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EX-23.2 - EXHIBIT 23.2 - Great Basin Scientific, Inc.v468896_ex23-2.htm
EX-23.1 - EXHIBIT 23.1 - Great Basin Scientific, Inc.v468896_ex23-1.htm
EX-10.66 - EXHIBIT 10.66 - Great Basin Scientific, Inc.v468896_ex10-66.htm
EX-10.65 - EXHIBIT 10.65 - Great Basin Scientific, Inc.v468896_ex10-65.htm
EX-5.1 - EXHIBIT 5.1 - Great Basin Scientific, Inc.v468896_ex5-1.htm

As filed with the Securities and Exchange Commission on June 15, 2017

Registration Statement No. 333-216045

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



 

AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



 

GREAT BASIN SCIENTIFIC, INC.

(Exact name of registrant as specified in its charter)



 

   
Delaware   3841   83-0361454
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

420 E. South Temple, Suite 520
Salt Lake City, UT 84111
(801) 990-1055

(Address and telephone number of registrant’s principal executive offices)



 

Ryan Ashton
Chief Executive Officer
Great Basin Scientific, Inc.
420 E. South Temple, Suite 520
Salt Lake City, UT 84111
(801) 990-1055

(Name, address, including zip code, and telephone number, including area code, of agent for service)



 

Copies to:

 
Kevin Friedmann, Esq.
Mitchell Silberberg & Knupp LLP
11377 W. Olympic Blvd.
Los Angeles, CA 90064
(310) 312-3106
  Robert Charron, Esq.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas
New York, New York 10105
(212) 931-8704


 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 o   Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company x
Emerging growth company x     

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. o

 

 


 
 

TABLE OF CONTENTS



 

CALCULATION OF REGISTRATION FEE

   
Title of Each Class of Securities to be Registered   Proposed Maximum
Aggregate
Offering Price(1)
  Amount of
Registration Fee
Class A Units, each consisting of:   $ 3,034,000     $ 351.64  
(i) common stock, par value $0.0001 per share(2)                  
(ii) Series J Warrants to purchase common stock                  
Class B Units, each consisting of:     2,952,000       342.14  
(i) one pre-funded Series K Warrant to purchase common stock                  
(ii) Series J Warrants to purchase common stock                  
Common stock underlying the pre-funded Series K Warrants(2)     82,000       9.50  
Common stock underlying the Series J Warrants(2)     15,170,000       1,758.20  
Total   $ 21,238,000     $ 2,461.48 (3) 

(1) This amount represents the proposed maximum offering price of the securities reregistered hereunder that may be sold by the registrant. Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).
(2) Pursuant to Rule 416 under the Securities Act, the shares of common stock registered hereby also include an indeterminate number of additional shares of common stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions.
(3) Previously paid.


 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


 
 

TABLE OF CONTENTS

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

   
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION   DATED JUNE 15, 2017

Great Basin Scientific, Inc.

Up to 8,200,000 Units that can be comprised of either Class A Units or Class B Units



 

We are offering up to 8,200,000 units that can be comprised of either Class A Units (“Class A Units”) or Class B Units (“Class B Units”), together with 8,200,000 shares of common stock included in the Class A Units, 41,000,000 shares of common stock underlying the Series J Warrants and 8,200,000 shares of common stock underlying the Pre-funded Series K warrants discussed below.

Each Class A Unit consists of 1 share of our common stock, par value $0.0001 (“common stock”), and 1 Series J Warrant (the “Series J Warrants”) to purchase 2.5 shares of our common stock. The Class A Units are being offered at an assumed public offering price of $0.37 per Class A Unit, the closing price of our common stock on June 13, 2017. The Series J Warrants will be immediately exercisable at an initial exercise price per share equal to 100% of the public offering price of the Class A Units and will expire 60 days from the date of issuance.

Each Class B Unit consists of 1 pre-funded Series K Warrant to purchase 1 share of our common stock (the “Pre-funded Series K Warrants” together with the Series J Warrants, the “Offering Warrants”) and 1 Series J Warrant to purchase 2.5 shares of our common stock. Each Pre-funded Series K Warrant will be sold together with 1 Series J Warrant at the same assumed combined public offering price of $0.37 per unit less the $0.01 per share exercise price of the Pre-funded Series K Warrant included in the Class B Unit. Each Pre-funded Series K warrant will entitle the holder to acquire 1 share of our common stock at an exercise price of $0.01 per share. We are offering the Class B Units to any purchaser including those purchasers, if any, whose purchase of Class A Units in this offering would result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser 9.99%) of our issued and outstanding shares of common stock following the consummation of this offering.

The Class A Units together with the Class B Units are collectively referred to in this prospectus as the “Units.” The Units will not be issued to purchasers or certificated. Purchasers will receive only shares of common stock and the Offering Warrants. The common stock and the Offering Warrants are immediately separable, will be issued separately and may be transferred separately immediately upon issuance.

Each Pre-funded Series K Warrant will be immediately exercisable at an initial exercise price of $0.01 per share. The Pre-funded Series K Warrants will expire upon exercise.

Any investor who purchases securities in this offering will have no assurance that other purchasers will invest in this offering. We anticipate that the offering will end no later than 15 business days after the effective date of the registration statement of which this prospectus is a part, and it will not be extended. Closing of the offering is subject to customary closing conditions including but not limited to delivery of officer certificates and legal opinions and the continued accuracy of representations and warranties. See “Plan of Distribution” for a description of the conditions for closing. We may determine in our sole discretion to terminate the offering at any time prior to closing. If the offering is terminated prior to closing your funds will be promptly returned from our account without any reduction and without interest. This offering is being made on a best efforts basis and there is no minimum amount of proceeds that is a condition of closing.

Our common stock is quoted on the OTCQB marketplace under the symbol “GBSN.” On June 13, 2017, the closing price of our common stock on the OTCQB was $0.37 per share. There is no established trading market for the Offering Warrants and we do not expect an active trading market to develop. In addition, we do not intend to list the Offering Warrants on any securities exchange or other trading market. Without an active trading market, the liquidity of the Offering Warrants will be limited. On April 10, 2017, we effected a 1-for-2,000 reverse stock split of our issued and outstanding shares of common stock. All information included in this prospectus has been retroactively adjusted to account for such reverse stock split.

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”

Investing in our securities involves risks. You should carefully read and consider the “Risk Factors” beginning on page 10 of this prospectus before investing.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

If we were to sell 8,200,000 Class A Units at the presumed offering price (and no Class B units), we would pay placement agent fees as follows:

   
  Per Class A Unit   Total
Assumed public offering price   $ 0.37     $ 3,034,000  
Placement agent fees   $ 0.0259     $ 212,380  
Proceeds to us before expenses   $ 0.3441     $ 2,821,620  

If we were to sell 8,200,000 Class B Units at the presumed offering price (and no Class A units), less the $0.01 per share exercise price of the Pre-funded Series K Warrants included in the Class B Units, we would pay placement agent fees as follows:

   
  Per Class B Unit   Total
Assumed public offering price   $ 0.36     $ 2,952,000  
Placement agent fees   $ 0.0252     $ 206,640  
Proceeds to us before expenses   $ 0.3348     $ 2,745,360  

In addition, we will reimburse certain expenses of the placement agent in connection with this offering. See “Plan of Distribution” beginning on page 114 of this prospectus for more information regarding the compensation arrangements with the placement agent.

We have engaged Roth Capital Partners, LLC to act as our exclusive placement agent in connection with this offering (the “placement agent”). The placement agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”). The placement agent may engage one or more sub-placement agents or selected dealers to assist with this offering. The placement agent is not purchasing the securities offered by us and is not required to sell any specific number or dollar amount of securities but will assist us in this offering on a commercially reasonable “best efforts” basis. We have agreed to pay the placement agent a cash fee equal to 7% of the gross proceeds from the sale of the Class A Units and Class B Units. We have also agreed to reimburse the placement agent for its reasonable out-of-pocket legal expenses up to $75,000 and other reasonable out-of-pocket expenses up to $25,000. We estimate that the total expenses of this offering, excluding the placement agent fees, will be approximately $350,000. Because there is no minimum offering amount required as a condition to closing this offering, the actual public offering amount, placement agent fees, and proceeds to us, if any, are not presently determinable and may be substantially less than the total maximum offering amounts set forth above. See “Plan of Distribution” beginning on page 114 of this prospectus for more information on this offering and the placement agent arrangements. All costs associated with the registration will be borne by us.

Delivery of the securities offered hereby is expected to be made on or about           , 2017, subject to the satisfaction of certain conditions.



 

Roth Capital Partners

The date of this prospectus is           , 2017


 
 

TABLE OF CONTENTS

TABLE OF CONTENTS

 
PROSPECTUS SUMMARY     1  
RISK FACTORS     10  
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS     37  
DILUTION     38  
USE OF PROCEEDS     40  
MARKET PRICE HISTORY     41  
DIVIDEND POLICY     41  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     42  
BUSINESS     57  
MANAGEMENT     76  
EXECUTIVE AND DIRECTOR COMPENSATION     81  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT     89  
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS     92  
DESCRIPTION OF CERTAIN INDEBTEDNESS     97  
DESCRIPTION OF CAPITAL STOCK     100  
DESCRIPTION OF OFFERED SECURITIES     111  
PLAN OF DISTRIBUTION     114  
LEGAL MATTERS     118  
EXPERTS     118  
WHERE YOU CAN FIND MORE INFORMATION     119  

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us or on our behalf. We have not, and the placement agent has not, authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the placement agent is not, making an offer to sell the securities offered hereby in any jurisdiction where the offer is not permitted. The information contained in this prospectus and any free writing prospectus that we have authorized for use in connection with this offering is accurate only as of the date of those respective documents, regardless of the time of delivery of this prospectus or any authorized free writing prospectus or the time of issuance or sale of any securities. Our business, financial condition, results of operations and prospects may have changed since those dates. You should read this prospectus and any free writing prospectus that we have authorized for use in connection with this offering in their entirety before making an investment decision. You should also read and consider the information in the documents to which we have referred you in the section of this prospectus entitled “Where You Can Find More Information.”

We are offering to sell, and seeking offers to buy, the securities only in jurisdictions where offers and sales are permitted. The distribution of this prospectus and the offering of the securities in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside the United States. This prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, any securities offered by this prospectus by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed, or will be incorporated by reference as exhibits to the registration statement of which

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this prospectus is a part, and you may obtain copies of those documents as described below under the section entitled “Where You Can Find More Information.”

The representations, warranties and covenants made by us in any agreement that is filed as an exhibit to any document that is incorporated by reference in this prospectus were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.

This prospectus contains market data and industry statistics and forecasts that are based on independent industry publications and other publicly available information. Although we believe that these sources are reliable, we do not guarantee the accuracy or completeness of this information, and we have not independently verified this information. Although we are not aware of any misstatements regarding the market and industry data presented in this prospectus, these estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” and any related free writing prospectus. Accordingly, investors should not place undue reliance on this information.

Our logo and some of our trademarks are used in this prospectus, which remain our sole intellectual property. This prospectus also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the TM symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.

Unless the context requires otherwise references to “Great Basin Scientific,” “Great Basin,” our “Company,” “we,” “us” or “our” refer to Great Basin Scientific, Inc., a Delaware corporation, doing business as Great Basin Corporation.

Note Regarding Reverse Stock Split

On April 7, 2017, we filed a Certificate of Amendment to our Seventh Amended and Restated Certificate of Incorporation (the “Amendment”) to effectuate a 1-for-2,000 reverse stock split of our issued and outstanding shares of common stock (the “Reverse Stock Split”). On April 10, 2017, we effected the Reverse Stock Split. Upon effectiveness, every 2,000 shares of issued and outstanding common stock was converted into 1 share of common stock. Unless otherwise noted, all warrant, option, share and per share information in this prospectus gives effect for such Reverse Stock Split.

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PROSPECTUS SUMMARY

The following information is a summary of the prospectus and it does not contain all of the information you should consider before investing in our securities. You should read the entire prospectus carefully, including the “Risk Factors” section and our financial statements and the notes relating to the financial statements contained in this prospectus, before making an investment decision.

Our Company

We are a molecular diagnostic testing company focused on the development and commercialization of our patented, molecular diagnostic platform designed to test for infectious diseases, especially hospital-acquired infections. We believe that small to medium sized hospital laboratories, those under 400 beds, are in need of simpler and more affordable molecular diagnostic testing methods. We market a system that combines both affordability and ease-of-use, when compared to other commercially available molecular testing methods, which we believe will accelerate the adoption of molecular testing in small to medium sized hospitals. Our system includes an analyzer, that we provide for our customers’ use without charge in the United States, and a diagnostic cartridge, that we sell to our customers. For purposes of this prospectus, we use the term “assay(s)” to describe our existing diagnostic test product as well as our diagnostic test products under development. Our testing platform has the capability to identify up to 64 individual targets at one time. If the assay identifies one to three targets, we refer to them as low-plex tests, or tests, and if they identify four or more targets we refer to them as multi-plex panels, or panels.

We currently have five commercially available tests, as illustrated in the chart below:

     
FDA Cleared Test   510(k) Filed   FDA Clearance   Commercialization
C. diff   November 2011   April 2012   July 2012
Group B Strep   November 2014   April 2015   June 2015
Shiga Toxin Direct   October 2015   March 2016   August 2016
Staph ID/R Panel   August 2015   March 2016   September 2016
Bordetella pertussis (whooping cough)   January 2017   March 2017   May 2017

Our customers consist of hospitals, clinics, laboratories and other healthcare providers in the United States, the European Union and New Zealand.

Molecular diagnostic testing generally reduces test time from days to hours compared to culture methods, and typically provides much more accurate results than non-molecular rapid assays. Culture testing utilizes a sample taken from a patient, which is incubated in a culture medium; the operator waits for the microorganisms, if there are any, to grow until they are in large enough quantities to be detected. This method can take days and, in some cases, requires highly trained laboratory technicians to perform the tests and interpret the results. The accuracy of culture-based methods has been shown to be lower than that of molecular-based approaches. For example, in a multi-arm, multicenter clinical study using our C. diff test, we increased detection sensitivity nearly 20% as compared to the culture-based arm. Molecular testing methods, like our system, utilize technologies to multiply the DNA from a small sample until it can be detected by an automated, visual system. A key difference between our system and other molecular systems is our use of a low-cost, but highly sensitive, semiconductor chip based detection system. This allows us to utilize existing components, for example digital camera components, to provide visual evidence of the result. This provides more accurate answers, generally in hours, and can be operated by technicians with less extensive training than is required for culture testing. We believe these advantages can lead to shortened hospital stays and improved patient outcomes, resulting in reduced costs for hospitals that implement molecular testing in their labs. We believe this improvement in the time to results and the quality of those results has led to a fast-growing market for molecular diagnostic systems at hospitals. We believe our system is well-positioned to meet this need and attract new customers. As of March 31, 2017, we had 256 customers worldwide (235 in the United States and 21 in the rest of the world), who use an aggregate of 470 of our analyzers.

The first step to acquiring a customer is an evaluation. During the evaluation period, potential customers utilize our system alongside their current testing method (molecular or non-molecular) and at the end of the evaluation period determine if they are interested in switching to our system, as evidenced by the purchase of our diagnostic tests on a recurring basis, or by remaining with their current testing method. Our recent

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customer and evaluation history is as follows (excluding Staph ID/R and STEC diagnostic assays as they were in the beginning stages of the evaluation period):

         
  Total
U.S.
Customers
  C. Diff
Customers
  C. Diff
Penetration
  Group B
Strep
Customers
  Group B
Strep
Penetration
Third Quarter 2014     80       80       100 %      0       NA  
Fourth Quarter 2014     84       84       100 %      0       NA  
First Quarter 2015     101       101       100 %      0       NA  
Second Quarter 2015     115       115       100 %      0       NA  
Third Quarter 2015     143       142       99 %      25       17 % 
Fourth Quarter 2015     186       185       99 %      47       25 % 
First Quarter 2016     222       219       99 %      61       27 % 
Second Quarter 2016     260       253       99 %      78       30 % 
Third Quarter 2016     255       248       99 %      78       30 % 
Fourth Quarter 2016     244       234       96 %      74       30 % 
First Quarter 2017     235       222       94 %      72       31 % 

As our STEC and Staph ID/R assays commercially launched in August 2016 and September 2016, respectively, we don’t have meaningful penetration and win rates for those assays as of the date of this prospectus.

We refer to the percentage of customers that elect to switch to our platform and purchase our diagnostic tests after receiving and evaluating our platform as our “win rate.” This is a metric that we use to determine our sales efficiency and our market acceptance. Our win rate calculation is determined without any minimum or recurring purchase threshold. Our win rates over various periods since we launched our C. diff product commercially are as follows:

   
  Number of
Evaluations
  Win Rate
1st Quarter 2016     46       80 % 
2nd Quarter 2016     47       87 % 
3rd Quarter 2016     25       76 % 
4th Quarter 2016     7       86 % 
1st Quarter 2017     9       78 % 
Since 1st Quarter of 2016     134       82 % 

We believe our platform has the ability to provide small to medium sized hospitals with an easy-to-use, affordable solution when compared to other commercially available sample-to-result molecular testing methods — one that provides accurate results in 45 to 115 minutes depending on the assay — to meet the rapidly evolving needs of providers and their patients. We formally launched the sale of our first product, C. diff test, in the United States in the third quarter of 2012. Since this launch, we have generated limited revenues of $8.4 million as of March 31, 2017, including $3.0 million for the year ended December 31, 2016 from the sale of our tests. We have generated substantial losses since inception and have an accumulated deficit of $189.5 million at March 31, 2017. Our auditor included a paragraph in its 2016 audit opinion expressing substantial doubt as to our ability to continue as a going concern due to our cash position and other concerns as disclosed in the footnotes to the audited financial statements included elsewhere in this prospectus.

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Our Products and Our Product Candidates

Our FDA Cleared Tests

We currently market the following tests, which have been cleared by the FDA:

Clostridium Difficile.  Our C. diff diagnostic test is our first assay cleared by the FDA for commercial sale. C. diff infections are often life threatening and can create a significant financial burden for hospitals. As a hospital-acquired infection, costs associated with the care of patients with C. diff, including the diagnostic test, are not covered by insurance or Medicaid/Medicare. Hospitals, therefore, directly pay for diagnostic tests to determine if patients have C. diff and are sensitive to the cost of providing these diagnostic tests. An independent peer reviewed paper, published in the American Journal of Infection Control in 2012, highlights a significant reduction in C. diff infection rates when a hospital switched from culture to molecular testing — reducing cost and improving patient outcomes. Therefore, we believe hospitals are converting to molecular testing so that they can quickly, accurately and affordably determine if a patient has C. diff in order to begin appropriate treatment. Our C. diff test is a medical diagnostic for the detection of C. diff, a gram-positive bacteria that causes severe diarrhea and other intestinal disorders. Our test requires minimal sample preparation and can deliver results in about 90 minutes. A swab from loose stool is placed into transfer solution and a portion of this solution is placed into the cartridge. The cartridge is then placed into the analyzer and results are provided to the technician on the monitor and on paper.
Group B Strep.  Group B Streptococcus, or Group B Strep, is a bacterium that colonizes in the warm moist areas of many humans. Although it is harmless to healthy adults, it can be transmitted to a newborn during childbirth and is the single largest cause of meningitis in newborn infants.
Shiga toxin producing E. coli (STEC).  Our STEC test is designed to identify Shiga toxin produced by E. coli, including E. coli O157:H7, which is the most serious type of E. coli contracted from contaminated food.
Staphylococcus Identification and Resistance Blood Infection Panel.  Our Staphylococcus Identification and Resistance Panel, or Staph ID/R panel, is a multiplex panel that is designed to identify species of Staphylococcus infections directly from positive blood cultures. Staphylococcus aureus, or SA, is a major cause of hospital and community-acquired infections and is associated with high rates of morbidity and mortality. Methicillin-resistant Staphylococcus aureus, or MRSA, is a potentially life-threatening infection that most frequently occurs in the hospital setting.
Bordetella Pertussis.  Bordetella Pertussis, also known as whooping cough, is a highly contagious respiratory disease caused by the bacterium Bordetella pertussis. In 2012, there were over 48,000 cases reported in the United States and over 16 million worldwide.

Our Assay Under FDA Review

We have submitted the following assay to the FDA for review. As of the date of this prospectus, the following assay has not received clearance from the FDA and is not, therefore, available for commercial sale in the U.S. There is no assurance that the FDA will clear this assay for sale.

Stool Bacterial Pathogenic Panel. According to the Agency for Healthcare Research and Quality, there were nearly five million U.S. hospital visits in 2010 for gastrointestinal distress that suggested food-borne illness. One of the challenges faced by physicians assessing a patient with symptoms of gastrointestinal infection is determining the underlying cause. We began the clinical trial of our first Stool Bacterial Pathogenic Panel designed to identify Shigella, Salmonella, Camphylobacter, and Shiga toxin producing E. coli (STEC) in the first half of 2016 and filed a 510(k) application with the FDA in December 2016.

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Our Assays in Development

Candida Blood Infection Panel. Fungal bloodstream infections, primarily those caused by Candida species, are the fourth most common cause of bloodstream infection, accounting for 10 – 15% of health-care infections. Early diagnosis of invasive candidiasis is critical to initiate appropriate antifungal therapy. Delays in appropriate therapeutic choices are associated with significantly increased mortality and treatment costs. We expect to complete the pre-clinical development of our Candida Blood Infection Panel in the first half of 2017.
Chlamydia tracomatis/Neisseria gonorrhoeae. Our test for Chlamydia tracomatis and Neisseria gonorrhoeae (CT/NG) is designed to detect two significant sexually transmitted diseases. According to the CDC, there are over 20 million new CT infections each year in the U.S. and approximately 330,000 cases of NG. We expect to complete the pre-clinical development of our CT/NG test in the first half of 2017.
Staph Aureus Pre-Surgical Screen. Our staph aureus (“SA”) Pre-Surgical Nasal Screen Test is designed to identify the presence of SA in the nasal passages of a pre-surgical patient. SA often colonizes in the nasal passages and other warm moist areas in healthy humans. Although harmless in most circumstances, the colonization creates increased infection risk to patients undergoing surgery. If approved, hospitals will be able to use our test to identify pre-surgical patients who are SA carriers and treat those patients with topical antibiotics, which has been shown in multiple peer-reviewed studies to significantly reduce the risk of post-surgical infection.
Parasite Gastrointestinal Infection Panel. Our Parasite GI Panel detects the four most prevalent parasite that cause diarrhea that occur due to eating undercooked foods or contaminated water in underdeveloped countries (“travelers’ diarrhea”) as well as in the developed world. A World Health Organization report stated that these enteric protozoa cause 67.2 million illnesses worldwide. The test can be used directly on preserved stool samples and provides an improvement in testing performance, complexity, and turnaround time compared to the standard of care. The test is currently under development.

Product Markets

In a survey of 100 hospitals released in January 2014, less than half used molecular testing for infectious disease testing and we believe that less than half of all hospitals currently use molecular testing for infectious disease testing. More importantly, we believe that a far smaller fraction of all testing done in hospital labs is molecular. We believe that as molecular testing becomes more cost effective, its advantages of faster time to result and higher sensitivity relative to legacy testing methods will lead more and more hospitals to convert to molecular testing.

Our diagnostic assays are currently sold in the United States, Europe and New Zealand. Our primary focus is in the U.S. where we utilize a direct sales and support team. We utilize distributors in certain key European countries and New Zealand. If we decide to escalate our efforts to expand internationally, we expect these distributors will be augmented by marketing partners and distributors in other strategic areas.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

allowance to provide only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
reduced disclosure about our executive compensation arrangements;
exemption from non-binding advisory votes on executive compensation or golden parachute arrangements; and

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exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering (our “IPO”); (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you have beneficial ownership. In addition, we have elected to opt-in to the extended transition period for new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.

