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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________________
FORM 10-Q
_________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
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: 001-38613
_________________________________________________________
Bionano Genomics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 26-1756290
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
9540 Towne Centre Drive, Suite 100,
San Diego, CA
 
 
92121
(Address of Principal Executive Offices) (Zip Code)
(858) 888-7600
(Registrant’s Telephone Number, Including Area Code)
_________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per shareBNGOThe Nasdaq Stock Market, LLC
Warrants to purchase Common StockBNGOWThe Nasdaq Stock Market, LLC

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

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

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


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

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

As of August 12, 2020, the registrant had 138,480,045 shares of Common Stock ($0.0001 par value) outstanding.




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BIONANO GENOMICS, INC.
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIONANO GENOMICS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
 June 30,
2020
December 31,
2019
Assets  
Current assets:  
Cash and cash equivalents$17,194,000  $17,311,000  
Accounts receivable, net3,249,000  6,334,000  
Inventory, net3,290,000  3,444,000  
Prepaid expenses and other current assets921,000  1,169,000  
Total current assets24,654,000  28,258,000  
Property and equipment, net2,550,000  1,950,000  
Total assets$27,204,000  $30,208,000  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$2,850,000  $2,699,000  
Accrued expenses2,431,000  3,225,000  
Contract liabilities289,000  358,000  
Current portion of long-term debt13,938,000  20,085,000  
Total current liabilities19,508,000  26,367,000  
Long-term debt, net of current portion1,775,000    
Long-term contract liabilities84,000  183,000  
Other non-current liabilities  44,000  
Total liabilities21,367,000  26,594,000  
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.0001 par value, 200,000,000 and 200,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; 91,975,000 and 34,274,000 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
9,000  3,000  
Additional paid-in capital
126,989,000  106,188,000  
Accumulated deficit
(121,161,000) (102,577,000) 
Total stockholders’ equity
5,837,000  3,614,000  
Total liabilities and stockholders’ equity
$27,204,000  $30,208,000  
See accompanying notes to the condensed consolidated financial statements
3

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BIONANO GENOMICS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Revenue:  
Product revenue$940,000  $2,021,000  $1,923,000  $3,708,000  
Service and other revenue242,000  154,000  395,000  319,000  
Total revenue1,182,000  2,175,000  2,318,000  4,027,000  
Cost of revenue:
Cost of product revenue515,000  1,525,000  1,289,000  2,645,000  
Cost of service and other revenue88,000  30,000  170,000  57,000  
Total cost of revenue603,000  1,555,000  1,459,000  2,702,000  
Operating expenses:
Research and development2,401,000  2,408,000  5,075,000  4,508,000  
Selling, general and administrative5,613,000  5,056,000  12,981,000  9,846,000  
Total operating expenses8,014,000  7,464,000  18,056,000  14,354,000  
Loss from operations(7,435,000) (6,844,000) (17,197,000) (13,029,000) 
Other expenses:
Interest expense(561,000) (645,000) (1,322,000) (959,000) 
Loss on debt extinguishment      (1,333,000) 
Other expenses(73,000) (171,000) (55,000) (186,000) 
Total other expenses(634,000) (816,000) (1,377,000) (2,478,000) 
Loss before income taxes(8,069,000) (7,660,000) (18,574,000) (15,507,000) 
Provision for income taxes(5,000) (5,000) (10,000) (9,000) 
Net loss$(8,074,000) $(7,665,000) $(18,584,000) $(15,516,000) 
Net loss per share, basic and diluted$(0.09) $(0.71) $(0.29) $(1.47) 
Weighted-average common shares outstanding basic and diluted
90,907,000  10,860,000  63,238,000  10,542,000  
See accompanying notes to the condensed consolidated financial statements.
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BIONANO GENOMICS, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total Stockholders' Equity (Deficit)
 SharesAmount
Balance at January 1, 2019
10,055,000  $1,000  $82,898,000  $(72,762,000) $10,137,000  
Stock option exercises
42,000  —  54,000  —  54,000  
Stock-based compensation expense
—  —  289,000  —  289,000  
Issue common stock
748,000  —  2,410,000  —  2,410,000  
Issue warrants for debt
—  —  630,000  —  630,000  
Issue stock for debt
—  —  202,000  —  202,000  
Net loss
—  —  —  (7,852,000) (7,852,000) 
Balance at March 31, 2019
10,845,000  1,000  86,483,000  (80,614,000) 5,870,000  
Stock option exercises
9,000  —  11,000  —  11,000  
Stock-based compensation expense
—  —  336,000  —  336,000  
Issue stock for employee stock purchase plan
44,000  —  103,000  —  103,000  
Net loss
—  —  —  (7,665,000) (7,665,000) 
Balance at June 30, 2019
10,898,000  1,000  86,933,000  (88,279,000) (1,345,000) 
Stock-based compensation expense
—  —  364,000  —  364,000  
Net loss
—  —  —  (6,398,000) (6,398,000) 
Balance at September 30, 2019
10,898,000  1,000  87,297,000  (94,677,000) (7,379,000) 
Stock-based compensation expense
—  —  357,000  —  357,000  
Issue common stock, net of issuance costs
11,081,000  1,000  8,549,000  —  8,550,000  
Issue stock for covenant waiver
573,000  —  504,000  —  504,000  
Issue stock for employee stock purchase plan
44,000  —  39,000  —  39,000  
Issue stock for warrant exercises
11,678,000  1,000  9,396,000  —  9,397,000  
Reduce warrant exercise price for covenant waiver
—  —  46,000  —  46,000  
Net loss
—  —  —  (7,900,000) (7,900,000) 
Balance at December 31, 2019
34,274,000  3,000  106,188,000  (102,577,000) 3,614,000  
Stock-based compensation expense
—  —  328,000  —  328,000  
Issue stock for warrant exercises
3,478,000  —  2,355,000  —  2,355,000  
Net loss
—  —  —  $(10,510,000) (10,510,000) 
Balance at March 31, 2020
37,752,000  $3,000  $108,871,000  $(113,087,000) $(4,213,000) 
Stock-based compensation expense
—  —  328,000  —  328,000  
Issue common stock, net of issuance costs
16,896,0002,000  16,364,000  —  16,366,000  
Issue stock for employee stock purchase plan
44,000  —  21,000  —  21,000  
Issue stock for covenant waiver
873,000  —  300,000  —  300,000  
Issue stock for warrant exercises
36,410,000  4,000  1,105,000  $—  1,109,000  
Net loss$(8,074,000) (8,074,000) 
Balance at June 30, 2020
91,975,000  9,000  126,989,000  (121,161,000) 5,837,000  
See accompanying notes to the condensed consolidated financial statements
5

