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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________________________
FORM 10-Q
___________________________________
(Mark One) | | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
OR
| | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____ to ____
Commission file number 001-40894
___________________________________
IsoPlexis Corporation
___________________________________
(Exact name of Registrant as Specified in its Charter)
| | | | | |
Delaware | 46-2179799 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
35 NE Industrial Road, Branford, CT 06405
(Address of principal executive offices and zip code)
(203) 208-4111
Registrant’s telephone number, including area code
___________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | ISO | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ¨ | Accelerated filer | o |
Non-accelerated filer | x | Smaller reporting company | x |
| | Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No x
The registrant had outstanding 39,078,949 shares of common stock as of May 9, 2022.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains “forward-looking statements.” These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies and other future conditions. Such forward-looking statements may include, without limitation, statements about future opportunities for us and our products and services, our future operations, financial or operating results, anticipated business levels, future earnings, planned activities, anticipated growth, market opportunities, strategies, competitions and other expectations and targets for future periods. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “predict,” “project,” “target,” “potential,” “seek,” “will,” “would,” “could,” “should,” “continue,” “contemplate,” “plan,” and other words and terms of similar meaning.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. In addition, even if our results of operations, financial condition and cash flows, and the development of the markets in which we operate, are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, among others, the following:
•estimates of our addressable market, market growth, future revenue, expenses, capital requirements and our needs for additional financing;
•the implementation of our business model and strategic plans for our products and technologies;
•competitive companies and technologies and our industry;
•our ability to manage and grow our business by expanding our sales to existing customers or introducing our products to new customers;
•our ability to develop and commercialize new products;
•our ability to establish and maintain intellectual property protection for our products or avoid or defend claims of infringement;
•the performance of third party suppliers;
•our ability to hire and retain key personnel and to manage our future growth effectively;
•our ability to obtain additional financing in future offerings;
•the volatility of the trading price of our common stock;
•the potential effects of government regulation;
•the impact of COVID-19 on our business; and
•our expectations about market trends.
For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 and our other subsequent filings with the Securities and Exchange Commission (the “SEC”). Given these uncertainties, you should not place undue reliance on these forward-looking statements.
You should read this Form 10-Q and the documents that we reference within it completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Form 10-Q by these cautionary statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Unless the context otherwise requires, we use the terms “IsoPlexis,” the “Company,” “we,” “us” and “our” in this Form 10-Q to refer to IsoPlexis Corporation and our consolidated subsidiaries.
Channels for Disclosure of Information
Investors and others should note that we may announce material information to the public through filings with the SEC, our website (www.isoplexis.com), press releases, public conference calls, public webcasts and our social media accounts (including https://www.linkedin.com/company/isoplexis-inc-/). We use these channels to communicate with our customers and the public about the Company, our products, our services and other matters. We encourage our investors, the media and others to review the information disclosed through such channels as such information could be deemed to be material information. The information on such channels, including on our website and our social media accounts, is not incorporated by reference in this Form 10-Q and shall not be deemed to be incorporated by reference into any other filing under the Securities Act (as defined below) or the Exchange Act (as defined below), except as expressly set forth by specific reference in such a filing. Please note that this list of disclosure channels may be updated from time to time.
Part I - Financial Information
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | | | | | | | | | | |
(in thousands, except share amounts) | | March 31, 2022 | | December 31, 2021 |
Assets | | | | |
Current assets: | | | | |
Cash | | $ | 97,608 | | | $ | 126,566 | |
Accounts receivable, net | | 3,937 | | | 4,100 | |
Inventories, net | | 34,504 | | | 24,299 | |
Prepaid expenses and other current assets | | 3,241 | | | 3,478 | |
Total current assets | | 139,290 | | | 158,443 | |
Property and equipment, net | | 9,610 | | | 5,778 | |
Intangible assets, net | | 20,750 | | | 21,008 | |
Operating lease right-of-use assets | | 5,338 | | | — | |
Other assets | | 1,124 | | | 2,243 | |
Total assets | | $ | 176,112 | | | $ | 187,472 | |
Liabilities and stockholders’ equity | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 10,239 | | | $ | 4,839 | |
Accrued expenses and other current liabilities | | 6,828 | | | 7,827 | |
Deferred revenue | | 846 | | | 915 | |
| | | | |
Total current liabilities | | 17,913 | | | 13,581 | |
Long-term operating lease obligations | | 4,598 | | | — | |
Long-term debt | | 38,902 | | | 31,646 | |
Total liabilities: | | 61,413 | | | 45,227 | |
Commitments and contingencies (Notes 10 and 12) | | | | |
Stockholders’ equity: | | | | |
Preferred stock, $0.001 par value, 20,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2022 and December 31, 2021 | | — | | | — | |
Common stock, $0.001 par value, 400,000,000 shares authorized; 39,043,119 and 39,036,010 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | | 39 | | | 39 | |
Additional paid-in capital | | 277,358 | | | 276,179 | |
Accumulated deficit | | (162,698) | | | (133,973) | |
Total stockholders’ equity | | 114,699 | | | 142,245 | |
Total liabilities and stockholders’ equity | | $ | 176,112 | | | $ | 187,472 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
(in thousands, except share and per share amounts) | | 2022 | | 2021 | | | | |
Revenue | | | | | | | | |
Product revenue | | $ | 4,454 | | | $ | 2,927 | | | | | |
Service revenue | | 457 | | | 307 | | | | | |
Total revenue | | 4,911 | | | 3,234 | | | | | |
Cost of product revenue | | 2,329 | | | 1,550 | | | | | |
Cost of service revenue | | 27 | | | 24 | | | | | |
Gross profit | | 2,555 | | | 1,660 | | | | | |
Operating expenses: | | | | | | | | |
Research and development expenses | | 7,133 | | | 3,674 | | | | | |
General and administrative expenses | | 11,476 | | | 4,378 | | | | | |
Sales and marketing expenses | | 12,043 | | | 7,074 | | | | | |
Total operating expenses | | 30,652 | | | 15,126 | | | | | |
Loss from operations | | (28,097) | | | (13,466) | | | | | |
Other income (expense): | | | | | | | | |
Interest expense, net | | (986) | | | (743) | | | | | |
Other income (expense), net | | 358 | | | (1,350) | | | | | |
Net loss | | $ | (28,725) | | | $ | (15,559) | | | | | |
Accrued dividends on preferred stock | | — | | | (3,276) | | | | | |
Net loss attributable to common stockholders | | (28,725) | | | (18,835) | | | | | |
Basic and diluted net loss per common share | | $ | (0.74) | | | $ | (8.81) | | | | | |
Weighted-average common shares outstanding—basic and diluted | | 39,037,528 | | | 2,137,624 | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series A Preferred | | Series A-2 Preferred | | Series B Preferred | | Series B-2 Preferred | | Series C Preferred | | Series C-2 Preferred | | Series D Preferred | | | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in thousands, except share amounts) | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | | |
Balance at January 1, 2022 | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | — | | | $ | — | | | | 39,036,010 | | | $ | 39 | | | $ | 276,179 | | | $ | (133,973) | | | $ | 142,245 | |
Exercise of common stock options | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 7,109 | | | — | | | 2 | | | — | | | 2 | |
Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | 877 | | | — | | | 877 | |
Warrant modification expense | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | 300 | | | — | | | 300 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | (28,725) | | | (28,725) | |
Balance at March 31, 2022 | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | — | | | $ | — | | | | 39,043,119 | | | $ | 39 | | | $ | 277,358 | | | $ | (162,698) | | | $ | 114,699 | |
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| | Series A Preferred | | Series A-2 Preferred | | Series B Preferred | | Series B-2 Preferred | | Series C Preferred | | Series C-2 Preferred | | Series D Preferred | | | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Total Stockholders’ Equity (Deficit) |
(in thousands, except share amounts) | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | | |
Balance at January 1, 2021 | | 253,862 | | | $ | 1,596 | | | 290,002 | | | $ | 3,623 | | | 376,061 | | | $ | 6,606 | | | 237,183 | | | $ | 6,991 | | | 564,287 | | | $ | 24,839 | | | 515,218 | | | $ | 24,929 | | | 975,039 | | | $ | 74,876 | | | | 2,133,904 | | | $ | 2 | | | $ | 1,151 | | | $ | (52,404) | | | $ | (51,251) | |
Issuance of Preferred Stock | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 130,006 | | | 10,000 | | | | — | | | — | | | — | | | — | | | — | |
Exercise of common stock options | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | 10,912 | | | — | | | 5 | | | — | | | 5 | |
Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | 95 | | | — | | | 95 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | (15,559) | | | (15,559) | |
