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~~

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2023

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

☐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)~~ (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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). 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. ~~(Check one)~~:


Large accelerated filer	☐	Accelerated filer	☒☐

Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~☒	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 ~~October 30, 2017,~~May 17, 2023, the registrant had ~~35,824,960~~24,887,722 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, 2017~~March 31, 2023 and December 31, ~~2016~~2022	1

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016~~2022	2

	Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2023 and 2022	3

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016~~2022	34

	Notes to Condensed Consolidated Financial Statements	45

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1626

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3037

Item 4.	Controls and Procedures	3037

	PART II OTHER INFORMATION	39

Item 1.	Legal Proceedings	3139

Item 1A.	Risk Factors	3139

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3139

Item 3.	Defaults Upon Senior Securities	3139

Item 4.	Mine Safety Disclosures	3140

Item 5.	Other Information	3140

Item 6.	Exhibits, Financial Statement Schedules	3241

SIGNATURES		3343

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, 2017			December 31, 2016			March 31, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	52,897		$	73,488		$	10,117		$	10,329
Accounts receivable		442			327			1,323			2,163
Inventories								4,936			4,285
Prepaid expenses and other current assets		754			820			2,549			2,582
Inventories, net		1,254			803
Total current assets		55,347			75,438			18,925			19,359
Property and equipment, net		13,854			13,589			4,801			4,533
Operating lease right-of-use assets								8,420			8,741
Restricted cash		260			260			551			1,551
Other assets		218			281			35			143
Total assets	$	69,679		$	89,568		$	32,732		$	34,327
Liabilities and stockholders’ equity
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	993		$	962		$	3,131		$	1,296
Accrued expenses and other current liabilities		5,513			4,908			5,162			7,269
Current portion of notes payable		1,416			1,269
Operating lease liability								1,415			1,352
Warrant liabilities								7,972			39
Deferred revenue		2,076			2,445			149			172
Current portion of lease incentives		247			301
Total current liabilities		10,245			9,885			17,829			10,128
Notes payable, net of current portion		40,089			39,504
Lease incentives, net of current portion		751			792
Other liabilities		467			49
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2016 and December 31, 2016		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized; 35,796,722 and 30,482,712 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		36			30
Notes payable								50,108			49,651
Operating lease liabilities, net of current portion								7,832			8,214
Deferred revenue, net of current portion								74			52
Derivative liability related to Term Loan								1,858			1,088
Accrued interest on term loan								4,917			4,849
Total liabilities								82,618			73,982
Commitments and contingencies (see Note 13)

Stockholders’ deficit
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding								—			—
Common stock, $0.001 par value; 400,000,000 shares authorized; 20,368,463 and 7,716,519 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively								21			8
Additional paid-in capital		266,014			242,997			502,277			494,556
Accumulated deficit		(247,923	)		(203,689	)		(552,184	)		(534,219	)
Total stockholders’ equity		18,127			39,338
Total liabilities and stockholders’ equity	$	69,679		$	89,568
Total stockholders’ deficit								(49,886	)		(39,655	)
Total liabilities and stockholders’ deficit							$	32,732		$	34,327

See accompanying notes to condensed consolidated financial statements.

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2023			2022
Revenue:
Product revenue	$	739		$	580		$	2,105		$	1,168		$	1,655		$	3,844
Research revenue		369			504			900			2,003
Contribution revenue														423			3,390
Total revenue		1,108			1,084			3,005			3,171			2,078			7,234
Costs and expenses:
Cost of product revenue		2,106			1,894			5,722			4,701			3,995			6,205
Research and development		5,880			5,200			19,577			18,160			4,471			6,656
Selling, general and administrative		5,559			5,935			17,192			18,282			7,299			9,230
Total costs and expenses		13,545			13,029			42,491			41,143			15,765			22,091
Loss from operations		(12,437	)		(11,945	)		(39,486	)		(37,972	)		(13,687	)		(14,857	)
Interest expense, net		(1,718	)		(876	)		(5,008	)		(2,416	)
Other income, net		79			38			260			133
Other income (expense):
Interest income														2			3
Interest expense														(1,522	)		(1,650	)
Change in fair value of derivative related to Term Loan														(770	)		—
Change in fair value of warrant liabilities														(1,304	)		—
Other income														—			11
Other expense														(682	)		—
Other losses														(2	)		(2	)
Total other expense														(4,278	)		(1,638	)
Net loss and comprehensive loss	$	(14,076	)	$	(12,783	)	$	(44,234	)	$	(40,255	)	$	(17,965	)	$	(16,495	)
Net loss per share — basic and diluted	$	(0.45	)	$	(0.51	)	$	(1.43	)	$	(1.64	)	$	(1.32	)	$	(4.86	)
Weighted-average number of common shares used in computing net loss per share — basic and diluted		31,420,726			25,027,751			30,873,930			24,524,508			13,633,352			3,397,103

See accompanying notes to condensed consolidated financial statements.

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ DEFICIT

(In ~~thousands)~~thousands, except share data)

(Unaudited)

Nine Months Ended
September 30,

2017

2016

Cash flows from operating activities

Net loss

$
(44,234
)

$
(40,255
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

2,194

1,626

Stock-based compensation expense

3,806

3,659

Loss on sale of T2 owned equipment

134

—

Non-cash interest expense

1,968

459

Deferred rent

(95
)

(187
)
Changes in operating assets and liabilities:

Accounts receivable

(115
)

(10
)
Prepaid expenses and other assets

129

(118
)
Inventories, net

(451
)

(654
)
Accounts payable

31

(132
)
Accrued expenses and other liabilities

361

797

Deferred revenue

(369
)

(1,328
)
Net cash used in operating activities

(36,641
)

(36,143
)
Cash flows from investing activities

Purchases of property and equipment

(843
)

—

Purchases of T2-owned equipment

(1,758
)

(4,594
)
Net cash used in investing activities

(2,601
)

(4,594
)
Cash flows from financing activities

Payment of offering costs for issuance of common stock in public offering

(37
)

(385
)
Proceeds from issuance of common stock and stock options exercises, net

717

736

Proceeds from issuance of common stock in connection with private offering, net of
offering costs

37

—

Proceeds from private investment in public entity

—

39,723

Proceeds from confidentially marketed public offering

18,832

—

Proceeds from notes payable, net of issuance costs

—

4,593

Repayments of note payable

(898
)

(2,481
)
Net cash provided by financing activities

18,651

42,186

Net decrease in cash and cash equivalents

(20,591
)

1,449

Cash and cash equivalents at beginning of period

73,488

73,662

Cash and cash equivalents at end of period

$
52,897

$
75,111

Supplemental disclosures of cash flow information

Cash paid for interest

$
2,967

$
1,881

Supplemental disclosures of noncash investing and financing activities

Accrued property and equipment

$
90

$
133


	Common					Additional						Accumulated Other			Total
	Stock					Paid-In			Accumulated			Comprehensive			Stockholders’
	Shares			Amount		Capital			Deficit			Loss			Deficit
Balance at December 31, 2021		3,328,017		$	3	$	459,314		$	(472,216	)	$	(4	)	$	(12,903	)
Stock-based compensation expense		—			—		2,552			—			—			2,552
Issuance of common stock from vesting of restricted stock		40,028			—		—			—			—			—
Surrender of shares due to tax withholding		(10,781	)		—		(231	)		—			—			(231	)
Issuance of common stock from secondary offering, net		70,981			—		1,433			—			—			1,433
Unrealized loss on marketable securities		—			—		—			—			(7	)		(7	)
Net loss		—			—		—			(16,495	)		—			(16,495	)
Balance at March 31, 2022		3,428,245			3	$	463,068		$	(488,711	)	$	(11	)	$	(25,651	)


	Common				Additional					Accumulated Other		Total
	Stock				Paid-In		Accumulated			Comprehensive		Stockholders’
	Shares		Amount		Capital		Deficit		��	Loss		Deficit
Balance at December 31, 2022		7,716,519	$	8	$	494,556	$	(534,219	)	$	-	$	(39,655	)
Stock-based compensation expense		—		—		1,833		—			—		1,833
Issuance of common stock from vesting of restricted stock		67,526		—		—		—			—		—
Issuance of common stock from secondary offering, net		653,122		1		929		—			—		930
Issuance of common stock and Pre-Funded Warrant from public offering, net		9,018,519		9		4,022		—			—		4,031
Issuance of common stock upon Common Stock Warrant cashless exercises		1,172,037		1		937		—			—		938
Issuance of common stock upon Pre-Funded Warrant exercises		1,740,740		2		—		—			—		2
Net loss		—		—		—		(17,965	)		—		(17,965	)
Balance at March 31, 2023		20,368,463	$	21	$	502,277	$	(552,184	)	$	-	$	(49,886	)

See accompanying notes to condensed consolidated financial statements.

T2 BIOSYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities
Net loss	$	(17,965	)	$	(16,495	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		256			286
Non-cash lease expense		321			294
Stock-based compensation expense		1,833			2,552
Change in fair value of derivative related to Term Loan		770			—
Change in fair value of warrant liabilities		1,304			—
Issuance costs related to Common Stock Warrants		682			—
Loss on disposal of property and equipment		3			—
Non-cash interest expense		526			543
Changes in operating assets and liabilities:
Accounts receivable		840			773
Prepaid expenses and other assets		138			(1,476	)
Inventories		(949	)		(1,534	)
Accounts payable		1,833			553
Accrued expenses and other liabilities		(2,211	)		502
Deferred revenue		(1	)		(161	)
Operating lease liabilities		(320	)		(278	)
Net cash used in operating activities		(12,940	)		(14,441	)
Cash flows from investing activities
Purchases and manufacture of property and equipment		(120	)		(29	)
Net cash used in investing activities		(120	)		(29	)
Cash flows from financing activities
Payment of employee restricted stock tax withholdings		—			(230	)
Proceeds from public offering, net of issuance costs		10,918			—
Proceeds from secondary offering, net of issuance costs		930			1,432
Net cash provided by financing activities		11,848			1,202
Net change in cash, cash equivalents and restricted cash		(1,212	)		(13,268	)
Cash, cash equivalents and restricted cash at beginning of period		11,880			23,796
Cash, cash equivalents and restricted cash at end of period	$	10,668		$	10,528
Supplemental disclosures of cash flow information
Cash paid for interest	$	1,009		$	1,106
Supplemental disclosures of noncash activities
Transfer of T2 owned instruments and components (from) to inventory	$	(298	)	$	(271	)
Cashless exercise of Common Stock Warrants	$	(938	)	$	—
Purchases of property and equipment included in accounts payable and accrued expenses	$	136		$	134


	March 31, 2023		March 31, 2022
Reconciliation of cash, cash equivalents and restricted cash at end of period
Cash and cash equivalents	$	10,117	$	9,397
Restricted cash		551		1,131
Total cash, cash equivalents and restricted cash	$	10,668	$	10,528

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”~~“Company,” “we,” or “T2”) have operations based in Lexington, Massachusetts. T2 Biosystems, Inc. was incorporated on April 27, 2006 as a Delaware ~~corporation with operations based in Lexington, Massachusetts.~~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 ~~is using its T2 Magnetic Resonance technology (“T2MR”) to develop~~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. ~~T2MR~~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 initial~~Company's current development efforts primarily target sepsis and ~~lyme~~Lyme disease, which are areas of significant unmet medical need in which existing therapies could be more effective with improved diagnostics. ~~On September 22, 2014, the Company received market clearance from the U.S. Food~~

Liquidity and Drug Administration (“FDA”) for its first two products, the T2Dx Instrument (the “T2Dx”) and T2Candida Panel (“T2Candida”). On June 30, 2017 the Company received a CE Mark for its T2Bacteria Panel (“T2Bacteria”). On September 8, 2017 the Company filed a 510(k) premarket submission for the T2Bacteria Panel with the U.S. Food and Drug Administration (FDA).Going Concern

~~Liquidity~~

At ~~September 30, 2017,~~March 31, 2023, the Company had cash, ~~and~~ cash equivalents, and restricted cash of ~~$52.9~~$10.7 million, ~~and~~ an accumulated deficit of ~~$247.9 million.~~$552.2 million, stockholders’ deficit of $49.9 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 ~~FDA approved~~ products, obtain regulatory clearance for and successfully launch its future product candidates, ~~including T2Bacteria,~~ obtain additional capital and ultimately attain profitable operations. Historically, the Company has primarily funded its operations ~~primarily~~ through ~~its August 2014 initial public offering, its December 2015 confidentially marketed public offering (“CMPO”), its September 2016 private investment in~~ public equity ~~(“PIPE”) financing, its September 2017 CMPO,~~and private ~~placements of redeemable convertible preferred~~debt financings. In February 2023, we raised $12.0 million through a common stock and ~~through debt financing arrangements.~~warrants sale (Note 7).

The Company is subject to a number of risks similar to other ~~newly~~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.

~~Having obtained authorization from~~The Company’s T2Dx Instrument and T2Candida and T2Bacteria Panels are authorized for use in the United States by the Food and Drug Administration, or FDA. In June 2020 the FDA extended Emergency Use Authorization, or EUA, to ~~market T2Dx~~the Company’s T2SARS-CoV-2 Panel. The Company believes the FDA will rescind the EUA for all COVID-19 diagnostic tests, and ~~T2Candida,~~has indicated that it will provide a 180 day transition period. The COVID-19 pandemic has impacted and may continue to impact the Company’s operations as the pandemic shifts to an endemic health threat. Customers have begun to reduce their purchases of the Company’s COVID-19 test and the Company has ~~incurred significant commercialization expenses related to product~~not forecasted any COVID-19 test sales ~~marketing, manufacturing and distribution.~~ in 2023.

The Company ~~will continue~~has a significant development contract with the ~~research~~Biomedical Advanced Research and ~~development of other product candidates~~Development Authority (“BARDA”) and ~~maintain, expand and protect its intellectual property portfolio. The Company may seek to fund its operations through public equity~~should BARDA reduce, cancel or ~~private equity or debt financings, as well as other sources. However, the Company may be unable to raise~~not grant additional funds or enter into such other arrangements when needed on favorable terms or at all. The Company’s failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on the Company’s business, results of operations and financial condition andmilestone projects, the Company’s ability to ~~develop and commercialize T2Dx, T2Candida, T2Bacteria and other~~continue its future product ~~candidates.~~development may be hindered.

~~Management~~The Company believes that its ~~existing~~ cash, ~~and~~ cash equivalents, and restricted cash of $10.7 million at ~~September 30, 2017, together with the additional remaining liquidity on the Company’s Term Loan Agreement of up to an additional $10.0 million,~~March 31, 2023 will not be sufficient ~~to allow the Company~~ to fund its current operating plan through ~~early 2019.~~the second quarter of 2023. Certain elements of the Company's operating plan cannot be considered probable, and in order to support the business, the Company initiated a process to explore a range of strategic alernatives focused on maximizing values. 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.

As part of a strategic restructuring program, to preserve capital and be in a better position to explore all strategic alternatives while continuing to support customers and advance pipeline development, the Company initiated a reduction in force of nearly 30% of the workforce on May 19, 2023.Additionally, the Company is focused on pursuing alternative strategic options, including an acquisition, merger, reverse merger, other business combination, sale of assets or licensing. The ~~borrowing on~~Company is also exploring additional equity financing and converting our outstanding indebtedness into equity. Failure to secure any of these strategic options prior to the third quarter of 2023 will significantly impair the Company's ability to continue operating its business and the Company may be forced to cease operations, commence bankruptcy cases, or otherwise wind down business.

The Term Loan Agreement with CRG Servicing LLC (“CRG”), as administrative agent and collateral agent (the "Term Loan Agreement") (Note 6) has a minimum liquidity covenant which requires the Company to maintain a minimum cash balance of $5.0 million. In February 2022, CRG, the lenders party thereto and the Company amended the Term Loan Agreement, ~~is available at any time through July 27, 2018,~~extending the interest only period and ~~is subject~~maturity to December 30, 2023. In November 2022, CRG amended the Term Loan Agreement, extending the interest only period and maturity to December 30, 2024. On May 15, 2023, the Company notified CRG that it was not in compliance with the minimum liquidity covenant as of May 12, 2023 and on May 19, 2023, the Company, the lenders party thereto and CRG entered into a waiver and consent with respect to the Term Loan Agreement, reducing the minimum liquidity covenant to $500,000 until December 31, 2023.

The Nasdaq Stock Market LLC (“Nasdaq”) has $1.00 minimum bid price and $35 million minimum market value rules. Since 2021, the Company has failed to comply with Nasdaq listing requirements but subsequently regained compliance for certain ~~conditions including~~markets.

On November 22, 2022, the Company received notice from the Nasdaq indicating that the Company ~~receive 510(k) clearance~~was in violation of the $35 million minimum market value rule. The Company has until May 22, 2023, to regain compliance which includes a closing market value of $35 million or more for a minimum of ten consecutive business days. If compliance in not achieved by May 22, 2023, the Company believes the Nasdaq will notify the Company that its securities are subject to delisting. In the event the Company receives such a delisting notice, the Company intends to apply to the Nasdaq Hearings Panel for an extension to the compliance period or appeal to a Nasdaq Hearings Panel.

On March 30, 2023, the Company received a letter from the Nasdaq indicating that, for the ~~marketing of T2Bacteria~~last thirty consecutive business days, the bid price for its common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1). Under Nasdaq rules, the Company has 180 calendar days (September 26, 2023) to regain compliance by increasing the ~~FDA by April 30, 2018 (see Note 5)~~stock price to over $1.00. ~~Should~~Absent significant appreciation in the Company’s stock price, the Company plans to submit an appeal to receive a 180-day extension to regain compliance, and believes that the receipt of an extension is probable, given the current ~~operating~~market dynamics and hundreds of companies in similar situations. To earn the extension, the Company will likely be required to provide a plan ~~not materialize as expected,~~that could include certain commitments including a potential reverse stock split.

These conditions raise substantial doubt regarding the Company’s ability to ~~draw~~continue as a going concern for a period of one year after the date that the financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include raising additional ~~borrowings on~~funding, earning payments pursuant to the ~~Term Loan Agreement on a timely basis, the Company would delay~~Company’s contract with BARDA, delaying certain research projects and capital expenditures and ~~reduce or eliminate~~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 ~~the~~these condensed consolidated financial statements are issued.

~~For~~ Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more ~~information, refer~~of these sources or adequately reduce 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 ~~section titled “Liquidity and Capital Resources”~~date of issuance of these financial statements. Even if we are able to complete the actions described in this paragraph or otherwise generate incremental liquidity, we may be forced to sell material assets or seek additional capital or be required to commence proceedings under Chapter 11 of the U.S. Bankruptcy Code. See Part II, Item ~~2, Management’s Discussion and Analysis of Financial Condition and Results of Operations and the section entitled “Risk~~1A—“Risk Factors” in ~~the Annual~~this Quarterly Report on Form ~~10-K for~~10-Q.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the ~~year ended December 31, 2016, for additional risks associated with our capital needs.~~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 ~~accounting principles~~ in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States ~~GAAP~~generally accepted accounting principles as ~~defined~~found in the Accounting Standards Codification ~~(“ASC”~~("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.

~~We have evaluated subsequent events from September 30, 2017 through~~On October 12, 2022, we effected a 50 for 1 reverse stock split. One share of common stock was issued for every 50 shares of issued and outstanding, fractional shares were settled in cash and adjustment made for 50 shares of rounding. All references to share

and per share amounts (excluding authorized shares) in the ~~date of the issuance of these~~ condensed consolidated financial statements and accompanying notes have ~~determined that no material subsequent events have occurred that would have a material effect on~~been retroactively restated to for the ~~information presented in these consolidated financial statements.~~reverse split.

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, ~~2016.~~2022.

The accompanying interim condensed consolidated balance sheet as of ~~September 30, 2017,~~March 31, 2023, the condensed consolidated statements of operations and comprehensive loss for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, the condensed consolidated statements of stockholders’ deficit for the three months ended March 31, 2023 and 2022, the condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 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, 2017,~~March 31, 2023, and the results of its operations for the three months ended March 31, 2023 and 2022 and its cash flows for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022. The results for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2017,~~2023, any other interim periods, or any future year or period.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation. 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 consolidated financial statements.

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~~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, launching commercially 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.

Going Concern

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.

Geographic Information

The Company sells its products domestically and internationally. Total international sales were approximately $0.8 million or 36% of total revenue and $1.0 million or 13% of total revenue for the three months ended March 31, 2023 and 2022, respectively. International sales to Italy was $0.4 million or 19% of total revenue for the three months ended March 31, 2023. International sales to any customer in a single country did not exceed 10% of total revenue for the three months ended March 31, 2022.

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


	Three Months Ended March 31,
	2023			2022
Customer A		20	%		47	%
Customer B		19	%		5	%

Customer A is a U.S. government customer (BARDA). Customer B is an international distributor.

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


	March 31, 2023			December 31, 2022
Customer A		—	%		32	%
Customer B		28	%		—	%

Customer A is a U.S. government customer (BARDA). Customer B is an international distributor.

As of March 31, 2023 and December 31, 2022, the Company had outstanding receivables of $1.4 million and $0.4 million, respectively, from customers located outside of the U.S.

Net Loss Per Share

The Company has issued certain securities that are participating securities; therefore, the Company must apply the two-class method to determine basic and diluted earnings per share. To the extent that a dividend or distribution is declared or paid during the period, the Company applies the two-class method to determine the allocation of the dividends or distributions between the common shareholders and the holders of the participating securities. The Company’s participating securities do not have an obligation to share in the losses of the Company. To the extent that the Company remains in a net loss position, the two-class method will not apply since the entire net loss would be allocated to the common shareholders.

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period and potential common shares exercisable for little to no consideration, without consideration for other common stock equivalents.

Diluted net loss per share is calculated by adjusting the weighted-average number of shares outstanding 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 ~~for~~during the period, determined using either the if-converted method or the treasury-stock method. ~~For purposes~~

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 and comprehensive loss.

The Company determined that both 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 ~~diluted net loss per share calculation, stock options~~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 and ~~unvested restricted stock~~comprehensive loss. See Notes 3 and 7.