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BIONANO GENOMICS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
  Six Months Ended
June 30,
 20202019
Operating activities:  
Net loss
$(18,584,000) $(15,516,000) 
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization expense
591,000  537,000  
Non-cash interest
651,000  296,000  
Stock-based compensation
656,000  625,000  
Provision for bad debt expense
1,290,000    
Loss on debt extinguishment
  1,333,000  
 Employee stock purchase plan compensation  103,000  
Changes in operating assets and liabilities:
Accounts receivable
1,795,000  (469,000) 
Inventory
(1,037,000) (1,954,000) 
Prepaid expenses and other current assets
244,000  288,000  
Accounts payable
150,000  2,257,000  
Accrued expenses and contract liabilities
(1,006,000) (368,000) 
Net cash used in operating activities
(15,250,000) (12,868,000) 
Investing Activities:
Purchases of property and equipment
  (30,000) 
Net cash used in investing activities  (30,000) 
Financing activities:
Proceeds from issuance of term debt, net of issuance costs
  19,207,000  
Repayment of term-loan debt
(5,000,000) (10,812,000) 
 Proceeds from PPP Loan1,775,000    
Proceeds from borrowing from line of credit
760,000  1,106,000  
Repayments of borrowing from line of credit
(2,258,000) (306,000) 
Proceeds from sale of common stock, net of offering costs
16,366,000  2,410,000  
 Proceeds from sale of common stock under employee stock purchase plan21,000    
Proceeds from warrant and option exercises
3,469,000  65,000  
Net cash provided by financing activities
15,133,000  11,670,000  
Net decrease in cash and cash equivalents
(117,000) (1,228,000) 
Cash and cash equivalents at beginning of period
17,311,000  16,523,000  
Cash and cash equivalents at end of period
$17,194,000  $15,295,000  
Supplemental cash flow disclosures:
Cash paid for interest
$715,000  $245,000  
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment costs incurred but not paid included in accounts payable and accrued expenses
$  $9,000  
Fair value of warrants issued with debt
$  $630,000  
Transfer of instruments and servers from inventory to property and equipment
$1,191,000  $  
 Issue common stock for covenant waiver$300,000  
Fair value of stock issued with debt
$  $202,000  
See accompanying notes to the condensed consolidated financial statements
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BIONANO GENOMICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Basis of Presentation
Description of Business
Bionano Genomics, Inc. (collectively, with its consolidated subsidiary, the “Company”) is a life sciences instrumentation company in the genome analysis space. The Company currently develops and markets the Saphyr system, a platform for ultra-sensitive and ultra-specific structural variation detection that enables researchers and clinicians to accelerate the search for new diagnostics and therapeutic targets and to streamline the study of changes in chromosomes, which is known as cytogenetics.
Basis of Presentation
The accompanying financial information has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting purposes. The condensed consolidated financial statements are unaudited. The unaudited condensed consolidated financial statements reflect, in the opinion of the Company's management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of financial position, results of operations, changes in equity, and comprehensive loss and cash flows for each period presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”). All intercompany transactions and balances have been eliminated. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. Certain prior year numbers were reclassified to conform with current year presentation. Such reclassification had no impact on the previously reported results of operations.
        