Recent Corporate Developments

Exchange of 2016 Convertible Notes

On April 7, 2017, the Company entered into exchange agreements (the “2017 Exchange Agreements”), each by and between the Company and

holders of senior secured convertible notes dated July 1, 2016 (the “2016 Notes”), and/or
holders of Series F Convertible Preferred Stock, $0.001 par value (the “Existing Preferred Stock”), and/or
holders of Series D and Series H Warrants to purchase, in the aggregate, approximately 1,200 shares of common stock (the “Existing Warrants”).

Pursuant to the 2017 Exchange Agreements, the Company agreed to a three-stage restructuring of the 2016 Notes, Existing Preferred Stock and Existing Warrants. On April 17, 2017, the Company further amended the 2017 Exchange Agreements pursuant to which the Company exchanged (i) $20,320,613 in aggregate principal amount of 2016 Notes for an equal aggregate principal amount of new 2017 Series A Senior Secured Convertible Notes and (ii) 4,974 shares of its Existing Preferred Stock, with an aggregate stated value of $4,974,000, for a new 2017 Series A Senior Secured Convertible Note (the “New Series A Notes”) with an aggregate principal amount equal to the stated value of the Existing Preferred Stock exchanged. The New Series A Notes have a fixed conversion price of $3.00, are not convertible until October 17, 2017 and mature on April 17, 2020. The New Series A Notes have no conversion price resets, conversion price economic adjustments, adjustment exchange or mandatory conversion provisions.

On April 17, 2017, the Company amended the 2017 Exchange Agreements to exchange an additional $15,346,613 in aggregate principal amount of 2016 Notes and 4,974 shares of its Existing Preferred Stock, with an aggregate stated value of $4,974,000, for an equal aggregate principal amount of new 2017 Series A Senior Secured Convertible Notes (the “New Series A Notes”).

The Company also exchanged $6.2 million in aggregate principal amount of Series B Notes for an equal aggregate principal amount of new 2017 Series B Senior Secured Convertible Notes (the “New Series B Notes”). $10 million in aggregate principal amount of the Series B Notes was cancelled in exchange for the return of $10 million of restricted cash to the holder thereof. The New Series B Notes, in the original aggregate principal amount of $6.2 million, have a fixed conversion price of $3.00, which has been temporarily reduced to $1.10, as described below, and are not convertible at the option of the holder until October 17, 2017, the six month anniversary of the exchange date. The New Series B Notes have no conversion price resets or conversion price economic adjustments and they mature on April 17, 2020. The New Series B Notes may be converted into shares of our common stock at any time at the Company’s sole option, subject to the satisfaction of customary equity conditions, at a conversion price equal to the greater of (x) the Floor Price, defined as $1.00, and (y) the lower of the conversion price then in effect and 85% of the weighted average price of our common stock on the notice date (or such other date as we may agree with the

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applicable holder) (each, a “Mandatory Conversion”, and such price, the “Mandatory Conversion Price”). Upon any Mandatory Conversion of Series B Notes, the applicable holder is required to release such aggregate amount of restricted cash equal to the aggregate principal of the Series B Notes converted, 100% of which may be used by the Company for general working capital and operating expenses. Pursuant to the terms of the New Series B Notes, the Company exercised the Mandatory Conversion right to convert $334,860 of principal amount into 246,600 shares of common stock at a conversion price between $1.08 and $1.44 per share. In conjunction with the Mandatory Conversions, $334,860 was released from the restricted cash accounts which became available for use by the Company to fund its ongoing operations.

On April 17, 2017 as part of the amended 2017 Exchange Agreements, all of the Existing Warrants were cancelled for no additional consideration.

On April 18 and April 21, 2017, cash in the amount of $3.0 million and approximately $1.5 million, respectively, was released from the restricted cash accounts and returned to holders of the New Series B Notes. Pursuant to the terms of the New Series B Notes, the principal amount of the New Series B Notes was reduced on a dollar for dollar basis for each dollar of restricted cash released to the holder. Accordingly, the principal amount of the remaining New Series B Notes was reduced to $1.4 million.

On May 12, 2017, holders of the New Series B Notes released all restrictions on the remaining $1.4 million in cash collateral securing the Series B Notes, which became available to the Company to fund its operations and for general corporate purposes. In connection with the release, the Company temporarily reduced the conversion price of the New Series B Notes to $1.10 per share until July 14, 2017, after which the conversion price of the New Series B Notes will return to $3.00 per share. The Company also permanently waived any right to effect any Mandatory Conversion of the Series B Notes. From May 15 through June 13, 2017, pursuant to the temporary reduced conversion price of the New Series B Notes, the Company issued 559,892 shares of common stock upon conversion of $615,880 of New Series B Note principal at a conversion price of $1.10 per share.

On May 12 through June 13, 2017, pursuant to the terms of the 2017 Exchange Agreements, the Company issued 350,311 shares of common stock for the conversion of 373 shares of Existing Preferred Stock at a conversion rate of $1.06 per share.

In October 2013, the Company entered into a sale-leaseback transaction with Onset Financial, Inc. (“Onset”) pursuant to a Master Lease Agreement and Schedule 001 thereto (collectively, the “Lease Agreement”). The Lease Agreement provided for the sale of 125 molecular diagnostic analyzers by the Company to Onset for a price of $2,500,000, and a lease-back of the analyzers from Onset to the Company for monthly payments of $74,875. On March 14, 2014, the Company entered into Lease Schedule 002 pursuant to which it sold to Onset 75 molecular diagnostic analyzers for a price of $1,500,000, and leased-back the analyzers from Onset for monthly payments of $64,665. Pursuant to the terms of the Lease Agreement, upon repurchase, the ownership of the analyzers was transferred back to the Company and all letters of credit and security interests pursuant to the Master Lease Agreement were cancelled. On April 13, 2017, the Company repurchased the analyzers from Onset for an aggregate purchase price of $1.0 million in cash plus payment of current invoices in the amount of approximately $0.2 million. The Company obtained the funds to make the payments to Onset by entering into a $1.2 million promissory note agreement with Utah Autism Foundation (the “Foundation”). David Spafford, one of our directors, and his wife, Susan Spafford, have been designated by the Foundation as “Founding Trustees” under its bylaws and have authority to control certain activities of the Foundation. The promissory note provides for 24 monthly payments of $45,000 per month with interest of 10% per annum with a balloon payment of $300,402 at the end of the 24-month period in April 2019. The Company granted a security interest in the analyzers to the Foundation until the loan is fully paid. The loan from the Foundation replaces $1.2 million in obligations to Onset that would have been payable in monthly payments of $139,540 through September 2017 and $74,875 from October 2017 through April 2018.

Reverse Stock Split

On April 7, 2017, the Company filed a Certificate of Amendment to the Company’s Seventh Amended and Restated Certificate of Incorporation (the “Amendment”) to effectuate a 1-for-2,000 reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). On April 10, 2017,

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the Company effected the Reverse Stock Split. Upon effectiveness, every 2,000 shares of issued and outstanding common stock was converted into 1 share of common stock.

Restructuring and Cost Reduction Plan

On February 10, 2017, the Company announced a restructuring and cost reduction plan (the “Plan”), which is intended to refocus Company resources on accelerating revenue growth of its existing commercial products. As part of the Plan, the Company plans to reduce its overall capital needs by decreasing total annual operating costs through the streamlining of certain manufacturing and administrative processes.

In connection with the Plan, the Company completed a workforce reduction constituting approximately 26% of its workforce, resulting in the elimination of 49 employees nationwide. The Company estimates it will not incur any additional charges in connection with the Plan as the amounts to be paid to the terminated employees include actual time worked and previously accrued personal time off (“PTO”). The payout of the PTO was approximately $85,000.

Termination of Proposed 2016 Financing

We filed a registration statement in August 2016 with the intention of selling units including common stock and warrants. However on January 20, 2017, we withdrew the registration statement because (i) our stock price had decreased to a level that our placement agent advised us would make it difficult to complete a public offering and (ii) we received an indication from the holders of our 2016 Notes that they would consider providing additional capital to us in exchange for a restructuring of the 2016 Notes. We believed that this proposed restructuring transaction would be less dilutive to our stockholders than the unit offering contemplated in the registration statement. However, because of a subsequent further significant decline in the price of our common stock price coupled with a reduction in trading volumes we failed to reach an agreement with the holders of our 2016 Notes, and therefore needed to find alternative financing. We then undertook steps to obtain short term financing from the holders of the 2016 Notes, increase our stock price through the Reverse Stock Split, refile the registration statement and retain the services of our placement agent.

Our Corporate Information

We are a Delaware corporation headquartered in Salt Lake City, Utah that does business as Great Basin Corporation. We were originally incorporated as Diagnostic Micro Arrays, Inc., a Nevada corporation, on June 27, 2003, and we commenced operations in January of 2005. On April 19, 2006, we changed our name to Great Basin Scientific, Inc. On August 12, 2008, we took steps to change our corporate domicile from Nevada to Delaware by forming a Delaware corporation with the same name, Great Basin Scientific, Inc., and merging the Nevada corporation with and into the Delaware corporation. As a result of this merger, the Delaware corporation was the sole surviving entity, continuing operations as Great Basin Scientific, Inc. and doing business as Great Basin Corporation.

Our fiscal year ends December 31 of each year. Our principal executive offices are located at 420 E. South Temple, Suite 520, Salt Lake City, UT 84111. Our telephone number is (801) 990-1055. Our website address is www.gbscience.com. The information contained on, or that can be accessed through, our website is not incorporated by reference in this prospectus and should not be considered a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

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THE OFFERING

Securities Offered:    
    We are offering to purchasers up to 8,200,000 Units, which may be comprised of Class A Units or Class B Units. The Class A Units will have an assumed public offering price of $0.37 per Class A Unit, the closing price of our common stock on the OTCQB on June 13, 2017. Each Class A Unit will consist of 1 share of our common stock and 1 Series J Warrant to purchase 2.5 shares of our common stock. The Series J Warrants will have an initial exercise price per share equal to 100% of the public offering price. We are also offering Class B Units. Each Class B Unit will consist of 1 pre-funded Series K Warrant to purchase 1 share of our common stock and 1 Series J Warrant, (the Pre-funded Series K Warrants together with the Series J Warrants, the “Offering Warrants”). Each Pre-funded Series K Warrant will be sold together with one Series J Warrant at the same combined public offering price of $0.37, less the $0.01 exercise price. Each Pre-funded Series K warrant will entitle the holder to acquire upon notice of exercise 1 share of our common stock at an exercise price of $0.01 per share. We are offering the Class B Units to any purchaser, including those purchasers, if any, whose purchase of Class A Units in this offering would result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser 9.99%) of our issued and outstanding shares of common stock following the consummation of this offering. See “Description of Offered Securities.”
Common stock outstanding before this offering(1):    
    2,747,140 shares of common stock as of June 13, 2017.
Common stock to be outstanding immediately after this offering(1):    
    If we were to sell only Class A Units in this offering, we would have 10,947,140 shares of common stock outstanding after the offering, or 31,447,140 shares of common stock, assuming the full exercise of the Series J Warrants and no adjustment in the number of shares of common stock issuable upon the exercise of the Series J Warrants. If we were to sell only Class B Units in this offering, we would have 2,747,140 shares of common stock outstanding after this offering, or 31,447,140 shares of common stock, assuming the full exercise of the Series J. Warrants and the Pre-funded Series K Warrants and no adjustment in the number of shares of common stock issuable upon the exercise of the Series J Warrants and the Pre-funded Series K Warrants.
Use of Proceeds:    
    We expect to use the net proceeds from this offering as follows:
    (i) $644,227 will be used to extinguish the New Series B Notes,
    (ii) approximately $750,000 in research and development expenses,
    (iii) approximately $965,000 in sales and marketing expenses, and
    (iv) the remaining proceeds, if any, will be used for general corporate purposes, including working capital. See “Use of Proceeds” beginning on page 40 for a more complete description

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    of the intended use of proceeds from this offering, including a breakdown of how proceeds will be utilized if less than all of the aggregate proceeds are raised.
Risk Factors:    
    Investing in our securities is highly speculative. See the “Risk Factors” section beginning on page 10 of this prospectus.
Trading Information:    
    Our common stock is quoted on the OTCQB under the symbol “GBSN.” There is no established trading market for the Offering Warrants and we do not expect an active trading market to develop. In addition, we do not intend to list the Offering Warrants on any securities exchange or other trading market. Without an active trading market, the liquidity of the Offering Warrants will be limited.

(1) The number of shares of our common stock outstanding after this offering, as set forth in the table above, is based on 2,747,140 shares of our common stock outstanding as of June 13, 2017 and excludes, as of that date, the following:
123 shares of our common stock issuable upon the exercise of outstanding legacy warrants;
100 shares of our common stock issuable upon conversion of the Series E convertible preferred stock;
70 shares of our common stock issuable upon exercise of stock options;
45,370 shares of our common stock in abeyance from conversion of the Series F convertible preferred stock;
6,773,538 shares of our common stock issuable upon the conversion of the New Series A Notes (based on the current conversion price of $3.00 per share);
676,567 shares of our common stock issuable upon the conversion of the New Series B Notes (based on the current conversion price of $1.10 per share);
37 shares of common stock issuable upon exercise of warrants issued as consideration for subordination of former debt (“2015 Subordination Warrants”);
30 shares of our common stock issuable upon the exercise of the Series G warrants; and
2 shares of common stock issuable upon exercise of warrants issued as consideration for subordination of former debt (“2016 Subordination Warrants”).

Unless otherwise indicated, all information in this prospectus:

has been adjusted to give effect to the Reverse Stock Split effected on April 10, 2017;
assumes no exercise of any outstanding options or warrants to purchase our common stock;
assumes no conversion of our outstanding shares of Series E convertible preferred stock; and
reflects an assumed public offering price of $0.37 per Class A Unit, which was the closing price of our common stock on the OTCQB on June 13, 2017. Additionally, all information stated assumes that only Class A Units are sold in this offering. To the extent we sell any Class B Units, the same aggregate number of common stock equivalents resulting from this offering would be exercisable under the Pre-funded Series K Warrants issued as part of the Class B Units.

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RISK FACTORS

An investment in the securities being offered in this prospectus involves a high degree of risk. Before you invest in the securities, you should give careful consideration to the following risk factors, in addition to the other information included in this prospectus, including our financial statements and related notes incorporated by reference herein. The occurrence of any of the adverse developments described in the following risk factors could materially and adversely harm our business, financial condition, results of operations or prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to Our Financial Position and Need for Additional Capital

We expect that we will need substantial additional funding to expand our commercialization efforts for our assays.

Molecular diagnostic development, which includes research and development, pre-clinical and human clinical trials, is a time-consuming and expensive process that takes years to complete. We expect that our expenses will increase substantially as we move new assays through human clinical trials, seek regulatory approvals, and pursue development of additional innovations. For those diagnostic tests for which we obtain marketing approval from regulatory authorities, we expect to incur significant commercialization expenses related to regulatory compliance requirements, sales and marketing, manufacturing, and distribution. Net income (loss) for the three-month periods ended March 31, 2017 and 2016 was approximately $21.5 million and $(33.7) million, respectively. Net loss for the years ended December 31, 2016 and 2015 was approximately $(89.1) million and $(57.9) million, respectively. As of March 31, 2017, December 31, 2016, and December 31, 2015, we had an accumulated deficit of $189.6 million, $211.1 million and $121.9 million, respectively. As discussed in Note 3 to the interim unaudited financial statements for the quarter ended March 31, 2017 and the audited financial statements for the year ended December 31, 2016, our recurring losses from operations and our need for additional sources of capital to fund our ongoing operations raise substantial doubt about our ability to continue as a going concern. We expect to continue to incur operating losses for the foreseeable future, and we anticipate these losses will increase as we continue the development and commercialization of our platform and seek regulatory approval for additional assays. Accordingly, our ability to continue as a going concern depends on our ability to obtain additional financing to fund our operations, and there can be no assurance that additional financing will be available to us or that such financing, if available, will be available on favorable terms. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

We expect that we will need additional funding to manufacture analyzers to be used by potential customers during the sales evaluation phase.

Our potential customers evaluate the performance of our products through the use of analyzers that we manufacture and provide at no cost. Our ability to grow our customer base depends upon our ability to obtain additional financing to fund the manufacturing of analyzers to deliver to such potential customers. Since May 5, 2017, our manufacturing capacity has been limited due to our lack of operating capital and we have manufacturing employees on furlough. We have not been able to manufacture our tests at levels to meet our ongoing orders. We expect that with the proceeds of this offering, we will be able to bring back sufficient employees from furlough to increase capacity such that we will be up-to-date with orders in the 3rd quarter of 2017; however, we cannot make any assurance that we will be able to bring back some employees or increase our manufacturing capacity during the 3rd quarter of 2017.

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Our inability to raise capital on acceptable terms in the future may cause us to delay, diminish, or curtail certain operational activities as we have done during the 2nd quarter of 2017, including research and development activities, clinical trials, sales and marketing, and other operations, in order to reduce costs and sustain the business, and such inability would have a material adverse effect on our business and financial condition.

We expect capital outlays and operating expenditures to increase over the next several years as we work to expand our commercial activities, expand our development activities, conduct clinical trials, expand manufacturing operations and expand our infrastructure. We may need to raise additional capital to, among other things:

fund clinical trials and pre-clinical trials for our assays under development as requested or required by regulatory agencies;
sustain and expand the commercialization of our FDA cleared and commercialized assays and assays under development or review by the FDA;
expand and automate our manufacturing capabilities and reduce our cost of sales;
increase our sales and marketing efforts to drive market adoption and address competitive developments;
finance capital expenditures and our general and administrative expenses;
develop new assays;
maintain, expand and protect our intellectual property portfolio;
add operational, financial and management information systems; and
hire additional research and development, quality control, scientific, and general and administrative personnel.

Our present and future funding requirements will depend on many factors, including but not limited to:

the progress and timing of our clinical trials;
the level of research and development investment required to maintain and improve our technology position;
the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, if any;
our efforts to acquire or license complementary technologies or acquire complementary businesses;
changes in product development plans needed to address any difficulties in commercialization or changing market conditions;
competing technological and market developments;
changes in regulatory policies or laws that may affect our operations; and
changes in physician acceptance or medical society recommendations that may affect commercial efforts.

We may not be able to continue to operate as a going concern.

Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements. Our ability to continue as a going concern is contingent upon, among other factors, our ability to complete this public offering, refinance our existing debt arrangements or obtain alternate financing. We cannot provide any assurance that we will be able to raise additional capital. If we are unable to secure additional capital or refinance our existing debt, we may be required to further curtail our business plans and initiatives and take additional measures to reduce costs in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations.

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We have a history of highly dilutive financings and reverse stock splits which amplifies the dilutive effect of these financings on our stockholders. Any investment in our common stock will likely be highly diluted through the future conversion of our outstanding derivative securities and our likely future capital raising efforts.

In the past 13 months, the Company has effected 4 stock splits to address the Company’s need to issue shares of common stock to raise capital to fund ongoing operations. These stock splits were as follows:

 
Date   Reverse Split Ratio
March 31, 2016   35 to 1
September 16, 2016   80 to 1
December 28, 2016   300 to 1
April 10, 2017   2,000 to 1
Cumulative Ratio   1,680,000,000 to 1

The multiple stock splits permitted the Company to issue a large number of shares of common stock pursuant to issued and outstanding convertible securities as well as to conduct several public offerings to raise additional capital for operations. The conversion of these derivative securities resulted in substantial dilution of stockholders over the course of the last 13 months. The following table sets forth the number of post-split shares that were issued upon conversion of these derivative securities, the post-split average conversion price, the number of pre-split shares (being the number of share equivalents prior to the four reverse stock splits, calculated by multiplying post-split shares by the cumulative ratio of 1,680,000,000 to 1) and the pre-split equivalent conversion prices.

       
Security   Post-Split
Shares
Issued
  Post-Split
Average
Conversion
Price
  Pre-Split
Equivalent
Shares Issued
(billions)
  Pre-Split Equivalent Conversion Price
Series C Warrants     24       $224.8 million       40     $ 133.80  
2015 Convertible Notes     177       $84,000       297     $ 0.00  
Series F Preferred Stock     584,708       $5.55       982,281     $ 0.00  
2016 Convertible Notes     1,106,804       $4.11       1,859,431     $ 0.00  
Series B Convertible Notes     286,600       $1.32       481,488     $ 0.00  
Total     1,978,296       $2.7 million       3,323,537     $ 0.00  

The large number of pre-split equivalent shares of common stock issued is due primarily to three factors: (1) the conversion price of the 2015 Notes being tied to a discount to the market price on the date of the installment payments, (2) the continued decline in the price of the Company’s shares of common stock following each of the reverse splits (3) the conversion of a large number of Series F Preferred Stock at the current post conversion price of $1.06 per $1,000 principal amount of each share of Series F Preferred Stock and (4) the conversion price of the 2016 Notes and the Series B Notes being tied to a discount to the market price on the date of conversion. Following each reverse split, the issuance of common stock pursuant to these derivative securities and other market factors resulted in a rapid decline in the market price of our common stock. This decline in market price resulted in a greater number of shares of common stock being issued to settle conversion of these derivative securities which was amplified over time by the cumulative effect of the reverse split ratios.

We filed a registration statement in August 2016 with the intention of selling units including common stock and warrants. However on January 20, 2017, we withdrew the registration statement because (i) our stock price had decreased to a level that our placement agent advised us would make it difficult to complete a public offering and (ii) we received an indication from the holders of our 2016 Notes that they would consider providing additional capital to us in exchange for a restructuring of the 2016 Notes. We believed that this proposed restructuring transaction would be less dilutive to our stockholders than the unit offering contemplated in the registration statement. However, because of a subsequent further significant decline in the price of our common stock price coupled with a reduction in trading volumes we failed to reach an agreement with the holders of our 2016 Notes, and therefore needed to find alternative financing. We then undertook

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steps to obtain short term financing from the holders of the 2016 Notes, increase our stock price through the Reverse Stock Split, refile the registration statement and retain the services of our placement agent.

Raising additional capital will cause dilution to our existing stockholders, and restrict our operations or require us to relinquish certain intellectual property rights.

We will seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances, licensing arrangements and grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders may be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt and receivables financings may be coupled with an equity component, such as warrants to purchase shares, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us. A failure to obtain adequate funds may cause us to curtail certain operational activities, including research and development, regulatory trials, sales and marketing, and manufacturing operations, in order to reduce costs and sustain the business, and would have a material adverse effect on our business and financial condition.

The issuance of shares of our common stock pursuant to New Series A Convertible Notes will result in significant dilution to our stockholders.

On April 17, 2017 the Company and the holders of the Series F Preferred convertible stock and the 2016 Notes agreed to exchange all of the remaining Series F Preferred convertible stock and the principal amount of the 2016 Notes into Series A Convertible Notes (the “New Series A Notes”). The New Series A Notes have an aggregate principal amount of $20.3 million and can be converted at $3.00 a shares, starting on October 17, 2017. The total amount of shares issuable upon conversion of the New Series A Notes is 6.8 million shares of common stock.

We may be at risk of securities class action litigation.

We may be at risk of securities class action litigation. This risk is especially relevant for us due to our dependence on positive clinical trial outcomes and regulatory approvals of our diagnostic tests. In the past, life science companies have experienced significant stock price volatility, particularly when associated with binary events such as clinical trials and product approvals. Additionally, due to our price volatility and our high demand for cash to fund operations, we have had to conduct a number of reverse stock splits and highly dilutive financings to continue as a going concern which exposes us to additional risk of securities class action litigation. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business and result in a decline in the market price of our common stock. If such lawsuits were successful we may not be able to pay awarded damages and we may be forced into bankruptcy which would likely result in the complete loss of your investment.

Market and economic conditions may negatively impact our business, financial condition and share price.

In recent years, concerns over inflation, energy costs, geopolitical issues, the U.S. mortgage market and a declining real estate market, unstable global credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, increased unemployment rates, and increased credit defaults. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and unstable or unpredictable economic and market conditions. If these conditions occur, deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial

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performance, and share price and could require us to delay or abandon development or commercialization plans. In addition, there is a risk that one or more of our current and future service providers, manufacturers, suppliers, hospitals and other medical facilities, our third party payors, and other partners could be negatively affected by these difficult economic times, which could adversely affect our ability to attain our operating goals on schedule and on budget or meet our business and financial objectives.

