27 million for the three months ended ~~September~~March 3031, ~~2021~~2022. This decrease isprimarily ~~the~~reflects ~~result of the reduction in force and overall administrative cost containment efforts combined with~~ a decrease in legal ~~costs~~fees ~~related~~incurred to ~~measures to~~ protect our intellectual property. ~~Selling, general~~ and ~~administrative~~decreased ~~expenses~~compensation ~~increased by 3% to $12.4 million for the nine months ended September 30, 2022, compared with $12.0 million for the nine months ended September 30, 2021. This increase in selling, general~~ and ~~administrative~~stock-based ~~expense~~compensation ~~for~~expenses ~~the~~following ~~nine~~a ~~months~~reduction ~~ended September 30, 2022, compared with the same periods~~ in ~~2021~~force ~~reflects~~completed ~~an increase~~ in ~~compensation expense resulting from~~ the ~~termination~~second ~~of the ERC benefits in the third~~ quarter of ~~2021 and a decrease in legal costs related to measures to protect our intellectual property, partially offset by a decrease in stock-based and other compensation-related expense items~~2022.

Research and development expenses

Research and development expenses ~~represent~~decreased ~~costs~~by to16% ~~develop and improve upon our profiling technology and~~ to ~~complete critical milestones related to HTG Therapeutics and are expensed as incurred~~$1.6 ~~These~~million ~~expenses~~for ~~include~~the ~~payroll~~three ~~and~~months ~~related~~ended ~~expenses,~~March ~~consulting expenses~~31, ~~laboratory supplies~~2023, ~~facilities~~compared ~~and~~with ~~equipment~~$1.9 ~~For~~million for the ~~period~~three months ended ~~September~~March 3031, 2022,. ~~research~~This ~~and~~decrease ~~development expenses were~~ primarily ~~related~~reflects toa ~~the~~decrease ~~advancement of our transcriptome-informed drug discovery platform and solidification of our first planned targets using our novel approach. These investments have resulted~~ in ~~the~~compensation ~~successful~~expenses ~~completion~~following ~~of all of our HTG Therapeutics development milestones for the first three quarters of 2022, including design of~~ a ~~series~~reduction ~~of chemical libraries and generation of data using measures of early efficacy~~ in ~~two~~force ~~different~~completed ~~disease states for our first therapeutic target~~ in the ~~third~~second quarter of 2022. WeResearch ~~believe~~and ~~that~~development ~~these~~expenses ~~efforts~~included ~~will~~investments ~~result~~ in ~~the~~HTG ~~selection~~Therapeutics bytechnology, ~~year~~consultants ~~end~~and personnel of atapproximately ~~least~~$1.2 ~~one~~million ~~candidate~~for ~~molecule to enter preclinical development through potential licensing or partnering opportunities with a second target to follow in~~ the ~~second~~three ~~half~~months ~~of 2023. For the period~~ ended ~~September~~March 3031, ~~2021~~2023, ~~research~~compared ~~and~~with ~~development~~$0.7 ~~expenses~~million ~~were primarily related to preparation of our HTP~~ for ~~initial~~the ~~commercial~~three ~~release~~months ~~and~~ended ~~the~~March ~~initiation of~~31, ~~hiring of resources for and initial platform development efforts relating to HTG Therapeutics~~2022.

~~Research~~Liquidity and ~~development~~Capital expenses decreased by 1% to $1.5 million for the three months ended September 30, 2022, compared with $1.5 million for the three months ended September 30, 2021, primarily driven by $0.2 million of ERC benefits recognized in the third quarter of 2021. Research and development expenses increased by 26% to $5.3 million for the nine months ended September 30, 2022, compared with $4.2 million for the nine months ended September 30, 2021, including $0.4 million of ERC benefits recognized for the nine months ended September 30, 2021. Research and development expenses included investments in HTG Therapeutics technology, consultants and personnel of approximately $0.7 million and $2.1 million for the three and nine months ended September 30, 2022, respectively, compared with $0.4 million and $0.7 million for the three and nine months ended September 30, 2021, respectively.Resources

Changes in Cash Flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022

The following table summarizes the primary sources and uses of cash for each of the periods presented:

	Nine Months Ended September 30,						Change
	Three Months Ended March 31,						Change
	2022			2021			$			%
	2023			2022			$			%
Net cash provided by (used in):
Operating activities	$	(164,~~384~~363,~~595~~591	)	$	(135,~~118~~939,~~546~~563	)	$	(31,~~266~~575,~~049~~972	)		25(27	%)
Investing activities		9(3,~~120~~544,~~233~~628	)		(95,~~461~~391,~~939~~585	)		18(8,~~582~~936,~~172~~213	)		(~~196~~166	%)
Financing activities		~~904~~(1,~~581~~310,100	)		105,~~425~~566,~~167~~025			(96,~~520~~876,~~586~~125	)		(91124	%)
Effect of exchange rate on cash		~~(27~~3,~~718~~871	)		(123,~~848~~570	)		~~(14~~7,~~870~~441	)		~~116~~(208	%)
Decrease in cash and cash equivalents	$	(6,387,499	)	$	(12,168,166	)	$	5,780,667			(48	%)
(Decrease) increase in cash and cash equivalents	$	(9,214,448	)	$	5,014,477		$	(14,228,925	)		(284	%)

Operating Activities

Net cash used in operating activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 was $164.4 million compared with net cash used in operating activities of $135.19 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022. Net cash used in operating activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 reflected (i) a net loss of $165.91 million; (ii) net non-cash items of $0.9 million consisting primarily of provision for excess inventory of $0.4 million, stock-based compensation expense of $0.61 million, depreciation and amortization expense of $0.51 million, amortization of loan discount and issuance costs of $0.31 million, write-off of deferred offering costs of $0.1 million and amortization of right-of-use assets of $0.31 million and (iii) a net cash outflow from changes in balances of operating assets and liabilities of $10.32 million.

Net cash used in operating activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 was $135.19 million and reflected (i) a net loss of $126.05 million; (ii) net non-cash items consisting primarily of ~~the gain on the forgiveness of our PPP loan of $1.7 million,~~ stock-based compensation expense of $1.0.3 million, depreciation and amortization expense of $0.62 million, amortization of loan discount and issuance costs of $0.41 million, amortization of right-of-use assets of $0.41 million and ~~loss on abandonment and disposal of assets of $0.2 million; and~~ (iii) a net cash outflow from changes in balances of operating assets and liabilities of $2.0.2 million.

Investing Activities

Net cash ~~provided~~used byin investing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 was $93.15 million compared with net cash ~~used~~provided inby investing activities of $9.5.4 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022. Net cash ~~provided~~used byin investing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 was comprised primarily of $163.75 million of ~~our~~ available-for-sale securities ~~maturing during the period partially offset by $7.6 million of our available-for-sale securities~~ purchased during the period.

Net cash used in investing activities for the nine months ended September 30, 2021 was $9.5 million and was comprised primarily of purchases of $17.9 million of available-for-sale securities, partially offset by $9.0 million of our available-for-sale securities maturing during the period. 25

Net cash provided by investing activities for the three months ended March 31, 2022 was $5.4 million and was comprised primarily of $5.4 million of available-for-sale securities maturing during the period.

Financing Activities

Net cash ~~provided~~used byin financing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 was $01.93 million compared with net cash provided by financing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 of $105.46 million. This activity for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 consisted primarily of $7.0.8 million inof ~~net~~payments ~~proceeds~~on ~~from~~our ~~the~~SVB ~~March~~Term ~~2022~~Loan, ~~Purchase Agreement (see Note 14) and~~ $0.84 million inof ~~proceeds~~payments ~~from~~on our December 2022 ~~Insurance~~Securities ~~Note,~~Purchase ~~partially~~Agreement ~~offset~~issuance bycosts ~~$6.0~~(see ~~million~~Note of14 ~~payments~~to onthe ~~our~~accompanying ~~SVB~~condensed ~~Term~~consolidated ~~Loan,~~financial ~~$0.4~~statements ~~million~~for ofthe ~~payments~~quarter ~~made~~ended onMarch ~~our outstanding NuvoGen obligation~~31, 2023) and $0.51 million of payments made on our ~~2021~~outstanding ~~and~~NuvoGen ~~2022 Insurance Notes~~obligation.

Net cash provided by financing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 was $105.46 million. This activity for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 consisted primarily of $~~10.~~7.2 million in net proceeds from ~~our~~the ~~ATM~~March ~~Offering~~2022 ~~and~~Securities ~~$0.6~~Purchase ~~million~~Agreement in(see ~~proceeds~~Note ~~from~~14 ~~our~~to ~~stock~~the ~~purchase~~accompanying ~~agreement~~condensed ~~(the~~consolidated ~~"LP~~financial ~~Purchase~~statements ~~Agreement")~~for ~~with~~the ~~Lincoln~~quarter ~~Park~~ended ~~Capital~~March ~~Fund~~31, ~~LLC ("Lincoln Park"~~2023), partially offset by $1.3 million of payments made on our SVB Term Loan, $0.42 million of payments made on our outstanding NuvoGen obligation, and $0.52 million of payments made on our ~~2020 and~~ 2021 Insurance ~~Notes~~Note.

~~Liquidity~~Financial ~~and Capital Resources~~Condition

Since our inception, our operations have primarily been financed through the issuance of our common stock, redeemable convertible preferred stock, the incurrence of debt and cash received from product sales, services revenue and other income. As of ~~September~~March 3031, ~~2022~~2023, we had $6.56 million in cash, cash equivalents and investments in ~~short-term~~ available-for-sale securities, and current liabilities of approximately $6.86 million. AsWe ~~of September 30, 2022, we~~ also had approximately $53.68 million of long-term liabilities outstanding, relating primarily to our ~~SVB Term Loan (see below), our~~ NuvoGen obligation, and ~~our~~ operating leases.

In June 2020, we entered into ~~a Loan and Security Agreement (~~the ~~“Loan Agreement”) for an asset-secured loan in the principal amount of $10.0 million with Silicon Valley Bank (“~~SVB~~”),~~ ~~as lender (the “SVB~~ Term Loan~~”).~~ ~~The~~with ~~proceeds from the~~ SVB ~~Term Loan were fully funded on June 25, 2020~~. The proceeds from the SVB Term Loan, together with cash on hand, were used to repay in full all outstanding amounts and fees due under our prior MidCap Credit Facility and a subordinated convertible note that has since been repaid. Our SVB Term Loan bears interest at a floating rate equal to the greater of 2.50% above the Prime Rate (as defined in the Loan Agreement) and 5.75%. ~~and~~In ~~originally~~July ~~required~~2022, ~~interest-only~~we ~~payments~~entered ~~payable~~into ~~monthly~~the inTerm ~~arrears~~Loan ~~through~~Amendment ~~June~~with 30SVB. Under the Term Loan Amendment, ~~2021.~~SVB ~~This~~agreed ~~interest-only~~to ~~period~~remove ~~was~~the ~~extended~~financial ~~for~~covenant anunder ~~additional~~the ~~six~~Loan ~~months~~Agreement. asIn aexchange ~~result~~for this accommodation, we prepaid $2.5 million of outstanding principal under the ~~Company’s~~SVB ~~achievement~~Term ofLoan. The remaining outstanding principal amount due under the ~~equity~~SVB ~~milestone~~Term ~~defined~~Loan will continue to be paid in equal monthly payments of principal and interest through the ~~Loan~~maturity ~~Agreement.~~date of December 1, 2023.

29In March 2022, we entered into a Securities Purchase Agreement with a single investor pursuant to which we issued and sold to the investor 270,415 units at a price of $27.744 per unit (less $0.012 for each pre-funded warrant purchased in lieu of a share of common stock) for net proceeds, after deducting the placement agent fees and other estimated fees and expenses, of approximately $7.0 million. Each unit consisted of one share of common stock (or one pre-funded warrant in lieu thereof), a common warrant to purchase one share of our common stock with a term of 24 months from the issuance date, and a common warrant to purchase one share of our common stock with a term of 66 months from the issuance date. Each of the common warrants became exercisable commencing on September 21, 2022 and has an exercise price of $24.744 per share. Each pre-funded warrant had an exercise price of $0.012 per share and had no expiration date. In May 2022, all of the 200,911 pre-funded warrants were exercised for proceeds of $2,411.

In ~~March~~December 2022, in connection with a best-efforts public offering we entered into a Securities Purchase Agreement (the "December 2022 Securities Purchase Agreement") with a ~~single~~certain institutional investor, pursuant to which we issued and sold to the investor 31,~~244~~290,~~987~~322 units at a ~~price~~combined public offering of $27.~~312~~75 per ~~unit~~share (less $0.001 for each pre-funded warrant purchased in lieu of a share of common stock) for ~~gross~~net proceeds, ~~before~~after deducting the ~~placement~~Placement ~~agent~~Agency fees and expenses and other estimated fees and expenses, of approximately $78.57 million. Each unit consisted of one share of common stock (or one pre-funded warrant in lieu thereof), a common warrant to purchase one share of ~~our~~ common stock with a term of 24 months from the issuance date, and a common warrant to purchase one share of ~~our~~ common stock with a term of 6660 months from the issuance date. Each of the common warrants became exercisable commencing on September 21, 2022 and has an exercise price of $2.062 per share. Each pre-funded warrant had an exercise price of $0.001 per share and had no expiration date. In ~~May~~December 2022, all of the 21,~~410~~188,~~933~~322 pre-funded warrants were exercised for proceeds of $21,~~411~~188.