Going Concern
The Company is required to perform an analysis regarding its ability to continue as a going concern. The Company must evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued. If the Company concludes that substantial doubt is raised, the Company is also required to consider whether its plans alleviate that doubt.
The Company has experienced recurring net losses from operations, negative cash flows from operating activities, financial covenant breaches, and significant accumulated deficit since its inception and expects to continue to incur net losses into the foreseeable future. The Company had an accumulated deficit of $121.2 million as of June 30, 2020. The Company had cash and cash equivalents of $17.2 million as of June 30, 2020. Management expects operating losses and negative cash flows to continue for at least the next year as the Company continues to incur costs related to research and commercialization efforts. Management has prepared cash flow forecasts which indicate that based on the Company’s expected operating losses, negative cash flows and debt obligations, there is substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date these financial statements are issued.
COVID-19 continues to spread in the United States and globally and as a result the Company is subject to additional risks and uncertainties. The degree to which the Company's business will be affected by the COVID-19 pandemic is highly uncertain. The negative effects of COVID-19 could continue to have a material impact on the Company’s financial results. To comply with various applicable guidelines and legal requirements in the jurisdictions in which the Company operates, the Company has temporarily reduced its business operations in response to stay-at-home orders, travel restrictions and other social distancing measures. The Company’s manufacturing partners, suppliers, and customers, have implemented similar operational reductions. This overall reduction in activity has contributed to a decrease in sales which has negatively impacted the Company’s first and second quarter 2020 financial results. Future effects of COVID-19 are unknown and the Company’s financial results may continue to be negatively affected in the future.
There may be long-term negative effects of the COVID-19 pandemic, even after it has subsided. Specifically, product demand may be reduced due to an economic recession, a decrease in corporate capital expenditures, prolonged unemployment, reduction in consumer confidence, or any similar negative economic condition. These negative effects could have a material impact on the Company’s operations, business, earnings, and liquidity.
The Company’s ability to continue as a going concern is dependent upon its ability to raise additional funding. The Company will need to raise additional capital through equity offerings or debt financings to fulfill its operating and capital requirements for at least 12 months and to maintain compliance with certain financial covenants in the Innovatus LSA (as defined below). To raise such additional capital, the Company may pursue equity or debt financings, strategic collaborations, licensing
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arrangements, asset sales, or other arrangements. However, the Company may not be able to secure such financing in a timely manner or on favorable terms, if at all, and may not be able to comply with current covenants.
Furthermore, if the Company issues equity securities to raise additional funds, its existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of the Company’s existing stockholders. If the Company raises additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its products or proprietary technologies or grant licenses on terms that are not favorable to the Company. If the Company does not have or is not able to obtain sufficient funds, it may have to reduce commercialization efforts or delay its development of new products. The Company also may have to reduce marketing, customer support or other resources devoted to its products or cease operations. As a result, the aforementioned conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern within one year after the date these financial statements are issued. Such financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the outcome of this uncertainty.
As a publicly-traded company listed on The Nasdaq Stock Market LLC ("Nasdaq"), the Company is required to comply with rules and regulations issued by Nasdaq. If the Company is not able to comply with such rules and regulations, which it has not met from time-to-time since the Company's initial public offering in August 2018, the Company may not be able to maintain its Nasdaq listing.

