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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2024

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

For the transition period from to

Commission file number: 001-36571

T2 Biosystems, Inc.

(Exact name of registrant as specified in its charter)


Delaware	20-4827488
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

101 Hartwell Avenue Lexington, Massachusetts	02421
(Address of principal executive offices)	(Zip Code)

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

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

    Title of each class

    Trading
Symbol(s)

    Name of each exchange on which registered

    Common Stock, par value $0.001

    TTOO

    The Nasdaq Capital Market

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

Indicate by check mark whether the registrant has submitted electronically 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 of Section 13(a) of the Exchange Act ☐

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

As of November 11, 2024, the registrant had 21,042,952 shares of common stock outstanding.

T2 BIOSYSTEMS, INC.

TABLE OF CONTENTS


		Page

	PART I FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023	1

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023	2

	Condensed Consolidated Statements of Series A Redeemable Preferred Stock and Stockholders’ Deficit for the three and nine months ended September 30, 2024 and 2023	3

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023	5

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49

Item 4.	Controls and Procedures	49

	PART II OTHER INFORMATION	50

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	52

Item 5.	Other Information	52

Item 6.	Exhibits, Financial Statement Schedules	53

SIGNATURES		55

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	September 30, 2024			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	2,083		$	15,689
Accounts receivable, net		2,033			1,420
Inventories		3,825			4,819
Prepaid expenses and other current assets		1,845			3,261
Total current assets		9,786			25,189
Property and equipment, net		1,477			1,658
Operating lease right-of-use assets		6,268			7,395
Restricted cash		551			551
Other assets		—			4
Total assets	$	18,082		$	34,797
Liabilities and stockholders’ deficit
Current liabilities:
Notes payable to related party	$	11,922		$	41,284
Accounts payable		4,210			1,527
Accrued expenses and other current liabilities		4,627			4,905
Accrued final payment fee on Term Loan with related party		1,306			4,807
Operating lease liability		1,724			1,616
Derivative liability related to Term Loan with related party		347			1,554
Warrant liabilities		66			235
Deferred revenue		233			224
Total current liabilities		24,435			56,152
Operating lease liabilities, net of current portion		5,298			6,598
Deferred revenue, net of current portion		59			83
Total liabilities		29,792			62,833
Commitments and contingencies (see Note 14)

Stockholders’ deficit
Preferred stock, $0.001 par value; 10,000,000 shares authorized: Series B Convertible Preferred Stock, 0 shares designated on September 30, 2024, 0 and 93,297 shares issued and outstanding to related party on September 30, 2024 and December 31, 2023, respectively		—			—
Common stock, $0.001 par value; 400,000,000 shares authorized; 18,760,092 and 4,058,381 shares issued and outstanding on September 30, 2024 and December 31, 2023, respectively		18			4
Additional paid-in capital		605,182			556,256
Accumulated deficit		(616,910	)		(584,296	)
Total stockholders’ deficit		(11,710	)		(28,036	)
Total liabilities and stockholders’ deficit	$	18,082		$	34,797

See accompanying notes to condensed consolidated financial statements.

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Revenue:
Product revenue	$	1,985		$	1,472		$	5,998		$	5,091
Contribution revenue		—			—			—			423
Total revenue		1,985			1,472			5,998			5,514
Costs and expenses:
Cost of product revenue		4,101			3,925			10,996			12,789
Research and development		2,667			2,663			9,749			10,984
Selling, general and administrative		5,378			5,980			17,589			19,575
Impairment of property and equipment		—			2,511			—			2,511
Total costs and expenses		12,146			15,079			38,334			45,859
Loss from operations		(10,161	)		(13,607	)		(32,336	)		(40,345	)
Other income (expense):
Interest expense to related party		(370	)		(1,119	)		(2,027	)		(4,182	)
Change in fair value of derivative related to Term Loan with related party		77			184			1,207			436
Change in fair value of warrant liabilities		321			(930	)		169			4,958
Other, net		16			47			373			(604	)
Total other income (expense)		44			(1,818	)		(278	)		608
Net loss	$	(10,117	)	$	(15,425	)	$	(32,614	)	$	(39,737	)
Net loss per share — basic and diluted	$	(0.57	)	$	(3.45	)	$	(2.63	)	$	(21.79	)
Weighted-average number of common shares used in computing net loss per share — basic and diluted		17,892,606			4,477,321			12,381,110			1,823,485

See accompanying notes to condensed consolidated financial statements.