On July 14, 2022, we entered into an amendment (the “Term Loan Amendment”) to the SVB Term Loan with SVB. Under the Term Loan Amendment, SVB agreed to remove the financial covenant under the Loan Agreement. In exchange for this accommodation, we prepaid $2.5 million of outstanding principal under the SVB Term Loan (the “Prepayment”). SVB waived the prepayment fee that otherwise would have applied to the Prepayment. The remaining outstanding principal amount due under the SVB Term Loan will continue to be paid in equal monthly payments of principal and interest through the maturity date of December 1, 2023. 26

The current volatility in the equity markets and the depressed valuations in the biotechnology sector, coupled with the trading price of our common stock and ~~the limited number of~~ our ~~authorized~~financial ~~and available shares of common stock~~condition, create additional challenges to raising a sufficient amount of capital through an equity financing in the near term. If sufficient additional capital is not available as and when needed, we may have to delay, scale back or discontinue one or more product development programs, curtail our commercial activities, significantly reduce expenses, sell assets (potentially at a discount to their fair value or carrying value), enter into relationships with third parties to develop or commercialize products or technologies that we otherwise would have sought to develop or commercialize independently, pursue a sale of the Company at a price that may result in a significant loss on investment for our stockholders, file for bankruptcy or seek other protection from creditors, or liquidate all assets. In addition, if we default under any of the terms of the Loan Agreement, including as a result of a “material adverse change,” SVB could accelerate the payment of the SVB Term Loan and ultimately foreclose on our assets. The definition of “material adverse change” is broad and includes a material impairment in the value of the collateral securing the SVB Term Loan, a material adverse change in our business, operations, or condition (financial or otherwise), and a material impairment of the prospect of repayment of any portion of the SVB Term Loan.

Contractual Obligations, Commitments and Material Cash Requirements

We have had recurring operating losses and negative cash flows from operations since our inception and have an accumulated deficit of $~~225~~235.20 million as of ~~September~~March 3031, ~~2022~~2023. As of ~~September~~March 3031, ~~2022~~2023, we had cash, cash equivalents and investments in ~~short-term~~ available-for-sale securities of $6.56 million and current liabilities of $6.86 million. As of ~~September~~March 3031, ~~2022~~2023, we also had $53.68 million in long-term liabilities ~~primarily~~outstanding, relating primarily to our ~~SVB~~NuvoGen ~~Term~~obligation ~~Loan~~ and ~~our~~operating ~~NuvoGen obligation~~leases.

We currently expect that our existing resources will only be sufficient to fund our planned operations and expenditures ~~through~~until ~~January~~at least June 2023. In addition, potentially changing circumstances, including those related to a resurgence of COVID-19, inflation and ~~inflation~~high interest rates, may also result in the depletion of our capital resources more rapidly than we currently anticipate. Moreover, the recent closures SVB and Signature Bank has resulted in broader financial institution liquidity risk and concerns. If other banks and financial institutions fail or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our cash, cash equivalents and investments, including transferring funds, making payments or receiving funds may be threatened and our ability to raise additional capital could be substantially impaired, any of which could materially and adversely affect our business and financial condition. These circumstances raise substantial doubt about our ability to continue as a going concern.

Our primary capital needs, including contractual obligations and commitments, which are subject to change, include:

•

Debt Obligations – As of ~~September~~March 3031, ~~2022~~2023, our outstanding debt balance was $53.01 million. See Note 8, “Debt Obligations” within our condensed consolidated financial statements for further detail of our debt and the timing of expected future payments.

•

NuvoGen Obligation – As of ~~September~~March 3031, ~~2022~~2023, our NuvoGen obligation balance was $43.18 million. See Note 10, “Other Agreements” within our condensed consolidated financial statements for further detail and the timing of expected future payments.

•

Operating Leases – As of ~~September~~March 3031, ~~2022~~2023, our contractual commitment for operating leases was $10.19 million. See Note 11, “Leases” within our condensed consolidated financial statements for further detail of our lease obligations and the timing of expected future payments, including a ~~four~~three-year maturity schedule.

•

Planned costs to operating our business, including amounts required to fund working capital and capital expenditures;

•

Support of commercialization efforts related to our current and future products; and

•

Continued advancement of research and development efforts, including those related to HTG Therapeutics business unit.

30Until our revenue reaches a level sufficient to support self-sustaining cash flows, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, or other capital sources which may include strategic collaborations, licensing arrangements or other arrangements with third parties. The current volatility in the equity markets and the depressed valuations in the biotechnology sector, coupled with the trading price of our common stock and our financial condition, create additional challenges to raising a sufficient amount of capital through an equity financing in the near term. Future funding requirements will depend on a number of factors, including our ability to generate significant revenue, our ability to repay our debt obligations as they become due, the cost and timing of establishing additional sales, marketing and distribution capabilities, the ongoing cost of research and development activities, the cost and timing of regulatory clearances and approvals, the effect of competing technology and market developments, the nature and timing of companion diagnostic development collaborations we may establish and the extent to which we acquire or invest in businesses, products and technologies.

Until our revenue reaches a level sufficient to support self-sustaining cash flows, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, or other capital sources which may include strategic collaborations, licensing arrangements or other arrangements with third parties. The current volatility in the equity markets, coupled with the trading price of our common stock and the limited number of our authorized and available shares of common stock, create additional challenges to raising a sufficient amount of capital through an equity financing in the near term. Future funding requirements will depend on a number of factors, including our ability to generate significant revenue, our ability to repay our debt obligations as they become due, the cost and timing of establishing additional sales, marketing and distribution capabilities, the ongoing cost of research and development activities, the cost and timing of regulatory clearances and approvals, the effect of competing technology and market developments, the nature and timing of companion diagnostic development collaborations we may establish and the extent to which we acquire or invest in businesses, products and technologies.27

Additional capital may not be available at such times or in amounts needed by us. Even if sufficient capital is available to us, it might be available only on unfavorable terms. If we are unable to raise additional capital in the future when required and in sufficient amounts or on terms acceptable to us, we may have to delay, scale back or discontinue one or more product development programs, curtail our commercialization activities, significantly reduce expenses, sell assets (potentially at a discount to their fair value or carrying value), enter into relationships with third parties to develop or commercialize products or technologies that we otherwise would have sought to develop or commercialize independently, cease operations altogether, pursue an acquisition of our company at a price that may result in a significant loss on investment to our stockholders, file for bankruptcy, seek other protection from creditors, or liquidate all of our assets. In addition, if we default under our SVB Term Loan agreement, including as a result of a “material adverse change,” our lender could foreclose on our assets. The definition of “material adverse change” is broad and includes a material impairment in the value of the collateral securing the SVB Term Loan, a material adverse change in our business, operations, or condition (financial or otherwise), and a material impairment of the prospect of repayment of any portion of the SVB Term Loan.

Recent Accounting Pronouncements

See Note 2. Summary of Significant Accounting Policies – Recently Adopted and Recently Issued Accounting Pronouncements in the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Significant Judgments and Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Critical accounting policies and estimates are those that we consider most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies and estimates include those related to revenue recognition, ~~stock-based compensation expense, inventory valuation,~~ fair value measurements and ~~income~~inventory ~~taxes~~valuation. Actual results could materially differ from these estimates and such differences could affect the results of operations in future periods.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC 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 our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As of ~~September~~March 3031, ~~2022~~2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of ~~September~~March 3031, ~~2022~~2023, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting.

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during the quarter ended ~~September~~March 3031, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

3229

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not engaged in any material legal proceedings. However, in the normal course of business, we may from time to time be named as a party to legal claims, actions and complaints, including matters involving employment, intellectual property, vendors, customers or others.

Item 1A. Risk Factors.

RISK FACTOR SUMMARY

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the SEC, ~~including our Annual Report on Form 10-K, filed with the SEC on March 29, 2022,~~ before making investment decisions regarding our common stock.

•

There is substantial doubt about our ability to continue as a going concern. We will need to raise additional capital to fund our operations in the future. If we are unsuccessful in attracting new capital, we may be forced to delay, reduce or eliminate at least some of our product development programs or business development plans, may not be able to continue operations or may be forced to sell assets to do so. Alternatively, capital may not be available to us on favorable terms, or if at all. If available, financing terms may lead to significant dilution of our stockholders’ equity.

•

Payments under the instruments governing our indebtedness may reduce our working capital. In addition, a default under our SVB Term Loan could cause a material adverse effect on our financial position.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share prices.

We have incurred losses since our inception and expect to incur losses for the foreseeable future. We cannot be certain that we will achieve or sustain profitability.

•

Unfavorable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.

•

Our HTG Therapeutics business strategy is unique, may not lead to successful drug products for various reasons, may require significant investments in working capital and may not generate any revenue.

•

We have a limited history of operations for our preclinical-stage platform-based drug discovery business and no products approved by regulators for commercial sale, which may make it difficult to evaluate our current and future business prospects.

•

As part of our current business model, we intend to seek to enter into strategic collaborations and licensing arrangements with third parties.

•

If we are unable to successfully commercialize our products, our business may be adversely affected.

•

COVID-19 has adversely affected our business and isa ~~expected~~resurgence toof COVID-19 or another health epidemic or pandemic may have an adverse impact on our business ~~for~~in the ~~foreseeable~~ future.

•

Our business operations might be disrupted or adversely affected by catastrophic events.

•

Our financial results may vary significantly from quarter to quarter or may fall below the expectations of investors or securities analysts, each of which may adversely affect our stock price.

•

Our sales cycle is lengthy and variable, which makes it difficult for us to forecast revenue and other operating results.

•

We may not be able to develop new products or enhance the capabilities of our systems to keep pace with rapidly changing technology and customer requirements, which could have a material adverse effect on our business and operating results.

•

If we do not successfully manage the development and launch of new products, our financial results could be adversely affected.

•

We may not be successful in expanding our customer base and introducing new applications for our profiling business.

•

Our HTG EdgeSeq product portfolio requires the use of NGS instrumentation and reagents and could be adversely affected by actions of third-party NGS product manufacturers over whom we have no control.

~~Our HTG Therapeutics business strategy may require significant investments in working capital and may not generate any revenue.~~30

•

~~The~~If ~~life~~we ~~sciences~~do ~~research~~not ~~and~~achieve, ~~diagnostic~~sustain ~~markets are highly competitive. We face competition from enhanced~~ or ~~alternative~~successfully ~~technologies~~manage ~~and products, which could render~~ our ~~products~~anticipated ~~and/or~~long-term ~~technologies obsolete. If we fail to compete effectively~~growth, our business and ~~operating~~growth ~~results~~prospects will ~~suffer.~~be harmed.

•

~~Our~~We ~~current~~expect ~~business~~to ~~depends~~generate ona ~~levels~~portion of ~~research~~our ~~and~~revenue ~~development~~internationally ~~spending~~and byare ~~academic~~subject ~~and~~to ~~governmental~~various ~~research~~risks ~~institutions~~relating ~~and~~to ~~biopharmaceutical~~our ~~companies~~internationalactivities, ~~a reduction in~~ which could ~~limit demand for our products and~~ adversely affect our ~~business and~~ operating results.

•

AsIf ~~part~~the utility of our ~~current~~HTG ~~business~~EdgeSeq ~~model~~platform, weproprietary ~~intend~~profiling topanels, ~~seek~~services and ~~enter~~solutions ~~into~~in ~~strategic~~ development ~~collaborations~~is ~~and~~not ~~licensing~~supported ~~arrangements~~by ~~with~~studies ~~third~~published ~~parties~~in topeer-reviewed ~~develop~~medical ~~diagnostic tests~~publications, asthe ~~well~~rate asof ~~therapeutic~~adoption ~~development~~of ~~partnerships~~our current and ~~collaborations.~~future products and the rate of reimbursement of our future products by third-party payors may be negatively affected.

•

We ~~are~~may ~~dependent~~provide onour ~~third-party~~HTG ~~suppliers~~EdgeSeq ~~for~~instrument ~~certain~~and ~~subcomponents~~profiling panels free of ~~our~~charge ~~products~~or through other arrangements to customers or key opinion leaders through evaluation agreements or reagent rental programs, ~~including~~and athese ~~single~~programs ~~supplier~~may ~~for~~not ~~one~~be ~~subcomponent~~successful in generating recurring revenue from sales of our ~~HTG~~systems ~~EdgeSeq~~and ~~instruments~~proprietary panels.

•

Limitations in the use of our products could harm our reputation or decrease market acceptance of our products; undetected errors or defects in our products could harm our reputation, decrease market acceptance of our products or expose us to product liability claims.

If any members of our management team were to leave us or we are unable to recruit, train and retain key personnel, we may not achieve our goals.

Approval and/or clearance by the FDA and foreign regulatory authorities for any future diagnostic tests will take significant time and require significant research, development and clinical study expenditures and ultimately may not succeed.

If we are unable to protect our intellectual property effectively, our business will be harmed.

•

We may ~~need~~be involved in lawsuits to ~~depend~~protect onor ~~certain~~enforce ~~technologies~~our ~~that~~patent ~~are~~or ~~licensed~~other proprietary rights, to ~~us.~~determine Wethe doscope, ~~not~~coverage ~~control~~and ~~these~~validity ~~technologies~~of ~~and~~others’ ~~any~~patent ~~loss~~or ofother ~~our~~proprietary rights, or to ~~them~~defend ~~could~~against ~~prevent~~third-party usclaims ~~from~~of ~~selling~~intellectual ~~some~~property infringement, any of which could be time-intensive and costly and may adversely impact our ~~products~~business or stock price.

RISK FACTORS

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this report, and in our other public filings, before deciding to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. You should consider all of the risk factors described when evaluating our business. We have marked with an asterisk (*) those risk factors that were not included as separate risk factors in, or reflect changes to, the similarly titled risk factors included in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K, filed with the SEC on March 29, 2022.

Risks Related to our Business and Strategy

We are not profitable and have had negative cash flow from operations since our inception. To fund our operations and develop and commercialize our products, we have relied primarily on equity and debt financings and revenue generated from the sale of our HTG EdgeSeq ~~platform,~~products ~~proprietary~~and ~~consumables,~~ related services ~~and collaborative development service arrangements with biopharmaceutical company customers~~. We currently expect that our existing resources will only be sufficient to fund our planned operations and expenditures ~~through~~until ~~January~~at least July 2023. In addition, potentially changing circumstances, ~~including those related to COVID-19 and inflation,~~ may also result in the depletion of our capital resources more rapidly than we currently anticipate. These circumstances raise substantial doubt about our ability to continue as a going concern. We will need to obtain additional funds to finance our operations. Additional capital may not be available at such times or amounts as needed by us. Historically we have financed our business in part by access to the capital markets. However, the current volatility in the equity markets, coupled with the trading price of our common stock and the limited number of our authorized and available shares of common stock, create additional challenges to raising a sufficient amount of capital through an equity financing in the near term. Even if capital is available, it might be available only on unfavorable terms. Any additional equity or convertible debt financing into which we enter could be dilutive to our existing stockholders. Any future debt financing into which we enter may impose covenants upon us that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, we may need to relinquish rights to our technologies or our products or grant licenses on terms that are not favorable to us. If access to sufficient capital is not available as and when needed, our business will be materially impaired, and we may be required to cease operations, curtail one or more product development or commercialization programs, or significantly reduce expenses, sell assets, seek a merger or joint venture partner, file for protection from creditors or liquidate all of our assets. Any of these factors could harm our operating results.