In April 2020, we received a Notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) advising us that for 30 consecutive trading days preceding the date of the Notice, the bid price of our common stock had closed below the $1.00 per share minimum required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The Notice has no effect on the listing of our common stock at this time, and our common stock continues to trade on The Nasdaq Capital Market under the symbol “BNGO.” We intend to monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options to regain compliance with the Minimum Bid Price Requirement.
Significant Accounting Policies
During the six months ended June 30, 2020, there were no changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
Recently Issued But Not Yet Adopted Accounting Pronouncements
In April 2012, the Jump-Start Our Business Startups Act (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an emerging growth company. As an emerging growth company, the Company may elect to adopt new or revised accounting standards when they become effective for non-public companies, which typically is later than when public companies must adopt the standards. The Company has elected to take advantage of the extended transition period afforded by the JOBS Act and, as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for emerging growth companies, which are the dates included below.
In February 2015, the FASB issued Accounting Standards Update ("ASU") 2016-2, Leases (Topic 842), which amends the accounting guidance for leases and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. ASU 2016-2 initially mandated a modified retrospective transition method, however, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which amends ASU 2016-2, permitting entities the option to adopt this standard prospectively with a cumulative-effect adjustment to opening equity in the year of adoption and include required disclosures for prior periods but will not restate prior periods. The Company anticipates implementing the accounting guidance for leases using the alternative method beginning with the annual reporting period ending December 31, 2022 and interim reporting periods in 2023. The Company is in the process of evaluating the impact of adoption of the lease accounting guidance on the consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of credit Losses on Financial Instruments (ASU 2016-13), which amends the impairment model by requiring entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. The standard is effective for the company beginning in the first quarter of 2023, with early adoption permitted. the Company is currently evaluating the expected impact of ASU 2016-13 on its financial statements.
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In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"), which simplifies accounting for convertible instruments by removing major seperation models required under current U.S. GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exceptions and also simplifies the diluted earnings per share calculation in certain areas. The standard is effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within those fiscal years, beginning December 15, 2021. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and adoption must be as of the beginning of the Company's annual fiscal year. The company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

2. Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities which include outstanding stock options under the Company’s equity incentive plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.
Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):
 June 30,
2020
June 30,
2019
Stock options2,988,000  1,717,000  
Warrants79,914,000  4,224,000  
Total82,902,000  5,941,000  
3. Revenue Recognition
Revenue by Source
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Instruments$229,000  $1,591,000  $763,000  $2,892,000  
Consumables711,000  430,000  1,160,000  816,000  
Total product revenue940,000  2,021,000  1,923,000  3,708,000  
Service and other242,000  154,000  395,000  319,000  
Total revenue$1,182,000  $2,175,000  $2,318,000  $4,027,000  
Revenue by Geographic Location
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
$%$%$%$%
North America$788,000  66 %$1,379,000  64 %$1,514,000  66 %$2,218,000  55 %
EMEIA315,000  27 %507,000  23 %705,000  30 %1,425,000  35 %
Asia Pacific79,000  7 %289,000  13 %99,000  4 %384,000  10 %
Total$1,182,000  100 %$2,175,000  100 %$2,318,000  100 %$4,027,000  100 %

The table above provides revenue from contracts with customers by business and geographic region on a disaggregated basis. North America consists of the United States and Canada. EMEIA consists of Europe, the Middle East, India and Africa. Asia
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Pacific includes China, Japan, South Korea, Singapore and Australia. For the three months ended June 30, 2020 and 2019, the United States represented 60% and 63% of total revenue, and for the six months ended June 30, 2020 and 2019, 63% and 55%, respectively.
Remaining Performance Obligations

As of June 30, 2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was $373,000. These remaining performance obligations primarily relate to extended warranty and support and maintenance obligations. The Company expects to recognize approximately 44% of this amount as revenue during the remainder of 2020, 52% in 2021 and 4% in 2022. Warranty revenue is included in Service and other revenue.
The Company recognized revenue of $106,000 and $67,000 during the three months ended June 30, 2020 and 2019, respectively, and revenue of $232,000 and $156,000 during the six months ended June 30, 2020 and 2019, respectively, which was included in the contract liability balance at the end of the previous year.
Concentrations
As of June 30, 2020 and December 31, 2019, one customer represented 14% and 10%, respectively, of the Company's accounts receivable balance.