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SERIES A REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(In thousands, except share data)

(Unaudited)


	Temporary Equity					Permanent Equity
	Series A Redeemable					Series B Convertible				Series A Convertible				Common				Additional					Accumulated Other		Total
	Preferred Stock					Preferred Stock				Preferred Stock				Stock				Paid-In		Accumulated			Comprehensive		Stockholders’
	Shares			Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Loss		Deficit
Balance on December 31, 2022		—		$	—		—	$	—		—	$	—		77,165	$	—	$	494,564	$	(534,219	)	$	—	$	(39,655	)
Stock-based compensation expense		—			—		—		—		—		—		—		—		1,833		—			—		1,833
Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan		—			—		—		—		—		—		643		—		—		—			—		—
Issuance of common stock from secondary offering, net		—			—		—		—		—		—		6,528		—		930		—			—		930
Issuance of common stock and Pre-Funded Warrant from public offering, net		—			—		—		—		—		—		90,173		—		4,031		—			—		4,031
Issuance of common stock upon Common Stock Warrant cashless exercises		—			—		—		—		—		—		11,718		—		938		—			—		938
Issuance of common stock upon Pre-Funded Warrant exercises		—			—		—		—		—		—		17,406		—		2		—			—		2
Net loss		—			—		—		—		—		—		—		—		—		(17,965	)		—		(17,965	)
Balance on March 31, 2023		—		$	—		—	$	—		—	$	—		203,633	$	—	$	502,298	$	(552,184	)	$	—	$	(49,886	)
Stock-based compensation expense		—			—		—		—		—		—		—		—		913		—			—		913
Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan		—			—		—		—		—		—		100		—		2		—			—		2
Issuance of common stock from secondary offering, net		—			—		—		—		—		—		2,146,055		2		18,383		—			—		18,385
Issuance of common stock upon Common Stock Warrant cashless exercises		—			—		—		—		—		—		65,127				510		—			—		510
Issuance of common stock upon Pre-Funded Warrant exercises		—			—		—		—		—		—		3,518		—		—		—			—		—
Net loss		—			—		—		—		—		—		—		—		—		(6,347	)		—		(6,347	)
Balance on June 30, 2023		—		$	—		—	$	—		—	$	—		2,418,433	$	2	$	522,106	$	(558,531	)	$	—	$	(36,423	)
Stock-based compensation expense		—			—		—		—		—		—		—		—		877		—			—		877
Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan		—			—		—		—		—		—		176		—		—		—			—		—
Issuance of common stock from secondary offering, net		—			—		—		—		—		—		1,015,385		2		21,701		—			—		21,703
Issuance of common stock to related party		—			—		—		—		—		—		483,457		—		3,413		—			—		3,413
Issuance of Series B Convertible Preferred Stock to related party		—			—		93,297		—		—		—		—		—		6,587		—			—		6,587
Issuance of Series A Redeemable Preferred Stock to related party		1,000			—		—		—		—		—		—		—		—		—			—		—
Redemption of Series A Redeemable Preferred Stock issued to related party		(1,000	)		—		—		—		—		—		—		—		—		—			—		—
Issuance of common stock upon Common Stock Warrant cashless exercises		—			—		—		—		—		—		925		—		32		—			—		32
Reverse stock split rounding adjustment		—			—		—		—		—		—		62		—		—		—			—		—
Net loss		—			—		—		—		—		—		—		—		—		(15,425	)		—		(15,425	)
Balance on September 30, 2023		—		$	—		93,297	$	—		—	$	—		3,918,438	$	4	$	554,716	$	(573,956	)	$	—	$	(19,236	)