Our ability to use our net operating loss carryforwards is limited.

As of December 31, 2016, we had federal income tax net operating loss, or NOL, carryforwards of approximately $46.7 million and state income tax NOL carryforwards of approximately $41.6 million. These NOL carryforwards, if not previously used, will begin to expire in 2023. During 2015 we experienced a shift in our stock ownership within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and under applicable state tax laws that currently subject our NOL carryforwards to an annual limitation. Accordingly, we were required to write off $23.2 million of net operating loss carryforwards. If we experience a shift in our stock ownership and earn net taxable income in the future, the limitations on our ability to use our NOL carryforwards to reduce U.S. federal and state tax liabilities will result in increased future tax liability to us.

We have identified a material weakness in our internal control over financial reporting that, if not properly remediated, could result in material misstatements in our financial statements in future periods.

Management identified the following material weakness as of December 31, 2016:

We did not design and maintain effective controls to analyze complex and non-routine transactions or adequately review the accounting and/or disclosure for these transactions. The nature of our financing agreements increases the complexity of our accounting for potential fair value liabilities. As we enter into additional equity or debt financing transactions, which may have contractual provisions different from those of our existing financing instruments, the accounting and valuation of these financial instruments may become increasingly complicated. This additional complexity could increase the chance that we experience additional errors in the future, particularly because we have a material weakness in our internal control.

Because of the material weakness described above, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2016, based on criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

With respect to the remediation of the material weakness, we have hired additional accounting and IT personnel to help improve our segregation of duties. We continue to engage third-party consultants to assist us with our evaluation of complex technical accounting matters, including the valuation and accounting for our complex derivative agreements. We also continue to engage consultants to advise us on making further improvements to our internal control over financial reporting. We believe that these additional resources will enable us to broaden the scope and quality of our controls relating to the oversight and review of financial statements and our application of relevant accounting policies. These remediation efforts are still in process and have not yet been completed. We cannot assure you that the steps taken will remediate such weakness, nor can we be certain of whether additional actions will be required or the costs of any such actions.

We may need to take additional measures to fully mitigate these issues, and the measures we have taken, and expect to take, to improve our internal controls may not be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that the identified material weaknesses or significant deficiencies or other material weaknesses or deficiencies will not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses or deficiencies may be identified in the future. If we are unable to correct material weaknesses or deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC will be adversely affected, and could result in material misstatements in our financial statements in future periods. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported

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financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.

Risks Related to the Convertible Note Financings (assumes extinguishment of approximately $0.6 million of New Series B Notes from proceeds of this offering)

Our obligations to the holders of our New Series A and New Series B Notes are secured by a security interest in substantially all of our assets, so if we default on those obligations, the note holders could foreclose on our assets.

Our obligations under the New Series A and New Series B Notes are secured by a security interest in substantially all of our assets. As a result, if we default in our obligations under the notes, the holders of the notes, acting throughtheir appointed agent, could foreclose on their security interests and liquidate some or all of these assets, which would harm our business, financial condition and results of operations and could require us to curtail or cease operations.

If the holders of our New Series A and New Series B Notes elect to convert the principal and interest due under the notes, our stockholders will experience substantial dilution in their investment.

The total remaining principal amount we owe to the holders of our New Series A Notes is approximately $20.3 million. If the holders of these notes were to elect to convert all of the principal amount (and assuming no interest has accrued on the principal amount) into shares of our common stock at the Conversion Price of $3.00, we would be required to issue approximately 6.8 million shares. The remaining principal amount we will owe to holders of our New Series B Notes after this offering will be approximately $0.1 million. On May 12, 2017, in connection with the release of $1.4 million of restricted funds, we temporarily reduced the conversion price of the New Series B Notes to $1.10 per share until July 14, 2017, after which the conversion price of the New Series B Notes will return to $3.00 per share. If the holders of the New Series B Notes were to elect to convert all of the remaining principal amount (and assuming no interest has accrued on the principal amount) into shares of our common stock at the conversion price of $3.00, we would be required to issue approximately 33,334 shares. If the holders of the New Series B Notes were to elect to convert all of the remaining principal amount (and assuming no interest has accrued on the principal amount) into shares of our common stock prior to July 14, 2017 at the conversion price of $1.10, we would be required to issue approximately 90,910 shares. These conversions would result in significant dilution to the investments of our existing stockholders.

The sale of a substantial amount of our common stock in the public market by the holders of our NewSeries A and New Series B Notes may adversely affect the market price of our common stock.

As of June 13, 2017 we had 2,747,140 shares of common stock issued and outstanding. Assuming theconversion of all of the remaining principal outstanding under the New Series A and New Series B Notes at the conversion price of $3.00 (and assuming no interest has accrued on the principal amount), we would be required to issue an additional approximately 6.8 million shares of common stock to the holders of the notes. Assuming theconversion of all of the remaining principal outstanding under the New Series A Notes at the conversion price of $3.00 and the New Series B Notes at a conversion price of $1.10, we would be required to issue an additional approximately 6.9 million shares of common stock to the holders of the notes. The sale of substantial amounts of shares of our common stock in the public market by the holders of the New Series A and New Series B Notes, or the perception that such sales might occur, could adversely affect the market price of our common stock.

The holders of our New Series A and New Series B Notes have certain rights upon an event of default under the notes which could harm our business, financial condition and results of operations and could require us to curtail or cease or operations.

Under our New Series A and New Series B Notes, the holders of the notes may require us to redeem all or any portion of the notes (including all accrued and unpaid interest thereon), in cash, at a price equal to the greater of (i) up to 125% of the amount being redeemed, depending on the nature of the default, and (ii) the intrinsic value of theshares of common stock then issuable upon conversion of the notes. It is unlikely that we would have the cash to redeem the notes as required. Furthermore, if we default on the payment of the notes,

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interest on the notes will accrue at the rate of 10% per annum. If we were unable to come to an agreement with the holders of the notes regarding payment, the holders could foreclose on their security interest, which could harm our business, financial condition and results of operations and could require use to curtail or cease our operations.

Risks Related to Owning our Common Stock and Other Securities

The price of our common stock may fluctuate substantially.

The market price of our common stock has been and may continue to be subject to wide fluctuation in response to various factors, some of which are beyond our control. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this prospectus, are:

sales of our common stock by our stockholders, executives, and directors;
conversions of the New Series A Notes into shares of common stock and subsequent sales of such shares by such holders;
volatility and limitations in trading volumes of our shares of common stock or units;
fluctuations in our results of operations;
our ability to enter new markets;
actual or unanticipated fluctuations in our annual and quarterly financial results;
our ability to obtain financings to continue and expand our commercial activities, expand our manufacturing operations, conduct and complete research and development activities including, but not limited to, our human clinical trials, and other business activities;
our ability to secure resources and the necessary personnel to continue and expand our commercial activities, develop additional assays, conduct clinical trials and gain approval for our additional assays on our desired schedule;
commencement, enrollment or results of our clinical trials of our assays or any future clinical trials we may conduct;
changes in the development status of our assays;
any delays or adverse developments or perceived adverse developments with respect to the FDA’s review of our planned clinical trials;
any delay in our submission for studies or test approvals or adverse regulatory decisions, including failure to receive regulatory approval for our assays;
our announcements or our competitors’ announcements regarding new assays, enhancements, significant contracts, acquisitions or strategic investments;
unanticipated safety concerns related to our assays;
failures to meet external expectations or management guidance;
changes in our capital structure or dividend policy, including as a result of future issuances of securities and sales of large blocks of common stock by our stockholders;
our cash position;
announcements and events surrounding financing efforts, including debt and equity securities;
our inability to enter into new markets or develop new assays;
reputational issues;
competition from existing technologies and assays or new technologies and assays that may emerge;

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announcements of acquisitions, partnerships, collaborations, joint ventures, new assays, capital commitments, or other events by us or our competitors;
changes in general economic, political and market conditions in any of the regions in which we conduct our business;
changes in industry conditions or perceptions;
changes in valuations of similar companies or groups of companies;
analyst research reports, recommendations and changes in recommendations, price targets and withdrawals of coverage;
departures and additions of key personnel;
disputes and legal actions related to intellectual properties, proprietary rights and contractual obligations;
changes in applicable laws, rules, regulations, or accounting practices and other dynamics;
announcements or actions taken by our principal stockholders; and
other events or factors, many of which may be out of our control.

In addition, if any of the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

Certain of our outstanding warrants and convertible securities have anti-dilution provisions triggered by the issuance of shares of common stock and securities exercisable for shares of our common stock at prices below the then current exercise prices for such warrants, including this offering of Class A Units and Class B Units, pursuant to which the exercise price of such warrants or conversion price of such convertible securities could be adjusted downward and could make it more likely that such warrants are exercised or such convertible securities are converted and dilute our current stockholders.

The exercise price for each of the Class A Warrants, Class B Warrants, Series G Warrants, certain other warrants, 2015 Subordination Warrants and 2016 Subordination Warrants is subject to adjustment in the event we issue common stock or securities convertible into common stock at a price lower than the then-current exercise price or conversion price, as the case may be. This includes the issuance of Class A Units and Class B Units included in this offering. The exercise price of the Series B Warrants is subject to adjustment in the event we issue common stock or securities convertible into common stock at a price lower than the current market price. See “Description of Capital Stock — Warrants.”

If we issue shares of common stock or securities exercisable or convertible for shares of common stock that trigger these provisions, then the exercise price for these warrants will be reduced according to their provisions, in most cases, to the per share price of the triggering transaction. A reduction in the exercise price of these warrants and other securities will make it more likely that they are exercised or converted resulting in further dilution to our stockholders.

Broker-dealers may be discouraged from effecting transactions in our shares of common stock because they are considered a penny stock and are subject to the penny stock rules.

Our shares of common stock are currently considered a “penny stock.” The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. The shares of common stock are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their

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spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the shares of common stock. Consequently, these penny stock rules may affect the ability of broker-dealers to trade in the shares of common stock.

Future sales and issuances of our common stock or rights to purchase common stock could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations, including expanding research and development, funding clinical trials, purchasing capital equipment, hiring new personnel, commercializing our diagnostic tests, and continuing activities as an operating public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, if any, of our share price.

We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Investors may find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our IPO; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.

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We have elected to use the extended transition periods for complying with new or revised accounting standards.

We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transaction period provided in Section 7(a)(2)(B). As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.

Our management is required to devote substantial time to compliance initiatives.

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private entity. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time consuming and costly. We expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage.

Provisions of our Seventh Amended and Restated Certificate of Incorporation, as amended, our Amended and Restated Bylaws and Delaware law could make an acquisition of our Company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove the current members of our board of directors and management.

Certain provisions of our Seventh Amended and Restated Certificate of Incorporation, as amended, or our Certificate, and our Amended and Restated Bylaws (our “Bylaws”), could discourage, delay or prevent a merger, acquisition or other change of control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove members of our board of directors. These provisions also could limit the price that investors might be willing to pay in the future for our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. These provisions:

establish a classified board of directors, such that not all members of the board of directors may be elected at one time;
authorize our board of directors to issue without stockholder approval up to 5,000,000 shares of preferred stock, the rights of which will be determined at the discretion of the board of directors that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our board of directors;
require that stockholder actions must be effected at a duly called stockholder meeting or by written consent of the stockholders if such action has been earlier approved by the board of directors;
establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be acted on at stockholder meetings;
limit who may call stockholder meetings; and
require the approval of the holders of at least sixty percent of the outstanding shares of our capital stock entitled to vote in order to amend certain provisions of our Certificate and at least two-thirds of the outstanding voting stock to amend certain provisions of our Bylaws.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our common stock, from merging or combining with us for a prescribed period of time.

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Due to financial constraints, we have been unable to pay our employees on regularly scheduled payment dates. As a result, the Utah Labor Commission could impose a penalty on us in accordance with the Utah Payment of Wages Act.

We are subject to the Utah Payment of Wages Act (the “Utah Act”), which governs how and when wages are paid to our employees. Section 34-28-9 of the Utah Act gives the Labor Commission’s Division of Antidiscrimination and Labor the right to assess against an employer who fails to pay an employee in accordance with the Utah Act a penalty of 5% of the unpaid wages owing to the employee, which will be assessed daily until paid for a period not to exceed 20 days.

Due to financial constraints, we offered our employees the choice of continuing to work or taking an unpaid temporary furlough. Thirty-five of our employees chose to take the temporary furlough. As of June 13, 2017, we had 109 full-time and 7 part-time employees employed. Since the payroll that was due to be paid on March 20, 2017, we have been behind two to three payments on our payroll and we may not, therefore, be in compliance with the Utah Act. If the Division of Antidiscrimination and Labor concludes that we are not in compliance with the Utah Act and were to assess a penalty against us for our failure to pay the wages we owe on a timely basis, our liability could be in excess of $25,000 through May 31, 2017. We also might be subject to claims from employees due to late payment of their wages.

Risks Related to Our Business and Industry

We have not generated profits and do not expect to generate profits for the foreseeable future. We may never achieve or sustain profitability.

We began operations in January 2005. We have not earned significant revenue to-date, and do not expect to earn significant revenue in the near future. Net gain (loss) for the three-month periods ended March 31, 2017 and 2016 was approximately $21.5 million and $(33.7) million, respectively. Net (loss) for the years ended December 31, 2016 and 2015 was approximately $(89.1) million and $(57.9) million, respectively. As of March 31, 2017, December 31, 2016, and December 31, 2015, we had an accumulated deficit of $189.6 million, $211.1 million and $121.9 million. Potential investors should be aware of the difficulties, including delays, substantial risks, and expenses, many of which are beyond our control, that we may experience in the course of developing new diagnostic tests, obtaining regulatory approvals, establishing or entering new markets and organizing operations and marketing procedures. The likelihood of our success must be considered in light of these risks, expenses, complications and delays, and the competitive environment in which we operate. There is, therefore, nothing at this time upon which to base an assumption that our business plan will prove successful, and we may not be able to generate significant revenue, raise additional capital or operate profitably. We can be expected to continue to sustain substantial operating expenses without generating sufficient revenues to cover expenditures. As discussed in Note 3 to ours financial statements, our recurring losses from operations and our need for additional sources of capital to fund our ongoing operations raise substantial doubt about our ability to continue as a going concern. Any investment in our Company is therefore highly speculative and could result in the loss of your entire investment.

Our near-term success is dependent upon our ability to expand our customer base.

Our current customer base is composed of hospitals and testing laboratories that use our C. diff, Group B Strep and other assays. Our success will depend, in part, upon our ability to expand our customer base and increase revenue by adding new products. Attracting new customers requires substantial time and expense. Any failure to expand our existing customer base would adversely affect our operating results. Many factors could affect the market acceptance and commercial success of our assays, including:

our ability to convince our potential customers of the advantages and economic value of our analyzers and assays over competing technologies and diagnostic assays;
the breadth of our assay menu relative to competitors;
changes to policies, procedures or currently accepted best practices in clinical diagnostics;
the extent and success of our marketing and sales efforts;

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our ability to manufacture analyzers for use by potential customers during the sales evaluation phase; and
our ability to manufacture our commercial diagnostic cartridges and meet demand in a timely fashion.

If we cannot successfully develop, maintain, commercialize, or obtain regulatory approvals for new and existing diagnostic assays, our financial results will be harmed and our ability to compete will be harmed.

Our financial performance depends in part upon our ability to successfully develop and market new assays in a rapidly changing technological and economic environment, and to maintain and successfully commercialize previously cleared assays. If we fail to successfully introduce new assays or do not maintain approval for previously FDA-cleared assays, we could lose customers and market share. We could also lose market share if our competitors introduce new assays or technologies that render our assays less competitive or obsolete. In addition, delays in the introduction of new assays due to regulatory, developmental or other obstacles could negatively impact our revenue and market share, as well as our earnings. Factors that can influence our ability to introduce new assays, the timing associated with new product approvals and commercial success of these assays include:

the scope of and progress made in our research and development activities;
our ability to successfully initiate and complete clinical trial studies;
timely expansion of our menu of assays;
the results of clinical trials needed to support any regulatory approvals of our assays;
our ability to obtain and maintain requisite FDA or other regulatory clearances or approvals for our assays on a timely basis;
demand for the new assays we introduce;
product offerings from our competitors; and
the functionality of new assays that address market requirements and customer demands.

We are subject to many laws and governmental regulations and any adverse regulatory action may materially adversely affect our financial condition and business operations.

The assays that we develop and commercialize in the future are subject to regulation by numerous government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our assays. In particular, FDA regulations govern activities such as product development, product testing, product labeling, product storage, premarket clearance or approval, manufacturing, advertising, promotion, product sales, reporting of certain product failures and distribution. Our assays will require 510(k) clearance from the FDA prior to marketing. Clinical trials are required to support a 510(k) submission.

We may be unable to obtain marketing clearance for our assays in development. If such approval is obtained, it may:

take a significant amount of time;
require the expenditure of substantial resources;
involve stringent clinical and pre-clinical testing;
involve modifications, repairs, or replacements of our assays; and/or
result in limitations on the proposed uses of our assays.

Our facilities are subject to periodic inspection by the FDA and foreign regulatory agencies and conformance to the FDA’s Quality System Regulation (the “QSR”) and current Good Manufacturing Practice requirements, as well as applicable foreign or international standards. The results of these inspections can include

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inspectional observations regarding potential violations of the Food, Drug and Cosmetic Act (the “FDCA”) and related laws, warning letters, restrictions on medical device sales and other forms of enforcement.

Since 2009, the FDA has significantly increased its oversight of companies subject to its regulations, including medical device companies, by hiring new investigators and stepping up inspections of manufacturing facilities. The FDA has recently also significantly increased the number of warning letters issued to companies. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order a recall, repair, replacement, or refund of such devices, refuse to grant pending pre-market approval applications or require certificates of foreign governments for exports, and/or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. The FDA may also impose operating restrictions on a company-wide basis, enjoin and restrain certain violations of applicable law pertaining to medical devices and assess civil or criminal penalties against our officers, employees or us. The FDA may also recommend prosecution to the U.S. Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our diagnostic tests.

Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to more rigorous regulation by foreign governmental authorities in the future. Penalties for a company’s non-compliance with foreign governmental regulation could be severe, including revocation or suspension of a company’s business license and criminal sanctions. Any domestic or foreign governmental law or regulation imposed in the future may have a material adverse effect on us.

Our current and potential customers in the United States and elsewhere may also be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

The life sciences industry is highly competitive and subject to rapid technological change. If our competitors and potential competitors develop superior assays and technologies, our competitive position and results of operations would suffer.

We face intense competition from a number of companies that offer assays in our target markets, many of which have substantially greater financial resources and larger, more established marketing, sales and service operations than we do. The life sciences industry is characterized by rapid and continuous technological innovation. We may need to develop new technologies for our existing product and our assays to be competitive. One or more of our current or future competitors could render our existing products or assays under development obsolete or uneconomical by technological advances. We may also encounter other problems in the process of delivering new assays to the marketplace, such as problems related to FDA clearance or regulations, design, development or manufacturing of such assays, and as a result we may be unsuccessful in selling such assays. Our future success depends on our ability to compete effectively against current technologies, as well as to respond effectively to technological advances by developing and marketing assays that are competitive in the continually changing technological landscape.

If our assays do not perform as expected or the reliability of the technology on which our assays are based is questioned, we could experience delayed or reduced market acceptance of our assays, increased costs and damage to our reputation.

Our success depends on the market’s confidence that we can provide reliable, high-quality analyzers and diagnostic cartridges. We believe that customers in our target markets are likely to be particularly sensitive to product defects and errors. Our reputation and the public image of our assays or technologies may be impaired if our assays fail to perform as expected or our assays are perceived as difficult to use. Despite quality control testing, defects or errors could occur in our assays or technologies.

In the future, if our assays experience a material defect or error, this could result in loss or delay of revenues, delayed market acceptance, product recalls, damaged reputation, diversion of development resources, legal claims, increased insurance costs or increased service and warranty costs, any of which could harm our

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business. Such defects or errors could also prompt us to amend certain warning labels or narrow the scope of the use of our assays, either of which could hinder our success in the market. Even after any underlying concerns or problems are resolved, any widespread concerns regarding our technology or any manufacturing defects or performance errors in our assays could result in lost revenue, delayed market acceptance, damaged reputation, increased service and warranty costs and claims against us.

If our international distributor relationships are not successful, our ability to market and sell our assays will be harmed and our financial performance will be adversely affected.

Outside of the United States, we depend on relationships with distributors for the marketing and sales of our assays in various geographic regions, and we have a limited ability to influence their efforts. Relying on distributors for our sales and marketing could harm our business for various reasons, including:

agreements with distributors may terminate prematurely due to disagreements or may result in litigation between the partners;
our distributors may not devote sufficient resources to the sale of our assays;
our distributors may be unsuccessful in marketing our assays; and
we may not be able to negotiate future distributor agreements on acceptable terms.

If any of our products, or the malfunctioning of our products, causes or contributes to a death or a serious injury, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

Under the FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device were to recur. If we fail to report these events to the FDA within the required timeframes, or at all, FDA could take enforcement action against us. Any such adverse event involving our assays could also result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.

Our assays may in the future be subject to product recalls. A recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, including a third-country authority, or the discovery of serious safety issues with our products, could have a significant adverse impact on us.

The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is reasonable probability that the device would cause serious injury or death. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. The FDA requires that certain classifications of recalls be reported to the FDA within ten working days after the recall is initiated. A government-mandated or voluntary recall by us or one of our international distributors could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our assays would divert managerial and financial resources and have an adverse effect on our reputation, results of operations and financial condition, which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be subject to liability claims, be required to bear other costs, or take other actions that may have a negative impact on our future sales and our ability to generate profits. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA or another third-country competent authority. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA or another third-country competent authority. If the FDA disagrees with our determinations, it could require us to

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report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they occur.

We are also required to follow detailed recordkeeping requirements for all Company-initiated medical device corrections and removals. In addition, in December 2012, the FDA issued a draft guidance intended to assist the FDA and industry in distinguishing medical device recalls from product enhancements. Per the guidance, if any change or group of changes to a device that addresses a violation of the FDCA, that change would generally constitute a medical device recall and require submission of a recall report to the FDA.

If we become subject to claims relating to improper handling, storage or disposal of hazardous materials, we could incur significant cost and time to comply.

Our research and development processes involve the controlled storage, use and disposal of hazardous materials, including biological hazardous materials. We are subject to foreign, federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. We may incur significant costs complying with both existing and future environmental laws and regulations. In particular, we are subject to regulation by the Occupational Safety and Health Administration, or OSHA, and the Environmental Protection Agency, or EPA, and to regulation under the Toxic Substances Control Act and the Resource Conservation and Recovery Act in the United States. OSHA or the EPA may adopt additional regulations in the future that may affect our research and development programs. The risk of accidental contamination or injury from hazardous materials cannot be eliminated completely. In the event of an accident, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of our workers’ compensation insurance. We may not be able to maintain insurance on acceptable terms, if at all.

Our diagnostic cartridges have not been manufactured on a high volume scale and are subject to unforeseen scale-up risks.

Although we have developed a process to manufacture diagnostic cartridges for our current volume of sales, there can be no assurance that we can manufacture our diagnostic cartridges at a scale that is adequate for our future commercial needs. We may face significant or unforeseen difficulties in manufacturing our diagnostic cartridges, including but not limited to:

technical issues relating to manufacturing components of our diagnostic cartridges on a high volume commercial scale at reasonable cost, and in a reasonable time frame;
difficulty meeting demand or timing requirements for orders due to excessive costs or lack of capacity for part or all of an operation or process;
lack of skilled labor or unexpected increases in labor costs needed to produce or maintain our analyzers or perform certain required operations;
changes in government regulations or in quality or other requirements that lead to additional manufacturing costs or an inability to supply product in a timely manner, if at all; and
increases in raw material or component supply cost or an inability to obtain supplies of certain critical supplies needed to complete our manufacturing processes.

In addition, since May 5, 2017, our manufacturing capacity has been limited due to our lack of operating capital and we have manufacturing employees on furlough. These and other difficulties may only become apparent when scaling up to the manufacturing process of our diagnostic cartridges to a more substantive commercial scale. If our diagnostic cartridges cannot be manufactured in sufficient commercial quantities or manufacturing is delayed, our future prospects could be significantly impacted and our financial prospects would be materially harmed.

We or our suppliers may experience development or manufacturing problems or delays that could limit the growth of our revenue or increase our losses.

We may encounter unforeseen situations in the manufacturing of our diagnostic cartridges that could result in delays or shortfalls in our production. Our suppliers may also face similar delays or shortfalls. In addition, our

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or our suppliers’ production processes may have to change to accommodate any significant future expansion of our manufacturing capacity, which may increase our or our suppliers’ manufacturing costs, delay production of our diagnostic cartridges, reduce our product gross margin and adversely impact our business. If we are unable to satisfy demand for our diagnostic cartridges by successfully manufacturing and shipping our diagnostic cartridges in a timely manner, our revenue could be impaired, market acceptance for our assays could be adversely affected and our customers might instead purchase our competitors’ assays. In addition, developing manufacturing procedures for assays under development may require developing specific production processes for those assays. Developing such processes could be time consuming and any unexpected difficulty in doing so can delay the introduction of a product.

We are dependent on single source suppliers for some of the components and materials used in our assays, and supply chain interruptions could negatively impact our operations and financial performance.

Our assays are manufactured by us and we obtain supplies from a limited number of suppliers. In some cases, critical components required to manufacture our assays may only be available from a sole supplier or limited number of suppliers, any of whom would be difficult to replace. The supply of any of our manufacturing materials may be interrupted because of poor vendor performance or other events outside our control, which may require us, among other things, to identify alternate vendors and result in lost sales and increased expenses. Even if the manufacturing materials that we source are available from other parties, the time and effort involved in validating the new supplies and obtaining any necessary regulatory approvals for substitutes could impede our ability to replace such components in a timely manner or at all.

We expect to rely on third parties to conduct studies of our assays under development that will be required by the FDA or other regulatory authorities and those third parties may not perform satisfactorily.

We do not have the ability to independently conduct the field trial studies or other studies that may be required to obtain FDA and other regulatory clearances or approvals for our assays. Accordingly, we expect to rely on third parties, such as independent testing laboratories and hospitals, to conduct such studies. Our reliance on these third parties will reduce our control over these activities. These third-party contractors may not complete activities on schedule or conduct studies in accordance with regulatory requirements or our study design. We cannot control whether they devote sufficient time, skill and resources to our studies. Our reliance on third parties that we do not control will not relieve us of any applicable requirement to prepare, and ensure compliance with, various procedures required under good clinical practices. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our studies may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for additional assays.

Any clinical trials that we may conduct may not begin on time, or at all, may not be completed on schedule, or at all, or may be more expensive than we expect, which could prevent or delay regulatory approval of our assays or impair our financial position.

The commencement or completion of any clinical trials that we may conduct may be delayed or halted for numerous reasons, including, but not limited to, the following:

the FDA or other regulatory authorities suspend or place on hold a clinical trial, or do not approve a clinical trial protocol or a clinical trial;
the data and safety monitoring committee or applicable hospital institutional ethics review board recommends that a trial be placed on hold or suspended;
fewer patients meet our clinical study criteria and our enrollment rate is lower than we expected;
clinical trial sites decide not to participate or cease participation in a clinical trial;
third-party clinical investigators do not perform our clinical trials on schedule or consistent with the clinical trial protocol and good clinical practices, or other third-party organizations do not perform data collection and analysis in a timely or accurate manner;

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we fail regulatory inspections of our manufacturing facilities requiring us to undertake corrective action or suspend or terminate our clinical trials;
interim results of the clinical trial are inconclusive or negative;
pre-clinical or clinical data are interpreted by third parties in unanticipated ways; or
our trial design is inadequate to demonstrate safety and/or efficacy.

Our clinical trial costs will increase if we have material delays in those trials or if we need to perform more or larger trials than planned. Adverse events during a clinical trial could cause us to repeat a trial, terminate a trial or cancel an entire program. Should our clinical development plan be delayed, this could have a material adverse effect on our operations and financial condition.

Product liability claims could adversely impact our financial condition and our earnings and impair our reputation.

Our business exposes us to potential product liability risks that are inherent in the design, manufacture and marketing of medical devices. Device failures, manufacturing defects, design flaws, or inadequate disclosure of product-related risks or product-related information with respect to our assays could result in an unsafe condition regarding, injury to, or death of, a patient. The occurrence of such a problem could result in product liability claims or a recall of, or safety alert relating to, one or more of our assays. Product liability claims or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on our business and reputation and on our ability to attract and retain customers for our assays.

Healthcare policy changes, including U.S. healthcare reform legislation signed in 2010, may have a material adverse effect on us.

In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010, or PPACA, were signed into law. The legislation imposes a 2.3% excise tax on medical device manufacturers. This significant tax burden on our industry could have a material, negative impact on our results of operations and our cash flows. Other elements of this legislation, such as comparative effectiveness research, an independent payment advisory board, payment system reforms, including shared savings pilots, and other provisions, could meaningfully change the way healthcare is developed and delivered, and may materially impact numerous aspects of our business.

In addition, we expect that the new presidential administration and U.S. Congress will seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the Affordable Care Act. Since taking office, President Trump has continued to support the repeal of all or portions of the Affordable Care Act. In January 2017, the House and Senate passed a budget resolution that authorizes congressional committees to draft legislation to repeal all or portions of the Affordable Care Act and permits such legislation to pass with a majority vote in the Senate. President Trump has also recently issued an executive order in which he stated that it is his administration’s policy to seek the prompt repeal of the Affordable Care Act and directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the provisions of the Affordable Care Act to the maximum extent permitted by law. There is still uncertainty with respect to the impact President Trump’s administration and the U.S. Congress may have, if any, and any changes will likely take time to unfold, and could have an impact on coverage and reimbursement for healthcare items and services covered by plans that were authorized by the Affordable Care Act. However, we cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us.

Adverse changes in reimbursement policies and procedures by payors may impact our ability to market and sell our assays that are subject to reimbursement.

Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and third-party payors to decrease costs. Third-party payors are increasingly challenging the prices charged for medical products and services and instituting cost containment measures to control or significantly influence the purchase of medical products and services. For example, the PPACA, among other things, reduced and/or limited Medicare reimbursement to certain providers. The Budget

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Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments to providers by 2 percent through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase new technologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the future that limits payments for our products from governmental payors. In addition, commercial payors such as insurance companies, could adopt similar policies that limit reimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that those of our assays that will be subject to reimbursement will be reimbursed at a cost-effective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countries where we market or intend to market our assays. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtain international reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell our assays and have a material adverse effect on our business and financial condition.

Consolidation in the healthcare industry could have an adverse effect on our revenues and results of operations.

Many healthcare industry companies, including healthcare systems, are consolidating to create new companies with greater market power. As the healthcare industry consolidates, competition to provide goods and services to industry participants will become more intense. These industry participants may try to use their market power to negotiate price concessions or reductions for diagnostic tests. If we are forced to reduce our prices because of consolidation in the healthcare industry, our projected revenues would decrease and our earnings, financial condition, and/or cash flows would suffer.

If we or our distributors do not comply with the U.S. federal and state fraud and abuse laws, including anti-kickback laws for any products approved in the U.S., or with similar foreign laws where we market our products, we could face significant liability.

There are numerous United States federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws, false claims, and physician transparency laws. Our relationships with physicians and surgeons, hospitals and our independent distributors are subject to scrutiny under these laws. Violations of these laws are punishable by criminal and civil sanctions, including significant fines, damages and monetary penalties and in some instances, imprisonment and exclusion from participation in federal and state healthcare programs, including the Medicare, Medicaid and Veterans Administration health programs.

Healthcare fraud and abuse regulations are complex, and even minor irregularities can potentially give rise to claims that a statute or prohibition has been violated. The laws that may affect our ability to operate include:

the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving, or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward the purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any good or service for which payment may be made under federal healthcare programs such as Medicare and Medicaid;
federal civil False Claims Act prohibits, among other things, knowingly presenting, or causing to be presented, claims for payment of government funds that are false or fraudulent or knowingly making, using or causing to be made or used a false record or statement material to an obligation to pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology and Clinical Health Act of 2009, which, among other things, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
HIPAA also created federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or

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representation, or making or using any false writing or document knowing the same to contain any materially false fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services;
the Federal Trade Commission Act and similar laws regulating advertisement and consumer protections;
the federal Foreign Corrupt Practices Act of 1997, which makes it illegal to offer or provide money or anything of value to officials of foreign governments, foreign political parties, or international organizations with the intent to obtain or retain business or seek a business advantage; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians. Some states, such as California, Massachusetts, Nevada, and Vermont mandate implementation of commercial compliance programs and/or impose restrictions on device manufacturer marketing practices and tracking and reporting of gifts, compensation and other remuneration to physicians.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from federal healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. To enforce compliance with the federal laws, the U.S. Department of Justice, or DOJ, has recently increased its scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Dealing with investigations can be time and resource consuming and can divert management’s attention from the business. In addition, settlements with the DOJ or other law enforcement agencies have forced healthcare providers to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could have a material adverse effect on our reputation, business and financial condition.

Many foreign countries have enacted similar laws addressing fraud and abuse in the healthcare sector. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance requirements in multiple jurisdictions increases the possibility that we may run afoul of one or more of the requirements.

The implementation of the reporting and disclosure obligations of the Physician Payments Sunshine Act/Open Payments provisions of the Health Care Reform Law could adversely affect our business upon commercialization of our product in the U.S.

The federal Physician Payments Sunshine Act, being implemented as the Open Payments Program, requires device manufacturers to engage in extensive tracking of payments and other transfers of value made to physicians and teaching hospitals, as well as physician ownership and investment interests, and public reporting of such data to the Centers for Medicare and Medicaid Services annually. Although we have and expect to continue to have substantially compliant programs and controls in place to comply with the Physician Payments Sunshine Act requirements and similar state and foreign laws, our compliance with the Physician Payments Sunshine Act and similar state and foreign transparency laws imposes additional costs on us. Additionally, failure to comply with the Physician Payment Sunshine Act or similar state or foreign laws may subject us to monetary penalties.

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Our ability to compete depends on our ability to attract and retain talented employees.

Our future success depends on our ability to identify, attract, train, integrate and retain highly qualified technical, development, sales and marketing, managerial and administrative personnel. Competition for highly skilled individuals is extremely intense and we face difficulty identifying and hiring qualified personnel in many areas of our business. We may not be able to hire and retain such personnel at compensation levels consistent with our existing compensation and salary structure. Many of the companies with which we compete for hiring experienced employees have greater resources than we have. If we fail to identify, attract, train, integrate and retain highly qualified and motivated personnel, our reputation could suffer and our business, financial condition and results of operations could be adversely affected.

Our future success also depends on the continued service and performance of our senior management team. The replacement of members of our senior management team likely would involve significant time and costs, and the loss of any these individuals may delay or prevent the achievement of our business objectives.

Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition and results of operations.

We are subject to income taxes as well as non-income based taxes in both the United States and various foreign jurisdictions. Changes in existing tax laws, treaties, regulations or policies or the interpretation or enforcement thereof, or the enactment or adoption of new tax laws, treaties, regulations or policies could materially impact our effective tax rate.

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

If we are unable to obtain or sustain adequate revenue growth, our financial results could suffer. Furthermore, significant growth will place strains on our management and our operational and financial systems and processes and our operating costs may escalate even faster than planned. If we cannot effectively manage our expanding operations and our costs, we may not be able to grow effectively or we may grow at a slower pace. Additionally, if we do not successfully forecast the timing of regulatory authorization for our additional tests, marketing and subsequent demand for our diagnostic tests or manage our anticipated expenses accordingly, our operating results will be harmed.

Other companies or institutions have commercial assays or may develop and market novel or improved methods for infectious disease diagnostics, which may make our diagnostic platform less competitive or obsolete.

The market for diagnostics is large and established, and our competitors may possess significantly greater financial resources and have larger development and commercialization capabilities than we do. We may be unable to compete effectively against these competitors either because their diagnostic platforms are superior or because they may have more expertise, experience, financial resources or stronger business relationships.

Demand for our assays depends in part on the operating budgets and hospital-acquired infection rates of our customers, a reduction in which could limit demand for our assays and adversely affect our business.

In the near term, we expect that our revenue will be derived primarily from sales of our C. diff and Group B Strep assays to hospitals. The demand for our assays will depend in part upon the prevalence of C. diff and Group B Strep at the hospitals of these customers and impacted by other factors beyond our control, such as:

global macroeconomic conditions;
total bed days;
changes in the regulatory environment;
differences in budgetary cycles;
market-driven pressures to consolidate operations and reduce costs; and
market acceptance of new technologies.

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Our operating results may fluctuate due to reductions and delays in expenditures by our customers. Any decrease in our customers’ budgets or expenditures, or in the size, scope or frequency of operating expenditures, could materially and adversely affect our business, operating results and financial condition.

New technologies, techniques or assays could emerge that might offer better combinations of price and performance than our current C. diff, Group B Strep, Staph ID/R and e. coli assays or future assays and analyzers.

It is critical to our success that we anticipate changes in technology and customer requirements and to successfully introduce, on a timely and cost-effective basis, new, enhanced and competitive technologies that meet the needs of current and prospective customers. If we do not successfully innovate and introduce new technology into our product lines or manage the transitions to new product offerings, our revenues, results of operations and business will be adversely impacted. Competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved diagnostic tests and as new companies enter the market with new technologies.

Due to our fixed overhead costs and the depreciation of our analyzers at customer sites included in cost of sales and the costs associated with our current hand-build cartridge manufacturing process we have in the past experienced substantial negative gross margins. We will need to increase our sales volumes significantly and automate our cartridge manufacturing process in order to achieve profitability.

We had negative gross margins of 138.3%, 154.5%, 164.5% and 124.7% during three months period ended March 31, 2017, March 31, 2016 and the years ended December 31, 2016 and 2015, respectively. The components of our cost of sales include cost of materials, supplies, labor for manufacturing, equipment and facility expenses associated with manufacturing. Facility expenses include allocated overhead comprised of rent, equipment depreciation and utilities. Due to our fixed overhead costs we will continue to experience negative gross margins unless and until we are able to significantly increase our sales volume. In addition, we currently hand-build our diagnostic cartridges. We are working to automate portions of our manufacturing and assembly process, which we believe will reduce our cartridge manufacturing costs. However, there is no assurance that we will be successful in automating our manufacturing process, and our failure to do so will materially limit our ability to reduce our cost of sales in the future.

If we experience a significant disruption in our information technology systems or if we fail to implement new systems and software successfully, our business could be adversely affected.

We depend on information systems to manufacture products, process orders, manage inventory, process shipments to customers and respond to customer inquiries. If we were to experience a prolonged disruption in the information technology systems that involve our interactions with customers and suppliers, it could result in the loss of sales and customers, which could adversely affect our business.

Risks Related to Intellectual Property

The extent to which we can protect our business and technologies through intellectual property rights that we own, acquire or license is uncertain.

We employ a variety of proprietary and patented technologies and methods in connection with the assays that we sell or are developing. We license some of these technologies from third parties. We cannot provide any assurance that the intellectual property rights that we own or license provide effective protection from competitive threats or that we would prevail in any litigation in which our intellectual property rights are challenged. In addition, we may not be successful in obtaining new proprietary or patented technologies or methods in the future, whether through acquiring ownership or through licenses from third parties.

Our currently pending or future patent applications may not result in issued patents, and we cannot predict how long it may take for a patent to issue on any of our pending patent applications, assuming a patent does issue.

Other parties may challenge patents issued or exclusively licensed to us, or courts or administrative agencies may hold our patents or the patents we license on an exclusive basis to be invalid or unenforceable. We may

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not be successful in defending challenges made against our patents and other intellectual property rights. Any third-party challenge to any of our patents could result in the unenforceability or invalidity of some or all of the claims of such patents and could be time consuming and expensive.

The extent to which the patent rights of life sciences companies effectively protect their diagnostic tests and technologies is often highly uncertain and involves complex legal and factual questions for which important legal principles remain unresolved.

No consistent policy regarding the proper scope of allowable claims of patents held by life sciences companies has emerged to date in the United States. Various courts, including the U.S. Supreme Court, have rendered decisions that impact the scope of patentability of certain inventions or discoveries relating to diagnostic tests or genomic diagnostic testing. These decisions generally stand for the proposition that inventions that recite laws of nature are not themselves patentable unless they have sufficient additional features that provide practical assurance that the processes are genuine inventive applications of those laws rather than patent drafting efforts designed to monopolize a law of nature itself. What constitutes a “sufficient” additional feature for this purpose is uncertain. Although we do not generally rely on gene sequence patents, this evolving case law in the United States may adversely impact our ability to obtain new patents and may facilitate third-party challenges to our existing owned and exclusively licensed patents.

We cannot predict the breadth of claims that may be allowed or enforced in patents we own or in those to which we have exclusive license rights. For example:

the inventor(s) named in one or more of our patents or patent applications might not have been the first to have made the relevant invention;
the inventor (or his assignee) might not have been the first to file a patent application for the claimed invention;
others may independently develop similar or alternative diagnostic tests and technologies or may successfully replicate our product and technologies;
it is possible that the patents we own or in which have exclusive license rights may not provide us with any competitive advantages or may be challenged by third parties and found to be invalid or unenforceable;
any patents we obtain or exclusively license may expire before, or within a limited time period after, the assays and services relating to such patents are commercialized;
we may not develop or acquire additional proprietary assays and technologies that are patentable; and
others may acquire patents that could be asserted against us in a manner that could have an adverse effect on our business.

Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property rights.

On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation and switch the U.S. patent system from a “first-to-invent” system to a “first-to-file” system. Under a first-to-file system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The U.S. Patent and Trademark Office, or USPTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, including the first-to-file provisions in particular, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our owned and licensed patent applications and the

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enforcement or defense of issued patents that we own or license, all of which could have a material adverse effect on our business and financial condition.

Patent applications in the United States and many foreign jurisdictions are not published until at least eighteen months after filing and it is possible for a patent application filed in the United States to be maintained in secrecy until a patent issues on the application. In addition, publications in the scientific literature often lag behind actual discoveries. We therefore cannot be certain that others have not filed patent applications that cover inventions that are the subject of pending applications that we own or exclusively license or that we were the first to invent the technology (if filed prior to the Leahy-Smith Act) or first to file (if filed after the Leahy-Smith Act). Our competitors may have filed, and may in the future file, patent applications covering technology that is similar to or the same as our technology. Any such patent application may have priority over patent applications that we own and, if a patent issues on such patent application, we could be required to obtain a license to such patent in order to carry on our business. If another party has filed a U.S. patent application covering an invention that is similar to, or the same as, an invention that we own, we may have to participate in an interference or other proceeding in the USPTO or a court to determine priority of invention in the United States, for applications and patents made prior to the enactment of the Leahy-Smith Act. For applications and patents made following the enactment of the Leahy-Smith Act, we may have to participate in a derivation proceeding to resolve disputes relating to inventorship. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in our inability to obtain or retain any U.S. patent rights with respect to such invention.

In addition, the laws of foreign jurisdictions may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. Moreover, the USPTO might require that the term of a patent issuing from a pending patent application be disclaimed and limited to the term of another patent that is commonly owned or names a common inventor. As a result, the issuance, scope, validity, term, enforceability and commercial value of our patent rights are highly uncertain.

The patent prosecution process is expensive and time-consuming, is highly uncertain and involves complex legal and factual questions. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and product candidates. We seek to protect our proprietary position by filing in the United States and in certain foreign jurisdictions patent applications related to our novel technologies and product candidates that are important to our business.

The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. In addition, we may not pursue or obtain patent protection in all major markets. Moreover, in some circumstances, we may not have the right to control the preparation, filing or prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. In some circumstances, our licensors may have the right to enforce the licensed patents without our involvement or consent, or to decide not to enforce or to allow us to enforce the licensed patents. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If any of our licensors fail to maintain such patents, or lose rights to those patents, the rights that we have licensed may be reduced or eliminated and our right to develop and commercialize any of our product candidates that are the subject of such licensed rights could be adversely affected.

Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing

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competitive technologies and products. In particular, during prosecution of any patent application, the issuance of any patents based on the application may depend upon our ability to generate additional nonclinical or clinical data that support the patentability of our proposed claims. We may not be able to generate sufficient additional data on a timely basis, or at all. Moreover, changes in either the patent laws or interpretation of the patent laws in the United States or other countries may diminish the value of our patents or narrow the scope of our patent protection.

Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings or other patent office proceedings or litigation, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission or proceeding could reduce the scope of, or invalidate, our patent rights; allow third parties to commercialize our technology or products and compete directly with us, without payment to us; or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our owned and licensed patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Obtaining and maintaining our patent protection depends upon compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent prosecution process and following the issuance of a patent. There are situations in which noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case if our patent were in force.

Our intellectual property rights may not be sufficient to protect our competitive position and to prevent others from manufacturing, using or selling competing assays.

The scope of our owned and exclusively licensed intellectual property rights may not be sufficient to prevent others from manufacturing, using or selling competing assays. Competitors could purchase our product and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies and thereby avoid infringing our intellectual property rights. If our intellectual property is not sufficient to effectively prevent our competitors from developing and selling similar diagnostic tests, our competitive position and our business could be adversely affected.

Our platform depends on certain technologies that are licensed to us. We do not control these technologies and any loss of our rights to them could prevent us from manufacturing our assays.

We rely on licenses to various proprietary technologies that are material to our business, including the development of certain future assays. We have entered into non-exclusive licenses with Biohelix Corp., or Biohelix, a subsidiary of Quidel Corporation and a license with Integrated DNA Technologies, Inc. that has certain exclusive and non-exclusive fields. Our rights to use these technologies will be subject to the continuation of and our compliance with the terms of those licenses.

We may become involved in disputes relating to our intellectual property rights, and may need to resort to litigation in order to defend and enforce our intellectual property rights.

Extensive litigation regarding patents and other intellectual property rights has been common in the medical diagnostic testing industry. Litigation may be necessary to assert infringement claims, protect trade secrets or know-how and determine the enforceability, scope and validity of certain proprietary rights. Litigation may even be necessary to resolve disputes of inventorship or ownership of proprietary rights. The defense and prosecution of intellectual property lawsuits, USPTO interference or derivation proceedings and related legal

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and administrative proceedings (e.g., a re-examination) in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time consuming to pursue, and their outcome is uncertain.

Even if we prevail in such a proceeding in which we assert our intellectual property rights against third parties, the remedy we obtain may not be commercially meaningful or adequately compensate us for any damages we may have suffered. If we do not prevail in such a proceeding, our patents could potentially be declared to be invalid, unenforceable or narrowed in scope, or we could otherwise lose valuable intellectual property rights. Similar proceedings involving the intellectual property we exclusively license could also have an impact on our business. Further, if any of our other owned or exclusively licensed patents are declared invalid, unenforceable or narrowed in scope, our competitive position could be adversely affected.

We could face claims that our activities or the manufacture, use or sale of our assays infringe the intellectual property rights of others, which could cause us to pay damages or licensing fees and limit our ability to sell some or all of our assays and services.

Our research, development and commercialization activities may infringe or be claimed to infringe patents or other intellectual property rights owned by other parties of which we may be unaware because the relevant patent applications may have been filed but not yet published. Certain of our competitors and other companies have substantial patent portfolios, and may attempt to use patent litigation as a means to obtain a competitive advantage or to extract licensing revenue. In addition to patent infringement claims, we may also be subject to other claims relating to the violation of intellectual property rights, such as claims that we have misappropriated trade secrets or infringed third party trademarks. The risks of being involved in such litigation may also increase as we gain greater visibility as a public company and as we gain commercial acceptance of our diagnostic tests and move into new markets and applications for our assays.

Regardless of merit or outcome, our involvement in any litigation, interference or other administrative proceedings could cause us to incur substantial expense and could significantly divert the efforts of our technical and management personnel. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our share price to decline. An adverse determination, or any actions we take or agreements we enter into in order to resolve or avoid disputes, may subject us to the loss of our proprietary position or to significant liabilities, or require us to seek licenses that may include substantial cost and ongoing royalties. Licenses may not be available from third parties, or may not be obtainable on satisfactory terms. An adverse determination or a failure to obtain necessary licenses may restrict or prevent us from manufacturing and selling our diagnostic tests and offering our services. These outcomes could materially harm our business, financial condition and results of operations.

We may not be able to adequately protect our intellectual property outside of the United States.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to medical devices, diagnostic testing and biotechnology, which could make it difficult for us to stop the infringement of our patents and for licensors, if they were to seek to do so, to stop infringement of patents that are licensed to us. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. Additionally, prosecuting and maintaining intellectual property (particularly patent) rights are very costly endeavors, and for these and other reasons we may not pursue or obtain patent protection in all major markets. We do not know whether legal and government fees will increase substantially and therefore are unable to predict whether cost may factor into our global intellectual property strategy.

In addition to the risks associated with patent rights, the laws in some foreign jurisdictions may not provide protection for our trade secrets and other intellectual property. If our trade secrets or other intellectual property are misappropriated in foreign jurisdictions, we may be without adequate remedies to address these issues. Additionally, we also rely on confidentiality and assignment of invention agreements to protect our intellectual property in foreign jurisdictions. These agreements may provide for contractual remedies in the event of

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misappropriation, but we do not know to what extent, if any, these agreements, and any remedies for their breach, will be enforced by a foreign court. If our intellectual property is misappropriated or infringed upon and an adequate remedy is not available, our future prospects will likely diminish. The sale of diagnostic tests that infringe our intellectual property rights, particularly if such diagnostic tests are offered at a lower cost, could negatively impact our ability to achieve commercial success and may materially and adversely harm our business.

Our failure to secure trademark registrations could adversely affect our business and our ability to market our assays and product candidates.

Our trademark applications in the United States and any other jurisdictions where we may file may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in corresponding foreign agencies, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our applications and/or registrations, and our applications and/or registrations may not survive such proceedings. Failure to secure such trademark registrations in the United States and in foreign jurisdictions could adversely affect our business and our ability to market our diagnostic tests and product candidates.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information, or the misappropriation of the intellectual property we regard as our own.

We rely on trade secrets to protect our proprietary know how and technological advances, particularly where we do not believe patent protection is appropriate or obtainable. Nevertheless, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, third party contractors, third party collaborators and other advisors to protect our trade secrets and other proprietary information. These agreements generally require that the other party to the agreement keep confidential and not disclose to third parties all confidential information developed by us or made known to the other party by us during the course of the other party’s relationship with us. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were to seek to pursue a claim that a third party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable. Further, courts outside the United States may be less willing to protect trade secrets. In addition, others may independently discover our trade secrets and proprietary information and therefore be free to use such trade secrets and proprietary information. Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. In addition, our trade secrets and proprietary information may be misappropriated as a result of breaches of our electronic or physical security systems in which case we may have no legal recourse. Failure to obtain, or maintain, trade secret protection could enable competitors to use our proprietary information to develop assays that compete with our assays or cause additional, material adverse effects upon our competitive business position.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in our industry, we employ individuals who were previously employed at other companies in our industry or in related industries, including our competitors or potential competitors. We may be subject to claims that we or these employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

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Additional Risks Related to this Offering

You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.

Investors purchasing securities in this offering will incur immediate and substantial dilution in net tangible book value per share. Assuming a public offering price of $0.37 per Class A Unit and $0.37 (including and assuming the exercise of the Pre-funded Series K Warrants underlying the Class B Units) per Class B Unit, purchasers of Class A Units and Class B Units will effectively incur dilution of $3.43 per share in the net tangible book value of their purchased shares. To the extent that any of the Offering Warrants are ultimately exercised, you will sustain further dilution. In addition, in the past, we issued options, warrants and other convertible securities to acquire shares of common stock and may need to do so in the future to support our operations. To the extent options and/or warrants are ultimately exercised, you will sustain future dilution. See “Dilution” on page 38 of this prospectus for a discussion of the dilution you may incur in connection with this offering.

There is no public market for the Offering Warrants.

There is no established trading market for the Offering Warrants and we do not expect active trading market to develop. In addition, we do not intend to list the Offering Warrants on any securities exchange or other trading market. Without an active trading market, the liquidity of the Offering Warrants will be limited.

Purchasers of our Offering Warrants will not have rights of common stock stockholders until such Offering Warrants are exercised.

The Offering Warrants being offered do not confer any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of common stock at a fixed price for a limited period of time.

We will have broad discretion over the use of the net proceeds of this offering.

We currently intend to allocate the net proceeds received from this offering as described under “Use of Proceeds” on page 40 of this prospectus. However, management will have broad discretion in the actual application of the net proceeds, and may elect to allocate net proceeds differently from that described under “Use of Proceeds” if management believes it would be in our best interests to do so. Accordingly, although such allocations are based on the current expectation of our management, there may be circumstances where, for business reasons, a reallocation of funds may be necessary, as may be determined at our discretion. Our stockholders may not agree with the manner in which management chooses to allocate and spend the net proceeds. The failure by our management to apply these funds effectively could have a material adverse effect on our business.

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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in our “Prospectus Summary,” “Use of Proceeds,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Result of Operations,” and “Business” sections. In some cases, you can identify these forward-looking statements by terms such as “anticipate,” “believe,” “continue,” “could,” “depends,” “estimate,” “expects,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms or other similar expressions, although not all forward-looking statements contain those words.

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 financial condition, results of operations, business strategy and financial needs. These forward looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this prospectus, regarding, among other things:

our expectation that for the foreseeable future, substantially all of our revenue will be derived from sales of our commercialized diagnostic tests;
our ability to expand our sales and marketing capabilities to increase demand for commercialized diagnostic tests and any other diagnostic tests we may develop and gain approval for;
our ability to develop additional revenue opportunities, including new diagnostic tests;
the timing of regulatory submissions;
our ability to maintain regulatory approval of our commercialized diagnostic tests and to obtain and maintain regulatory approval for any other diagnostic test we may develop;
approvals for clinical trials may be delayed or withheld by regulatory agencies;
pre-clinical and clinical studies may not be successful or confirm earlier results or may not meet expectations, regulatory requirements or performance thresholds for commercial success;
risks relating to the timing and costs of clinical trials and other expenses;
management and employee operations and execution risks;
loss of key personnel;
competition in the markets we serve;
our ability to manufacture our commercialized tests and other diagnostic tests we may develop at sufficient volumes to meet customer needs;
our ability to reduce the cost to manufacture our commercialized tests and other diagnostic tests we may develop;
risks related to market acceptance of diagnostic tests;
intellectual property risks;
assumptions regarding the size of the available market, benefits of our diagnostic tests, product pricing and timing of product launches;
our ability to fund our working capital requirements;
risks associated with the uncertainty of future financial results;
risks associated with the Reverse Stock Split;
risks related to our outstanding New Series A Notes;

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risks associated with raising additional capital when needed and at reasonable terms; and
risks associated with our reliance on third party suppliers and other organizations that provide goods and services to us.

These risks are not exhaustive. Other sections of this prospectus may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward looking statements. You should read this prospectus with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. Except as required by law, we undertake no obligation to update publicly any forward looking statements for any reason after the date of this prospectus or to conform these statements to actual results or to changes in our expectations.

We qualify all of our forward looking statements by these cautionary statements.

DILUTION

Dilution is the amount by which the purchase price paid by the purchasers for the securities offered in this offering will exceed the as-adjusted net tangible book value (deficit) per share of our common stock after the offering.

The net tangible book deficit of our common stock as of March 31, 2017 was approximately $29.9 million, or approximately $(39.14) per share (based on 763,612 shares outstanding on March 31, 2017). Net tangible book deficit per share is equal to the amount of our total tangible assets, less total liabilities, divided by the aggregate number of shares of common stock outstanding.

After giving effect to the assumed sale by us of 8,200,000 Class A Units in this offering at an assumed public offering price of $0.37 per Class A Unit, and after deducting the estimated placement agent fees and estimated offering expenses payable by us, and attributing no value to the Series J Warrants, our pro forma as-adjusted net tangible book deficit as of March 31, 2017 would have been approximately $27.4 million, or approximately $(3.06) per share of common stock. This represents a decrease in our pro forma as adjusted net tangible book deficit to existing stockholders of approximately $37.00 per share and an immediate dilution of $3.43 per share to new investors purchasing Class A Units in this offering.

The following table illustrates this per share dilution:

 
Assumed public offering price per share   $ 0.37  
Net tangible book value (deficit) per share as of March 31, 2017   $ (39.14 ) 
Pro forma net tangible book value (deficit) per share as of March 31, 2017   $ (3.06 ) 
Increase in pro forma net tangible book value (deficit) per share attributable to new investors   $ 36.08  
Dilution per share to investors in this offering   $ (3.43 ) 

The Class A Units offered in this offering also include Series J Warrants, each of which will be exercisable into 2.5 shares of common stock based on an assumed exercise price of $0.37, which is 100% of the closing price of $0.37 on June 13, 2017. In the tables below, we illustrate this dilution based on (i) the offering of an aggregate of 8,200,000 Class A Units at a public offering price of $0.37 per Class A Unit, and (ii) the issuance of 20,500,000 shares of common stock upon exercise of all Series J Warrants at an assumed exercise price of $0.37 per share based on 100% of the closing bid price of the common stock on June 13, 2017.

 
Assumed public offering price per share   $ 0.37  
Net tangible book value (deficit) per share as of March 31, 2017   $ (39.14 ) 
Pro forma net tangible book value (deficit) per share as of March 31, 2017   $ (0.67 ) 
Increase in pro forma net tangible book value (deficit) per share attributable to new investors   $ 38.47  
Dilution per share to investors in this offering   $ (1.04 ) 

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If we were only to sell Class B Units in this offering, the table below illustrates this dilution based on (i) the offering of an aggregate of 8,200,000 Class B Units at a public offering price of $0.37 per unit less the $0.01 per share exercise price of the Pre-funded Series K Warrant included in the Class B Unit, (ii) the issuance of 20,500,000 shares of common stock upon exercise of all Series J Warrants at an assumed exercise price of $0.37 per share based on 100% of the closing bid price of the common stock on June 13, 2017, (iii) the issuance of 8,200,000 shares of common stock upon the exercise of all Pre-funded Series K Warrants at an assumed exercise price of $0.01, and (iv) deducting the estimated placement agent fees and estimated offering expenses payable by us.

 
Assumed public offering price per share   $ 0.37  
Net tangible book value (deficit) per share as of March 31, 2017   $ (39.14 ) 
Pro forma net tangible book value (deficit) per share as of March 31, 2017   $ (0.67 ) 
Increase in pro forma net tangible book value (deficit) per share attributable to new investors   $ 38.47  
Dilution per share to investors in this offering   $ (1.04 ) 

The number of shares of our outstanding common stock reflected in the discussion and table above is based on 763,612 shares of common stock outstanding as of March 31, 2017 and excludes, as of that date:

130 shares of our common stock issuable upon the exercise of outstanding legacy warrants;
100 shares of our common stock issuable upon conversion of the Series E convertible preferred stock;
70 shares of our common stock issuable upon exercise of stock options;
1,193 shares of our common stock issuable upon the exercise of the Series D warrants;
37 shares of common stock issuable upon exercise of warrants issued as consideration for subordination of former debt (“2015 Subordination Warrants”);
30 shares of our common stock issuable upon the exercise of the Series G warrants.
16,936,627 shares of our common stock issuable upon the conversion of the 2016 convertible notes (based on the conversion price of $1.90 per share;
4,308,824 shares of our common stock issuable upon the conversion of Series F convertible preferred stock;
7 shares of our common stock issuable upon the exercise of the Series H warrants; and
2 shares of common stock issuable upon exercise of warrants issued as consideration for subordination of existing debt to the 2016 Notes (“2016 Subordination Warrants”).

This discussion does not take into account further dilution to new investors that could occur upon the exercise of outstanding options and warrants, including the Offering Warrants, having a per share exercise price less than the public offering price per unit in this offering. To the extent that the above issued options and warrants were exercised, the pro forma net tangible book value (deficit) per share of our common stock after giving effect to this offering would be $(0.39) per share, and the dilution in net tangible book deficit per share to investors in this offering would be $(0.76) per share.

If we raise additional capital in the future, we may in the future sell substantial additional amounts of common stock or securities convertible into or exercisable for common stock. We may also choose to raise additional capital due to market conditions or other strategic considerations even if we believe we have sufficient funds for our current or future operating plans. The issuance of these securities could result in further dilution to our stockholders.

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USE OF PROCEEDS

We estimate that the net proceeds of this offering will be approximately $2,471,620, assuming the sale of up to 8,200,000 Units at an assumed public offering price of $0.37 per Unit (less, in the case of Class B Units, the $0.01 per share exercise price of the Pre-funded Series K Warrants) after deducting estimated placement agent fees and estimated offering expenses payable by us and excluding the proceeds, if any, from the exercise of the Offering Warrants. We will receive additional proceeds from any cash exercise of the Offering Warrants. We cannot provide any assurance as to the amount or timing of receipt of any additional proceeds from exercise of the Offering Warrants.

We expect the net proceeds from this offering will allow us to fund our operations for up to 2 months following the closing of this offering, including the continued expansion of sales of our five currently approved tests and continuation of the regulatory process seeking approval for one of our tests currently under review by the FDA. We intend to use the net proceeds from this offering as reflected in the following use of proceeds tables. The use of proceeds table assumes that we raise 50% or 100% of the securities offered in this offering:

   
  50%   100%
Extinguishment of New Series B Notes   $ 0.6     $ 0.6  
Research and Development     0.1       0.5  
Sales and Marketing     0.1       0.7  
General Corporate Purposes     0.3       0.7  
Total   $ 1.1     $ 2.5  

The Company will use a portion of the use of proceeds from this offering to extinguish a portion of the outstanding balance of the New Series B Notes, subject to the amount of net proceeds received from this offering, which were issued by the Company on April 17, 2017. Such notes have a fixed conversion price of $3.00, which has been temporarily reduced to $1.10, as described below, and are not convertible at the option of the holder until October 17, 2017, the six month anniversary of the exchange date. The New Series B Notes (i) have no conversion price resets or conversion price economic adjustments, (ii) mature on April 17, 2020 and (iii) have a default interest rate of approximately 10% per annum.

Even if we sell all of the securities subject to this offering, we will still need to obtain additional financing in the future in order to fully fund our business through to profitability. We may elect to seek such additional financing through public or private equity or debt offerings, senior debt or other sources, including collaborative or other arrangements with corporate partners or through refinancing our existing debt arrangements. There can be no assurance we will be able to obtain additional financing and/or restructure our existing debt arrangements or that such additional financing or restructuring will be on terms that are favorable to us. Although we currently anticipate that we will use the net proceeds of this offering as described above, there may be circumstances where a reallocation of funds may be necessary. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our development and commercialization efforts, the success of our regulatory filings, whether or not we enter into strategic collaborations or partnerships and our operating costs and expenditures. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering.

The costs and timing of regulatory approval, particularly conducting clinical studies, are highly uncertain, are subject to substantial risks and can often change. Accordingly, we may change the allocation of use of these proceeds as a result of contingencies such as the progress and results of our clinical studies, regulatory requests and other development activities, the establishment of collaborations, our manufacturing requirements and regulatory or competitive developments.

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

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MARKET PRICE HISTORY

Market Information

Our common stock is currently quoted on the OTCQB under the symbol “GBSN.”

The following table contains the intraday high and low sale prices per share of our common stock from October 9, 2014, the time of our initial public offering, to October 11, 2016, when our common stock was suspended from trading on the NASDAQ Capital Market and began to be quoted on the OTCQB. Prior to the date of our initial public offering, there was no public market for our common stock.

The below quotations on or after October 11, 2016, are the high and low bid prices for such periods indicated as reported by the OTC Markets Group Inc., which reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

   
  2015
(in billions)
     High   Low
First Quarter   $ 425.4     $ 149.2  
Second Quarter   $ 614.9     $ 254.0  
Third Quarter   $ 322.6     $ 4.5  
Fourth Quarter   $ 27.0     $ 1.6  

   
  2016
     High   Low
First Quarter     $1,596 million       $176.4 million  
Second Quarter     $376.8 million       $76.8 million  
Third Quarter     $84.5 million       $1.3 million  
Fourth Quarter (through October 10, 2016)     $1.4 million       $34,200  
Fourth Quarter (October 11 through December 31, 2016)     $46,800       $2,180  

   
  2017
     High   Low
First Quarter   $ 3,600     $ 1.40  
Second Quarter (through June 13, 2017)   $ 18.00     $ 0.28  

As of June 13, 2017, there were approximately 473 stockholders of record for our common stock. A substantially greater number of stockholders may be “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

As of June 13, 2017, the closing price of our common stock on OTCQB was $0.37.

DIVIDEND POLICY

We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on any of our capital stock. We are currently prohibited from paying any dividends pursuant to the terms in the New Series A and New Series B Notes. We intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends in the foreseeable future. Future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial conditions, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this prospectus. Except for historical information contained herein, the following discussion and analysis contains forward-looking statements which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. We discuss such risks, uncertainties and other factors throughout this prospectus and specifically under the section titled “Risk Factors”.

Overview of Our Business

We are a molecular diagnostic testing company. We are focused on improving patient care through the development and commercialization of our patented, low-cost, molecular diagnostic platform for testing for infectious diseases, especially hospital-acquired infections. We believe our platform has the ability to transform molecular testing for infectious diseases at small to medium-sized hospitals by providing an affordable solution that meets the rapidly evolving needs of patients and providers.

We believe there is a fast-growing market for molecular diagnostic systems being purchased by hospital microbiology labs to replace culture and other legacy testing formats. We believe our platform is well positioned to meet this need. Our platform capable of providing results in 45 to 115 minutes, depending on the test. Molecular testing generally reduces test time from days to hours, and provides more accurate results, which we believe leads to shortened hospital stays and improved patient outcomes, all of which leads to reduced cost for hospitals that implement molecular testing in their labs.

Our platform is an automated molecular diagnostic system, consisting of an analyzer and associated assay cartridge. Our platform utilizes a sample-to-result format, which means that once a patient specimen is received, it undergoes limited processing before it is placed in the analyzer where the assay is run without further technician intervention. This reduces assay complexity, and eliminates the need for highly trained and expensive molecular technicians to run the tests. Our platform is designed to enable simple, rapid, and cost-effective analysis of multiple pathogens from a single clinical sample which will allow small to medium-sized community hospitals that traditionally could not afford more expensive or complex molecular diagnostic testing platforms to modernize their laboratory testing and provide better patient care at an affordable cost.

In 2012, we launched our first FDA-cleared test for C. diff, a bacteria that causes life-threatening gastrointestinal distress in hospital patients. In addition to our C. diff assay, we have four additional FDA-cleared tests: our Group B Strep assay which we launched in 2015, our Shiga toxin producing E. coli (“STEC”) and Staph ID/R (“SIDR”) assays which we launched in 2016, and a test for Bordetella pertussis (whooping cough) which we launched in May 2017. Additionally, we have completed clinical trials and submitted a 510(k) application to the FDA for another assay — Stool Bacterial Pathogens Panel (“SBPP”) in December of 2016, for which we expect a decision in 2017. Even though the SBPP product has not yet been cleared by the FDA, beginning in February 2017 we began selling this assay to customers who agreed to pay us discounted evaluation pricing to help us validate this assay ahead of FDA clearance. We also have three other assays in various stages of product development: (i) a test for Chlamydia-Gonorrhea, (ii) a pre-surgical nasal screen for Staphylococcus aureus, and (iii) a panel for Candida blood infections.

We currently sell our diagnostic test cartridges in the United States through a direct sales force, and use distributors in the European Union and New Zealand. As of March 31, 2017, we had 256 customers worldwide (235 in the United States and 21 in the rest of the world), who use an aggregate of 470 of our analyzers. Our easy to use platform allows small to medium-sized hospitals that we believe could not previously afford more expensive or complex molecular diagnostic systems to modernize their laboratory testing and provide better patient care at an affordable cost.

Since inception, we have incurred net losses from operations each year, and expect to continue to incur losses for the foreseeable future. Our net loss attributable to operations for the fiscal year ending December 31, 2016 was approximately $34.1 million and for the three months ended March 31, 2017 our net loss from operations was $6.4 million. For the fiscal year ending December 31, 2016 our net loss was approximately $89.1 million

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while for the three months ended March 31, 2017 we had net income, due to the change in value of our fair value liabilities, in the amount of $21.5 million. As of March 31, 2017, we had an accumulated deficit of $189.5 million.

Financial Operations Overview

Revenue

We derive our revenue from the sale of single use assays sold through our dedicated sales force in the United States, and in the European Union and New Zealand through a network of distributors. Revenue is recognized when all four of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products has occurred; (3) the selling price of the product is fixed or determinable; and (4) collectability of that price is reasonably assured. Change in title to the product and recognition of revenue from sales of the assays occurs at the time of shipment.

We believe our revenue from the sale of our assays will increase as we expand our sales and marketing efforts, and as we introduce new assays into the market. We expect that our revenue will continue to be primarily attributable to sales of our assays in the United States.

Our material increases in revenues since the inception of our business have been attributable to increases in the volume of goods being sold as a result of increases in the number of customers. As of March 31, 2017, we have five commercial products, our C. diff assay, Group B Strep assay, Staph ID/R panel, Shiga Toxin Direct Test, and Bordetella pertussis diagnostic assay. The average price of each assay has not materially changed since the assay’s commercial release.

Cost of Sales

The components of our cost of sales include cost of materials, supplies, labor for manufacturing and support personnel, equipment, and facility expenses associated with manufacturing. We also depreciate the cost of each analyzer that is at a customer site on a straight line basis, and include that cost in cost of sales. Effective January 1, 2017, we changed our estimate of the analyzers’ useful lives from five to seven years. We perform all of our manufacturing activities at our facility located in Salt Lake City, Utah. Facility expenses include allocated overhead comprised of rent, other equipment depreciation, and utilities. We expect our cost of sales in absolute dollars to increase, as the number of diagnostic cartridges we manufacture increases. However, we also expect that as assay volumes increase we will realize manufacturing efficiencies, which would result in a decrease in our cost of sales as a percentage of revenue. We also license certain technologies for our C. diff assay, which are described elsewhere in this prospectus. Pursuant to the terms of these license agreements, we pay royalty fees in the aggregate equal to 14% of our worldwide “Net Sales” of those products that use these technologies (as defined and adjusted pursuant to the terms of the applicable license agreements).

Research and Development

All research and development costs, including those funded by third parties, are expensed as incurred. Research and development costs consist of engineering, product development, clinical trials, test-part manufacturing, testing, developing and validating the manufacturing process, manufacturing, facility, and regulatory-related costs. Research and development costs also include employee cash compensation, employee and non-employee stock-based compensation, supplies and materials, consultant services, and travel related to research activities.

In 2015 and 2016 we incurred additional research and development costs as we continued to develop new assays, and as we advanced the development of our product candidates, including our Group B Strep, Staph ID/R, and Shiga toxin producing e. coli assays. In particular, we conducted clinical trials for our Staph ID/R, Shiga toxin producing e. coli, food borne pathogen, and Bordetella pertussis (whopping cough) product candidates, which increased our research and development expenses. Additionally, we have three other assays in various stages of product development: (i) a panel for Candida blood infections, (ii) a test for Chlamydia-Gonorrhea, and (iii) a pre-surgical nasal screen for Staphylococcus aureus. We plan to continue the development of these products and conduct clinical trials in 2017 and 2018.

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Sales and Marketing

Sales and marketing expenses primarily consist of salaries, benefits, and other related costs, including stock-based compensation, for personnel employed in sales, marketing, and training. In addition, our sales and marketing expenses include commissions and bonuses paid to our sales representatives, generally based on the number of new customers obtained and other objectives attained.

We expect our sales and marketing expenses to increase proportionately as we introduce new assays, such as our food borne pathogen panel, if cleared by the FDA, and will seek to enhance, if necessary, our commercial infrastructure and marketing efforts. Additionally, we expect commissions to continue to increase in absolute terms over time, but to decline as a percentage of revenue.

General and Administrative Expenses

General and administrative expenses primarily consist of salaries, benefits, and other related costs, including stock-based compensation, for certain members of our executive team and other personnel employed in finance, legal, compliance, administrative, information technology, customer service, executive, and human resource departments. General and administrative expenses include allocated facility expenses, related travel expenses, and professional fees for accounting and legal services.

We expect our general and administrative expenses will increase due to costs associated with our public and private funding efforts as we continue to raise capital for our business needs. Our expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, as well as investor relations activities and other administrative and professional services, will continue to increase as we grow our business.

Interest Income

Interest income and other income primarily consist of interest earned on our cash.

Interest Expense

Interest expense consists of interest on capital leases, notes payable, letters of credit, as well as the amortization of debt discounts. In certain debt transactions that have components required to be measured at fair value, the excess of the fair value over the proceeds received is recorded as an interest expense.

Gain (Loss) on Exchange and Issuance of Warrants

The exchange and issuance of warrants during 2016 resulted in a gain on the exchange of Series E Warrants, partially offset by a loss on the issuance of our Series G Warrants. During 2015, we also exchanged our Series C Warrants for a convertible note payable and our Series D Warrants. This was considered an extinguishment of a liability, and resulted in a net loss comprising the difference between the fair value of the warrants extinguished and the fair value of the consideration provided.

Gain or Loss on Extinguishment of Debt

The Company’s senior secured convertible note issued in 2015 contained a conversion feature whereby installment payments could be made if the Company issued shares of common stock to the noteholders. Because this feature was separate from the note itself, when such conversions occurred they were deemed extinguishments of debt for accounting purposes. During 2016, the Company issued shares of common stock in various installments to pay down the note. In November 2016, the noteholders agreed to extinguish the remaining balance of the 2015 note in exchange for a new class of Series F Convertible Preferred Stock. A total loss on the extinguishment of debt was recorded to account for all these transactions. The loss amounts were equal to the fair market values of the common and preferred shares issued, offset by the principal amounts of the notes either paid down or extinguished, the related remaining debt discount associated with the principal amounts, the related derivative liability amounts also reduced, and the fair value of an embedded conversion feature inherent in the preferred shares.

During the first three months of 2017, we continued to make installment payments on the notes, and the noteholders agreed to redemptions of the 2016 Notes with a corresponding amount of restricted cash returned. Accordingly, a significant portion of the principal amount of the 2016 Notes and the derivative liability

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associated with them was extinguished. A gain on the extinguishment of debt was recorded to account for these transactions. The gain amount was equal to the fair market values of the common shares issued and the principal amounts of the 2016 Notes either paid down or extinguished, partially offset by the related remaining debt discount associated with the extinguished principal amounts, the related derivative liability amounts also reduced, and the accrued underwriting fees eliminated.

Change in Fair Value Liabilities

We have issued certain common stock warrants that contain a price adjustment clause which states that in the event the Company issues common stock for a price less than the exercise price of warrants, the exercise price will be reduced to the issuance price of the common stock. We have also issued convertible notes payable that contain a conversion feature that could result in modification of the conversion price to issue a variable amount of additional common shares. We have determined that the warrants are accounted for as a derivative liability, and the conversion feature of the convertible notes is an embedded derivative. These derivatives are recorded at fair value measured at the transaction date and again at each reporting period. In addition, we issued shares of Series F Preferred Stock that are required to be recorded as a liability on the balance sheet as the Series F Preferred Stock predominantly represents an unconditional obligation to issue a variable number of common shares for a fixed amount. The shares of Series F Preferred Stock are recorded at fair value at the transaction date and again at each reporting period. Any difference in fair value of these instruments between the transaction date and future reporting periods must be recognized in earnings for the period.

Results of Operations

Comparison of the Three Months Ended March 31, 2017 and 2016

Revenue

       
  Three Months Ended
March 31,
  Increase
     2017   2016   $   %
C. diff   $ 638,767     $ 671,742     $ (32,975 )      -5 % 
Group B Strep     108,680       59,680       49,000       82 % 
STEC     23,180             23,180        
SIDR     52,900             52,900        
SBPP     7,250             7,250        
     $ 830,777     $ 731,422     $ 99,355       14 % 

Revenue increased 14% for the three months ended March 31, 2017, as compared to the three months ended March 31, 2016. We had revenue derived from the sale of STEC and SIDR assays inasmuch as the products were commercially launched in August and September of 2016. In anticipation of it being cleared by the FDA, in February 2017 we also began shipping discounted “investigational use only” versions of our new SBPP assay. The 82% increase in Group B Strep tests was the result of the addition of new customers, particularly two large reference labs, as well as continued purchases by our existing customers. The 5% decline in C. diff sales was primarily attributable to reduced C. diff rates experienced by patients at our customer sites, along with our decision to terminate certain small accounts we determined were unlikely to become profitable even with our expanded test menu. The number of U.S. customers increased to 235 by March 31, 2017, as compared to 222 at the end of March 31, 2016. The number of analyzers placed with customers decreased to 470 at March 31, 2017, as compared to 493 at the end of March of the prior year. Through mid-2016, the Company was intensely focused on building its customer base and placing additional analyzers in the field. Currently, however, the Company anticipates that in the future, it will sell higher quantities of existing assays, as well as new assays to a more profitable, select customer group now that additional products have come to market.

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Cost of Sales

           
  Three Months ended March 31,    
     2017   2016   Increase
     Expense   % of revenue   Expense   % of revenue   $   %
Materials and direct labor   $ 611,814       74 %    $ 589,155       81 %    $ 22,659       4 % 
Indirect labor, overhead, and royalties     1,134,927       137 %      956,779       131 %      178,148       19 % 
Analyzer depreciation     233,335       28 %      315,811       43 %      (82,476 )      -26 % 
     $ 1,980,076       238 %    $ 1,861,745       255 %    $ 118,331       6 % 

Beginning in mid-2016, the overall cost of direct and indirect labor increased as a percentage of revenue due to the hiring of production workers for additional daily shifts, in anticipation of eventually doubling the number of assays produced. Similarly, overhead increased as a percentage of revenue, also due to anticipated demand for the new assays. Compared to the first quarter of 2016, the cumulative effect of these activities later in 2016 and into 2017 resulted in an overall increase in labor and overhead costs as a percentage of revenue during the three months ended March 31, 2017. This comparative increase was offset by cost savings in materials attributable to bringing in-house the production of key components beginning in 2017.

Also during the first quarter of 2017, we determined that the actual life of analyzers used at customer sites was longer than the estimated life used for depreciation purposes. As a result, effective January 1, 2017, we changed our estimate of the useful life of our analyzers to better reflect the estimated period during which these assets will remain in service. The estimated useful life of the analyzers previously was five years, which we increased to seven years. The effect of this change with respect to analyzer depreciation included in cost of sales was that depreciation expense for the quarter ended March 31, 2017 was reduced by $155,200.

We brought to market both the STEC and Staph ID/R assays in a relatively short period of time during the second half of 2016. Sales of these new products only began in August and September of 2016, respectively, and to-date their more favorable impact on total revenue and gross margin remains minimal. Accordingly, we don’t expect to see additional revenue and gross margin potential from these new assays until later in 2017.

Operating Expenses

       
  Three Months Ended
March 31,
  Increase
     2017   2016   $   %
Research and development   $ 2,048,100     $ 2,297,983     $ (249,883 )      -11 % 
Selling and marketing     1,391,978       1,478,778       (86,800 )      -6 % 
General and administrative     1,857,729       2,208,657       (350,928 )      -16 % 
     $ 5,297,807     $ 5,985,418     $ (687,611 )      -11 % 

Research and Development

Research and development expenses decreased 11% during the quarter ended March 31, 2017 as compared to the prior year, primarily because last year we were applying significant resources into the internal development of new products. Accordingly, during 2017 as compared to 2016, we spent $473,003 less for testing cartridges, $141,262 less in outside consultants, and $81,266 less in recruiting fees associated with the hiring of additional software developers and scientists. These decreases were partially offset by increases of $195,351 in compensation expense related to the additional personnel, $249,485 in clinical trial expenses related to new products which will be introduced later in 2017, and $812 in all other research and development expense.

Selling and Marketing

Selling and marketing expenses decreased by 6% in the quarter ended March 31, 2017 as compared to the quarter ended March 31, 2016, due primarily to $39,517 in lower travel costs, $28,766 in lower promotional assay costs, and $8,875 in lower trade show expenses. All other selling and marketing expenses decreased by $9,642.

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General and Administrative

The 16% decline in general and administrative expenses for the quarter ended March 31, 2017 compared to the quarter ended March 31, 2016 resulted primarily from $218,936 in lower filing and professional fees, $168,150 in lower franchise and property taxes, $102,217 in reduced write offs of uncollectible customer accounts, and $90,385 in lower employee and H/R-related expenses. These decreases were partially offset by $102,340 in higher legal fees, $89,116 in higher rents associated with additional space in the Salt Lake City offices, and $46,103 in higher accounting, regulatory, human resource and IT personnel costs than we had during the quarter ended March 31, 2016. All other general and administrative expenses decreased by $8,799.

Interest Expense

Interest expense for the quarter ended March 31, 2017 increased by a total of $5.3 million, from $6.3 million to $11.6 million, as compared to the quarter ended March 31, 2016. The change was due mainly to the differences in the amount of debt discount amortization for the 2015 convertible notes during 2016 ($6.1 million), as compared to the higher amount of debt discount amortization for the 2016 convertible notes during 2017 ($11.4 million). Other interest expense for 2017 decreased by $12,092 as compared to 2016.

Gain on Extinguishment of Debt

The Company’s 2016 Notes contained a conversion feature whereby installment payments could be made by the Company issuing shares of common stock to the noteholders. Because this feature was separate from the note itself, when such conversions occurred they were deemed extinguishments of debt for accounting purposes. During the first three months of 2017, we made approximately $3.9 million of installment payments by issuing 762,672 shares of common stock to the noteholders. Also during the first quarter of 2017, the Company and the noteholders agreed to $38.9 million in redemptions of the 2016 Note and a corresponding amount of restricted cash was returned to the noteholders. Accordingly, a significant portion of the 2016 Notes’ principal amount and derivative liability was extinguished. A total gain on the extinguishment of debt in the amount of $602,555 was recorded to account for these transactions. The gain amount was equal to the fair market values of the common shares issued and the principal amounts of the 2016 Notes either paid down or extinguished, partially offset by the related remaining debt discount associated with the extinguished principal amounts, the related derivative liability amounts also reduced, and the accrued underwriting fees eliminated.

Change in Fair Value Liabilities

The change in fair value of the derivative liability resulted in a net gain in earnings of $38.9 million for the three months ended March 31, 2017, as compared to a net loss in earnings of $20.2 million for the three months ended March 31, 2016. During the first quarter of 2017, we had a $4.1 million decrease in the fair value of our common stock purchase warrants, due to the decrease in the value of our common stock during the period. We also had a $40.3 million decrease in the fair value of the embedded conversion feature of our 2016 Notes attributable to the decrease in the value of our common stock during the period. These decreases in fair values were partially offset by a $5.5 million increase in the fair value of Series F Preferred Stock accounted for as a liability. The increase in the fair value of our Series F Preferred stock was the result of a reset in the fixed conversion price during the quarter as a result of certain conversions of the 2016 Notes and such fixed conversion rate was significantly lower than the value of the stock at the measurement date of period end.

During the three months ended March 31, 2016 we had an increase in the fair value of our Series E Warrants and embedded conversion feature on convertible notes in the amount of $25.4 million which was partially offset by the reduction in the fair value of our Series D Warrants and other derivative securities in the amount of $5.2 million.

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Comparison of the Years Ended December 31, 2016 and 2015

The following table sets forth our results of operations for the years ended December 31, 2016 and December 31, 2015:

   
  Years Ended December 31,
     2016   2015
Revenue   $ 3,048,126     $ 2,142,040  
Cost of sales     8,061,382       4,813,415  
Gross loss     (5,013,256 )      (2,671,375 ) 
Operating Expenses
                 
Research and development     13,406,370       8,485,668  
Selling and marketing     6,859,323       5,007,320  
General and administrative     8,801,997       6,241,433  
Total operating expenses     29,067,690       19,734,421  
Loss from operations     (34,080,946 )      (22,405,796 ) 
Interest expense     (167,466,170 )      (11,757,445 ) 
Interest income     7,399       18,193  
Gain (loss) on extinguishment of warrants     3,374,752       (4,038,063 ) 
Loss on extinguishment of debt     (24,172,736 )       
Change in fair value liabilities     133,191,183       (19,714,808 ) 
Provision for income taxes     (1,750 )      (1,250 ) 
Net loss   $ (89,148,268 )    $ (57,899,169 ) 

Revenue

       
  Years Ended December 31,   Increase
     2016   2015   $   %
C. diff   $ 2,584,376     $ 2,075,240     $ 509,136       25 % 
Group B Strep     410,770       66,800       343,970       515 % 
STEC     24,730             24,730        
SIDR     28,250             28,250        
     $ 3,048,126     $ 2,142,040     $ 906,086       42 % 

Revenue increased 42% for the year ended December 31, 2016, as compared to the year ended December 31, 2015. Revenue derived from the sale of STEC and SIDR assays began since the products were commercially launched in August and September of 2016. The 42% increase in total sales was attributable to the number of U.S. customers increasing to 244 by December 31, 2016, as compared to 186 at the end of December 31, 2015. In addition, the number of analyzers placed with customers rose to 498 at December 31, 2016, as compared to 428 at the end of December of the prior year. During 2016, the Company was intensely focused on building its customer base and placing additional analyzers in the field.

Cost of Sales

           
  Years ended December 31,    
     2016   2015   Increase
     Expense   % of revenue   Expense   % of revenue   $   %
Materials and direct labor   $ 2,859,370       94 %    $ 1,721,563       80 %    $ 1,137,807       66 % 
Indirect labor, overhead, and royalties     3,766,259       123 %      2,170,544       101 %      1,595,715       74 % 
Analyzer depreciation     1,435,753       47 %      921,308       43 %      514,445       56 % 
     $ 8,061,382       264 %    $ 4,813,415       225 %    $ 3,247,967       67 % 

The overall cost of direct labor increased as a percentage of revenue due to the hiring of production workers during 2016 for additional daily shifts in anticipation of doubling the number of products produced. We brought to market both the STEC and Staph ID/R assays in a relatively short period of time during the second

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half of 2016. Sales of these new products began in August and September of 2016, respectively, and their impact on total revenue and gross margins for the year ended December 31, 2016 was minimal. Similar to direct labor costs, indirect labor and overhead increased as a percentage of revenue due to anticipated demand for the new assays, along with underutilization of capacity in our analyzer manufacturing group. During periods when analyzers are being manufactured, the group’s labor and overhead costs are allocated to the cost of the analyzers produced and expensed eventually through depreciation. Otherwise, the group’s costs are expensed directly to cost of sales during the period incurred. Depreciation of analyzers also increased since the number of analyzers placed in the field grew from 428 at December 31, 2015, to 498 at December 31, 2016.

The overall cost of direct labor increased as a percentage of revenue due to the hiring of production workers during 2016 for additional daily shifts in anticipation of doubling the number of products produced. We brought to market both the STEC and Staph ID/R assays in a relatively short period of time during the second half of 2016. Sales of these new products only began in August and September of 2016, respectively, and their impact on 2016’s total revenue and gross margins was minimal. Accordingly, we don’t expect to see additional revenue and gross margin potential until 2017. Similar to direct labor costs, indirect labor and overhead increased as a percentage of revenue due to anticipated demand for the new assays, along with underutilization of capacity in our analyzer manufacturing group. During periods when analyzers are being manufactured, the group’s labor and overhead costs are allocated to the cost of the analyzers produced and expensed eventually through depreciation. Otherwise, the group’s costs are expensed directly to cost of sales during the period incurred. Depreciation of analyzers also increased since the number of analyzers placed in the field grew from 428 at December 31, 2015, to 498 at December 31, 2016.

Operating Expenses

       
  Years ended
December 31,
  Increase
     2016   2015   $   %
Research and development   $ 13,406,370     $ 8,485,668     $ 4,920,702       58 % 
Selling and marketing     6,859,323       5,007,320       1,852,003       37 % 
General and administrative     8,801,997       6,241,433       2,560,564       41 % 
     $ 29,067,690     $ 19,734,421     $ 9,333,269       47 % 

Research and Development

Research and development expenses increased 58% during the year ended December 31, 2016, as compared to the prior year, due to an increase of $1.1 million for hiring new developers, scientists, and recruiting costs, an increase of $3.3 million for additional costs for clinical trials, experimental assays, and outside consultants, all related to the development of new products, and a net increase of all other research and development expenses aggregating to $489,392.

Selling and Marketing

The 2016 increase in sales and marketing expenses as compared to 2015 was due primarily to $1.5 million in higher salaries, travel, and promotional assay costs resulting from an increase in sales and marketing personnel and their increased efforts to add customers and sell additional existing and newly-developed assays. These higher expenses included increased commissions related to the increase in new customers, and were also the result of efforts to place additional analyzers in the field. All other expenses increased $360,630.

General and Administrative

The increase in general and administrative expenses for 2016 compared to 2015 resulted from an increase of $811,131 related to the hiring of additional accounting, regulatory, human resource, and IT personnel, as well as $335,225 in increased rent expense, all to accommodate growth experienced during 2016 and growth anticipated in the future. In addition, there was $1.5 million in increased legal and consulting fees incurred during 2016 because of increased financing and financial restructuring activities. There was also $82,139 in additional corporate registration and property tax expenses, a decrease of $612,376 in share-based compensation, and $425,027 in all other general and administrative expenses.

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Interest Expense

Interest expense for the year ended December 31, 2016 increased by $155.7 million, from $11.8 million to $167.5 million, as compared to the year ended December 31, 2015.

The difference was due mainly to the $107.8 million increase in the loss on the issuance of the 2016 convertible note as compared to the loss on the 2015 convertible note issued at the end of the previous year, and $47.3 million in debt discount amortization on both convertible notes during 2016 which we didn’t have during 2015. Other interest expense increased $651,107.

Net Gain (Loss) on Exchange and Issuance of Warrants

The exchange and issuance of warrants during the year ended December 31, 2016 resulted in a net gain of $3.4 million, which comprised a gain on the exchange of Series E Warrants in the amount of $4.1 million, partially offset by a loss on the issuance of our Series G Warrants in the amount of $0.7 million.

The loss on extinguishment of warrants in the amount of $4.0 million for the year ended December 31, 2015 was due to the extinguishment of 1.05 million Series C Warrants for $2.1 million in convertible notes payable and associated Series D Warrants. The fair value of the convertible notes and warrants issued as consideration in the exchange was $6.4 million, which was offset by $2.3 million, the fair value of the Series C Warrants.

Loss on Extinguishment of Debt

The Company’s senior secured convertible note issued in 2015 contained a conversion feature whereby installment payments could be made if the Company issued shares of common stock to the noteholders. Because this feature was separate from the note itself, when such conversions occurred they were deemed extinguishments of debt for accounting purposes. During 2016, the Company issued shares of common stock in various installments to pay down the notes. In November 2016, the noteholders agreed to extinguish the remaining balance of the 2015 notes in exchange for a new class of Series F Convertible Preferred Stock. A total loss on the extinguishment of debt in the amount of $24.2 million was recorded to account for all these transactions. The loss amounts were equal to the fair market values of the common and preferred shares issued, offset by the principal amounts of the notes either paid down or extinguished, the related remaining debt discount associated with the principal amounts, the related derivative liability amounts also reduced, and the fair value of an embedded conversion feature inherent in the preferred shares.

Change in Fair Value Liabilities

The change in fair value of the derivative liability resulted in a net gain in earnings of $133.2 million for the year ended December 31, 2016, as compared to a net loss in earnings of $19.7 million for the year ended December 31, 2015. During 2016, we had a decrease in the fair value of our conversion feature and warrants associated with the 2015 and 2016 Notes in the amount of $125.9 million and a net decrease in the fair value of all other fair value liabilities in the amount of $21.8 million. These decreases were the result of the decrease in the value of our common stock during the year.

Liquidity and Capital Resources

We have funded our operations to date primarily with net proceeds from our IPO, our follow-on public offerings, cash exercises of warrants, sales of our preferred stock, issuances of convertible notes, and revenues from operations. At March 31, 2017, we had unrestricted cash of $25,616 and restricted cash of $17.0 million. The restricted cash is related to 2016 Notes we entered into in July of 2016.

In January and February of 2017, the holders of 2016 Notes were issued 762,672 shares of common stock pursuant to the terms of the elective conversion provisions of the note agreement, which reduced the principal amount of the notes by $3.9 million.
In January and February of 2017, the noteholders voluntarily removed restrictions on $2.4 million of restricted funds. Also in February 2017, the Company and the noteholders agreed to reduce the convertible notes by $38.9 million in exchange for the return of $38.9 million of restricted funds.
In March and April 2017, the noteholders voluntarily removed restrictions on an additional $1.9 million of restricted funds.

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In April 2017, the noteholders, Series F Preferred stockholders, and related warrant holders agreed to restructure their arrangements. The new terms include fixing conversion prices at set amounts and restricting the time frame in which conversions can be made. Also included were further reductions in loan amounts, along with additional returns to noteholders of restricted cash totaling $14.5 million.
In April 2017, pursuant to the terms of the New Series B Notes, the Company exercised its Mandatory Conversion right to convert $0.3 million of principal amount of the New Series B Notes. In conjunction with the conversions, $0.3 million was released from the restricted cash accounts which became available for use by the Company to fund its ongoing operations.
In May 2017, the holders of the Series B Notes voluntarily removed restrictions on the remaining $1.4 million of restricted funds, which became available for use by the Company to fund its ongoing operations.

We have limited liquidity, and have not yet established a stabilized source of revenue sufficient to cover operating costs based on our current estimated burn rate. In order to finance the continued growth in product sales, to invest in further product development, and to otherwise satisfy obligations as they mature, we will need to seek additional financing through the issuance of common stock, preferred stock, and convertible or non-convertible debt financing. Any additional equity financing, if available to us, may not be available on favorable terms, will most likely be dilutive to our current stockholders, and debt financing, if available, may involve restrictive covenants. If we are unable to access additional funds when needed, we will not be able to continue the development of our molecular diagnostic platform or our diagnostic tests, or we could be required to delay, scale back or eliminate some or all of our development programs and other operations. Any of these events could have an adverse impact on our business, financial condition and prospects. We may be unable to continue to operate without the threat of liquidation for the foreseeable future unless we raise additional capital.

In February 2017 we filed a registration statement with the Securities and Exchange Commission, of which this prospectus is a part, for an offering of equity securities, however, we can provide no assurance that the offering will be successful or on terms favorable to the Company or our stockholders. In the event we complete this offering, along with additional funds withdrawn from our restricted cash accounts, we believe we will have sufficient cash to fund our planned operations through a portion of the third quarter of 2017. We also anticipate we will need to seek additional financing in the third quarter of 2017 to continue funding our operations for the remainder of 2017.

Summary Statement of Cash Flows for the Three Months Ended March 31, 2017 and 2016

The following table summarizes our cash flows for the periods indicated:

   
  Three Months Ended
March 31,
     2017   2016
Cash used in operating activities   $ (4,049,404 )    $ (8,150,080 ) 
Cash used in investing activities     (67,870 )      (624,501 ) 
Cash provided by financing activities     3,128,635       6,294,013  
Net increase (decrease) in cash   $ (988,639 )    $ (2,480,568 ) 

Cash Flows from Operating Activities

Cash used in operating activities for the quarter ended March 31, 2017 was $4.0 million. Added back to net income of $21.5 million was $538,804 in depreciation and amortization expenses, $11.4 million in debt discount amortization, and $41,603 in other net non-cash items. Offsetting these non-cash increases was $38.9 million for the change in the fair value liabilities, and a $602,555 non-cash gain in the extinguishment of liabilities. The change in operating assets and liabilities resulted in a net provision of cash of $2.0 million, primarily due to a rise in accounts payable and accrued liabilities attributable to deferring vendor and other cash payments, in addition to reducing inventory levels and increasing collection of customer receivables. As of March 31, 2017, 88% of accounts receivable was less than 60 days old.

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Cash used in operating activities for the quarter ended March 31, 2016 was $8.1 million. The net loss of $33.7 million was offset by other non-cash items of $6.1 million for the convertible note debt discount amortization, $20.2 million for the increase in the fair value of our derivative liability, $563,322 for the increase in depreciation and amortization and $123,318 increase in all other non-cash items. The change in operating assets and liabilities further used cash by another $1,510,944 due to a $899,776 decrease in accounts payable, a $1.0 million increase in prepaid and other assets as we ordered material for our analyzer manufacturing, a $23,417 increase in accounts receivable and $22,870 increase in inventory partially offset by a $441,817 increase in accrued liabilities.

Cash Flows from Investing Activities

Cash used in investing activities was $67,870 for the first quarter of 2017, and is due to $4,017 for the cost of construction of our analyzer equipment and $63,853 of capital expenditures for the acquisition of property and equipment.

Cash used in investing activities was $624,501 for the first quarter of 2016 and was related to the costs associated with the construction of analyzers and other equipment in the amount of $408,271 and the acquisition of capital equipment in the amount of $216,230.

Cash Flows from Financing Activities

Cash provided by financing activities for the three months ended March 31, 2017 was $3.1 million, comprised of $3.5 million in the release of restricted cash, offset by $371,365 in payments of capital lease obligations.

Cash provided by financing activities for the three months ended March 31, 2016 of $6.3 million was primarily from the net proceeds in the amount of $5.6 million from the sale of units in our follow-on offering along with proceeds of $1.1 million from the exercise of underwriter purchase options partially offset by $314,879 for the cash settlement of the exercise of Series C Warrants and $302,799 in payments made on capital leases and notes payable.

Satisfaction of our cash obligations for the next 12 months and our ability to continue as a going concern

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. At March 31, 2017, we had unrestricted and restricted cash amounts of $25,616 and $17.0 million, respectively. Subsequent to March 31, 2017, $14.5 million of the restricted cash was returned to the note holders as redemptions on the outstanding notes and $2.5 million had the restrictions voluntarily removed and those funds were authorized to be released from the restricted accounts to the Company. There are no longer any funds in the restricted cash. We have incurred substantial losses from operations and negative operating cash flows which raise substantial doubt about our ability to continue as a going concern. We sustained a net loss from operations for the three months ended March 31, 2017 of $6.4 million, and a net loss from operations for the year ended December 31, 2016 of $34.1 million. While, as a result in the change in value of our fair value liabilities, we had net income of $21.5 million for the quarter ended March 31, 2017, we sustained a net loss for the year ended December 31, 2016 of $89.1 million. We have an accumulated deficit of $189.5 million as of March 31, 2017. During the quarter ended March 31, 2017, cash used for operations was $4.0 million. Whether and when we can attain profitability and positive cash flows from operations is uncertain.

We intend to continue to develop our products and expand our customer base, but we do not have sufficient realized revenues or operating cash flows in order to finance these activities internally. As a result, we have obtained and intend to continue to obtain financing in order to fund our working capital and development needs. In February 2016, we obtained financing by completing a follow-on offering for net proceeds of $5.0 million, and in June 2016, we completed another follow-on offering for net proceeds of $5.3 million. In July 2016, we signed and issued convertible notes for net proceeds of $68 million, of which a net $5.4 million was immediately available and the remaining proceeds were placed in the Company’s restricted accounts. By the end of 2016 we withdrew from restricted accounts all of the remaining $13.8 million related to our December 2015 convertible notes and $2.6 million related to our 2016 Notes. Through early May 2017, after returning $53.4 million in restricted cash to the noteholders to redeem the 2016 Notes, we withdrew all of the remaining $6.0 million from the restricted accounts related to our 2016 Notes.

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To continue operations over the next twelve months we will need to obtain additional financing. In February 2017, we filed a registration statement with the Securities and Exchange Commission for an offering of equity securities, however, we can provide no assurance that any such offering will be successful or on terms favorable to the Company or our stockholders. In the event we complete such offering, along with additional funds to be withdrawn from our restricted cash accounts, if we can meet the conditions for the release of the restricted cash or if we are able to negotiate the release of funds if we fail to meet the conditions, we believe we will have sufficient cash to fund our planned operations through a portion of the third quarter of 2017. We also anticipate we will need to seek additional financing in the third quarter of 2017 to continue funding our operations for the remainder of 2017.

Since inception, we have been able to meet our short-term funding needs through private placements of convertible preferred securities, an initial public offering (“IPO”), follow-on public offerings, issuances of convertible debt, and the sale and leaseback of analyzers used to report test results. We will continue to seek funding through the issuance of additional equity securities, debt financing, the sale and leaseback of assets, or a combination of these items. Any proceeds received from these items could provide the needed funds for continued operations and development programs. We can provide no assurance that we will be able to obtain the additional financing that we need to alleviate doubt about our ability to continue as a going concern. If we are able to obtain sufficient proceeds from additional financing, we cannot be certain that this additional financing will be available on acceptable terms. To the extent we raise additional funds by issuing equity securities, our stockholders will likely experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to obtain additional financings, the impact on our operations will be material and adverse.

Summary Statement of Cash Flows for the Years Ended December 31, 2016 and 2015

The following table summarizes our cash flows for the periods indicated:

   
  Years Ended
December 31,
     2016   2015
Cash used in operating activities   $ (31,654,390 )    $ (20,669,754 ) 
Cash used in investing activities     (4,372,880 )      (4,792,987 ) 
Cash provided by financing activities     32,253,766       28,232,677  
Net increase (decrease) in cash   $ (3,773,504 )    $ 2,769,936  

Cash Flows from Operating Activities

Cash used in operating activities for the year ended December 31, 2016 was $31.7 million. The net loss of $89.1 million was offset by non-cash items of $46.5 million for the convertible note debt discount amortization, $119.2 million for the loss on the issuance of convertible note, $24.2 million for the loss on the extinguishment of debt, $2.6 million for the increase in depreciation and amortization, and $148,762 in all other non-cash items. These non-cash increases were partially offset by a $133.2 million change in the fair value of the derivative liability, and $3.4 million for a non-cash net gain on the exchange and issuance of warrants. The change in operating assets and liabilities resulted in a net provision of cash of $1.4 million, primarily due to a rise in accounts payable and accrued liabilities attributable to the launch of new products and sales increases, partially offset by related decreases in accounts receivable, inventory, and vendor prepayments.

Cash used in operating activities for 2015 was $20.7 million. The net loss of $57.9 million was partially offset by non-cash items of $19.7 million for change in fair value of derivative liability, $10.6 million in interest from issuance of the convertible note, $4.0 million in a loss on extinguishment of warrants, $1.6 million for depreciation and amortization, $612,006 of warrant issuance costs, and $232,174 in other non-cash items. The change in operating assets and liabilities offset the cash used in operating activities by $426,096, primarily due to an increase of $602,056 in accounts payable, and an increase of $700,790 in accrued liabilities partially offset by a $676,048 increase in inventory and a $200,702 increase in accounts receivables and prepaid and other assets.

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Cash Flows from Investing Activities

Cash used in investing activities was $4.4 million for 2016 and is due to $3.3 million for the cost of the construction of our analyzer equipment and $1.1 million of capital expenditures for acquisition of property and equipment.

Cash used in investing activities was $4.8 million for 2015 and is due to $3.2 million for the cost of the construction of our analyzer equipment, and $1.6 million of capital expenditures for acquisition of property and equipment.

Cash Flows from Financing Activities

Cash provided by financing activities for 2016 of $32.3 million was from the proceeds of $10.6 million from the issuance of units in follow-on offerings, proceeds of $21.8 million from the issuance of convertible notes payable and associated releases of restricted cash, and proceeds of $1.4 million from exercise of warrants. These amounts were offset by $1.3 million in payments of capital lease obligations, $314,879 paid to settle warrant exercises, and $5,693 in payments on notes payable.

Cash provided by financing activities for 2015 of $28.2 million was from the proceeds of $21.9 million from the issuance of units in a follow-on offering, proceeds of $4.1 million from the issuance of convertible notes payable, proceeds of $3.2 million from exercise of warrants and $250,000 in other financing activities, offset by $947,423 in payments of capital lease obligations, and $299,994 in payments on notes payable.

Critical Accounting Policies and Estimates

The preparation of the financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Certain of our more critical accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we evaluate our judgments, including those related to inventories, receivables, recoverability of long-lived assets, and the fair value of our preferred and common stock and related instruments. We use historical experience and other assumptions as the basis for our judgments and making these estimates. Because future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Any changes in those estimates will be reflected in our financial statements as they occur. While our significant accounting policies are more fully described in the footnotes to our financial statements included elsewhere in this Form S-1, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results. The critical accounting policies addressed below reflect our most significant judgments and estimates used in the preparation of our financial statements.

As an emerging growth company, we have elected to opt-in to the extended transition period for new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.

Revenue Recognition

We derive our revenue from the sale of single use assays sold through our dedicated sales force in the United States, and through a network of distributors in the European Union and New Zealand. Revenue is recognized when all four of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products has occurred; (3) the selling price of the product is fixed or determinable; and (4) collectability of that price is reasonably assured. Change in title to the product and recognition of revenue from sales of assays occurs at the time of shipment.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are generated from the sale of assays to end users in the United States and to a network of distributors outside the United States. These accounts receivable are recorded at the invoiced amount, net of allowances for doubtful amounts. We routinely review outstanding accounts receivable balances for estimated uncollectible accounts and establish or adjust the allowances for doubtful accounts receivable using the specific identification method and record a reserve for amounts not expected to be fully recovered. Actual

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balances are not applied against the reserve until substantially all collection efforts have been exhausted. We do not have customer acceptance provisions, but we provide our customers a limited right of return for defective assays.

Inventories

Inventories are stated at the lower of cost or market with cost determined according to the average cost method. Manufactured inventory consists of raw material, direct labor and manufacturing overhead cost components. We review the components of our inventory on a regular basis for excess and obsolete inventory, and make appropriate adjustments when necessary. We have made adjustments to, and it is reasonably possible that we may be required to make further adjustments to, the carrying value of inventory in future periods.

Long-Lived Assets

Long-lived tangible assets, including property and equipment, and definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We regularly evaluate whether events or circumstances have occurred that indicate possible impairment and rely on a number of factors, including expected future operating results, business plans, economic projections, and anticipated future cash flows. We use an estimate of the future undiscounted net cash flows and comparisons to like-kind assets, as appropriate, of the related asset over the remaining life in measuring whether the assets are recoverable. Measurement of the amount of impairment, if any, is based upon the difference between the asset’s carrying value and estimated fair value. Fair value is determined through various valuation techniques, including cost-based, market and income approaches as considered necessary. We amortize intangible assets on a straight-line basis over their estimated useful lives.

Our long-lived assets include our analyzers used by hospitals in the United States to run the assays they buy from us. There are no contractual terms with respect to the usage of our analyzers by our customers. Hospitals are under no contractual commitment to use our analyzers. We maintain ownership of these analyzers and, when requested, we can remove the analyzers from the customer’s site. We do not currently charge for the use of our analyzers and there are no minimum purchase commitments of our assays. As our analyzer is used numerous times over several years, often by many different customers, analyzers are capitalized as property and equipment once they have been placed in service. Once placed in service, analyzers are carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method based on average estimated useful lives. The estimated useful life of our analyzers is determined based on a variety of factors including in reference to associated product life cycles. During the quarter ended March 31, 2017, we changed the estimate of the useful life of our analyzers from five to seven years, as a result of determining that the actual life of analyzers used internally and at customer sites was longer than five years. As analyzers are integral to the performance of our diagnostic tests, depreciation of analyzers located at customer sites is recognized as a cost of sales.

Analyzers used outside the United States are sold to the customer and the sale is accounted for as a sale of fixed assets. Since inception, the Company has not focused nor placed significant emphasis on developing international markets for the Company’s product. The Company has never had an international sales force and has never manufactured analyzers specifically for international markets. On occasion, small, international sales opportunities have come along through international distributors. The analyzers that were sold to them were part of the fixed asset pool of analyzers the Company has, and many of these specific analyzers had been previously placed at customer locations within the United States. Sale of the fixed asset analyzers in these limited international opportunities have not been based on established product price listings as no such listing exists or has been publicly marketed to customers; instead, the final sales price has been a negotiated amount based on the sale of a functioning fixed asset analyzer, whether or not that analyzer was previously used at another customer site. Similar to other fixed asset sales, there were no stated or implied warranties or other continuing service requirements made with the sale of these assets. For these limited situations, management has elected to sell the fixed asset analyzers as opposed to placing them with international customers (thereby not retaining title over the analyzers) as it would be impractical for us to retain ownership due to, among other reasons, the Company lacking the necessary personnel needed to service international customers, the need to comply with the additional laws and regulations of countries outside the United States to which the Company is not currently subject, and the added costs to recover, reconfigure, ship and redeploy fixed asset

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analyzers that have been used internationally. During the three months ended March 31, 2017, and the years ended December 31, 2016 and 2015, respectively, there were no analyzers sold to international distributors.

Fair Value Instruments

The Company accounts for derivative instruments under the provisions of Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging. ASC 815 requires the Company to record derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings. As a result of certain terms, conditions and features included in our convertible notes and certain common stock purchase warrants granted by the Company, those securities are required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in earnings.

The Company accounts for other fair value liability instruments under the provisions of ASC 480, Distinguishing Liabilities from Equity. ASC 480 requires the Company to record certain liabilities at their fair value. Changes in the fair value of these liabilities are recognized in earnings. As a result of certain terms, conditions and features included in the Series F Preferred Stock issued by the Company, it is required to be accounted for as a liability at estimated fair value, with changes in fair value recognized in earnings.

Income Taxes

We are required to determine the aggregate amount of income tax expense or loss based upon tax statutes in jurisdictions in which we conduct business. In making these estimates, we adjust our results determined in accordance with generally accepted accounting principles, for items that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities resulting from these differences are reflected on our balance sheet for temporary differences in loss and credit carryforwards that will reverse in subsequent years. We also establish a valuation allowance against deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. Valuation allowances are based, in part, on predictions that management must make as to our results in future periods. The outcome of events could differ over time which would require that we make changes in our valuation allowance.

The tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more likely than not of being sustained if the position were to be challenged by a taxing authority. We examined the tax positions taken in tax returns and determined that there are no uncertain tax positions. As a result, we recorded no uncertain tax liabilities in our balance sheet.

Stock Based Compensation

We measure and recognize compensation expense for stock options granted to our employees and directors based on the estimated fair value of the award on the grant date. Since our IPO, our board of directors determines the fair value of each share of underlying common stock based on the closing price of our common stock on the date of grant. We use the Black-Scholes valuation model to estimate the fair value of stock option awards. The fair value is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award on a straight-line basis.

Emerging Growth Company Status

As an emerging growth company under the JOBS Act, we have elected to opt in to the extended transition period for complying with new or revised standards pursuant to Section 107(b) of the Act. We are also exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002, which requires a public company’s auditor to attest to, and report on, management’s assessment of its internal controls.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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BUSINESS

References herein to “we,” “us” or “our” refer to Great Basin Scientific, Inc., doing business as “Great Basin Corporation” unless the context specifically requires otherwise.

Overview of Our Business

We are a molecular diagnostic testing company. We are focused on improving patient care through the development and commercialization of our patented, low-cost, molecular diagnostic platform for testing for infectious diseases, especially hospital-acquired infections. We believe our platform has the ability to transform molecular testing for infectious diseases at small to medium sized hospitals by providing an affordable solution that meets the rapidly evolving needs of patients and providers.

We believe there is a fast-growing market for molecular diagnostic systems being purchased by hospital microbiology labs to replace culture and other legacy testing formats. We believe our platform is well positioned to meet this need. Our platform provides results in 45 to 115 minutes depending on the test. Molecular testing generally reduces test time from days to hours, and provides more accurate results, which we believe leads to shortened hospital stays and improved patient outcomes, all of which leads to reduced cost for hospitals that implement molecular testing in their labs.

Our platform is an automated molecular diagnostic system, consisting of an analyzer and associated assay cartridge. Our platform utilizes a sample-to-result format, which means that once a patient specimen is received, it undergoes limited processing before it is placed in the analyzer where the assay is run without further technician intervention. This reduces assay complexity and eliminates the need for highly trained and expensive molecular technicians to run the tests. Our platform is designed to enable simple, rapid and cost-effective analysis of multiple pathogens from a single clinical sample, which will allow small to medium sized community hospitals that traditionally could not afford more expensive or complex molecular diagnostic testing platforms to modernize their laboratory testing and provide better patient care at an affordable cost.

In July 2012, we launched our first FDA-cleared test for C. diff, a bacteria that causes life-threatening gastrointestinal distress in hospital patients. We currently sell our diagnostic test cartridge in the United States through a direct sales force and we use distributors in the European Union and New Zealand. As of March 31, 2017, we had 256 customers worldwide (235 in the United States and 21 in the rest of the world), who use an aggregate of 470 of our analyzers.

In addition to our C. diff assay, we have commercialized four additional tests, Group B Strep assay for which we received FDA clearance in April 2015 which launched commercially in June 2015, Shiga toxin producing E. coli, or STEC, for which we received FDA clearance in March 2016 and which launched commercially in August 2016, Staph ID/R for which we received FDA clearance in March of 2016 and which launched commercially in September 2016, and a test for Bordetella pertussis (whooping cough) for which we received FDA clearance in March 2017 and which launched commercially in May 2017. Additionally, in December 2016 we completed clinical trials and submitted a 510(k) application to the FDA for another assay, Stool Bacterial Pathogens Panel (“SBPP”), for which we expect a decision in 2017. We also have three other assays in various stages of product development: (i) a test for Chlamydia-Gonorrhea, (ii) a pre-surgical nasal screen for Staphylococcus aureus, and (iii) a panel for Candida blood infections.

Since inception, we have incurred net losses from operations each year, and expect to continue to incur losses for the foreseeable future. Our net loss attributable to operations for the fiscal year ending December 31, 2016 was approximately $34.1 million and for the three months ended March 31, 2017 our net loss from operations was $6.4 million. For the fiscal year ending December 31, 2016 our net loss was approximately $89.1 million while for the three months ended March 31, 2017 we had net income, due to the change in value of our fair value liabilities, in the amount of $21.5 million. As of March 31, 2017, we had an accumulated deficit of $189.5 million.

Our Strategy

Our goal is to become the leading provider of sample-to-result, multiplex and low-plex molecular diagnostic testing for infectious diseases by leveraging the strengths of our affordable diagnostic testing platform. We intend to expand the use of our platform by targeting small to medium sized hospitals in the United States

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with fewer than 400 beds. We believe that our low-cost platform will be attractive to these hospitals in particular, which may not otherwise have sufficient resources to justify the purchase of a molecular diagnostic sample-to-result solution. To achieve this objective, we intend to do the following:

Leverage our Low-Cost Platform to Quickly Penetrate the Small and Medium Sized Hospital Market.  We provide our customers with our analyzer at no cost and sell them the disposable, single-use diagnostic cartridges. This allows us to avoid the long sales cycle inherent in selling capital equipment and expand into hospitals that previously could not afford to implement a molecular diagnostic platform.
Accelerate the Growth of our U.S. Customer Base and Utilization of our Test Menu.  We intend to expand our sales effort to target small to medium hospitals in the United States. We anticipate that increasing our number of customers and the utilization of our test menu at each site will drive sales of our diagnostic cartridges. We expect these sales will generate most of our revenue for the foreseeable future.
Expand our Menu of Molecular Diagnostic Assays.  We intend to expand our assay menu to include additional assays for our platform that we believe will satisfy growing medical needs and present attractive commercial opportunities. For example, in 2015 we began selling our test for Group B Strep, and in 2016 we began selling tests for Staph ID/R and Shiga toxin producing E. coli. In May 2017, we began selling our Bordetella pertussis test, and we expect clearance for our SBPP test in 2017. We also have three other assays in various stages of product development: Pre-surgical screening, Candida, and CT/NG.
Reduce our Cost of Sales through Automation and Volume Purchasing.  We manufacture our proprietary diagnostic cartridges and analyzers at our manufacturing facility in Salt Lake City, Utah. We currently hand-build our diagnostic cartridges and purchase materials at higher per unit cost due to low purchase volumes. We believe that investment in automation of portions of the manufacturing and assembly process and volume purchase pricing will significantly improve our gross margins and enhance our ability to provide a low-cost solution to customers.

The Great Basin Platform

Our platform, which employs a combination of proprietary and patented technology, consists of a bench top analyzer with a touch screen (or, in early models, a laptop computer) into which our self-contained, single-use diagnostic cartridges are inserted. We believe that our platform is user friendly and intuitive and provides the hospital with the ability to perform molecular diagnostic assays in an efficient and cost-effective manner.

   
The Analyzer
[GRAPHIC MISSING]
  The Diagnostic Cartridge
[GRAPHIC MISSING]
  The User Placing the Diagnostic
Cartridge into the Analyzer

[GRAPHIC MISSING]

Once a patient specimen is received in the lab, a technician will typically perform no more than three to five steps of sample preparation before placing the sample in our disposable diagnostic cartridge and inserting it in the analyzer where the assay is run without further technician intervention. Our four FDA-cleared assays were rated by Clinical Laboratory Improvement Amendments of 1988, or CLIA, as moderately complex, which typically eliminates the need for highly-trained and expensive molecular technicians to run the assays, bringing additional cost benefit to our customers. We expect our future assays to be rated moderately complex or meet CLIA waiver criteria, which is reserved for assays that are simple and are judged by the FDA to present a low risk for erroneous results.

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Our platform provides accurate results in 45 to 115 minutes depending on the assays. The speed of our assays allows for early diagnosis and treatment, which we believe can lead to better patient outcomes and reduced cost to the hospital.

We believe that our platform and related assays offer small-to-medium sized hospitals the following benefits:

Ease of Use.  Our platform is a sample-to-result system. Sample preparation can be completed in three to five steps that typically take no more than five minutes. Once the diagnostic cartridge is placed in the analyzer, the technician does not need to monitor the assay and can complete other unrelated tasks. The assay is complete in 45 to 115 minutes depending on the assay.
Cost Savings.  We believe that our pricing strategy makes it possible for many small-to-medium sized hospitals that have cost constraints to adopt molecular testing. We provide the customer the use of our analyzer for no upfront charge, while we retain ownership. We then sell our assays to the hospital at a cost that we believe is similar to or less expensive than other molecular diagnostic solutions. This reduces the up-front cost for the customer, minimizes customer approval processes and accelerates adoption of our platform.
Versatile Platform with the Capability to Deliver a Broad Assay Menu.  We believe our platform has broad potential application across a number of areas in molecular diagnostic testing for infectious disease, including the detection of pathogens from whole blood samples. The same analyzer can be utilized for all of our planned future assays.
Low-cost Low-plex tests.  We believe our platform, including our low-cost chip detection and our single-use diagnostic cartridge, has a cost structure that will allow us to compete effectively in the market for low-plex tests with 1 – 3 answers like C. diff or Pre-surgical and MRSA screening. We expect our low-plex tests like C. diff to drive system placements as hospitals convert from traditional testing methods.
Ability to Multiplex.  Our platform has the technical ability to analyze up to 64 distinct targets in a single diagnostic panel, including controls. We refer to any test of more than four targets as a multi-plex panel. We believe that this capability will allow hospitals to test for multiple possible causes of an individual patient’s symptoms in a one-step detection process. This capability will reduce the time required for a laboratory to perform a diagnostic analysis that involves testing for multiple infectious disease pathogens. Without our platform, similar testing would require the hospital to run multiple, separate molecular or non-molecular diagnostic assays.

Our Molecular Testing Process

In our molecular testing process, a clinician places a clinical specimen — processed or unprocessed — into the diagnostic cartridge (such as stool or blood), caps the cartridge and then places the diagnostic cartridge into the analyzer. The assay routine is initiated in the analyzer and starts a simple automated process. Within the instrument, mechanical valves are present to control the flow of fluid through the cartridge and to pierce the blister packs containing the required buffers, solutions and reagents to perform the selected assay. Low cost, reliable heaters are present for assay processing. Imaging occurs with a compact digital camera placed over a window in the cartridge above the chip. Proprietary software interprets the image and provides a clinical result to the laboratory.

The disposable diagnostic cartridge contains — in blister packs or freeze dried pellets — all of the reagents required to run the applicable assay. The three steps of a molecular assay (sample preparation, amplification, and detection) are performed in chambers present on the cartridge. All waste is collected in a chamber that is part of the diagnostic cartridge, significantly reducing the risk of lab contamination. After the assay is completed and the result is obtained, the diagnostic cartridge is disposed of with the hospital’s other medical waste.

To simplify processing within the analyzer, fluids are moved within the diagnostic cartridge through relatively large channels by exploiting pressure differences. Proprietary features have been designed into the diagnostic cartridge to allow for bubble-free fluid movement and sensor design permits accurate and precise volumetric delivery.

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Our Assay Menu

We have received FDA clearance for five assays, C. diff, Group B Strep, Staph ID/R, E. coli, and Bordetella pertussis. We also have CE marks for those assays. We began marketing the C. diff test in Europe in the first quarter of 2012 and in the United States in the fourth quarter of 2012. We received clearance from the FDA in April 2015 for our second diagnostic test for Group B Strep and launched this test commercially in June of 2015. We received clearance from the FDA in March of 2016 for STEC and launched this test commercially in August of 2016. We received FDA clearance for our Staph ID/R trial in March of 2016 and launched this test commercially in September of 2016. We received FDA clearance for our Bordetella pertussis test in March 2017 and launched this test commercially in May 2017. We have another assay that has been submitted to the FDA for review, a test for a food borne pathogen panel. Additionally, we have three other assays in various stages of product development: (i) a pre-surgical nasal screen for Staphylococcus aureus, or SA, (ii) a panel for candida blood infections and, (iii) a test for CT/NG.

Our Commercial Tests:

C. diff Test

C. diff infections are often life-threatening and can create a significant financial burden for hospitals. As a hospital-acquired infection, costs associated with the care of patients with C. diff are not covered by insurance or Medicaid/Medicare. An independent peer reviewed paper, published in the American Journal of Infection Control in 2012, highlights a significant reduction in C. diff infection rates when a hospital switched from culture to molecular testing — reducing cost and improving patient outcomes.

Our C. diff test is a rapid medical diagnostic test for the detection of C. diff, a gram-positive bacteria that causes severe diarrhea and other intestinal disorders. The test detects the presence of the C. diff toxin B gene, or tcdB gene, in the pathogenicity locus, or PaLOC region of C. diff, present in all known toxigenic strains, to diagnose the toxin in a patient’s stool. The test requires minimal sample preparation and can deliver results in 90 minutes. A swab from loose stool is placed into transfer solution and a portion of this solution is placed into the diagnostic cartridge. The diagnostic cartridge is then placed into the analyzer.

Group B Strep Test

Group B streptococcus, or Group B Strep, is a bacterium that colonizes in the warm moist areas of many humans. Harmless to healthy adults, it can be transmitted to a newborn during childbirth and is the single largest cause of meningitis in newborn infants. For this reason nearly every pregnant woman in the United States is tested for Group B Strep in the late third trimester. Historically this test was done by culture, but based on the recent introduction and sales of other Group B Strep molecular diagnostic tests, we believe labs are switching to molecular testing.

Our Group B Strep test is designed to detect Group B Strep from an anal/vaginal swab taken from a pregnant woman. Hospitals can use our test to identify Group B Strep colonization in pregnant women, who can then be treated with antibiotics to reduce the risk of transmission to the baby, reducing the risk of development of sepsis in the newborn. We received clearance from the FDA in April 2015 for our Group B Strep test and launched it commercially in June 2015.

Shiga Toxin Direct (STEC) Test

Escherichia coli (E. coli) bacteria normally live in the intestines of healthy people and animals. Most varieties of E. coli are harmless or cause relatively brief diarrhea, but a few strains, such as E. coli O157:H7, can cause severe abdominal cramps, bloody diarrhea and vomiting.

Our STEC Test is designed to be a rapid test that identifies Shiga toxin produced by E. coli, including E. coli O157 specifically which is the most serious type of E. coli contracted from contaminated food. We received FDA clearance for our STEC test in March 2016. We launched the product commercially in August of 2016.

Staphylococcus Identification and Resistance Blood Infection Panel

Staphylococcus aureus is a major cause of hospital and community-acquired infections and is associated with high rates of morbidity and mortality. Methicillin-resistant Staphylococcus aureus, or MRSA, is a potentially life-threatening infection that most frequently occurs in the hospital setting. Rapid diagnosis of Staph blood infections has been shown, in a report published in Clinical Practice in 2010, to save up to approximately $7,000 per patient and shorten the length of hospital stays by 6.2 days.

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Our Staph ID/R panel is designed to be a multiplex panel to (i) identify species of Staphylococcus infections based on the detection of highly discriminatory and specific DNA sequences within a bacterial replication gene, (ii) detect the mecA gene, which confers drug resistance, directly from positive blood cultures and (iii) provide information on the antibiotic resistance profile of the bacteria. This test is designed to produce a result in less than one hour.

We received FDA clearance for our Staph ID/R panel in March 2016. We launched the product commercially in September of 2016.

Bordetella Pertussis Test

Bordetella Pertussis, also known as whooping cough, is a highly contagious respiratory disease caused by the bacterium Bordetella pertussis. In 2012, there were over 48,000 cases reported in the United States and over 16 million worldwide. We started the clinical trial in the second quarter of 2016 and filed a 510(k) application with the FDA in January of 2017. We received FDA clearance for our Bordetella Pertussis test in March 2017 and launched the product commercially in May 2017.

Our Assay under FDA Review

Stool Bacterial Pathogenic Panel

According to the Agency for Healthcare Research and Quality, there were nearly five million U.S. hospital visits in 2010 for gastrointestinal distress that suggested food-borne illness. In 2010, inpatient costs attributable to patients suffering from gastrointestinal infections cost the healthcare system nearly $1.8 billion. One of the challenges faced by physicians assessing a patient with symptoms of gastrointestinal infection is determining the underlying cause.

We expect that our Stool Bacterial Pathogenic panel will detect the main causes of food poisoning. If approved, we believe that hospitals will be able to use our panel to identify the causative pathogen of food poisoning and provide appropriate treatment quickly, improving patient outcomes. Additionally, the results may be used to aid public health agencies to track causes of food poisoning outbreaks. We started the clinical trial in the second quarter of 2016 and filed a 510(k) application with the FDA in December of 2016. Our Stool Bacterial Pathogenic panel is not cleared by the FDA or available for commercial sale.

Our Assays in Development

Candida Blood Infections Panel

According to the United States Center for Disease Control there are 46,000 Candida blood infections annually in the U.S. Candida infections, although rare, have mortality rates as high as 40% if not diagnosed quickly. Our candida panel is a multiplex panel that will be designed to identify five species of Candida directly from positive blood cultures. We expect to complete product development in the first half of 2017. Our Candida Blood Infections Panel is not cleared by the FDA or available for commercial sale.

Chlamydia-Gonorrhea (CT/NG) Test

Our test for Chlamydia tracomatis and Neisseria gonorrhoeae (CT/NG) is designed to detect two significant sexually transmitted diseases. According to the CDC, there are over 20 million new CT infections each year in the U.S. and approximately 330,000 cases of NG. We expect to complete the pre-clinical development of our CT/NG test in the first half of 2017. Our CT/NG test is not cleared by the FDA or available for commercial sale.

Parasite Gastrointestinal Infection Panel

Our Parasite GI Panel detects the four most prevalent parasite that cause diarrhea that occur due to eating undercooked foods or contaminated water in underdeveloped countries (“travelers diarrhea”) as well as in the developed world. A World Health Organization report stated that these enteric protozoa cause 67.2 million illnesses worldwide. The test can be used directly on preserved stool samples and provides an improvement in testing performance, complexity, and turnaround time compared to the standard of care. The test is currently under development. Our Parasite GI Panel is not cleared by the FDA or available for commercial sale.

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Staphyloccocus aureus Pre-Surgical Nasal Screen

Staphyloccocus aureus (SA) often colonizes the nasal passages and other warm moist areas in healthy humans. Harmless in most circumstances, the colonization represents real risk to patients undergoing surgery. In fact studies have shown the relative risk of post-surgical infection is up to eight and a half times greater in carriers of SA than in non-carriers.

We expect that our SA nasal screening test will be a rapid test for the presence of SA in the nasal passages of a pre-surgical patient. If approved, we believe that hospitals will be able to use our test to identify pre-surgical patients who are SA carriers and treat those patients with topical antibiotics, which has been shown in multiple peer-reviewed studies to significantly reduce the risk of post-surgical infection. Our SA pre-surgical nasal screen test is not cleared by the FDA or available for commercial sale.

Our Technology

Our proprietary and patented technology is based on detection of DNA targets on a coated silicon chip with results visible to the naked eye. DNA naturally forms a double-stranded structure, with each strand binding with high affinity and selectivity to a complementary strand. Our technology can detect DNA target strands of interest by attaching complementary strands of DNA to the chip surface, called capture probes, using our proprietary technology and processes. The capture probe can thereby immobilize the DNA target of interest. In order for the DNA target to be detected, it is labeled with biotin, a small molecule which can be used to create a signal in the diagnostic test. Biotin, immobilized onto the chip surface via DNA target hybridization to the DNA probe, will bind to a molecule which recognizes biotin and is conjugated to a signal generating enzyme, horseradish peroxidase, or HRP. Immobilized HRP can be reacted with a complex mixture to create a large colored product which deposits on the chip surface. This deposit causes the color of the chip surface to change. This color change is readily apparent to the naked eye as a dot in the vicinity of the DNA probe. In order to create tests with appropriate sensitivity for the given clinical indication, we can either amplify the quantity of DNA targets of interest or amplify the biotin-based signal. Each of these amplification approaches also serve to label DNA target(s) of interest with biotin.

Our Technology: Detection of On-chip Helicase Dependent Amplification (HDA) Reactions

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Within the cartridge three distinct processes occur: sample processing, amplification, and detection. During sample processing, the specimen is treated to remove clinical matrices such as blood or feces that may interfere with assay results and is treated to break open cells to release potential DNA targets. Next, the sample is subjected to target amplification to create billions of copies of target DNA to improve assay sensitivity and to label each target with biotin. Finally, detection is triggered by hybridization of the biotin-labeled target DNA with capture probes on the chip surface. The chip is currently configured to hold as many as 64 probes, including controls, each of which can be configured to detect a different target DNA, enabling highly multiplexed testing. If signal amplification is used, a proprietary polymer is added to the detection reaction, which converts each target DNA associated biotin into 80 additional biotins to improve detection sensitivity. All waste generated from the assay is stored in a self-contained waste chamber which significantly reduces contamination risk.

Target Amplification.  Helicase-dependent amplification, or HDA, is a process that utilizes an enzyme, helicase, to unwind double-stranded DNA to create two single strands through isothermal, or single temperature, amplification. Once this DNA is single-stranded, complementary DNA primers, which are short

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pieces of DNA that are complementary to the DNA target, can hybridize. Through the action of an enzyme, DNA polymerase, the DNA primers grow, or extend, to create a complementary strand of the DNA target, creating double-stranded DNA again. This process can be repeated and the degree of copying, or amplification, is exponential, so that billions of copies can be created. HDA is a method already commercially available for detection of DNA targets, however, it is a mistake-prone process. DNA primers can incorrectly hybridize to non-target DNA at lower temperatures and be copied, creating so-called primer artifacts, which leads to tests that are slow and poorly sensitive.

Our patented target amplification approach, termed blocked primer-mediated, helicase-dependent amplification, or bpHDA, utilizes blocked primers to enhance test speed and sensitivity. Blocked primers are DNA primers that contain a block at lower temperatures, where most incorrect hybridization events occur, preventing extension of the DNA primers or copying of the DNA target. As the temperature is raised, incorrect hybridization events are not stable and fall apart, but hybridization of DNA primers to complementary DNA targets is still very strong and an enzyme, RNase H, becomes active which can remove the block in blocked primers hybridized to DNA targets only. As a result, the accuracy of the process is dramatically improved, leading to faster and more sensitive tests. In order to label the DNA target for detection, each DNA primer has a biotin molecule attached to one end.

Our platform is also capable of performing polymerase chain reaction, or PCR, which is a widely used method of DNA amplification. Our Group B Strep test is our first commercial test to utilize PCR.

Signal Amplification.  Our patented signal amplification approach, which we refer to as AMPED, utilizes a bridging molecule to connect the biotin label on each DNA target to a polymer containing 80 biotins, thereby amplifying the signal up to 80 times in our diagnostic tests. The AMPED polymer works in the presence of blood, mucus, and feces typically present in clinical samples, thereby simplifying sample processing. The AMPED signal amplification process takes approximately 20 to 30 minutes and is a more rapid approach for detection of DNA targets than target DNA amplification, which typically takes 45 to 120 minutes. The patented AMPED polymer is highly water soluble and stable and displays low non-specific binding properties, which are critical requirements for highly specific signal amplification approaches.

Based on papers published in peer-reviewed journals, we believe our AMPED detector to be among the most sensitive in the industry with a proven limit of detection of 20,000 DNA molecules. We believe this limit of detection will be more than adequate for us to develop assays focused on the nascent “direct from whole blood” market which we believe has the potential to be exceptionally disruptive by eliminating the need for culturing blood prior to testing. Currently patients suspected of having a blood infection (sepsis) have their blood drawn. That sample is then cultured for a day before testing, but published studies consistently show that treatment within 12 hours of symptoms has significant clinical benefit. Direct from whole blood testing has the potential to eliminate the need for culture, speeding diagnosis to under 12 hours, thus potentially improving patient morbidity and mortality.

Diagnostic Cartridges.  Our patent-pending diagnostic cartridges are self-contained devices specifically configured for a given diagnostic assay. The diagnostic cartridge is injection molded and includes features such as reaction chambers, a waste chamber, and channels to direct the movement of fluids. The diagnostic cartridge also contains a coated silicon detection chip consisting of an array of up to 64 DNA probes, including controls. Integrated into the diagnostic cartridge are lance devices for the reagent blister packs and stirring devices. Reaction chambers and fluid channels are covered with a clear thermoplastic to form liquid-tight features. All of the reagents necessary to perform the assay are stored within blister packs affixed to the cartridge, other than the target amplification reagents, which are stored as a freeze-dried pellet. The diagnostic cartridge utilizes patent-pending methods for controlling the flow of fluid and managing air to prevent bubbles. The diagnostic cartridge also contains bar coded information related to the test, including the cartridge lot number and expiration date.

Analyzer.  The analyzer is an on-demand system controlled by an external touch screen or laptop. Each analyzer contains a module into which individual diagnostic cartridges are placed. Once a diagnostic cartridge has been loaded with a clinical specimen, the cartridge is inserted into the analyzer. The cartridge is then advanced onto a platform allowing access from above and below. The analyzer has three main sub-platforms to execute the diagnostic test: reagent flow control, thermal control, and the optical imaging platforms. To

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control reagent flow and delivery, valve actuators, which control fluid movements, and lance actuators, which lance blister packs, are located below the cartridge. Motors for mixing reactions and stepper motors, which serve to flatten blister packs and drive fluid into reagent channels, are located above the cartridge. Optical sensors located adjacent to the fluidic paths in the cartridge are used to determine fluidic movements. Compression valves are used to isolate regions of the cartridge for individual steps of the diagnostic assay. Multiple resistive heaters with thermocouple feedback are used to control temperature for each of the steps of the process. Once the test is complete a digital camera captures the resulting visible features. Processing and filtering techniques and multiple custom algorithms are used to determine test results, which are displayed on the touch screen or printed automatically.

The touch screen controls each analyzer, provides power and analyzes and stores data. Technicians can load patient identification numbers and reagent lot codes by using the included bar code scanner or the touch screen.

Advantages of Our Technology

Low Cost Design.  Our technology was designed to use injection molded parts and filled blister packs can be produced in high volumes at relatively low cost. Production of the coated silicon chip uses existing semi-conductor processes and capital equipment. Our isothermal target amplification uses a relatively inexpensive heater which does not need to actively manage heat with coolers and fans. A low cost digital camera captures the visible results. Our proprietary DNA probe chemistry enables us to produce assays at relatively low cost.

Easy to Perform On-demand Testing.  Our technology uses a sample-to-result approach. The customer loads a liquid clinical specimen into the diagnostic cartridge, closes it, inserts it into the analyzer and enters patient information to initiate each assay. The results are automatically generated with no user interpretation or intervention required. Hands-on time is less than 10 minutes for our C. diff test and we expect hands-on time to be generally less than 5 minutes for assays under development. Additionally, on-demand testing allows the technician to test samples as they come into the laboratory. Finally, the presence of comprehensive built-in controls means that the technician is not required to test external control samples to assure the quality of assay results. This allows laboratories to be more efficient with limited resources.

High Performance Assay Results.  Our technology is capable of highly specific and sensitive detection of nucleic acids. For target DNA from multiple pathogen types, we can routinely detect fewer than three organisms using our bpHDA target amplification approach and have detected the identity of as few as 100 organisms using our AMPED signal amplification approach. Because the speed of bpHDA is only limited by the speed of the enzymes, we have demonstrated the ability to detect target DNA in less than 20 minutes of amplification time.

High Content Panels.  Each of the 64 capture probes in our cartridge act independently to produce highly specific and sensitive detection for a given DNA target. The chip is optimized so that changes as small as a single base in DNA target sequence can be readily detected, allowing for detection of clinically meaningful mutations in DNA target samples. Our bpHDA technology is highly specific, allowing for simultaneous amplification of multiple DNA targets. The AMPED approach can be used to directly detect clinical specimens, thereby eliminating typical limitations of multiplexing. We expect the combination of highly multiplexed amplification and detection will allow for information-rich, multi-target panel results that allow clinicians to both rule-out and rule-in causes of disease. We believe this approach will lower testing costs and speed up the time to appropriate patient treatment, improving patient outcomes.

Ease of Development of New Assays.  Early diagnostic test prototypes can be developed using our standard 96 well plates capable of processing 96 samples in a single experiment, rather than processing individual samples in the analyzer. We believe that this capability allows us to more easily develop and optimize new assays before transferring the design to the instrumented platform. Additionally, well-established software tools enable us to design and develop DNA probes and primers. The flexibility of the cartridge design allows for utilization of an efficient, low-cost approach for sample processing.

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License Agreements

BioHelix.  We hold non-exclusive licenses to key technologies from BioHelix related to isothermal amplification of nucleic acid targets, utilizing helicase-dependent amplification, or HDA. The term of this license agreement extends until the expiration of all the patents associated with the licensed patent rights, or until such time as we elect to terminate with 30 days’ notice. This license is limited to the fields of human diagnostic testing utilizing our solid chip surface detection and contains diligence and U.S. preference provisions. To date, these technologies have resulted in three issued U.S. patents, one issued European patent and one pending international patent family. In addition, these technologies may include related technologies that BioHelix may develop in the future. The BioHelix technologies are the basis of our nucleic acid amplification approach. In May of 2013, Quidel Corporation, a competitor of ours, purchased BioHelix. We pay a royalty fee for the licensing of this technology based on a percentage of our “Net Sales” of assays using these technologies (as defined in the license agreement).

IDT.  In August 2010, we entered into a license agreement with Integrated DNA Technologies, or IDT, related to the use of blocked primers in combination with HDA. The term of this license agreement extends until the expiration of all the patents associated with the licensed patent rights, or until such time as we elect to terminate with 90 days’ notice. The license is exclusive to the fields of amplification utilizing HDA and detection of diagnostic targets in human in-vitro diagnostic testing, but is non-exclusive to all oncology and human papilloma virus targets or markers. These technologies have resulted in four pending U.S. patent applications and one issued European patent. We pay a royalty fee for the license of this technology based on a percentage of our “Net Sales” of products using these technologies (as defined in the license agreement).

Pursuant to the terms of these license agreements, we pay royalty fees in the aggregate equal to 14% of our worldwide “Net Sales” of those products that use these technologies (as defined and adjusted pursuant to the terms of the applicable license agreements). Our C. diff product is our only commercial product that uses these technologies. Our products under review by the FDA and all of our products under development do not use these technologies and will not be subject to royalty fees.

Market Opportunity

We believe the global market for molecular diagnostic testing is approximately $5.0 billion per year and will experience a growth rate of approximately 12% per year over the course of the next several years based on research published by outside market research firms. We believe our proprietary sample-to-result platform is best suited to address a subset of this market, including hospital-acquired infections and other infectious diseases.

C. diff.  According to the Agency for Healthcare Research and Quality, there are 347,000 cases of C. diff annually in the United States;
Group B Strep. According to the CDC, there were 4.0 million registered births in the United States in 2012 and nearly every pregnant woman in the United States is tested for Group B Strep in the late third trimester;
Staphylococcus Identification and Resistance Panel.  According to a market survey, there are 4.2 million positive blood cultures each year in the United States;
Shiga Toxin Producing E. coli.  According to the Agency for Healthcare Research and Quality, there were nearly five million U.S. Hospital visits in 2010 for gastrointestinal distress that suggested food-borne illness and each of these patients could potentially be tested for STEC;
Staph Aureus Pre-Surgical Screening.  According to the CDC, there were 51.4 million in-patient and outpatient surgeries in the United States in 2010. These surgeries represent the primary market for our SA Pre-Surgical Nasal Screen test, as every surgical patient could potentially be tested; and
Stool Bacterial Pathogenic Panel.  According to the Agency for Healthcare Research and Quality, there were nearly five million U.S. hospital visits in 2010 for gastrointestinal distress that suggested food-borne illness and each of these patients could potentially be tested for food borne pathogens.

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We anticipate that the market for the molecular diagnostic assays on which we are focused will increase significantly over the next several years. We believe that many factors are driving growth of this market, particularly the accelerating adoption of molecular testing inside the hospital micro-biology lab. Based on published research we believe that fewer than half of all hospitals are currently using molecular testing for their infectious disease testing. More importantly, we believe that a far smaller fraction of all testing done in hospital labs is molecular. We believe that as molecular testing becomes more cost effective, its advantages of faster time to result and higher sensitivity relative to legacy testing methods will lead more and more hospitals to convert to molecular testing.

Our diagnostic tests are currently sold in the United States, Europe and New Zealand. We currently utilize a direct sales and support team in the United States and in certain key European countries and New Zealand utilize distributors, which we expect will be augmented by marketing partners and distributors in other strategic areas as we expand internationally.

According to the US Center for Disease Control, in 2012 there were approximately 5,700 hospitals in the United States, approximately 4,900 of which are under 400 beds and which we refer to as small to medium sized hospitals. According to outside research, fewer than half of those smaller hospitals have made the switch to molecular methods for diagnosing infectious disease. Based on our competitors’ public statements and published independent reports, we believe that 20% of small-to-medium sized hospitals have a sample to result molecular system. We believe these hospitals are excellent candidates for our molecular diagnostic systems. We believe that our platform will enable these hospitals — many of which could not previously afford more expensive or complex molecular diagnostic testing platforms — to modernize their laboratory testing and provide better patient care at an affordable cost.

The first step to acquiring a customer is an evaluation. During the evaluation period, potential customers utilize our platform alongside their current testing method (molecular or non-molecular) and at the end of the evaluation period determine if they are interested in switching to our platform, as evidenced by the purchase of our assays on a recurring basis, or by remaining with their current testing method. Our recent customer and evaluation history is as follows excluding Staph ID/R and STEC diagnostic assays as they were in the beginning stages of the evaluation period):

         
  Total
U.S.
Customers
  C. Diff
Customers
  C. Diff
Penetration
  Group B
Strep
Customers
  Group B
Strep
Penetration
Third Quarter 2014     80