UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2023
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ________
to _________
Commission File Number:
001-39486
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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(
866
)
688-7374
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading
Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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☒
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
As of November 2, 2023, the registrant had
121,790,534
shares of Class A common stock outstanding and
19,937,500
shares of Class B common stock outstanding.
QUANTUM-SI INCORPORATED
FORM 10-Q
For the quarterly period ended September 30, 2023
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Page
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3
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Part I
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4
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Item 1.
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4
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4
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5
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6
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7
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8
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Item 2.
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22
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Item 3.
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32
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Item 4.
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32
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Part II
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33
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Item 1.
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33
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Item 1A.
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33
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Item 2.
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34
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Item 3.
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34
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Item 4.
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34
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Item 5.
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34
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Item 6.
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35
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36
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In this Quarterly Report on Form 10-Q, the terms “we”, “us”, “our”, the “Company” or “Quantum-Si” mean Quantum-Si Incorporated (formerly
HighCape Capital Acquisition Corp.) and our subsidiaries. Quantum-Si Incorporated was incorporated in Delaware on June 10, 2020.
The Company’s legal name became
Quantum-Si
Incorporated
following a business combination between the Company and Q-SI Operations Inc. (formerly
Quantum-Si Incorporated
) on June 10, 2021 (the “Business Combination”)
.
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that relate to future events, our future operations or financial performance, or our plans, strategies and prospects. These
statements are based on the beliefs and assumptions of our management team. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure that we will
achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or
assumed future actions, business strategies, events or performance, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,”
“should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these
identifying words. The forward-looking statements are based on projections prepared by, and are the responsibility of, our management. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to,
statements about:
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● |
the potential attributes and benefits of our commercialized Platinum
TM
protein sequencing instrument and our other products once
commercialized;
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● |
the success, cost and timing of our product development activities;
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● |
the commercialization and adoption of our existing products and the success of any product we may offer in the future;
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our manufacturing capabilities;
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our ability to obtain and maintain regulatory approval for our products, and any related restrictions and limitations of any approved product;
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the ability to maintain the listing of our Class A common stock on The Nasdaq Stock Market LLC (“Nasdaq”);
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our ongoing leadership transitions and our success in retaining or recruiting, or changes in, our officers, key employees or directors;
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our ability to identify, in-license or acquire additional technology;
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our intellectual property rights;
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our ability to maintain our existing license agreements and manufacturing arrangements;
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our ability to compete with other companies currently marketing or engaged in the development of products and services that serve customers engaged in
proteomic analysis, many of which have greater financial and marketing resources than us;
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the size and growth potential of the markets for our products, and the ability of each product to serve those markets once commercialized, either alone
or in partnership with others;
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our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
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our financial performance;
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changes in applicable laws or regulations;
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market conditions and global and economic factors, such as inflation; and
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our ability to raise financing in the future.
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These forward-looking statements are based on information available as of the date of this report, and current expectations, forecasts and
assumptions, and involve a number of judgments, risks and uncertainties. Important factors could cause actual results, performance or achievements to differ materially from those indicated or implied by forward-looking statements such as those
described under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, in Item 1A of Part II of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June
30, 2023, and in other filings that we make with the Securities and Exchange Commission. The risks described under the heading “Risk Factors” are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such
risk factors, nor can we assess the impact of all such risk 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 any forward-looking statements.
Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as
required by law.
QUANTUM-SI INCORPORATED
(in thousands, except share and per share amounts)
(Unaudited)
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September 30,
2023
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December 31,
2022
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|||||||
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Assets
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||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$
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$
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Marketable securities
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||||||
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Accounts receivable, net of allowance for estimated credit losses of $
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Inventory, net
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Prepaid expenses and other current assets
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Total current assets
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Property and equipment, net
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Internally developed software
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Operating lease right-of-use assets
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| Other assets |
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Total assets
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$
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$
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Liabilities and stockholders’ equity
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||||||||
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Current liabilities:
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||||||||
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Accounts payable
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$
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$
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Accrued expenses and other current liabilities
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||||||
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Current portion of operating lease liabilities
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||||||
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Total current liabilities
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Warrant liabilities
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Other long-term liabilities
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Operating lease liabilities
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Total liabilities
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||||||
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Commitments and contingencies (Note 15)
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Stockholders’ equity
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||||||||
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Class A Common stock, $
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||||||
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Class B Common stock, $
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||||||
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Additional paid-in capital
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||||||
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Accumulated deficit
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(
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)
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(
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)
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||||
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Total stockholders’ equity
|
|
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||||||
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Total liabilities and stockholders’ equity
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$
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$
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||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
QUANTUM-SI INCORPORATED
(in thousands, except share and per share amounts)
(Unaudited)
|
Three months ended September 30,
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Nine months ended September 30,
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|||||||||||||||
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2023
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2022
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2023
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2022
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|||||||||||||
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Revenue:
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||||||||||||||||
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Product
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$ |
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$ |
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$ |
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$ |
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||||||||
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Service
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||||||||||||
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Total revenue
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Cost of revenue
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| Gross profit |
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Operating expenses:
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Research and development
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Selling, general and administrative
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Total operating expenses
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||||||||||||
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Loss from operations
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
| Dividend income |
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||||||||||||
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Unrealized gain (loss) on marketable securities
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(
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) |
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(
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) | ||||||||||
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Realized loss on marketable securities
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(
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) |
(
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) |
(
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) |
(
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) | ||||||||
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Change in fair value of warrant liabilities
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(
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)
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(
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)
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||||||||||
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Other income (expense), net
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(
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)
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|||||||||||
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Loss before provision for income taxes
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(
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)
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(
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)
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(
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)
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(
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)
|
||||||||
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Provision for income taxes
|
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||||||||||||
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Net loss and comprehensive loss
|
$
|
(
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)
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$
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(
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)
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$
|
(
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)
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$
|
(
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)
|
||||
|
Net loss per common share attributable to common stockholders, basic and diluted
|
$
|
(
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)
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$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted
|
|
|
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||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
QUANTUM-SI INCORPORATED
(in thousands, except share amounts)
(Unaudited)
|
Class A
common stock
|
Class B
common stock
|
Additional
paid-in
capital
|
Accumulated
deficit
|
Total
stockholders’
equity
|
||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||
|
Balance -
December 31, 2022
|
|
$
|
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
|
Net loss
|
-
|
|
-
|
|
|
(
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)
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(
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)
|
|||||||||||||||||||
|
Common stock issued upon vesting of restricted stock units
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Stock-based compensation
|
-
|
|
-
|
|
|
|
|
|
|
|||||||||||||||||||
|
Balance - March 31,
2023
|
|
$
|
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
|
Net loss
|
-
|
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Common stock issued upon vesting of restricted stock units
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Stock-based compensation
|
-
|
|
-
|
|
|
|
|
|||||||||||||||||||||
|
Balance - June 30,
2023
|
|
$
|
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
| Net loss | - |
|
- |
|
|
(
|
) |
(
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) | |||||||||||||||||||
|
Common stock issued upon exercise of stock options and vesting of restricted stock units
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Stock-based compensation | - |
|
- |
|
|
|
|
|||||||||||||||||||||
|
Balance - September 30,
2023
|
|
$ |
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||||||||||
|
Class A
common stock
|
Class B
common stock
|
Additional
paid-in
capital
|
Accumulated
deficit
|
Total
stockholders’
equity
|
||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||
|
Balance - December 31, 2021
|
|
$
|
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
|
Net loss
|
-
|
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Common stock issued upon exercise of stock options and vesting of restricted stock units
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Stock-based compensation
|
-
|
|
-
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Balance - March 31, 2022
|
|
$
|
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
|
Net loss
|
-
|
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Common stock issued upon exercise of stock options and vesting of restricted stock units
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Stock-based compensation
|
-
|
|
-
|
|
|
|
|
|||||||||||||||||||||
|
Balance - June 30, 2022
|
|
$
|
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||
| Net loss | - |
|
- |
|
|
(
|
) |
(
|
) | |||||||||||||||||||
|
Common stock issued upon exercise of stock options and vesting of restricted stock units
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Stock-based compensation
|
- |
|
- |
|
|
|
|
|||||||||||||||||||||
|
Balance - September 30, 2022
|
|
$ |
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
QUANTUM-SI INCORPORATED
(in thousands)
(Unaudited)
|
Nine Months Ended September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
|
Depreciation and amortization
|
|
|
||||||
|
Non-cash lease expense
|
|
|
||||||
|
Unrealized (gain) loss on marketable securities
|
(
|
) |
|
|||||
|
Realized loss on marketable securities
|
|
|
||||||
|
(Gain) loss on disposal of fixed assets
|
(
|
) |
|
|||||
|
Change in fair value of warrant liabilities
|
|
(
|
)
|
|||||
|
Change in fair value of contingent consideration
|
(
|
) |
|
|||||
|
Stock-based compensation
|
|
|
||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable, net
|
(
|
) |
|
|||||
|
Inventory, net
|
(
|
) |
|
|||||
|
Prepaid expenses and other current assets
|
(
|
)
|
(
|
)
|
||||
| Operating lease right-of-use assets |
(
|
) |
(
|
) | ||||
|
Other assets
|
(
|
) |
(
|
) | ||||
|
Accounts payable
|
(
|
)
|
(
|
)
|
||||
|
Accrued expenses and other current liabilities
|
(
|
)
|
|
|||||
|
Other long-term liabilities
|
|
|
||||||
| Operating lease liabilities |
(
|
) |
|
|||||
|
Net cash used in operating activities
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Cash flows from investing activities:
|
||||||||
|
Purchases of property and equipment
|
(
|
)
|
(
|
)
|
||||
|
Internally developed software - capitalized costs
|
(
|
) |
|
|||||
| Purchases of marketable securities |
|
(
|
) | |||||
|
Sales of marketable securities
|
|
|
||||||
|
Net cash provided by investing activities
|
$
|
|
$
|
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from exercise of stock options
|
|
|
||||||
|
Deferred offering costs
|
(
|
) |
|
|||||
|
Payment of contingent consideration - business acquisition
|
|
(
|
) | |||||
|
Payment of deferred consideration - business acquisition
|
|
(
|
) | |||||
|
Net cash provided by financing activities
|
$
|
|
$
|
|
||||
|
Net increase in cash and cash equivalents
|
|
|
||||||
|
Cash and cash equivalents at beginning of period
|
|
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
|
$
|
|
||||
|
Supplemental disclosure of non-cash
investing and financing activities
:
|
||||||||
|
Property and equipment purchased but not paid
|
$
|
|
$
|
|
||||
|
Deferred offering costs payable
|
|
|
||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
QUANTUM-SI INCORPORATED
(in thousands, except share and per share amounts)
(Unaudited)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Q
uantum-Si Incorporated (including its subsidiaries, the “Company” or “Quantum-Si”) (formerly HighCape Capital Acquisition Corp. (“HighCape”)) was
incorporated in Delaware on June 10, 2020. The Company’s legal name became Quantum-Si Incorporated following a business combination between the Company and Q-SI Operations Inc. (formerly Quantum-Si Incorporated) on June 10, 2021 (the “Business
Combination”).