4. Balance Sheet Account Details
 June 30,
2020
December 31,
2019
Accounts receivable, net:
Accounts receivable, trade$5,094,000  $6,889,000  
Less allowance for doubtful accounts(1,845,000) (555,000) 
$3,249,000  $6,334,000  

The Company extends credit to its customers in the normal course of business based upon an evaluation of each customer’s credit history, financial condition, and other factors. Estimates of allowances for doubtful accounts are determined by evaluating individual customer circumstances, historical payment patterns, length of time past due, and economic and other factors. During the three and six months ended June 30, 2020, the Company recorded bad debt expense of $332,000 and $1,290,000 respectively. These amounts are included in selling, general and administrative expenses.

 June 30,
2020
December 31,
2019
Inventory:
Materials and supplies$2,180,000  $951,000  
Finished goods1,110,000  2,493,000  
$3,290,000  $3,444,000  
5. Debt
Paycheck Protection Program

On April 17, 2020, the Company received loan proceeds of approximately $1.8 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (“the PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”).

The PPP Loan is scheduled to mature on April 17, 2022 (the “Maturity Date”), bears interest at a rate of 1.00% per annum, and is subject to the standard terms and conditions applicable to loans administered by the SBA under the CARES Act.

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The PPP Loan is evidenced by a promissory note, dated as of April 17, 2020, issued by East West Bank (the “PPP Lender”), which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Upon an event of default under the PPP Note, the PPP Lender may, among other things, require immediate payment of all amounts owing under the PPP Note or file suit and obtain judgment. Under the terms of the CARES Act, recipients of loans under the PPP can apply for and be granted forgiveness for all or a portion of such loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and certain other eligible costs (the “Eligible Costs”). Pursuant to the Paycheck Protection Program Flexibility Act (the “PPPFA”), enacted on June 5, 2020, the Company may continue to use loan proceeds on Eligible Costs through October 2, 2020, or the date that is 24 weeks from the PPP Loan origination date (the “Covered Period”). The Company is continuing to evaluate guidance released by the SBA regarding qualification for forgiveness of the PPP Loan, however, no assurance is provided that forgiveness for any portion of the Company’s PPP Loan will be obtained.

Under the PPPFA, payments of principal and interest due under the PPP Loan are deferred until the date on which the SBA remits the forgiveness amount, if any, back to the PPP Lender, or if forgiveness isn't sought within 10 months after the last day of the Covered Period, until the date that is 10 months from the last day of the Covered Period. The amounts outstanding under the PPP Loan may be prepaid by the Company at any time prior to maturity without penalty.

In order to apply for the PPP Loan, the Company was required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support the Company’s ongoing operations. This certification further required the Company to take into account the maintenance of its workforce, the Company’s need for additional funding to continue operations, and the Company’s ability to access alternative forms of capital in the current market environment to offset the effects of the COVID-19 pandemic.

Loan Agreements
The carrying value of the Company's debt for the periods presented was as follows:
June 30,
2020
December 31,
2019
Term Loans$15,741,000  $20,473,000  
Revolver  1,498,000  
PPP Loan1,775,000    
Total principal17,516,000  21,971,000  
Less unamortized debt issuance costs(1,803,000) (1,886,000) 
Total carrying value of debt$15,713,000  $20,085,000  