	Temporary Equity				Permanent Equity
	Series A Redeemable				Series B Convertible					Series A Convertible					Common					Additional						Accumulated Other		Total
	Preferred Stock				Preferred Stock					Preferred Stock					Stock					Paid-In			Accumulated			Comprehensive		Stockholders’
	Shares		Amount		Shares			Amount		Shares			Amount		Shares			Amount		Capital			Deficit			Loss		Deficit
Balance on December 31, 2023		—	$	—		93,297		$	—		—		$	—		4,058,381		$	4	$	556,256		$	(584,296	)	$	—	$	(28,036	)
Stock-based compensation expense		—		—		—			—		—			—		—			—		1,595			—			—		1,595
Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan		—		—		—			—		—			—		1,549			—		—			—			—		—
Surrender of shares for tax withholding		—		—		—			—		—			—		(288	)		—		(1	)		—			—		(1	)
Issuance of common stock from secondary offering, net		—		—		—			—		—			—		628,470			1		2,202			—			—		2,203
Conversion of Series B Convertible Preferred Stock into common stock by related party		—		—		(82,422	)		—		—			—		824,220			1		(1	)		—			—		—
Net loss		—		—		—			—		—			—		—			—		—			(13,534	)		—		(13,534	)
Balance on March 31, 2024		—	$	—		10,875		$	—		—		$	—		5,512,332		$	6	$	560,051		$	(597,830	)	$	—	$	(37,773	)
Stock-based compensation expense		—		—		—			—		—			—		—			—		208			—			—		208
Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan		—		—		—			—		—			—		2,847			—		10			—			—		10
Issuance of common stock, Pre-Funded Warrants, and Series A and Series B Common Stock Warrants from private placement, net		—		—		—			—		—			—		1,700,000			2		7,267			—			—		7,269
Issuance of common stock upon Pre-Funded Warrant exercise		—		—		—			—		—			—		325,317			—		—			—			—		—
Issuance of common stock to related party		—		—		—			—		—			—		8,028,953			7		27,956			—			—		27,963
Issuance of Series A Convertible Preferred Stock to related party		—		—		—			—		17,160			—		—			—		5,388			—			—		5,388
Conversion of Series A and Series B Convertible Preferred Stock into common stock by related party		—		—		(10,875	)		—		(17,160	)		—		1,824,800			2		(2	)		—			—		—
Net loss		—		—		—			—		—			—		—			—		—			(8,963	)		—		(8,963	)
Balance on June 30, 2024		—	$	—		—		$	—		—		$	—		17,394,249		$	17	$	600,878		$	(606,793	)	$	—	$	(5,898	)
Stock-based compensation expense		—		—		—			—		—			—		—			—		216			—			—		216
Issuance of common stock from vesting of restricted stock, exercise of stock options and employee stock purchase plan		—		—		—			—		—			—		133			—		—			—			—		—
Issuance of common stock from secondary offering, net		—		—		—			—		—			—		1,365,710			1		4,088			—			—		4,089
Net loss		—		—		—			—		—			—		—			—		—			(10,117	)		—		(10,117	)
Balance on September 30, 2024		—	$	—		—		$	—		—		$	—		18,760,092		$	18	$	605,182		$	(616,910	)	$	—	$	(11,710	)

See accompanying notes to condensed consolidated financial statements.

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2024			2023
Cash flows from operating activities
Net loss	$	(32,614	)	$	(39,737	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		185			785
Non-cash lease expense		1,127			994
Stock-based compensation expense		2,019			3,623
Change in fair value of derivative related to Term Loan with related party		(1,207	)		(436	)
Change in fair value of warrant liabilities		(169	)		(4,958	)
Issuance costs related to Common Stock Warrants		—			682
Loss on disposal of property and equipment		21			3
Non-cash interest expense to related party		489			1,332
Impairment of property and equipment		—			2,511
Changes in operating assets and liabilities:
Accounts receivable		(613	)		1,024
Prepaid expenses and other assets		1,395			(479	)
Inventories		994			(539	)
Accounts payable		2,683			(208	)
Accrued expenses and other liabilities		(278	)		(2,412	)
Deferred revenue		(15	)		92
Operating lease liabilities		(1,193	)		(997	)
Net cash used in operating activities		(27,176	)		(38,720	)
Cash flows from investing activities
Purchases and manufacture of property and equipment		—			(166	)
Net cash used in investing activities		—			(166	)
Cash flows from financing activities
Payment of employee restricted stock tax withholdings		(1	)		—
Proceeds from issuance of shares from employee stock purchase plan and stock option exercises		10			2
Proceeds from public offering, net of issuance costs		—			10,918
Proceeds from private offering, net of issuance costs		7,269			—
Proceeds from secondary offering, net of issuance costs		6,292			41,018
Payment of debt issuance costs		—			(62	)
Net cash provided by financing activities		13,570			51,876
Net change in cash, cash equivalents and restricted cash		(13,606	)		12,990
Cash, cash equivalents and restricted cash at beginning of period		16,240			11,880
Cash, cash equivalents and restricted cash at end of period	$	2,634		$	24,870