Balance at March 31, 2021 | | 253,862 | | | $ | 1,596 | | | 290,002 | | | $ | 3,623 | | | 376,061 | | | $ | 6,606 | | | 237,183 | | | $ | 6,991 | | | 564,287 | | | $ | 24,839 | | | 515,218 | | | $ | 24,929 | | | 1,105,045 | | | $ | 84,876 | | | | 2,144,816 | | | $ | 2 | | | $ | 1,251 | | | $ | (67,963) | | | $ | (66,710) | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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| | Three months ended March 31, |
(in thousands) | | 2022 | | 2021 |
Cash flows from operating activities | | | | |
Net loss | | $ | (28,725) | | | $ | (15,559) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation and amortization | | 980 | | | 308 | |
Provision for warranty costs | | 136 | | | 84 | |
Change in fair value of warrants and loan commitment | | — | | | 1,946 | |
Amortization of debt discount | | 428 | | | 155 | |
Amortization of right-of-use assets | | 322 | | | — | |
Share-based compensation | | 877 | | | 95 | |
Provision for excess and obsolete inventories | | 45 | | | — | |
Changes in operating assets and liabilities: | | | |
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Accounts receivable | | 163 | | | (803) | |
Inventories | | (10,250) | | | (2,600) | |
Prepaid expenses and other current assets | | 237 | | | (1,136) | |
Operating lease right-of-use assets | | (5,660) | | | — | |
Other assets | | 747 | | | 135 | |
Accounts payable | | 5,400 | | | 1,990 | |
Accrued liabilities | | (1,135) | | | 677 | |
Deferred revenue | | (69) | | | 287 | |
Operating lease obligations | | 4,598 | | | — | |
Net cash used in operating activities | | (31,906) | | | (14,421) | |
Cash flows from investing activities | | | | |
Purchases of property and equipment | | (4,394) | | | (739) | |
Payments for patents acquired and capitalized | | (160) | | | (86) | |
Net cash used in investing activities | | (4,554) | | | (825) | |
Cash flows from financing activities | | | | |
Proceeds from issuance of Preferred Stock - Series D | | — | | | 10,000 | |
Proceeds received from borrowings on credit agreement | | 7,500 | | | — | |
Exercise of common stock options | | 2 | | | 5 | |
Net cash provided by financing activities | | 7,502 | | | 10,005 | |
Net change in cash | | (28,958) | | | (5,241) | |
Cash beginning | | 126,566 | | | 106,641 | |
Cash ending | | $ | 97,608 | | | $ | 101,400 | |
Non-cash investing and financing activities | | | | |
Transfer of Tranche C loan commitment to contra-debt upon additional borrowing under credit agreement | | $ | 672 | | | $ | — | |
Supplemental disclosure of cash flow information | | | | |
Cash paid for interest | | $ | 987 | | | 719 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Nature of operations
IsoPlexis Corporation (together with its subsidiaries, the “Company”) was incorporated in the State of Delaware in March 2013. The Company is a life sciences company building solutions to accelerate the development of curative medicines and personalized therapeutics. The Company’s award-winning single-cell proteomics systems reveal unique biological activity in small subsets of cells, allowing researchers to connect more directly to in-vivo biology and develop more precise and personalized therapies. The Company’s products have been adopted by researchers around the world, including each of the top 15 global pharmaceutical companies by revenue and by approximately 75% of the comprehensive cancer centers in the United States. On December 28, 2018, the Company created IsoPlexis UK Limited (“IsoPlexis UK”), which has remained dormant. IsoPlexis (Shanghai) Trading Co., Ltd. was created on October 9, 2021.
COVID - 19
The COVID-19 pandemic developed rapidly in 2021, with a significant number of cases. Measures taken by various governments to contain the virus have affected economic activity. The Company has taken a number of measures to monitor and mitigate the effects of COVID-19, such as safety and health measures for the Company’s employees (such as social distancing and working from home) and securing the supply of materials that are essential to the production process.
At this stage, the impact on the Company’s business and results has not been significant and based on the Company’s experience to date management expects this to remain the case. The Company will continue to follow the various government policies and advice.
Liquidity and ability to continue as a going concern
Since its inception, the Company has incurred net losses and negative cash flows from operations.
During the three months ended March 31, 2022 and 2021, the Company incurred a net loss of $28.7 million and $15.6 million, respectively, and used $31.9 million and $14.4 million in cash for operations, respectively. In addition, as of March 31, 2022, the Company had an accumulated deficit of $162.7 million. The Company expects to continue to generate operating losses and negative cash flows for the foreseeable future.
The Company may seek additional funding in order to reach its business objectives. The Company may seek these funds either through public debt or equity offerings or further private equity financings, debt financings, and strategic alliances. The Company may not be able to obtain funding on acceptable terms, or at all, and the terms of any funding may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain additional funding, it could adversely affect the Company’s business prospects.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of assets or the amounts classification of liabilities that might be necessary if the company is unable to continue as a going concern.
Note 2 - Summary of significant accounting policies
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, IsoPlexis UK and Isoplexis (Shanghai) Trading Co., Ltd. All intercompany transactions have been eliminated.
Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).
The condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and
footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from these condensed consolidated financial statements, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2021 and the notes thereto. The results for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.
In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.
Significant Accounting Policies
With the exception of the following policy, the Company’s significant accounting policies are unchanged from those disclosed in Note 2, “Summary of significant accounting policies” in our consolidated financial statements as of and for the year ended December 31, 2021.
Recently adopted accounting pronouncements
The Company adopted ASU No. 2016-02 as of January 1, 2022, using a modified retrospective transition approach and elected the optional transition method to apply the provision of ASC 842 as of the effective date, rather than the earliest period presented. The Company elected the “package of practical expedients”, which permits it to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company made an accounting policy election to exempt short-term leases of 12 months or less from balance sheet recognition requirements associated with the new standard. Leases with an initial term of twelve months or less, or on a month-to-month basis, are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. The Company also elected the practical expedient for use-of-hindsight to conclude on lease term. If applicable, the Company combines lease and non-lease components, which primarily relate to ancillary expenses associated with real estate leases such as common area maintenance charges and management fees.
The Company determines if an arrangement is a lease at inception and determines the classification of the lease, as either operating or finance, at commencement. Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued expenses and other current liabilities and long-term operating lease obligations on our consolidated balance sheets. The Company presently does not have any finance leases.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The Company’s leases do not provide a readily determinable implicit discount rate. The Company’s borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in similar economic environments. Operating lease ROU assets also factor in any lease payments made, initial direct costs and lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Some of the Company’s leases include options to extend the lease term. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The adoption of this accounting standard resulted in recording operating lease ROU assets for six real estate and three equipment operating lease arrangements and corresponding operating lease liabilities of $5.7 million and $5.9 million, respectively, as of January 1, 2022. The operating lease assets at adoption were lower than the operating lease liabilities because of the balance of the Company’s deferred rent liabilities of $0.2 million at December 31, 2021, which was reclassified into operating lease assets. The adoption of the standard did not have a material effect on the Company’s condensed consolidated statements of operations or condensed consolidated statements of cash flows.
See Note 10 for further information concerning the Company’s leases.
New accounting standards not yet effective
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. This standard will be effective for the Company on January 1, 2023. The Company has not yet determined the impact the adoption of this standard will have on the consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), which provides companies with temporary optional financial reporting alternatives to ease the potential burden in accounting for reference rate reform and includes a provision that allows companies to account for a modified contract as a continuation of an existing contract. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company has certain debt instruments for which the interest rates are indexed to LIBOR, and as a result, is currently evaluating the effect that the implementation of this standard will have on the Company’s consolidated operating results, cash flows, financial condition and related disclosures.
Note 3 - Fair Value Measurement
Certain of the Company’s assets and liabilities are recorded at fair value, as described below.