In March 2019, the Company entered into a Loan and Security Agreement (the “Innovatus LSA”) by and among Innovatus Life Sciences Lending Fund I, LP, a Delaware limited partnership (“Innovatus”), as collateral agent and the lenders listed on Schedule 1.1 thereto, including East West Bank. The Innovatus LSA provided a first term loan of $17.5 million, a second term loan of $2.5 million and a third term loan of $5.0 million (collectively, “Term Loans”) if the Company satisfied certain funding conditions. Interest on the Term Loans is due on the first of each month at a rate of 10.25% per annum in cash or a discounted rate of 7.25% in cash with 3.0% of the 10.25% per annum rate added to the principal of the loan and subject to accruing interest through the end of the interest only payment period, which ends March 1, 2022. At inception, the Company elected to pay interest in cash at a rate of 7.25% per annum and have 3.0% per annum of the interest added back to the outstanding principal. As of June 30, 2020, the effective interest rate, including debt issuance costs, for Term Loans was 16.7%. Beginning in April 2022, the Company must make 24 equal monthly payments of principal and interest with a final maturity date in March 2024, which may be earlier due to an event of default if not cured within time specified.
The Innovatus LSA also provides for a revolving line of credit in an amount not to exceed $5.0 million (the “Revolver”). The Company may repay and reborrow amounts under the Revolver at any time prior to the March 1, 2024 maturity date without penalty or premium. The outstanding balance of amounts borrowed under the Revolver bears interest at a rate equal to 2.0% above the variable rate of interest, per annum, as specified in the terms of the Revolver.
The Innovatus LSA is collateralized by substantially all of the Company’s assets, including its intellectual property. The Innovatus LSA requires the Company to comply with various affirmative and negative covenants, including: (1) a liquidity covenant requiring the Company to maintain a minimum cash balance at all times in a collateral account; (2) a revenue
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covenant requiring the Company to meet certain minimum revenue targets measured at the end of each calendar quarter. The Innovatus LSA also includes standard events of default, including a provision that Innovatus could declare an event of default upon the occurrence of any event that it interprets as having a material adverse change in the Company's business, operations, or condition, a material impairment on the Company's ability to pay the secured obligations under the Innovatus LSA, or upon a material adverse effect on the collateral under the agreement, thereby requiring us to repay the loan immediately, together with a prepayment fee and other applicable fees. As of June 30, 2020, the Company has not received any notification or indication from Innovatus to invoke the material adverse change clause. However, due to the Company’s current cash flow position and the substantial doubt about its ability to continue as a going concern, the entire principal amount of the Term Loans are presented as short-term. The Company will continue to evaluate the debt classification on a quarterly basis and evaluate for reclassification in the future should its financial condition improve.
As of December 31, 2019, the Company did not achieve certain financial covenants under the Innovatus LSA. As a result, in March 2020, the Company and Innovatus entered into an amendment to the Innovatus LSA (the “Second Amendment”) to, among other things: (i) waive the events of default from not achieving the specific financial covenants for the December 31, 2019 measurement date, (ii) require an immediate partial repayment of $2.1million, (iii) require an additional partial repayment of $2.9 million on the earlier of completion of an Equity Event (as defined in the Second Amendment), or April 30, 2020, (iv) modify the liquidity covenant, such that the Company’s minimum cash balance shall vary based on outstanding borrowing capacity under the Revolver (provided, however, that the Company shall maintain a minimum cash balance of $2 million at any given time), (v) reduce the dollar amount of certain minimum revenue covenants and (vi) modify the terms of certain events of default. For example, the Second Amendment provides for a cure period in connection with the breach of certain minimum revenue financial covenants, as long as the Company submits an updated management plan and financial projections, which are subject to Innovatus approval, and completes a Qualified Financing Event (as defined in the Second Amendment) within 45 days of such breach.
In connection with the Second Amendment, the Company was obligated to pay Innovatus a waiver fee in the amount of  $200,000 and a prepayment fee of $100,000, payable in cash or in shares of the Company’s common stock at the Company's election, no later than following completion of the Equity Event. As described in Note 6 below, the Company completed the follow-on offering in April 2020 that constituted an Equity Event under the Second Amendment. A portion of the proceeds from the follow-on offering were used to pay-down $2.9 million of principal balance outstanding under the Innovatus term loan in accordance with the Second Amendment. In addition, the Company issued 872,601 shares of its common stock to Innovatus to satisfy the $200,000 waiver fee and $100,000 prepayment fee due under the Second Amendment.
The Company was in compliance with all financial covenants under the Innovatus LSA for the three months ended June 30, 2020.
6. Stockholders’ Equity and Stock-Based Compensation
Follow-on Public Offering
In April 2020, the Company completed an underwritten public offering of 16,896,000 shares of its common stock and, to certain investors, pre-funded warrants to purchase 37,650,000 shares of its common stock, and accompanying common warrants to purchase up to an aggregate of 54,546,000 shares of its common stock. Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase one share of common stock. The public offering price of each share of common stock and accompanying common warrant was $0.33 and $0.329 for each pre-funded warrant. The pre-funded warrants are immediately exercisable at a price of $0.001 per share of common stock. The common warrants are immediately exercisable at a price of $0.33 per share of common stock and will expire five years from the date of issuance. The shares of common stock and pre-funded warrants, and the accompanying common warrants, were issued separately and were immediately separable upon issuance. The gross proceeds to the Company were approximately $18.0 million before deducting underwriting discounts and commissions and other offering expenses.