	Nine Months Ended September 30,
	2024		2023
Reconciliation of cash, cash equivalents and restricted cash at end of period
Cash and cash equivalents	$	2,083	$	24,319
Restricted cash		551		551
Total cash, cash equivalents and restricted cash	$	2,634	$	24,870


	Nine Months Ended September 30,
	2024		2023
Supplemental disclosures of cash flow information
Cash paid for interest to related party	$	2,066	$	3,860
Supplemental disclosures of noncash activities
Transfer of T2 owned instruments and components from inventory	$	—	$	(543	)
Cashless exercise of Common Stock Warrants	$	—	$	(1,480	)
Cancellation of Term Loan in exchange for common stock and Convertible Preferred Stock to related party	$	33,353	$	10,000
Wainwright Warrant issued in connection with offering costs of May 2024 private offering	$	747	$	—
Purchases of property and equipment included in accounts payable and accrued expenses	$	—	$	142

See accompanying notes to condensed consolidated financial statements.

T2 BIOSYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business

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

Liquidity and Going Concern

On September 30, 2024, the Company had cash, cash equivalents, and restricted cash of $2.6 million, an accumulated deficit of $616.9 million, stockholders’ deficit of $11.7 million, and has experienced cash outflows from operating activities since its inception. The future success of the Company is dependent on its ability to successfully commercialize its products, obtain regulatory clearance for and successfully launch its future product candidates, obtain additional capital and ultimately attain profitable operations. Historically, the Company has funded its operations primarily through public equity and private debt financings, including the Company's August 2014 initial public offering, the December 2015 public offering, the September 2016 private investment in public equity (“PIPE”) financing, the September 2017 public offering, the June 2018 public offering, the July 2019 establishment of an equity distribution agreement and equity purchase agreement, the March 2021 establishment of the Equity Distribution Agreement (Note 9), the February 2023 public offering (Note 8), the May 2024 private offering (Note 8), the July 2024 establishment of the Wainwright Equity Distribution Agreement (Note 9), private placements of redeemable convertible preferred stock and through debt financing arrangements.

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

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

In September 2023, the Company’s milestone-based product development contract with the Biomedical Advanced Research and Development Authority (“BARDA”) (Note 12) expired, which may impact the Company’s ability to continue to fund the development of its next-generation products.

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

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

The Company believes that its cash, cash equivalents, and restricted cash of $2.6 million on September 30, 2024 will not be sufficient to fund its current operating plan for at least 12 months from issuance of these financial statements, as certain elements of its operating plan cannot be considered probable. Absent any reductions in current operating expenses, the Company believes it will require additional financing during the fourth quarter of 2024, which may include public or private equity or debt financings. Under ASC 205-40, the future receipt of potential funding from co-development partners and other resources cannot be considered probable at this time because none of the plans are entirely within the Company’s control.

The Company's Term Loan Agreement (the “Term Loan Agreement”) with certain entities managed by CR Group L.P., a Delaware limited partnership (each entity, a “CRG entity” and collectively, “CRG”) (Note 6) has a minimum liquidity covenant, which initially required the Company to maintain a minimum cash balance of $5.0 million. In May 2023, CRG reduced the minimum liquidity covenant under the Term Loan Agreement from $5.0 million to $500,000 until December 31, 2023. In July 2023, April 2024, and May 2024, the Company converted $10.0 million, $15.0 million, and $15.0 million, respectively, of the outstanding debt principal with CRG to equity. In October 2023, the Term Loan Agreement was amended to extend both the interest-only period and the maturity date by one year from December 30, 2024 to December 31, 2025, and permanently reduce the minimum liquidity covenant from $5.0 million to $500,000. Unless the Company raises additional funds, management believes it is probable that the Company will not be able to comply with the minimum liquidity covenant.

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

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

On November 20, 2023, the Company received written notice from Nasdaq informing the Company that it no longer satisfied the MVLS Rule. In accordance with the terms of the Mandatory Panel Monitor, the Company was not granted a grace period but rather issued a delist determination. The Company exercised its right to appeal by requesting a hearing and paying a non-refundable $20,000 fee, which stayed any further action by Nasdaq pending the issuance of its decision and the expiration of any extension that may be granted to the Company as a result of the hearing. The Company’s common stock remained listed and eligible to trade on Nasdaq pending the outcome of the hearing. On February 15, 2024, the Company appealed to the Nasdaq Hearings Panel for an extension to the time period in which to regain compliance with the MVLS Rule. On March 11, 2024, the Company received notice from the Nasdaq Hearings Panel that it had granted the Company’s request for continued listing on Nasdaq, subject to the Company demonstrating compliance with Nasdaq’s MVLS Rule on or before May 20, 2024. On May 21, 2024, the Company received written notice from Nasdaq informing the Company that it has regained compliance with the MVLS Rule for continued listing on the Nasdaq Capital Market.