The Company is an innovative life sciences company with the mission of
transforming single-molecule analysis and democratizing its use by providing researchers and clinicians access to the proteome, the set of proteins expressed within a cell. The Company has developed a proprietary universal single-molecule detection
platform that the Company is first applying to proteomics to enable Next-Generation Protein Sequencing
TM
(“NGPS”), the ability to sequence proteins in a massively parallel fashion (rather than sequentially, one at a time), and can be
used for the study of nucleic acids. The Company’s platform is currently comprised of the Platinum™ NGPS instrument and the Quantum-Si Cloud software service, and reagent kits and chips for use with its instruments.
Although the Company has incurred recurring losses each year since its inception,
the Company expects its cash and cash equivalents, and marketable securities will be able to fund its operations for at least the next twelve months.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and have been prepared in
accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial
reporting. All intercompany transactions are eliminated. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited consolidated
financial statements as of that date, but does not include all disclosures, including certain notes required by U.S. GAAP, on an annual reporting basis.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring
adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for any subsequent quarter, the year ending December 31, 2023, or any other period.
Except for revenue, inventory and capitalized software development costs discussed elsewhere in this note, there have been no material changes
to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Global Developments
In 2022, various central banks around the world (including the Federal Reserve in the United States) raised interest rates. These rate increases have
caused an overall decline in the fair value of the Company’s fixed income mutual funds to date. The impact of such rate changes on the overall financial markets and the economy may continue to impact the Company in the future, including by making
capital more difficult and costly to obtain on reasonable terms and when needed. In addition, the global economy has experienced and is continuing to experience high levels of inflation and global supply chain disruptions. The Company continues
to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic environment.
In addition, although the Company has no operations in or direct exposure to Russia or Ukraine, the Company has experienced some constraints in product and
material availability and increasing costs required to obtain some materials and supplies as a result of the impact of the Russia-Ukraine military conflict on the global economy, which has contributed to the global supply chain disruptions. To
date, the Company’s business has not been materially impacted by the conflict. However, as the conflict continues or worsens, it may adversely impact the Company’s business, financial condition, results of operations or cash flows.
Concentration of Business Risk
F
inancial instruments that potentially subject the
Company to concentration of credit risk consist principally of cash and cash equivalents and marketable securities. As of September 30, 2023 and December 31, 2022, substantially all of the Company’s marketable securities were invested in fixed
income mutual funds at one financial institution. See Note 5 “Investments in Marketable Securities” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information regarding o
ur
realized losses on such accounts. The Company also maintains balances in certain operating accounts above federally insured limits and, as a result, the Company is exposed to credit risk in the event of
default by the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation
.
The Company sources certain key materials and components
utilized in the Company’s products from single or limited suppliers. Historically, the Company has not experienced significant issues sourcing these materials and components. However, if these suppliers were not able to supply the requested
amount of materials or components, it could take a considerable length of time to obtain alternative sources, which could affect the Company’s development efforts and commercial operations.
Segment Reporting
The Company’s Chief Operating Decision Maker, its Chief Executive Officer, reviews the Company’s financial information on a consolidated
basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates as a single reportable segment.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year’s presentation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity
with U.S. GAAP requires the Company to make estimates and assumptions about future events that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Future events and their effects cannot be
determined with certainty. On an ongoing basis, management evaluates these estimates and assumptions. Significant estimates and assumptions include:
|
|
● |
valuation allowance with respect to deferred tax assets;
|
|
|
● |
inventory valuation;
|
|
|
● |
assumptions used for leases;
|
|
|
● |
valuation of warrant liabilities;
|
|
|
● |
a
ssumptions associated with revenue
recognition; and
|
|
|
● |
assumptions underlying the fair value used in the calculation of stock-based compensation.
|
The Company bases these estimates on historical and anticipated results and trends
and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. Changes in estimates are recorded in the period in which they become known. Actual results could differ
from those estimates, and any such differences may be material to the Company’s condensed consolidated financial statements.
Inventory, Net
Inventory is stated at the lower of
cost or net realizable value with cost determined using the first-in, first-out method. Inventory primarily consists of raw materials and finished goods of $
1,030
and $
1,285
, respectively, as of September 30, 2023.
Materials that may be utilized for either research and development or, alternatively, for commercial purposes, are classified as inventory. Amounts in inventory that are used for research and development
purposes are charged to research and development expense when the product enters the research and development process and can no longer be used for commercial purposes and, therefore, does not have an “alternative future use” as defined in
authoritative guidance.
The Company performs an assessment of the recoverability of capitalized
inventory during each reporting period and, if needed, writes down any excess and obsolete inventory to its estimated net realizable value in the period it is identified. As of September 30, 2023, there were
no
write-downs recorded against inventory.
Capitalized Software Development Costs
The Company capitalizes certain internal use software development costs related to its SaaS platform incurred during the application
development stage when management with the relevant authority authorizes and commits to the funding of the project, it is probable that the project will be completed, and the software will be used as intended. The Company also capitalizes
costs related to specific upgrades and enhancements when it is probable that the expenditure will result in additional functionality. Costs related to preliminary project activities and to post-implementation activities are expensed as
incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, which is generally
two years
.
Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of the assets. Capitalized costs are recorded as
Internally developed software in the condensed consolidated balance sheets. There was
no
Internally developed software recorded in
2022. Amortization expense related to internally developed software
was $
90
and $
136
for the three and nine months ended September 30, 2023, respectively. As of September 30, 2023 amortization expense
is expected to be $
95
for the remainder of the year ending December 31, 2023 and $
382
and $
150
for the years ending
December 31,
2024
and 2025, respectively.
Revenue Recognition
The Company’s revenue is derived from sales of products and services. Product revenue is primarily generated from the
sales of
instruments
and consumables used in
protein sequencing and analysis
.
Service revenue is primarily generated from service maintenance contracts including cloud access, proof of concept services and advanced training for instrument use. The Company recognizes revenue when or as a customer obtains control
of the promised goods and services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for these goods and services. This process involves identifying the contract with
a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue as the performance
obligations have been satisfied. Revenue recognition for contracts with multiple deliverables is based on the separate satisfaction of each distinct performance obligation within the contract. A performance obligation is considered
distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract.
The Company allocates
transaction price to the performance obligations in a contract with a customer based on the relative standalone selling price of each
performance obligation.
The Company determines
standalone selling price based on the price at which the performance obligation is sold separately. If the
standalone selling price is not observable through past transactions,
the Company estimates
the standalone selling price taking into account available
information and specific factors such as competitive positioning, internal costs, profit objectives, and internally approved pricing guidelines related to the performance obligation.
The Company considers performance obligation for
sales of products is satisfied upon shipment of the goods to the customer in accordance with the shipping terms (either upon shipment or delivery), which is when control of the product is deemed to be transferred; this would include
instruments and consumables. Customers generally do not have a right of return, except for defective or damaged products during the warranty period or unless prior written consent is provided. In instances where right of payment or
transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Revenues for service maintenance contracts, which start after the first year of purchase and
are considered as service type warranties that effectively extend the standard first-year warranty coverage at the customer’s option, are recognized ratably over the contract service period as these services are performed evenly over
time. Revenues for proof of concept services and advanced training is recognized upon satisfaction of the underlying performance obligation. The Company typically provides a standard
warranty which covers defects in materials and workmanship and manufacturing or performance conditions under normal use and service for the first year. The
first year of the warranty of the products is considered an assurance-type warranty. The Company has determined that this standard first-year warranty is not a distinct performance obligation.
T
he Company disaggregates
revenue from contracts with customers by type of revenue – products and services. The Company believes that product revenue and service revenue aggregate the payor types by nature, amount, timing and uncertainty of its revenue streams. Total
revenue generated from domestic sales for the three and nine months ended September 30, 2023 was $
209
and $
565
, respectively. Total revenue generated from international sales for the three and nine months ended September 30, 2023 was $
14
and $
117
.
Deferred Revenue
De
ferred revenue is a contract liability that consists of customer payments received in advance of performance or billings in excess of revenue
recognized, net of revenue recognized from the balance at the beginning of the period.
Deferred revenue primarily consists of billings and payments received in advance of revenue
recognition from service maintenance contracts including software subscription, proof of concept services and advanced training, and is reduced as the revenue recognition criteria are met. Deferred revenue also includes proof of concept
services and advanced training provided to customers until the service has been performed. Deferred revenue is classified as current or non-current based on expected revenue recognition timing. Specifically, deferred revenue that will be
recognized as revenue within the succeeding 12-month period is recorded as current and is included within Accrued expenses and other current liabilities, and the portion of deferred revenue where revenue is expected to be recognized beyond
12 months from the reporting date is recorded as non-current deferred revenue and is included in Other long-term liabilities in the Company’s condensed consolidated balance sheets.
As of September 30, 2023, the Company had deferred revenue amounting to $
189
, $
170
of which is included
within Accrued expenses and other current liabilities and $
19
is included within Other long-term liabilities in the Company’s
condensed consolidated balance sheets. The Company expects to recognize approximately
74
% of its remaining performance
obligations as revenue for the
of the year ending December 31, 2023, and an additional
26
% for the year ending December 31, 2024 and
.
The
amount of revenue recognized during the three and nine months ended September 30, 2023 that was included in the deferred revenue balance of $
73
at December 31, 2022 was $
1
and $
71
,
respectively
.
Warranty
The Company provides a free
12-month
assurance-type warranty to customers with the initial purchase of a PlatinumTM instrument. The cost of the warranty is accrued upon the initial sale of an instrument in Accrued
expenses and other current liabilities on the condensed consolidated balance sheets.
Shipping and Handling Costs
Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as
fulfillment costs and are included in Cost of revenue in the condensed consolidated statements of operations and comprehensive loss. Shipping and handling costs billed to customers are considered part of the transaction price and are recognized
as revenue with the underlying product sales.
Recently Issued Accounting Pronouncements
Accounting
pronouncements issued but not yet adopted
No
new accounting pronouncements issued or effective during the three and nine months ended
September 30, 2023 had, or are expected to have, a material impact on the Company’s condensed consolidated
financial statements.