The Company has identified a single compound derivative liability related to its Term Loan Agreement with CRG, that is classified as non-current on the condensed consolidated balance sheets to match the classification of the related Term Loan Agreement. Changes in fair value are ~~considered~~recognized in change in fair value of derivative related to ~~be common stock equivalents, but have been excluded from~~Term Loan in the ~~calculation~~period of ~~diluted net loss per share,~~change in the condensed consolidated statements of operations and comprehensive loss. See Note 6.

The Company does not designate its derivative instruments as ~~their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share applicable to common stockholders was the same for all periods presented.~~hedging instruments.

Guarantees

~~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 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 13 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, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, 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 option 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 twelve months but subject to penalty. As a result of the penalty, the customers are deemed reasonably certain of not exercising their termination rights resulting in a lease term of generally three years. 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 and comprehensive loss (see disaggregated revenue table below in Revenue Recognition section). The consumables non-lease component does not meet the requirements to elect the practical expedient and thus 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 ~~product sales, which includes~~ the sale of instruments, consumable diagnostic tests, ~~and~~ related services, reagent rental agreements and ~~research~~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 ~~development agreements with third parties.~~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 ~~revenue~~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 ~~accordance~~time, typically upon shipment, or over time, as services are performed.

Most of the Company’s contracts with ~~FASB ASC Topic 605, Revenue Recognition (“ASC 605”). Accordingly,~~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 ~~recognizes revenue when all of~~accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the ~~following criteria have been met:~~

~~Persuasive evidence of an arrangement exists~~

~~ii.~~

~~Delivery has occurred or services have been rendered~~

~~iii.~~

~~The seller’s price to the buyer is fixed or determinable~~

~~iv.~~

~~Collectability is reasonably assured~~

~~If any of~~separate performance obligations on a relative standalone selling price basis. Excluded from the ~~above criteria have not been met, the Company defers revenue until such time each of the criteria have been satisfied.~~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 ~~return~~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 ~~the~~an instrument is ~~directly~~ purchased by a customer or international distributor, the

Company recognizes revenue when ~~all applicable revenue recognition criteria are met.~~ 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, ~~certain of which may include minimum purchase commitments and/or~~and incremental charges on each consumable diagnostic test ~~purchased, which varies based on the volume of test cartridges~~ purchased. Revenue from the sale of consumable diagnostic tests ~~which includes the incremental charge,~~(under a reagent rental agreement) is generally recognized upon ~~delivery or shipment~~shipment. The transaction price from consumables purchases is allocated between the lease and nonlease 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 ~~Company’s~~condensed consolidated statements of operations and comprehensive ~~loss.~~loss 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 ~~typicallyfor~~typically for additional one year periods in exchange for additional consideration. ~~In addition, the Company may provide training to customers.~~The extended Maintenance Services are also service based warranties that represent separate purchasing decisions. The Company ~~defers~~recognizes revenue ~~from the initial sale of the instrument equal~~allocated to the ~~relative fair value of the one year of~~extended Maintenance Services ~~and training and recognizes the amounts ratably~~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 ~~either~~ provides ~~a credit to its customers~~replacement product free of charge. Warranty expense is recognized based on ~~future orders or provides a replacement product. Accordingly, the Company defers revenue associated with~~ the estimated defect rates of the consumable diagnostic tests.

Contribution Revenue

The government contract with BARDA is 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 is earned under a cost-sharing arrangement in which the Company ~~does not offer rights of return~~is reimbursed for ~~instruments or consumable diagnostic tests.~~

~~Shipping and handling~~direct costs incurred ~~associated with products sold to customers~~plus allowable indirect costs. The government contract revenue is recognized as the related reimbursable expenses are ~~recorded~~incurred. The cost reimbursement that is reported as ~~a cost~~revenue is presented gross of ~~product revenue~~the related reimbursable expenses in the ~~consolidated statement of operations and comprehensive loss. Shipping and handling costs billed to customers in connection with a product sale are recorded as a component of product revenue in the~~Company’s condensed consolidated statements of operations and comprehensive ~~loss.~~

For multiple-element arrangements, the Company identifies the deliverables included within each agreement and evaluates which deliverables represent separate units of accounting. The determination that multiple elements in an arrangement meet the criteria for separate units of accounting requires the Company’s management to exercise judgment. The Company accounts for those components as separate elements when the following criteria are met: (1) the delivered items have value to the customer on a stand-alone basis; and, (2) if there is a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and within its control.

The consideration received is allocated among the separate units of accounting based on a selling price hierarchy. The selling price hierarchy is based on: (1) vendor specific objective evidence (“VSOE”), if available; (2) third party evidence of selling price if VSOE is not available; or (3) best estimated selling price (“BESP”) if neither VSOE nor third party evidence is available. The Company generally expects that it will not be able to establish selling price using third-party evidence due to the nature of our products and the markets in which the Company competes, and, as such, the Company typically will determine selling price using VSOE or BESP.

When the Company establishes selling price using BESP, consideration is given to both market and Company-specific factors, including the cost to produce the deliverable and the anticipated margin on that deliverable, as well as the characteristics of markets in which the deliverable is sold.

Revenue earned from activities performed pursuant to research and development agreements is reported as research revenue in the consolidated statements of operations and comprehensive loss, using the proportional performance method as the work is completed, limited to payments earned, andloss; the related ~~costs~~reimbursable expenses are expensed as incurred as research and development expense. The ~~timing~~Company accounts for these contracts as a government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of ~~receipt of cash from~~Government Assistance.

The Company has a significant development contract with BARDA and should BARDA reduce, cancel or not grant additional milestone projects, the Company’s ability to continue future product development may be adversely impacted. Refer to Note 11 for further details regarding the development contract with BARDA.

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, March 31,
	2023		2022
Product revenue
Instruments	$	322	$	646
Consumables		1,177		2,950
Instrument rentals		55		18
Service		101		230
Total product revenue		1,655		3,844
Contribution revenue		423		3,390
Total revenue	$	2,078	$	7,234

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 March 31, 2023. 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 $0.2 million as of March 31, 2023. The Company expects to recognize 53% 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

At March 31, 2023 and December 31, 2022, the Company recorded $0.2 million and $0.1 million, respectively, of contract assets within other assets on the balance sheet. The 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 Company’s contract liabilities consist of upfront payments for research and development ~~agreements generally differs from~~contracts and 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.

~~Product Recall~~

~~In July 2016, the Company initiated a voluntary recall~~ At March 31, 2023 and replacement of its T2Candida cartridges at certain customer sites because T2Candida was experiencing higher than normal invalid test rates as the T2Candida cartridges aged. As of September 30, 2016, as a result of this voluntary recall, the Company deferred revenue totaling $149,000 and recorded additional costs of product revenue of $41,000 related to returned products, which are no longer usable. As of September 30, 2017,December 31, 2022, the Company had ~~$20,000~~contract liabilities of ~~deferred revenue~~$0.2 million and ~~$2,000 of warranty reserve remaining, both~~$0.2 million, respectively. Revenue recognized during the three months ended March 31, 2023 relating to contract liabilities at December 31, 2022 was $0.1 million and related to ~~this voluntary recall. The impact of the voluntary recall on T2Candida cartridges in inventory was not material to the condensed consolidated financial statements.~~ straight-line revenue recognition associated with maintenance agreements.

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 ~~related~~ 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 ~~performing~~delivering products or services ~~under research~~associated with contribution revenue, ~~arrangements,~~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~~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 our 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. We expense the majority of selling, general and administrative expenses as incurred.

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 the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

Accounting Standards Adopted

In August 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its financial obligations as they become due within one year after the date that the financial statements are issued (or are available to be issued). ASU No. 2014-15 provides guidance to an organization’s management, with principles and definitions intended to reduce diversity in the timing and content of disclosures commonly provided by organizations in the footnotes of their financial statements. ASU No. 2014-15 was effective for annual reporting periods ending after December 15, 2016, and for annual and interim periods thereafter. This standard has been adopted and reflected in the Company’s disclosures regarding liquidity.

~~In July 2015,~~On September 29, 2022, the FASB issued ASU ~~No. 2015-11,~~ ~~Inventory (Topic 330): Simplifying~~2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50) Disclosure of Supplier Finance Program Obligations. This ASU requires that a buyer in a supplier finance program disclose additional information about the ~~Measurement~~program to allow financial statement users to better understand the effect of ~~Inventory~~ ~~(“ASU 2015-11”). The standard simplifies~~ the ~~subsequent measurement of inventory by requiring inventory to be measured at~~programs on an entity's working capital, liquidity, and cash flows. This update is effective for the ~~lower of cost and net realizable value~~Company for ~~entities using~~fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the ~~first-in-first out method of valuing inventory. ASU 2015-11 eliminates other measures required by current guidance to determine net realizable value. ASU 2015-11~~amendment on roll forward information, which is effective for fiscal years beginning after December 15, ~~2016 and interim periods within those fiscal years and early~~2023. Early adoption is permitted. The ~~Company’s~~Company adopted ASU 2022-04 on January 1, 2023. The adoption ~~of this standard~~ did not have a material ~~effect on its condensed consolidated financial statements.~~

~~In March 2016, the FASB released ASU No. 2016-09~~ ~~Improvements to Employee Share-Based Payment Accounting~~ (“ASU 2016-09”) which is intended to simplify income tax accounting for excess tax benefits, accounting for forfeitures, and employer statutory withholding. Under the current guidance, excess tax benefits that result from an award vesting or settling are recognized in additional paid-in capital in the period that they reduce cash taxes payable. This requires the provision to be computed on a with and without option basis and may result in net operating loss and credit carryforwards on the balance sheet being less than what is available on the tax return. Under the new guidance, the income tax effects of awards will be recognized as a component of income tax expense when the awards vest or are settled (regardless if cash taxes are reduced). For interim reporting purposes, companies will account for excess tax benefits and tax deficiencies as discrete items in the period during which they occurred. The guidance is effective for public entities for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted, however all of the guidance included in the update must be applied when adopted. The Company must use a modified retrospective transition method for adopting and record the cumulative effect of all unrecognized benefits and any change in valuation allowances at the end of the prior tax period as an adjustment to retained earnings. The Company’s adoption of this standard did not have a material effect on its condensed consolidated financial statements and prior periods have not been adjusted. As a result, the Company established a net operating loss deferred tax asset of $1.2 million to account for prior period excess tax benefits through retained earnings, however an offsetting valuation allowance of $1.2 million will also be established through retained earnings because it is not more likely than not that the deferred tax asset will be realized due to historical and expected future losses, such that there is no impact on the ~~Company’s condensed consolidated~~Company's financial statements. ~~The Company also elected to maintain the use of estimated forfeitures in the calculation of stock based compensation.~~

~~In March 2016, the FASB issued ASU No. 2016-06,~~ ~~Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments~~ (“ASU 2016-06”), which applies to all issuers of or investors in debt instruments with embedded call or put options. ASU 2016-06 clarifies the requirements for assessing whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. Entities performing the assessment under the guidance of ASU 2016-06 are required to assess the embedded call or put options solely in accordance with the four-step decision process. In addition, ASU 2016-06 clarifies what steps are required when assessing whether the economic characteristics and risks of call or put options are clearly and closely related to the economic characteristics and risks of their debt hosts. ASU 2016-06 is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years using the modified retrospective method for existing debt instruments. The Company’s adoption of this standard did not have a material effect on its condensed consolidated financial statements.

~~Accounting Standards Issued, Not Adopted~~

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ (“ASC 2016-15”), which provides guidance on the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. The standard requires the use of a retrospective approach to all periods presented, but may be applied prospectively if retrospective application would be impracticable. The guidance is effective for public entities for fiscal years beginning after

December 15, 2017, and interim periods within those years, and early application is permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2016-15 on the Company’s consolidated financial statements.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ (“ASU 2016-02”), which applies to all leases. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing leases, while the statement of operations will reflect lease expense for operating leases and amortization and interest expense for financing leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those years, which is the year ended December 31, 2019 for the Company. Entities are required to use a modified retrospective approach of adoption for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. The Company is evaluating the new guidance and the expected effect on the Company’s consolidated financial statements.

~~In June 2014, the FASB issued amended guidance, ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ (“ASU 2014-09”), which is applicable to revenue recognition that will now be effective for the Company for the year ending December 31, 2018, as a result of the deferral of the effective date adopted by the FASB in July 2015. The new guidance must be adopted using either a full retrospective approach for all periods presented or a modified retrospective approach. Early adoption prior to the original adoption date of ASU 2014-09 is not permitted. The new guidance applies a more principles-based approach to revenue recognition. The Company currently anticipates adoption of the new standard effective January 1, 2018 under the modified retrospective method. The Company is analyzing the potential impact that ASU 2014-09 may have on its financial position and results of operations; however, the Company anticipates significant changes to its financial statement disclosures. As of September 30, 2017, the Company has completed its revenue stream analysis and advanced its assessment of the impact of ASU 2014-09 on its revenue-generating arrangements, including its product sales made as direct sales, sales to distributors, reagent rental agreements and its research arrangements. The Company is in the process of finalizing the quantitative impact the ASUs will have on the financial statements, as well as its plan for implementation. In addition, the Company continues to monitor additional changes, modifications, clarifications or interpretations undertaken by the FASB, which may impact its conclusions.

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, 2017~~March 31, 2023 and December 31, ~~2016~~2022 (in thousands):


	Balance at March 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Warrant liabilities	$	7,972	$	—	$	16	$	7,956
Derivative liability related to Term Loan		1,858		—		—		1,858
	$	9,830	$	—	$	16	$	9,814


	Balance at December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities
Warrant liabilities	$	39	$	—	$	39	$	—
Derivative liability related to Term Loan		1,088		—		—		1,088
	$	1,127	$	—	$	39	$	1,088

The Company maintains money market accounts classified as restricted cash, which are Level 1 assets, for $0.6 million at March 31, 2023 and December 31, 2022 (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 7) 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 at March 31, 2023 was determined using the following assumptions:


Risk-free interest rate		3.61	%
Expected dividend yield		0.00	%
Expected volatility		120.00	%
Expected term	4.88

The Company estimated the fair value of the Common Stock Warrant issued in February of 2023 (the “Common Stock Warrant”) (Note 7) 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 $1.08 per share, a risk-free interest rate of 3.61%, expected volatility ranging from 117% to 119%, an expected dividend yield of 0.00%, a stock price of $0.54 (adjusted to reflect volume weighting) and an expected term ranging from zero years to 4.88 years, depending on the simulation.

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


Balance at December 31, 2022	$	—
Issuance of Common Stock Warrant		7,568
Settlement due to cashless exercise		(938	)
Change in fair value		1,326
Balance at March 31, 2023	$	7,956

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 at March 31, 2023 and December 31, 2022 is $1.9 million and $1.1 million, respectively, and is classified as a non-current liability on the balance sheet at March 31, 2023 and December 31, 2022 to match the classification of the related Term Loan Agreement (Note 6).

The estimated fair value of the derivative at March 31, 2023 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 Q3 2023		60	%

The following table provides a roll-forward of the fair value of the derivative liability related to the Term Loan (in thousands):

Balance at
September 30,
2017

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets:

Cash

$
19,644

$
19,644

$
—

$
—

Money market funds

33,253

33,253

—

—

Restricted cash

260

260

—

—

Total

$
53,157

$
53,157

$
—

$
—


Balance at December 31, 2022	$	1,088
Change in fair value of derivative related to Term Loan		770
Balance at March 31, 2023	$	1,858

Balance at
December 31,
2016

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets:

Cash

$
16,887

$
16,887

$
—

$
—

Money market funds

56,601

56,601

—

—

Restricted cash

260

260

—

—

Total

$
73,748

$
73,748

$
—

$
—

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, 2017~~March 31, 2023 and December 31, ~~2016~~2022 because of their short-term nature. ~~At September 30, 2017~~Cash and ~~December 31, 2016,~~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 its Term Loan Agreement. Based on these measurements, the Company concluded that the carrying value of the ~~Company’s debt approximated~~Term Loan Agreement approximates its fair value at March 31, 2023.

4. Restricted Cash

The Company is required to maintain security deposits for its office lease agreements. At December 31, 2022, the Company had lease security deposits, invested in money market accounts, aggregating $1.6 million. In January 2023 one of these deposits of $1.0 million was claimed by a landlord as compensation for a lease dispute (see Note 13). The remaining collateral deposits aggregating $0.6 million at March 31, 2023 were held at Silicon Valley Bank, which was ~~determined using Level 3 inputs, using market quotes from brokers~~taken over by the FDIC in March 2023. The Company’s full exposure was ultimately covered by the FDIC and ~~is based on current rates offered for similar debt (Note 5).~~no loss was incurred.

4.5. 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, 2017		December 31, 2016		March 31, 2023		December 31, 2022
Raw materials	$	500	$	389	$	2,571	$	2,004
Work-in-process		476		351		1,674		1,176
Finished goods		278		63		691		1,105
Total inventories, net	$	1,254	$	803	$	4,936	$	4,285

Property and Equipment

Property and equipment ~~consists~~consist of the following (in thousands):


	September 30, 2017			December 31, 2016			March 31, 2023			December 31, 2022
Office and computer equipment	$	409		$	409		$	757		$	757
Software		743			708			783			783
Laboratory equipment		4,094			4,516			5,594			5,570
Furniture		200			200			210			197
Manufacturing equipment		910			897			1,454			1,454
Manufacturing tooling and molds		160			154			494			494
T2-owned instruments and components		10,878			9,119			4,285			4,052
Leased T2-owned instruments								1,011			1,014
Leasehold improvements		3,378			3,353			3,785			3,784
Construction in progress		1,557			1,299			869			685
		22,329			20,655			19,242			18,790
Less accumulated depreciation and amortization		(8,475	)		(7,066	)		(14,441	)		(14,257	)
Property and equipment, net	$	13,854		$	13,589		$	4,801		$	4,533

Construction in progress is primarily comprised of equipment ~~and leasehold improvement projects~~ that ~~have~~has not been placed in service. T2-owned instruments and components is comprised of raw materials and work-in-process inventory that are expected to be used or used to produce T2-owned ~~instruments, based on our business model and forecast,~~instrument and completed instruments that will be used for internal research and development, clinical studies orand reagent rental ~~agreements~~agreement with customers. ~~Completed T2-owned instruments are placed in service once installation procedures are completed~~At March 31, 2023 and ~~are depreciated over five years. The Company has approximately $7.9~~December 31, 2022, there were $1.0 million and ~~$5.7~~$0.8 million of T2-owned ~~instruments installed~~instrument raw materials and ~~depreciating as of September 30, 2017 and December 31, 2016,~~work-in-process, respectively. Depreciation expense, ~~for T2-owned instruments placed at customer sites pursuant to reagent rental agreements is recorded as~~ a component of cost of product revenue, ~~and totaled approximately $0.2 million and $0.2 million~~from instruments under the T2-owned reagent rental pool was immaterial for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, respectively, and $0.7 million and $0.4 million for the nine months ended September 30, 2017 and 2016, respectively. Depreciation~~2022. Total depreciation expense for T2-owned instruments used for internal research and development and clinical studies is recorded as a component of research and development expense. Depreciation and amortization expense of $0.3 million was charged to operations for the three months ended March 31, 2023 and 2022.

Accrued Expenses

Accrued expenses consist of the following (in thousands):


	March 31, 2023		December 31, 2022
Accrued payroll and compensation	$	2,270	$	2,930
Accrued clinical trial and development expenses		826		1,097
Accrued professional services		604		1,626
Accrued interest		996		1,009
Other accrued expenses		466		607
Total accrued expenses and other current liabilities	$	5,162	$	7,269

Accrued professional services at December 31, 2022 includes a $1.0 million estimated liability related to the Billerica, Massachusetts lease (Note 13).

September 30,
2017

December 31,
2016

Accrued payroll and compensation

$
2,875

$
2,479

Accrued research and development expenses

1,038

846

Accrued professional services

987

884

Other accrued expenses

613

699

Total accrued expenses

$
5,513

$
4,908

5.6. Notes Payable

Future principal payments on the notes payable are as follows (in thousands):

September 30,
2017

December 31,
2016

Term loan agreement, net of deferred issuance costs of $2.5
million and $3.0 million, respectively

$
38,695

$
37,031

Equipment lease credit facility, net of deferred issuance cost
of $29 thousand and $45 thousand, respectively

2,810

3,742

Total notes payable

41,505

40,773

Less: current portion of notes payable

(1,416
)

(1,269
)
Notes payable, net of current portion

$
40,089

$
39,504


	March 31, 2023			December 31, 2022
Term Loan Agreement including PIK interest, before unamortized discount and issuance costs	$	53,453		$	53,453
Less: unaccrued paid-in-kind interest		(3,211	)		(3,647	)
Less: unamortized discount and deferred issuance costs		(134	)		(155	)
Total notes payable	$	50,108		$	49,651

~~Term Loan Agreement~~16

In December 2016, the Company entered into a Term Loan Agreement (the “Term Loan Agreement”) with CRG Servicing LLC (“CRG”). The Company initially borrowed $40.0 million pursuant to the Term Loan Agreement and may borrow up to an additional $10.0 million at any time through and including July 27, 2018, provided that, among other conditions, the Company receives 510(k) clearance for the marketing of T2Bacteria by the FDA on or before April 30, 2018 (the “Approval Milestone”). The Term Loan Agreement ~~has a six-year term~~ with ~~three years (through~~ CRG is classified as non-current at March 31, 2023 and at December 31, 2022, as the Company amended the agreement in November 2022, extended the interest only period and maturity to December 30, ~~2019)~~2024. The warrants to purchase a total of interest-only payments, which period shall be extended to four years (through December 30, 2020) if the Company achieves the Approval Milestone, after which quarterly principal and interest payments will be due through the December 30, 2022 maturity date. Interest on the amounts borrowed under the Term Loan Agreement accrues at an annual fixed rate of (a) prior to the Approval Milestone, 12.5%, 4.0% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount and (b) following the Approval Milestone, 11.5%, 3.5% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount. In addition, if the Company achieves certain financial performance metrics, the loan will convert to interest-only until the December 30, 2022 maturity, at which time all unpaid principal and accrued unpaid interest will be due and payable. The Company is required to pay CRG a financing fee based on the loan principal amount drawn. The Company is also required to pay a final payment fee of 8.0%21,944 shares of the ~~principal~~Company's common stock remain outstanding ~~upon repayment, which is being accreted over the term of the debt as additional interest expenses.~~at March 31, 2023.