34Our efforts to use our transcriptome-based drug discovery engine to deliver new drug candidates in areas of significant unmet medical need are broad, expensive to achieve and will require substantial additional capital in the future. Our existing programs span early and late-stage discovery, with some approaching entrance into preclinical development. We expect our expenses to increase in connection with our ongoing activities as we continue research and development and add to our pipeline that we believe will be an accelerating number of additional programs. Preclinical testing is expensive and can take many years, which may make equity and debt financing more difficult to obtain.

We will need to obtain additional funds to finance our operations. Additional capital may not be available at such times or in amounts needed by us. Historically we have financed our business in part by access to the capital markets. However, the current volatility in the equity markets and the depressed valuations in the biotechnology sector, coupled with the trading price of our common stock and our financial condition, create additional challenges to raising a sufficient amount of capital through an equity financing in the near term. Even if capital is available, it might be available only on unfavorable terms. Any additional equity or convertible debt financing into which we enter could be dilutive to our existing stockholders. Any future debt financing into which we enter may impose covenants upon us that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through strategic collaborations, partnerships or licensing arrangements with third parties, we may need to relinquish rights to our technologies, our products or our drug candidates or grant licenses on terms that are not favorable to us. If access to sufficient capital is not available as and when needed, our business will be materially impaired, and we may be required to cease operations, curtail one or more product development or commercialization programs, or significantly reduce expenses, sell assets, seek a merger or joint venture partner, file for protection from creditors or liquidate all of our assets. Any of these factors could harm our operating results.

We have incurred losses since our inception and expect to incur losses for the foreseeable future. We cannot be certain that we will achieve or sustain profitability.*

We have incurred losses since our inception and expect to incur losses in the future. We incurred net losses of $5.1 million and $6.5 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had an accumulated deficit of $235.0 million. We expect that our losses will continue for the foreseeable future as we will be required to invest significant additional funds to support product development, including the commercialization of our HTG EdgeSeq platform and proprietary consumables and advancement of our HTG Therapeutics business unit. Our ability to achieve or, if achieved, sustain profitability is based on numerous factors, many of which are beyond our control, including the market acceptance of our products and services, competitive product development and our market penetration and margins. We may never be able to generate sufficient revenue to achieve or, if achieved, sustain profitability.

Pursuant to the terms of the NuvoGen obligation, we have paid NuvoGen $11.02 million, and are required to annually pay NuvoGen the greater of $400,000 or 6% of our yearly revenue until the total aggregate cash compensation paid to NuvoGen under the agreement equals $15.0 million. Payments to NuvoGen will result in a reduction in our working capital as we continue to make payments on this obligation.

The SVB Term Loan requires us, and any debt arrangements we may enter into in the future may require us, to comply with various covenants that limit our ability to, among other things:

•

dispose of assets;

•

complete mergers or acquisitions;

•

incur indebtedness or modify existing debt agreements;

•

amend or modify certain material agreements;

•

engage in additional lines of business;

•

encumber assets;

•

pay dividends or make other distributions to holders of our capital stock;

•

make specified investments; and

•

engage in transactions with our affiliates.

These restrictions could inhibit our ability to pursue our business strategies. If we default under our obligations under the SVB Term Loan, including as a result of a “material adverse change,” the lender could proceed against the collateral granted to them to secure our indebtedness or declare all obligation under the SVB Term Loan to be due and payable. The definition of “material adverse change” is broad and includes a material impairment in the value of the collateral securing the SVB Term Loan, a material adverse change in our business, operations, or condition (financial or otherwise), and a material impairment of the prospect of repayment of any portion of the SVB Term Loan. Moreover, the determination by the lender as to whether a “material adverse change” has occurred is not within our control. In certain circumstances, procedures by the lender could result in a loss by us of all of our equipment and inventory, which are included in the collateral granted to the lender. Our intellectual property is not included in the collateral granted to the lender but is subject to a negative pledge. In addition, upon any distribution of assets pursuant to any liquidation, insolvency, dissolution, reorganization or similar proceeding, the holders of secured indebtedness will be entitled to receive payment in full from the proceeds of the collateral securing our secured indebtedness before the holders of other indebtedness or our common stock will be entitled to receive any distribution with respect thereto.32

~~Unstable~~These ~~market~~restrictions could inhibit our ability to pursue our business strategies. If we default under our obligations under the SVB Term Loan, including as a result of a “material adverse change,” the lender could proceed against the collateral granted to them to secure our indebtedness or declare all obligations under the SVB Term Loan to be due and ~~economic~~payable. ~~conditions~~The ~~may~~definition ~~have~~of ~~serious~~“material adverse ~~consequences~~change” onis broad and includes a material impairment in the value of the collateral securing the SVB Term Loan, a material adverse change in our business, ~~financial~~operations, or condition (financial or otherwise), and ~~share~~a ~~price~~material impairment of the prospect of repayment of any portion of the SVB Term Loan.* Moreover, the determination by the lender as to whether a “material adverse change” has occurred is not within our control. This risk may be exacerbated by the recent closure of SVB. On March 10, 2023, the FDIC took control and was appointed receiver of SVB. The SVB Term Loan remains intact and we will continue to make required payments through the end of the current year, at which time the SVB Term Loan will be repaid in full. However, it is unclear how the current managers of SVB will view the SVB Term Loan from a risk standpoint and what actions they may elect to take under the SVB Term Loan to protect the financial interests of SVB.

~~The~~In ~~global~~certain ~~economy~~circumstances, ~~including~~procedures ~~credit~~by ~~and~~the ~~financial~~lender ~~markets~~could ~~particularly~~result in ~~the~~a ~~emerging~~loss ~~biotech~~by ~~sector,~~us ~~has~~of ~~experienced~~all ~~extreme~~of ~~volatility~~our ~~and~~equipment ~~disruptions, including severely diminished liquidity~~ and ~~credit availability~~inventory, ~~declines~~which inare ~~consumer~~included ~~confidence, declines~~ in ~~economic~~the ~~growth,~~collateral ~~record~~granted ~~inflation~~to ~~and~~the ~~uncertainty about economic stability~~lender. ~~For~~Our ~~example,~~intellectual ~~the~~property ~~COVID-19~~is ~~pandemic~~not ~~resulted~~included in ~~widespread unemployment, economic slowdown and extreme volatility in~~ the ~~capital~~collateral ~~markets.~~granted ~~Similarly,~~to the ~~current~~lender ~~Russia-Ukraine~~but ~~conflict~~is ~~has~~subject ~~created~~to ~~extreme~~a ~~volatility~~negative inpledge. ~~the~~In ~~global~~addition, ~~capital~~upon ~~markets~~any ~~and~~distribution ~~has~~of ~~disrupted~~assets ~~the~~pursuant ~~global~~to ~~supply~~any ~~chain~~liquidation, ~~and~~insolvency, ~~energy~~dissolution, ~~markets.~~reorganization ~~Any~~or ~~such~~similar ~~volatility~~proceeding, ~~and~~the ~~disruptions~~holders ~~may~~of ~~have~~secured ~~adverse~~indebtedness ~~consequences~~will onbe usentitled orto ~~the~~receive ~~third~~payment ~~parties~~in onfull ~~whom~~from wethe ~~rely.~~proceeds Ifof the ~~equity~~collateral ~~and~~securing ~~credit~~our ~~markets~~secured ~~deteriorate,~~indebtedness ~~including~~before asthe aholders ~~result~~ of ~~political~~other ~~unrest~~indebtedness or ~~war,~~our itcommon ~~may~~stock ~~make~~will ~~any~~be ~~necessary~~entitled ~~debt or equity financing more difficult~~ to ~~obtain~~receive inany adistribution ~~timely~~with ~~manner~~respect ~~or on favorable terms, more costly or more dilutive~~thereto.

35Unfavorable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.*

WeThe ~~have~~global ~~incurred~~economy, ~~losses~~including ~~since~~credit ~~our~~and ~~inception~~financial markets particularly in the emerging biotech sector, has experienced extreme volatility and ~~expect~~disruptions, toincluding ~~incur~~severely ~~losses~~diminished ~~for~~liquidity and credit availability, declines in consumer confidence, declines in economic growth, record inflation and uncertainty about economic stability. For example, the ~~foreseeable~~COVID-19 pandemic resulted in widespread unemployment, economic slowdown and extreme volatility in the capital markets. Similarly, the current Russia-Ukraine conflict has resulted and may result in the future in volatility in the global capital markets and has disrupted the global supply chain and energy markets. WeAny ~~cannot~~such bevolatility ~~certain~~and ~~that~~disruptions wemay ~~will~~have ~~achieve~~adverse consequences on us or ~~sustain~~the ~~profitability~~third parties on whom we rely.* If the equity and credit markets deteriorate, including as a result of bank failures, political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive.

WeOur have incurred losses since our inception and expect to incur losses in the future. We incurred net losses of $4.5 million and $16.9 million for the three and nine months ended September 30, 2022, respectively, compared with net losses of $4.5 million and $12.0 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $225.2 million. We expect that our losses will continue for the foreseeable future as we will be required to invest significant additional funds to support product development, including development of new proprietary HTG ~~EdgeSeq panels and products, the commercialization of our HTG EdgeSeq platform and proprietary consumables and advancement of our HTG~~ Therapeutics business ~~unit.~~strategy ~~Our ability to achieve or, if achieved, sustain profitability~~ is ~~based on numerous factors~~unique, ~~many~~may ofnot ~~which~~lead ~~are~~to ~~beyond~~successful ~~our~~drug ~~control, including the market acceptance of our~~ products ~~and~~for ~~services~~various reasons, ~~competitive~~may ~~product~~require ~~development~~significant ~~and~~investments ~~our~~in ~~market~~working ~~penetration~~capital and ~~margins. We~~ may ~~never~~not ~~be able to~~ generate ~~sufficient~~any revenue ~~to achieve or, if achieved, sustain profitability~~.

IfIn July 2021, we ~~are~~formed ~~unable~~a new drug discovery business unit, HTG Therapeutics. This business unit uses our HTP and our epitranscriptomic profiling technologies to ~~successfully~~more ~~commercialize~~thoroughly understand at the cellular level how cells respond to pharmacologic perturbation. By leveraging these profiling technologies earlier in the drug discovery process, our ~~products~~objective is for HTG Therapeutics to generate lead compounds faster, and with potentially more favorable efficacy and toxicity profiles, with the ultimate goal of generating interest from pharmaceutical companies that results in research or licensing collaborations for, or acquisitions of, these compounds. While we have hired experienced employees and added drug development depth to our ~~business~~Board of Directors, as a company we have no prior experience with drug discovery and development and may not be ~~adversely~~successful ~~affected~~in this endeavor.* If studying the transcriptomic profile does not prove to be a more insightful approach to understand diseases and the effects of molecules or does not lead to the biological insights for selection and design of drug candidates that we anticipate, our drug discovery platform may not be as useful or may not lead to as successful drug products, or we may have to move to a new business strategy, any of which could have an adverse effect on our reputation and results of operations.