The following tables set forth the Company’s financial instruments that were measured at fair value on recurring basis by level within the fair value hierarchy:
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| | March 31, 2022 |
(in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
Loan commitment | | $ | — | | | $ | — | | | $ | 822 | | | $ | 822 | |
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| | December 31, 2021 |
(in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
Loan commitment | | $ | — | | | $ | — | | | $ | 1,169 | | | $ | 1,169 | |
During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the three months ended March 31, 2022 and 2021.
The commitment for an additional tranche under the Credit Agreement (see Note 7) qualifies as a freestanding financial instrument required to be recorded at estimated fair value. The fair value of the loan commitment was estimated based on the present value of future expected cash flows discounted at the Company’s effective interest rate of 14.09% and 14.12% at March 31, 2022 and December 31, 2021, respectively.
The following table presents changes during the three months ended March 31, 2022 and 2021 in Level 3 liabilities measured at fair value on a recurring basis:
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(in thousands) | | Loan Commitment | | Series D Warrants | | Series A Warrants |
Balance at January 1, 2022 | | $ | 1,169 | | | $ | — | | | $ | — | |
Exercise of Tranche C loan commitment | | (497) | | | — | | | — | |
Change in warrant exercise price | | 150 | | | — | | | — | |
Balance at March 31, 2022 | | 822 | | | — | | | — | |
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(in thousands) | | Loan Commitment | | Series D Warrants | | Series A Warrants |
Balance as January 1, 2021 | | $ | 2,240 | | | $ | 4,430 | | | $ | 207 | |
Change in estimated fair value | | (139) | | | 1,807 | | | — | |
Balance at March 31, 2021 | | 2,101 | | | 6,237 | | | 207 | |
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Under ASC Topic 480, Distinguishing Liabilities from Equity, the warrants (see Note 7) were freestanding financial instruments that qualified as liabilities required to be recorded at their estimated fair value at the inception date and remeasured at each reported balance sheet date thereafter until settlement. The Series A-2 Preferred Stock Warrant was exercised on May 11, 2021, at an exercise price of $12.58606 per share for 3,178 shares of Series A-2 redeemable convertible preferred stock. Upon closing of the initial public offering (“IPO”) on October 12, 2021, the warrant held by Perceptive Credit Holdings III, LP to purchase Series D redeemable convertible preferred stock was converted into a warrant exercisable for a total of 811,374 shares of common stock. This common stock warrant is no longer considered “potentially redeemable” and the outstanding balance of the warrant liability has been reclassified into equity in accordance with ASC 480 for the year ended December 31, 2021.
On March 30, 2022, the Company entered into a Third Amendment to Credit Agreement and Guaranty with Perceptive Credit Holdings III, LP pursuant to which the prior $15.0 million Tranche C term loan, which was available through March 31, 2022 subject to several conditions, was changed to $7.5 million and such amount was borrowed on March 30, 2022. In addition, the Third Amendment added a new $7.5 million Tranche D term loan, which remains available through June 30, 2022. In connection with entering into the above-referenced Third Amendment to the Credit Agreement, on March 30, 2022, the Company amended the warrant that had been previously issued to Perceptive Credit Holdings III, LP to purchase up to 811,374 shares of common stock at an exercise price of $9.62 per share. The warrant exercise price was amended to $6.00 per share. The change in exercise price resulted in an increase to debt issuance costs of $0.3 million, half of which was recognized with the Tranche C term loan draw as shown in the table above.
The above fair value measurements are sensitive to changes in underlying unobservable inputs. A change in those inputs could result in a significantly higher or lower fair value measurement.
Changes in fair value of the warrants and loan commitment is included in other expense in the statements of operations.
Note 4 - Revenue
The Company’s revenue is generated primarily from the sale of products and services. Product revenue primarily consists of sales of instruments and consumables used in single cell research equipment. Service and other revenue primarily consists of revenue generated from measuring immune responses using the Company’s technology.
Revenue by source
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| | Three months ended March 31, | | |
(in thousands) | | 2022 | | 2021 | | | | |
Instruments | | $ | 3,035 | | | $ | 2,119 | | | | | |
Consumables | | 1,419 | | | 809 | | | | | |
Extended service warranty | | 226 | | | 151 | | | | | |
Other service revenue | | 231 | | | 155 | | | | | |
Total revenue | | $ | 4,911 | | | $ | 3,234 | | | | | |
Revenue by geographic area
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| | Three months ended March 31, | | |
Based on region of destination (in thousands) | | 2022 | | 2021 | | | | |
Americas (1) | | $ | 3,359 | | | $ | 2,235 | | | | | |
Europe (2) | | 367 | | | 565 | | | | | |
Greater China (3) | | 967 | | | 226 | | | | | |
Asia-Pacific (4) | | 218 | | | 208 | | | | | |
Total revenue | | $ | 4,911 | | | $ | 3,234 | | | | | |
__________
(1)Region includes revenue from the United States of America and Canada
(2)Region includes revenue from the United Kingdom, Belgium, Czech Republic, Portugal, France, Spain, Germany, Sweden, Italy, Israel and Switzerland
(3)Region includes revenue from China and Taiwan
(4)Region includes revenue from Singapore, Japan, Australia and South Korea
Performance obligations
The Company regularly enters into contracts with multiple performance obligations. Most performance obligations are generally satisfied within a short time after the contract execution date. As of March 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $0.8 million, of which substantially all is expected to be recognized as revenue during 2022.
Contract balances
Contract balances represent amounts presented in the consolidated balance sheets when either the Company has transferred goods or services to the customer, or the customer has paid consideration to the Company under the contract. These contract balances included accounts receivable (see Note 5) and deferred revenue. Accounts receivable balances represent amounts billed to customers for goods and services when the Company has an unconditional right to payment of the amount billed. Deferred revenue, as of March 31, 2022 and December 31, 2021 was $0.8 million and $0.9 million, respectively. Deferred revenue represents cash consideration received from customers for which all services or products have not yet been transferred. Revenue recorded during the three months ended March 31, 2022 included $0.2 million of previously deferred revenue that was included in contract liabilities as of December 31, 2021.
As of March 31, 2022 and December 31, 2021, no single customer represented 10% or more of accounts receivable. For the three months ended March 31, 2022 and March 31, 2021, no single customer represented 10% or more of revenue.
Note 5 - Supplemental Balance Sheet Details
Accounts receivable, net consists of the following:
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(in thousands) | | March 31, 2022 | | December 31, 2021 |
Accounts receivable | | $ | 3,983 | | | $ | 4,146 | |
Allowance for doubtful accounts | | (46) | | | (46) | |
Total accounts receivable net of allowance | | $ | 3,937 | | | $ | 4,100 | |
Inventories, net consists of the following:
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(in thousands) | | March 31, 2022 | | December 31, 2021 |
Raw materials | | $ | 33,180 | | | $ | 22,179 | |
Work in process | | — | | | — | |
Finished goods | | 1,695 | | | 2,481 | |
Reserve for excess and obsolete inventory | | (371) | | | (361) | |
Total inventories, net | | $ | 34,504 | | | $ | 24,299 | |
Property and equipment, net consist of the following:
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(in thousands) | | March 31, 2022 | | December 31, 2021 |
Furniture and equipment | | $ | 8,956 | | | $ | 5,585 | |
Computers and technology | | 2,916 | | | 2,139 | |
Leasehold improvements | | 1,319 | | | 1,073 | |
Total | | 13,191 | | | 8,797 | |
Accumulated depreciation | | (3,581) | | | (3,019) | |
Property and equipment, net | | $ | 9,610 | | | $ | 5,778 | |
Depreciation expense was $0.6 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively.