On November 7, 2024, the Company received a letter from Nasdaq indicating that the Company’s market value of its listed securities has been below the minimum $35 million required for continued listing on the Nasdaq Capital Market, as set forth in Listing Rule 5550(b)(2) for the previous 30 consecutive trading days. In accordance with the terms of the previously imposed “Mandatory Panel Monitor” as that term is defined in Nasdaq Listing Rule 5815(d)(4)(B), the Nasdaq Listing Qualifications Staff did not grant the Company a grace period but rather issued a delist determination, which will be stayed if the Company exercises its right to appeal the determination by requesting a hearing and paying a non-refundable $20,000 fee. Subsequently, the Company paid the non-refundable $20,000 fee and plans to request a hearing, which will stay any further action by Nasdaq at least pending the issuance of the Nasdaq Hearings Panel’s decision and the expiration of any extension that may be granted by the Nasdaq Hearings Panel to the Company as a result of the hearing. The Company’s common stock will remain listed and eligible to trade on Nasdaq pending the outcome of the hearing. There can be no assurance, however, that the Nasdaq Hearings Panel will grant the Company’s request for continued listing or that the Company will evidence compliance with all applicable listing criteria prior to the expiration of any extension that may be granted by the Panel to do so.

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

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

2. Summary of Significant Accounting Policies

Basis of Presentation

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

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation, including the consolidation of other income and expense items on the condensed consolidated statements of operations. Such reclassifications had no impact on the Company's reported total revenues, expenses, net loss, current assets, total assets, current liabilities, total liabilities, stockholders' equity (deficit) or cash flows. No reclassifications of prior period balances were material to the condensed consolidated financial statements.

Unaudited Interim Financial Information

Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

The accompanying interim condensed consolidated balance sheet as of September 30, 2024, the condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023, the condensed consolidated statements of Series A Redeemable Preferred Stock and stockholders’ deficit for the three and nine months ended September 30, 2024 and 2023, the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 and the related financial data and other information disclosed in these notes are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements, and, in the opinion of management, reflect all adjustments, consisting of normal

recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2024, and the results of its operations for the three and nine months ended September 30, 2024 and 2023 and its cash flows for the nine months ended September 30, 2024 and 2023. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period.

Segment Information

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

Geographic Information

The Company sells its products domestically and internationally. Total international sales were approximately $0.9 million, or 44% of total revenue, and $0.5 million, or 37% of total revenue, for the three months ended September 30, 2024 and 2023, respectively. Total international sales were approximately $2.7 million, or 44% of total revenue, and $2.3 million, or 41% of total revenue, for the nine months ended September 30, 2024 and 2023, respectively.

International sales to Italy were approximately $0.2 million, or 11% of total revenue, and $0.9 million, or 14% of total revenue, for the three and nine months ended September 30, 2024, respectively. International sales to Italy were approximately $0.2 million, or 15% of total revenue, and $1.3 million, or 23% of total revenue, for the three and nine months ended September 30, 2023, respectively. International sales to Austria did not exceed 10% of total revenue for the three months ended September 30, 2024 and were $0.7 million, or 11% of total revenue, for the nine months ended September 30, 2024. International sales to Austria were approximately $0.2 million, or 16% of total revenue, for the three months ended September 30, 2023 and did not exceed 10% of total revenue for the nine months ended September 30, 2023. International sales to Mexico were approximately $0.3 million, or 16% of total revenue, for the three months ended September 30, 2024 and did not exceed 10% of total revenue for the nine months ended September 30, 2024. International sales to Mexico did not exceed 10% of total revenue for both the three and nine months ended September 30, 2023, respectively.

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Customer A		16	%		—	%		—	%		—	%
Customer B		11	%		15	%		14	%		23	%
Customer C		10	%		—	%		—	%		—	%
Customer D		—	%		16	%		11	%		—	%
Customer E		—	%		12	%		—	%		10	%

Customers A, B, and D are international distributors. Customers C and E are U.S. hospitals.