3. ACQUISITION
Majelac Technologies LLC
Pursuant to the terms and conditions of an Asset Purchase Agreement by and among the Company, Majelac
Technologies LLC (“Majelac”), and certain other parties, on November 5, 2021 (the “Majelac Closing Date”), the Company acquired certain assets and assumed certain liabilities of Majelac, a privately-owned company providing semiconductor chip
assembly and packaging capabilities located in Pennsylvania, for $
4,632
in cash including $
132
in reimbursement for certain recently purchased equipment, and
535,715
shares of Class A common stock, valued at $
4,232
, issued to Majelac subject to certain restrictions. An additional
59,523
shares of Class A common stock valued at $
471
were issued to Majelac
12
months after the Majelac Closing Date on November 7, 2022. The Company also assumed the legal fees of Majelac
of $
50
. Additional purchase price consideration of $
500
in cash was to be paid
six months
after the Majelac Closing Date less any
amount that could be required by the buyer indemnitees to satisfy any unresolved claims for indemnification, if any. The Company agreed to pay additional milestone-based consideration of up to $
800
, which was fair valued at $
531
on the Majelac Closing Date. On May 4, 2022,
the Company paid Majelac $
900
in cash, which consisted of $
500
for the additional purchase price consideration and $
400
(fair value of $
348
at the Majelac Closing Date) for
the
of
two
milestones
that was met.
As of
June 30, 2023, the Company determined that the estimated fair value of the contingent consideration was de minimis as the probability of the second milestone being met by November 1, 2023 was remote. As of September 30, 2023, there has been
no
change from the June 30, 2023 determination. As a result, the Company recorded a gain of $
400
during the nine months ended September 30, 2023 in Other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.
The acquisition brought
semiconductor chip assembly and packaging capabilities in-house and secured the Company’s supply chain to support its commercialization efforts. Prior to the acquisition, Majelac was a vendor of the Company.
The following table summarizes the final purchase price allocation at the Majelac Closing Date as
follows:
|
Purchase Price
Allocation
|
||||
|
Prepaid expenses and other current assets
|
$
|
|
||
|
Property and equipment, net
|
|
|||
|
Goodwill
|
|
|||
|
Total
|
$
|
|
||
Goodwill represents the excess of the consideration transferred over the aggregate fair values of
assets acquired and liabilities assumed. The goodwill recorded in connection with this acquisition was based on operating synergies and other benefits expected to result from the combined operations. The goodwill acquired is amortizable for tax
purposes over a period of
15
years.
During the fourth quarter ended December 31, 2022, the Company concluded the goodwill from the Majelac acquisition was fully
impaired and recorded a charge of $
9,483
on the consolidated statements of operations and comprehensive loss.
Acquisition-related costs recognized during the three and nine months ended September 30, 2022,
including transaction costs such as legal, accounting, valuation and other professional services, were $
0
and $
26
, respectively, and are included in Selling, general and administrative on the condensed consolidated statements of operations and comprehensive loss.
There were
no
acquisition-related costs recognized during the three and nine months ended September 30, 2023.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial
instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.
The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an
orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
|
|
● |
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
|
|
|
● |
Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not
active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
|
|
|
● |
Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
|
The carrying value of cash and cash equivalents, accounts payable and accrued expenses and other current liabilities approximates their fair values due to the short-term or on demand nature of these instruments. Fixed income mutual funds
were valued using quoted market prices and accordingly were classified as Level 1. There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2023.
The Company’s outstanding warrants include publicly traded warrants (the “Public Warrants”) which were issued as
of one redeemable warrant per unit issued during HighCape’s initial public offering on September 9, 2020, and warrants sold in a private placement (the “Private
Warrants”) to HighCape’s sponsor, HighCape Capital Acquisition LLC. The Company accounted for the warrants as liabilities in accordance with ASC 815-40 and are presented as Warrant liabilities on the condensed consolidated balance sheets. The
warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented as Change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive loss.
There were
no
exercises or redemptions of the public or private warrants as of September 30, 2023.
The Public Warrants and Private Warrants
were carried at fair value as of September 30, 2023 and December 31, 2022. The Public Warrants were valued using Level 1 inputs as they are traded in an active market. The Private Warrants were valued using a binomial lattice model, which
results in a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Warrants was the expected volatility of the Company’s Class A common stock. The expected volatility was based on
consideration of the implied volatility from the Company’s own Public Warrant pricing and on the historical volatility observed at guideline public companies.
As of September 30, 2023, the significant assumptions used in preparing the
binomial lattice model for valuing the Private Warrants liability include (i) volatility of
93.7
%, (ii) risk-free interest rate of
4.80
%, (iii) strike price of $
11.50
,
(iv) fair value of common stock of $
1.66
, and (v) expected life of
2.7
years. As of December 31, 2022, the significant assumptions used in preparing the binomial lattice model for valuing the Private Warrants liability include (i) volatility of
75.1
%, (ii) risk-free interest rate of
4.10
%,
(iii) strike price of $
11.50
, (iv) fair value of common stock of $
1.83
, and (v) expected life of
3.4
years.
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy:
|
Fair Value Measurement Level
|
||||||||||||||||
|
September 30, 2023:
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash and cash equivalents - Money Market
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Marketable securities
|
|
|
|
|
||||||||||||
|
Total assets at fair value on a recurring basis
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
|
||||||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Public Warrants
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Private Warrants
|
|
|
|
|
||||||||||||
|
Total liabilities at fair value on a recurring basis
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Fair Value Measurement Level
|
||||||||||||||||
| December 31, 2022: |
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash and cash equivalents - Money Market
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Marketable securities
|
|
|
|
|
||||||||||||
|
Total assets at fair value on a recurring basis
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
|
||||||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Public Warrants
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Private Warrants
|
|
|
|
|
||||||||||||
|
Total liabilities at fair value on a recurring basis
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
5. INVESTMENTS IN MARKETABLE SECURITIES
Unrealized
gains/(losses) related to securities held as of September 30, 2023, realized losses related to securities that were sold during the three and nine months ended September 30, 2023 and dividend income from marketable securities were as follows for
the three and nine months ended September 30, 2023 and 2022:
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Unrealized gain (loss) on marketable securities
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
||||||
|
Realized loss on marketable securities
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Dividend income from marketable securities
|
|
|
|
|
||||||||||||
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, are recorded at historical cost and consist of the following:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
Laboratory and production equipment
|
$
|
|
$
|
|
||||
|
Computer equipment
|
|
|
||||||
|
Purchased software
|
|
|
||||||
|
Furniture and fixtures
|
|
|
||||||
| Leasehold improvements |
|
|
||||||
|
Construction in process
|
|
|
||||||
| Property and equipment, gross |
|
|
||||||
|
Less: Accumulated depreciation and amortization
|
(
|
)
|
(
|
)
|
||||
|
Property and equipment, net
|
$
|
|
$
|
|
||||
Depreciation and amortization expense associated with Property and equipment amounted to $
1,080
and $
729
for the three months ended September 30, 2023 and
2022, respectively, and $
2,927
and $
1,789
for the nine months ended September 30, 2023 and 2022, respectively.
No
impairments were recorded for the three and nine months
ended September 30, 2023 or 2022.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
|
September 30,
2023
|
December 31,
2022
|
|||||||
|
Employee compensation and benefits
|
$
|
|
$
|
|
||||
|
Contracted services
|
|
|
||||||
| Restructuring costs |
|
|
||||||
| Business acquisition costs and contingencies |
|
|
||||||
|
Legal fees
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total accrued expenses and other current liabilities
|
$
|
|
$
|
|
||||
8. LEASES
The Company has commitments under lease arrangements primarily for office and manufacturing space. The Company’s leases have initial lease terms ranging from
to
10
years. These leases include
options to extend or renew the leases for an additional period of
to
10
years.
Operating leases are accounted for on the condensed consolidated balance sheets with right-of-use (“ROU”) assets being recognized in “Operating lease right-of-use
assets” and lease liabilities recognized in “Current portion of operating lease liabilities” and “Operating lease liabilities”.
Lease-related costs for the three and nine months ended September 30, 2023 and 2022 are as follows:
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Operating lease cost
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||
|
Variable lease cost
|
|
|
|
|
||||||||||||
|
Total lease cost
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||
Other information related to operating leases as of September 30, 2023 and December 31, 2022 is as follows:
|
September 30,
|
|
|
December 31,
|
|
||||
|
2023
|
|
|
2022
|
|
||||
|
Weighted-average remaining lease term (years)
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
|
%
|
|
|
%
|
||
The following table provides certain cash flow and supplemental cash flow information related to the Company’s lease liabilities for the nine months ended September
30, 2023 and 2022:
|
Nine months ended September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Operating cash paid to settle operating lease liabilities
|
$
|
|
$
|
|
||||
|
Right-of-use assets obtained in exchange for lease liabilities
|
$
|
|
$
|
|
||||
Future minimum lease payments under non-cancellable leases as of September 30, 2023 are as follows:
|
Operating Leases
|
||||
|
Remainder of 2023
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
Thereafter
|
|
|||
|
Total undiscounted lease payments
|
$
|
|
||
|
Less: Imputed interest
|
|
|||
|
Less: Lease incentives
(1)
|
|
|||
|
Total lease liabilities
|
$
|
|
||
|
(1)
|
|
In December 2021, the
Company signed a
10
-year lease for approximately
67,000
square feet of space located at 115 Munson Street in New Haven, Connecticut. The lease commenced on January 8, 2022 with rent payments beginning on July 7, 2022. Under the lease, the landlord
contractually agreed to reimburse the Company for up to $
9,104
in improvements to the space, to be used for such improvements as the
Company deems “necessary or desirable”. On September 13, 2022, the Company filed a lawsuit against the landlord, alleging that the landlord has: (i) refused to reimburse the Company for costs related to improvements already incurred and
submitted; (ii) delayed the Company’s completion of improvements, in order to avoid reimbursing the costs of those improvements; and (iii) improperly rejected the Company’s proposed improvement plans.
The Company accounted for the $
9,104
of lease incentives as an offset to the lease liability recorded at the inception of the lease. From the total lease incentives, the Company has incurred and recognized leasehold improvements of approximately $
1,100
related to reimbursable construction costs included in construction in progress within Property and equipment, net on the condensed
consolidated balance sheets as of September 30, 2023 and December 31, 2022. Although the Company believes it is contractually entitled to the $
9,104
of lease incentives, based on the current status of the litigation, the Company cannot determine the likely outcome or estimate the impact on such carrying values.
9. STOCKHOLDERS’ EQUITY
At-the-market Equity Offering
Program
In August 2023, the Company filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”), which became effective on August 22, 2023, covering the
offering of Class A common stock, preferred stock, debt securities, warrants, rights and units.
In August 2023, the Company also entered into an Equity Distribution Agreement (“EDA”) with an outside placement agent (the “Agent”), under which the Company may, from time to time,
sell shares of the Company’s Class A common stock having an aggregate offering price of up to $
75
million in “at-the-market” offerings
through the Agent (the “ATM Offering”). The Shelf Registration Statement included a prospectus supplement covering the offering, issuance and sale of up to $
75
million of the Company’s Class A common stock, from time to time, through the ATM Offering. The shares to be sold under the EDA may be issued and sold pursuant to the Shelf Registration
Statement. The EDA also provides that the Agent will be entitled to compensation for its services in an amount up to
3.0
% of the gross
proceeds from the sales of shares sold through the Agent under the EDA. The Company has no obligation to sell any shares under the EDA and may at any time suspend solicitation and offers under the EDA. To date, the Company has
no
t issued or sold any shares of the Company’s Class A common stock under the ATM Offering.