Accrued expenses and other current liabilities consist of the following:
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(in thousands) | | March 31, 2022 | | December 31, 2021 |
Accrued compensation | | $ | 1,854 | | | $ | 3,656 | |
Accrued operating expenses | | 3,564 | | | 3,556 | |
Short-term operating lease liability | | 1,006 | | | — | |
Other, including warranties | | 404 | | | 615 | |
Total accrued liabilities | | $ | 6,828 | | | $ | 7,827 | |
Note 6 - Intangible assets
Intangible assets consist of the following:
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| | | | March 31, 2022 |
(in thousands) | | Remaining Useful Life (Years) | | Gross | | Accumulated Amortization | | Net |
Patents | | 9 - 14 | | $ | 21,767 | | | $ | 1,365 | | | $ | 20,402 | |
Capitalized licenses | | 1 - 4 | | 670 | | | 322 | | | 348 | |
Total intangible assets | | | | $ | 22,437 | | | $ | 1,687 | | | $ | 20,750 | |
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| | | | December 31, 2021 |
(in thousands) | | Remaining Useful Life (Years) | | Gross | | Accumulated Amortization | | Net |
Patents | | 9 - 14 | | $ | 21,607 | | | $ | 981 | | | $ | 20,626 | |
Capitalized licenses | | 1 - 4 | | 670 | | | 288 | | | 382 | |
Total intangible assets | | | | $ | 22,277 | | | $ | 1,269 | | | $ | 21,008 | |
During the three months ended March 31, 2022, there were $0.2 million of additions to patents with a weighted average useful life of 13.1 years.
Amortization expense was $0.4 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively. The amortization of intangible assets attributable to product sales is recognized in cost of product and service revenue. The amortization of intangible assets not attributable to product sales is recognized in general and administrative operating expenses.
As of March 31, 2022, the estimated annual amortization of intangible assets for the remainder of 2022 and the next four years is shown in the following table. Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, and asset impairments, among other factors.
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Year (in thousands) | | Estimated Annual Amortization |
2022 (remaining nine months) | | $ | 1,264 | |
2023 | | 1,685 | |
2024 | | 1,685 | |
2025 | | 1,602 | |
2026 | | 1,574 | |
Note 7 - Debt
On December 30, 2020, the Company closed on a $50.0 million Credit Agreement with a significant equity investor, of which the Company borrowed $25.0 million immediately upon closing. In May 2021, the Company borrowed an additional $10.0 million. On March 30, 2022, the Company entered into a Third Amendment to Credit Agreement and
Guaranty with Perceptive Credit Holdings III, LP pursuant to which the prior remaining $15.0 million Tranche C term loan was changed to $7.5 million and such amount was borrowed on March 30, 2022. In addition, the Third Amendment added a new $7.5 million Tranche D term loan, which remains available through June 30, 2022 subject to several conditions, including compliance with the covenant showing total revenue of at least $16.8 million for the twelve-month period ending March 31, 2022.
Borrowings under the Credit Agreement bear interest at the one-month LIBOR, with a 1.75% floor, plus a 9.50% margin (11.25% at March 31, 2022). Monthly payments of interest-only are due over the term of the loan with no scheduled loan amortization. Amounts borrowed are due and payable on the maturity date, December 30, 2025. The loan is secured by substantially all of the Company’s assets. Financial covenants include a $3.0 million minimum cash balance at all times and trailing twelve-month minimum revenue amounts measured on a quarterly basis. On October 29, 2021, the Company entered into the Second Amendment to, among other things, eliminate the minimum total revenue covenant for the twelve months ending December 31, 2021 and reset the minimum total revenue covenants thereafter. Pursuant to the Second Amendment, the minimum total revenue covenant, as amended, has resumed testing for the twelve months ending March 31, 2022. As of March 31, 2022, the Company was in compliance with the minimum total revenue covenant requirement of $16.8 million and minimum cash balance covenant requirement of $3.0 million.
The total minimum revenue covenant requirements for the next twelve months are as follows:
| | | | | | | | |
Twelve-Month Period Ending | | Minimum Total Revenue (in thousands) |
June 30, 2022 | | $ | 18,256 | |
September 30, 2022 | | 21,722 | |
December 31, 2022 | | 26,545 | |
March 31, 2023 | | 30,179 | |
In connection with the Credit Agreement closing, the Company issued to the lender warrants to purchase 97,504 shares of Series D preferred stock. The warrants have a 10-year contractual life and had an exercise price of $76.92 per warrant share. The fair value at issuance was estimated at $4.4 million and was recorded as a warrant liability. Upon closing of the IPO on October 12, 2021, the Series D redeemable convertible preferred stock warrant was converted into a warrant exercisable for a total of 811,374 shares of common stock with an exercise price of $9.62 per warrant share. In connection with the Third Amendment to the Credit Agreement dated March 30, 2022, warrants were reissued and the exercise price was changed from $9.62 per warrant share to $6.00 per warrant share. The change in exercise price resulted in an increase to debt issuance costs of $0.3 million, half of which was recognized with the Tranche C term loan which was drawn on March 30, 2022. This common stock warrant is no longer considered “potentially redeemable” and the fair value of the warrant liability as of October 12, 2021 has been reclassified into equity in accordance with ASC 480 for the year ended December 31, 2021 (see Note 3).
In addition, given that the Credit Agreement contained additional tranches of potential borrowings at inception, the Company identified and recorded within other assets on the balance sheet a $2.2 million asset related to future loan commitments at December 30, 2020. During 2021, $0.8 million was reclassified as a reduction in the carrying value of the $10.0 million tranche drawn in May 2021 on a pro-rata basis, and will be amortized over the remaining term of the debt. In connection with the Tranche C draw on March 30, 2022, $0.5 million was reclassified as a reduction in the carrying value of the $7.5 million tranche and will be amortized over the remaining term of the debt. As of March 31, 2022, a $0.6 million asset related to the future loan commitment remains within other assets on the balance sheet. The Company determined that the loan commitment meets the definition within ASC 480 as a freestanding financial instrument to be recorded at fair value given that it is both (1) legally detachable per the explicit ability provided to the creditor allowing it to assign all or part of its interest under the Credit Agreement to any person or entity; and (2) separately exercisable given that it can be exercised or not exercised at the Company’s option without impacting the outstanding balance of the original $25.0 million borrowed upon execution of the Credit Agreement. The remaining proceeds were allocated to the value of the initial debt borrowed and the discount resulting on such debt is being amortized over the term of the Credit Agreement.
On December 31, 2021, the process of cessation of LIBOR as a reference rate took effect. After December 31, 2021, new borrowings will no longer use LIBOR as a reference rate. Instead, these borrowings will be subject to an interest rate based on either the Secured Overnight Financing Rate (“SOFR”), which is deemed a replacement benchmark for LIBOR under the Credit Agreement, or an alternate index to be agreed upon; provided that if such alternate rate of interest shall be less than 1.75%, such rate shall be deemed to be 1.75% for the purposes of the Credit Agreement. Between December 31,
2021 and June 30, 2023, any legacy borrowings may continue to use LIBOR as the basis for interest rates. After June 30, 2023, all borrowings will be based on SOFR or the alternate index.
Note 8 - Equity
Common stock
As of March 31, 2022, the Company had authorized 400,000,000 shares of Common Stock, of which a total of 39,043,119 and 39,036,010 shares were outstanding, as of March 31, 2022 and December 31, 2021, respectively.
Preferred stock
Upon closing of the IPO on October 12, 2021, all 3,344,836 shares of Preferred Stock that were outstanding immediately prior to the closing of the IPO automatically converted into 26,758,688 shares of Common Stock. In addition, the Company issued 1,643,374 shares of Common Stock to the holders of the outstanding Preferred Stock in respect of accrued dividends thereon accrued to but not including October 12, 2021, based on the IPO price of $15.00 per share.
Under the Amended and Restated Certificate of Incorporation filed upon the Company’s IPO, the Company authorized 20,000,000 shares of non-redeemable preferred stock, $0.001 par value per share (“Preferred Stock”), of which no shares were outstanding at March 31, 2022 and December 31, 2021.
Note 9 - Equity based compensation
The Company’s 2014 Stock Plan (the “Plan”) provides for the granting of stock options or restricted stock to key employees, officers, directors and consultants. Upon effectiveness of the 2021 Plan (as defined below), no further issuances were made under the 2014 Plan.
The Company’s 2021 Omnibus Incentive Compensation Plan (the “2021 Plan”) was adopted by its board of directors and became effective on October 7, 2021. Following the IPO, all equity-based awards are granted under the 2021 Plan. The 2021 Plan provides for the grant of both non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred share units, cash incentive awards and other equity-based or equity-related awards to the Company’s employees, officers, directors and consultants. The terms of equity awards granted under the 2021 Plan to date are consistent with those granted under the 2014 Plan, as described below. The maximum number of shares outstanding under the 2021 Plan is 5,223,601, plus the number of shares of the Company’s common stock underlying awards under the 2014 Plan, not to exceed 5,113,324 shares, that become available again for grant under the 2014 Plan in accordance with its terms.
Stock options
Stock options expire 10 years from the date of grant. The stock options generally vest 25% upon the one-year anniversary of the service inception date and then ratably each month over the remaining 36 months. Upon termination of service, any unvested stock options are automatically returned to the Company. Vested stock options that are not exercised within the specified period, according to the terms and conditions of the option plan, following the termination as an employee, consultant, or service provider to the Company are surrendered back to the Company. Those stock options are added back to the plan pool and made available for future grants. Compensation cost is recorded on a straight-line basis over the requisite service period of the award based on the fair value of the options issued on the measurement date.
The following table summarizes stock option activity for the three months ended March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (in years) | | Aggregate Intrinsic Value (In thousands) |
Outstanding as of December 31, 2021 | 5,105,278 | | | $ | 2.62 | | | 7.7 | | |
Granted | — | | | — | | | | | |
Forfeited | (6,596) | | | 1.38 | | | | | |
Exercised | (7,109) | | | 0.71 | | | | | |
Outstanding as of March 31, 2022 | 5,091,573 | | | $ | 2.60 | | | 7.4 | | $ | 8,674 | |
Vested and expected to vest as of March 31, 2022 | 5,091,573 | | | $ | 2.60 | | | 7.4 | | $ | 8,674 | |
Exercisable at March 31, 2022 | 2,535,176 | | | $ | 0.74 | | | 5.9 | | $ | 6,832 | |
No stock options were granted during the three months ended March 31, 2022. The weighted-average grant date fair value of stock options awarded during the three months ended March 31, 2021 was approximately $2.77 per share. As of March 31, 2022, there was a total of $11.7 million of unrecognized employee compensation costs related to non-vested stock option awards expected to be recognized over a weighted average period of 3.2 years.
The Company estimates the fair value of stock-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables, such as expected term, volatility, risk-free interest rate, and expected dividends. Each of these inputs is subjective and generally requires significant judgment to determine.
The following table summarizes the range of key assumptions used to determine the fair value of stock options granted during:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Risk-free interest rate | — | % | | 0.94 - 1.4% |
Expected term (in years) | zero | | 7 |
Expected volatility | — | % | | 50 | % |
Expected dividend yield | — | | | — | |
Exercise prices | $ | — | | | $ | 1.83 | |
Estimated fair value of common stock options | $ | — | | | $3.96 - $4.93 |
Restricted stock awards
Restricted stock awards are rights to receive shares of the Company’s Common Stock upon meeting specified vesting requirements. The fair value of a restricted stock award is the market value as determined by the closing price of the stock on the day of grant. These awards were granted under the Company’s 2021 Plan.
The following table summarizes restricted stock award activity for the three months ended March 31, 2022:
| | | | | | | | | | | |
| Restricted Stock Awards | | Weighted Average Grant Date Fair Value |
Unvested as of December 31, 2021 | 507,013 | | | $ | 8.46 | |
Granted | 301,883 | | | 6.06 | |
Vested | — | | | — | |
Forfeited | (16,650) | | | 6.74 | |
Unvested as of March 31, 2022 | 792,246 | | | $ | 7.59 | |
No restricted stock awards vested during the three months ended March 31, 2022. As of March 31, 2022, there was approximately $5.4 million of total unrecognized compensation cost related to restricted stock awards. This amount is expected to be recognized over the remaining weighted-average vesting period of 3.8 years.
Employee stock purchase plan
In the third quarter of 2021, the Company approved the 2021 Employee Stock Purchase Plan (the “ESPP”), which became effective upon completion of the IPO. As of March 31, 2022, there has not been an offering under the ESPP and no shares of Common Stock have been purchased under the ESPP.
Expense
The following table summarizes stock-based compensation expense, and also the allocation within the consolidated statements of operations:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in thousands) | | 2022 | | 2021 |
Research and development | | $ | 134 | | | $ | 19 | |
General and administrative | | 582 | | | 47 | |
Sales and marketing | | 161 | | | 29 | |
Total stock-based compensation expense | | $ | 877 | | | $ | 95 | |
Note 10 - Commitments
Operating leases
At March 31, 2022, our operating leases had remaining lease terms of up to 4.75 years, including any reasonably probable extensions.
Lease balances within our consolidated balance sheet were as follows:
| | | | | | | | | | |
(in thousands) | | March 31, 2022 | | |
Assets: | | | | |
Operating lease right-of-use assets | | $ | 5,338 | | | |
Liabilities: | | | | |
Accrued expenses and other current liabilities | | $ | 1,006 | | | |
Long-term operating lease obligations | | 4,598 | | | |
Total lease liabilities | | $ | 5,604 | | | |
Operating lease expense, including variable and short-term lease costs, which were insignificant to the total operating lease cash flows and supplemental cash flow information were as follows:
| | | | | | | | | | |
| | Three Months Ended March 31, | | |
(in thousands) | | 2022 | | |
Cost of product revenue | | $ | 30 | | | |
Research and development expenses | | 97 | | |
Sales and marketing expenses | | 158 | | |
General and administrative expenses | | 133 | | |
Total operating lease expense | | $ | 418 | | | |
Operating cash outflows from operating leases | | $ | 418 | | | |
| | | | |
The weighted average remaining lease liability term and the weighted average discount rate were as follows:
| | | | | | | | | | |
| | March 31, 2022 | | |
Weighted average lease liability term (in years) | | 4.01 | | |
Weighted average discount rate | | 5.00 | % | | |
The following table reconciles the undiscounted cash flows for each of the first five years and thereafter to the operating lease liabilities recognized in our consolidated balance sheet at March 31, 2022. The reconciliation excludes short-term leases that are not recorded on the balance sheet.
| | | | | | | | |
(in thousands) | | March 31, 2022 |
2022 (remaining nine months) | | $ | 1,194 | |
2023 | | 1,585 | |
2024 | | 1,645 | |
2025 | | 1,155 | |
2026 | | 607 | |
Thereafter | | — | |
Total lease payments | | 6,186 | |
Less: imputed interest | | (582) | |
Total lease liabilities | | $ | 5,604 | |
We had one lease commence in December 2021 with payments beginning in February 2022.
Purchase Commitments
On May 12, 2021 the Company entered into a Supply Agreement with QIAGEN GmbH, pursuant to which they have agreed to supply certain reagents to the Company, and the Company has agreed to certain annual minimum purchases. The future minimum purchase values are as follows:
| | | | | | | | |
(in millions) | | Year Ending December 31, |
2022 | | $ | 2.5 | |
2023 | | 4.0 | |
2024 | | 5.0 | |
2025 | | 7.0 | |
2026 | | 9.0 | |
2027 | | 10.0 | |
Total | | $ | 37.5 | |
Note 11 - Product warranties
The Company warrants certain products generally for periods of one year following the delivery date. Accrued warranty costs are included in accrued expenses and other current liabilities.
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in thousands) | | 2022 | | 2021 |
Accrued warranty cost, beginning | | $ | 285 | | | $ | 135 | |
Cost of warranty services | | (69) | | | (43) | |
Estimated provision for warranty cost | | 136 | | | 84 | |
Accrued warranty cost, end | | $ | 352 | | | $ | 176 | |
Note 12 - Legal proceedings
The Company may be a party to litigation or subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company is not currently a party to any material legal proceedings, and the Company’s management believes that there are currently no claims or actions pending against the Company, the ultimate disposition of which could have a material adverse effect on the Company’s results of operations or financial condition.