The Company may prepay all or a portion of the outstanding principal and accrued unpaid interest under the Term Loan Agreement at any time upon prior notice subject to a prepayment fee during the first five years of the term and no prepayment fee thereafter. As security for its obligations under the Term Loan Agreement the Company entered into a security agreement with CRG whereby the Company granted a lien on substantially all of its assets, including intellectual property. The Term Loan Agreement also contains customary affirmative and negative covenants for a credit facility of this size and type. The Term Loan Agreement also requires the Company to achieve certain annual revenue targets, whereby the Company is required to pay double the amount of any shortfall as an acceleration of principal payments. The revenue target for fiscal 2017 is $5.0 million on this provision. The Term Loan Agreement includes a subjective acceleration clause whereby an event of default, including a material adverse change in the business, operations, or conditions (financial or otherwise), could result in the acceleration of the obligations under the Term Loan Agreement. ~~Under certain circumstances,~~Also, at CRG's discretion, a default interest rate of an additional ~~4.0%~~4.0% per annum ~~will~~may apply ~~at the election of CRG on all outstanding obligations~~ during the occurrence and continuance of an event of default.

In January 2023, CRG ~~has not exercised its right under this clause, as there have been~~waived certain specified events of default associated with the Company's issuance of shares of Series A convertible preferred stock in August 2022 and the subsequent redemption. There were no ~~such events. The Company believes~~other covenant violations during the ~~likelihood of CRG exercising this right is remote.~~three-month period ended March 31, 2023.

~~The Company assessed the terms and features of the~~ Term Loan Agreement in order to identify any potential embedded features that would require bifurcation or any beneficial conversion features. As part of this analysis, the Company assessed the economic characteristics and risks of the Term Loan Agreement, including put and call features. The Company determined that the features of the Term Loan Agreement are either clearly and closely associated with a debt host and do not require bifurcation as a derivative liability, or the fair value of the feature is immaterial. Included in these features are principal payment acceleration clauses triggered by a developmental milestone. Should the Company’s assessment of this milestone change, there could be a non-cash charge in operations. The Company will continue to reassess the features to determine if they require separate accounting on a quarterly basis.

In December 2016, pursuant to the Term Loan Agreement, the Company made an initial draw of $39.2 million, net of financing fees. The Company used approximately $28.0 million of the initial proceeds to repay approximately $27.5 million of outstanding debt pursuant to the Loan and Security Agreement and to repay approximately $0.5 million of outstanding debt pursuant to the Promissory Note. Upon the repayment of all amounts owed by the Company under these agreements, all commitments were terminated and all security interests granted by the Company were released.

~~In connection with the Term Loan Agreement entered into in~~ December 2016, the Company entered into a Term Loan Agreement with CRG and borrowed $40.0 million. The Agreement initially had a six-year term, and provided for quarterly interest-only payments through December 30, 2020 and quarterly principal and interest payments thereafter through maturity. The Company issued warrants to CRG ~~four separate warrants~~ to purchase a total of ~~528,958~~10,579 shares of the Company’s common ~~stock. The warrants are~~stock, exercisable any time prior to December 30, 2026 at a price of ~~$8.06~~$77.50 per ~~share,~~share. The Agreement has been subsequently amended as described below.

Interest on borrowings, as amended, accrue at 11.50% per year, 8% of which is payable in cash quarterly and 3.5% of which is deferred and added to principal until maturity. The Company paid CRG a financing fee based on the loan principal amount drawn and the fee is being amortized over the loan term as debt discount interest expense. A final fee payment of 10% (initially 8%, then amended) is due at maturity based on the principal outstanding at maturity. The final fee is accrued as interest expense and recorded as a non-current liability consistent with ~~typical~~the classification of the associated debt.

In connection with a 2019 amendment of the Term Loan Agreement, the Company issued to CRG warrants to purchase 11,365 shares of the Company’s common stock (“New Warrants”) exercisable any time prior to September 9, 2029 at an exercise price of $77.50 per share.

The Company may prepay principal at any time partially or in full without prepayment penalty. Borrowings are collateralized by a lien on substantially all Company assets, including intellectual property. The Term Loan Agreement provides for affirmative and negative covenants including a requirement to maintain a minimum cash balance of $5.0 million. The Term Loan Agreement includes a subjective acceleration clause whereby an event of default, including a material adverse change in the business, operations, or conditions (financial or otherwise), could result at CRG’s discretion in the acceleration of the obligations under the Term Loan Agreement. Also at CRG’s discretion, a default interest rate of an additional 4.0% per annum may apply during the occurrence and continuance of an event of default. In January 2023, CRG waived certain specified events of default associated with the Company's issuance of shares of Series A convertible preferred stock in August 2022 and the subsequent redemption.

Amendments

In 2019, the Term Loan Agreement was amended to reduce minimum revenue targets, extend the interest-only period, extend the principal repayment period and to increase the final payment fee from 8% to 10%. The Company issued the New Warrants to CRG, with provisions for termination upon a change of control or a sale of all or substantially all of the assets of the Company. The Company also reduced the exercise price for the warrants previously issued to CRG to purchase an aggregate of 10,579 shares of the Company’s common stock to $77.50. The New Warrants are exercisable any time prior to September 9, 2029, and all of the previously issued warrants are classified within shareholders’ equity, and the proceeds were allocated between the debt and warrants based on their relative fair value. The fair value of the warrants was determined by the Black Scholes Merton option pricing model. The fair value of the warrants at issuance onexercisable any time prior to December 30, ~~2016 was $1.8 million.~~2026.

~~Equipment Lease Credit Facility~~

In ~~October 2015, the Company signed a $10.0 million Credit Facility with Essex Capital Corporation (the “Lessor”) to fund capital equipment needs. As one of the conditions of~~January 2021, the Term Loan Agreement was amended to extend the ~~Credit Facility is capped at a maximum of $5.0 million. Under~~interest-only payment period until December 30, 2022, extend the ~~Credit Facility, Essex will fund capital equipment purchases presented by~~initial principal repayment until December 30, 2022, and to reduce the ~~Company.~~minimum product revenue target for the twenty-four month period beginning on January 1, 2020. The Company ~~will repay~~did not pay or provide any consideration in exchange for this amendment. The Company accounted for the ~~amounts borrowed~~January 2021 amendment as a modification to the Term Loan Agreement. In June 2021, the Company satisfied the remaining revenue covenant.

In February 2022, the Term Loan Agreement was amended to extend the interest-only and the principal maturity dates to December 30, 2023. The Company did not pay or provide any consideration in ~~36 equal monthly installments from~~exchange for this amendment. As the ~~date~~effective borrowing rate under the amended agreement is less than the effective borrowing rate under the previous agreement, a concession was deemed granted as per ASC Topic 470-60, Debt: Troubled Debt Restructurings by Debtors ("ASC 470-60), and the amendment was accounted

for as a troubled debt restructuring. The future undiscounted cash outflows required under the amended agreement exceed the carrying value of the ~~amount funded. At~~debt immediately prior to the ~~end~~amendment and the amendment did not result in a gain on restructuring.

In November 2022, CRG amended the Term Loan Agreement, extending the interest only period and principal maturity to December 30, 2024. No consideration was given in exchange for the amendment. There were no costs paid to the lender or third parties in association with the amendment. Because a concession was granted, the agreement was accounted for as a troubled debt restructuring under ASC 470-60. The future undiscounted cash outflows required under the amended agreement exceed the carrying value of the ~~36 month lease term,~~debt immediately prior to the amendment and the amendment did not result in a gain on restructuring. On May 19, 2023, the Company, ~~has~~ the ~~option to (a) repurchase the leased equipment at the lesser of fair market value or 10% of the original equipment value, (b) extend the applicable lease for~~lenders party thereto and CRG entered into a ~~specified period of time, which will not be less than one year, or (c) return the leased equipment~~waiver and consent with respect to the ~~Lessor.~~Term Loan Agreement, reducing the minimum liquidity covenant to $500,000 until December 31, 2023.

7. Warrants

~~In April 2016 and June 2016,~~Series A Warrant

On August 15, 2022, the Company ~~completed the first two draws under the Credit Facility,~~issued an aggregate of $2.1 million and $2.5 million, respectively. The Company will make monthly payments of $67,000 under the first draw and $79,000 under the second draw. The borrowings under the Credit Facility are treated as capital leases. The amortization of the assets conveyed under the Credit Facility is included as a component of depreciation expense.

~~6. Stockholders’ Equity~~

~~Private Investment in Public Equity Financing~~

~~On September 21, 2016, Canon U.S.A., Inc. (“Canon”) became a related party when the Company sold 6,055,341~~3,000 shares of ~~its common stock (the “Canon Shares”) to Canon at $6.56~~Series A Redeemable Convertible Preferred Stock with a par value of $0.001 per share and the ~~closing price on this date, for~~Series A Warrant to purchase up to an aggregate ~~cash purchase price~~ of ~~$39.7 million. As of September 21, 2016, the Canon Shares represented 19.9% of the outstanding~~42,857 shares of common stock of the Company at an exercise price of $7.50 per share (such number of shares and exercise price are adjusted for the reverse stock split described in Note 2) for an aggregate subscription amount equal to $0.3 million, before deducting estimated offering expenses payable by the Company. In ~~connection~~the fourth quarter of 2022, the Series A Redeemable Convertible Preferred Stock was redeemed. The Series A Warrant became exercisable on February 15, 2023 and expires on February 15, 2028. The Series A Warrant contains certain anti-dilution provisions to protect the holder.

On February 17, 2023, the Company issued and sold shares of common stock, pre-funded warrants to purchase common stock and warrants to purchase common stock to an underwriter pursuant to an underwriting agreement (see discussion below). The terms of that offering triggered an adjustment to the exercise price of the Series A Warrant to $0.54 effective as of February 17, 2023.

The Company is required to measure the Series A Warrant at fair value at inception and in subsequent reporting periods with changes in fair value recognized in change in fair value of warrant liabilitiesin the period of change in the condensed consolidated statements of operations and comprehensive loss. The fair value of the liability related to the Series A Warrant at inception was $0.4 million. The Series A Warrant was not exercised as of March 31, 2023 and remains outstanding. The change in fair value during the three-month period ended March 31, 2023 was a gain of less than $0.1 million.

Pre-Funded Warrants and Common Stock Warrants

On February 17, 2023, the Company sold 9,018,519 shares of $0.001 par value common stock, 2,092,592 Pre-Funded Warrants and 22,222,222 Common Stock Warrants through an offering underwritten by Craig-Hallum Capital Group LLC. Each of the shares and Pre-Funded Warrants were sold in combination with an accompanying Common Stock Warrant to purchase two shares of the Company's common stock. The combined purchase price for each share and accompanying Common Stock Warrant is $1.08, and for each Pre-Funded Warrant and accompanying Common Stock Warrant is $1.079, which was equal to the combined purchase price for each share and accompanying Common Stock Warrant sold in the offering, minus the Pre-Funded Warrant’s exercise price per share of $0.001.

The total proceeds of $12.0 million from the February 17, 2023 offering were allocated between the common stock, Pre-Funded Warrants and Common Stock Warrants. Because the Common Stock Warrants are liability-classified, an amount of proceeds equal to the fair value of the liability were first allocated to the Common Stock Warrants. The remaining proceeds were allocated on a relative fair value basis to the common stock and the Pre-Funded Warrants and recognized in additional paid-in capital. Total issuance costs related to the offering of $1.1 million were allocated in a similar manner as the total proceeds. As a result, approximately $0.7 million of issuance costs were expensed at the issuance date and recognized as other expenses in the condensed consolidated statements of operations and comprehensive loss. The remaining issuance costs were recognized within additional paid-in-capital as a reduction to the proceeds received for the common stock and Pre-Funded Warrants.

The Pre-Funded Warrants have (i) an exercise price per share of Common Stock equal to $0.001 or (ii) a cashless exercise option, with the ~~sale~~number of shares received determined according to the formula set forth in the Pre-Funded Warrant. The Pre-Funded Warrants are exercisable upon issuance and do not expire. The exercise price and the number of shares of common stock issuable upon exercise of the ~~Canon Shares,~~Pre-Funded Warrants is subject to adjustment in the event of certain stock dividends and distributions, splits, combinations, reclassifications or similar events affecting the common stock. Holders of Pre-Funded Warrants will participate in any distributions to common stockholders as if the holders had exercised the Pre-Funded Warrants.

The Company ~~agreed to grant Canon certain board designation rights, including~~determined that the ~~right to initially appoint a Class I director~~Pre-Funded Warrants are indexed to the Company’s ~~board~~own stock and meet the requirements for equity classification. Proceeds allocated to such warrants totaled $0.8 million. During the first quarter of ~~directors. On~~2023, 1,740,740 Pre-Funded Warrants were exercised for an equivalent number of shares of common stock and 351,852 Pre-Funded Warrants remain outstanding at March ~~20, 2017,~~31, 2023.

The Common Stock Warrants have (i) an exercise price per share of common stock equal to $1.08 per share, (ii) a cashless exercise option if, at the time of exercise, there is no effective registration statement registering or the prospectus is not available for the issuance of the warrant shares to the holder, with the number of shares received determined according to the formula set forth in the Common Stock Warrant or (iii) an alternate cashless exercise option, which became exercisable on March 15, 2023, equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cash exercise and (y) 0.5. The Common Stock Warrants are exercisable upon issuance and expire on February 17, 2028. The exercise price and the number of shares of common stock issuable upon exercise of the Common Stock Warrants is subject to adjustment in the event of certain stock dividends and distributions, splits, combinations, reclassifications or similar events affecting the common stock. Holders of the Common Stock Warrants will participate in any distributions to common stockholders as if the holders had exercised the Common Stock Warrants. The Common Stock Warrants are redeemable upon the occurrence of a Fundamental Transaction (as defined in the Common Stock Purchase Warrant Agreement).

The Company determined that the Common Stock Warrants are not indexed to the Company’s own stock and therefore are precluded from equity classification. In addition, the Common Stock Warrant liability meets the definition of a derivative instrument. The Common Stock Warrants will be measured at fair value at inception and in subsequent reporting periods with changes in fair value recognized in income as change in fair value of warrant liabilities in the period of change in the condensed consolidated statements of operations and comprehensive loss. The fair value of the Common Stock Warrant liability at inception was $7.6 million. During the first quarter of 2023, 2,344,074 Common Stock Warrants were exercised pursuant to the cashless exercise option resulting in the issuance of 1,172,037 shares of Common Stock. At March 31, 2023, 19,878,148 Common Stock Warrants remain outstanding. The change in fair value after issuance during the three-month period ended March 31, 2023 was a loss of $1.3 million.

The Company has also issued certain warrants in conjunction with its Term Loan Agreement. (see Note 6).

8. Stockholders’ Deficit

Preferred Stock

We have authorized the issuance of up to 10,000,000 shares of $0.001 par value preferred stock. The Board of Directors will determine the preferred stock’s rights, preferences, privileges, restrictions, voting rights, dividend rights, conversion rights, redemption privileges, and liquidation preferences.

Common Stock

We have authorized the issuance of 400,000,000 shares of $0.001 par value common stock. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding.

Equity Distribution Agreement

The Company entered into a Sales Agreement with Canaccord Genuity (the “Sales Agreement”), through which the Company ~~filed with~~may sell up to $75.0 million of gross proceeds of common stock. Canaccord, as agent, sells shares at the ~~Securities~~Company’s request through “at the market” offerings, subject to shelf limitations, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices, or by any other method permitted by law, including negotiated transactions. Canaccord receives a fee of 3% of gross proceeds of common stock sold under the Sales Agreement for its services. Legal and ~~Exchange Commission (the “SEC”) a registration statement on Form S-3 for purposes of registering~~accounting fees from sales under the ~~resale of~~Sales Agreement are charged to share capital. Under the ~~Canon Shares with~~Sales Agreement, the ~~SEC.~~

~~On September 15, 2017, the company~~Company sold ~~5,031,250~~653,122 shares of ~~its~~ common stock ~~in a CMPO at $4.00 per share,~~during the three months ended March 31, 2023 for ~~an aggregate gross cash purchase price of $20.1 million, or~~net proceeds of ~~$18.8~~$0.9 million, ~~after underwriters discount~~ and ~~expenses.~~70,987 shares of common stock during the three months ended March 31, 2022 for net proceeds of $1.4 million.

9. Stock-Based Compensation

Stock Incentive Plans

2006 Stock Incentive Plan

The Company’s 2006 ~~Employee, Director and Consultant~~ Stock Option Plan (“2006 Plan”) was established for granting stock incentive awards to directors, officers, employees and consultants of the Company. Upon closing of the Company’s IPO in August 2014, the Company ceased granting stock incentive awards under the 2006 Plan. The 2006 Plan provided for the grant of incentive and non-qualified stock options and restricted stock grants as determined by the Company’s board of directors. Under the 2006 Plan, stock options were generally granted with exercise prices equal to or greater than the fair value of the common stock as determined by the board of directors, expired no later than 10 years from the date of grant, and ~~vest~~vested over various periods not exceeding 4 years.

2014 Stock Incentive Plan

The Company’s 2014 Incentive Award Plan (“2014 Plan”, and together with the 2006 Plan, the “Stock Incentive Plans”), provides for the issuance of shares of common stock in the form of stock options, awards of restricted stock, awards of restricted stock units, performance awards, dividend equivalent awards, stock payment awards and stock appreciation rights to directors, officers, employees and consultants of the Company. Since the establishment of the 2014 Plan, the Company has ~~only~~primarily granted stock options and restricted stock units. Generally, stock options are granted with exercise prices equal to or greater than the fair value of the common stock on the date of grant, expire no later than 10 years from the date of grant, and vest over various periods not exceeding 4 years.

The number of shares reserved for future issuance under the 2014 Plan is the sum of (1) ~~823,529~~16,470 shares, (2) any shares that were granted under the 2006 Plan which are forfeited, ~~lapsed~~lapse unexercised or are settled in cash subsequent to the effective date of the 2014 Plan and (3) an annual increase on the first day of each calendar year beginning January 1, 2015 and ending on January 1, ~~2024,~~2026, equal to the lesser of (A) 4%4% of the shares outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (B) such smaller number of shares determined by the Company’s ~~Board~~board of ~~Directors.~~directors; provided, however, no more than 700,000 shares may be issued upon the exercise of incentive stock options. As of ~~September 30, 2017~~March 31, 2023, there were ~~979,124~~93,387 shares available for future grant under the 2014 Plan.

Inducement Award Plan

The Company’s Amended and Restated Inducement Award Plan (“Inducement Plan”), which was adopted in March 2018 without stockholder approval pursuant to Rule 5635(c)(4) of The Nasdaq Stock Market LLC listing rules (“Rule 5635(c)(4)”) and most recently amended and restated in December 2021, provides for the grant of equity awards to new employees, including options, restricted stock awards, restricted stock units, performance awards, dividend equivalent awards, stock payment awards and stock appreciation rights. In accordance with Rule 5635(c)(4), awards under the Inducement Plan may only be made to a newly hired employee who has not previously been a member of the Company's Board of Directors, or an employee who is being rehired following a bona fide period of non-employment by us as a material inducement to the employee’s entering into employment with us. The aggregate number of shares of common stock which may be issued or transferred pursuant to awards under the Inducement Plan is 192,500 shares. Any awards that forfeit, expire, lapse, or are settled for cash without the delivery of shares to the holder are available for the grant of an award under the Inducement Plan. Any shares repurchased by or surrendered to the Company that are returned shall be available for the grant of an award under the Inducement Plan. The payment of dividend equivalents in cash in conjunction with any outstanding award shall not be counted against the shares available for issuance under the Inducement Plan. As of March 31, 2023, there were 52,689 shares available for future grant under the Inducement Plan.

Stock Options

The aggregate fair value of stock options granted during the three months ended March 31, 2023 was immaterial. During the ~~nine~~three months ended ~~September 30, 2017 and 2016,~~March 31, 2022, the Company granted stock options with an aggregate fair value of ~~$2.5 million and $6.6~~$0.2 million, respectively, which are being amortized into compensation expense over the vesting period of the ~~stock~~ options as the services are being provided.

The following is a summary of ~~stock~~ option activity under the Stock Incentive Plans and Inducement Plan (in thousands, except share and per share amounts):

	Number of Shares			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (In years)		Aggregate Intrinsic Value
Outstanding at December 31,2016		4,042,627		$	8.20		7.05	$	4,091
										Number of Shares			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (In years)		Aggregate Intrinsic Value
Outstanding at December 31, 2022											179,641		$	145.09		5.93	$	—
Granted		807,450			5.18		6.00				6,220			1.59
Exercised		(194,783	)		2.34				502		—			—		—		—
Forfeited		(554,867	)		9.17						(3,981	)		21.95
Cancelled		(267,127	)		12.56						(14,434	)		149.80
Outstanding at September 30, 2017		3,833,300			7.42		6.67		1,040
Exercisable at September 30, 2017		2,440,070			7.24		5.57		976
Vested or expected to vest at September 30, 2017		3,600,971			7.35		5.77		1,024
Outstanding at March 31, 2023											167,446		$	142.28		6.19	$	—
Exercisable at March 31, 2023											126,982		$	175.16		5.56	$	—
Vested or expected to vest at March 31, 2023											161,179		$	146.59		6.09	$	—

~~Included~~There were no options exercised in the ~~stock options outstanding as of December~~three months ended March 31, 2016 are 166,066 options to purchase common stock granted to certain executive officers of the Company that vest upon the achievement of certain performance conditions, which include the attainment of specified operating result2023 and ~~regulatory targets, by December~~March 31, 2017, of which 20,000 options to purchase common stock upon the achievement of certain performance conditions were forfeited during the year ended December 31, 2016. There are 146,066 performance based stock options outstanding at September 30, 2017 and December 31, 2016. The Company will continually evaluate the probability of achievement of each performance condition and will commence recognition of stock-based compensation expense on these awards in the period the achievement of each performance condition is deemed probable, including a catch-up adjustment from the grant date.