Equity Incentive Plan
The Company’s 2013 Employee, Director and Consultant Equity
Incentive Plan, as amended on March 12, 2021 (the “2013 Plan”), was originally adopted by its Board of Directors and stockholders in September 2013. In connection with the closing of the Business Combination, the Company adjusted the equity
awards. The adjustments to the awards did not result in incremental expense as the equitable adjustments were made pursuant to a preexisting nondiscretionary antidilution provision in the 2013 Plan, and the fair-value, vesting conditions, and
classification are the same immediately before and after the modification. In connection with the Business Combination, HighCape’s stockholders approved and adopted the Quantum-Si Incorporated 2021 Equity Incentive Plan (the “2021 Plan”) and the
Company no longer makes issuances under the 2013 Plan. The 2021 Plan provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or cash-based awards. Directors, officers and other
employees of the Company and its subsidiaries, as well as others performing consulting or advisory services for the Company, are eligible for grants under the 2021 Plan
.
As of September 30, 2023 and December 31, 2022, there were
13,071,147
and
9,133,702
shares, respectively, available for
issuance under the 2021 Plan.
On
November 9, 2022, the Company
granted inducement awards consisting of
2,780,000
performance-based stock options to purchase Class A common stock pursuant to Nasdaq Rule 5635(c)(4). These awards were not granted pursuant to the 2013 Plan or the 2
021 Plan.
On
May 8, 2023, the Company adopted the 2023 Inducement Equity Incentive Plan (the “2023 Inducement Plan”) to reserve
3,000,000
shares of its common stock to be used exclusively for grants of awards to individuals that were not previously employees or directors of the Company as a material inducement to such individuals’ entry into employment with the Company within the
meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the 2023 Inducement Plan are substantially similar to those of the 2021 Plan
. As of September 30, 2023,
there were
60,250
shares remaining available for issuance under the 2023 Inducement Equity Incentive Plan
.
Stock options
During the nine months ended September 30, 2023, the Company granted an aggregate
of
10,138,730
stock option awards to participants, with vesting subject to the participant’s continued employment with the Company
through the applicable vesting dates. Stock-based compensation related to stock options for the three months ended September 30, 2023 and 2022 was $
1,133
and $
1,868
, respectively. Stock-based compensation related to stock options for the nine months ended September 30, 2023 and 2022 was $
5,728
and $
5,169
, respectively.
A summary of the stock option activity is presented in the table below:
|
Number of
Options
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining
Contractual Term
(Years)
|
Aggregate
Intrinsic Value
|
|||||||||||||
|
Outstanding at December 31, 2022
|
|
$
|
|
|
$
|
|
||||||||||
|
Granted
|
|
|
||||||||||||||
|
Exercised
|
(
|
)
|
|
|||||||||||||
|
Forfeited
|
(
|
)
|
|
|||||||||||||
|
Outstanding at September 30, 2023
|
|
$
|
|
|
$
|
|
||||||||||
|
Options exercisable at September 30, 2023
|
|
$
|
|
|
$
|
|
||||||||||
|
Vested and expected to vest at September 30, 2023
|
|
$
|
|
|
$
|
|
||||||||||
Restricted stock units
During
the nine months ended September 30,
2023, the Company granted
491,320
restricted stock unit (“RSU”) awards. Stock-based compensation related to RSU awards for the three
months ended September 30, 2023 and 2022 was $
8
and $
2,175
, respectively. Stock-based compensation related to RSU awards for the nine months ended September 30, 2023 and 2022 was $
1,186
and $
1,930
, respectively.
A summary of the RSU activity is presented in the table below:
|
Number
of Shares
Underlying
RSUs
|
Weighted
Average
Grant-Date
Fair Value
|
|||||||
|
Outstanding non-vested RSUs at December 31, 2022
|
|
$ |
|
|||||
|
Granted
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Forfeited
|
(
|
)
|
|
|||||
|
Outstanding non-vested RSUs at September 30, 2023
|
|
$
|
|
|||||
The Company’s stock-based compensation is allocated to the following operating
expense categories as follows:
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Research and development
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Selling, general and administrative
|
|
|
|
|
||||||||||||
|
Total stock-based compensation
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
10. NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock of the Company outstanding during the period.
Diluted net loss per share is computed by giving effect to all common share equivalents of the Company, including those presented in the table below, to the extent dilutive. Basic and diluted net loss per share was the same for each period
presented as the inclusion of all common share equivalents would have been anti-dilutive.
The following table presents the calculation of basic and diluted net loss per share for the Company’s common stock:
|
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Numerator
|
||||||||||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Numerator for basic and diluted EPS - loss attributable to common stockholders
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Denominator
|
||||||||||||||||
|
Common stock
|
|
|
|
|
||||||||||||
|
Denominator for basic and diluted EPS - weighted-average common stock
|
|
|
|
|
||||||||||||
|
Basic and diluted net loss per share
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
Net loss
per share attributable to Class A and Class B common stockholders was the same on a basic and diluted basis, as the inclusion of all potential common equivalent shares outstanding would have been anti-dilutive.
Anti-dilutive common equivalent shares were as follows:
|
September 30,
|
|||||||||
|
2023
|
2022
|
||||||||
|
Outstanding options to purchase common stock
|
|
|
|||||||
|
Outstanding restricted stock units
|
|
|
|||||||
|
Outstanding warrants
|
|
|
|||||||
|
|
|
|
|||||||
11.
WARRANT LIABILITIES
Public Warrants
As of September 30, 2023 and December 31, 2022, there were an aggregate of
3,833,319
outstanding Public Warrants, which entitle the holder to acquire Class A common stock. Each whole warrant entitles the registered holder to purchase
one
share of Class A common stock at an exercise price of $
11.50
per share, subject to adjustment as discussed below, beginning on September 9, 2021. The warrants will expire on June 10, 2026 or earlier upon redemption or liquidation.
Redemptions
At any time while the warrants are exercisable, the Company may redeem not less than all of the outstanding Public Warrants:
|
|
● |
in whole and not in part;
|
|
|
● |
at a price of $
|
|
|
● |
upon not less than
|
|
|
● |
if, and only if, the closing price of the Company’s common stock equals or exceeds $
|
If the foregoing conditions are satisfied and the Company issues a notice of redemption of the Public Warrants at $
0.01
per warrant, each holder of Public Warrants will be entitled to exercise held Public Warrants prior to the scheduled redemption date.
If the Company calls the Public Warrants for redemption for $
0.01
as described above, the Company’s Board of Directors may elect to require any holder that wishes to exercise his, her or its Public Warrants to do so on a “cashless basis.” If the Company’s Board of Directors makes such election, all holders of
Public Warrants would pay the exercise price by surrendering their warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the
warrants, multiplied by the excess of the “fair market value” over the exercise price of the warrants by (y) the “fair market value”. For purposes of the redemption provisions of the warrants, the “fair market value” means the average last reported
sale price of the Class A common stock for the
10
trading days ending on the third trading day prior to the date on which the notice of
redemption is sent to the holders of warrants.
The Company evaluated the Public Warrants under ASC 815-40, in conjunction with the SEC Division of Corporation Finance’s April 12, 2021 Public Statement,
Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)
(the “SEC Statement”), and concluded that they do not meet the criteria to be
classified in stockholders’ equity. Specifically, the exercise of the warrants may be settled in cash upon the occurrence of a tender offer or exchange offer in which the maker of the tender offer or exchange offer, upon completion of the tender
offer or exchange offer, beneficially owns more than
50
% of the outstanding shares of the Company’s Class A common stock, even if it would
not result in a change of control of the Company. This provision would preclude the warrants from being classified in equity and thus the warrants should be classified as a liability.
Private Warrants
As of September 30, 2023 and December 31, 2022, there were
135,000
Private Warrants outstanding. The Private Warrants are identical to the Public Warrants, except that so long as they are held by the Sponsor or any of its permitted transferees, (i) the Private Warrants and the shares of Class A common stock issuable
upon the exercise of the Private Warrants were not transferable, assignable or saleable until
30
days after the completion of the Business
Combination, (ii) the Private Warrants will be exercisable for cash or on a cashless basis, at the holder’s option, and (iii) the Private Warrants are not subject to the Company’s redemption option at the price of $
0.01
per warrant. The Private Warrants are subject to the Company’s redemption option at the price of $
0.01
per warrant, provided that the other conditions of such redemption are met, as described above. If the Private Warrants are held by a holder other than the Sponsor or any of
its permitted transferees, the Private Warrants will be redeemable by the Company in all redemption scenarios applicable to the Public Warrants and exercisable by such holders on the same basis as the Public Warrants.
The Company evaluated the Private Warrants under ASC 815-40, in conjunction with the SEC Statement
,
and concluded that they do
not meet the criteria to be classified in stockholders’ equity. Specifically, the terms of the warrants provide for potential changes to the settlement amounts depending upon the characteristics of the warrant holder, and, because the holder of a
warrant is not an input into the pricing of a fixed-for-fixed option on equity shares, such provision would preclude the warrant from being classified in equity and thus the warrant has been classified as a liability.
The fair value of warrant liabilities was $
1,077
and $
996
as of September 30, 2023 and December 31, 2022, respectively. The Company recognized losses of $
162
and $
81
as a Change in fair value of
warrant liabilities in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023, respectively.
The Company recognized gains of $
137
and $
5,121
as a Change in fair value of warrant liabilities
in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2022, respectively.
There were
no
exercises or redemptions of the Public Warrants or Private Warrants during the three and nine months ended September 30, 2023 or 2022.
12. INCOME TAXES
Income taxes for the three and nine months ended September 30, 2023 and 2022 are recorded at the Company’s estimated annual effective income tax
rate, subject to adjustments for discrete events, if they occur. The Company’s estimated annual effective tax rate was
0.0
% for
the three and nine months ended September 30, 2023 and 2022. The primary reconciling items between the federal statutory rate of
21.0
%
for these periods and the Company’s overall effective tax rate of
0.0
% were related to the effects of deferred state income taxes,
nondeductible stock-based compensation, changes in the fair value of warrant liabilities, research and development credits, and the valuation allowance recorded against the full amount of its net deferred tax assets.
A valuation allowance is required when it is more likely than not that some portion or all of the Company’s deferred tax assets will not be realized. The realization
of deferred tax assets depends on the generation of sufficient future taxable income during the period in which the Company’s related temporary differences become deductible. The Company has recorded a full valuation allowance against its net
deferred tax assets as of September 30, 2023 and December 31, 2022 since management believes that based on the earnings history of the Company, it is more likely than not that the benefits of these assets will not be realized.