Note 13 - Other income (expense), net
Other income (expense), net consisted of the following:
| | | | | | | | | | | |
| Three Months Ended March 31, |
(in thousands) | 2022 | | 2021 |
Grant revenue | $ | 357 | | | $ | 596 | |
Change in fair value of warrants and loan commitment | — | | | (1,946) | |
Other income (expense) | 1 | | | — | |
Other income (expense), net | $ | 358 | | | $ | (1,350) | |
Note 14 - Net loss per share attributable to common stockholders
The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have an anti-dilutive effect:
| | | | | | | | | | | |
| March 31, 2022 | | March 31, 2021 |
Options outstanding to purchase common stock | 5,091,573 | | | 3,452,128 | |
Convertible preferred stock (as converted to common stock) | — | | | 26,733,272 | |
Note 15 - Related party transactions
The Company has license agreements with Yale University and California Institute of Technology, which are holders of Common Stock. As described in Note 7, the Company has a Credit Agreement with Perceptive Credit Holdings III, LP, which is a holder of Common Stock. There is an immaterial amount of receivables or payables due from or to these entities as of March 31, 2022.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q and our audited consolidated financial statements and the related notes thereto and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K filed with the SEC on March 30, 2022 (the “2021 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in the 2021 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Data as of and for the three months ended March 31, 2022 and 2021 has been derived from our unaudited condensed consolidated financial statements appearing at the beginning of this Form 10-Q. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period.
Overview
IsoPlexis is the Superhuman Cell company. Our systems uniquely identify a comprehensive range of multifunctional single cells, i.e. the superhero cells in the human body. These cells enable researchers to understand and predict disease progression, treatment resistance and therapeutic efficacy to advance all of human health. We are a life sciences company building solutions to accelerate the development of curative medicines and personalized therapeutics. Our award-winning single-cell proteomics systems reveal unique biological activity in small subsets of cells, allowing researchers to connect more directly to in vivo biology and develop more precise and personalized therapies.
We are enabling deeper access to in vivo biology and driving durable and potentially transformational research on disease in a new era of advanced medicine. We believe our platform is the first to employ both proteomics and single cell biology in an effort to fully characterize and link cellular function to patient outcomes by revealing treatment response and disease progression. Our single cell proteomics platform, which includes instruments, chip consumables and software, provides an end-to-end solution to reveal a more complete view of protein function at an individual cellular level. Since our commercial launch in June 2018, our platform has been adopted by the top 15 global biopharmaceutical companies by revenue and nearly three quarters of the comprehensive cancer centers in the United States to help develop more durable therapeutics, overcome therapeutic resistance, and predict patient responses for advanced immunotherapies, cell therapies, gene therapies, vaccines, and regenerative medicines. Our initial focus has been on developing applications of our platform for cancer immunology and cell and gene therapy. We are now expanding our capabilities to include applications for infectious diseases, inflammatory conditions, and neurological diseases.
We currently market and sell our technology with an in-house commercial team in the United States and Europe. We are also utilizing our distribution network to market and sell across multiple countries, including Australia, Belgium, Canada, China, Czech Republic, France, Germany, Italy, Israel, Japan, Portugal, Singapore, South Korea, Spain, Switzerland, and the United Kingdom. We intend to further expand our international presence by growing our distribution networks in Brazil, India, Mexico and beyond.
We manufacture our instruments and chip consumables in our manufacturing facilities in Branford, Connecticut and do not outsource any of our production manufacturing to third party contract manufacturers. Certain of our suppliers of components and materials are single source suppliers and we do not have supply agreements with certain suppliers of these critical components and materials beyond purchase orders. As part of our overall risk management strategy, we continue to evaluate and identify alternative suppliers for each of our components and materials.
Since our inception in March 2013, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, conducting research and development activities, and filing patent applications. Prior to the completion of our IPO, we financed our operations primarily through the private placement of our securities, the incurrence of indebtedness and, to a lesser extent, grant income and revenue derived from sales of our instruments and chip consumables. As of March 31, 2022, our principal source of liquidity was cash, which totaled $97.6 million.
We completed our first sale of our systems in June 2018 and have experienced significant revenue growth in recent periods. Revenue increased to $4.9 million for the three months ended March 31, 2022, as compared to $3.2 million for the three months ended March 31, 2021. Nevertheless, we have incurred recurring losses since inception. For the three months ended March 31, 2022, our net losses were $28.7 million as compared to $15.6 million for the three months ended
March 31, 2021. As of March 31, 2022, we had an accumulated deficit of $162.7 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future in connection with ongoing development and business expansion activities, particularly as we continue to:
•expand our research and development activities;
•obtain, maintain and expand and protect our intellectual property portfolio;
•market and sell new and existing products and services; and
•attract, hire and maintain qualified personnel to support our expanding business efforts.
Furthermore, we will incur additional costs associated with operating as a public company, including significant legal, accounting, compliance, investor relations and other expenses that we did not incur as a private company.
As a result of these anticipated expenditures, we will need substantial additional financing to support our continuing operations and pursue our growth strategy. Until such time as we can generate positive cash flows from operations, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, sales of products and services to our customers and, to a lesser extent, grant income. We may be unable to raise additional funds when needed on favorable terms or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.
Key Factors Affecting Our Performance
We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by the following factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to pursue our growth strategy and improve our results of operations. Our ability to successfully address the factors below is subject to various risks and uncertainties, including those factors set forth in the section titled “Risk Factors” included in our 2021 10-K.
New Customer Adoption of Our Platform
Our financial performance has been, and in the foreseeable future will continue to be, driven by our ability to increase the adoption of our platform and the installed base of our instruments. We plan to drive new customer adoption through a direct sales and marketing organization in the United States and parts of Europe and third party distributors in Europe, North America, the Middle East and Asia-Pacific. As of March 31, 2022, we market and sell our technology with an in-house commercial team of approximately 210 team members and also utilize our distribution network to market and sell across multiple countries.
Recurring Revenues from Sales of our Chip Consumables
Our IsoCode and CodePlex chip consumables represent a source of recurring revenue from customers using our platform across a wide range of applications. Our instruments and consumables are designed to work together exclusively. As we expand our installed base of instruments, we expect consumable revenues to increase on an absolute basis and become an increasingly important contributor to our overall revenues.
Adoption of Our Platform Across Existing Customers’ Organizations
There is an opportunity to grow our installed base and expand the number of instruments within organizations that are already utilizing our platform to advance their research and therapeutic development by their purchasing of additional instruments to support multiple locations or to increase capacity.
Adoption of Our Platform for New Applications
We founded our company to help solve critical challenges to accelerating advanced medicines and since our inception, we have developed multiple applications spanning cancer immunology, cell and gene therapy, infectious diseases, inflammatory conditions, and neurological diseases. As we continue to deploy our platform, we intend to concurrently expand the breadth of applications for our technologies to encourage increased use of our platform across our addressable markets. We expect our investments in these efforts to increase as we develop and market new applications, including a diagnostic application.
Components of Our Results of Operations
Revenue
Revenue consists of sales of instruments and consumables in addition to service revenue. Our total revenue for the three months ended March 31, 2022 was $4.9 million and $3.2 million for the three months ended March 31, 2021. We expect that our revenue will be less than our expenses for the foreseeable future and that we will experience losses as we continue to expand our business.
Cost of Product and Service Revenue
The Company’s cost of product revenue primarily consists of manufacturing related costs incurred in the production process, including personnel and related costs, costs of components and materials, labor and overhead, packaging and delivery costs and allocated costs for facilities and information technology. Cost of service revenue consists primarily of personnel and related costs of service and warranty costs to support our customers.
Research and Development Expenses
Research and development expenses include:
•costs to obtain licenses to intellectual property and related future payments should certain success, development and regulatory milestones be achieved;
•employee-related expenses, including salaries, benefits and stock-based compensation expense;
•costs of purchasing lab supplies and non-capital equipment used in our research and development activities;
•consulting and professional fees related to research and development activities; and
•facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.
We expense research and development costs as incurred. Research and development activities are central to our business model. We expect research and development costs to increase for the foreseeable future as our current development programs progress and new programs are added.
Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of our current or future research and development efforts.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation, for personnel in executive, finance, business development, facility and administrative functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting, tax and consulting services.
We anticipate that our general and administrative expenses will increase in the future to support continued expansion of our commercial, development and operating activities and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company, including services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs and investor and public relations costs.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of compensation related expenses, including salaries, bonuses, benefits, non-cash stock-based compensation, for sales and marketing personnel, advertising and promotion expenses, consulting and subcontractor fees, sales commissions, recruiting fees, and various other selling expenses. We anticipate that our sales and marketing expenses will increase in the future as we pursue our growth mission and as we identify and expand into new markets, including additional worldwide markets.