Stock Warrants
A summary of the Company’s warrant activity for the six months ended June 30, 2020 was as follows:
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 Shares of Stock under WarrantsWeighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at January 1, 202024,406,000  $1.76  4.82$7,933,000  
Granted95,396,000  0.22  4.78
Exercised(39,888,000) 0.09  15,863,000  
Canceled  
Outstanding at June 30, 202079,914,000  $0.76  4.62$18,232,000  
Vested and exercisable at June 30, 202079,914,000  $0.76  4.62$  
Warrant Exercise Update

From July 1, 2020 through August 12, 2020, the Company has received gross proceeds of approximately $13.9 million pursuant to the exercise of outstanding and common and pre-funded warrants to purchase an aggregate of 46,505,000 shares of the Company's common stock.
Warrant Inducement

As previously reported, the Company issued warrants (the “Original Warrants”) to purchase shares of the Company’s Common Stock to certain investors in the Company’s underwritten public offering completed on October 23, 2019. The Original Warrants were immediately exercisable upon issuance at an exercise price per share of $0.86 and are set to expire on October 23, 2024.

On March 2, 2020, the Company entered into a Warrants Amendment and Agreement (the “Inducement Agreement”) with certain holders (“Holders”) of the Original Warrants that are exercisable for an aggregate of up to 3,200,000 shares of Common Stock. The Inducement Agreement provided that, commencing immediately following the delivery to the Holders of a prospectus supplement (the “Prospectus Supplement”) relating to the impact of the Inducement Agreement on the Original Warrants and ending at 9:15 a.m. Eastern Time on the business day following the date of such delivery (the “Modified Exercise Price Term”), the exercise price per share for the Original Warrants will be equal to $0.75 but only with respect to a cash exercise under Section 1(a) of the Original Warrants. In addition, the Company and each Holder agreed that if and only if the Holders exercise for cash all of their Original Warrants as amended pursuant to the Inducement Agreement during the Modified Exercise Price Term, the Company will issue to each Holder a new warrant (collectively, the “New Warrants”) to purchase up to the same number of shares of Common Stock issued to such Holder pursuant to the exercise of its Original Warrant during the Modified Exercise Price Term.

The Company delivered the Prospectus Supplement on March 2, 2020 and each Holder exercised all of their Original Warrants for cash. As a result, on March 3, 2020, the Company issued the New Warrants to the Holders. The New Warrants are exercisable at an exercise price per share of $1.06 commencing on the six-month anniversary of the issuance date, and will terminate on the date that is five years, six months following the issuance date. The New Warrants and the shares of Common Stock issuable upon exercise of the New Warrants were not registered under the Securities Act of 1933, as amended (the "Securities Act"), and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act.

Stock-Based Compensation
Stock Options
A summary of the Company’s stock option activity for the six months ended June 30, 2020 was as follows:   
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 Shares of Stock under Stock OptionsWeighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at January 1, 20201,743,000  $5.73  8.2$4,000  
Granted1,591,000  0.88  
Exercised    $  
Canceled(346,000) 4.04  
Outstanding at June 30, 20202,988,000  $3.34  8.46$22,000  
Vested and exercisable at June 30, 20201,021,000  $5.65  6.93$  

For the three months ended June 30, 2020 and 2019, the Company granted to its employees options to purchase 443,000 and 42,000 shares with a weighted average exercise price of $0.46 and $3.00 per share, respectively. For the six months ended June 30, 2020 and 2019, the Company granted to its employees options to purchase 1,591,000 and 545,000 shares with a weighted average exercise price of $0.88 and $4.15 per share, respectively.
For the three months ended June 30, 2020 and 2019, the weighted-average grant date fair value of stock options granted was $0.30 and $1.71 per share, respectively. For the six months ended June 30, 2020 and 2019, the weighted-average grant date fair value of stock options granted was $0.55 and $2.37 per share, respectively.
The Company recognized stock-based compensation expense for the periods presented were as follows: 
 Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Research and development$66,000  $58,000  $133,000  $111,000  
General and administrative262,000  278,000  523,000  514,000  
Total stock-based compensation expense$328,000  $336,000  $656,000  $625,000  
The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants during the periods presented were as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Risk-free interest rate0.4 %2.0 %1.1 %2.4 %
Expected volatility77.9 %66.1 %72.2 %67.3 %
Expected term (in years)5.55.45.9