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


	September 30, 2024			December 31, 2023
Customer A		15	%		—	%
Customer C		19	%		—	%
Customer D		11	%		—	%
Customer E		—	%		13	%
Customer F		—	%		16	%

Customers A and D are international distributors. Customers C and E are U.S. hospitals. Customer F is a clinical laboratory company.

As of September 30, 2024 and December 31, 2023, the Company had outstanding receivables of $0.9 million and $0.3 million, respectively, from customers located outside of the U.S.

Net Loss Per Share

As discussed in Note 7, the Company issued 93,297 shares of Series B Convertible Preferred Stock on July 3, 2023 and 17,160.48 shares of Series A Convertible Preferred Stock on April 12, 2024. As of September 30, 2024, no shares of Series B Convertible Preferred Stock or Series A Convertible Preferred Stock remain issued and outstanding. The Company reviewed the terms of the Series B Convertible Preferred Stock and the Series A Convertible Preferred Stock and noted that such stock had no preferential rights and that the liquidation preference for each would be on parity with that of the Company’s common shares. Because the Series B Convertible Preferred Stock and the Series A Convertible Preferred Stock had the same level of subordination and, in substance, the same characteristics as the Company’s common shares, the Company included the Series B Convertible Preferred Stock and Series A Convertible Preferred Stock, on an if-converted basis, in the basic and diluted net loss per share attributable to common stockholders calculation for all periods in which the Series B Convertible Preferred Stock and the Series A Convertible Preferred Stock remained issued and outstanding.

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

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, in-substance common stock, and potential common shares exercisable for little to no consideration, and does not consider other common stock equivalents.

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

Classification of Series A Redeemable Preferred Stock

The Company applied the guidance in ASC 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities and classified the Series A Redeemable Preferred Stock as temporary equity in the mezzanine section of the balance sheet during the three months ended September 30, 2023. The Series A Redeemable Preferred Stock was recorded outside of stockholders’ deficit because under the terms thereof, in the event of stockholder approval of the reverse stock split or a delisting event, which were events considered not solely within the Company’s control, the Series A Redeemable Preferred Stock would become redeemable at the option of the holders.

Derivative Instruments

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

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

The Company has identified a derivative liability related to its Term Loan Agreement with CRG that is classified as a current liability on the condensed consolidated balance sheets to match the classification of the related Term Loan Agreement. Changes in fair value are recognized in change in fair value of derivative related to Term Loan in the period of change in the condensed consolidated statements of operations. See Notes 3 and 6.

The Company does not designate its derivative instruments as hedging instruments.

Guarantees

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

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

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

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

Leases

Lessee

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

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

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

Lessor

The Company derives revenue from leasing its T2-owned instruments through reagent rental agreements (see the Revenue Recognition section below). Customers typically have the right to cancel every 12 months, resulting in a lease term of generally one year. These lease agreements impose no requirement on the customer to purchase the instrument, and the instrument is not transferred to the customer at the end of the lease term. The short-term nature of the lease agreements does not result in lease payments accumulating to an amount that exceeds substantially all of the fair value of the instrument nor is the lease term for the majority of the remaining economic life of the instrument. Instrument leases are generally classified as operating leases as they do not meet any of the sales-type lease or direct financing lease criteria per ASC 842 and are recognized ratably over the duration of the lease. In accordance with these contracts, customers only make payments when consumables are ordered and delivered thus making these payments variable by nature. The Company estimates the expected volume of consumables to be purchased by each customer over the lease term to measure and recognize rental and consumables revenue.

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

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

Revenue Recognition

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

•

Identification of a contract with a customer

•

Identification of the performance obligations in the contract

•

Determination of the transaction price

•

Allocation of the transaction price to the performance obligations

•

Recognition of revenue as a performance obligation is satisfied

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

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

Most of the Company’s contracts with distributors in geographic regions outside the United States contain only a single performance obligation, whereas most of the Company’s contracts with direct sales customers in the United States contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Excluded from the transaction price are sales tax and other similar taxes which are presented on a net basis.

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

The Company either sells instruments to customers and international distributors or retains title and places the instrument at the customer site pursuant to a reagent rental agreement. When an instrument is purchased by a customer or international distributor, the

Company recognizes revenue when the related performance obligation is satisfied (i.e., when the control of an instrument has passed to the customer; typically, at shipping point).