Grant Income
We are engaged in various Small Business Innovation Research (“SBIR”) grants with the federal government to help fund the costs of certain research and development activities. We believe that we have complied with all contractual requirements of the SBIR grants through the date of the financial statements. We do not currently expect future grant income to be a material source of funding for the Company.
Research and Development State Tax Credits
Research and development (“R&D”) tax credits exchanged for cash pursuant to the Connecticut R&D Tax Credit Exchange Program, which permits qualified small businesses engaged in R&D activities within Connecticut to exchange their unused R&D tax credits for a cash amount equal to 65% of the value of exchanged credits, are recorded as a receivable and other income in the year the R&D tax credits relate to, as it is reasonably assured that the R&D tax credits will be received, based upon our history of filing for and receiving the tax credits. R&D tax credits receivable where cash is expected to be received by us more than one year after the balance sheet date are classified as noncurrent in the consolidated balance sheets.
Fair Value Adjustment for Warrants and Loan Commitments
Warrants and loan commitments are freestanding financial instruments that qualify as liabilities and assets, respectively, required to be recorded at their estimated fair value at the inception date and remeasured at each reported balance sheet date thereafter until settlement, with gains and losses arising from changes in fair value recognized in the statement of operations during each period. Our preferred share warrants were converted to common share warrants upon our IPO and were reclassified from liabilities to equity for the year ended December 31, 2021.
Results of Operations
Comparisons of the Three Months Ended March 31, 2022 and 2021
The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021, together with the dollar change in those items:
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Period to period change |
(in thousands) | | 2022 | | 2021 | |
Revenue | | | | | | |
Product revenue | | $ | 4,454 | | | $ | 2,927 | | | $ | 1,527 | |
Service revenue | | 457 | | | 307 | | | 150 | |
Total revenue | | 4,911 | | | 3,234 | | | 1,677 | |
Cost of product revenue | | 2,329 | | | 1,550 | | | 779 | |
Cost of service revenue | | 27 | | | 24 | | | 3 | |
Gross profit | | 2,555 | | | 1,660 | | | 895 | |
Operating expenses: | | | | | | |
Research and development expenses | | 7,133 | | | 3,674 | | | 3,459 | |
General and administrative expenses | | 11,476 | | | 4,378 | | | 7,098 | |
Sales and marketing expenses | | 12,043 | | | 7,074 | | | 4,969 | |
Total operating expenses | | 30,652 | | | 15,126 | | | 15,526 | |
Loss from operations | | (28,097) | | | (13,466) | | | (14,631) | |
Other income (expense), net: | | | | | | |
Interest expense, net | | (986) | | | (743) | | | (243) | |
Other income (expense), net | | 358 | | | (1,350) | | | 1,708 | |
Net loss | | $ | (28,725) | | | $ | (15,559) | | | $ | (13,166) | |
Revenue
Total revenue increased $1.7 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. This consisted primarily of an increase of $0.9 million for instruments, $0.6 million for consumables and $0.2 million in service revenue.
The increase in instruments revenue for the three months ended March 31, 2022 was driven by an increase in unit sales generated from a larger commercial team, primarily hired in the second half of 2021. The increase in consumable revenue in 2021 was driven by an increase in the number of units at customer locations.
Gross Profit
Gross profit as a percentage of total revenues was 52% for the three months ended March 31, 2022 compared to 51% for the three months ended March 31, 2021.
Research and Development Expenses
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Period to period change |
(in thousands) | | 2022 | | 2021 | |
Compensation related expenses | | $ | 3,967 | | | $ | 1,714 | | | $ | 2,253 | |
Professional fees and sub-contractor | | 428 | | | 324 | | | 104 | |
Prototyping | | 442 | | | 394 | | | 48 | |
Recruiting | | 115 | | | 165 | | | (50) | |
Lab materials | | 773 | | | 179 | | | 594 | |
Supplies expense | | 882 | | | 675 | | | 207 | |
Depreciation and amortization | | 154 | | | 108 | | | 46 | |
Other | | 372 | | | 115 | | | 257 | |
Total | | $ | 7,133 | | | $ | 3,674 | | | $ | 3,459 | |
Research and development expenses increased by $3.5 million, or 94%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to increases in compensation related expenses of $2.3 million from hiring approximately 45 new employees year over year, a $0.1 million increase in professional fees and $0.6 million increase in lab materials related to Duomic, Codeplex, and initiatives to reduce material and production costs by unit of our existing products, a decrease of $0.1 million in recruiting expenses, an increase in supplies expense of $0.2 million, and increase in depreciation and amortization expense and other expenses of $0.3 million.
General and Administrative Expenses
General and administrative expenses increased by $7.1 million, or 162%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to increases in compensation related expenses of $3.4 million for additional personnel to support organizational growth, an increase of $0.9 million of professional fees related to process enhancements, an increase of $1.0 million in depreciation and amortization expenses primarily related to the amortization of patent expenses, an increase of $0.7 million in software and networking expenses to support a larger organization, and an increase of $1.1 million in various other expenses.
Sales and Marketing Expenses
Sales and marketing expenses increased by $5.0 million, or 70%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to increases in compensation related expenses of $3.2 million for additional personnel to support increased activities, an increase in professional fees of $1.3 million related to international staff increases, a decrease in recruiting expenses of $0.4 million, an increase in supplies expense of $0.6 million, and increase in other expense of $0.3 million. Overall, the increase was driven by the increase in headcount to support our growth mission and the hiring of consultants to help us identify and expand into new markets, including worldwide markets.
Interest expense
As a result of the Credit Agreement we entered into on December 30, 2020, we had $38.9 million of borrowings outstanding as of March 31, 2022, and we recognized $1.0 million in interest expense for the three months ended March 31, 2022.
Liquidity and Capital Resources
At March 31, 2022, we had $97.6 million in cash and $7.5 million available from our Credit Agreement. Cash as of March 31, 2022 decreased by $29.0 million compared to December 31, 2021, primarily due to the factors described under the heading “—Cash Flows” below. Our primary source of liquidity, other than cash on hand, has been cash flows from issuances of common stock in our IPO, issuances of preferred stock, debt financings and, to a lesser extent, grant income.
Cash Flows
Comparisons of the Three Months Ended March 31, 2022 and 2021
The following table provides information regarding our cash flows for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
(in thousands) | | 2022 | | 2021 |
Net cash provided by (used in): | | | | |
Operating activities | | (31,906) | | | (14,421) | |
Investing activities | | (4,554) | | | (825) | |
Financing activities | | 7,502 | | | 10,005 | |
Net change in cash | | $ | (28,958) | | | $ | (5,241) | |
Operating Activities
Net cash used by operating activities in the three months ended March 31, 2022 primarily consisted of net loss of $28.7 million, partially offset by net non-cash adjustments of $2.8 million, plus net changes in operating assets and liabilities of $6.0 million, including a $10.3 million inventory outflow. The primary non-cash adjustments to net income included share-based compensation of $0.9 million, depreciation and amortization expenses of $1.0 million and amortization of debt discount of $0.4 million. Cash flow impact from changes in net operating assets and liabilities were primarily driven by an increase in inventories and partially offset by increases in accounts payable and a decrease in other assets and accrued liabilities.
Net cash used by operating activities in the three months ended March 31, 2021 primarily consisted of net loss of $15.6 million, partially offset by net non-cash adjustments of $2.6 million, plus net changes in operating assets and liabilities of $1.5 million. The primary non-cash adjustments to net income were change in fair value of warrants and loan commitment of $1.9 million and depreciation and amortization costs of $0.3 million. Cash flow impacts from changes in net operating assets and liabilities were primarily driven by increases in inventories, accounts receivable and prepaid expense and other current assets, partially offset by increases in accrued liabilities and accounts payable.
Investing Activities
Net cash used in investing activities totaled $4.6 million in the three months ended March 31, 2022. We purchased $4.4 million of property and equipment. We paid $0.2 million related to patents acquired and patent costs that were capitalized.
Net cash used in investing activities totaled $0.8 million in the three months ended March 31, 2021. We purchased $0.7 million of property and equipment. We paid $0.1 million related to patents acquired and patent costs that were capitalized.
Financing Activities
Net cash provided by financing activities was $7.5 million in the three months ended March 31, 2022. We drew $7.5 million from our Tranche C term loan.