2022. The weighted-average grant date fair values of stock options granted in the ~~nine~~three month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 were ~~$3.04~~$1.34 per share and ~~$4.76~~$16.57 per share, respectively, and were calculated using the following estimated assumptions:


	Three Months Ended
	March 31,
	2023			2022
Weighted-average risk-free interest rate		3.65	%		1.67	%
Expected dividend yield		—	%		—	%
Expected volatility		111	%		105	%
Expected terms	6.0 years			6.0 years

Nine Months Ended

September 30,

2017

2016

Weighted-average risk-free interest rate

1.98
%

1.42
%
Expected dividend yield

—
%

—
%
Expected volatility

63
%

61
%
Expected terms

6.0 years

6.0 years

The total fair values of ~~stock~~ options that vested during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 were ~~$3.5~~$0.3 million and ~~$3.7~~$0.6 million, respectively.

As of ~~September 30, 2017,~~March 31, 2023, there was ~~$5.2~~$1.2 million of total unrecognized compensation cost related to ~~unvested~~non-vested stock options granted under the Stock Incentive Plans ~~including the unrecognized compensation expense of stock options with performance conditions deemed probable of vesting.~~and Inducement Plan. Total unrecognized compensation cost will be adjusted for future changes in the estimated forfeiture rate. The Company expects to recognize that cost over a remaining weighted-average period of ~~2.24~~1.6 years as of ~~September 30, 2017.~~March 31, 2023.

Restricted Stock Units

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, the Company awarded ~~shares of~~ restricted stock units to certain employees and directors at no cost to ~~them, which cannot be sold, assigned, transferred or pledged during the restriction period.~~them. The restricted stock ~~and~~units, excluding any restricted stock units with market conditions, vest through the passage of time, assuming continued ~~employment.~~service. Restricted stock units are not included in issued and outstanding common stock until the underlying shares are vested and released. The fair value of the ~~award~~restricted stock units, at the time of the grant, is expensed on a straight line basis. The granted restricted stock units had an aggregate fair value of ~~$2.9~~$0.2 million, which are being amortized into compensation expense over the vesting period of the ~~options~~restricted stock units as the services are being provided.

The following is a summary of restricted stock unit activity under the 2014 Plan ~~(in thousands, except share~~ and ~~per share amounts):~~Inducement Plan:

	Number of Shares			Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2016		272,195			5.83
						Number of Shares			Weighted-Average Grant Date Fair Value Per Share
Nonvested at December 31, 2022							201,998		$	44.47
Granted		552,925			5.17		339,950			0.67
Vested		—			—		(67,526	)		55.27
Forfeited		(74,800	)		5.87		(4,470	)		38.99
Canceled		—			—
Nonvested at September 30, 2017		750,320			5.34
Nonvested at March 31, 2023							469,952		$	11.28

~~There was no vesting of restricted stock units during the nine months ended September 30, 2017.~~ 21

As of ~~September 30, 2017,~~March 31, 2023, there was ~~$2.6~~$4.9 million of total unrecognized compensation cost related to ~~unvested~~nonvested restricted stock units ~~granted under the Stock Incentive Plans.~~granted. Total unrecognized compensation cost will be adjusted for future ~~forfeitures.~~changes in the estimated forfeiture rate. The Company expects to recognize that cost over a remaining weighted-average period of ~~1.7~~1.3 years, as of ~~September 30, 2017.~~March 31, 2023.

Employee Stock Purchase Plan

Under the 2014 Employee Stock Purchase Plan (the “2014 ESPP”) participants may purchase the Company’s common stock during semi-annual offering periods at 85% of the lower of (i) the market value per share of common stock on the first day of the offering period or (ii) the market value per share of the common stock on the purchase date. Each participant can purchase up to a maximum of $25,000 per calendar year in fair market value as calculated in accordance with applicable tax rules. The first offering period began on August 7, 2014. Stock-based compensation expense from the 2014 ESPP was immaterial for the three months ended March 31, 2023 and was $0.1 million for the three months ended March 31, 2022.

The 2014 ESPP, which was amended and restated effective August 6, 2020, provides for the issuance of up to 90,478 shares of the Company’s common stock to eligible employees. At March 31, 2023, there were 22,849 shares available for issuance under the 2014 ESPP.

Stock-Based Compensation Expense

The following table summarizes the stock-based compensation expense resulting from awards granted under ~~stock incentive plans, including~~Stock Incentive Plans, the Inducement Plan and the 2014 ESPP, that was recorded in the Company’s results of operations for the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2023		2022
Cost of product revenue	$	18	$	27	$	87	$	86	$	54	$	129
Research and development		340		292		1,047		902		280		422
Selling, general and administrative		862		779		2,555		2,572		1,462		1,994
Total stock-based compensation expense	$	1,220	$	1,098	$	3,689	$	3,560	$	1,796	$	2,545

For the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, $33,000 and $32,000 of~~2022, stock-based compensation expenses ~~were~~ capitalized as part of inventory or T2Dx instruments and components ~~respectively. For the nine months ended September 30, 2017 and 2016, $117,000 and $99,000 of stock-based compensation expenses~~ were ~~capitalized as part of inventory or T2Dx instruments and components, respectively.~~immaterial.

~~8. Warrants~~

In connection with the Term Loan Agreement entered into in December 2016, the Company issued to CRG four separate warrants to purchase a total of 528,958 shares of the Company’s common stock. The warrants are exercisable any time prior to December 30, 2026 at a price of $8.06 per share, with typical provisions for termination upon a change of control or a sale of all or substantially all of the assets of the Company. The warrants are classified within shareholders’ equity, and the proceeds were allocated between the debt and warrants based on their relative fair value. The fair value of the warrants was determined by the Black-Scholes-Merton option pricing model. The fair value of the warrants at issuance on December 30, 2016 was $1.8 million.

9.10. Net Loss Per Share

The Company applies the two-class method for computing earnings per share because its Series A Warrants, Pre-Funded Warrants and Common Stock Warrants are participating securities. Under the two-class method, net income for the period is allocated between common stockholders and holders of the participating securities according to dividends declared, if any, and participation rights in undistributed earnings. Because the Company incurred a net loss for the three months ended March 31, 2023, and the holders of the participating securities do not have the contractual obligation to share in the losses of the Company, none of the net loss attributable to common stockholders was allocated to the participating securities when computing earnings per share. The Company did not have any participating securities outstanding for the three-month period ended March 31, 2022.

The Pre-Funded Warrants allow the holders to acquire a specified number of common shares at a nominal exercise price of $0.001 per share and are classified as equity. Since the shares underlying the Pre-Funded Warrants are exercisable for little or no consideration,

the underlying shares are considered outstanding at the issuance of the Pre-Funded Warrants for purposes of calculating the weighted-average number of shares of common stock outstanding in basic and diluted earnings per share.

The following shares were excluded from the calculation of diluted net loss per share applicable to common stockholders, prior to the application of the treasury stock ~~method,~~or if-converted methods, because their effect would have been anti-dilutive for the periods presented:


	Three Months Ended March 31,
	2023		2022
Options to purchase common shares		167,446		198,393
Restricted stock units		469,952		257,867
Term Loan Warrants		21,944		21,944
Series A Warrant		42,857		—
Common Stock warrants		19,878,148		—
Total		20,580,347		478,204

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Options to purchase common shares

3,833,300

4,263,094

3,833,300

4,263,094

Restricted stock units

750,320

—

750,320

—

Warrants to purchase common stock

528,958

—

528,958

—

Total

5,112,578

4,263,094

5,112,578

4,263,094

11. U.S. Government Contract

~~10. Co-Development Agreements~~

~~Canon US Life Sciences~~

OnIn September ~~21, 2016, Canon became a related party when~~2019, BARDA awarded the Company ~~sold~~a milestone-based contract, with an initial value of $6.0 million, and a potential value of up to $62.0 million, if BARDA awards all contract options (the “U.S. Government Contract”). BARDA operates within the ~~Canon Shares for an aggregate cash purchase price of $39.7 million, which represented 19.9%~~Office of the ~~outstanding shares~~Assistant Secretary for Preparedness and Response (“ASPR”) at the U.S. Department of ~~common stock~~Health and Human Services (“HHS”). If BARDA awards and the Company completes all options, the Company’s management believes it will enable a significant expansion of the ~~Company.~~ Company’s current portfolio of diagnostics for sepsis-causing pathogen and antibiotic resistance genes. In September 2020, BARDA exercised the first contract option valued at $10.5 million. In September 2021, BARDA exercised an option valued at approximately $6.4 million.

In April 2021, BARDA agreed to accelerate product development by modifying the contract to advance future deliverables into the currently funded Option 1 of the BARDA contract for T2NxT, T2Biothreat, T2Resistance and T2AMR. The modification does not change the overall total potential value of the BARDA contract.

On ~~February~~March 31, 2022, the Company announced that BARDA had exercised Option 2B under the existing multiple-year cost-share contract between BARDA and the Company and is providing an additional $4.4 million in funding to the Company.

The option exercise occurred simultaneously on March 31, 2022 with a modification to the BARDA contract to make immaterial changes to, among other things, the statement of work.

In September 2022, BARDA exercised Option 3 ~~2015,~~and agreed to provide an additional $3.7 million in funding for the multiple-year cost-share contract. The additional funding under Option 3 will be used to advance the U.S. clinical trials for the T2Biothreat® Panel and T2Resistance® Panel, and to file submissions to the FDA for U.S. regulatory clearance.

The Company recorded contribution revenue of $0.4 million and $3.4 million for the three months ended March 31, 2023 and 2022, respectively, under the BARDA contract.

The Company had no outstanding accounts receivable at March 31, 2023 and unbilled accounts receivable of $0.7 million at December 31, 2022, respectively, under the BARDA contract.

12. Leases

Operating Leases

The Company leases certain office space, laboratory space and manufacturing space. 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. The Company does not recognize right-of-use assets or lease liabilities for leases determined to have a term of twelve months or less. The Company has elected to account for the lease and associated non-lease components as a combined lease component.

In August 2010, the Company entered into an operating lease for office and laboratory space at its headquarters in Lexington, Massachusetts. The lease commenced in January 2011, with the Company providing a security deposit of $400,000. In accordance with the operating lease agreement, the Company reduced its security deposit to $160,000 in January 2018, which is recorded as restricted

cash in the condensed consolidated balance sheets. In March 2017, the Company entered into an amendment to extend the term to December 2021. In October 2020, the Company entered into an amendment to extend the term to December 31, 2028. In accordance with the October 2020 amendment, the Company increased its security deposit to $420,438, which is classified as restricted cash at March 31, 2023 and December 31, 2022.

In May 2013, the Company entered into an operating lease for additional office, laboratory and manufacturing space in Wilmington, Massachusetts. In August 2018, the Company entered into an amendment to extend the term to December 2020. In October 2020, the Company entered into an amendment to extend the term to December 31, 2022. In September 2022, the Company entered into an amendment to extend the term to December 31, 2024.

In November 2014, the Company entered into a Co-Development Partnership Agreement (the “Co-Development Agreement”) with Canon U.S. Life Sciences, Inc. (“Canon US Life Sciences”) to develop a diagnostic test panel to rapidly detect Lyme disease. Under the termslease for additional laboratory space in Lexington, Massachusetts. The lease term commenced in April 2015 and extended for six years. The rent expense, inclusive of the ~~Co-Development Agreement,~~escalating rent payments, is recognized on a straight-line basis over the lease term. As an incentive to enter into the lease, the landlord paid approximately $1.4 million of the $2.2 million space build-out costs. The unamortized balance of the lease incentive as of January 1, 2019 was reclassified as a reduction to the initial recognition of the right-of-use asset related to this lease. In connection with this lease agreement, the Company ~~received an upfront payment~~paid a security deposit of $2.0 million from Canon US Life Sciences, and the agreement includes an additional $6.5 million of consideration upon achieving certain development and regulatory milestones for total aggregate payments of up to $8.5 million. In October 2015, the Company achieved a specified technical requirement and received $1.5 million related to the achievement of the milestone. The Company is eligible to receive an additional $5.0 million under the arrangement, in two milestone payments of $2.0 million and $3.0 million, related to the achievement of additional development and regulatory milestones. All payments under the Co-Development Agreement are non-refundable once received. The Company will retain exclusive worldwide commercialization rights of any products developed under the Co-Development Agreement, including sales, marketing and distribution and Canon US Life Sciences will not receive any commercial rights and will be entitled to only receive royalty payments on the sales of all products developed under the Co-Development Agreement. Either party may terminate the Co-Development Agreement upon the occurrence of a material breach by the other party (subject to a cure period).

The Company evaluated the deliverables under the Co-Development Agreement and determined that the Co-Development Agreement included one unit of accounting, the research and development services, as the joint research and development committee deliverable$281,000, which was ~~deemed to be~~ ~~de minimis. The Company is recognizing revenue for research and development services~~recorded as a component of ~~research revenue~~both prepaid expenses and other current assets and other assets in the condensed consolidated ~~financial statements~~balance sheets at December 31, 2019. In October 2020, the Company entered into an amendment to extend the term of the lease to October 31, 2025. In accordance with this amendment, the Company paid a replacement security deposit of $130,977, which is classified as restricted cash at March 31, 2023 and December 31, 2022 and received the services are delivered using the proportional performance method of accounting, limited to payments earned. Costs incurred to deliver the services under the Co-Development Agreement are recorded as research and development expenseinitial $281,000 security deposit in ~~the condensed consolidated financial statements.~~return.

~~The Company recorded revenue of $0.0 and $0.4 million during the three months ended~~In September 30, 2017 and September 30, 2016, respectively, and recorded revenue of $0.3 million and $1.5 million during the nine months ended September 30, 2017 and 2016, under the Co-Development Agreement, and expects to record revenue over the next two years, provided development milestones are achieved.

~~Allergan Sales, LLC~~

~~On November 1, 2016,~~2021, the Company entered into a ~~Co-Development, Collaboration~~lease for office, research, laboratory and ~~Co-Marketing Agreement (the “Allergan Agreement”) with Allergan Sales, LLC (“Allergan Sales”)~~manufacturing space in Billerica, Massachusetts. The lease has a term of 126 months from the commencement date. The Company opened a money market account for $1.0 million, which represents collateral as a security deposit for this lease and is classified as restricted cash at December 31, 2022 and 2021. Occupancy of the building had been delayed due to develop (1) a direct detection diagnostic test panel that adds one additional bacteria species to the existing T2Bacteria product candidate (the “T2Bacteria II Panel”), and (2) a direct detection diagnostic test panel for testing drug resistance directly in whole blood (the “T2GNR Panel” and, together with the T2Bacteria II Panel, the “Developed Products”). In addition, bothdisagreement between the Company and ~~Allergan Sales will participate~~the landlord as to the parties’ obligations under the lease agreement. Included within accrued expenses and other current liabilities on the balance sheet at December 31, 2022 is a $1.0 million estimated liability pertaining to this lease. Subsequent to December 31, 2022, the Company was notified that the landlord terminated the lease because of the Company’s alleged failure to perform its obligations under the Lease in a ~~joint~~timely manner and the Company’s alleged breach of the covenant of good faith and fair dealing and exercised its right to draw upon the $1.0 million security deposit. In addition, the landlord is seeking damages for unpaid rent, brokerage fees, transaction costs, attorney’s fees and court costs. The Company filed a response to the landlord’s complaint and a counterclaim alleging that the landlord breached its obligations under the contract and unlawfully drew on the security deposit, in addition to breaching its covenants of good faith and fair dealing, making fraudulent misrepresentations, and engaging in deceptive and unfair trade practices. The matter is in dispute (Note 13).

Operating leases are amortized over the lease term and included in costs and expenses in the condensed consolidated statement of operations and comprehensive loss. Variable lease costs are recognized in costs and expenses in the condensed consolidated statement of operations and comprehensive loss as incurred. Variable lease costs may include costs such as common area maintenance, utilities, real estate taxes or other costs. Expenses related to short-term leases were not material for periods presented.

13. Commitments and Contingencies

Contingencies

In September 2021, the Company entered into a lease for office, research, laboratory and manufacturing space in Billerica, Massachusetts. The lease has a term of 126 months from the commencement date. The Company opened a money market account for $1.0 million, which represents collateral as a security deposit for this lease and is classified as restricted cash at December 31, 2022 and 2021. Occupancy of the building had been delayed due to disagreement between the Company and the landlord as to the parties’ obligations under the lease agreement. Included within accrued expenses and other current liabilities on the balance sheet at December 31, 2022 is a $1.0 million estimated liability pertaining to this lease. Subsequent to December 31, 2022, the Company was notified that the landlord terminated the lease because of the Company’s alleged failure to perform its obligations under the Lease in a timely manner and the Company’s alleged breach of the covenant of good faith and fair dealing and exercised its right to draw upon the $1.0 million security deposit. In addition, the landlord is seeking damages for unpaid rent, brokerage fees, transaction costs, attorney’s fees and court costs. The Company filed a response to the landlord’s complaint and a counterclaim alleging that the landlord breached its obligations under the contract and unlawfully drew on the security deposit, in addition to breaching its covenants of good faith and fair dealing, making fraudulent misrepresentations, and engaging in deceptive and unfair trade practices. The Company intends to vigorously defend itself and pursue all legal remedies available under applicable laws. The Company believes it will continue to meet its current manufacturing needs with its operations at its Lexington and Wilmington, Massachusetts facilities.

License Agreement

In 2006, the Company entered into a license agreement with a third party, pursuant to which the third party granted the Company an exclusive, worldwide, sublicensable license under certain patent rights to make, use, import and commercialize products and processes for diagnostic, industrial and research and development ~~committee and Allergan Sales will receive~~purposes. The Company agreed to pay an annual license fee ranging from $5,000 to $25,000 for the ~~right to cooperatively market the T2Candida, T2Bacteria, and the Developed Products under the Allergan Agreement~~royalty‑bearing license to certain ~~agreed-upon customers. On June 1, 2017 the~~patents. The Company ~~and Allergan Sales entered into an Amendment~~also issued a total of 1,693 shares of common stock pursuant to the ~~Allergan Agreement~~agreement in 2006 and 2007, which ~~primarily modified~~were recorded at fair value at the ~~project plan to combine the T2Bacteria II Panel and T2GNR Panel into one test panel.~~

~~Under the terms~~date of the Allergan Agreement, the Company received an upfront payment of $2.0 million from Allergan Sales and will receive additional milestone payments upon achieving certain developmental milestones for total aggregate payments of up to $4.0 million. All payments under the Allergan Agreement are non-refundable once received. The Company will retain exclusive

worldwide commercialization rights of any products developed under the Allergan Agreement, including distribution, subject to Allergan Sales’ right to co-market the Developed Products. Allergan Sales, at its election, may co-market T2Candida, T2Bacteria and the Developed Products worldwide to certain agreed-upon customers and will receive royalty based on its sales for a period of time.

The Company evaluated the deliverables under the Allergan Agreement and determined that the Allergan Agreement included two units of accounting, the research and development services for the T2Bacteria II Panel and the research and development services for the T2GNR Panel, as the joint research and development committee and right to cooperatively market deliverables were deemed to be ~~de minimus~~.issuance. The Company is ~~recognizing revenue for research~~required to pay royalties on net sales of products and ~~development services~~processes that are covered by patent rights licensed under the agreement at a percentage ranging between 0.5% - 3.5%, subject to reductions and offsets in certain circumstances, as well as a ~~component~~royalty on net sales of ~~research revenue in~~products that the ~~consolidated financial statements as the services are delivered using the proportional performance method~~Company sublicenses at 10% of ~~accounting, limited to payments earned. Costs incurred to deliver the services~~specified gross revenue. Royalties that became due under ~~the Allergan Agreement are recorded as research and development expense in the consolidated financial statements.~~

~~The Company recorded revenue of $0.4 million and $0.6 million~~this agreement for the three ~~and nine~~ months ended ~~September~~March 31, 2023 and 2022 were immaterial.

Letter Agreements

On March 30, ~~2017, respectively, under~~2023, the ~~Allergan~~Company entered into letter agreements with Mr. Sprague, Mr. Giffin, and Mr. Gibbs that provide for the payment of a retention bonus in the total aggregate amount of $80,000, to be paid in two installments of $40,000. The first installment, in the amount of $40,000, shall be paid within five business days following June 30, 2023, and the second installment, in the amount of $40,000, shall be paid within five business days following November 15, 2023. Each such installment payment is subject to the respective executive's continued employment through such payment date.

14. Subsequent Events

Waiver and Consent to Term Loan Agreement ~~and expects~~with CRG

On May 19, 2023, the Term Loan Agreement with CRG was amended to ~~record revenue over~~reduce the ~~next two years, provided development and regulatory milestones are achieved.~~minimum cash covenant to $500,000.