~~Our~~Moreover, ~~HTG~~drug ~~Edge~~discovery ~~system~~and ~~was~~development ~~introduced~~is ~~for~~expensive ~~sale~~and inwill ~~the~~require ~~life~~investments ~~sciences~~in ~~research~~working ~~market~~capital inby ~~the~~us ~~third~~that ~~quarter~~may ofbe ~~2013~~significant. Our ~~HTG~~current ~~EdgeSeq~~drug ~~chemistry~~candidates ~~was~~are ~~introduced~~discovery ~~for~~stage ~~sale~~and inare ~~the~~approaching ~~life~~entrance ~~sciences~~to ~~research~~preclinical ~~market~~development. inBefore ~~the~~we ~~third~~or ~~quarter~~a ofpartner ~~2014.~~can ~~Our~~bring ~~dedicated~~any ~~HTG~~drug ~~EdgeSeq~~candidate ~~platform~~to ~~was~~market, ~~introduced~~we ~~for~~must, ~~sale~~among inother ~~the~~things, ~~life~~complete ~~sciences~~preclinical ~~research~~studies, ~~market~~have in the ~~fourth~~candidate ~~quarter~~manufactured ofto ~~2015~~appropriate ~~and~~specifications, ~~has~~conduct ~~been~~extensive ~~our~~clinical ~~primary~~trials ~~product~~to ~~focus~~demonstrate ~~since~~safety ~~2016.~~and ~~Our~~efficacy ~~VERI/O~~in ~~service~~humans, ~~laboratory~~prepare ~~was~~regulatory ~~announced~~registration inpackages ~~June~~and ~~2016.~~ultimately ~~Our~~obtain ~~first~~marketing ~~diagnostic~~approval ~~assay,~~from ~~based~~global onregulatory ~~our~~authorities, ~~HTG~~which, ~~EdgeSeq~~based ~~chemistry and automated~~ on our ~~HTG~~early ~~EdgeSeq platform~~stage, ~~was~~we ~~introduced~~have ~~for~~not ~~sale~~yet indemonstrated ~~Europe~~our inability ~~July~~to ~~2016~~do. WeEven ~~commercially~~if ~~launched~~we ~~our~~are ~~HTG~~successful ~~Transcriptome Panel~~ in ~~August~~partnering ~~2021.~~for ~~Although~~one weor ~~believe~~more ~~that~~early-stage ~~the~~drug ~~HTG~~discovery ~~Transcriptome~~programs ~~Panel~~with ~~will be~~ a ~~foundational~~pharmaceutical ~~product for RUO profiling~~company, ~~future~~we ~~companion diagnostics and potential proprietary diagnostic products and~~ will ~~allow~~need us to ~~further~~expend ~~expand~~potentially ~~our~~significant ~~product~~capital ~~offerings~~resources ~~outside~~on ofthese ~~oncology~~programs ~~and~~prior ~~autoimmune~~to ~~and~~any ~~into additional markets~~ such aspartnering, ~~transplant~~ and ~~diabetes~~potentially after, ~~we have only recently initiated commercial sales of this panel~~ and itthere ~~may~~can ~~not~~be ~~have~~no ~~the~~assurance ~~commercial success~~ that we ~~anticipate or strive for, or that it~~ will ~~allow~~generate usmeaningful torevenue ~~expand~~from ~~our~~these ~~product offerings~~programs. WePreclinical ~~currently~~and ~~market~~clinical ~~our~~development ~~products~~are ~~through~~expensive, ~~our~~difficult ~~own~~to ~~sales~~design ~~force in the United States~~ and ~~Europe~~implement, ~~and~~can ~~have~~take ~~distributors~~many inyears ~~parts of Europe. We intend~~ to ~~expand~~complete ~~our sales~~ and ~~support~~are ~~teams~~uncertain inas ~~the United States and in Europe and~~ to ~~establish~~outcome. ~~additional~~A ~~distributor~~failure ~~and/or~~of ~~third-party~~a ~~contract~~clinical ~~sales~~trial ~~team~~can ~~relationships~~occur inat ~~other~~any ~~parts~~stage of ~~the world~~testing. ~~However,~~The weoutcome ~~may~~of ~~not~~preclinical bedevelopment ~~able~~testing ~~to market~~ and ~~sell~~early ~~our~~clinical ~~products~~trials ~~effectively.~~may ~~Our~~not ~~sales~~be predictive of ~~life~~success ~~science~~in ~~research~~later ~~products,~~clinical ~~profiling and diagnostic products~~trials, and ~~potential~~interim ~~future~~results ~~products will depend in large part on our ability to successfully increase the scope~~ of ~~our marketing efforts and establish and maintain~~ a ~~sales~~clinical ~~force~~trial ~~commensurate with our then applicable markets. If we~~ do not ~~build~~necessarily ~~and~~predict ~~maintain~~final ~~an efficient and effective sales force and distributor relationships targeting these markets, our business and operating~~ results ~~will be adversely affected~~.

If our HTG EdgeSeq platform and proprietary profiling panels fail to achieve and sustain sufficient market acceptance, or we are not able to continue to expand our service or collaborative relationships with biopharmaceutical customers, either directly or through a collaboration partner, we will not generate expected revenue, and our prospects may be harmed.33

We ~~are~~have ~~currently~~a ~~focused~~limited onhistory selling our HTG EdgeSeq platform and profiling panels within the life sciences research market and, where approved, in the diagnostic market. We plan to develop panels for many different disease states including companion diagnostics to determine the proper course of ~~treatment~~operations for ~~those diseases. We may experience reluctance, or refusal, on the part of physicians to order, and third-party payors to cover and provide adequate reimbursement for,~~ our ~~panels if the results of our research and clinical studies, and our sales and marketing activities relating to communication of these results, do not convey to physicians, third~~preclinical-~~party~~stage ~~payors and patients that the HTG EdgeSeq~~ platform-based ~~and~~drug ~~related~~discovery ~~profiling~~business ~~panels provide equivalent or better diagnostic information than other available technologies~~ and ~~methodologies.~~no Weproducts ~~believe~~approved ~~our~~by ~~panels~~regulators ~~represent~~for ancommercial ~~emerging methodology in diagnosing disease states~~sale, ~~and~~which we may ~~have~~make toit ~~overcome~~difficult ~~resistance among physicians~~ to ~~adopting~~evaluate ~~it for the marketing of~~ our ~~products~~current ~~to be successful. Even if we are able to obtain regulatory approval from the U.S. Food~~ and ~~Drug~~future ~~Administration~~business ~~(“FDA”) or other applicable regulatory authorities, the use of our panels may not become the standard diagnostic tool for those diseases on which we plan to focus our efforts~~prospects.

InSince ~~addition,~~the acreation ~~key component~~ of our ~~strategy~~drug isdiscovery tobusiness ~~develop~~in ~~diagnostic~~July ~~tools~~2021, inwe ~~conjunction~~have ~~with~~focused ~~biopharmaceutical~~substantial ~~companies’~~efforts and financial resources on building our drug ~~development~~discovery ~~programs,~~platform toand ~~help~~developing ~~assess~~our ~~the~~initial ~~proper~~target ~~course~~compounds. All of ~~treatment~~our ~~for~~compounds ~~specific~~are ~~diseases~~in the discovery stages and/or approaching preclinical development. ~~Even~~We ifmay wenever ~~are~~establish ~~successful~~an inout-licensing ~~developing~~or ~~those~~collaboration ~~diagnostic~~arrangement ~~tools~~for ~~and~~any ~~receive~~compounds ~~regulatory~~we ~~approval~~develop, or if we ~~still~~do, the terms may not be ~~successful~~favorable into ~~marketing~~us. ~~those~~Until ~~diagnostic~~we ~~tests.~~successfully ~~Furthermore~~partner, ~~the~~out-license ~~decision~~develop toand/or ~~advance~~commercialize andrug ~~underlying~~candidates ~~drug~~for ~~candidate~~these ~~through~~targets, ~~clinical~~which ~~trials~~may ~~and~~never ~~ultimately~~occur, we expect to ~~commercialization~~finance isour atoperations ~~the~~through ~~discretion~~a combination of ~~biopharmaceutical~~equity ~~companies~~offerings, ~~with~~debt ~~which~~financings weand ~~collaborate.~~strategic ~~Our~~collaborations ~~biopharmaceutical~~or ~~partners~~similar ~~may~~arrangements. ~~take~~Biopharmaceutical ~~certain~~product ~~actions~~development ~~that~~is ~~could~~a ~~negatively~~highly ~~impact~~speculative ~~the~~undertaking ~~utility~~ and ~~marketability~~involves ofa ~~our~~substantial ~~diagnostic~~degree ~~tests~~of risk. For ~~example~~these and other reasons discussed elsewhere in this Risk Factors section, it may be difficult to evaluate our ~~biopharmaceutical~~current ~~partners~~business ~~could:~~and our future prospects.

As part of our current business model, we intend to seek to enter into strategic collaborations and licensing arrangements with third parties.

We have entered into agreements with third parties to facilitate or enable our development of assays, and ultimately diagnostic tests, to aid in the diagnosis of oncology diseases, such as breast cancer and melanoma, and other diseases. We intend to enter into additional similar agreements with life sciences companies, biopharmaceutical companies and other researchers for future diagnostic products.

In addition, we intend to seek strategic collaborations, partnerships and licensing arrangements with pharmaceutical and biotechnology companies related to preclinical or clinical development or commercialization to fund expenses associated with development, registration and commercialization of our potential drug candidates. In the near term, the value of our company will depend in part on the number and quality of the collaborations and similar arrangements that we create. Whether we reach a definitive agreement for a collaboration will depend, among other things, on our assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the potential collaborator's evaluation of our technologies and capabilities.

We cannot guarantee that we will enter into any additional agreements or collaborations. For example, our life sciences research or biopharmaceutical customers are not obligated to collaborate with us or license technology to us, and they may choose to develop diagnostic products themselves or collaborate with our competitors. Establishing strategic collaborations and licensing arrangements is difficult and time-consuming. Discussions may not lead to development collaborations or licenses on favorable terms, or at all. Potential collaborators or licensors may elect not to work with us based upon their assessment of our financial, regulatory or intellectual property position. To the extent that we enter new collaborative development or licensing agreements, they may never result in the successful development or commercialization of future drug candidates or other products or the generation of future sales revenue for a variety of reasons. The success of these arrangements will depend heavily on the efforts and activities of our collaborators. We cannot control the amount and timing of our collaborators’ resources that will be devoted to performing their responsibilities under our agreements with them. Moreover, to the extent we agree to work exclusively with a party in a given area, our opportunities to collaborate with others would be limited. Disputes with our collaborators could also impair our reputation or result in development delays, could consume time and divert management resources away from operations, impact our ability to enter into future collaboration agreements, decrease future revenue and or result litigation expenses or payments to settle disputes.

If we are unable to successfully commercialize our products, our business may be adversely affected.

Our sales of life science research products, profiling and diagnostic products, and potential future products will depend in large part on our ability to successfully increase the scope of our marketing efforts and establish and maintain a sales force commensurate with our then applicable markets. We currently market our products through our own sales force in the United States and Europe and have distributors in parts of Europe, though we may choose to expand our marketing and sales efforts into other parts of the world. However, we may not be able to market and sell our products effectively. If we do not build and maintain an efficient and effective sales force and distributor relationships targeting new markets, our business and operating results will be adversely affected. Further, if our products fail to achieve and sustain sufficient market acceptance, or we are not able to continue to expand our service relationships with third parties, we may not generate the expected revenues and our prospects could be harmed.

If our HTG EdgeSeq platform and proprietary profiling panels fail to achieve and sustain sufficient market acceptance, or we are not able to continue to expand our service relationships with biopharmaceutical customers, either directly or through a partner, we will not generate expected revenue, and our prospects may be harmed. If the utility of our HTG EdgeSeq platform, proprietary profiling panels, services and solutions in development is not supported by studies published in peer-reviewed medical publications, the rate of adoption of our current and future products and the rate of reimbursement of our future products by third-party payors may be

negatively affected. We may provide our HTG EdgeSeq instrument and profiling panels free of charge or through other arrangements to customers or key opinion leaders through evaluation agreements or reagent rental programs, and these programs may not be successful in generating recurring revenue from sales of our systems and proprietary panels.

In addition, a component of our strategy is to develop diagnostic tools in conjunction with biopharmaceutical companies’ drug development programs, to help assess the proper course of treatment for specific diseases. Even if we are successful in developing those diagnostic tools and receive regulatory approval, we still may not be successful in marketing those diagnostic tests. Furthermore, the decision to advance an underlying drug candidate through clinical trials and ultimately to commercialization is at the discretion of biopharmaceutical companies with which we collaborate. Our biopharmaceutical partners may take certain actions that could negatively impact the utility and marketability of our diagnostic tests. For example, our biopharmaceutical partners could:

•

determine not to actively pursue the development or commercialization of an applicable drug candidate, including due to the failure to demonstrate sufficient efficacy, the occurrence of safety or tolerability issues, or any number of other reasons;

•

fail to obtain necessary regulatory approval of an applicable drug candidate;

•

obtain regulatory approval for a drug candidate in a manner that neither requires nor recommends the use of a companion diagnostic test prior to its use; or

•

choose alternative diagnostic tests to market with their products instead of ours.

To the extent that we develop diagnostic assays for a biopharmaceutical company in collaboration with a collaboration partner, we may not have responsibility for some or all aspects of developing, marketing or commercializing any resulting diagnostic tests. In addition to this biopharmaceutical partner risk, a collaboration partner may take certain actions that could negatively impact the development, utility and marketability of the applicable diagnostic tests. For example, a collaboration partner could fail to satisfy or fall behind in its obligations to us or to the biopharmaceutical company for which we develop a companion diagnostic test, which may delay development, regulatory approvals, market development and/or commercialization of the applicable companion diagnostic test.

~~Our agreement with QML is non~~COVID-~~exclusive~~19 ~~and,~~has inadversely ~~the~~affected ~~future,~~our ~~either~~business ~~party may be unwilling to partner with the other,~~ and ~~we may be unable to implement~~ a ~~feasible~~resurgence ~~partnering~~of ~~relationship~~COVID-19 ~~for the development, manufacture, marketing and/~~or ~~commercialization~~another ofhealth ~~companion~~epidemic ~~diagnostic assays on acceptable terms,~~ or atpandemic ~~all. If we are unable to implement such a relationship, our efforts to develop, manufacture and commercialize companion diagnostic assays~~ may ~~be significantly delayed and limited in scale, or may not occur at all. Any of these events could limit our diagnostic test sales and revenue and~~ have aan ~~material~~ adverse ~~effect~~impact on our business, ~~operating~~in ~~results~~the ~~and financial condition~~future.

~~COVID-19~~Our business, including our workforce, supply chain and customer base, has been adversely affected ~~our~~by ~~business~~COVID‑19 in the past and isa ~~expected~~resurgence toof ~~have~~COVID-19 anor ~~impact~~another onhealth ~~our~~epidemic ~~business~~or ~~for~~pandemic ~~the~~may ~~foreseeable~~adversely affect us in the future.*

~~Our~~COVID-19 ~~business,~~had ~~including~~a negative impact on our ~~workforce,~~product ~~supply~~and ~~chain~~product-related services revenue in 2020, 2021 and ~~customer~~2022. ~~base~~While we saw some recovery in customers returning to work in 2022, the period of reduced revenue continued in 2022 as many customers did not return to historical operating levels, did not allow visitors on site at their facilities for some portion of the year or have not resumed previously planned studies. The extent of this impact has varied from customer to customer depending upon how they have been ~~adversely~~directly ~~affected~~or indirectly impacted by ~~COVID‑19~~local stay-at-home orders and other social distancing measures, priorities for the customers when the immediate impacts of the pandemic had passed, and the workforce and supplier impacts that each customer experienced during the pandemic.