Net cash provided by financing activities was $10.0 million in the three months ended March 31, 2021. We raised cash through the issuance of Series D redeemable convertible preferred stock, with net proceeds of $10.0 million.
Funding Requirements
We expect to continue to generate operating losses in connection with our ongoing activities, particularly as we continue our research and development efforts and expand our business efforts. Furthermore, we have incurred and will continue to incur additional costs as a result of being a public company. Accordingly, we will need to obtain additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with our research and development efforts, we are unable to estimate the exact amount of our operating capital requirements. Our future capital requirements will depend on many factors, including:
•future research and development efforts;
•the need to service and refinance our indebtedness;
•our ability to enter into and terms and timing of any collaborations, licensing agreements or other arrangements;
•the costs of sales, marketing, distribution and manufacturing efforts;
•our headcount growth and associated costs as we expand our business;
•the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims; and
•the costs of operating as a public company
Until such time, if ever, as we can generate positive cash flows from operations, we expect to finance our additional cash needs through a combination of equity offerings, debt financings, sales of products and services to our customers and, to a lesser extent, grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, stockholder ownership interest will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect the rights of holders of common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise funds through additional strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or future revenue streams or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity offerings, debt financings or grants when needed, we may be required to delay, limit, or reduce our expansion efforts.
Contractual Obligations and Commitments
Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude orders for goods and services entered into in the normal course of business that are not enforceable or legally binding.
On December 30, 2020, we entered into the Credit Agreement, which provides for senior secured financing of up to $50.0 million, consisting of a $25.0 million Tranche A term loan and a $25.0 million Tranche B term loan. The Tranche A term loan of $25.0 million was drawn at the initial closing of the Credit Agreement on December 30, 2020. The Credit Agreement was amended on May 27, 2021 to split the previously remaining $25.0 million delayed draw term loan commitments under the Credit Agreement into a $10.0 million Tranche B term loan and a $15.0 million Tranche C term loan. The Tranche B term loan of $10.0 million was drawn on May 27, 2021. The Credit Agreement was amended on March 30, 2022 to split the remaining $15.0 million Tranche C term loan into a $7.5 million Tranche C term loan and a
$7.5 million Tranche D term loan. The Tranche C term loan was drawn on March 30, 2022. Our ability to draw the $7.5 million Tranche D term loan remains available through June 30, 2022 subject to several conditions, including achieving total revenue of at least $16.8 million for the twelve month period ended March 31, 2022. The Company has achieved this revenue milestone as of March 31, 2022.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to the one-month LIBOR rate (with a minimum LIBOR rate for such purposes of 1.75%) plus a margin of 9.50% (11.25% at March 31, 2022). Monthly payments of interest only are due over the term of the Credit Agreement with no scheduled loan amortization. Unless accelerated prior to such date, all amounts outstanding under the Credit Agreement are due to be repaid on December 30, 2025. In addition, the Credit Agreement includes a quarterly minimum total revenue covenant for the applicable trailing twelve month period. On October 29, 2021, we entered into the Second Amendment to, among other things, eliminate the minimum total revenue covenant for the twelve months ending December 31, 2021 and reset the total minimum revenue covenants thereafter. Pursuant to the Second Amendment, the minimum total revenue covenant, as amended, has resumed testing for the twelve months ending March 31, 2022. The Company is currently in compliance with the minimum total revenue covenant as of March 31, 2022.
The following table summarizes our commitments to settle contractual obligations as of March 31, 2022:
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(in thousands) | Total | | Less than 1 year | | 1-3 Years | | 4-5 Years | | More than 5 years |
Lease commitments (1) | $ | 6,186 | | | $ | 1,594 | | | $ | 3,055 | | | $ | 1,537 | | | $ | — | |
Purchase obligations (2) | 36,875 | | | 2,875 | | | 9,750 | | | 16,750 | | | 7,500 | |
Total | $ | 43,061 | | | $ | 4,469 | | | $ | 12,805 | | | $ | 18,287 | | | $ | 7,500 | |
(1) Represents commitments under our non-cancelable leases.
(2) Purchase obligations relate to our Patent Purchase Agreement with QIAGEN Sciences, LLC and QIAGEN GmbH for certain reagents.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Management bases its estimates on historical experience, market and other conditions, and various other assumptions it believes to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, the estimation process is, by its nature, uncertain given that estimates depend on events over which we may not have control. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to inform our critical accounting estimates. If market and other conditions change from those that we anticipate, our consolidated financial statements may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material effect on our consolidated financial statements.
During the three months ended March 31, 2022, there were no material changes to our critical accounting policies and use of estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in the Form 10-K for the year ended December 31, 2021 and filed with the SEC on March 30, 2022.
Recent Accounting Pronouncements
Refer to Note 2, “Summary of Significant Accounting Policies,” in the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for a discussion of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to changes in interest rates. As of March 31, 2022, we had cash of $97.6 million. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of interest rates. As of March 31, 2022, our cash is held primarily in savings and checking accounts. Because of the short-term nature
of the instruments in our portfolio, an immediate 10% change in the interest rate would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of operations.
We are exposed to changes in the U.S. dollar based short term rates, specifically LIBOR. Fluctuations in LIBOR may affect the amount of interest expense we incur on borrowing indexed to LIBOR, such as borrowing under our Credit Agreement, which bear interest at a per annum equal to the one-month LIBOR rate (with a minimum LIBOR rate for such purposes of 1.75%) plus a margin of 9.5%.
With the transition away from LIBOR, borrowings under our Credit Agreement will be subject to an interest rate based on an alternate index to be agreed upon under the Credit Agreement; provided that if such alternate rate of interest shall be less than 1.75%, such rate shall be deemed to be 1.75% for the purposes of the Credit Agreement.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits 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, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgement in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2022 due to the material weakness in internal control over financial reporting described below.
Material Weakness in Internal Control over Financial Reporting
We previously identified a material weakness in our internal control over financial reporting. Specifically, the material weakness related to lack of maintaining a sufficient complement of personnel commensurate with the accounting and financial reporting requirements in order to have adequate segregation of key duties and responsibilities, which affected the operation of controls over the recording of journal entries and reconciliation of key accounts. This material weakness did not result in a material misstatement to our annual or interim financial statements. We are in the process of implementing measures designed to improve internal control over financial reporting to remediate the control deficiencies that led to our material weakness by, among other things, hiring qualified personnel with appropriate expertise to perform specific functions and designing and implementing improved processes and internal controls, including establishing reviews over journal entries, segregation of duties and account reconciliations.
Notwithstanding the identified material weakness, management believes that the financial statements and related financial information included in this Form 10-Q fairly present, in all material respects, our balance sheets, statements of operations, statements of changes in redeemable convertible preferred stock and stockholders’ equity (deficit) and statements of cash flows as of and for the periods presented. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weakness expeditiously.
Changes in Internal Control over Financial Reporting
Other than the changes to remediate the material weakness described above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Form 10-Q that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
From time to time we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.
Item 1A. Risk Factors
The reader should carefully consider, in connection with the other information in this report, the risk factors discussed in “Part I, Item 1A. Risk Factors” of the Company’s 2021 Annual Report on 10-K filed with the SEC on March 30, 2022. There have been no material changes to such matters during the quarter ended March 31, 2022. These factors may cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
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31.1* | | | | | | | | | |
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32.2*‡ | | | | | | | | | |
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101.INS* | | XBRL Instance Document | | | | | | | |
101.SCH* | | XBRL Taxonomy Extension Schema Document | | | | | | | |
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101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | |
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101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | |
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101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | |
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104* | | Cover Page Interactive Data File (contained in Exhibit 101) | | | | | | | |
________________
* Filed herewith.
† Indicates management contract or compensatory plan.
§ Portions of the exhibit, marked by brackets, have been omitted because the omitted information (i) is not material and (ii) would likely cause competitive harm if publicly disclosed.
‡ The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of IsoPlexis Corporation under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| IsoPlexis Corporation |
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Date: May 11, 2022 | By: | /s/ Sean Mackay |
| Name: | Sean Mackay |
| Title: | Chief Executive Officer and Director |
| | (Principal Executive Officer) |
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Date: May 11, 2022 | By: | /s/ John Strahley |
| Name: | John Strahley |
| Title: | Chief Financial Officer |
| | (Principal Financial Officer) |