13. RELATED PARTY TRANSACTIONS
The Company utilized and subleased office and laboratory space in a building owned by a related party. The Company paid $
0
and $
80
under month-to-month lease
arrangements for this space for the three months ended September 30, 2023 and 2022, respectiv
ely,
and $
156
and $
241
for the nine months ended September 30, 2023 and 2022, respectively. The Company no longer subleases this space as of June 30, 2023
.
The Company was a party to an Amended and Restated Technology Services
Agreement (the “ARTSA”), most recently amended on November 11, 2020, by and among 4Catalyzer Corporation (“4C”), the Company and other participant companies controlled
by
Dr. Jonathan Rothberg, the Chairman of the
Company’s
Board of Directors
. T
he Company entered into a
First Addendum to the ARTSA on February 17, 2021 pursuant to which the Company agreed to terminate its participation under the ARTSA no later than immediately prior to the effective time of the Business Combination, resulting in the
termination of the Company’s participation under the ARTSA on June 10, 2021. In connection with the termination of the Company’s participation under the ARTSA, the Company terminated its lease agreement with 4C and negotiated an arm’s
length lease agreement. Under the ARTSA, the Company and the other participant companies had agreed to share certain non-core technologies, which means any technologies, information or equipment owned or otherwise controlled by the
participant company that are not specifically related to the core business area of the participant and subject to certain restrictions on use. The ARTSA also provided for 4C to perform certain services for the Company and each other
participant company such as monthly administrative, management and technical consulting services to the Company which were pre-funded approximately once per quarter. The Company incurred expenses of $
65
and $
149
, which included $
24
and $
44
under
month-to-month sublease arrangements for office and laboratory spaces from 4C, during the three months ended September 30, 2023 and 2022, respectiv
ely.
The Company incurred expenses of $
323
and $
517
, which included $
72
and $
141
under
month-to-month sublease arrangements for office and laboratory spaces from 4C, during the nine months ended September 30, 2023 and 2022, respectively.
The amount
s advanced and due to 4C at September 30, 2023 and December 31,
2022 related to operating expenses were $
20
and $
70
, respectively
, which are included in Accrued expenses and other current liabilities on the condensed consolidated balance sh
eets
. The amounts advanced and due from 4C at September 30, 2023 and December
31, 2022, related to operating expenses were $
0
and $
37
, respectively, and are included in Prepaid expenses and other current assets
on the condensed consolidated balance sheets
.
The ARTSA also provided for the participant companies to provide other services to each other. The Company also had transactions with other
entities under common ownership, which included payments made to third parties on behalf of the Company and payments made by the Company to third parties on behalf of the other entities. There were
no
amounts remaining payable to the Company or from the Company at September 30, 2023 and December 31, 2022.
On September 20, 2021, the Company entered into a Binders Collaboration (the “Collaboration”) with Protein Evolution, Inc. (“PEI”) to
develop technology and methods in the field of nanobodies and potentially other binders to produce novel biological reagents and related data. The Collaboration was made pursuant to and governed by the Technology and Services Exchange
Agreement, effective as of June 10, 2021, by and among the Company and the participants named therein, including PEI. Dr. Rothberg serves as Chairman of the Board of Directors of PEI and the Rothberg family are controlling stockholders of
PEI. Effective March 31, 2022, the Collaboration with PEI was terminated, and the Company paid a final payment of $
1,135
under the
Collaboration for all services rendered.
Effective October 1, 2022, the Company entered into a Protein Engineering Collaboration (the “New Collaboration”) with PEI to develop
technology and methods in the field of nanobodies and potentially other binders to produce novel biological reagents and related data. The New Collaboration was made pursuant to and governed by the Technology and Services Exchange Agreement,
effective as of June 10, 2021, by and among the Company and the participants named therein, including PEI. Dr. Rothberg serves as Chairman of the Board of Directors of PEI and the Rothberg family are controlling stockholders of PEI. The
Company incurred expenses of $
47
and $
172
during the three and nine months ended September 30, 2023, respectively, related to the New Collaboration. The amounts advanced and due from PEI at September 30, 2023 and December 31, 2022 related to operating expenses were $
217
and $
45
, respectively, and are
included in Prepaid expenses and other current assets on the condensed consolidated balance sheets.
Effective
November 1, 2022, the Company entered into an Advisory Agreement with Dr. Rothberg (the “Advisory Agreement”), pursuant to which Dr. Rothberg serves as Chairman of the Board, advises the Chief Executive Officer and the Board on strategic
matters, and provides consulting, business development and similar services on matters relating to our current, future and potential scientific and strategic initiatives and such other consulting services reasonably requested from time to
time. Pursuant to the Advisory Agreement, as compensation for the services provided thereunder, in March 2023, the Company granted Dr. Rothberg an option to purchase
250,000
shares of Class A common stock pursuant to the 2021 Plan. In connection with the Advisory Agreement, Dr. Rothberg’s title was changed from Executive Chairman
to Chairman of the Board.
Dr.
Rothberg also receives fees as the Chairman of the
Company’s
Board of Directors and a member of the Board and Nominating and Corporate Governance Committee. The Company paid $
27
and $
113
to Dr. Rothberg for the three months ended September 30, 2023 and 2022,
respectively,
and $
87
and $
341
for the nine
months ended September 30, 2023 and 2022, respectively,
for all services provided to the Company.
14. RESTRUCTURING
The Company committed to organizational restructurings, during the quarters ended
March 31, 2023 and September 30, 2023, designed to decrease its costs and create a more streamlined organization to support its business. As of September 30, 2023, the Company has recorded a $
551
restructuring liability, which is included in Accrued expenses and other current liabilities in the condensed consolidated balance sheets.
The Company’s
restructuring costs, primarily for cash severance costs and other severance benefits, are allocated to the following operating expense categories as follows:
|
Three months ended
|
Nine months ended
|
|||||||
|
September 30, 2023
|
September 30, 2023
|
|||||||
|
Research and development
|
$
|
|
$
|
|
||||
|
Selling, general and administrative
|
|
|
||||||
|
Total restructuring costs
|
$
|
|
$
|
|
||||
15. COMMITMENTS AND CONTINGENCIES
Commitments
Licenses related to certain intellectual property:
The Company licenses certain intellectual property, some of which may be utilized in its current or future product offerings. To preserve the right to use such
intellectual property, the Company is required to make annual minimum fixed payments totaling $
210
as well as royalties based on net sales if the royalties exceed annual minimum fixed payments. As of
September 30, 2023, the Company recorded $
155
in Accrued expenses and other current liabilities
on the condensed consolidated
balance sheets.
Other commitments:
The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. The Company did
no
t make any matching contributions to the 401(k) plan for the three and nine months ended September 30, 2023 and 2022.
Contingencies
The Company is subject to claims in the ordinary course of business. Except as discussed below, the Company is not currently a party to any pending or threatened
litigation, the outcome of which would be expected to have a material adverse effect on its financial condition, results of operations, or cash flows. The Company accrues contingent liabilities to the extent that the liability is probable and
estimable.
In October 2023, a former contract manufacturer of the Company filed a complaint alleging breach of contract and made claims for economic damage and
attorney costs. Although it is not possible to determine
the potential financial exposure associated with the alleged claims given its early stage, the
Company believes that
it has a meritorious defense
and
intends to vigorously defend against all claims asserted in the
complaint
.
The Company enters into agreements that contain indemnification provisions with other parties in the ordinary course of business, including business partners, investors,
contractors, and the Company’s officers, directors and certain employees. The Company has agreed to indemnify and defend the indemnified party claims and related losses suffered or incurred by the indemnified party from actual or threatened
third-party claims because of the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum potential loss under these indemnification provisions due to the
Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in any particular case. To date, losses recorded in the Company’s condensed consolidated statements of operations and comprehensive loss in
connection with the indemnification provisions have not been material.
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of
operations and financial condition. The discussion should be read in conjunction with (i) the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q, (ii) the consolidated financial
statements and notes thereto for the year ended December 31, 2022 contained in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2023 and (iii) our other
public reports filed with the SEC. This discussion contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for
the year ended December 31, 2022, and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023. Actual results may differ materially from those contained in any forward-looking statements. Unless the context
otherwise requires, references to “we”, “us”, “our”, the “Company” or “Quantum-Si” are intended to mean the business and operations of Quantum-Si Incorporated and its consolidated subsidiaries. The unaudited condensed consolidated financial
statements for the three and nine months ended September 30, 2023 and 2022, respectively, present the financial position and results of operations of Quantum-Si Incorporated and its consolidated subsidiaries.
Overview
We are an innovative life sciences company with the mission of transforming single-molecule analysis and democratizing its use by providing researchers and clinicians access to the proteome, the set
of proteins expressed within a cell. We have developed a proprietary universal single-molecule detection platform that we are first applying to proteomics to enable Next-Generation Protein Sequencing
TM
(“NGPS”), the ability to sequence proteins in a massively parallel fashion (rather than sequentially, one at a time), that can be used for the study of nucleic acids. We believe that with the ability
to sequence proteins in a massively parallel fashion and offer a simplified workflow with a faster turnaround time, NGPS has the potential to unlock significant biological information through improved resolution and unbiased access to the proteome
at a speed and scale that is not available today. Traditionally, proteomic workflows to sequence proteins required days or weeks to complete. Our platform, as originally planned, was designed to offer an end to end workflow including both sample
preparation and sequencing and was comprised of Carbon™, our automated sample preparation instrument, our Platinum™ NGPS instrument, the Quantum-Si Cloud software service, and reagent kits and chips for use with our instruments. In 2021, we
introduced our Platinum
TM
early access program to sites with participation from leading academic centers and key industry partners. The early access program introduced
the Platinum
TM
single-molecule sequencing system to key opinion leaders across the globe, for both expansion and development of applications and workflows. We launched
the Platinum
TM
instrument and started to take orders in December 2022, and subsequently began commercial shipments of Platinum™ in January 2023.
Since our initial launch of the Platinum
TM
instrument, we have found that, consistent with other proteomics detection
technologies, customers select the biological sample type and sample preparation method they use. The range of sample types and sample prep methods utilized in proteomics is extensive and often some level of optimization is required to make them
compatible with the downstream detection technology. Our initial platform contemplated Carbon™ as an automated sample preparation instrument. While Carbon™ could help reduce sample preparation variation and streamline the end-to-end workflow in
utilizing our Platinum
TM
protein sequencing instrument, it is not an absolute requirement, and may not be the best solution long-term. To this end, we recently
completed an evaluation of Carbon™ as it relates to the workflow and in comparison to other potential liquid handler and sample preparation solutions. This evaluation concluded that pursuing efforts to continue development of Carbon
TM
was not the most effective use of our research and development efforts and therefore we have paused development related to Carbon™ to focus efforts on Platinum
TM
, our reagent kits and chips for use on Platinum
TM
, and our Quantum-Si Cloud
environment as our go forward platform to maximize value.