It is also possible that COVID-19 ~~has~~or ~~caused~~another ~~several~~epidemic ~~states~~or ~~and~~pandemic ~~countries~~will toimpact ~~implement~~our ~~quarantines~~workforce, ~~and/~~supply chains or ~~significant~~distribution ~~restrictions~~networks onor otherwise impact our ability to conduct sample processing services in our laboratory or to travel. Into ~~addition,~~customer ~~affected~~facilities ~~regions,~~for ~~including~~commercial ~~several~~or ~~states~~support ~~within~~functions in the ~~United~~future. ~~States~~Governmental mandates may require forced shutdowns of our facilities for extended or indefinite periods. A public health crisis could also substantially interfere with general commercial activity related to our supply chain and customer base, which could have ~~previously~~a ~~implemented~~material ~~work~~adverse ~~restrictions~~effect ~~that~~on ~~limited~~our ~~many~~financial ~~employees~~condition, results of operations, business or prospects. Restrictions resulting from ~~going~~a public health crisis may disrupt our supply chains or distribution networks or limit our ability to ~~work.~~obtain ~~Moreover,~~sufficient ~~COVID-19~~materials ~~has~~for ~~resulted~~our inconsumables ~~business~~or ~~closures~~instruments and amay ~~substantial~~disrupt ~~reduction~~our inability ~~economic~~to ~~activity~~process incustomer samples or, to the ~~United~~extent ~~States~~we ~~and~~enter ~~worldwide~~into collaborative services agreements with biopharmaceutical customers, perform collaborative development services. ~~The~~Further, ~~emergence~~to the extent our customers’ businesses are adversely affected by the pandemic, they might delay or reduce purchases from us or development projects with us, which could adversely affect our results of ~~new~~operations. ~~variants~~The effects of ~~the~~ongoing ~~SARS-CoV-2~~or ~~virus~~future ~~raises~~health ~~the~~epidemics ~~possibility~~on ~~that~~our ~~recurring~~business ~~cycles~~remain uncertain and subject to change. While we do not know the full extent of ~~restrictions~~potential ~~will~~delays beor ~~imposed~~impacts inon the ~~future~~global economy, ~~notwithstanding~~these ~~increasing~~effects ~~vaccination~~could ~~and~~have ~~immunity~~a ~~levels~~material adverse impact on our operations, financial position and liquidity.

While significant uncertainty remains as to the future impact of the COVID-19 pandemic on our operations, and on the global economy as a whole, COVID-19 had a negative impact on our product and product-related services revenue in 2020 and 2021. While we have seen some recovery in customers returning to work, we believe this period of reduced revenue will continue into 2022 as many customers have not returned to historical operating levels, are not yet allowing visitors on site at their facilities or have not resumed previously planned studies. The extent of this impact is likely to vary from customer to customer depending upon how they are or have been directly or indirectly impacted by local stay-at-home orders and other social distancing measures, priorities for the customers when the immediate impacts of the pandemic have passed, and the workforce and supplier impacts that each customer has experienced during the pandemic. 35

~~The~~Our ~~effects of the stay-at-home orders and our work-from-home policies may negatively impact productivity, disrupt our~~ business ~~and~~operations ~~delay~~might ~~our~~be ~~development~~disrupted ~~programs~~or and regulatory timelines and negatively impact our commercial activities, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. In addition, these widespread outbreaks of illness could adversely ~~affect~~affected ~~our~~by ~~workforce~~catastrophic ~~resulting in serious health issues and absenteeism~~events.

ItWe ismanufacture ~~also~~our ~~possible~~HTG ~~that~~EdgeSeq ~~further~~instrument ~~COVID-19~~and ~~outbreaks~~consumable ~~will~~products ~~continue~~and toperform ~~impact~~ our ~~workforce,~~RUO ~~supply~~profiling ~~chains~~and orcustom ~~distribution~~RUO ~~networks~~assay ordesign ~~otherwise~~services ~~impact~~in our ~~ability~~Tucson, toArizona ~~conduct~~facilities. ~~sample~~In ~~processing~~addition, ~~services~~our inTucson ~~our~~facilities ~~laboratory~~are orthe tocenter ~~travel~~for toorder ~~customer~~processing, ~~facilities~~receipt ~~for~~of ~~commercial~~critical orcomponents ~~support~~of ~~functions~~our inHTG ~~the~~EdgeSeq ~~future.~~instrument ~~Governmental~~and ~~mandates~~shipping ~~may~~products ~~require~~to ~~forced~~customers. ~~shutdowns~~We ofdo ~~our~~not ~~facilities~~have ~~for~~redundant ~~extended~~facilities. Damage or ~~indefinite~~the ~~periods.~~inability ~~Pandemic~~to ~~outbreaks,~~utilize ~~including~~our Tucson facilities and the ~~COVID-19,~~equipment ~~could~~we ~~also~~use ~~substantially~~to ~~interfere~~perform ~~with~~research, ~~general~~development ~~commercial~~or ~~activity~~services ~~related~~and tomanufacture our ~~supply~~products ~~chain~~could be costly, and ~~customer~~we ~~base,~~would ~~which~~require ~~could~~substantial ~~have~~lead-time ato ~~material~~repair ~~adverse~~or ~~effect~~replace onthis ~~our~~facility ~~financial~~and ~~condition,~~equipment. ~~results~~The ofTucson ~~operations,~~facilities ~~business~~may be harmed or ~~prospects.~~rendered ~~Restrictions~~inoperable ~~resulting~~by ~~from~~natural ~~COVID~~or man-19made ~~may~~disasters, ~~disrupt~~including ~~our~~flooding, ~~supply~~wind ~~chains~~damage, orpower ~~distribution~~spikes ~~networks~~and power outages, which may render it difficult or ~~limit~~impossible ~~our~~for ~~ability~~us to ~~obtain~~perform ~~sufficient~~these ~~materials~~critical functions for ~~our~~some ~~consumables~~period orof ~~instruments~~time. ~~and~~The ~~may~~inability ~~disrupt~~to ~~our~~manufacture ~~ability~~consumables toor instruments, process customer samples, perform development services or, ship products to ~~the~~customers ~~extent~~for weeven ~~enter~~a ~~into~~short ~~collaborative~~period ~~services~~of ~~agreements~~time ~~with~~may ~~biopharmaceutical~~result in the loss of customers or harm our reputation, ~~perform~~and ~~collaborative~~we ~~development~~may ~~services.~~be ~~Further,~~unable to regain those customers in the ~~extent~~future. ~~our~~Although ~~customers’~~we ~~businesses~~possess ~~are~~insurance ~~adversely~~for ~~affected~~damage byto our property and the ~~pandemic~~disruption of our business, ~~they~~this ~~might~~insurance ~~delay~~may ornot ~~reduce~~be ~~purchases~~sufficient ~~from~~to uscover orall ~~collaborative~~of ~~development~~our ~~projects~~potential ~~with~~losses and may not continue to be available to us on acceptable terms, ~~which~~or ~~could~~at ~~adversely~~all. ~~affect~~In ~~our~~addition, ~~results~~natural ofdisasters ~~operations.~~or ~~The~~other ~~effects~~catastrophic events in various parts of ~~ongoing~~the orworld, ~~future~~including ~~health~~interruptions ~~epidemics~~in onthe ~~our~~supply ~~business~~of ~~remain~~natural ~~uncertain~~resources, political and ~~subject~~governmental tochanges, ~~change.~~disruption ~~While~~in wetransportation donetworks ~~not~~or ~~know~~delivery ~~the~~services, ~~full~~severe ~~extent~~weather conditions, wildfires and other fires, explosions, actions of ~~potential~~animal ~~delays~~rights oractivists, ~~impacts~~terrorist onattacks, earthquakes, wars, conflicts (including the ~~global~~current ~~economy~~Russia-Ukraine conflict), ~~these~~and ~~effects~~public health issues could ~~have~~disrupt aour ~~material~~operations ~~adverse~~or ~~impact~~those onof our ~~operations~~collaborators, ~~financial~~contractors ~~position~~ and ~~liquidity.~~vendors or contribute to unfavorable economic or other conditions that could adversely impact us.

Our business operations might be disrupted or adversely affected by catastrophic events.*

We manufacture our HTG EdgeSeq instrument and consumable products and perform our RUO profiling, custom RUO assay design services and collaborative development services in our Tucson, Arizona facilities. In addition, our Tucson facilities are the center for order processing, receipt of critical components of our HTG EdgeSeq instrument and shipping products to customers. We do not have redundant facilities. Damage or the inability to utilize our Tucson facilities and the equipment we use to perform research, development or services and manufacture our products could be costly, and we would require substantial lead-time to repair or replace this facility and equipment. The Tucson facilities may be harmed or rendered inoperable by natural or man-made disasters, including flooding, wind damage, power spikes and power outages, which may render it difficult or impossible for us to perform these critical functions for some period of time. The inability to manufacture consumables or instruments, process customer samples, perform development services or ship products to customers for even a short period of time may result in the loss of customers or harm our reputation, and we may be unable to regain those customers in the future. Although we possess insurance for damage to our property and the disruption of our business, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In addition, natural disasters or other catastrophic events in various parts of the world, including interruptions in the supply of natural resources, political and governmental changes, disruption in transportation networks or delivery services, severe weather conditions, wildfires and other fires, explosions, actions of animal rights activists, terrorist attacks, earthquakes, wars, conflicts (including the current Russia-Ukraine conflict), and public health issues could disrupt our operations or those of our collaborators, contractors and vendors or contribute to unfavorable economic or other conditions that could adversely impact us.

Our financial results may vary significantly from quarter to quarter or may fall below the expectations of investors or securities analysts, each of which may adversely affect our stock price.*

Investors should consider our business and prospects considering the risks and difficulties we expect to encounter in the new, uncertain and rapidly evolving markets in which we compete. Because these markets are new and evolving, predicting their future growth and size is difficult. We expect that our visibility into future sales of our products, including volumes, prices and product mix between instruments, consumables and services, will continue to be limited and could result in unexpected fluctuations in our quarterly and annual operating results.

Numerous other factors, many of which are outside our control, may cause or contribute to significant fluctuations in our quarterly and annual operating results. For example, one customer accounted for 13% of our revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023. The ~~four~~two largest customers accounted for 1344%, ~~12%, 11%~~ and 1012% of our accounts receivable balance as of ~~September~~March 3031, ~~2022~~2023. If orders from our top customers are discontinued and we are unable to establish new projects or continue to expand our customer base, our revenue in future periods may materially decrease. In addition, we experienced a significant slowing of product and product-related services revenue generation beginning in March 2020 as a result of COVID-19. This period of reduced revenue continued through the remainder of 2020, 2021, 2022 and ~~is continuing~~ into ~~2022~~2023 due to disruptions to our customers’ businesses as a result of the pandemic. The extent of this impact on our ongoing business is likely to vary from customer to customer depending upon how they are directly or indirectly impacted by local stay-at-home orders and other social distancing measures, priorities for the customers when the immediate impacts of the pandemic have passed, and the workforce and supplier impacts that each customer has experienced during the pandemic. Fluctuations in our operating results may make financial planning and forecasting difficult. In addition, these fluctuations may result in unanticipated decreases in our available cash, which could negatively affect our business and prospects. Factors that may contribute to fluctuations in our operating results include many of the risks described under the caption “Risk Factors – Risks Related to Our Business and Strategy” of this report. In addition, one or more of such factors may cause our revenue or operating expenses in one period to be disproportionately higher or lower relative to the others. Our products involve a significant capital commitment from our customers or may depend on customer studies that have variable or indefinite timelines and accordingly, involve a lengthy sales cycle. We may expend significant effort in attempting to make a particular sale, which may be deferred by the customer or never occur. Accordingly, comparing our operating results on a period-to-period basis may not be meaningful, and investors should not rely on our past results as an indication of our future performance. If such fluctuations occur or if our operating results deviate from our expectations or the expectations of investors or securities analysts, our stock price may be adversely affected.

3836

Our sales cycle is lengthy and variable, which makes it difficult for us to forecast revenue and other operating results.*

Our sales process involves numerous interactions with multiple individuals within any given organization, and often includes in-depth analysis by potential customers of our products (where in some instances we will provide a demonstration unit for their use and evaluation), performance of proof-of-principle studies, preparation of extensive documentation and a lengthy review process. As a result of these factors, the capital investment required in purchasing our instrument and the budget cycles of our customers, the time from initial contact with a customer to our receipt of a purchase order can vary significantly and be up to 12 months or longer. Given the length and uncertainty of our sales cycle, we have in the past experienced, and likely will in the future experience, fluctuations in our product and product-related services revenue on a period-to-period basis. In addition, any failure to meet customer expectations could result in customers choosing to retain their existing systems or service providers or to purchase systems or services other than ours. To the extent we enter into collaborative services agreements with biopharmaceutical customers, the revenue that we expect to earn from our collaborative development services are also subject to an extended, variable timeline based on each project agreement, which will likely result in fluctuations in our collaborative development services revenue on a period-to-period basis as well.

Our success depends on our ability to develop new products and applications for our technology in existing and new markets, while improving the performance and cost-effectiveness of our systems. ~~New~~If technologies, techniques or products could emerge that might offer better combinations of price and performance than our current or future products and systems. Existing or future markets for our products, including gene expression analysis, liquid-based specimen analysis (e.g., plasma, blood and urine) and single-cell analysis, as well as potential markets for our diagnostic product candidates, are characterized by rapid technological change and innovation. It is critical to our success that we ~~anticipate~~do ~~changes~~not ~~in technology and customer requirements and~~ successfully ~~introduce~~manage ~~new,~~the ~~enhanced~~development and ~~competitive~~launch ~~technologies to meet our customers’ and prospective customers’ needs on a timely and cost-effective basis. At the same time, however, we must carefully manage the introduction~~ of new products., Ifour ~~customers believe that such~~ products ~~will~~or ~~offer~~our ~~enhanced~~financial ~~features~~results orcould be ~~sold~~adversely ~~for a more attractive price, they may delay purchases until such products are available~~affected. WeDeveloping ~~may also have excess or obsolete inventory of older products as we transition to~~ new products and ~~our~~applications ~~experience~~may inrequire ~~managing~~large ~~product~~investments ~~transitions~~in isworking ~~very~~capital ~~limited. If we do not successfully innovate~~ and ~~introduce new technology into our product lines~~ /or ~~effectively manage~~ the ~~transitions~~development toof new ~~product~~methods ~~offerings,~~or ~~our revenue and results of operations will be adversely impacted~~technologies.