~~11. Subsequent Events.~~25

~~None~~

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

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry ~~that involve substantial risks and uncertainties.~~within the meaning of the Private Securities Litigation Reform Act of 1955, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, and Section 21E of the Securities ~~and~~ Exchange Act of 1934, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our future results of operations and financial position, business strategy, prospective products and product candidates, their expected performance and impact on healthcare costs, marketing clearance from the ~~U.S. Food and Drug Administration (“FDA”) regulatory clearance,~~FDA, reimbursement for our product candidates, research and development costs, timing of regulatory filings, timing and likelihood of success, plans and objectives of management for future operations, availability of raw materials and components for our products, availability of funding for such operations and future results of anticipated products, are forward-looking statements. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important 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.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. ~~The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions.~~ We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described under the sections in this Quarterly Report on Form 10-Q entitled “Item 1A.—Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. These forward looking statements are subject to numerous risks, including, without limitation, the following:

•

our ability to continue as a going concern;

•

our ability to regain and maintain compliance with Nasdaq listing requirements;

•

our status as an early-stage commercial company;

•

our expectation to incur losses in the ~~future;~~

future and our ability to utilize limited net operating losses against future profitability, if any;

•

the market acceptance of our ~~T2MR~~ technology;

•

our ability to timely and successfully develop and commercialize our existing products and future product candidates;

•

the length and variability of our anticipated sales and adoption cycle;

•

our ability to gain the support of ~~leading~~ hospitals and key thought leaders and publish the results of our clinical ~~trials~~studies in peer-reviewed journals;

•

our ability to successfully manage our growth;

•

our future capital needs and our ~~need~~ability to raise additional funds;

•

the performance of our diagnostics;

•

our ability to compete in the highly competitive diagnostics market;

•

our ability to obtain marketing clearance from the ~~FDA~~U.S. Food and Drug Administration or regulatory clearance or certifications for new product candidates in other jurisdictions. including IVDR in the ~~United States or any other jurisdiction;~~

European Union;

•

federal, state, and foreign regulatory requirements, including diagnostic product reimbursements and FDA regulation of our products and product candidates; ~~and~~

•

our ability to protect and enforce our intellectual property rights, including our trade secret-protected proprietary rights in ~~T2MR.~~

our technology;

•

our ability to recruit, train and retain key personnel;

•

our dependence on third parties;

•

manufacturing and other product risks, including unforeseen interruptions in the manufacturing of our products and backlogs in order fulfillment;

•

the impact of cybersecurity risks, including ransomware, phishing, and data breaches on our information technology systems;

•

the impact of short sellers and day traders on our share price;

•

the impact of litigation, including our ability to adequately resolve current legal claims; and

•

our ability to convert T2SARS-CoV-2 customers to our other test panels.

These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q. Unless required by U.S. federal securities laws, we do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made or to conform these statements to actual results. The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q, and Part I, Item 1A and Part II, Item 7A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, as ~~supplemented or amended from time to time under “Item 1A.—~~updated by Part II, Item 1A—“Risk Factors” ~~in our Quarterly Reports on Form 10-Q, and elsewhere~~ in this Quarterly Report on Form 10-Q.

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form ~~10-Q. Some~~10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of ~~the information contained~~Financial Condition and Results of Operations included in ~~this discussion and analysis or set forth elsewhere in this Quarterly~~our Annual Report on Form ~~10-Q, including information with respect to our plans and strategy~~10-K for ~~our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in~~ the “Item 1A.—Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.year ended December 31, 2022.

Business Overview

Overview

We are an in vitro diagnostics company and leader in the rapid detection of sepsis-causing pathogens and antibiotic resistance genes. We are dedicated to improving patient care and reducing the cost of care by helping clinicians effectively treat patients faster than ever before. We have developed innovative products that ~~has developed an innovative and proprietary technology platform that offers~~offer a rapid, sensitive and simple alternative to existing diagnostic methodologies. We are ~~using our T2 Magnetic Resonance technology (“T2MR”) to develop~~developing a broad set of applications aimed at ~~lowering mortality rates,~~ improving patient outcomes, ~~and~~ reducing the cost of healthcare, and lowering mortality rates by helping medical professionals make earlier targeted treatment ~~decisions earlier. T2MR~~decisions. Our 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 and urine, and can detect cellular targets at limits of detection as low as one colony forming unit per milliliter, (“or CFU/~~mL”).~~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. Our ~~initial~~current development efforts primarily target sepsis and Lyme disease, which ~~are~~represent areas of significant unmet medical need in which existing therapies could be more effective with improved diagnostics. ~~On September 22, 2014, we received market clearance from~~

Our primary commercial products include the ~~FDA for our first two products,~~T2Dx® Instrument, the ~~T2Dx Instrument (the “T2Dx”)~~T2Candida® Panel, the T2Bacteria® Panel, the T2Resistance® Panel, and the ~~T2Candida Panel (“T2Candida”), which have the ability to rapidly identify the five clinically relevant species of~~ ~~Candida~~, a fungal pathogen known to cause sepsis. In the United States, we have built a direct sales force that is primarily targeting the top 450 hospitals with the highest concentration of patients at risk for ~~Candida~~ infections. This target number of hospitals may be increased to an estimated over 1,200 with the introduction of T2Bacteria in the United States upon approval by the FDA. Outside of the United States, we have partnered with distributors that target large hospitals in their respective markets. Four additional diagnostic applications in various stages of development are called T2Bacteria, T2Candida auris, T2GNR and T2Lyme, which are focused on bacterial and fungal infections and Lyme disease, respectively. In late 2015, we initiated the collection of patient blood samples to support the clinical trial in the United States for T2Bacteria, and in early 2017, we initiated a multi-site clinical trial for T2Bacteria. The T2Bacteria Panel received authorization to affix a CE mark in July 2017 and is being commercially launched in Europe and other countries that accept the CE mark. The multi-site clinical study was completed in the United States in August 2017. On September 8, 2017, we filed a 510(k) premarket notification with the FDA requesting market clearance to enable commercial launch of T2Bacteria for clinical use in the United States. T2 Bacteria is currently available in the United States for Research Use Only (RUO). We believe that we may receive a determination from the FDA on our application for the T2Bacteria possibly as early as the end of 2017, although it may take longer for the FDA to reach a decision and there can be no assurance of such a determination within this timeframe or at all. We believe that T2Bacteria, if approved, may expand the number of high risk patients who could be candidates for testing with T2Candida and/or T2Bacteria. We expect that existing reimbursement codes will support our sepsis and Lyme disease products and product candidates, and that the anticipated economic savings associated with testing of hospital inpatients in the United States with our sepsis products will be realized directly by hospitals.T2SARS-CoV-2™ Panel.

~~diagnostic techniques are needed. Due to the high mortality rate associated with~~ ~~Candida~~ infections, physicians often will place patients on antifungal drugs while they await blood culture diagnostic results which generally take at least five days to generate a negative test result. Antifungal drugs are toxic and may result in side effects and can cost over $50 per day. T2Candida’s speed to result coupled with its superior sensitivity as compared to blood culture may help reduce the overuse of ineffective, or even unnecessary, antimicrobial therapy which may reduce side effects for patients, lower hospital costs and potentially counteract the growing resistance to antifungal therapy. The administration of inappropriate therapy is a driving force behind the spread of antimicrobial-resistant pathogens, which the United States Centers for Disease Control and Prevention (“CDC”) recently called “one of our most serious health threats.” The T2Sepsis Solution refers to the approach of combining the standard of care for the management of sepsis patients with our products, including the T2Dx Instrument, or the T2Dx, T2Candida, and T2Bacteria, which is commercially available in Europe and other countries that accept the CE mark and available for research use only in the United States. The T2Sepsis Solution is designed to enable clinicians to potentially treat 95% of septic patients within the first twelve hours of developing the symptoms of disease. Currently, high risk patients are typically initially treated with broad spectrum antibiotic drugs that typically cover approximately 60% of patients with infections. Of the remaining 40% of patients, approximately 30% of the patients have a bacterial infection and 10% have Candida infections. T2Candida and our product candidate, T2Bacteria are designed to identify pathogens commonly not covered by broad spectrum antibiotic drugs, which we believe may enable physicians to effectively treat an additional 35% of septic patients beyond the 60% of patients covered by broad spectrum antibiotic drugs.

We compete with traditional blood culture-based diagnostic companies, including Becton Dickinson & Co. and bioMerieux, Inc., as well as companies offering post-culture species identification using both molecular and non-molecular methods, including bioMerieux, Inc. (and its affiliate, BioFire Diagnostics, Inc.), Bruker Corporation, Accelerate Diagnostics, Luminex, Genmark, Cepheid and Beckman Coulter, a Danaher company.

We have never been profitable and have incurred net losses in each year since inception. Our accumulated deficit at ~~September 30, 2017~~March 31, 2023 was ~~$247.9 million.~~$552.2 million and we have experienced cash outflows from operating activities over the past years. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. We have incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution of our FDA-cleared products, the T2Dx Instrument, T2Candida Panel and ~~T2Candida.~~T2Bacteria Panel. In addition, we ~~expect that~~will continue to incur significant costs and expenses ~~may increase~~ as we continue to develop other product candidates, improve existing products and maintain, expand and protect our intellectual property portfolio. We may seek to fund our operations through public equity or private equity or debt financings, as well as other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business, results of operations and financial condition and our ability to develop, commercialize and drive adoption of the T2Dx Instrument, T2Candida, T2Bacteria, T2Resistance, T2SARS-CoV-2 and future products.

We are subject to a number of risks similar to other early commercial stage life science companies, including, but not limited to commercially launching our products, development and market acceptance of our product ~~candidate, T2Bacteria,~~candidates, development by our competitors of new technological innovations, protection of proprietary technology, and ~~future T2MR-based diagnostics.~~raising additional capital.

~~Management believes~~The COVID-19 pandemic has impacted and may continue to impact the Company's operations as the pandemic shifts to an endemic health threat. Customers have significantly reduced their purchases of the Company's COVID-19 tests and we have forecasted no COVID-19 test sales in 2023.

We believe that ~~its existing~~our cash, ~~and~~ cash equivalents, and restricted cash of $10.7 million at ~~September 30, 2017, together with~~March 31, 2023 will not be sufficient to fund our current operating plan through the ~~additional remaining liquidity~~second quarter of 2023. Certain elements of our operating plan cannot be considered probable, and in order to support our business we initiated a process to explore a range of strategic alternatives focused on maximizing value.

As part of our strategic restructuring program, to preserve capital and be in a better position to explore all strategic alternatives while continuing to support our customers and advance pipeline development, we initiated a reduction in force of nearly 30% of the Company’s workforce on May 19, 2023.Additionally, we are focused on pursuing alternative strategic options, including an acquisition, merger, reverse merger, other business combination, sale of assets or licensing. We are also exploring additional equity financing and converting our outstanding indebtedness into equity. Failure to secure any of these strategic options prior to the third quarter of 2023 will significantly impair our ability to continue operating our business and we may be forced to cease operations, commence bankruptcy cases, or otherwise wind down our business.

The Term Loan Agreement with CRG Servicing LLC (“CRG”), as administrative agent and collateral agent (Note 6) has a minimum liquidity covenant which requires us to maintain a minimum cash balance of up$5.0 million. In February 2022, CRG, the lenders party thereto and we amended the Term Loan Agreement, extending the interest only period and maturity to ~~an additional $10.0~~December 30, 2023. In November 2022, CRG amended the Term Loan Agreement, extending the interest only period and maturity to December 30, 2024. On May 15, 2023, we notified CRG that we were not in compliance with the minimum liquidity covenant as of May 12, 2023 and on May 19, 2023, we, the lenders party thereto and CRG entered into a waiver and consent with respect to the Term Loan Agreement, reducing the minimum liquidity covenant to $500,000 until December 31, 2023.

The Nasdaq has $1.00 minimum bid price and $35 million ~~(which is available at any time through July 27, 2018,~~minimum market value rules. Since 2021 we have violated, appealed to Nasdaq and cured its violation of these rules several times.

On November 22, 2022, we received notice from the Nasdaq indicating that we were in violation of the $35 million minimum market value rule. We have until May 22, 2023, to regain compliance which includes a closing market value of $35 million or more for a minimum of ten consecutive business days. If compliance in not achieved by May 22, 2023, we believe the Nasdaq will notify us that our securities are subject to ~~certain conditions including~~delisting. In the event we receive such a delisting notice, we intend to apply for an extension to the compliance period or appeal to a Nasdaq Hearings Panel.

On March 30, 2023, we received a letter from the Nasdaq indicating that, for the last thirty consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1). Under Nasdaq rules, we have 180 calendar days (September 26, 2023) to regain compliance by increasing the stock price to over $1.00. Absent significant appreciation in our stock price, we plan to submit an appeal to receive a 180-day extension to regain compliance, and we believe that the ~~Company receives 510(k) clearance for~~receipt of an extension is probable, given the ~~marketing~~current market dynamics and hundreds of ~~T2Bacteria by~~companies in similar situations. To earn the ~~FDA by April 30, 2018, see Note 5 for details)~~extension, we will be sufficient to allow the Company to fund its current operating plan to the first half of 2019. Should the Company’s current operating plans not materialize as expected, or it is unable to obtain additional capital on a timely basis, or on acceptable terms, the Company willlikely be required to ~~change its current operating~~provide a plan that could include certain commitments including a potential reverse stock split.

~~Our Commercial Products and the Unmet Clinical Need~~

~~Our initial FDA-cleared products, the T2Dx instrument and T2Candida, utilize T2MR~~levels for us to ~~detect species-specific~~ ~~Candida~~ ~~directly from whole blood in~~continue as few as three hours versus the one to six or more days typically required by blood culture-based diagnostics. This allows the patient to potentially receive the correct treatment in four to six hours versus 24 to 144 hoursa going concern for ~~blood culture. The T2Candida runs on the T2Dx and provides high sensitivity with~~ a ~~limit~~period of ~~detection as low as 1 CFU/mL, even in the presence of antimicrobial therapy.~~

~~Our T2Candida Panel~~

Our direcT2 pivotal clinical trial was designed to evaluate the sensitivity and specificity of T2Candida on the T2Dx. The direcT2 trial consisted of two patient arms: a prospective arm with 1,501 samples from patients with a possible infection and a seeded arm with 300 samples, also obtained from patients with a possible infection. T2Candida and the T2Dx demonstrated a sensitivity of 91.1 percent and a specificity of 99.4 percent. In addition, the speed to a species-specific positive result with T2Candida was 4.4 hours versus 129 hours with blood culture. A negative result from T2Candida was obtained in just 4.2 hours versus greater than 120 hours with blood culture. The data and other information12 months from the ~~direcT2 pivotal clinical trial was published in January 2015 in Clinical Infectious Diseases.~~

~~Sepsis is one of~~date the ~~leading causes of death in~~financial statements are issued. Management has concluded the United States, claiming more lives annually than breast cancer, prostate cancer and AIDS combined, and it is the most expensive hospital-treated condition. Most commonly afflicting immunocompromised, critical care and elderly patients, sepsis is a severe inflammatory responselikelihood that its plan to a bacterial or fungal infection with a mortality rate of approximately 30%. According to data published by the U.S. Department of Health and Human Services for 2016, the cost of sepsis was over $23 billion in the United States, or approximately 5% of the total aggregate costs associated with domestic hospital stays. Sepsis is typically caused bysuccessfully obtain sufficient funding from one or more of ~~five~~ ~~Candida~~ ~~species~~these sources or ~~over 25 bacterial pathogens, and effective treatment requires~~adequately reduce expenditures, while reasonably possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the ~~early detection and identification~~date of issuance of these ~~specific target pathogens~~condensed consolidated financial statements. Even if we are able to complete the actions described in a patient’s bloodstream. Today, sepsis is typically diagnosed through a series of blood cultures followed by post-blood culture species identification. These methods have substantial diagnostic limitations that leadthis paragraph or otherwise generate incremental liquidity, we may be forced to ~~a high rate of false negative test results, a delay of up~~sell material assets or seek additional capital or be required to several days in administration of targeted treatment and the incurrence of unnecessary hospital expense. In addition, the Survey of Physicians’ Perspectives and Knowledge About Diagnostic Tests for Bloodstream Infections in 2015 reported that negative blood culture results are only trusted by 36% of those physicians. Without the ability to rapidly identify pathogens, physicians typically start treatment of at-risk patients with broad-spectrum antibiotics, which can be ineffective and unnecessary and have contributed to the spread of antimicrobial resistance. According to a study published by Critical Care Medicine in 2006, in sepsis patients with documented hypotension, administration of effective antimicrobial therapy within the first hour of detection was associated with a survival rate of 79.9% and, over the ensuing six hours, each hour of delay in initiation of treatment was associated with an average decrease in survival of 7.6%.

We believe our sepsis products, which include T2Candida and our product candidate, T2Bacteria, will redefine the standard of care in sepsis management while lowering healthcare costs by improving both the precision and the speed of detection of sepsis-causing pathogens. According to a study published in the Journal of Clinical Microbiology in 2010, targeted therapy for patients with bloodstream infections can be delayed up to 72 hours due to the wait time for blood culture results. In another study published in Clinical Infectious Diseases in 2012, the delayed administration of appropriate antifungal therapy was associated with higher mortality among patients with septic shock attributed to ~~Candida~~ infection and, on that basis, the study concluded that more rapid and accurate diagnostic techniques are needed. Our pivotal clinical trial demonstrated that T2Candida can deliver actionable results in as few as three hours, with an average time to result during the trial of 4.2 hours, compared to the average time to result of one to six or more days typically required for blood-culture-based diagnostics, which we believe will potentially enable physicians to make treatment decisions and administer targeted treatment to patients in four to six hours versus 24 to 144 hours for blood culture. We believe that T2Bacteria will also deliver actionable results in similar timeframes because this diagnostic panel operates similarly to T2Candida and is designed to run on the same instrument as T2Candida.

~~Candida~~ is the fourth leading hospital-acquired bloodstream infection, afflicting more than 135,000 patients per year in the United States, and the most lethal form of common bloodstream infections that cause sepsis, with an average mortality rate of approximately 40%. This high mortality rate is largely due to a delay in providing targeted therapy to the patient due to the elapsed time from ~~Candida~~ ~~infection to positive diagnosis. According to a study published in Antimicrobial Agents and Chemotherapy, the~~ ~~Candida~~ ~~mortality rate can be reduced to 11% with the initiation of targeted therapy within 12 hours of presentation of symptoms. Additionally, a typical patient with a~~ ~~Candida~~ infection averages 40 days in the hospital, including nine days in intensive care, resulting in an average cost per hospital stay of more than $130,000 per patient. In a study published in the American Journal of Respiratory and Critical Care Medicine, providing targeted antifungal therapy within 24 hourscommence proceedings under Chapter 11 of the ~~presentation of symptoms decreased the length of hospital stay by approximately ten days and decreased the average cost of care by approximately $30,000 per patient. Furthermore,~~U.S. Bankruptcy Code. See Part II, Item 1A—“Risk Factors” in ~~April 2015, Future Microbiology published the results of an economic study regarding the use of T2Candida conducted by IMS Health, a healthcare economics agency.~~ this Quarterly Report on Form 10-Q

Product History

In ~~that economic study, IMS demonstrated that an average hospital admitting 5,100 patients at risk for~~ ~~Candida~~ infections could save approximately $5.8 million annually due to decreased hospital stays for patients, reduction in use of antifungal drugs, and other associated savings. The economic study further showed T2Candida can potentially reduce the costs of care by $26,887 per Candida patient and that rapid detection of ~~Candida~~ ~~reduces patient deaths by 60.6%. Results~~September 2014, we received marketing authorization from ~~a data analysis of T2Candida for the detection and monitoring of~~ ~~Candida~~ infection and sepsis were published comparing aggregated results from the use of T2Candida to blood culture-based diagnostics for the detection of invasive candidiasis and candidemia. The analysis included samples acquired from more than 1,900 patients. Out of 55 prospective patient cases that were tested with T2Candida and blood culture and determined to be positive or likely to be positive for a ~~Candida~~ infection, T2Candida detected 96.4% of the patients (53 cases) compared to detection of 60% of the patients (33 cases) with blood culture. During 2016, a number of T2Candida users presented data on their experiences with the T2Candida Panel which demonstrated both the clinical and economic benefits of use of the T2Candida Panel in the diagnostic regimen. The Henry Ford Health System in Detroit, Michigan reported data on a pre- and post-T2Candida implementation analysis that covered 6 months of clinical experience. The data showed a statistically significant (p = 0.009) seven day reduction in median Intensive Care Unit (“ICU”) length of stay per positive patient that was identified as positive for ~~Candida~~ after implementation of the T2Candida test panel and a trend (p = 0.164) of total hospital length of stay reduction of four days. The data also showed significant reductions in use of antifungal drugs for negative patients tested with T2Candida. The overall economic savings resulting from these clinical benefits was projected to be approximately $2.3 million on an annualized basis. The Lee Health System in Fort Myers, Florida compared patient and economic experience before and after T2Candida implementation. The data demonstrated that in the post-T2Candida cohort, median length of stay for patients with ~~Candida~~ ~~infections was reduced by 7 days when detected by T2Candida while unnecessary antifungal therapy was avoided in 41% of patients~~

tested and was discontinued after one dose in another 15% of patients tested. The average economic savings derived solely from reduction in antifungal drug use was $195 per patient tested, net of the cost of the T2Candida test panel. Huntsville Hospital in Huntsville, Alabama, reported that the use of the T2Candida test panel resulted in a reduction in the duration of therapy and time to de-escalation in patients that tested negative for ~~Candida~~ on the T2Candida test panel, yielding net pharmacy savings of approximately $280 per patient tested. T2Candida also detected 56% more positive patients than blood culture. Finally, Riverside Community Hospital in Riverside, California, demonstrated improvements in time to appropriate therapy, increased sensitivity, and rapid discontinuation of antifungal therapy when using T2Candida. Specifically, 83% of patients who tested positive with T2Candida received appropriate therapy within six hours of the blood draw and 100% of patients received appropriate therapy in under nine hours. None of the patients who tested positive had been identified to have been treated with antifungals prior to T2Candida testing. In addition, antifungal therapy was discontinued for 100% of the patients who tested negative with T2Candida.

~~Due to the high mortality rate associated with~~ ~~Candida~~ infections, physicians often will place patients on antifungal drugs while they await blood culture diagnostic results which generally take at least five days to generate a negative test result. Antifungal drugs are toxic and may result in side effects and can cost over $50 per day. T2Candida’s speed to result coupled with its superior sensitivity as compared to blood culture may help reduce the overuse of ineffective, or even unnecessary, antimicrobial therapy which may reduce side effects for patients, hospital costs and potentially, the growing resistance to antifungal therapy. This inappropriate therapy is a driving force behind the spread of antimicrobial-resistant pathogens, which the CDC recently called “one of our most serious health threats.”

~~Our T2Candida auris Panel~~

On September 6, 2017, we announced that the Centers for Disease Control and Prevention (CDC) has agreed to utilize the T2Dx Instrument and the T2Candida auris investigational use only panel in their laboratory for testing and monitoring the emergence and outbreaks of the superbug ~~Candida auris~~ ~~in hospitals around the country.~~ ~~Candida auris~~ is a multi-drug resistant pathogen recognized by the CDC as a “serious global health threat” because it can be resistant to “all three major classes of antifungal drugs” and difficult to identify. The CDC has also reported that more than one in three patients with ~~Candida auris~~ ~~infections have died. Unlike most other species of Candida,~~ ~~Candida auris~~ ~~can spread quickly in a hospital making rapid identification and hospital environment surveillance a critical component of containing these outbreaks. Existing laboratory methods that detect~~ ~~Candida auris~~, including blood culture, suffer from prolonged detection times and low accuracy, which exacerbates the challenge in the fight to contain the superbug. Recently, reported cases have surged internationally, and the CDC has reported a significant increase in infected patients in the United States. According to the European Centre for Disease Prevention and Control, hospital outbreaks have occurred in the United Kingdom and Spain. Because ~~Candida auris~~ can be resistant to most treatment options and can spread so quickly, these hospital outbreaks have been difficult to contain by even the most enhanced control measures. We are also conducting a study in Europe that has demonstrated the ability to detect ~~Candida auris~~ ~~directly in patient blood specimens.~~

~~Our T2Bacteria Panel~~

We have also developed a product candidate named T2Bacteria, a multiplex diagnostic panel that detects six major bacterial pathogens associated with sepsis and, in conjunction with T2Candida and standard empiric therapy regimens, may enable the early, appropriate treatment of 95% of sepsis patients. T2Bacteria, which will also run on the T2Dx, is expected to address the same approximately 6.75 million symptomatic high-risk patients as T2Candida and also a new population of patients who are at increased risk for bacterial infections, including an additional two million patients presenting with symptoms of infection in the emergency room setting. The T2Bacteria Panel received authorization to affix a CE mark in July 2017 and is being commercially launched in Europe and other countries that accept the CE mark.

On August 4, 2017 we completed a pivotal clinical study of the T2Bacteria® Panel, run on the T2Dx® Instrument (T2Dx), which is a qualitative T2 Magnetic Resonance (T2MR®) assay designed for the direct detection of bacterial species in EDTA human whole blood specimens from patients with suspected bacteremia. The T2Bacteria Panel is designed to identify six species of bacteria directly from human whole blood specimens: ~~Acinetobacter baumannii, Enterococcus faecium, Escherichia coli, Klebsiella pneumoniae, Pseudomonas aeruginosa,~~ ~~and~~ ~~Staphylococcus aureus.~~

The performance characteristics of the T2Bacteria Panel were evaluated through a series of analytical studies as well as a multi-center clinical study. The clinical study evaluated the performance of the T2Bacteria Panel in comparison to the current standard of care, blood culture. All of the data generated in the analytical studies and the clinical study were submitted to the United States Food and Drug Administration, or FDA, ~~in a 510(k) premarket notification on September 8, 2017.~~

~~The clinical study consisted of~~for our first two arms, a prospective arm and a seeded arm. In the prospective arm, a total of 1,427 subjects were tested at eleven geographically dispersed and demographically diverse sites in the United States. In the seeded arm, 300 specimens of known bacterial composition were evaluated at three sites. Seeded specimens were prepared by spiking whole blood

with multiple strains of the bacterial species detected by the T2Bacteria Panel at defined concentrations (CFU/mL). Fifty negative blood samples also were evaluated as part of the seeded arm of the study. In total, 1,777 (1,427 prospective specimens and 350 seeded and negative) clinical samples were tested to evaluate the clinical performance of T2Bacteria Panel.

~~T2Bacteria is currently available in the United States for Research Use Only (RUO).~~

~~Our Sepsis Solution~~

We believe our T2 Magnetic Resonance technology, or T2MR, delivers what no conventional technology currently available can: a rapid, sensitive and simple diagnostic platform to enable sepsis applications that can identify specific sepsis pathogens directly from an unpurified blood sample in hours instead of days at a level of accuracy equal to or better than blood culture-based diagnostics. The T2Sepsis Solution refers to the approach of combining the standard of care for the management of sepsis patients with our products, ~~including~~ the T2Dx Instrument and the T2Candida Panel, or T2Candida, which have the T2Dx, T2Candida, and T2Bacteria, which is commercially available in Europe and other countries that accept the CE mark and available for research use only in the United States. The T2Sepsis Solution is designedability to enable clinicians to potentially treat 95% of septic patients within the first twelve hours of developing the symptoms of disease. Currently, high risk patients are typically initially treated with broad spectrum antibiotic drugs that typically cover approximately 60% of patients with infections. Of the remaining 40% of patients, approximately 30% of the patients have a bacterial infection and 10% have Candida infections. T2Candida and product candidate, T2Bacteria are designed to identify pathogens commonly not covered by broad spectrum antibiotic drugs, which we believe may enable physicians to effectively treat an additional 35% of septic patients beyond the 60% of patients covered by broad spectrum antibiotic drugs.

We believe the T2Sepsis Solution provides a pathway for more rapid and targeted treatment of infections, potentially reducing the mortality rate by as much as 75% if a patient is treated within 12 hours of suspicion of infection and significantly reducing the cost burden of sepsis. Each year, approximately 500,000 patients in the United States die from sepsis. According to a study published by ~~Critical Care Medicine~~ in 2006, in sepsis patients with documented hypotension, administration of effective antimicrobial therapy within the first hour of detection was associated with a survival rate of 79.9% and, over the ensuing six hours, each hour of delay in initiation of treatment was associated with an average decrease in survival of 7.6%. According to such study, the survival rate for septic patients who remained untreated for greater than 36 hours was approximately 5%. The toll of sepsis on a patient’s health can be severe: more than one-in-five patients die within two years as a consequence of sepsis. Sepsis is also the most prevalent and costly cause of hospital readmissions.

~~We believe the T2Sepsis Solution addresses a significant unmet need in~~ ~~in vitro~~ ~~diagnostics by providing:~~

~~Limits of Detection as Low as 1 CFU/mL.~~ ~~T2MR is the only technology currently available that can enable identification of sepsis pathogens directly from a patient’s blood sample at limits of detection as low as 1 CFU/mL.~~

~~Rapid and Specific Results in as Few as Three Hours.~~ T2MR is the only technology that can enable species-specific results for pathogens associated with sepsis, directly from a patient’s blood sample, without the need for blood culture, to deliver an actionable result in three hours.

~~Accurate Results Even in the Presence of Antimicrobial Therapy.~~ ~~T2MR is the only technology that can reliably detect pathogens associated with sepsis, including slow-growing pathogens, such as~~ ~~C. glabrata, directly from a patient’s blood sample, even in the presence of an antimicrobial therapy.~~

~~Easy-to-Use Platform.~~ T2MR eliminates the need for sample purification or extraction of target pathogens, enabling sample- to-result instruments that can be operated on-site by hospital staff, without the need for highly skilled technicians.

~~Our T2Dx Instrument~~

Our FDA-cleared T2Dx instrument is an easy-to-use, fully-automated, benchtop instrument utilizing T2MR for use in hospitals and labs for a broad range of diagnostic tests. To operate the system, a patient’s sample tube is snapped onto a disposable test cartridge, which is pre-loaded with all necessary reagents. The cartridge is then inserted into the T2Dx instrument, which automatically processes the sample and then delivers a diagnostic test result. Test results are displayed on screen or directly through the lab information system.

By utilizing our proprietary T2MR technology for direct detection, the T2Dx eliminates the need for sample purification and analyte extraction, which are necessary for other optical-detection devices. Eliminating these sample processing steps increases diagnostic sensitivity and accuracy, enables a broad menu of tests to be run on a single platform, and greatly reduces the complexity of the consumables. The T2Dx incorporates a simple user interface and is designed to efficiently process up to seven specimens simultaneously.

~~Our T2MR Platform~~

T2MR is a miniaturized, magnetic resonance-based approach that measures how water molecules react in the presence of magnetic fields. For molecular and immunodiagnostics targets, T2MR utilizes advances in the field of magnetic resonance by deploying particles with magnetic properties that enhance the magnetic resonance signals of specific targets. When particles coated with target-specific binding agents are added to a sample containing the target, the particles bind to and cluster around the target. This clustering changes the microscopic environment of water in that sample, which in turn alters the magnetic resonance signal, or the T2 relaxation signal that we measure, indicating the presence of the target.

We believe that T2MR can also address the significant unmet need associated with Lyme disease, a tick-borne illness that can cause prolonged neurological disease and musculoskeletal disease. For patients with Lyme disease, early diagnosis and appropriate treatment significantly reduces both the likelihood of developing neurological and musculoskeletal disorders, as well as the significant costs associated with treating these complications. Our product candidate, T2Lyme, willrapidly identify the ~~bacteria that~~five most clinically relevant species of Candida, a fungal pathogen known to cause Lyme disease directly from the patient’s blood, without the need for blood culture which, for the bacteria associated with Lyme disease, can take several weeks. Our Lyme product candidate is currently in pre-clinical development and we expect to initiate a T2Lyme clinical trial in 2018.

Another significant unmet clinical need is the diagnosis and management of impaired hemostasis, which is a life-threatening condition in which a patient is unable to promote the formation of blood clots to stabilize excessive bleeding. Within the broader population of patients with symptoms of impaired hemostasis, there are over ten million trauma patients in the United States annually. These trauma patients typically face life-threatening injuries or invasive surgical procedures. Approximately 25% of trauma patients have impaired hemostasis, which frequently goes undetected during the initial hospitalization. According to a study in the Journal of the American College of Surgeons, for trauma patients with symptoms of impaired hemostasis, mortality rates were reduced from 45% to 19% with more rapid delivery of therapy. The T2Plex and T2HemoStat are being designed to utilize T2MR and are designed to provide hemostasis measurements in less than 45 minutes. Our product candidate, T2HemoStat, is a comprehensive panel of diagnostic tests that can provide data across the hemostasis spectrum, including measurements of fibrinogen, platelet activity, and clot lysis. We believe that T2HemoStat may be the first panel capable of rapidly identifying key coagulation, platelet and other hematologic factorssepsis, directly from whole blood specimens. The T2Dx Instrument and T2Candida Panel were CE marked in the European Union, or EU, in July 2014.

In May 2018, we received market clearance from the FDA for the T2Bacteria® Panel, or T2Bacteria, which runs on the T2Dx Instrument and has the ability to rapidly identify five of the most common and deadly sepsis-causing bacteria directly from whole blood specimens. The T2Bacteria Panel was CE marked in the EU in June 2017.

In February 2019, our T2Resistance®Panel, or T2Resistance, was granted FDA Breakthrough Device designation and in November 2019, it was CE marked in the EU. In December 2021, we initiated a ~~single, easy-to-operate, compact instrument. We are exploring partnership opportunities~~U.S. clinical trial for the T2Resistance Panel.

In September 2019, the Biomedical Advanced Research and Development Authority, or BARDA, awarded us a milestone-based contract, with an initial value of $6 million, and a potential value of up to $62 million, for the development of a next-generation diagnostic instrument, a comprehensive sepsis panel, and a multi-target biothreat panel. In September 2020, BARDA exercised the first contract option valued at $10.5 million. In April 2021, BARDA agreed to modify the contract to accelerate product development by advancing future deliverables, and adding a U.S. T2Resistance Panel into Option 1 of the BARDA contract. In September 2021, BARDA exercised Option 2A valued at approximately $6.4 million to further advance the new product development initiatives. In March 2022, BARDA exercised Option 2B valued at approximately $4.4 million. In December 2021, we initiated the U.S. clinical trials for the T2Resistance and T2Biothreat Panels. In May 2022, BARDA exercised Option 3 valued at approximately $3.7 million to complete the ~~development~~U.S. clinical trials for the T2Resistance®Panel and ~~commercialization~~T2Biothreat Panel and subsequently submit applications to the FDA for U.S. regulatory clearance for those product candidates. In December 2022 the T2Biothreat clinical evaluation was completed.

In June 2020, we launched the T2SARS-CoV-2 Panel, our COVID-19 molecular diagnostic test, after validation of ~~these products.~~the test pursuant to the FDA’s policy permitting COVID-19 tests to be marketed prior to receipt of an Emergency Use Authorization, or EUA, subject to certain prerequisites. In August 2020, the FDA granted an EUA to the T2SARS-CoV-2 Panel for the qualitative direct detection of nucleic acid from SARS-CoV-2 in upper respiratory specimens (such as nasal, mid-turbinate, nasopharyngeal, and oropharyngeal swab specimens) and bronchoalveolar lavage specimens from individuals suspected of COVID-19 by their healthcare provider. We expect to continue to experience a decline in COVID-19 product sales tied to our T2SARS-CoV-2 Panel, and the focus of our go-to-market strategy continues to be increasing sales of our sepsis test panels, expanding the installed base of our T2Dx Instruments, and solidifying commercial plans for our T2Lyme Panel.

~~We believe T2MR is~~On May 8, 2023, we filed an FDA 510(k) submission for the ~~first technology~~T2Biothreat™ Panel, a product that we developed in collaboration with the ~~ability~~U.S. Department of Health and Human Services, Administration for Strategic Preparedness and Response, Biomedical Advanced Research and Development Authority (BARDA). The T2Biothreat Panel is a fully-automated, direct-from-blood test designed to run on the FDA-cleared T2Dx® Instrument and simultaneously detects six biothreat pathogens identified as threats by the U.S. Centers for Disease Control and Prevention, or CDC, including the organisms that cause anthrax, tularemia glanders, plague and typhus.

On May 19, 2023, we filed an application for Breakthrough Device Designation with the FDA for the T2Cauris Panel. The T2Cauris Panel is a fully-automated, direct-from-blood test designed to run on the FDA-cleared T2Dx®Instrument designed to rapidly detect ~~directly from~~the Candida auris pathogen. Candida auris is an emerging multidrug-resistant yeast causing invasive health care-associated infection with high mortality worldwide which the Director of the CDC has called a clinical sample of whole blood, plasma, serum, saliva, sputum or urine, saving time and potentially improving sensitivity by eliminating the need for purification or the extraction of target pathogens. T2MR has been demonstrated to detect cellular targets at limits of detection as low as one colony-forming unit per milliliter (CFU/mL). More than 100 studies published in peer reviewed journals have featured T2MR in a breadth of applications.“catastrophic threat."

Financial Overview

Revenue

We generate revenue from the sale of our products, related services, reagent rental agreements and ~~from activities performed pursuant~~government contributions.

Grants received, including cost reimbursement agreements, are assessed to ~~research and development agreements.~~determine if the agreement should be accounted for as an exchange transaction or a contribution. An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred.

Revenue earned from activities performed pursuant to research and development agreements is reported as research revenue using the proportional performance method as the work is completed, limited to payments earned, and the related costs are expensed as incurred as research and development expense.

Product revenue is ~~derived from~~generated by the sale of ~~our~~ instruments and ~~related~~ consumable diagnostic tests predominantly through our direct sales force in the United States and distributors in geographic regions outside the United States. We generally do not offer product ~~return~~returns or exchange rights (other than those relating to defective goods under warranty) or price protection allowances to our customers, including our 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. We ~~recognize product revenue from~~either sell instruments to customers and international distributors, or retain title and place the ~~sale of our instruments as soon as all applicable revenue recognition criteria have been met. In~~instrument at the ~~majority of cases, we expect~~customer site pursuant to ~~place our instruments, under~~a reagent rental agreement. When the instrument is placed under a reagent rental agreement, our customers generally agree to fixed term agreements, ~~in hospitals, certain of~~ which ~~may include minimum commitments and/or an~~can be extended, and incremental ~~charge~~charges on ~~the purchase of our~~each consumable diagnostic ~~tests. Under this business model, we believe we will recover~~test purchased. Shipping and handling costs are billed to customers in connection with a product sale.

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

Direct sales of instruments include warranty, maintenance and technical support services typically for one year following the ~~cost~~installation of ~~placing our instruments~~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 ~~hospitals through the margins realized from our consumable diagnostic tests. Our~~exchange for additional consideration. The extended Maintenance Services are also service based warranties that represent separate purchasing decisions.

We warrant that consumable diagnostic tests ~~can only~~will be ~~used with~~free from defects, when handled according to product specifications, for the stated life of the product. To fulfill valid warranty claims, we provide replacement product free of charge.

Our current sales strategy is to drive adoption of our ~~instruments, and accordingly, as the~~test platform installed base ofin hospitals, to increase test use by our ~~instruments grows,~~existing hospital customers, and to convert T2SARS-CoV-2 customers to sepsis testing. Accordingly, we expect the following to occur:

•

recurring revenue from our consumable diagnostic tests will ~~increase~~increase; and ~~become subject to less period-to-period fluctuation;~~

•

~~consumable revenue will~~ become ~~an increasingly~~a more predictable and ~~important contributor to our~~significant component of total revenue; and

•

we will gain manufacturing economies of scale through the growth in our sales, resulting in improving gross margins and operating margins.

~~Revenue from consumables is based on the volume of tests sold~~We have a significant development contract with BARDA and ~~the price of each consumable unit.~~should BARDA reduce, cancel or not grant additional milestone projects, our ability to continue certain future product development programs may be impacted.

Cost of Product Revenue

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

We expect cost of product revenue to continue to represent a high percentage of our product revenue as we continue to invest in our manufacturing capabilities, infrastructure and customer service organization and grow our installed customer base. We plan to continue to expand our capacity to support our growth, which will result in higher cost of revenue in absolute dollars. However, we expect cost of product revenue,decrease as a percentage of revenue ~~to decline~~ as a result of the cost of product revenue ~~grows in the future.~~improvement initiatives.

Research and development expenses

Our research and development expenses consist primarily of costs incurred for the development of our technology and product candidates, technology improvements and enhancements, clinical trials to evaluate the clinical utility of our product candidates, and laboratory development and expansion, and include salaries and benefits, including stock-based compensation, ~~research-related~~research related facility and overhead costs, laboratory supplies, equipment, depreciation on T2Dx instruments used in research and development activities and contract services. Research and development expenses also include costs of delivering products or services associated with ~~research~~contribution revenue. We expense all research and development costs as incurred.

We anticipate our overall research and development expenses to continue to be flat to down over the next several quarters in part due to the completion of our T2Bacteria clinical trial. Research and development costs include costs to support research partnerships, clinical trials and new product development.remain consistent. We ~~have committed, and~~ expect to ~~commit, significant resources toward~~continue developing additional product candidates, improving existing products, and conducting ongoing and new clinical ~~trials~~trials. We have a significant development contract with BARDA and ~~expanding~~should BARDA reduce, cancel or not grant additional milestone projects, our ~~laboratory capabilities.~~ability to continue our future product development may be impacted.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of costs for our sales, ~~and~~ marketing, service, medical affairs, finance, legal, human resources, ~~business development~~information technology, and general management functions, as well as professional services, such as legal, consulting and accounting services. We expect selling, general and administrative expenses to increase in future periods as we commercialize products and future product candidates and as our needs for sales, marketing and administrative personnel grow. 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. We expense ~~all~~the majority of selling, general and administrative expenses as incurred. We expect selling, general and administrative expenses to decrease as a percentage of revenue in future periods.

Interest income

Interest income consists of interest earned on our cash and cash equivalents.

Interest expense ~~net~~

Interest expense ~~net,~~ consists primarily of interest expense on our notes payable, ~~and~~ the amortization of deferred financing costs ~~partially offset by interest earned on our cash~~ and ~~cash equivalents.~~debt discount.

Change in fair value of derivative related to Term Loan

The change in fair value of derivative related to Term Loan consists of the change in fair value of the derivative associated with the CRG Term Loan Agreement.

Change in fair value of warrant liabilities

The change in fair value of warrant liabilities consists of the changes in fair value of the Common Stock Warrants, Pre-Funded Warrants and Series A Warrant.

Other income ~~net~~

Other income ~~net,~~ consists of dividend and other investment ~~income, government grant income~~income.

Other expense

Other expense consists of non-recurring expenses, including issuance costs allocated to the Common Stock Warrants.

Other losses

Other losses consists of non-recurring losses, including the loss on disposal of property and ~~the gain or loss associated with the change in the fair value of our liability for warrants to purchase redeemable securities.~~equipment.

Critical Accounting Policies and Use of Estimates

We have prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States. Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the condensed consolidated financial statements, as well as revenue and expenses recorded during those periods. We evaluated our estimates and judgments on an ongoing basis. We based our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

The items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2016 remain~~2022 remained materially consistent. For a description of those critical accounting policies, please refer to our Annual Report on Form 10-K filing for the year ended December 31, ~~2016.~~2022.

Results of Operations for the Three Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022


	Three Months Ended September 30,									Three Months Ended March 31,
	2017			2016			Change			2023			2022			Change
	(in thousands)									(in thousands)
Revenue:
Product revenue	$	739		$	580		$	159		$	1,655		$	3,844		$	(2,189	)
Research revenue		369			504			(135	)
Contribution revenue											423			3,390			(2,967	)
Total revenue		1,108			1,084			24			2,078			7,234			(5,156	)
Costs and expenses:
Cost of product revenue		2,106			1,894			212			3,995			6,205			(2,210	)
Research and development		5,880			5,200			680			4,471			6,656			(2,185	)
Selling, general and administrative		5,559			5,935			(376	)		7,299			9,230			(1,931	)
Total costs and expenses		13,545			13,029			516			15,765			22,091			(6,326	)
Loss from operations		(12,437	)		(11,945	)		492			(13,687	)		(14,857	)		1,170
Interest expense, net		(1,718	)		(876	)		(842	)
Other income, net		79			38			41
Other income (expense):
Interest income											2			3			(1	)
Interest expense											(1,522	)		(1,650	)		128
Change in fair value of derivative related to Term Loan											(770	)		—			(770	)
Change in fair value of warrant liabilities											(1,304	)		—			(1,304	)
Other income											—			11			(11	)
Other expense											(682	)		—			(682	)
Other gains (losses)											(2	)		(2	)		—
Total other expense											(4,278	)		(1,638	)		(2,640	)
Net loss	$	(14,076	)	$	(12,783	)	$	(1,293	)	$	(17,965	)	$	(16,495	)	$	(1,470	)

Product revenue

Product revenue was $1.7 million for the three months ended March 31, 2023 compared to $3.8 million for the three months ended March 31, 2022, a decrease of $2.2 million, which was driven by lower consumables sales of $1.8 million mostly due to a decrease in sales of T2SARS-CoV-2, lower T2Dx sales of $0.3 million and lower revenue under our service agreements of $0.1 million.