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

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

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

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

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

The Company warrants that consumable diagnostic tests will be free from defects, when handled according to product specifications, for the stated life of the product. To fulfill valid warranty claims, the Company provides replacement product free of charge. Warranty expense is recognized based on the estimated defect rates of the consumable diagnostic tests.

Contribution Revenue

The government contract with BARDA was considered a government grant and not considered a contract with a customer and thus not subject to ASC 606. Revenue under the government BARDA contract was earned under a cost-sharing arrangement in which the Company was reimbursed for direct costs incurred plus allowable indirect costs. The government contract revenue was recognized as the related reimbursable expenses were incurred. The cost reimbursement that was reported as revenue was presented gross of the related reimbursable expenses in the Company’s condensed consolidated statements of operations; the related reimbursable expenses were expensed as incurred as research and development expense. The Company accounted for these contracts as a government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance.

The BARDA contract expired in September 2023.

Disaggregation of Revenue

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Product revenue
Instruments		440		263		1,084		1,135
Consumables		1,407		1,038		4,404		3,453
Instrument rentals		9		17		120		121
Service		129		154		390		382
Total product revenue		1,985		1,472		5,998		5,091
Contribution revenue		—		—		—		423
Total revenue	$	1,985	$	1,472	$	5,998	$	5,514

Remaining Performance Obligations

Under ASC 606, the Company is required to disclose the aggregate amount of the transaction price that is allocated to unsatisfied or partially satisfied performance obligations as of September 30, 2024. However, the guidance provides certain practical expedients that limit this requirement, and therefore, the Company has elected to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The nature of the excluded unsatisfied performance obligations pursuant to the practical expedient include consumable shipments, service contracts, warranties and installation services that will be performed within one year. The amount of the transaction price that is allocated to unsatisfied or partially satisfied performance obligations, that has not yet been recognized as revenue and that does not meet the elected practical expedient is $0.1 million as of September 30, 2024. The Company expects to recognize 55% of this amount as revenue within one year and the remainder within three years.

Judgments

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

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

Contract Assets and Liabilities

The Company's contract assets represent revenue recognized for performance obligations in advance of invoicing at the contract level based on the transaction price allocated to the respective performance obligations. The opening and closing balances of the Company's contract assets were $0.1 million and $0.1 million for the nine months ended September 30, 2024, respectively, and $0.1 million and $0.1 million for the nine months ended September 30, 2023, respectively.

The Company’s contract liabilities consist of upfront payments for maintenance services on instrument sales. Contract liabilities are classified in deferred revenue as current or non-current based on the timing of when revenue is expected to be recognized. The opening and closing balances of the Company's contract liabilities were $0.3 million and $0.3 million for the nine months ended September 30, 2024, respectively, and $0.2 million and $0.3 million for the nine months ended September 30, 2023, respectively. Revenue recognized during the nine months ended September 30, 2024 relating to contract liabilities on December 31, 2023 was $0.3 million and related to straight-line revenue recognition associated with maintenance agreements.

Accounts Receivable, Net

The opening and closing balances of the Company's accounts receivable, net were $1.4 million and $2.0 million for the nine months ended September 30, 2024, respectively, and $2.2 million and $1.1 million for the nine months ended September 30, 2023, respectively.

Cost of Product Revenue

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

Research and Development Costs

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

Selling, General and Administrative Expenses

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

Impairment of Long-lived Assets

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

For the three months ended September 30, 2023, we determined a triggering event occurred that required us to evaluate our long-lived assets for impairment. As a result, the Company recorded a loss on the impairment of property and equipment of $2.5 million for the three and nine months ended September 30, 2023.

Recent Accounting Standards

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

Accounting Standards Issued, To Be Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This ASU was issued to improve the disclosures about a public entity’s reportable segments and address requests from investors for more detailed information about a reportable segment’s expenses. This update will be effective for the Company for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently assessing the impact of this update on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). This ASU was issued to enhance the transparency and decision usefulness of income tax disclosures. This update will be effective for the Company for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently assessing the impact of this update on its disclosures.