Although we believe that our HTG Transcriptome Panel will be a foundational product for RUO profiling, future companion diagnostics and potential proprietary diagnostic products, and will allow us to further expand our product offerings outside of oncology and autoimmune, we have only recently initiated commercial sales of this panel and it may not have the commercial success that we anticipate or hope for, and we may not be able to continue to expand our product offerings.

In July 2021, we formed a new drug discovery business unit, HTG Therapeutics, which uses our HTP and epitranscriptomic profiling technologies in RNA profiling, and we expect that, by leveraging these profiling technologies earlier in the drug discovery process, HTG Therapeutics will generate lead compounds faster, and with potentially more favorable efficacy and toxicity profiles. However, there can be no assurance that HTG Therapeutics will be able to accomplish these goals or will otherwise be successful. In addition, we have built a machine learning-based chemical library design platform, which is expected to better predict the binding properties of a drug candidate to its target. If we are unsuccessful at developing this full machine learning-based chemical library design platform, or it, HTG Therapeutics or our HTP do not provide the benefits that we anticipate, our future revenue opportunities will be limited.

New technologies, techniques or products could emerge that might offer better combinations of price and performance than our current or future products and systems. Existing or future markets for our products, including gene expression analysis, liquid-based specimen analysis (e.g., plasma, blood and urine) and single-cell analysis, as well as potential markets for our diagnostic product candidates, are characterized by rapid technological change and innovation. It is critical to our success that we anticipate changes in technology and customer requirements and successfully introduce new, enhanced and competitive technologies to meet our customers’ and prospective customers’ needs on a timely and cost-effective basis. At the same time, however, we must carefully manage the introduction of new products. If customers believe that such products will offer enhanced features or be sold for a more attractive price, they may delay purchases until such products are available. We may also have excess or obsolete inventory of older products as we transition to new products and our experience in managing product transitions is very limited. If we do not successfully innovate and introduce new technology into our product lines or effectively manage the transitions to new product offerings, our revenue and results of operations will be adversely impacted.

Competitors may respond more quickly and effectively than we do to new or changing opportunities, technologies, standards or customer requirements. We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved products and as new companies enter the market with new technologies.

If we do not successfully manage the development and launch of new products, our financial results could be adversely affected.

We face risks associated with launching new products and with undertaking to comply with regulatory requirements for certain types of our products. If we encounter development or manufacturing challenges, adjust our product development priorities, or discover deficiencies during our product development cycle, the product launch date(s) may be delayed, or certain product development projects may be terminated. The expenses or losses associated with unsuccessful product development or launch activities or lack of market acceptance of our new products could adversely affect our business or financial condition.

3937

~~Our~~We ~~future~~may ~~success~~not isbe ~~dependent~~successful ~~upon~~in ~~our~~expanding ~~ability to expand~~ our customer base and ~~introduce~~introducing new applications for our profiling business.*

Our current customer base is primarily composed of biopharmaceutical companies, academic institutions and molecular labs that perform analyses using or directly or indirectly obtain services based on our HTG EdgeSeq platform and consumables for research use only, which means that the products or data from services may not be used for clinical diagnostic purposes. WeThe ~~have~~success ~~obtained CE markings in Europe for our HTG EdgeSeq consumables, including our HTG EdgeSeq DLBCL Cell~~ of ~~Origin Assay EU and~~ our ~~HTG~~profiling ~~EdgeSeq~~business ALKPlus EU. These products may be used by customers for diagnostic purposes in Europe. With the EU transition to IVD Medical Device Regulation in May 2022, we would need to comply with these requirements in order to remain on the EU market other than research use only. Currently, we do not intend to and, where applicable, do not have appropriate licenses or permits to conduct diagnostic testing services. Our success will depend, in part, upon our ability to increase our market penetration among our customer bases, ~~and~~to continue to ~~expand~~introduce ~~our~~new ~~market~~applications byfor ~~developing~~our existing technology and ~~marketing~~to ~~new~~expand ~~companion~~existing ~~diagnostic~~customer ~~tests~~adoption ~~and~~of our RUO applications (whether product or service). ~~We may not be able to successfully complete development of or commercialize any of our planned future tests and applications.~~ To achieve these goals, we will need to conduct substantial research and development, conduct clinical validation studies, expend significant funds, expand and scale-up our research, development, service and manufacturing processes and facilities, enter into service ~~and collaborative development services~~ arrangements with biopharmaceutical company customers, expand and ~~train~~adjust our sales ~~force;~~strategy, ~~and~~continue ~~seek~~to ~~and~~train ~~obtain~~our ~~regulatory~~sales ~~clearance~~force orand ~~approvals~~support publication of ~~our~~scientific ~~new~~publications ~~tests~~that ~~and~~reflect ~~applications,~~the asapplication ~~required~~of byour ~~applicable~~technology ~~regulations~~in various areas. Additionally, we must demonstrate to laboratory directors, physicians and third-party payors that our ~~current and any future diagnostic~~ products are effective in obtaining ~~clinically~~ relevant information ~~that can inform treatment decisions~~, and that our HTG EdgeSeq platform and related panels can enable an equivalent or superior approach than other available technology. Furthermore, we expect that a combination of increasing the installed base of our HTG EdgeSeq instruments and entering into additional service agreements with biopharmaceutical customers will drive increased demand for our relatively high margin panels. If we are not able to successfully increase our installed base and biopharmaceutical customer relationships, then sales of our products and services, and our margins for these revenue items may not meet expectations. Attracting new customers and introducing new applications for our products and services requires ~~substantial~~ time and expense. Any failure to expand ~~our~~adoption ~~existing~~of ~~customer~~our ~~base,~~technology ~~or launch new products, including diagnostic products or services,~~ would adversely affect our ability to improve our operating results.

The ~~development~~common ofwarrants ~~future~~issued ~~products~~in isour ~~dependent~~March on2022 ~~new~~private ~~methods~~placement and~~/or~~ ~~technologies~~in ~~that~~our weDecember ~~may~~2022 ~~not~~best-efforts beregistered ~~successful~~offering include a right to receive the Black-Scholes value of the warrants in ~~developing~~the event of a fundamental transaction approved by our board of directors, which payment could be significant.*

WeThe ~~commercially~~warrants ~~launched~~to ~~our~~purchase ~~HTG~~shares ~~Transcriptome~~of ~~Panel~~common instock, ~~August~~other ~~2021.~~than ~~Although we believe that~~ the ~~HTG~~pre-funded ~~Transcriptome Panel will be a foundational product for RUO profiling~~warrants, ~~future~~issued ~~companion~~by ~~diagnostics and potential proprietary diagnostic products, and will allow~~ us toin ~~further~~connection ~~expand~~with our ~~product~~March ~~offerings~~2022 ~~outside~~private ofplacement ~~oncology~~ and ~~autoimmune~~our ~~and~~December ~~into~~2022 ~~additional~~best-efforts ~~markets~~public ~~such~~offering as(see ~~transplant~~Notes 13 and ~~diabetes,~~14 weto ~~have~~the ~~only~~condensed ~~recently~~consolidated ~~initiated~~financial ~~commercial~~statements ~~sales~~included ofelsewhere in this ~~panel~~report ~~and~~for itmore ~~may~~information ~~not~~on ~~have~~these ~~the~~warrants) ~~commercial~~provide ~~success~~ that ~~we anticipate or hope for~~, orin ~~that~~the itevent ~~will~~of ~~allow us to expand our product offerings. In July 2021, we formed~~ a ~~new~~“fundamental ~~drug~~transaction” ~~discovery~~that ~~business~~is ~~unit,~~approved ~~HTG~~by ~~Therapeutics, which uses~~ our ~~HTG~~board ~~Transcriptome~~of ~~Panel and transcriptomic profiling technology to profile RNA modifications~~directors, ~~and we expect that~~including, byamong ~~leveraging~~other ~~these profiling technologies earlier in the drug discovery process~~things, ~~HTG~~a ~~Therapeutics~~merger ~~will~~or ~~generate~~consolidation ~~lead~~of ~~compounds~~our ~~faster,~~company ~~and~~or ~~with~~sale ~~potentially~~of ~~more~~all ~~favorable~~or ~~efficacy~~substantially ~~and~~all ~~toxicity~~of ~~profiles.~~our ~~However~~assets, ~~there~~the ~~can~~holders beof nosuch ~~assurance~~warrants ~~that~~have ~~HTG~~the ~~Therapeutics~~option ~~will be able~~ to ~~accomplish~~require ~~these~~the ~~goals~~Company orto ~~will~~pay ~~otherwise~~to besuch ~~successful.~~holders Inan ~~addition,~~amount weof ~~have~~cash ~~built~~equal ~~a machine learning-based chemical library design platform, which is expected~~ to ~~better predict~~ the ~~binding~~Black-Scholes ~~properties~~value of athe ~~drug candidate to its target~~warrants. IfSuch weamount ~~are~~could ~~unsuccessful~~be atsignificant ~~developing~~and ~~this~~would ~~full~~reduce ~~machine~~the ~~learning-based~~consideration ~~chemical~~that ~~library~~holders ~~design~~of ~~platform,~~common orstock ~~it,~~would ~~HTG~~be ~~Therapeutics~~concurrently orentitled ~~our~~to ~~HTG~~receive ~~Transcriptome~~in ~~Panel~~such dofundamental ~~not provide the benefits that we anticipate, our future revenue opportunities will be limited~~transaction.

~~A key element of our strategy is to establish our HTG EdgeSeq technology as the best sample and library preparation method for clinical applications of next-generation sequencers.~~ We depend at least in part on the availability of NGS instrumentation and reagents, and the ability of our HTG EdgeSeq products to operate seamlessly with NGS instrumentation. Any significant interruption or delay in the ability of our HTG EdgeSeq products to operate on or with NGS instrumentation could reduce demand for our products and result in a loss of customers.

40Our reputation, and our ability to continue to establish or develop our technology for clinical applications of next-generation sequencers, are dependent upon the availability of NGS instrumentation and the reliable performance of our products with NGS instrumentation. We are not able to control the providers of NGS instrumentation, which increases our vulnerability to interoperability problems with the products that they provide. For example, providers of NGS instruments may discontinue existing products, or introduce new NGS instrumentation products with little or no notice to us.

~~Our~~If ~~reputation,~~we ~~and~~do our ability to continue to establish or develop our technology for clinical applications of next-generation sequencers, are dependent upon the availability of NGS instrumentation and the reliable performance of our products with NGS instrumentation. We are not ~~able to control the providers of NGS instrumentation~~achieve, ~~which~~sustain ~~increases our vulnerability to interoperability problems with the products that they provide. For example, providers of NGS instruments may discontinue existing products,~~ or ~~introduce~~successfully ~~new~~manage ~~NGS instrumentation products with little or no notice to us. This may cause some of~~ our ~~products~~anticipated ~~not~~long-term ~~to be operable with one or more NGS instruments or may adversely affect regulatory approvals of our future IVD HTG EdgeSeq products~~growth, ~~potentially for extended periods of time. Any interruption in the ability of~~ our ~~products to operate on NGS instruments could harm our reputation or decrease market acceptance of our products, and our~~ business, ~~financial condition~~ and ~~operating~~growth ~~results~~prospects ~~may~~will be ~~materially and adversely affected~~harmed. We also could experience additional expense in developing new products or changes to existing products to meet developments in NGS instrumentation, including fees charged by our development partners to access new technology, and our business, financial condition and operating results may be materially and adversely affected.*

~~Current~~Our ~~medical~~current ~~device~~personnel, ~~regulation~~systems ~~in the United States~~ and ~~other~~facilities ~~jurisdictions~~may requires manufacturers of IVD molecular profiling tests that use NGS detection, referred to as NGS IVD tests, to include in regulatory submissions, technical information about the NGS products that are required for performance of, but are not ~~supplied~~be ~~with,~~adequate ~~the NGS IVD test. These regulatory agencies also require that the NGS instrumentation have “locked” software for the detection of the NGS IVD test results. Thus,~~ to ~~obtain~~support ~~regulatory~~our ~~approval~~business ~~for~~plan ~~NGS IVD tests, manufacturers like us, currently must have arrangements with NGS product manufacturers to gain access to technical information~~ and ~~NGS instrument software. We currently have agreements with two NGS product manufacturers that grant us rights to develop, manufacture and sell~~ future ~~HTG~~growth ~~EdgeSeq NGS IVD tests~~ in ~~specified fields, subject to, among other things,~~ the ~~NGS~~long ~~product~~term. ~~manufacturers’~~Our ~~rights~~need to ~~terminate~~effectively ~~such~~manage ~~agreements and discontinue products or implement product design changes that could adversely affect~~ our ~~HTG EdgeSeq NGS IVD tests. There can be no assurance that our agreements with these NGS product manufacturers~~operations, orgrowth ~~any~~and ~~future~~various ~~NGS~~projects ~~product~~requires ~~manufacturers~~ that we ~~contract with~~, ~~will~~among ~~not~~other be terminated earlier than we currently expect, that a NGS product manufacturer will perform its contractual duties to us, or that we will otherwise receive the benefits we anticipate receiving under those agreements. In addition, if regulatory agencies do not change their requirements for NGS IVD test approval or clearance and the NGS instrument manufacturers close their systems to third-party NGS IVD test development (in general or with specific NGS IVD test manufacturers) and we are not able to maintain or enforce our agreements with such manufacturers, we may not be able to meet our commercial goals and our business, financial condition and operating results may be materially and adversely affected. things:

•

If we do not achieve, sustain or successfully manage our anticipated growth, our business and growth prospects will be harmed.

Our current personnel, systems and facilities may not be adequate to support our business plan and future growth. Our need to effectively manage our operations, growth and various projects requires that we, among other things:

continue to improve our operational, financial, management and regulatory compliance controls and reporting systems and procedures;

•

attract and retain sufficient numbers of talented employees;

•

manage our commercialization activities effectively and in a cost-effective manner;

•

manage our relationship with third parties related to the development and commercialization of our products; and

•

manage our development efforts effectively while carrying out our contractual obligations to contractors and other third parties.