Now that our Platinum™ and Quantum-Si Cloud system has launched, we intend to follow a systematic, phased approach to continue to successfully launch updates to our platform. We believe we are the
first company to successfully enable NGPS on a semiconductor chip, thus digitizing a massive proteomics opportunity, which allows for a massively parallel solution at the ultimate level of sensitivity —single-molecule detection.
We believe that our platform offers a differentiated workflow solution in a rapidly evolving proteomics tools market. Within our initial focus market of proteomics, our workflow is designed to provide
users a seamless opportunity to gain key insights into the immediate state of biological pathways and cell state. Our platform aims to address many of the key challenges and bottlenecks with legacy proteomic solutions, such as mass spectrometry
(“MS”), high instrument costs both in terms of acquisition and ownership and complexity with data analysis, which together prevent broad adoption. We believe our platform, which is designed to streamline sequencing and data analysis at a lower
instrument cost than legacy proteomic solutions, could allow our product to have wide utility across the study of the proteome. For example, our platform could be used for biomarker discovery and disease detection, pathway analysis, immune
response, and vaccine development, among other applications.
Total revenue for the three and nine months ended September 30, 2023 was $0.2 million and $0.7 million, respectively. We define backlog as purchase orders or signed contracts from our customers for
which we have not fulfilled and therefore have not yet recognized the associated revenue. We anticipate converting this backlog to revenue in the subsequent quarters; however, our ability to do so is subject to customers who may seek to cancel or
delay their orders even if we are prepared to fulfill them. As of September 30, 2023, our backlog was approximately $0.1 million.
Global Developments
In 2022, various central banks around the world (including the Federal Reserve in the United States) raised interest rates. These rate increases have caused a decline in the fair value of our fixed income mutual
funds to date. The impact of such rate changes on the overall financial markets and the economy may continue to impact us in the future, including by making capital more difficult and costly to obtain on reasonable terms and when needed. In
addition, the global economy has experienced and is continuing to experience high levels of inflation and global supply chain disruptions. We continue to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty
resulting from the overall economic environment.
In addition, although we have no operations in or direct exposure to Russia or Ukraine, we have experienced some constraints in product and material availability and increasing costs required to obtain some materials
and supplies as a result of the impact of the Russia-Ukraine military conflict on the global economy, which has contributed to the global supply chain disruptions. To date, our business has not been materially impacted by the conflict. However, as
the conflict continues or worsens, it may adversely impact our business, financial condition, results of operations or cash flows.
Recent Developments
In April 2023, we informed the contract manufacturer who manufactures our Platinum
TM
and Carbon
TM
instruments that we intend to
wind down the relationship and transition to a different contract manufacturer. In October 2023, we were informed that the contract manufacturer had filed a complaint alleging breach of contract and made claims for economic damage under the
contract as well as attorney costs. Although it is not possible to determine
the potential financial exposure associated with the alleged claim at the
point given its early stage, we believe that
we have a meritorious defense
and intend to vigorously defend against all claims asserted in the
complaint
.
In August 2023, we filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”), which became effective on August 22, 2023, covering the offering of Class A common
stock, preferred stock, debt securities, warrants, rights and units.
In August 2023, we also entered into
an Equity Distribution Agreement (“EDA”) with an outside placement agent (the “Agent”),
under which we may,
from time to time, sell shares of our Class A common stock having an aggregate offering price of up to $75 million in “at-the-market” offerings through the Agent (the “ATM Offering”). The Shelf Registration Statement included a prospectus
supplement covering the offering, issuance and sale of up to $75 million of our Class A common stock, from time to time, through the ATM Offering. The shares to be sold under the EDA may be issued and sold pursuant to the Shelf Registration
Statement. The EDA also provides that the Agent will be entitled to compensation for its services in an amount up to 3.0% of the gross proceeds from the sales of shares sold through the Agent under the EDA. We have no obligation to sell any
shares under the EDA and may at any time suspend solicitation and offers under the EDA. To date, we have not issued or sold any shares of our Class A common stock under the ATM Offering.
Description of Certain Components of Financial Data
Revenue
Revenue is derived from sales of products and services. Product revenue is generated from the following sources: (i) instrument sales of our Platinum
TM
instrument and (ii) consumables, which consist of sales of our sequencing reagents, chips, and library reagents. Service revenue is generated
from service maintenance contracts including cloud access, proof of concept services and advanced training for instrument use.
Freight revenue is recognized as Product revenue in
the condensed consolidated
statements of operations and comprehensive loss
upon product shipment.
See Note 2 “Summary of Significant Accounting Policies” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further
information regarding o
ur revenue recognition policies.
Cost of revenue
Cost of revenue primarily consists of product and service costs including material costs, personnel costs and benefits, inbound and outbound freight, packaging, warranty replacement costs, royalty
costs, facilities costs, depreciation and amortization expense, and inventory obsolescence and write-offs.
Research and development
Research and development expenses primarily consist of personnel costs and benefits, stock-based compensation, lab supplies, consulting and professional services, fabrication services, facilities
costs, depreciation and amortization expense, software, and other outsourced expenses. Research and development expenses are expensed as incurred. All of our research and development expenses are related to developing new products and services.
Selling, general and administrative
Selling, general and administrative expenses primarily consist of personnel costs and benefits, stock-based compensation, patent and filing fees, consulting and professional services, legal and
accounting services, facilities costs, depreciation and amortization expense, insurance and office expenses, product advertising and marketing.
Dividend income
Dividend income primarily consists of dividends earned on fixed income mutual funds classified as marketable securities.
Unrealized gain (loss) on marketable securities
Unrealized gain (loss) on marketable securities primarily consists of unrealized gains/(losses) on fixed income mutual funds in marketable securities.
Realized loss on marketable securities
Realized loss on marketable securities primarily consists of realized losses on fixed income mutual funds in marketable securities.
Change in fair value of warrant liabilities
Change in fair value of warrant liabilities primarily consists of the change in the fair value of our publicly traded warrants (the “Public Warrants”) and our warrants sold in a private placement (the
“Private Warrants”).
Other income (expense), net
Other income (expense), net primarily consists of a change in the fair value of the Majelac Technologies LLC (“Majelac”) contingent consideration.
Provision for income taxes
We utilize the asset and liability method of accounting for income taxes where deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities using the enacted statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A
valuation allowance is established against net deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized. We recorded a full valuation
allowance as of September 30, 2023 and 2022. Based on the available evidence, we believe that it is more likely than not that we will be unable to utilize all of our deferred tax assets in the future.
Results of Operations
The following is a discussion of our results of operations for the three and nine months ended September 30, 2023 and 2022 and our accounting policies are described in Note 2 “Summary of Significant
Accounting Policies” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
% Change
|
2023
|
2022
|
% Change
|
||||||||||||||||||
|
Revenue:
|
||||||||||||||||||||||||
|
Product
|
$
|
216
|
$
|
-
|
nm
|
$
|
654
|
$
|
-
|
nm
|
||||||||||||||
|
Service
|
7
|
-
|
nm
|
28
|
-
|
nm
|
||||||||||||||||||
|
Total revenue
|
223
|
-
|
nm
|
682
|
-
|
nm
|
||||||||||||||||||
|
Cost of revenue
|
115
|
-
|
nm
|
372
|
-
|
nm
|
||||||||||||||||||
|
Gross profit
|
108
|
-
|
nm
|
310
|
-
|
nm
|
||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||||||
|
Research and development
|
16,587
|
16,675
|
(0.5
|
)%
|
50,588
|
53,905
|
(6.2
|
)%
|
||||||||||||||||
|
Selling, general and administrative
|
10,696
|
10,983
|
(2.6
|
)%
|
33,010
|
31,093
|
6.2
|
%
|
||||||||||||||||
|
Total operating expenses
|
27,283
|
27,658
|
(1.4
|
)%
|
83,598
|
84,998
|
(1.6
|
)%
|
||||||||||||||||
|
Loss from operations
|
(27,175
|
)
|
(27,658
|
)
|
(1.7
|
)%
|
(83,288
|
)
|
(84,998
|
)
|
(2.0
|
)%
|
||||||||||||
|
Dividend income
|
2,572
|
1,381
|
86.2
|
%
|
7,274
|
3,288
|
121.2
|
%
|
||||||||||||||||
|
Unrealized gain (loss) on marketable securities
|
1,953
|
(4,240
|
)
|
(146.1
|
)%
|
8,302
|
(20,384
|
)
|
(140.7
|
)%
|
||||||||||||||
|
Realized loss on marketable securities
|
(1,901
|
)
|
(1,348
|
)
|
41.0
|
%
|
(6,489
|
)
|
(2,399
|
)
|
170.5
|
%
|
||||||||||||
|
Change in fair value of warrant liabilities
|
(162
|
)
|
137
|
(218.2
|
)%
|
(81
|
)
|
5,121
|
(101.6
|
)%
|
||||||||||||||
|
Other income (expense), net
|
(15
|
)
|
15
|
(200.0
|
)%
|
370
|
70
|
428.6
|
%
|
|||||||||||||||
|
Loss before provision for income taxes
|
(24,728
|
)
|
(31,713
|
)
|
(22.0
|
)%
|
(73,912
|
)
|
(99,302
|
)
|
(25.6
|
)%
|
||||||||||||
|
Provision for income taxes
|
-
|
-
|
nm
|
-
|
-
|
nm
|
||||||||||||||||||
|
Net loss and comprehensive loss
|
$
|
(24,728
|
)
|
$
|
(31,713
|
)
|
(22.0
|
)%
|
$
|
(73,912
|
)
|
$
|
(99,302
|
)
|
(25.6
|
)%
|
||||||||
Comparison of the Three Months Ended September 30, 2023 and 2022
Revenue, Cost of revenue and Gross profit
|
Three months ended
September 30,
|
Change
|
||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
|||||||||
|
Total revenue
|
$
|
223
|
$
|
-
|
$
|
223
|
nm
|
||||||
|
Cost of revenue
|
115
|
-
|
115
|
nm
|
|||||||||
|
Gross profit
|
108
|
-
|
108
|
nm
|
|||||||||
|
Gross profit margin
|
48.4
|
%
|
nm
|
||||||||||
We launched the Platinum
TM
instrument and started to take orders in December 2022, and subsequently began commercial
shipments of Platinum
TM
in January 2023. Total revenue recognized in the three months ended September 30, 2023 was $0.2 million for the sale of Platinum
TM
instruments and kits. No revenue was recognized in 2022. Gross profit was $0.1 million for the three months ended September 30, 2023.
Research and development
|
Three months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Research and development
|
$
|
16,587
|
$
|
16,675
|
$
|
(88
|
)
|
(0.5
|
)%
|
|||||||
Research and development expenses decreased by $0.1 million, or 0.5%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The decrease was primarily
due to refined research and development activities coupled with a decrease in headcount due to restructuring activities initiated in the first and third quarters of 2023.