Contribution revenue

Contribution revenue relates to our BARDA agreement and was $0.4 million for the three months ended March 31, 2023, compared to $3.4 million for the three months ended March 31, 2022. The decrease of $3.0 million was due to timing of the contract activity and less option amount available under Option 3, which was available for the first quarter of 2023, compared to Option 2A, which was available for the first quarter of 2022.

Cost of product revenue

Cost of product revenue was $4.0 million for the three months ended March 31, 2023, compared to $6.2 million for the three months ended March 31, 2022, a decrease of $2.2 million. The decrease was driven by $0.7 million of decreased costs primarily related to lower consumable sales of T2SARS-CoV-2, $0.5 million of costs related to lower instrument sales, $0.4 million of lower service and repair costs, $0.4 million of lower shipping and other costs, $0.1 million of lower royalties, and $0.1 million of lower costs due to the effect of a change in build plan and manufacturing inefficiencies.

Research and development expenses

Research and development expenses were $4.5 million for the three months ended March 31, 2023 compared to $6.7 million for the three months ended March 31, 2022, a decrease of $2.2 million. Lab and facility expenses decreased by $1.4 million primarily due to the timing of BARDA Option 3 compared to Option 2A and the purchase of less lab supplies due to lower employee headcount, consulting expenses decreased by $0.7 million for BARDA, and payroll related and stock based compensation expenses decreased by $0.4 million due to lower employee headcount. These decreases were partially offset by a $0.2 million increase in material costs and a $0.1 million increase of clinical-related expenses primarily for our T2Resistance Panel 510(k) Study partially offset by T2Biothreat Panel.

Selling, general and administrative expenses

Selling, general and administrative expenses were $7.3 million for the three months ended March 31, 2023, compared to $9.2 million for the three months ended March 31, 2022, a decrease of $1.9 million. The decrease was driven by lower payroll related expenses of $1.3 million and lower stock based compensation expenses of $0.5 million primarily due to lower employee headcount and lower other expenses of $0.2 million primarily due to less IT support services and less facilities costs, partially offset by a $0.1 million increase in consulting expenses due to increased legal expenses.

Interest income

Interest income was immaterial for the three months ended March 31, 2023 and 2022.

Interest expense

Interest expense was $1.5 million for the three months ended March 31, 2023, compared to $1.7 million for the three months ended March 31, 2022. Interest expense decreased by $0.2 million primarily due to the February 2022 and November 2022 amendments to the CRG Term Loan Agreement which extended the interest only period and maturity date.

Change in fair value of derivative related to Term Loan

The change in fair value of the derivative instrument associated with the CRG Term Loan Agreement (See Note 6 of the notes to our condensed consolidated financial statements) was $0.8 million of expense for the three months ended March 31, 2023. There was no change in fair value of the derivative instrument for the three months ended March 31, 2022.

Change in fair value of warrant liabilities

The change in fair value of the warrant liabilities consists of a $1.3 million reduction of expense primarily associated with the Common Stock Warrants and Pre-Funded Warrants (See Note 7 of the notes to our condensed consolidated financial statements) for the three months ended March 31, 2023. There was no change in fair value of warrant liabilities recorded during the three months ended March 31, 2022.

Other income

Other income was not recorded for the three months ended March 31, 2023 and was immaterial for the three months ended March 31, 2022.

Other expense

Other expense relates to the issuance costs allocated to the Common Stock Warrants and was $0.7 million for the three months ended ~~September 30, 2017 compared to $0.6 million~~March 31, 2023. Other expense was not recorded for the three months ended September 30, 2016, an increase of $0.1 million or 27.4%. The increase was driven primarily by higher comparable sales of T2Candida consumables of $0.2 million and slightly higher support contract revenue plus sales of the new T2Bacteria consumables product in Europe. The increasesMarch 31, 2022.

Other losses

Other losses were ~~partially offset by lower instrument sales of $0.1 million.~~

~~Research revenue~~

~~Research revenue was $0.4 million~~immaterial for the three months ended September 30, 2017, compared to $0.5 million for the three months ended September 30, 2016, a decrease of $0.1 million or 26.8%. The decrease was primarily the result of lower revenue recognized under our Co-Development Agreement with Canon US Life Sciences, which decreased $0.4 million over the prior year

~~comparable period, as well as a decrease in revenue from research~~March 31, 2023 and development agreements utilizing T2MR technology with other third parties of $0.1 million. These decreases were offset by an increase in revenue from services delivered under our Co-Development Agreement with Allergan Sales, LLC of $0.4 million.2022.

~~Cost of product revenue~~

Cost of product revenue was $2.1 million for the three months ended September 30, 2017, compared to $1.9 million for the three months ended September 30, 2016, an increase of $0.2 million. The increase in cost primarily correlated to increased product revenue and continued expansion of manufacturing activities and certain manufacturing costs of $0.4 million over the prior year comparable period. The increases were offset by lower costs for consumables and instruments of $0.1 million and lower service related and miscellaneous costs of $0.1 million.

~~Research and development expenses~~

Research and development expenses were $5.9 million for the three months ended September 30, 2017, compared to $5.2 million for the three months ended September 30, 2016, an increase of $0.7 million over the prior year comparable period. Clinical trial and related expenses increased by $0.3 million primarily from the T2Bacteria clinical trial. Facilities related and other research and development expenses increased by $0.2 million which includes increased depreciation, lab related and engineering prototype expenses. Outside service and travel expenses increased by $0.3 million, primarily from increased work on the T2Bacteria clinical trial. Payroll and related expenses increased by $0.2 million. Partially offsetting these increases is a decrease in preclinical related expenses of $0.3 million.

~~Selling, general and administrative expenses~~

Selling, general and administrative expenses were $5.6 million for the three months ended September 30, 2017, compared to $5.9 million for the three months ended September 30, 2016, a decrease of $0.3 million over the prior year comparable period. The decrease was due primarily to decreased payroll and related expenses of approximately $0.2 million, due to a reduction in headcount, decreased travel expenses of $0.1 million and decreased outside services of $0.1 million. The decreases were partially offset by increased legal expenses of $0.1 million.

~~Interest expense, net~~

Interest expense, net, was $1.7 million for the three months ended September 30, 2017, compared to $0.9 million for the three months ended September 30, 2016. Interest expense, net, increased by $0.8 million primarily from the refinancing of debt with CRG.

~~Other income, net~~

Other income, net, was $79,000 of net income for the three months ended September 30, 2017, compared to $38,000 for the three months ended September 30, 2016. Other income, net, increased by $41,000 due primarily to increased dividend and other investment income earned on higher average levels of invested cash over the prior comparable period.

~~Results of Operations for the Nine Months Ended September 30, 2017 and 2016~~

Nine Months Ended
September 30,

2017

2016

Change

(in thousands)

Revenue:

Product revenue

$
2,105

$
1,168

$
937

Research revenue

900

2,003

(1,103
)
Total revenue

3,005

3,171

(166
)
Costs and expenses:

Cost of product revenue

5,722

4,701

1,021

Research and development

19,577

18,160

1,417

Selling, general and administrative

17,192

18,282

(1,090
)
Total costs and expenses

42,491

41,143

1,348

Loss from operations

(39,486
)

(37,972
)

(1,514
)
Interest expense, net

(5,008
)

(2,416
)

2,592

Other income, net

260

133

127

Net loss

$
(44,234
)

$
(40,255
)

$
(3,979
)

~~Product revenue~~

Product revenue was $2.1 million for the nine months ended September 30, 2017 compared to $1.2 million for the nine months ended September 30, 2016, an increase of $0.9 million or 80.2%. The increase was driven by an increase in sales volume of our products, primarily the sale of T2Candida and T2Bacteria (in Europe) consumable diagnostic tests of $0.6 million plus higher instrument sales of $0.1 million and an increase in service contract revenue.

~~Research revenue~~

Research revenue was $0.9 million for the nine months ended September 30, 2017, compared to $2.0 million for the nine months ended September 30, 2016, a decrease of $1.1 million or 55.0%. This decrease was primarily the result of lower revenue recognized under our Co-Development Agreement with Canon of $1.2 million as well as a decrease in revenue from research and development agreements utilizing our T2MR technology with other third parties over the prior year comparable period. These decreases were offset by revenue recognized under our Co-Development Agreement with Allergan Sales, LLC.

~~Cost of product revenue~~

Cost of product revenue was $5.7 million for the nine months ended September 30, 2017, compared to $4.7 million for the nine months ended September 30, 2016, an increase of $1.0 million. $0.3 million of the increase in cost correlates to increased product revenue. In addition, other cost increases relate to continued expansion of manufacturing activities and certain manufacturing costs of $0.2 million, depreciation of $0.2 million and increase in reserves of $0.3 million over the prior year comparable period.

~~Research and development expenses~~

Research and development expenses were $19.6 million for the nine months ended September 30, 2017, compared to $18.2 million for the nine months ended September 30, 2016, an increase of $1.4 million over the prior year comparable period. Clinical trial and related expenses increased by $1.1 million primarily from the T2Bacteria clinical trial. Facilities related and other expenses increased by $0.4 million which includes higher depreciation, lab related and engineering prototype expenses. Outside service and travel expenses increased by $0.4 million, primarily from increased work on the T2Bacteria clinical trial. Partially offsetting these increases is a decrease in preclinical related expenses of $0.3 million, a decrease in payroll and related expenses of $0.1 million.

~~Selling, general and administrative expenses~~

Selling, general and administrative expenses were $17.2 million for the nine months ended September 30, 2017, compared to $18.3 million for the nine months ended September 30, 2016, a decrease of $1.1 million. The decrease was due primarily to decreased payroll and related expenses of approximately $1.1 million, due to a reduction in headcount, decreased travel expenses of $0.3 million related to headcount reduction, and decreased legal expenses of $0.1 million. These decreases were partially offset by increased

~~outside services expenditures of $0.2 million and increased facility and other selling, general and administrative expenses of $0.2 million.~~

~~Interest expense, net~~

Interest expense, net, was $5.0 million for the nine months ended September 30, 2017, compared to $2.4 million for the nine months ended September 30, 2016. Interest expense, net, increased by $2.6 million primarily from the refinancing of debt with CRG.

~~Other income, net~~

Other income, net, was $260,000 for the nine months ended September 30, 2017, compared to $133,000 for the nine months ended September 30, 2016. Other income, net, increased by $127,000 due primarily to increased dividend and other investment income earned on higher average levels of invested cash over the prior comparable period.

Liquidity and Capital Resources

We have incurred losses and cumulative negative cash flows from operations since our inception, and as of ~~September 30, 2017,~~March 31, 2023 and December 31, ~~2016~~2022, we had an accumulated deficit of ~~$247.9~~$552.2 million and ~~$203.7~~$534.2 million, respectively. We ~~anticipate that we will~~have incurred significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We may seek to continue ~~to incur losses for at least the next few years. We expect that our operating expenses will continue to increase and, as a result, we will need additional capital~~ to fund our operations through public equity or private equity or debt financings, as well as other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business, results of operations and financial condition.

Historically, the Company has primarily funded its operations through public equity and private debt financings. The Company believes its cash position is insufficient to fund future operations through the second quarter of 2023 and in order to support our business, we initiated a process to explore a range of alternatives focusing on maximizing value.

Equity Distribution Agreement

On March 31, 2021, we entered into a Sales Agreement (“Sales Agreement”) with Canaccord Genuity LLC, as agent ("Canaccord"), pursuant to which we may ~~raise~~offer and sell shares of common stock, for aggregate gross sale proceeds of up to $75.0 million from time to time from the effective date of the respective registration statement through ~~a combination~~Canaccord. We sold 653,122 shares of ~~equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.~~common stock for net proceeds of $0.9 million during the three months ended March 31, 2023. We sold 70,987 shares under the Sales Agreement for net proceeds of $1.4 million after expenses during the three months ended March 31, 2022.

We ~~have historically funded our operations principally~~pay Canaccord for its services of acting as agent 3% of the gross proceeds from the sale of ~~common stock~~the shares pursuant to the Sales Agreement. Legal and ~~preferred stock,~~accounting fees are reclassified to share capital upon issuance of shares under the incurrence of indebtedness, and revenue from research and development agreements. In September 2017 we raised net proceeds of $18.8 million through our confidentially marketed public offering (“CMPO”).Sales Agreement.

Plan of operations and future funding requirements

As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022, we had unrestricted cash and cash equivalents of approximately ~~$52.9~~$10.1 million and ~~$73.5~~$10.3 million, respectively. ~~Currently, our funds are primarily held in money market funds invested in U.S. government agency securities.~~ Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, costs related to our products, clinical trials, laboratory and related supplies, supplies and materials used in manufacturing, legal and other regulatory expenses and general overhead costs.

Management believes that the existing cash and cash equivalents at September 30, 2017, together with the additional remaining liquidity on our Term Loan Agreement of up to an additional $10.0 million, will be sufficient to fund our current operating plan into the first half of 2019. The borrowing on the Term Loan Agreement is available at any time through July 27, 2018, and is subject to certain conditions including that we receive 510(k) clearance for the marketing of T2Bacteria^TM by the FDA by April 30, 2018 (see Note 5 to our unaudited condensed consolidated financial statements for details). Should our current operating plan not materialize as expected, including our ability to draw additional borrowings on the Term Loan Agreement on a timely basis, we would delay certain research projects and capital expenditures and reduce or eliminate certain future operating expenses in order to fund operations at reduced levels to continue as a going concern for a period of 12 months from the date the financial statements are issued. The Term Loan Agreement also requires us to achieve certain annual revenue targets, whereby we are required to pay double the amount of any shortfall as an acceleration of principal payments. The revenue target for fiscal 2017 is $5.0 million. Should we fall short of the revenue target we would seek a waiver of this provision. There can be no assurances that we would be successful in obtaining a waiver.

Until such time as we can generate substantial product revenue, we expect to finance our cash needs, beyond what is currently available or on hand, through a combination of equity offerings, debt financings and revenue from existing and potential research and development and other collaboration agreements. If we raise additional funds in the future, we may need to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable to us.

The COVID-19 pandemic has impacted and may continue to impact the Company’s operations as the pandemic shifts to an endemic health threat. Customers have begun to reduce their purchases of the Company’s COVID test products and the Company believes this trend will continue.

Going Concern

We believe that our cash, cash equivalents, and restricted cash of $10.7 million at March 31, 2023 will not be sufficient to fund our current operating plan through the second quarter of 2023. Certain elements of our operating plan cannot be considered probable, and in order to support our business we initiated a process to explore a range of strategic alternatives focused on maximizing value.

The Term Loan Agreement with CRG Servicing LLC, as administrative agent and collateral agent (“CRG”) (Note 6) has a minimum liquidity covenant which requires us to maintain a minimum cash balance of $5.0 million. In February 2022, CRG, the lenders party thereto and we amended the Term Loan Agreement, extending the interest only period and maturity to December 30, 2023. In November 2022, CRG amended the Term Loan Agreement, extending the interest only period and maturity to December 30, 2024. On May 15, 2023, we notified CRG that we were not in compliance with the minimum liquidity covenant as of May 12, 2023 and on May 19, 2023, we, the lenders party thereto and CRG entered into a waiver and consent with respect to the Term Loan Agreement, reducing the minimum liquidity covenant to $500,000 until December 31, 2023.

The Nasdaq has $1.00 minimum bid price and $35 million minimum market value rules. Since 2021 the Company has violated, appealed to Nasdaq and cured its violation of these rules several times.

On November 22, 2022, we received notice from the Nasdaq indicating that we were in violation of the $35 million minimum market value rule. We have until May 22, 2023, to regain compliance which includes a closing market value of $35 million or more for a minimum of ten consecutive business days. If compliance in not achieved by May 22, 2023, we believe the Nasdaq will notify us that its securities are subject to delisting. In the event we receive such a delisting notice, we intend to apply for an extension to the compliance period or appeal to a Nasdaq Hearings Panel.

These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include raising additional funding, earning payments pursuant to our contract with BARDA, delaying certain research projects and capital expenditures and eliminating certain future operating expenses in order to fund operations at reduced levels for us to continue as a going concern for a period of 12 months from the date the 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 adequately reduce expenditures, while reasonably possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these condensed consolidated financial statements. Even if we are able to complete the actions described in this paragraph or otherwise generate incremental liquidity, we may be forced to sell material assets or seek additional capital or be required to commence proceedings under Chapter 11 of the U.S. Bankruptcy Code. See Part II, Item 1A—“Risk Factors” in this Quarterly Report on Form 10-Q

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.

Cash flows

The following is a summary of cash flows for each of the periods set forth below:


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2023			2022
	(in thousands)						(in thousands)
Net cash (used in) provided by:
Operating activities	$	(36,641	)	$	(36,143	)	$	(12,940	)	$	(14,441	)
Investing activities		(2,601	)		(4,594	)		(120	)		(29	)
Financing activities		18,651			42,186			11,848			1,202
Net decrease in cash and cash equivalents	$	(20,591	)	$	1,449
Net change in cash, cash equivalents and restricted cash							$	(1,212	)	$	(13,268	)

Net cash used in operating activities

Net cash used in operating activities was approximately ~~$36.7~~$12.9 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023 and consisted ~~primarily~~ of a net loss of ~~$44.2~~$18.0 million adjusted for non-cash items including stock-based compensation expense of ~~$3.8~~$1.8 million, a change in fair value of the derivative related to Term Loan of $0.8 million, non-cash interest expense of $0.5 million, non-cash lease expense of $0.3 million, depreciation and amortization expense of ~~$2.2~~$0.3 million, ~~non-cash interest expense~~a change in fair value of ~~$2.0~~warrant liabilities of $1.3 million, ~~loss on sale~~issuance costs related to Common Stock Warrants of ~~T2 owned equipment of $0.2 million, offset by deferred rent of $0.1~~$0.7 million, and a net change in operating assets and liabilities of ~~$0.4 million,~~$0.7 million. The net change in operating assets and liabilities was primarily ~~related to an increase~~driven by a decrease in accrued expenses ~~and accounts payable~~ of ~~$0.4~~$2.2 million ~~an increase~~primarily due to the payout of 2022 bonuses, a decrease in accounts receivable of ~~$0.1~~$0.8 million ~~an increase~~due to payment from BARDA and the timing and volume of instrument and consumable sales, a decrease in ~~inventory~~operating lease liabilities of ~~$0.5~~$0.3 million, ~~to support our commercial demand, an increase in deferred revenue of $0.4 million, and~~ a decrease in prepaid expenses and other assets of $0.1 ~~million.~~million due to expensing of the $0.1 million rent deposit for the Billerica lease, partially offset by an increase in accounts payable of $1.8 million due to timing of invoices and payments and an increase in inventory of $0.9 million due to market increases for securing raw materials and bulk materials purchases.

Net cash used in operating activities was approximately ~~$36.1~~$14.5 million for the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2022, and consisted ~~primarily~~ of a net loss of ~~$40.3~~$16.5 million adjusted for non-cash items including ~~depreciation and amortization expense of $1.6 million,~~ stock-based compensation expense of ~~$3.7~~$2.6 million, non-cash interest expense of $0.5 million, ~~deferred rent~~non-cash lease expense of ~~$0.2~~$0.3 million, and adepreciation and amortization expense of $0.3 million. The net change in operating assets and liabilities ~~(use~~was primarily driven by a decrease in accounts receivable of ~~cash)~~$0.8 million, an increase in prepaid expenses and other assets of ~~$1.4~~$1.5 million ~~primarily related~~due to timing of payments, an increase in inventory of ~~$0.7~~$1.5 million due to ~~support our commercial demand, prepaid~~bulk materials purchases for favorable pricing, an increase in accounts payable of $0.6 million due to increased spend on inventory and lab supplies, an increase in accrued expenses of ~~$0.1~~$0.5 million ~~related~~due to ~~the amortization of insurance premiums and~~increased employee costs, a decrease in deferred revenue of ~~approximately $1.3~~$0.2 million, ~~primarily related to the recognition~~and a decrease in operating lease liabilities of revenue from our Co-Development Agreement with Canon US Life Sciences, partially offset by an increase in accounts payable and accrued expenses of $0.7 million related to increased audit, clinical study and payroll accruals.$0.3 million.

Net cash ~~used in~~provided by investing activities

Net cash provided by investing activities was $0.1 million for the three months ended March 31, 2023, and consisted of equipment purchases.

Net cash used in investing activities was ~~approximately $2.6 million~~immaterial for the ~~nine~~three months ended September 30, 2017 and consisted of costs to acquire property and equipment and purchases of T2-owned instruments of $0.9 and $1.8 million, respectively, which are classified as property and equipment, less $0.1 million cash received from sale of T2-owned instruments.March 31, 2022.

Net cash used in investing activities was approximately $4.6 million for the nine months ended September 30, 2016 and consisted of costs to acquire components of and manufacture Company-owned instruments of $3.7 million, which are classified as property and equipment, $0.7 million of purchases of laboratory and manufacturing equipment incurred to support commercialization efforts and research and development programs and $0.2 million of other equipment and software purchases to support internal functions.

