8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 3, 2016

GREAT BASIN SCIENTIFIC, INC.

(Exact name of Registrant as Specified in Its Charter)

Delaware	001-36662	83-0361454
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

420 E. South Temple, Suite 520, Salt Lake City, UT

(Address of principal executive offices)

84111

(Zip code)

(801) 990-1055

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On November 14, 2016, Great Basin Scientific Inc. (the “Company”) issued a press release announcing  its revenues and customer results for the quarter ended September 30, 2016. A copy of this press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is  incorporated by reference herein.

In accordance with General Instruction B.2 of Form 8-K, the information in this Item, including the exhibit attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the  Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 3.02 Unregistered Sales of Equity Securities

On November 8, 2016, certain holders of the Series F Convertible Preferred Stock (“Preferred Stock’) were issued shares of the Company’s common stock pursuant to Section 3(a)(9) of the United States Securities Act of 1933, (as amended) in connection with the mandatory conversion of the Preferred Stock under the terms of the Certificate of Designations for the Preferred Stock.  In connection with the mandatory conversions, the Company issued 4,100,000 shares of common stock upon the conversion of 82 shares of Preferred Stock at a conversion price of $0.02 per share.

The Company previously filed an 8-K on November 4, 2016 and reported 148,583,055 shares of common stock outstanding therefore as of November 14, 2016 there are 152,683,055 shares of common stock issued and outstanding.

Item 3.03 Material Modifications to Rights of Security Holders

In connection with the mandatory conversion of preferred stock in Item 3.02 hereof, the exercise prices or conversion prices of certain of our issued and outstanding securities were automatically adjusted to take into account  the mandatory conversion price of the Preferred Stock.  The exercise price of the following securities were adjusted as follows:

Series B Warrants

As of November 14, 2016, the Company has outstanding Series B Warrants to purchase 36 shares of common stock of the Company.  The Series B Warrants include a provision which provides that the exercise prices of the Series B Warrants will be adjusted in connection with certain equity issuances by the Company.  The mandatory conversions of the Preferred Stock triggers an adjustment to the exercise price of the Series B Warrants.  Therefore, during the period of October 31 through November 4, 2016, the exercise price for the Series B Warrants was adjusted from $92,503 to $91,675 per share of common stock.

Series D and 2015 Subordination Warrants

As of November 14, 2016, the Company has outstanding Series D and 2015 Subordination Warrants to purchase 1,290 shares of common stock of the Company.  The Series D and 2015 Subordination Warrants include a provision which provides that the exercise prices of the Series D and 2015 Subordination Warrants will be adjusted in connection with certain equity issuances by the Company.  The mandatory conversions of the Preferred Stock triggers an adjustment to the exercise price of the Series D and 2015 Subordination Warrants.  Therefore, as of November 3, 2016, the exercise price for the Series D and 2015 Subordination Warrants was adjusted from $126.40 to $0.02 per share of common stock.

Series H and 2015 Subordination Warrants

As of November 14, 2016, the Company has outstanding Series H and 2016 Subordination Warrants to purchase 724,219 shares of common stock of the Company.  The Series H and 2016 Subordination Warrants include a provision

which provides that the exercise prices of the Series H and 2016 Subordination Warrants will be adjusted in connection with certain equity issuances by the Company.  The mandatory conversions of the Preferred Stock triggers an adjustment to the exercise price of the Series H and 2016 Subordination Warrants.  Therefore, as of November 3, 2016, the exercise price for the Series H and 2016 Subordination Warrants was adjusted from $166.40 to $0.02 per share of common stock.

2016 Convertible Notes

As of November 14, 2016, the Company has outstanding $75 million senior secured convertible notes (“2016 Notes”).  The 2016 Notes include a provision which provides that the conversion price of the 2015 Notes will be adjusted in connection with certain equity issuances by the Company.  The mandatory conversions of the Preferred Stock trigger an adjustment to the conversion price of the 2016 Notes.  Therefore, as of November 3, 2016, the conversion price for the 2016 Notes was adjusted from $160.00 to $0.02 per share of common stock.

Item 7.01 Regulation FD Disclosure.

On November 14, 2016, the Company issued a press release announcing  its revenue and customer results for the quarter ended September 30, 2016. A copy of this press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.

On November 14, 2016, the Company issued a letter to its shareholders regarding an update on business results for the quarter ended September 30, 2016. A copy of this press release is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated by reference herein.

In accordance with General Instruction B.2 of Form 8-K, the information in this Item, including the exhibits attached hereto, shall not be deemed “filed” for purposes of Section 18 of the  Exchange Act, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01     Financial Statements and Exhibits.

Exhibit No.                                Description

99.1*                      Press Release dated November 14, 2016.

99.2*  Letter to Shareholders dated November 14, 2016

* The Exhibits relating to Items 2.02 and 7.01 are  intended to be furnished to, not filed with, the SEC pursuant to Regulation FD 

SIGNATURE

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

		GREAT BASIN SCIENTIFIC, INC.
Date: November 14, 2016	By:	/s/ Ryan Ashton
		Ryan Ashton
		President and Chief Executive Officer

EX-99.1

     Exhibit 99.1

Great Basin Scientific Reports Third Quarter 2016 Results

Company sees 35% year-over-year revenue growth; Group B Strep revenue up 339% year-over-year; C. diff revenue increased 20% year-over-year

Salt Lake City, November 14, 2016 – Great Basin Scientific, Inc. (OTCQB: GBSN), a molecular diagnostic testing company, today reported financial results for the third quarter ended September 30, 2016.

Third Quarter 2016 Financial Results and Business Highlights

• Revenue increased 35% to $735,817 compared with a year ago

• Group B strep revenue increased 339% year-over-year, from $24,770 in the third quarter of 2015 to $108,730 in the same period of 2016, and now represents 15% of total revenue

• C. diff revenue increased 20% year-over-year, from $521,164 in the third quarter of 2015 to $625,827 in same period of 2016

• Completed $75 million convertible note financing

• Menu doubled to four assays with the commercial launches of Shiga Toxin Direct Test and Staph ID/R Blood Culture Panel

• Established Health Systems Sales Team to expand the Company’s reach into larger hospital chains and buying groups

“We’re thrilled with the continued growth of our Group B Strep revenue and its increasing contribution to our business – now at 15% – which offset expected seasonal declines in C. diff revenue in the quarter. Further, with the commercial launch of two new assays in the third quarter, we have additional products to grow revenue while potentially reducing the seasonality of our revenue stream,” said Ryan Ashton, co-founder and chief executive officer. “The Staph ID/R panel and the Shiga Toxin Direct test have opened the door to potential placement of our system at much larger hospitals and labs, as well as adding assays and volumes at existing customer sites without additional instruments – a shift that should allow us to better utilize our fleet of instruments while we continue to seek increased revenue per customer. We believe this momentum is exciting in that the investments we’re making in the business are paying off with revenue growth, an expanding customer base, and the continued commercialization of new assays, all of which benefits both our customers and shareholders.”

Third Quarter 2016 Results

Great Basin reported total revenue of $735,817 for the third quarter of 2016, an increase of 35% over revenue of $545,934 in the third quarter of 2015.

Total operating expenses were $7,845,649 for the third quarter of 2016 compared with $6,155,222 for the third quarter of 2015, an increase of 27%. Research and development expenses increased 30% to $3,737,415 primarily due to new hires and additional costs associated with clinical trials, experimental assays, and outside consultants, related to the development of new products. Selling and marketing expenses increased 11% to $1,644,075 due to hiring additional personnel to increase product sales and add customers. General and administrative expenses increased 37% to $2,464,159 due to increased rent, higher legal and consulting fees, and the hiring of additional accounting and HR personnel.

Loss from operations was $9,271,811 for the third quarter of 2016 compared with $6,712,015 for the third quarter of 2015.

Great Basin reported a net loss for the third quarter of 2016 of $29,047,775 compared to net income of $13,056,359 in the third quarter of 2015. Basic and diluted net loss per share was $50.36 for the third quarter of 2016 on 576,752 basic and diluted weighted average common shares. This compared to basic and diluted net income per share of $58,287.32 and $48,001.32, respectively, for the same period in 2015. The basic and diluted weighted average common shares for the third quarter of 2015 were 224 and 272, respectively. Excluding non-cash adjustments, the Company reported an adjusted net loss for the third quarter of 2016 of $9.8 million compared with an adjusted net loss of $6.9 million a year ago. An explanation of non-cash adjustments included in the non-GAAP adjusted net loss follows:

Non-GAAP Financial Measure

This press release includes an Adjusted Net Loss “non-GAAP financial measure” as defined by the Securities and Exchange Commission. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). For reconciliation of this non-GAAP financial measures to the nearest comparable GAAP measure, see “Reconciliation of Non-GAAP Financial Measure” included in this press release.

Reconciliation of Non-GAAP Financial Measure

Adjusted Net Loss

The Company excludes certain non-cash items in calculating adjusted net loss because they are non-cash in nature and because the Company believes that the non-GAAP financial measures, which exclude these items, provide meaningful supplemental information regarding operational performance. The Company further believes this measure is useful to investors in that it allows for greater transparency to certain line items in its financial statement and facilitates comparisons to peer operating results.

GREAT BASIN SCIENTIFIC, INC.

ADJUSTED NET LOSS

(Unaudited)

	Three Months Ended
	September 30,
The calculation of adjusted net loss is as follows:	2016	2015
Net income (loss)	$     (29,047,775)	$      13,056,359
Adjustment for amortization of debt discount in interest	18,530,055	-
Adjustment for loss on issuance of note in interest	119,185,886	-
Adjustment for loss on extinguishment of debt	17,292,463	-
Adjustment for change in fair value of derivative liability	(135,727,676)	(20,016,848)
Adjusted net loss	$       (9,767,047)	$      (6,906,489)

Amortization of Debt Discount Included in Interest

The amortization of the debt discount that is included in interest for the three months ended September 30, 2016 resulted in a non-cash other expense recorded in earnings of $18.5 million. This is a non-cash charge resulting from the amortization of the debt discounts on our two convertible notes. The amortization amounts for the period totaled $3.0 million on the $22.1 convertible notes (the 2015 Notes) and $15.5 million on the $75 million convertible notes (the 2016 Notes).

Loss on Issuance of Convertible Note in Interest

The loss on issuance of note that is included in interest for the three months ended September 30, 2016 resulted in non-cash other expense recorded in earnings in the amount of $119.2 million. This is a non-cash charge resulting from the issuance of the 2016 Notes which due to the conversion features and warrants issued with the convertible notes were required to be accounted for as derivative liabilities. The fair value of the derivative liability amounts in excess of the $68 million proceeds received on the convertible notes was $119.2 million which was recognized as a cost of capital at issuance and accordingly charged to interest expense.

Loss on Extinguishment of Debt

The loss on extinguishment of debt for the three months ended September 30, 2016 resulted in a non-cash other expense recorded in earnings in the amount of $17.3 million. This non-cash expense is the result of the payment of $8 million in principal on the 2015 Notes through the issuance of 2.1 million shares of common stock. Due to the nature of the conversion feature of the notes, conversions were deemed to be extinguishments for accounting purposes and accordingly a loss in the amount of $17.3 million was recognized.

Change in Fair Value of Derivative Liability

The change in fair value of the derivative liability for the three months ended September 30, 2016 resulted in a non-cash gain in earnings in the amount of $135.7 million. The Company had a decrease in fair value of its conversion feature and warrants associated with the 2015 and 2016 Notes and a decrease in the fair value of all other derivative securities, which was a result of the decrease in the value of its common stock during the third quarter of 2016.

During the three months ended September 30, 2015, the fair value of all derivative securities decreased by $20 million, also due to the decrease in the value of the Company’s common stock during the period.

About Great Basin Scientific

Great Basin Scientific is a molecular diagnostics company that commercializes breakthrough chip-based technologies. The Company is dedicated to the development of simple, yet powerful, sample-to-result technology and products that provide fast, multiple-pathogen diagnoses of infectious diseases. The Company’s vision is to make molecular diagnostic testing so simple and cost-effective that every patient will be tested for every serious infection, reducing

misdiagnoses and significantly limiting the spread of infectious disease. More information can be found on the Company’s website at www.gbscience.com.

Forward-Looking Statements

This press release contains forward-looking statements regarding events, trends and business prospects, which may affect future operating results and financial position, including but not limited to statements regarding the potential future commercial success of the Company’s assays, the Company’s continued revenue growth, adding the Company’s systems to larger hospitals and labs, expanding assays at existing customers, investments yielding higher revenue per customer, expanded customer base and new assays in the future, building the Company’s total revenue base, increasing sales per instrument, and reducing seasonality in the Company’s revenue stream. Forward-looking statements involve risk and uncertainties, which could cause actual results to differ materially, and reported results should not be considered an indication of future performance. These risks and uncertainties include, but are not limited to: (i) our limited operating history and history of losses; (ii) our ability to develop and commercialize new products and the timing of commercialization; (iii) our ability to obtain capital when needed; and (iv) other risks set forth in the Company’s filings with the Securities and Exchange Commission, including the risks set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2016. These forward-looking statements speak only as of the date hereof and Great Basin Scientific specifically disclaims any obligation to update these forward-looking statements, except as required by law.

FINANCIAL TABLES FOLLOW

The following financial tables should be read in conjunction with the accompanying footnotes and management’s discussion and analysis, available in the Company quarterly report on Form 10-Q as filed with the SEC on November 14, 2016.

GREAT BASIN SCIENTIFIC, INC.

CONDENSED BALANCE SHEETS

September 30, 2016 and December 31, 2015

(Unaudited)

	September 30			December 31,
	2016			2015
Assets
Current assets:
Cash	$	809,763		$	4,787,759
Restricted cash		44,859,005			13,800,000
Accounts receivable, net		399,057			411,390
Inventory		1,526,871			1,133,142
Prepaid and other current assets		1,989,555			564,910
Total current assets		49,584,251			20,697,201
Restricted cash, net of current portion		24,226,172			-
Intangible assets, net		56,113			119,171
Property and equipment, net		9,536,557			7,741,991
Total assets	$	83,403,093		$	28,558,363
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable	$	3,832,855		$	2,432,459
Accrued expenses		5,049,228			1,313,149
Current portion of notes payable		—			5,693
Current portion of convertible notes payable, net of discount		27,088,069			1,638,717
Notes payable - related party		500,000			500,000
Current portion of capital lease obligations		1,158,027			1,305,426
Current portion of derivative liability		49,836,741			—
Total current liabilities		87,464,920			7,195,444
Convertible notes payable, net of current portion and debt discount		—			525,000
Capital lease obligations, net of current portion		129,185			851,410
Derivative liability, net of current portion		55,735,294			43,181,472
Other long term liabilities		1,550,769			—
Total liabilities		144,880,168			51,753,326
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.001 par value, 5,000,000 shares authorized;
74,380 and 88,347 shares issued and outstanding, respectively		74			88
Common stock, $.0001 par value: 200,000,000 shares authorized;
2,536,564 and 3,711 shares issued and outstanding, respectively		254			-
Additional paid-in capital		143,403,760			98,708,814
Accumulated deficit		(204,881,163	)		(121,903,865	)
Total stockholders' deficit		(61,477,075	)		(23,194,963	)
Total liabilities and stockholders' deficit	$	83,403,093		$	28,558,363

GREAT BASIN SCIENTIFIC, INC.

CONDENSED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2016 and 2015

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Revenues	$	735,817		$	545,934		$	2,196,196		$	1,530,170
Cost of sales		2,161,979			1,102,727			5,912,095			3,369,268
Gross loss		(1,426,162	)		(556,793	)		(3,715,899	)		(1,839,098	)
Operating expenses:
Research and development		3,737,415			2,878,316			9,492,887			6,284,170
Selling and marketing		1,644,075			1,481,140			4,892,903			3,206,957
General and administrative		2,464,159			1,795,766			7,163,214			4,132,973
Total operating expenses		7,845,649			6,155,222			21,549,004			13,624,100
Loss from operations		(9,271,811	)		(6,712,015	)		(25,264,903	)		(15,463,198	)
Other income (expense):
Interest expense		(138,214,061	)		(253,220	)		(150,685,479	)		(868,587	)
Interest income		2,884			4,746			4,183			18,078
Net gain on exchange and issuance of warrants		—			—			3,374,752			—
Loss on extinguishment of debt		(17,292,463	)		—			(17,292,463	)		—
Change in fair value of derivative liability		135,727,676			20,016,848			106,888,362			(22,641,625	)
Total other income (expense)		(19,775,964	)		19,768,374			(57,710,645	)		(23,492,134	)
Income (loss) before provision for income taxes		(29,047,775	)		13,056,359			(82,975,548	)		(38,955,332	)
Provision for income taxes		—			—			(1,750	)		(1,250	)
Net income (loss)	$	(29,047,775	)	$	13,056,359		$	(82,977,298	)	$	(38,956,582	)
Net income (loss) per common share - basic	$	(50.36	)	$	58,287.32		$	(371.54	)	$	(397,516.14	)
Net income (loss) per common share - diluted	$	(50.36	)	$	48,001.32		$	(371.54	)	$	(397,516.14	)
Weighted average common shares - basic		576,752			224			223,336			98
Weighted average common shares - diluted		576,752			272			223,336			98

GREAT BASIN SCIENTIFIC, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2016 and 2015

(Unaudited)

	Nine Months Ended
	September 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(82,977,298	)	$	(38,956,582	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,858,357			1,130,826
Bad debt expense		85,182			—
Change in fair value of derivative liability		(106,888,362	)		22,641,625
Loss on issuance on convertible note as interest		119,185,886			—
Loss on extinguishment of debt		17,292,463			—
Net gain on exchange and issuance of warrants		(3,374,752	)		—
Employee stock compensation		111,133			66,391
Warrant issuance and modifications		—			54,489
Debt discount amortization		30,418,591			58,333
Changes in operating assets and liabilities:
Increase in accounts receivable		(72,849	)		(77,959	)
Increase in inventory		(393,729	)		(576,872	)
Increase in prepaid and other assets		(712,455	)		(197,270	)
Increase in accounts payable		572,867			457,250
Increase in accrued liabilities		756,848			552,275
Net cash used in operating activities		(24,138,118	)		(14,847,494	)
Cash flows from investing activities:
Acquisition of property and equipment		(912,862	)		(842,225	)
Construction of equipment		(1,995,542	)		(3,223,827	)
Net cash used in investing activities		(2,908,404	)		(4,066,052	)
Cash flows from financing activities:
Proceeds from exercise of warrants		1,449,850			3,166,394
Proceeds from issuance of convertible notes payable		5,451,163			—
Proceeds from follow-on offering		10,719,121			21,737,625
Proceeds from issuance of notes payable - related party		—			250,000
Proceeds from release of restricted cash		6,718,726			—
Payment of cash settlement for warrant exercises		(314,879	)		—
Principal payments of capital leases		(949,762	)		(667,630	)
Principal payments of notes payable		(5,693	)		(36,955	)
Principal payments of notes payable -related party		—			(250,000	)
Net cash provided by financing activities		23,068,526			24,199,434
Net increase (decrease) in cash		(3,977,996	)		5,285,888
Cash, beginning of the period		4,787,759			2,017,823
Cash, end of the period	$	809,763		$	7,303,711
Supplemental disclosures of cash flow information:
Interest paid	$	1,100,999		$	818,378
Income taxes paid	$	1,750		$	1,250
Supplemental schedule of non-cash investing and financing activities:
Restricted cash proceeds from convertible note	$	62,000,020		$	—
Conversion of note payable to preferred stock	$	—		$	10,478
Assets acquired through capital leases	$	80,138		$	—
Initial public offering and follow-on offering costs incurred but unpaid	$	412,323		$	41,175
Property and equipment included in accounts payable	$	601,323		$	240,183
Cashless exercise of warrants	$	2		$	173,657
Issuance of stock for 2015 Note pre-installment	$	712,190		$	—
Change in derivative liability from exercised and issued warrants	$	15,162,431		$	24,400,224

Investor Relations Contact:

Betsy Hartman, Great Basin Scientific

(385) 215-3372

ir@gbscience.com

Media Contact:

Nirav Suchak, ICR

(646) 277-1257

nirav.suchak@icrinc.com

EX-99.2

Exhibit 99.2

Business Update

Third Quarter 2016

November 14, 2016

Dear Great Basin Scientific Shareholder:

There has been a lot of activity at Great Basin over the last quarter, in terms of progress toward reaching company goals for footprint and revenue growth, menu expansion, and the amortization of the 2015 Notes. To help explain what we are delivering and what we're building toward, the following is a summary of Great Basin’s business metrics and status:

Revenues and Customers

Revenues for the third quarter increased 35% year over year, primarily from the sale of two tests, C. diff and Group B Strep. Sales of Group B Strep tests increased 339% during the third quarter of 2016 compared with a year ago, while C. diff increased 20% during the same period. As expected, sales of C. diff tests remained soft due to the decline in C. diff testing that occurs outside of flu season, which runs October through May. We expect C. diff revenues to climb over the next two quarters as we enter flu season, while we expect to record increased sales of Group B Strep. Our installed customer base grew 78% during the 2016 third quarter compared to a year ago, to 255 customers. While this represents a decrease in installed sites from the second quarter 2016, the decrease in part reflects our concerted efforts to take back under-utilized analyzers at low-volume sites for placement with higher volume, higher value customer sites. We now have 510 analyzers placed with a higher revenue per instrument (RPI), which, along with our expanded product menu, should continue to improve average RPI.

Product Launches

During the quarter, we doubled our product menu with the commercial launch of two new products: a test for Shiga Toxin producing E. coli (STEC); and a panel for blood sepsis caused by Staphylococcus bacteria (Staph ID/R).  While both products have longer evaluation windows than C. diff and Group B Strep, commercial launches for both are progressing well and we are pleased with both the level of interest expressed by our existing customers, and the interest from hospitals and reference labs. Particularly exciting to us is the expressed interest from large

medical centers and research hospitals that typically do much higher volumes of testing than our historical customer base of smaller suburban and rural hospitals, which, if they adopt our systems and utilize our assays, could result in higher RPI. While we recorded no meaningful revenue from either product in the third quarterfor these assays, we expect both placements and revenues to continue to rise, with the expectation that these products will make notable contributions to revenues by mid-2017.

Menu Expansion

Going forward, we will continue to develop and market assays that meet our customers’ needs, contribute to our revenue growth, and maximize the utility of our analyzers. To that end, we recently completed the clinical trial of our Stool Bacterial Pathogens Panel and expect to finish the clinical trial of the Bordetella Direct Test before the end of the year. As previously disclosed, we have three additional products in late-stage development: Chlamydia-Gonorrhea test, Staph Aureus Pre-surgical screening test, and Fungal Pathogen from Blood Culture panel. These development projects remain on schedule, and we expect to commence clinical trials for all three in early 2017. Our goal, pending successful completion of the clinical trials and subsequent approval by the FDA, is to have six assays commercialized in 2017.

Cash Burn

During the third quarter, we finalized a financial management plan to hold costs and reduce cash burn while continuing to execute our product development goals. This plan, which is anticipated to launch in the first quarter of 2017, is designed to hold selling, general and administrative spending at or close to current levels, stabilize operational overhead while seeking to build revenues, and reduce cost of goods sold through bringing certain sub-assemblies in-house and benefitting from volume-related cost savings. Our research and development spending will also be reduced following the completion of clinical trial for the Bordetella Direct Test and 510(k) submission for the Stool Bacterial Pathogens Panel. Additionally, we expect to see improvement in revenue per test as a result of the higher price point of the Staph ID/R and Stool Bacterial Pathogens panels compared to per test pricing for our low-plex tests.

Adjusted Net Loss

For the third quarter, we reported an adjusted net loss of $9.8 million. Our adjusted net loss excludes all non-cash gains and charges related to the accounting of the 2015 and 2016

convertible notes, and reflects what we believe is a more meaningful view of our actual operational performance. An explanation of non-cash adjustments included in our adjusted net loss follows this letter.

Summary

We are pleased with our operating progress in 2016—our new products launches are creating strong sales momentum, and our cost containment plans are progressing on schedule. Thank you for continuing to support Great Basin.

Ryan Ashton and the Great Basin Team

Non-GAAP Financial Measure

This letter includes an Adjusted Net Loss “non-GAAP financial measure” as defined by the Securities and Exchange Commission. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). For reconciliation of this non-GAAP financial measures to the nearest comparable GAAP measure, see “Reconciliation of Non-GAAP Financial Measure” included in this letter.

Reconciliation of Non-GAAP Financial Measure

Adjusted Net Loss

The Company excludes certain non-cash items in calculating adjusted net loss because they are non-cash in nature and because the Company believes that the non-GAAP financial measures, which exclude these items, provide meaningful supplemental information regarding operational performance. The Company further believes this measure is useful to investors in that it allows for greater transparency to certain line items in its financial statement and facilitates comparisons to peer operating results.

GREAT BASIN SCIENTIFIC, INC.

ADJUSTED NET LOSS

(Unaudited)

	Three Months Ended
	September 30,
The calculation of adjusted net loss is as follows:	2016	2015
Net income (loss)	$     (29,047,775)	$      13,056,359
Adjustment for amortization of debt discount in interest	18,530,055	-
Adjustment for loss on issuance of note in interest	119,185,886	-
Adjustment for loss on extinguishment of debt	17,292,463	-
Adjustment for change in fair value of derivative liability	(135,727,676)	(20,016,848)
Adjusted net loss	$       (9,767,047)	$      (6,906,489)

Amortization of Debt Discount Included in Interest

The amortization of the debt discount that is included in interest for the three months ended September 30, 2016 resulted in a non-cash other expense recorded in earnings of $18.5 million. This is a non-cash charge resulting from the amortization of the debt discounts on our two convertible notes. The amortization amounts for the period totaled $3.0 million on the $22.1 convertible notes (the 2015 Notes) and $15.5 million on the $75 million convertible notes (the 2016 Notes).

Loss on Issuance of Convertible Note in Interest

The loss on issuance of note that is included in interest for the three months ended September 30, 2016 resulted in non-cash other expense recorded in earnings in the amount of $119.2 million. This is a non-cash charge resulting from the issuance of the 2016 Notes which due to the conversion features and warrants issued with the convertible notes were required to be accounted for as derivative liabilities. The fair value of the derivative liability amounts in excess of the $68 million proceeds received on the convertible notes was $119.2 million which was recognized as a cost of capital at issuance and accordingly charged to interest expense.

Loss on Extinguishment of Debt

The loss on extinguishment of debt for the three months ended September 30, 2016 resulted in a non-cash other expense recorded in earnings in the amount of $17.3 million. This non-cash expense is the result of the payment of $8 million in principal on the 2015 Notes through the issuance of 2.1 million shares of common stock. Due to the nature of the conversion feature of the notes, conversions were deemed to be extinguishments for accounting purposes and accordingly a loss in the amount of $17.3 million was recognized.

Change in Fair Value of Derivative Liability

The change in fair value of the derivative liability for the three months ended September 30, 2016 resulted in a non-cash gain in earnings in the amount of $135.7 million. The Company had a decrease in fair value of its conversion feature and warrants associated with the 2015 and 2016 Notes and a decrease in the fair value of all other derivative securities, which was a result of the decrease in the value of its common stock during the third quarter of 2016.

During the three months ended September 30, 2015, the fair value of all derivative securities decreased by $20 million, also due to the decrease in the value of the Company’s common stock during the period.

Forward-Looking Statements

This letter contains forward-looking statements regarding events, trends and business prospects, which may affect future operating results and financial position, including but not limited to statements regarding the potential future commercial success of the Company’s assays, the Company’s continued revenue growth, adding the Company’s systems to larger hospitals and labs, expanding assays at existing customers, investments yielding higher revenue per customer, expanded customer base and new assays in the future, building the Company’s total revenue base, anticipated timing of future clinical trials, increasing sales per instrument, and reducing seasonality in the Company’s revenue stream, anticipated future financing activity and use of funds from future financings, the Company becoming self-funded at some point in the future and other similar statements. Forward-looking statements involve risk and uncertainties, which could cause actual results to differ materially, and reported results should not be considered an indication of future performance. These risks and uncertainties include, but are not limited to: (i) our limited operating history and history of losses; (ii) our ability to develop and commercialize new products and the timing of commercialization; (iii) our ability to obtain capital when needed; and (iv) other risks set forth in the Company’s filings with the Securities and Exchange Commission, including the risks set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2016. These forward-looking statements speak only as of the date hereof and Great Basin Scientific specifically disclaims any obligation to update these forward-looking statements, except as required by law.