Selling, general and administrative
|
Three months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Selling, general and administrative
|
$
|
10,696
|
$
|
10,983
|
$
|
(287
|
)
|
(2.6
|
)%
|
|||||||
Selling, general and administrative expenses decreased by $0.3 million, or 2.6%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The decrease was
primarily due to a decrease of $2.3 million of stock-based compensation as a result of the restructuring activities initiated in the first and third quarters of 2023, partially offset by an increase of $1.1 million in personnel costs primarily due
to increased headcount for the ramp up of commercial sales and restructuring costs and an increase of $0.9 million of expenses primarily for consulting, legal and professional fees and insurances.
Dividend income
|
Three months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Dividend income
|
$
|
2,572
|
$
|
1,381
|
$
|
1,191
|
86.2
|
%
|
||||||||
Dividend income increased by $1.2 million, or 86.2%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 as a result of higher dividends earned on
invested marketable securities.
Unrealized gain (loss) on marketable securities
|
Three months ended
September 30
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Unrealized gain (loss) on marketable securities
|
$
|
1,953
|
$
|
(4,240
|
)
|
$
|
6,193
|
(146.1
|
)%
|
|||||||
Unrealized gain (loss) increased by $6.2 million, or 146.1%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 as a result of an increase in
unrealized gains as a result of the market adjustments of investments in marketable securities, which consist of fixed income mutual funds.
Realized loss on marketable securities
|
Three months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Realized loss on marketable securities
|
$
|
(1,901
|
)
|
$
|
(1,348
|
)
|
$
|
(553
|
)
|
41.0
|
%
|
|||||
Realized loss on marketable securities increased by $0.6 million, or 41.0%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily as a result of
an increase in realized losses from sales of marketable securities.
Change in fair value of warrant liabilities
|
Three months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Change in fair value of warrant liabilities
|
$
|
(162
|
)
|
$
|
137
|
$
|
(299
|
)
|
(218.2
|
)%
|
||||||
The change in fair value of warrant liabilities decreased by $0.3 million, or 218.2%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due
to a decline in the Company’s underlying common stock price.
Other income (expense), net
|
Three months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Other income (expense), net
|
$
|
(15
|
)
|
$
|
15
|
$
|
(30
|
)
|
(200.0
|
)%
|
||||||
Other income (expense), net remained flat for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.
Comparison of the Nine Months Ended September 30, 2023 and 2022
Revenue, Cost of revenue and Gross profit
|
Nine months ended
September 30,
|
Change
|
||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
|||||||||
|
Total revenue
|
$
|
682
|
$
|
-
|
$
|
682
|
nm
|
||||||
|
Cost of revenue
|
372
|
-
|
372
|
nm
|
|||||||||
|
Gross profit
|
310
|
-
|
310
|
nm
|
|||||||||
|
Gross profit margin
|
45.5
|
%
|
nm
|
||||||||||
Total revenue recognized in the nine months ended September 30, 2023 was $0.7 million for the sale of Platinum
TM
instruments and kits. No revenue was recognized in 2022. Gross profit was $0.3 million for the nine months ended September 30, 2023.
Research and development
|
Nine months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Research and development
|
$
|
50,588
|
$
|
53,905
|
$
|
(3,317
|
)
|
(6.2
|
)%
|
|||||||
Research and development expenses decreased by $3.3 million, or 6.2%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The decrease was primarily due
to refined research and development activities coupled with a decrease in headcount due to restructuring activities initiated in the first and third quarters of 2023 and collaboration fees, which includes $1.1 million paid to Protein Evolution,
Inc. in 2022.
Selling, general and administrative
|
Nine months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Selling, general and administrative
|
$
|
33,010
|
$
|
31,093
|
$
|
1,917
|
6.2
|
%
|
||||||||
Selling, general and administrative expenses increased by $1.9 million, or 6.2%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was
primarily due to an increase of $1.7 million in personnel costs primarily due to increased headcount for the ramp up of commercial sales and restructuring costs and an increase of $0.7 million of stock-based compensation, partially offset by a
decrease of $0.5 million of expenses primarily for consulting, legal and professional fees and insurances.
Dividend income
|
Nine months ended September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Dividend income
|
$
|
7,274
|
$
|
3,288
|
$
|
3,986
|
121.2
|
%
|
||||||||
Dividend income increased by $4.0 million, or 121.2%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 as a result of higher dividends earned on
invested marketable securities.
Unrealized gain (loss) on marketable securities
|
Nine months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Unrealized gain (loss) on marketable securities
|
$
|
8,302
|
$
|
(20,384
|
)
|
$
|
28,686
|
(140.7
|
)%
|
|||||||
Unrealized gain (loss) on marketable securities increased by $28.7 million, or 140.7%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily as a
result of an increase in unrealized gains as a result of the market adjustments of investments in marketable securities, which consist of fixed income mutual funds.
Realized loss on marketable securities
|
Nine months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Realized loss on marketable securities
|
$
|
(6,489
|
)
|
$
|
(2,399
|
)
|
$
|
(4,090
|
)
|
170.5
|
%
|
|||||
Realized loss on marketable securities increased by $4.1 million, or 170.5%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily as a result of
an increase in realized losses from sales of marketable securities.
Change in fair value of warrant liabilities
|
Nine months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Change in fair value of warrant liabilities
|
$
|
(81
|
)
|
$
|
5,121
|
$
|
(5,202
|
)
|
(101.6
|
)%
|
||||||
The change in fair value of warrant liabilities decreased by $5.2 million, or 101.6%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to
a decline in the Company’s underlying common stock price.
Other income (expense), net
|
Nine months ended
September 30,
|
Change
|
|||||||||||||||
|
(in thousands, except for % changes)
|
2023
|
2022
|
Amount
|
%
|
||||||||||||
|
Other income (expense), net
|
$
|
370
|
$
|
70
|
$
|
300
|
428.6
|
%
|
||||||||
Other income (expense), net increased by $0.3 million, or 428.6%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily as a result of a gain of
$0.4 million recorded on the Majelac contingent consideration.
Liquidity and Capital Resources
Since our inception, we have funded our operations primarily with proceeds from the issuance of equity to private investors, as well as with the $511.2 million in proceeds received from the closing of
the Business Combination on June 10, 2021. Additionally, we began to generate revenue during 2023. Our primary uses of liquidity have been operating expenses, capital expenditures and our acquisition of certain assets of Majelac. Cash flows from
operations have been historically negative as we continue to invest in the development of our technology in NGPS. We expect to incur negative operating cash flows on an annual basis for the foreseeable future until such time that we can scale our
revenue growth.
We expect that our existing cash and cash equivalents and investments in marketable securities, together with revenue from the sale of our products and services, will be sufficient to meet our
liquidity, capital expenditure, and anticipated working capital requirements and fund our operations for at least the next 12 months. We expect to use our cash and cash equivalents and investments in marketable securities and funds from revenue
generated to invest in our continued commercialization efforts, to further invest in research and development, for other operating expenses, business acquisitions and for working capital and general corporate purposes.
As of September 30, 2023, we had cash and cash equivalents and investments in marketable securities totaling $274.6 million. Our future capital requirements may vary from those currently planned and
will depend on various factors including the pace and success of product commercialization.
We launched the Platinum
TM
instrument and started to take orders in December 2022, and subsequently began commercial
shipments of Platinum™ in January 2023. In addition, we are continuing further research and development efforts to enhance our Platinum™ instrument. Based on these initiatives and activities, our business will require an accelerated amount of
spending to enhance the sales and marketing teams, continue to drive development, and build inventory. Other factors that could accelerate cash needs include: (i) delays in achieving scientific and technical milestones; (ii) unforeseen capital
expenditures and fabrication costs related to manufacturing for commercialization; (iii) changes we may make in our business or commercialization strategy; (iv) costs of running a public company; (v) other items affecting our forecasted level of
expenditures and use of cash resources, including potential acquisitions; and (vi) increased product and service costs.
In August 2023, we filed the Shelf Registration Statement, which became effective on August 22, 2023.
In August 2023, we also entered into
the EDA with the Agent,
under which we may, from time to time, sell shares of our Class A common stock under
the ATM Offering. The Shelf Registration Statement included a prospectus supplement covering the offering, issuance and sale of up to $75 million of our Class A common stock, from time to time, through the ATM Offering. The shares to be sold
under the EDA may be issued and sold pursuant to the Shelf Registration Statement. The EDA also provides that the Agent will be entitled to compensation for its services in an amount up to 3.0% of the gross proceeds from the sales of shares sold
through the Agent under the EDA. We have no obligation to sell any shares under the EDA and may at any time suspend solicitation and offers under the EDA. To date, we have not issued or sold any shares of our Class A common stock under the ATM
Offering.
In the future, we may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available to us on acceptable terms or otherwise, we may be
unable to successfully develop or enhance products and services, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business, financial condition, operating
results and cash flows.
Cash flows
The following table summarizes our cash flows for the periods indicated:
|
Nine months ended
September 30,
|
||||||||
|
(in thousands)
|
2023
|
2022
|
||||||
|
Net cash (used in) provided by:
|
||||||||
|
Net cash used in operating activities
|
$
|
(73,067
|
)
|
$
|
(70,977
|
)
|
||
|
Net cash provided by investing activities
|
82,360
|
111,684
|
||||||
|
Net cash provided by financing activities
|
210
|
1,771
|
||||||
|
Net increase in cash and cash equivalents
|
$
|
9,503
|
$
|
42,478
|
||||
Net cash used in operating activities
The net cash used in operating activities of $73.1 million for the nine months ended September 30, 2023 was due primarily to a net loss of $73.9 million resulting from continued spend on
research and development efforts and commercialization ramp up,
net cash outflows from changes in operating assets and liabilities
of $8.5 million and unrealized gains on marketable securities of $8.3
million, partially offset by stock-based compensation of $6.9 million, realized losses on marketable securities of $6.5 million and depreciation and amortization of $3.1 million.
The net cash used in operating activities of $71.0 million for the nine months ended September 30, 2022 was due primarily to a net loss of $99.3 million and a change in fair value of warrant
liabilities of $5.1 million, partially offset by unrealized losses on marketable securities of $20.4 million, stock-based compensation of $7.1 million and realized losses on marketable securities of $2.4 million.
Net cash provided by investing activities
The net cash provided by investing activities of $82.4 million in the nine months ended September 30, 2023 was due primarily to sales of marketable securities of $88.0 million, offset by purchases of
property and equipment of $4.9 million and capitalized internally developed software costs of $0.8 million.
The net cash provided by investing activities of $111.7 million in the nine months ended September 30, 2022 was due primarily to sales of marketable securities of $119.8 million, partially offset by
purchases of property and equipment of $7.2 million and marketable securities of $0.8 million.