3. Fair Value Measurements

The Company measures the following financial assets at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during any of the periods presented. The following tables set forth the Company’s financial assets and liabilities carried at fair value categorized using the lowest level of input applicable to each financial instrument as of September 30, 2024 and December 31, 2023 (in thousands):


	Balance at September 30, 2024		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	950	$	950	$	—	$	—
	$	950	$	950	$	—	$	—
Liabilities:
Warrant liabilities	$	66	$	—		66	$	—
Derivative liability related to Term Loan with related party		347		—		—		347
	$	413	$	—	$	66	$	347


	Balance at December 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	8,500	$	8,500	$	—	$	—
	$	8,500	$	8,500	$	—	$	—
Liabilities:
Warrant liabilities	$	235	$	—	$	235	$	—
Derivative liability related to Term Loan with related party		1,554		—		—		1,554
	$	1,789	$	—	$	235	$	1,554

The Company’s cash equivalents are comprised of money market funds and money market accounts as of September 30, 2024 and December 31, 2023. The Company also maintains money market accounts classified as restricted cash, which are Level 1 assets, for $0.6 million on both September 30, 2024 and December 31, 2023 (Note 4).

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

The estimated fair value of the Series A Warrant on September 30, 2024 was determined using the following assumptions:


Risk-free interest rate		3.58	%
Expected dividend yield		0.00	%
Expected volatility		146.00	%
Expected term	3.38

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

3.58%, expected volatility ranging from 75% to 173%, an expected dividend yield of 0.00%, a stock price of $2.38 (adjusted to reflect volume weighting) and an expected term ranging from zero years to 3.38 years, depending on the simulation.

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


Balance on December 31, 2023	$	233
Change in fair value		(27	)
Balance on March 31, 2024	$	206
Change in fair value		179
Balance on June 30, 2024	$	385
Change in fair value		(319	)
Balance on September 30, 2024	$	66

The Company has a single compound derivative instrument related to its Term Loan Agreement (Note 6) that requires the Company to pay additional interest of 4% per annum upon an event of default or if any obligation other than the unpaid principal amount of the Term Loan is not paid when due. Fair value is determined quarterly. The fair value of the derivative on September 30, 2024 and December 31, 2023 is $0.3 million and $1.6 million, respectively, and is classified as a current liability on the condensed consolidated balance sheets to match the classification of the related Term Loan Agreement (Note 6).

The estimated fair value of the derivative on September 30, 2024 was determined using a probability-weighted discounted cash flow model that includes contingent interest payments under the following scenarios:


	Probability
4% contingent interest beginning in Q4 2024		50	%

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

The following table provides a roll-forward of the fair value of the derivative liability related to the term loan with related party (in thousands):


Balance on December 31, 2023	$	1,554
Change in fair value of derivative related to Term Loan with related party		108
Balance on March 31, 2024	$	1,662
Change in fair value of derivative related to Term Loan with related party		(1,238	)
Balance on June 30, 2024	$	424
Change in fair value of derivative related to Term Loan with related party		(77	)
Balance on September 30, 2024	$	347

The Company is required to disclose the fair value and the level within the fair value hierarchy for financial instruments that are not measured at fair value on a recurring basis. For certain financial instruments, including accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, the carrying amounts approximate their fair values as of September 30, 2024 and December 31, 2023 because of their short-term nature. Cash and cash equivalents were classified as Level 1 and all other financial instruments were classified as Level 2 within the fair value hierarchy. The Company used Level 3 inputs to measure the fair value of the derivative liability related to the Term Loan Agreement with related party. Based on these measurements, the Company concluded that the carrying value of the Term Loan Agreement approximates its fair value on September 30, 2024.

4. Restricted Cash

The Company is required to maintain security deposits for its office lease agreements. On both September 30, 2024 and December 31, 2023, the Company had lease security deposits, invested in money market accounts, aggregating $0.6 million. In January 2023, one of the Company's deposits of $1.0 million was claimed by a landlord as compensation for a lease dispute (Note 14). The remaining collateral deposits aggregating $0.6 million were held at Silicon Valley Bank, which was taken over by the FDIC in March 2023. The Company’s full exposure was ultimately covered by the FDIC and no loss was incurred.

5. Supplemental Balance Sheet Information

Inventories

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


	September 30, 2024		December 31, 2023
Raw materials	$	1,836	$	1,881
Work-in-process		1,662		1,441
Finished goods		327		1,497
Total inventories	$	3,825	$	4,819

Property and Equipment, net

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


	September 30, 2024		December 31, 2023
Office and computer equipment	$	710	$	710
Software		778		778
Laboratory equipment		5,094		5,104
Furniture		198		198
Manufacturing equipment		1,127		1,109
Manufacturing tooling and molds		371

T2 Biosystems, Inc. 10-Q