Net cash provided by financing activities

Net cash provided by financing activities was approximately ~~$18.7~~$11.8 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, and consisted primarily of ~~$18.8 million in net~~ proceeds from ~~our September 2017 CMPO~~public offering, net of issuance costs, of $10.9 million and ~~by $0.7 million of~~ proceeds from ~~the exercise~~sales of ~~stock options and sale of~~our common stock under ~~our 2014 Employee Stock Purchase Plan partially offset by~~the New Sales Agreement, net of issuance costs, of $0.9 ~~million of repayments of notes payable.~~million.

Net cash provided by financing activities was approximately ~~$42.2~~$1.2 million for the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2022, and consisted primarily of proceeds from ~~our September 21, 2016 PIPE financing with Canon~~sales of $39.7 million, in which we sold 6,055,341 shares of common stock at the closing price of $6.56 per share. Net cash provided by financing activities also consisted of $0.7 million of proceeds from the exercise of stock options and sale ofour common stock under ~~our 2014 Employee Stock Purchase Plan and $4.6 million of proceeds from~~ the ~~Credit Facility. Partially offsetting these sources of cash were $2.5 million of repayments of notes payable and $0.3 million of payments~~Sales Agreement, net of issuance costs, ~~from our December 2015 secondary offering.~~ of $1.4 million, offset by payment of employee restricted stock tax withholdings of $0.2 million.

Borrowing Arrangements

Term Loan Agreement

In December 2016, we entered into a Term Loan Agreement ~~(the “Term Loan Agreement”)~~ with CRG. We borrowed $40.0 million pursuant to the Term Loan Agreement, and may borrow up to an additional $10.0 million at any time through and including July 27, 2018, provided that, among other conditions, we receive 510(k) clearance for the marketing of T2Bacteria by the FDA on or before April 30, 2018, or the Approval Milestone. The Term Loan Agreementwhich has a six-year term with three years (through December 30, 2019) of interest-only payments, which period ~~shall be~~was extended to four years (through December 30, 2020) ~~if we achieve~~upon achieving the Approval Milestone, after which quarterly principal and interest payments ~~will~~would be due through the December 30, 2022 maturity date. In February 2022, we amended our agreement with CRG to extend the maturity date from December 30, 2022 to December 30, 2023. In November 2022, CRG amended the Term Loan Agreement, extending the interest only period and maturity to December 30, 2024. Interest on the amounts borrowed under the Term Loan Agreement accrues at an annual fixed rate of (a) prior to the Approval Milestone, ~~12.5%~~12.50%, 4.0% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount and (b) following the Approval Milestone, ~~11.5%~~11.50%, 3.5% of which may be deferred during the interest-only period by adding such amount to the aggregate principal loan amount. In addition, if we achieve certain financial performance metrics, the loan will convert to interest-only until the December 30, ~~2022~~2024 maturity, at which time all unpaid principal and accrued unpaid interest will be due and payable. We are required to pay CRG a financing fee based on the loan principal amount drawn. We are also required to pay a final payment fee of ~~8.0%~~8%, subsequently amended to 10%, of the principal outstanding upon repayment. We are accruing the final payment fee as interest expense and it is included as a non-current liability at March 31, 2023 and December 31, 2022 on the balance sheet to conform to the classification of the associated debt in those periods.

The Term Loan Agreement with CRG is classified as a non-current liability at December 31, 2022 as the Company amended the agreement in November 2022, which extended the maturity date to December 30, 2024 and obtained a waiver for default in January 2023. The Term Loan Agreement with CRG is classified as a non-current liability at December 31, 2021 as the Company amended the agreement in February 2022, which extended the maturity date to December 30, 2023. We have assessed the classification of the note payable as non-current based on facts and circumstances as of the date of this filing. Management continues to reassess at each balance sheet and filing date based on facts and circumstances and can provide no assurances regarding the probability of meeting its minimum liquidity covenant in future periods.

We may prepay all or a portion of the outstanding principal and accrued unpaid interest under the Term Loan Agreement at any time upon prior notice subject to a certain prepayment fee during the first five years of the term and no prepayment fee thereafter. As security for our obligations under the Term Loan Agreement, we entered into a security agreement with CRG whereby we granted a lien on substantially all of its assets, including intellectual property. The Term Loan Agreement also contains customary affirmative and negative covenants for a credit facility of this size and ~~type. The~~type, including a requirement to maintain a minimum cash balance of $5.0 million.

In 2019, the Term Loan Agreement ~~also requires us~~was amended to ~~achieve certain~~reduce minimum revenue targets, ~~whereby~~extend the interest-only period and extend the principal repayment. The final payment fee was increased from 8% to 10% of the principal amount outstanding upon repayment. We issued to CRG warrants to purchase 11,365 shares of the Company’s common stock (“New Warrants”) (See Note 6 of the notes to our condensed consolidated financial statements) at an exercise price of $77.50, with typical provisions for termination upon a change of control or a sale of all or substantially all of our assets. We also reduced the exercise price for the warrants previously issued to CRG to purchase an aggregate of 10,579 shares of our common stock to $77.50. All of the New Warrants are exercisable any time prior to September 9, 2029, and all of the previously issued warrants are exercisable any time prior to December 30, 2026.

In January 2021, the Term Loan Agreement was amended to extend the interest-only payment period through December 30, 2022, to extend the initial principal repayment to December 30, 2022, and to significantly reduce the revenue covenant for the 24-month period beginning on January 1, 2020. We did not pay or provide any consideration in exchange for this amendment. We accounted for the

January 2021 amendment as a modification to the Term Loan Agreement. In June 2021, the Company satisfied the only remaining revenue covenant which was for the 24-month period beginning on January 1, 2020.

In February 2022, the Term Loan Agreement was amended to extend the interest-only payment period through December 30, 2023, and to extend the initial principal repayment to December 30, 2023. In November 2022, CRG amended the Term Loan, extending the interest only period and maturity to December 30, 2024. On May 19, 2023, we, ~~are~~the lenders party thereto and CRG entered into a waiver and consent with respect to the Term Loan Agreement, reducing the minimum liquidity covenant to $500,000 until December 31, 2023.

We did not pay or provide any consideration in exchange for these amendments. As the effective borrowing rate under the amended agreements was less than the effective borrowing rate under the previous agreement, a concession was deemed to have been granted under ASC 470-60. As a concession was granted, the agreements were accounted for as troubled debt restructurings under ASC 470-60. The amendments did not result in a gain on restructuring as the future undiscounted cash outflows required under the amended agreements exceed the carrying value of the debt immediately prior to ~~pay double~~ the ~~amount of any shortfall as an acceleration of principal payments.~~ amendment.

The Term Loan Agreement includes a subjective acceleration clause whereby an event of default, including a material adverse change in the business, operations, or conditions (financial or otherwise), could result in the acceleration of the obligations under the Term Loan Agreement. Under certain circumstances, a default interest rate of an additional 4.0% per annum will apply at the election of CRG on all outstanding obligations during the occurrence and continuance of an event of default. CRG has not exercised its right under this ~~clause, as there have been no such events. We believe the likelihood of CRG exercising this right is remote.~~clause.

We assessed the terms and features of the Term Loan Agreement, including the interest-only period dependent on the achievement of the Approval Milestone and the acceleration of the obligations under the Term Loan Agreement under an event of default, of the Term Loan Agreement in order to identify any potential embedded features that would require ~~bifurcation or any beneficial conversion features. As part~~bifurcation. In addition, under certain circumstances, a default interest rate of ~~this analysis,~~an additional 4.0% per annum will apply at the election of CRG on all outstanding obligations during the occurrence and continuance of an event of default, we ~~assessed the economic characteristics and risks of the Term Loan Agreement, including put and call features. We determined~~concluded that the features of the Term Loan Agreement are ~~either~~not clearly and closely ~~associated with~~related to the host instrument, and represent a ~~debt host and do not require bifurcation as~~single compound derivative that is required to be re-measured at fair value on a ~~derivative liability, or the~~quarterly basis.

The fair value of the ~~feature~~derivative at March 31, 2023 is ~~immaterial. Included in these features are principal payment acceleration clauses triggered by~~$1.9 million and is classified as a ~~developmental milestone. Should our assessment~~non-current liability on the balance sheet at March 31, 2023 to match the classification of ~~this milestone change, there could be a non-cash charge in operations. We will continue to reassess~~ the ~~features to determine if they require separate accounting on a quarterly basis.~~

~~In December 2016, pursuant to the~~related Term Loan ~~Agreement, we made an initial draw of $39.2 million, net of financing fees. We used approximately $28.0 million~~Agreement. The fair value of the ~~initial proceeds to repay approximately $27.5~~derivative at December 31, 2022 is $1.1 million ~~of outstanding debt pursuant to the Loan~~ and Security Agreement and to repay approximately $0.5 million of outstanding debt pursuant to the Promissory Note. Upon the repayment of all amounts owed by us under these agreements, all commitments were terminated and all security interests granted by us were released.

~~Promissory Note~~

~~In May 2011, the Company entered into~~is classified as a promissory agreement (the “Promissory Note”) with a separate lender to borrow up to $1.7 million for the purchase of laboratory equipment and office equipment through December 2013. The Company borrowed a total of $1.4 million under the Promissory Note. The Company paid interest onlynon-current liability on the ~~borrowings through~~balance sheet at December ~~2013 and was required~~31, 2022 to ~~make equal monthly payments of principal and interest through~~match the ~~maturity date. In December 2016, the Company used approximately $0.5 million~~classification of the ~~proceeds from the~~related Term Loan agreement to repay the outstanding debt pursuant to the Promissory Note. Upon the repayment of all amounts owed by the Company under the Promissory Note, all commitments were terminated and all security interests granted by the Company were released. Agreement.

The amounts borrowed were collateralized by the associated equipment and bear interest at 6.5%. The Promissory Note included financial covenants that required the Company to maintain a minimum cash balance of $0.3 million. In addition, the Promissory Note contained a subjective acceleration clause whereby an event of default and immediate acceleration of the borrowing occurs if there was a material adverse change in the business, operations, or condition of the Company or a material impairment of the prospect of repayment of any portion of the obligations. In the event of default, the lender had first priority on the laboratory equipment and office equipment purchased with the proceeds.

~~Equipment Lease Credit Facility~~

In October 2015, we signed a $10.0 million Equipment Lease Credit Facility, or the Credit Facility, with Essex Capital Corporation (the “Lessor”) to fund capital equipment needs. As one of the conditions of the Term Loan Agreement, the Credit Facility is capped at a maximum of $5.0 million. Under the Credit Facility, Essex will fund capital equipment purchases presented by us. We will repay the amounts borrowed in 36 equal monthly installments from the date of the amount funded. At the end of the 36 month lease term, we have the option to (a) repurchase the leased equipment at the lesser of fair market value or 10% of the original equipment value, (b) extend the applicable lease for a specified period of time, which will not be less than one year, or (c) return the leased equipment to the Lessor.

In April 2016 and June 2016, we completed the first two draws under the Credit Facility, of $2.1 million and $2.5 million, respectively. We will make monthly payments of $67,000 under the first draw and $79,000 under the second draw. The borrowings under the Credit Facility are treated as capital leases. The amortization of the assets conveyed under the Credit Facility is included as a component of depreciation expense.

Contractual Obligations and Commitments

There were no other material changes to our contractual obligations and commitments from those described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K for the year ended December 31, 2016. During the quarter ended September 30, 2017 we entered into a new Lease Indenture Agreement (the “Lease”) relating to office space we currently lease at 91 Hartwell Ave, Lexington, MA, pursuant to which we reduced the square footage of leased space from 13,233 square feet to 10,900 square feet. Under the terms of the Lease, beginning on January 1, 2018 and ending on December 31, 2021, the Company is obligated to pay the landlord monthly rent of $29,066. 2022.

~~Off-Balance Sheet Arrangements~~

~~We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk

WeAs a smaller reporting company, we are ~~exposed~~not required to market risk related to changes in interest rates. As of September 30, 2017 and December 31, 2016, we had cash and cash equivalents of $52.9 million and $73.5 million, respectively, held primarily in money market funds consisting of U.S. government agency securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate one percent change in interest rates would not have a material effect on the fair market value of our portfolio. As of September 30, 2017 and December 31, 2016, we had no outstanding debt exposed to variable market interest rates.provide this information.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Management, ~~of the Company,~~ with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of ~~September 30, 2017.~~March 31, 2023. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

Based ~~upon this~~on the evaluation ~~the~~of our disclosure controls and procedures as March 31, 2023, our Chief Executive Officer and ~~the~~ Chief Financial Officer ~~have~~ concluded that, as of such date, the Company’s disclosure controls and procedures were not effective asdue to a material weakness in our internal control over the timeliness of ~~September 30, 2017.~~assumptions and accounting conclusions reached in valuing the common stock warrants sold in the Company’s February 17, 2023 public offering.

Management determined that assumptions and valuation methodologies used to initially value and classify the warrants sold in the Company’s February 17, 2023, public offering were inconsistent with the recent generally accepted accounting principles and the time required to refine the assumptions and methodologies and reach appropriate accounting and disclosure conclusions prevented the

Company from filing its Form 10-Q timely and required an extension. During future reporting periods the Company will establish enhanced evaluation considerations including the timely use of 3rd party experts to prevent future occurrences

(b) Changes in Internal Control over Financial Reporting

~~There~~Except as noted above, there have been no ~~material~~ changes to the Company’s internal control over financial reporting ~~during the most recent fiscal quarter~~ that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.

OTHER INFORMATION

Item 1. Legal Proceedings

~~We may be from time~~On September 8, 2021, the Company entered into a 10-year lease agreement (the “Lease”) with Farley White Concord Road, LLC (the “Landlord”), pursuant to ~~time subject~~which the Company leased approximately 70,125 square feet for its occupancy and use as office, laboratory and commercial manufacturing space at 290 Concord Road, Billerica, Massachusetts (the “Premises").

On January 17, 2023, the Landlord sent a Notice of Termination (the “Notice”) of the Lease to ~~various claims~~the Company. The Notice provides that the Landlord terminated the Lease because of the Company’s alleged failure to perform its obligations under the Lease in a timely manner and ~~legal actions during~~ the ~~ordinary course~~Company’s alleged breach of ~~our business. There are currently no claims or legal actions, individually or~~the covenant of good faith and fair dealing. In connection with the Notice, on January 18, 2023, the Landlord filed a complaint in the ~~aggregate,~~Massachusetts Superior Court and has unilaterally deducted the Company’s $1,000,000 security deposit for its alleged damages. In addition, the Landlord is seeking damages for unpaid rent, brokerage fees, transaction costs, attorney's fees and court costs.

On March 1, 2023, the Company filed a response to the Landlord’s complaint and a counterclaim alleging that ~~would have a material adverse effect~~the Landlord breached its obligations under the contract and unlawfully drew on ~~our results~~the security deposit, in addition to breaching its covenants of ~~operations or financial condition.~~good faith and fair dealing, making fraudulent misrepresentations, and engaging in deceptive and unfair trade practices.

We believe the Landlord's claims are without merit and we intend to vigorously contest the claim.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016, which could materially affect our business, financial condition or future results. There~~2022. Other than as set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022.

Our management has performed an analysis of our ability to continue as a going concern and has identified substantial doubt about our ability to continue as a going concern.

As of March 31, 2023, we had $10.1 million in unrestricted cash and cash equivalents which, without additional funding, will not be sufficient to meet our obligations within the next twelve months from the date of issuance of this Quarterly Report. Based on their assessment, our management has raised concerns about our ability to continue as a going concern. As substantial doubt about our ability to continue as a going concern exists, our ability to finance our operations through equity financings or otherwise could be impaired. Our ability to fund working capital, make capital expenditures, and service our debt depends on our ability to generate cash from operating activities, which is subject to its future operating success, and obtain financing on reasonable terms, which is subject to factors beyond our control, including general economic, political, and financial market conditions. The capital markets have in the past experienced, are currently experiencing, and may in the future experience, periods of upheaval that could impact the availability and cost of financing andthere can be no assurances that such financing will be available to the Company on satisfactory terms, or at all. Additionally, on March 31, 2023, the date we filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, we became subject to the offering limits in General Instruction I.B.6 of Form S-3. We therefore limited to only offering and selling shares of common stock with an aggregate offering price of up to one-third of our public float (as calculated pursuant to General Instruction I.B.6) pursuant to our Sales Agreement with Canaccord. The proceeds of any sales pursuant to the Sales Agreement would therefore be insufficient to meet our financial obligations for the next twelve months from the date of issuance of this Quarterly Report without additional financing or other strategic alternatives. Management continues to explore raising additional capital through equity financing to supplement the Company’s capitalization and liquidity, but there can be no assurance that such financing will be available on terms commercially acceptable to the Company, or at all. If we are unsuccessful in our operations to restructure and secure new financing, or if such incremental financing is not sufficient to fund our operations for the foreseeable future, we may be forced to sell material assets or need to commence proceedings under Chapter 11 of the U.S. Bankruptcy Code, which would harm our business, financial condition, and results of operations.

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

~~None.~~Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None~~On May 19, 2023, T2 Biosystems, Inc. (the “Company”) entered into a waiver and consent (the “Waiver”) to that certain Term Loan Agreement, dated as of December 30, 2016, by and among the Company, CRG Servicing LLC, as administrative agent and collateral agent (in such capacities, the “Administrative Agent”) and the lenders named therein (as amended from time to time to date, the “Loan Agreement”). Pursuant to the Waiver, the Administrative Agent and the lenders party to the Waiver, which constitute the Majority Lenders (as required by the Loan Agreement), waive certain Specified Events of Default as defined therein associated with the Company’s failure to maintain minimum Liquidity as defined therein of $5 million. The Company did not receive a notice of default under the Loan Agreement from the Administrative Agent in connection with these Specified Events of Default and there was no acceleration of the financial obligations thereunder. The parties to the Loan Agreement further agreed that the minimum Liquidity requirement shall be reduced to $500,000 until December 31, 2023.

Item 6. Exhibits, ~~Financial~~Financial Statement Schedules


Exhibit Number		Exhibit Description

3.1		Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K (File No. 001-36571) filed on August 12, 2014)

3.2		Certificate of Amendment of Restated Certificate of Incorporation of the Company dated July 23, 2021 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K (File No. 001-36751) filed on July 23, 2021)

3.3		Certificate of Amendment of Restated Certificate of Incorporation of the Company dated October 12, 2022 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K (File No. 001-36571) filed on October 12, 2022)

3.4		Third Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit ~~3.2~~3.4 of the Company’s Form 10-Q (File No. 001-36571) filed on August 16, 2022)

4.1		Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A (File No. 333-197193) filed on July 28, 2014)

4.2		Fourth Amended and Restated Investors’ Rights Agreement, dated as of March 22, 2013, as amended (incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-1/A (File No. 333-197193) filed on July 28, 2014

4.3		Registration Rights Agreement dated as of July 29, 2019 by and between T2 Biosystems Inc. and Lincoln Park Capital Fund, LLC (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-36571) filed on ~~August 12, 2014)~~July 30, 2019)

~~10.1~~ 4.4		~~Lease Indenture Agreement, dated September 21, 2017, between 91 Hartwell Ave. Trust and~~Form of Warrant (incorporated by reference to Exhibit 4.1 of the ~~Company, relating to office space located for property at 91 Harwell Avenue, Lexington, MA, Massachusetts~~Company’s Form 10-Q (File No. 001-36571) filed on August 16, 2022)

31.1* 4.5		Pre-Funded Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K (File No. 001-36571) filed on February 16, 2023)

4.6		Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K (File No. 001-36571) filed on February 16, 2023)

10.1*†		Amendment of Solicitation/Modification of Contract, dated as of May 1, 2023 by and between the Company and Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services)

10.2*		Waiver and Consent to Term Loan Agreement with CRG Servicing LLC, dated May 19, 2023

31.1*		Certification of ~~principle~~principal executive officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of principal financial officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1*101.INS		~~The following financial statements from~~Inline XBRL Instance Document – the ~~Company’s Quarterly Report on Form 10-Q for~~instance document does not appear in the quarter ended September 30, 2017, formatted in XBRL: (i) Condensed Consolidated Balance Sheets (unaudited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited), (iii) Condensed Consolidated Statements of Cash Flows (unaudited), and (v) Notes of Condensed Consolidated Financial Statements.Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document


*Exhibit Number	~~Filed herewith~~	Exhibit Description
104*		Cover Page Interactive Data File (embedded within the Inline XBRL document)

**	~~Furnished herewith~~

~~SIGNATURES~~* Filed herewith

** Furnished herewith

† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933, or the Securities Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	T2 BIOSYSTEMS, INC.

Date: ~~November 3, 2017~~May 22, 2023	By:	/s/ JOHN ~~MCDONOUGH~~SPERZEL
		John ~~McDonough~~Sperzel
		President, Chief Executive Officer and ~~Director~~Chairman of the Board
		(principal executive officer)

Date: ~~November 3, 2017~~May 22, 2023	By:	/s/ ~~DARLENE DEPTULA-HICKS~~JOHN M. SPRAGUE
		~~Darlene Deptula-Hicks~~John M. Sprague
		~~SVP and~~ Chief Financial Officer
		(principal financial and accounting officer)

3343

	Balance at September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash	$	19,644	$	19,644	$	—	$	—
Money market funds		33,253		33,253		—		—
Restricted cash		260		260		—		—
Total	$	53,157	$	53,157	$	—	$	—

	Balance at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash	$	16,887	$	16,887	$	—	$	—
Money market funds		56,601		56,601		—		—
Restricted cash		260		260		—		—
Total	$	73,748	$	73,748	$	—	$	—

	September 30, 2017			December 31, 2016
Term loan agreement, net of deferred issuance costs of $2.5 million and $3.0 million, respectively	$	38,695		$	37,031
Equipment lease credit facility, net of deferred issuance cost of $29 thousand and $45 thousand, respectively		2,810			3,742
Total notes payable		41,505			40,773
Less: current portion of notes payable		(1,416	)		(1,269	)
Notes payable, net of current portion	$	40,089		$	39,504

	Nine Months Ended
	September 30,
	2017			2016
Weighted-average risk-free interest rate		1.98	%		1.42	%
Expected dividend yield		—	%		—	%
Expected volatility		63	%		61	%
Expected terms	6.0 years			6.0 years