Moreover, growth will place significant strains on our management and our operational and financial systems and processes. For example, expanded market penetration of our HTG EdgeSeq platform and related proprietary panels, and future development and approval of diagnostic products, are key elements of our growth strategy that will require us to hire and retain additional sales and marketing, regulatory, manufacturing and quality assurance personnel. If we do not successfully forecast the timing and cost of the development of new panels and diagnostic products, the regulatory clearance or approval for product marketing of any future diagnostic products or the demand and commercialization costs of such products, or manage our anticipated expenses accordingly, our operating results will be harmed.

If regulatory limitations are placed on our products our business and growth will be harmed.

In many jurisdictions, including the United States, we are currently limited to marketing our HTG EdgeSeq platform and proprietary profiling panels for research use only, which means that we cannot make any diagnostic or clinical claims for those products in those jurisdictions.

We obtained the right to CE mark the HTG EdgeSeq DLBCL Cell of Origin Assay EU and the HTG EdgeSeq ALKPlus Assay EU for sale as IVDs in Europe, in July 2016 and March 2017, respectively. With the EU transition to IVD Medical Device Regulation in May 2022, we would need to comply with these requirements in order to remain on the EU market other than research use only. While our current ex-U.S. strategy is to focus our efforts on the RUO market, in the event we want to expand our ex-U.S. business opportunities outside of research use only there would likely be additional clinical validations and certifications that we would need to obtain and there can be no assurance that we would be able obtain to obtain any such validations or certifications on a timely basis, or at all. In addition, if clinical diagnostic laboratories or other customers outside the United States do not accept our tests, our ability to grow our business outside of the United States could be compromised.

Our HTG Therapeutics business strategy may require significant investments in working capital and may not generate any revenue.*

In July 2021, we formed a new drug discovery business unit, HTG Therapeutics. This business unit uses our HTG Transcriptome Panel and our transcriptomic profiling technology evolved from our original HTG EdgeSeq technology, HTG EpiEdgeSeq, to profile RNA modifications. By leveraging these profiling technologies earlier in the drug discovery process, our objective is for HTG Therapeutics to generate lead compounds faster, and with potentially more favorable efficacy and toxicity profiles, with the ultimate goal of generating interest from pharmaceutical companies that results in research or licensing collaborations for, or acquisitions of, these compounds. However, while we have hired experienced employees and added drug development depth to our Board of Directors, as a company we have no prior experience with drug discovery and development and may not be successful in this endeavor. Moreover, drug discovery and development is expensive and will require investments in working capital by us that may be significant. Even if we are successful in partnering for one or more early-stage drug discovery programs with a pharmaceutical company, we will need to expend potentially significant capital resources on these programs prior to any such partnering, and potentially after, and there can be no assurance that we will generate meaningful revenue from these programs. We will need to raise additional funds in order to finance the implementation of our HTG Therapeutics business strategy, which could dilute our current investors or could impact our ability to continue our operations in the future.

We expect to generate a portion of our revenue internationally and are subject to various risks relating to our international activities, which could adversely affect our operating results.*

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023, approximately 3651% ~~and 33%~~ of our revenue was generated from sales originated by customers located outside of the United States, respectively, compared with 2418% ~~and 30%~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021, respectively~~2022. We expect that a percentage of our future revenue will continue to come from international sources, and we expect to expand our overseas operations and develop opportunities in additional areas. Engaging in international business involves a number of difficulties and risks, including:

•

required compliance with existing and changing foreign regulatory requirements and laws;

•

required compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, data privacy requirements, labor laws and anti-competition regulations;

•

export and import restrictions;

•

various reimbursement, pricing and insurance regimes;

•

laws and business practices favoring local companies;

•

longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;

•

political and economic instability, including due to the current Russia-Ukraine conflict;

•

potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other trade barriers, including transfer pricing, value added and other tax systems, double taxation and restrictions and/or taxation on repatriation of earnings;

•

tariffs, customs charges, bureaucratic requirements and other trade barriers;

•

difficulties and costs of staffing and managing foreign operations, including difficulties and costs associated with foreign employment laws;

•

increased financial accounting and reporting burdens and complexities; and

•

difficulties protecting, procuring, or enforcing intellectual property rights, including from reduced or varied protection for intellectual property rights in some countries.

As we expand internationally our results of operations and cash flows will become increasingly subject to fluctuations due to changes in foreign currency exchange rates. Historically, most of our revenue has been denominated in U.S. dollars, although we have sold our products and services in local currency outside of the United States, principally the Euro. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States. As our operations in countries outside of the United States grows, our results of operations and cash flows will increasingly be subject to fluctuations due to changes in foreign currency exchange rates, which could negatively impact our results of operations in the future. For example, if the value of the U.S. dollar increases relative to foreign currencies, in the absence of an offsetting change in local currency prices, our revenue could be adversely affected as we convert revenue from local currencies to U.S. dollars.

If we dedicate significant resources to our international operations and are unable to manage these risks effectively, our business, operating results and prospects will suffer. Moreover, we cannot be certain that the investment and additional resources required in establishing operations in other countries will produce desired levels of revenue or profitability.

In addition, any failure to comply with applicable legal and regulatory obligations could negatively impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of products and restrictions on certain business activities.

If the utility of our HTG EdgeSeq platform, proprietary profiling panels, services and solutions in development is not supported by studies published in peer-reviewed medical publications, the rate of adoption of our current and future products and the rate of reimbursement of our future products by third-party payors may be negatively affected.

We anticipate that we will need to maintain a continuing presence in peer-reviewed publications to promote adoption of our products by biopharmaceutical companies, academic institutions and molecular labs and to promote favorable coverage and reimbursement decisions. We believe that peer-reviewed journal articles that provide evidence of the utility of our current and future products or the technology underlying the HTG EdgeSeq platform, consumables and services are important to our commercial success. It is critical to the success of our sales efforts that we educate a sufficient number of clinicians and administrators about our HTG EdgeSeq technology, including our ~~HTG~~epitranscriptomic ~~EpiEdgeSeq~~profiling technology, our current panels and services and our future solutions, and demonstrate the research and clinical benefits of these solutions. Our customers may not adopt our current and future solutions, and third-party payors may not cover or adequately reimburse our future products, unless they determine, based on published peer-reviewed journal articles and the experience of other researchers and clinicians, that our products provide accurate, reliable, useful and cost-effective information. Peer-reviewed publications regarding our products and solutions may be limited by many factors, including delays in the completion of, poor design of, or lack of compelling data from studies that would be the subject of the article. If our current and future product and product-related service solutions or the technology underlying such products and services do not receive sufficient favorable exposure in peer-reviewed publications, the rate of research and clinical adoption and positive coverage and reimbursement decisions could be negatively affected.

We may provide our HTG EdgeSeq instrument and profiling panels free of charge or through other arrangements to customers or key opinion leaders through evaluation agreements or reagent rental programs, and these programs may not be successful in generating recurring revenue from sales of our systems and proprietary panels.

We sell our HTG EdgeSeq instrument and profiling panels under different arrangements to expand our installed base and facilitate the adoption of our platform.

In some instances, we provide equipment free of charge under evaluation agreements for a limited period of time to permit the user to evaluate the system for their purposes in anticipation of a decision to purchase the system. We retain title to the equipment under such arrangements unless the evaluator purchases the equipment, and in most cases, require evaluation customers to purchase a minimum quantity of consumables during the evaluation period.

When we place a system under a reagent rental agreement, we install equipment in the customer’s facility without a fee and the customer agrees to purchase consumable products at a stated price over the term of the agreement. While some of these agreements did not historically contain a minimum purchase requirement, we have included a minimum purchase requirement in all current reagent rental agreements and will continue to do so in the future. We retain title to the equipment and such title is transferred to the customer at no additional charge at the end of the initial arrangement. The cost of the instrument under the agreement is expected to be recovered in the fees charged for consumables, to the extent sold, over the term of the agreement.

Other arrangements might include a research agreement whereby an academic collaborator agrees to provide biological samples in exchange for the use of an HTG EdgeSeq instrument at no cost in furtherance of the collaborator’s professional goals and/or the educational or research objectives of an applicable institution.

Any of the foregoing arrangements could result in lost revenue and profit and potentially harm our long-term goal of achieving profitable operations. In addition, we require customers who receive systems that we continue to own to carry insurance sufficient to protect us against any equipment losses, we cannot guarantee that they will maintain such coverage, which may expose us to a loss of the value of the equipment in the event of any loss or damage.

There are instances where we provide our systems to key opinion leaders free of charge, to gather data and publish the results of their research to assist our marketing efforts. We have no control over some of the work being performed by these key opinion leaders, or whether the results will be satisfactory. It is possible that the key opinion leader may generate data that is unsatisfactory and could potentially harm our marketing efforts. In addition, customers may from time to time create negative publicity about their experience with our systems, which could harm our reputation and negatively affect market perception and adoption of our platform.

Placing our HTG EdgeSeq instruments under evaluation agreements, under reagent rental agreements or with our key opinion leaders without receiving payment for the instruments could require substantial additional working capital to provide additional units for sale to our customers.

We face risks related to handling of hazardous materials and other regulations governing environmental safety.

Our operations are subject to complex and stringent environmental, health, safety and other governmental laws and regulations that both public officials and private individuals may seek to enforce. Our activities that are subject to these regulations include, among other things, our use of hazardous materials and the generation, transportation and storage of waste. We could discover that we or an acquired business is not in material compliance with these regulations. Existing laws and regulations may also be revised or reinterpreted, or new laws and regulations may become applicable to us, whether retroactively or prospectively, that may have a negative effect on our business and results of operations. It is also impossible to eliminate completely the risk of accidental environmental contamination or injury to individuals. In such an event, we could be liable for any damages that result, and any liability could exceed our resources or any applicable insurance coverage we may have, which events could adversely affect our business.

The life sciences research and diagnostic markets are highly competitive. We face competition from enhanced or alternative technologies and products, which could render our products and/or technologies obsolete. If we fail to compete effectively, our business and operating results will suffer.

We face significant competition in the ~~life~~drug ~~sciences research and diagnostics markets. We currently compete with both established and early-stage life sciences research companies that design~~discovery, manufacture and market instruments and consumables for gene expression analysis, liquid-based specimen analysis (e.g., plasma, blood and urine), single-cell analysis, PCR, digital PCR, other nucleic acid detection and additional applications. These companies use well-established laboratory techniques such as microarrays or qPCR as well as newer technologies such as next-generation sequencing. We believe our principal competitors in the life sciences research market are Abbott Molecular, Affymetrix, Inc., Agilent Technologies, Inc., BioRad Laboratories, Invitae (acquired by Archer Dx, Inc.), Fluidigm Corporation, Illumina, Inc., Luminex Corporation, NanoString Technologies, Inc., Personal Genome Diagnostics (acquired by Labcorp), entities owned and ~~controlled~~diagnostics ~~by QIAGEN N~~markets.~~V.,~~ Roche Diagnostics, a division of the Roche Group of companies, and Thermo Fisher Scientific, Inc. In addition, there are several other market entrants in the process of developing novel technologies for the life sciences market. One or more of our competitors could develop a product that is superior to a product we offer or intend to offer, or our technology and products may be rendered obsolete or uneconomical by advances in existing technologies.

The biopharmaceutical sector is populated with companies seeking to advance new and differentiated approaches to discovery and experimental therapeutics by way of different platform technologies or modalities with the intent for application to specific disease areas through focus on pharmacologic targets or through phenotypic approaches. In drug discovery, companies such as Accent Therapeutics, Arrakis Therapeutics, Storm Therapeutics and other discovery-stage biotechnology companies are focused in similar therapeutic areas.

We currently compete with both established and early-stage life sciences research companies that design, manufacture and market instruments and consumables for gene expression analysis, liquid-based specimen analysis (e.g., plasma, blood and urine), single-cell analysis, PCR, digital PCR, other nucleic acid detection and additional applications. These companies use well-established laboratory techniques such as microarrays or qPCR as well as newer technologies such as next-generation sequencing. We believe our principal competitors in the life sciences research market are Abbott Molecular, Affymetrix, Inc., Agilent Technologies, Inc., BioRad Laboratories, Invitae, Fluidigm Corporation, Illumina, Inc., Luminex Corporation, NanoString Technologies, Inc., Personal Genome Diagnostics (acquired by Labcorp), entities owned and controlled by QIAGEN N.V., Roche Diagnostics, a division of the Roche Group of companies, and Thermo Fisher Scientific, Inc. In addition, there are several other market entrants in the process of developing novel technologies for the life sciences market. One or more of our competitors could develop a product that is superior to a product we offer or intend to offer, or our technology and products may be rendered obsolete or uneconomical by advances in existing technologies.

Within the diagnostic market, there are competitors that manufacture systems for sales to hospitals and laboratories and other competitors that offer tests conducted through CLIA certified laboratories. We will also compete with commercial diagnostics companies. Most of our current competitors are either publicly traded, or are divisions of publicly traded companies, and enjoy a number of competitive advantages over us, including:

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greater name and brand recognition, financial and human resources;

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broader product lines;

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larger sales forces and more established distributor networks;

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substantial intellectual property portfolios;

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larger and more established customer bases and relationships; and

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better established, larger scale, and lower cost manufacturing capabilities.

We believe that the principal competitive factors in all of our target markets include:

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cost of capital equipment;

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cost of consumables and supplies;

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reputation among customers;

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innovation in product offerings;

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flexibility and ease-of-use;

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accuracy and reproducibility of results; and

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compatibility with existing laboratory processes, tools and methods.

We believe that additional competitive factors specific to the diagnostics market include:

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breadth of clinical decisions that can be influenced by information generated by tests;

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volume, quality, and strength of clinical and analytical validation data;

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availability of coverage and adequate reimbursement for testing services; and

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economic benefit accrued to customers based on testing services enabled by products.

Our products may not compete favorably, and we may not be successful in the face of increasing competition from new products and technologies introduced by our existing competitors or new companies entering our markets. In addition, our competitors may have or may develop products or technologies that currently or in the future will enable them to produce competitive products with greater capabilities or at lower costs than ours. Any failure to compete effectively could materially and adversely affect our business, financial condition and operating results.

45Our revenue currently depends in part on research and development spending by academic and governmental research institutions and biopharmaceutical companies, a reduction in which could limit demand for our products and adversely affect our business and operating results.

with greater capabilities or at lower costs than ours. Any failure to compete effectively could materially and adversely affect our business, financial condition and operating results.

Our current business depends on levels of research and development spending by academic and governmental research institutions and biopharmaceutical companies, a reduction in which could limit demand for our products and adversely affect our business and operating results.

Our revenue is currently derived from sales of our HTG EdgeSeq instrument and related proprietary panels, the design of custom RUO assays and sample processing for research applications to biopharmaceutical companies, academic institutions and molecular labs, predominantly in the United States and Europe. The demand for our products and services will depend in part upon the research and development budgets of these customers, which are impacted by factors beyond our control, such as:

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changes in government programs that provide funding to research institutions and companies;

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macroeconomic conditions and the political climate;

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changes in the regulatory environment;

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differences in budgetary cycles;

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market-driven pressures to consolidate operations and reduce costs; and

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market acceptance of relatively new technologies, such as ours.

We believe that any uncertainty regarding the availability of research funding may adversely affect our operating results and may adversely affect sales to customers or potential customers that rely on government funding. In addition, academic, governmental and other research institutions that fund research and development activities may be subject to stringent budgetary constraints that could result in spending reductions, reduced allocations or budget cutbacks, which could jeopardize the ability of these customers to purchase our products or services. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers. Any decrease in our customers’ budgets or expenditures, or in the size, scope or frequency of capital or operating expenditures, could materially and adversely affect our business, operating results and financial condition.

As part of our current business model, we intend to seek to enter into strategic development collaborations and licensing arrangements with third parties.

We have relied, and expect to continue to rely, on strategic development collaborations and licensing agreements with third parties to develop or in-license technologies based on which products or services we may develop or offer. We have entered into agreements with third parties to facilitate or enable our development of assays, and ultimately diagnostic tests, to aid in the diagnosis of oncology diseases, such as breast cancer and melanoma, and other diseases. We intend to enter into additional similar agreements with life sciences companies, biopharmaceutical companies and other researchers for future diagnostic products. In addition, we intend to enter into early-stage drug discovery and development collaborations. However, we cannot guarantee that we will enter into any additional agreements or collaborations. For example, our life sciences research or biopharmaceutical customers are not obligated to collaborate with us or license technology to us, and they may choose to develop diagnostic products themselves or collaborate with our competitors. Establishing development collaborations and licensing arrangements is difficult and time-consuming. Discussions may not lead to development collaborations or licenses on favorable terms, or at all. Potential collaborators or licensors may elect not to work with us based upon their assessment of our financial, regulatory or intellectual property position. To the extent that we enter new collaborative development or licensing agreements, they may never result in the successful development or commercialization of future tests or other products for a variety of reasons, including because our collaborators may not succeed in performing their obligations or may choose not to cooperate with us. We cannot control the amount and timing of our collaborators’ resources that will be devoted to performing their responsibilities under our agreements with them. Moreover, to the extent we agree to work exclusively with a party in a given area, our opportunities to collaborate with others would be limited. Even if we establish new relationships, they may never result in the successful development or commercialization of future tests or other products. Disputes with our collaborators could also impair our reputation or result in development delays, decreased revenue and litigation expenses.

Our research and development efforts will be hindered if we are not able to contract with third parties for access to archival patient samples.

Our future development of products for clinical indications will require access to archival patient samples for which data relevant to the clinical indication of interest is known. We rely on our ability to secure access to these archived patient samples, including FFPE tissue, plasma, serum, whole blood preserved in PAXgene, or various cytology preparations, together with the information pertaining to the clinical outcomes of the patients from which the samples were taken. Owners or custodians of relevant samples may be difficult to identify and/or identified samples may be of poor quality or limited in number or amount. Additionally, others compete with us for access to these samples for both research and commercial purposes. Even when an appropriate cohort of samples is identified, the process of negotiating access to these samples can be lengthy because it typically involves numerous parties and approval levels to resolve complex issues such as usage rights, institutional review board approval, privacy rights, publication rights, and intellectual property ownership. In addition, in some instances the cost to acquire samples can be prohibitively expensive. If we are not able to negotiate access to archived patient samples on a timely basis and on acceptable terms, or at all, or if our competitors or others secure access to these samples before us, our ability to research, develop and commercialize future products will be limited or delayed.

We are dependent on third-party suppliers for certain subcomponents of our products, including a single supplier for one subcomponent of our HTG EdgeSeq instruments.

We rely on third-party suppliers to supply certain subcomponents used in our HTG EdgeSeq instruments and consumables, including a single supplier, In Position Technologies, to produce a certain subcomponent used in our HTG EdgeSeq instruments. While we periodically forecast our needs for these subcomponents, our contracts with these suppliers do not commit them to carry inventory or make available any particular quantities, and the suppliers may give other customers’ needs higher priority than ours and we may not be able to obtain adequate supplies in a timely manner or on commercially reasonable terms. If we were to lose any of these suppliers, we may not be able to identify or enter into agreements with alternative suppliers on a timely basis on acceptable terms, or at all. In addition, we have in the past experienced supply issues, as well as quality control problems such as shipment errors, with certain of our suppliers, and may experience problems in the future. If we should encounter delays or difficulties in securing the quality and quantity of subcomponents we require for our products, our supply chain would be interrupted or our products may not perform as expected, which would adversely affect our sales. A loss or performance failure of any of these suppliers could significantly delay the delivery or impact the performance of our products, which in turn would materially affect our ability to generate revenue. If any of these events occur, our business and operating results could be materially harmed.

We may encounter manufacturing difficulties that could impede or delay production of our HTG EdgeSeq platform.

We began manufacturing our HTG EdgeSeq platform internally in 2016. We have limited experience with manufacturing the system and our internal manufacturing operations may encounter difficulties involving, among other things, scale-up of manufacturing processes, production efficiency and output, regulatory compliance, quality control and quality assurance, and shortages of qualified personnel. Any failure in our planned internal manufacturing operations could cause us to be unable to meet demand for these systems, delay the delivery of the system to customers, and harm our business relationships and reputation.

If we encounter difficulties in our planned internal manufacturing operations, we may need to engage a third-party supplier, provided we cannot be sure we will be able to do so in a timely manner, or at all, or on favorable terms.

Any of these factors could cause us to delay or suspend production of our HTG EdgeSeq platform, entail unplanned additional costs and materially harm our business, results of operations and financial condition.

We rely on distributors for sales of our products in several markets outside of the United States.

We have established exclusive and non-exclusive distribution agreements for our HTG EdgeSeq platform and related profiling panels within parts of Europe and the Middle East. We intend to continue to grow our business internationally, and to do so, in addition to expanding our own direct sales and support team, we plan to attract additional distributors and sales partners to maximize the commercial opportunity for our products. We cannot guarantee that we will be successful in attracting desirable distribution and sales partners or that we will be able to enter into such arrangements on favorable terms. Distributors and sales partners may not commit the necessary resources to market and sell our products to the level of our expectations or may favor marketing the products of our competitors. If current or future distributors or sales partners do not perform adequately, or we are unable to enter into effective arrangements with distributors or sales partners in particular geographic areas, we may not realize long-term international revenue growth.

Developing companion diagnostic products may require large investments in working capital and may not generate any revenue.

A component of our strategy is the development of companion diagnostic products designed to determine the appropriate patient population for administration of a particular therapeutic to more successfully treat a variety of illnesses. We may now choose to develop companion diagnostic products independently or with a collaboration partner. Successfully developing a companion diagnostic product depends both on regulatory approval for administration of the therapeutic, as well as regulatory approval of the associated diagnostic product. Even if we are successful in developing products that would be useful as companion diagnostic products, and potentially receive regulatory approval for such products, the biopharmaceutical companies that develop the corresponding therapeutics may ultimately be unsuccessful in obtaining regulatory approval for any such therapeutic, or, even if successful, select a competing technology to use in their regulatory submission instead of ours. The development, especially the independent development, of companion diagnostic products requires a significant investment of working capital, which may not result in any future income. This could require us to raise additional funds which could dilute our current investors or could impact our ability to continue our operations in the future.

Our products are subject to the limitations set forth in the product labeling, which may not satisfy the needs of all customers. For example, in the past we have introduced new panels that initially were intended to be used with specific sample types. Because our customers desire that our panels be broadly applicable to many biological sample types, these initial limitations could harm our reputation or decrease market acceptance of our products. If that occurs, we may incur significant costs, the attention of our key personnel could be diverted, or other significant customer relations problems may arise, which could harm our business and operating results.

Similarly, our products may contain undetected errors or defects when first introduced or as new versions are released. Since our current customers use our products for research and, if cleared or approved for diagnostic applications, disruptions or other performance problems with our products may damage our customers’ businesses and could harm our reputation. If that occurs, we may incur significant costs, the attention of our key personnel could be diverted, or other significant customer relations problems may arise. We may also be subject to warranty and liability claims for damages related to errors or defects in our products. A material liability claim or other occurrence that harms our reputation or decreases market acceptance of our products could harm our business and operating results.

The sale and use of products or services based on our technologies, or activities related to our research and clinical studies, could lead to the filing of product liability claims if someone were to allege that one of our products contained a design or manufacturing defect which resulted in the failure to adequately perform the analysis for which it was designed. A product liability claim could result in substantial damages and be costly and time consuming to defend, either of which could materially harm our business or financial condition. We cannot assure investors that our product liability insurance could adequately protect our assets from the financial impact of defending a product liability claim. Any product liability claim brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing insurance coverage in the future.

~~Changes in laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.~~43

~~New~~Uncertainties ~~income,~~in ~~sales,~~the ~~use~~interpretation ~~or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations~~ and ~~financial~~application ~~performance.~~of ~~Further,~~ existing ~~tax laws~~, ~~statutes,~~new ~~rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, the Biden administration~~ and ~~Congress have~~ proposed ~~various U.S. federal~~ tax ~~law~~laws ~~changes, which if enacted could have a material impact on our business, cash flow, financial condition or results of operations. In addition, it is uncertain if~~ and toregulations ~~what extent various states will conform to federal tax laws. Future tax reform legislation~~ could ~~have~~materially aaffect ~~material impact on the value of~~ our ~~deferred~~ tax ~~assets,~~obligations ~~could result in significant one-time charges,~~ and ~~could~~effective ~~increase our future U.S.~~ tax ~~expense~~rate.

48The tax regimes to which we are subject or under which we operate are unsettled and may be subject to significant change. The issuance of additional guidance related to existing or future tax laws, or changes to tax laws or regulations proposed or implemented by the current or a future U.S. presidential administration, Congress, or taxing authorities in other jurisdictions, including jurisdictions outside of the United States, could materially affect our tax obligations and effective tax rate. To the extent that such changes have a negative impact on us, including as a result of related uncertainty, these changes may adversely impact our business, financial condition, results of operations, and cash flows.

The amount of taxes we pay in different jurisdictions depends on the application of the tax laws of various jurisdictions, including the United States, to our international business activities, tax rates, new or revised tax laws, or interpretations of tax laws and policies, and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency. Similarly, a taxing authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a “permanent establishment” under international tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions.

Effective January 1, 2022, legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the “Tax Act”) eliminated the option to deduct research and development expenses for tax purposes in the year incurred and requires taxpayers to capitalize and subsequently amortize such expenses over five years for research activities conducted in the United States and over 15 years for research activities conducted outside the United States. Although there have been legislative proposals to repeal or defer the capitalization requirement to later years, there can be no assurance that the provision will be repealed or otherwise modified. Future guidance from the Internal Revenue Service and other tax authorities with respect to such legislation may affect us, and certain aspects of such legislation could be repealed or modified in future legislation.

Our ability to use net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, ~~2021~~2022, we had federal net operating loss carryforwards (“NOLs”) to offset future taxable income of $~~194~~203.0 million, of which $121.86 million will begin to expire after 2023 if not utilized, while the remainder can be carried forward indefinitely. A lack of future taxable income would adversely affect our ability to utilize these NOLs. Under current law, our federal NOLs incurred in tax years beginning after December 31, 2017 may be carried forward indefinitely but the deductibility of these federal NOLs ~~in tax years beginning after December 31, 2021~~ is limited to 80% of taxable income. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended ~~(the “IRC”)~~, and corresponding provisions of state law, a corporation that undergoes an “ownership change” (generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period) is subject to limitations on its ability to utilize its pre-ownership change NOL carryforwards and certain other pre-ownership change tax attributes to offset post-ownership change income or taxes. We believe we may have already experienced one or more ownership changes and may in the future experience one or more additional ownership changes, and thus, our ability to utilize pre-ownership change NOL carryforwards and other pre-ownership change tax attributes to offset post-ownership change income or taxes may be limited. Such limitations may cause a portion of our NOL and credit carryforwards to expire before we are able to utilize them. In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. We have recorded a full valuation allowance related to our NOLs and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.

Acquisitions or joint ventures could disrupt our business, cause dilution to our stockholders and otherwise harm our business.

We may acquire other businesses, products or technologies as well as pursue strategic alliances, partnerships, joint ventures, technology licenses or investments in complementary businesses. We have limited experience with respect to business, product or technology acquisitions or the formation of collaborations, strategic alliances and joint ventures or investing in complementary businesses. Any of these transactions could be material to our financial condition and operating results and expose us to many risks, including:

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disruption in our relationships with customers, distributors or suppliers as a result of such a transaction;

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unanticipated liabilities related to acquired companies;

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difficulties integrating acquired personnel, intellectual property, products, technologies ~~and~~or ~~operations~~drug candidates of an acquired company into our existing business;

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diversion of management time and focus from operating our business to acquisition integration challenges;

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increases in our expenses and reductions in our cash available for operations and other uses; and

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possible write-offs or impairment charges relating to acquired businesses.

Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. Also, the anticipated benefit of any acquisition may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition. We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results.

If any members of our management team were to leave us or we are unable to recruit, train and retain key personnel, we may not achieve our goals.

Our future

Filing Compare · HTG MOLECULAR DIAGNOSTICS, INC