Net cash provided by financing activities
The net cash provided by financing activities of $0.2 million in the nine months ended September 30, 2023 was due primarily from $0.4 million from proceeds from exercise of stock options offset by
$0.1 million of deferred offering costs paid for the S-3 shelf registrations and ATM.
The net cash provided by financing activities of $1.8 million in the nine months ended September 30, 2022 was due primarily from $2.6 million from proceeds from exercise of stock options, offset by $0.5 million from
payment of deferred consideration and $0.3 million from payment of contingent consideration related to the Majelac acquisition.
Contractual Obligations
We lease certain facilities and equipment under non-cancellable lease agreements that expire at various dates through 2032. As of September 30, 2023, the future payments, before adjustments for tenant incentives,
under leases was $32.2 million, which includes a lease we entered into in December 2021 for a facility in New Haven, Connecticut, which commenced in January 2022, and a lease that commenced in April 2022 for a facility in Branford, Connecticut.
Licenses related to certain intellectual property
We license certain intellectual property, some of which may be utilized in our current or future product offerings. To preserve the right to use such intellectual property, we are required to make
annual minimum fixed payments totaling approximately $0.2 million as well as royalties based on net sales if the royalties exceed annual minimum fixed payments.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with
U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the condensed consolidated financial statements, as well as expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
Revenue is derived from sales of products and services. Product revenue is primarily generated from the sales of instrument and consumables used in protein sequencing and analysis.
Service revenue is primarily generated from service maintenance contracts including cloud access, proof of concept services and advanced training for instrument use.
Freight revenue is recognized as Product revenue in
the condensed consolidated statements of operations and comprehensive loss
upon product shipment.
We recognize revenue when control of our products and services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for
those products and services. This process involves identifying the contract with a customer, determining the distinct performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct
performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. Revenue recognition for contracts with multiple deliverables is based on the separate satisfaction of each distinct performance
obligation within the contract. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the
customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the
good or service. We allocate transaction price to the performance obligations in a contract with a customer, based on the relative standalone selling price of each performance obligation. We determine standalone selling price based on the price at
which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information and specific factors such as
competitive positioning, internal costs, profit objectives, and internally approved pricing guidelines related to the performance obligation.
Our performance obligation for sales of products is considered satisfied upon shipment of the goods to the customer in accordance with the shipping terms (either upon shipment or delivery), which is
when control of the product is deemed to be transferred; this would include instruments and consumables. Customers generally do not have a right of return, except for defective or damaged products during the warranty period or unless prior written
consent is provided. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Shipping and handling costs associated with
outbound freight after control of a product has transferred to a customer are accounted for as fulfillment costs and are included in Cost of revenue in the condensed consolidated statements of operations and comprehensive loss. Shipping and
handling costs billed to customers are considered part of the transaction price and are recognized as revenue with the underlying product sales. Revenues for service maintenance contracts, which start after the first year of purchase and are
considered as service type warranties that effectively extend the standard first-year warranty coverage at the customer’s option, are recognized ratably over the contract service period as these services are performed evenly over time. Revenues for
proof of concept services and advanced training is recognized upon satisfaction of the underlying performance obligation. We typically provide a standard one-year warranty which covers defects in materials and workmanship and manufacturing or
performance conditions including bug fixes under normal use and service for the first year. The first year of the warranty of our products is considered an assurance-type warranty and we have determined that this standard first-year warranty is not
a distinct performance obligation. Deferred revenue primarily consists of billings and payments received in advance of revenue recognition from service maintenance contracts including cloud access, proof of concept services and advanced training,
and is reduced as the revenue recognition criteria are met.
There have been no additional material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our
Annual
Report on Form 10-K for the year ended December 31, 2022, f
iled with the SEC on March 17, 2023.
See Note 2 “Summary of Significant Accounting Policies” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information regarding
our significant accounting policies and estimates.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 “Summary of Significant Accounting
Policies – Recently Issued Accounting Pronouncements” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
|
Inflation risk
We do not believe that inflation has had a material effect on our business, financial condition, results of operations or cash flows, other than its impact on the general economy. Nonetheless, to the
extent our costs are impacted by general inflationary pressures, we may not be able to fully offset such higher costs through price increases or manufacturing efficiencies. Our inability or failure to do so could harm our business, financial
condition, results of operations or cash flows.
Interest rate risk
Our marketable securities are comprised primarily of investments in fixed income mutual funds. The primary objective of our investments is the preservation of capital to fulfill
liquidity needs. We do not enter into investments for trading or speculative purposes. Interest
rate increases have resulted in changes in the fair value of our fixed income mutual funds to date. As of September 30, 2023, this cumulative
impact is a net unrealized loss of $12.9 million. The impact of such rate changes on the overall financial markets and the economy may continue to impact us in the future.
Foreign Currency Risk
Presently, we operate our business primarily within the United States and currently execute the majority of our transactions in U.S. dollars. This limited foreign currency translation risk is not
expected to have a material impact on our condensed consolidated financial statements. To date, we have not entered into any hedging arrangements with respect to foreign currency risk. As our international operations grow, we will continue to
reassess our approach to managing our risk relating to fluctuations in currency rates.
| Item 4. |
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed
under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and
procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.
Changes in Internal Control over Financial Reporting
We began commercial shipments of the Platinum™ protein sequencing instrument in the first quarter of 2023. We are in the process of implementing additional controls over the processes that are
associated with the commercial launch of Platinum
TM
including but not limited to revenue recognition and inventory. There were no additional changes in our internal
control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 1. |
LEGAL PROCEEDINGS.
|
We are not currently a party to any material legal proceedings.
Our business, results of operations and financial condition are subject to various risks and uncertainties including the risk factors described under the caption “Risk Factors” in our
Annual
Report on Form 10-K for the year ended December 31, 2022, f
iled with the SEC on March 17, 2023, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed, with the SEC on May 11, 2023, in our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 filed, with the SEC on August 7, 2023 and the risk factor described below.
We rely on certain contract manufacturers to manufacture and supply components of both our instruments and consumable offerings. If these manufacturers should
fail or not perform satisfactorily, our ability to commercialize and supply our instruments and consumable offerings would be adversely affected.
We rely on certain contract manufacturers to manufacture and supply components of both our instruments and consumable offerings. Since our contracts with these manufacturers do not commit them to
carry inventory or make available any particular quantities, these manufacturers may give other customers’ needs higher priority than ours, and we may not be able to obtain adequate supplies in a timely manner or on commercially reasonable terms.
Further, if these manufacturers are unable to obtain critical components used in our instruments or supply our instruments on the timelines we require, our business and commercialization efforts would be harmed. In November 2021, we acquired one
of our key suppliers in the semiconductor chip assembly and packaging business, Majelac.
In the event it becomes necessary to utilize a different contract manufacturer for our products, we would experience additional costs, delays and difficulties in doing so as a result of identifying
and entering into an agreement with a new manufacturer as well as preparing such new manufacturer to meet the logistical requirements associated with manufacturing our instruments and consumable offerings, and our business would suffer. In
addition, once our products are authorized for use by the FDA as medical devices, we will need to contract with FDA-registered device establishments that are able to comply with current Good Manufacturing Practice requirements that are set forth
in the QSR, unless explicitly exempted by regulation. We are presently working to transition activities of one of our contract manufacturers that produces a component of our semi-conductor chips. The existing contract manufacturer is moving
their operations to a new facility, which has been delayed, requiring us to transition to a new contract manufacturer. If we are unable to begin manufacturing at this new contract manufacturer in a timely fashion, it will affect our ability to
produce semi-conductor chips which would harm our research and development efforts and commercial operations.
In addition, certain of the components and consumables used in our instruments and consumable offerings are sourced from a limited number, or sole suppliers. If we were to lose such a supplier,
there can be no assurance that we will be able to identify or enter into an agreement with an alternative supplier on a timely basis on acceptable terms, if at all. An interruption in our ability to sell and deliver instruments or consumable
offerings to customers could occur if we encounter delays or difficulties in securing these components or consumables, or if the quality of the components or consumables supplied do not meet specifications, or if we cannot then obtain an
acceptable substitute. Our suppliers have also been impacted by the COVID-19 pandemic, and in the past, we have experienced supply delays for critical hardware and instrumentation as a result. If any of these events occur, our business, results
of operations, financial condition and prospects could be harmed.
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY
SECURITIES.
|
Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
Not applicable.
| ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES.
|
Not applicable.
| ITEM 4. |
MINE SAFETY DISCLOSURES.
|
Not applicable.
| ITEM 5. |
OTHER INFORMATION.
|
Not applicable.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
|
Exhibit
Number
|
|
Exhibit Description
|
|
Filed Herewith
|
|
Incorporated by
Reference Herein
from
Form or Schedule
|
|
Filing Date
|
|
SEC File/
Reg. Number
|
|
Equity Distribution Agreement, dated as of August 11, 2023, by and between Quantum-Si Incorporated and Evercore Group L.L.C.
|
Form S-3
(Exhibit 1.2)
|
8/11/2023
|
333-273934
|
|||||||
|
Separation Agreement, dated as of July 18, 2023, by and between Quantum-Si Incorporated and Michael P. McKenna, Ph.D.
|
Form 8-K
(Exhibit 10.1)
|
7/20/2023
|
001-39486
|
|||||||
|
Separation Agreement, dated as of September 1, 2023 by and between Quantum-Si Incorporated and Patrick Schneider, Ph.D.
|
Form 8-K
(Exhibit 10.1)
|
9/5/2023
|
001-39486
|
|||||||
|
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
|||||||||
|
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
|||||||||
|
|
Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
X
|
|
|
|
|
|
|
|
|
Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
|||||||||
|
101.INS
|
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
|
|
X
|
|
|
|
|||
|
101.SCH
|
|
Inline XBRL Taxonomy Extension Schema Document
|
|
X
|
|
|
|
|||
|
101.CAL
|
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
X
|
|
|
|
|||
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
X
|
||||||||
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
X
|
||||||||
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
X
|
||||||||
|
104
|
Cover Page Interactive Data File (embedded within the Inline XBRL document)
|
X
|
| + |
Management contract or compensatory plan or arrangement.
|
| * |
The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference
into any filing of Quantum-Si Incorporated under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of such Form 10-Q), irrespective of any general incorporation
language contained in such filing.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
QUANTUM-SI INCORPORATED
|
|||
|
Date: November 9, 2023
|
By:
|
/s/ Jeffrey Hawkins
|
|
|
Jeffrey Hawkins
|
|||
|
President and Chief Executive Officer
|
|||
|
Date: November 9, 2023
|
By:
|
/s/ Jeffry Keyes
|
|
|
Jeffry Keyes
|
|||
|
Chief Financial Officer
|
|||
36
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities, Use Of Proceeds, and Issuer Purchases Of Equity SecuritiesItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits