Singular Genomics Systems(OMIC) - 2024 Q1 - Quarterly Report

General Information & Forward-Looking Statements Special Note Regarding Forward-Looking Statements This section highlights forward-looking statements, cautioning that actual results may differ due to known and unknown risks and uncertainties - The report contains forward-looking statements regarding future results, financial position, revenue, business strategy, products, and R&D costs[6] - These statements involve known and unknown risks, uncertainties, and other important factors that may cause actual results to differ materially from expectations[6] - Readers should not rely on forward-looking statements as predictions of future events, and the company undertakes no obligation to update them[8] Summary of Material Risks Associated with Our Business This section summarizes material risks including limited operating history, accumulated losses, intense competition, and dependence on future product commercialization - The company has a limited operating history, making future prospects and risk evaluation difficult[12] - Significant losses have been incurred since inception, with expectations of continued losses and uncertainty in achieving profitability[12] - The life sciences technology market is highly competitive, posing risks to business and operating results if the company fails to compete effectively[12] - High dependence on revenue from G4 consumables, G4X, spatial biology services, and future products means delays or failures in commercialization could severely impact the business[12] Part I Item 1. Financial Statements (Unaudited) This section presents unaudited financial statements for Singular Genomics Systems, Inc. for Q1 2024, including Balance Sheets, Statements of Operations, Comprehensive Loss, Equity, Cash Flows, and Notes Balance Sheets The balance sheets show total assets decreased from $265.5 million to $239.1 million, with stockholders' equity declining from $179.0 million to $156.7 million | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Total Assets | $239,101 | $265,467 | | Total Liabilities | $82,403 | $86,461 | | Total Stockholders' Equity | $156,698 | $179,006 | | Current Assets (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $24,109 | $16,233 | | Short-term investments | $126,629 | $157,708 | | Accounts receivable | $137 | $565 | | Inventory, net | $13,081 | $13,572 | | Prepaid expenses and other | $2,519 | $4,150 | | Total current assets | $166,475 | $192,228 | Statements of Operations The statements of operations show a net loss of $25.0 million for Q1 2024, up from $23.6 million in Q1 2023, with revenue decreasing 49% and gross margin turning negative | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $442 | $863 | | Cost of revenue | $861 | $807 | | Gross margin | $(419) | $56 | | Operating expenses | $26,429 | $25,434 | | Loss from operations | $(26,848) | $(25,378) | | Net loss | $(25,024) | $(23,633) | | Basic and diluted EPS | $(0.34) | $(0.33) | - Revenue decreased by 49% from $863 thousand in Q1 2023 to $442 thousand in Q1 2024[20] - Gross margin turned negative, from $56 thousand in Q1 2023 to $(419) thousand in Q1 2024[20] Statements of Comprehensive Loss Comprehensive loss increased from $23.2 million in Q1 2023 to $25.2 million in Q1 2024, driven by higher net loss and unrealized loss on available-for-sale securities | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(25,024) | $(23,633) | | Unrealized gain (loss) on available-for-sale securities | $(206) | $446 | | Comprehensive loss | $(25,230) | $(23,187) | Statements of Preferred Stock and Stockholders' Equity Total stockholders' equity decreased from $179.0 million to $156.7 million, mainly due to net loss and unrealized loss on available-for-sale securities | Metric (in thousands) | Balance at December 31, 2023 | Balance at March 31, 2024 | | :-------------------- | :--------------------------- | :------------------------ | | Additional Paid-In Capital | $516,439 | $519,361 | | Accumulated Other Comprehensive Gain (Loss) | $155 | $(51) | | Accumulated Deficit | $(337,595) | $(362,619) | | Total Stockholders' Equity | $179,006 | $156,698 | - Net loss of $25.0 million and an unrealized loss on available-for-sale securities of $0.2 million contributed to the decrease in stockholders' equity[25] Statements of Cash Flows Net cash increased by $7.9 million in Q1 2024, significantly lower than $55.0 million in Q1 2023, driven by investing activities offsetting operating cash use | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(23,703) | $(17,934) | | Net cash provided by investing activities | $31,579 | $72,945 | | Net cash provided by financing activities | $- | $6 | | Net increase in cash and cash equivalents and restricted cash | $7,876 | $55,017 | - Cash used in operating activities increased to $23.7 million in Q1 2024 from $17.9 million in Q1 2023[27] - Cash provided by investing activities decreased significantly to $31.6 million in Q1 2024 from $72.9 million in Q1 2023[27] Notes to Financial Statements Notes detail business, accounting policies, financial instruments, debt, commitments, equity, and workforce reduction, with liquidity deemed sufficient for at least 12 months 1. Business Singular Genomics develops NGS and multiomics technologies, with an accumulated deficit of $362.6 million, but believes current cash is sufficient for at least 12 months - The company develops next-generation sequencing (NGS) and multiomics technologies, including the G4 Sequencing Platform and the G4X Spatial Sequencer[29] - Accumulated deficit reached $362.6 million as of March 31, 2024, up from $337.6 million at December 31, 2023[31] - Cash, cash equivalents, and short-term investments totaled $150.7 million as of March 31, 2024, believed to be sufficient for at least 12 months of operations[31] 2. Basis of Presentation and Summary of Significant Accounting Policies Financial statements follow U.S. GAAP with management estimates; no significant policy changes in Q1 2024, revenue recognized upon customer acceptance or shipment - Financial statements are prepared under U.S. GAAP for interim information, with management estimates and assumptions[33][34] - No significant changes to accounting policies occurred in Q1 2024, other than specific details on cash, cash equivalents, restricted cash, and short-term investments[35] - Revenue from instrument sales is recognized upon customer acceptance, consumables upon shipment, and services over the service period[40] | Cash, Cash Equivalents and Restricted Cash (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------------------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $24,109 | $16,233 | | Restricted cash | $600 | $600 | | Total | $24,709 | $16,833 | | Short-term Investments (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | U.S. treasury securities | $125,456 | $149,287 | | Corporate debt securities | $1,173 | $8,252 | | Asset-backed securities | $- | $169 | | Total | $126,629 | $157,708 | 3. Fair Value Measurements Assets are measured at fair value using a three-tier hierarchy, primarily cash, equivalents, and short-term investments, mostly classified as Level 1 or Level 2 - Fair value is defined as an exit price in an orderly transaction between market participants, using a three-tier hierarchy (Level 1, 2, 3)[49] - Cash, cash equivalents, and short-term investments are measured at fair value on a recurring basis, with most classified as Level 1 or Level 2[50][52] | Fair Value Measurements (in thousands) | March 31, 2024 Total | December 31, 2023 Total | | :------------------------------------- | :------------------- | :---------------------- | | Cash and cash equivalents | $24,109 | $16,233 | | Short-term investments | $126,629 | $157,708 | | Total | $150,738 | $173,941 | 4. Inventory Total inventory decreased from $13.6 million to $13.1 million, mainly due to reduced raw materials, partially offset by increased work in process | Inventory (in thousands) | March 31, 2024 | December 31, 2023 | | :----------------------- | :------------- | :---------------- | | Raw materials | $10,596 | $11,627 | | Work in process | $2,046 | $1,276 | | Finished goods | $439 | $669 | | Total inventory | $13,081 | $13,572 | 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets decreased from $4.2 million to $2.5 million, primarily due to reduced prepaid expenses and current deposits | Prepaid Expenses and Other Current Assets (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------------------------- | :------------- | :---------------- | | Prepaid expenses | $1,116 | $1,672 | | Interest receivable | $1,039 | $1,019 | | Current deposits and other current assets | $364 | $1,459 | | Total | $2,519 | $4,150 | 6. Property and Equipment, Net Net property and equipment increased slightly from $13.7 million to $13.9 million, driven by a rise in instruments at customer sites | Property and Equipment, Net (in thousands) | March 31, 2024 | December 31, 2023 | | :----------------------------------------- | :------------- | :---------------- | | Equipment | $12,837 | $12,837 | | Computers and software | $3,445 | $3,445 | | Leasehold improvements | $2,244 | $2,244 | | Furniture and fixtures | $660 | $660 | | Instruments at customer sites | $3,707 | $2,527 | | Total property and equipment, gross | $22,893 | $21,713 | | Less: accumulated depreciation | $(9,039) | $(8,021) | | Total property and equipment, net | $13,854 | $13,692 | 7. Accrued Expenses Accrued expenses decreased significantly from $6.1 million to $3.3 million, mainly due to a substantial reduction in accrued compensation and employee benefits | Accrued Expenses (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------ | :------------- | :---------------- | | Accrued compensation and other employee benefits | $1,982 | $5,229 | | Accrued research and development expenses | $278 | $264 | | Accrued professional services | $361 | $178 | | Accrued other expenses | $644 | $408 | | Total accrued expenses | $3,265 | $6,079 | 8. Long-term Debt Long-term debt consists of the $10.5 million SVB Loan, maturing in September 2026 with a 9.25% interest rate, with the company in compliance with covenants - The SVB Loan has an aggregate principal amount of $10.5 million, maturing on September 1, 2026[58][62] - As of March 31, 2024, the SVB Loan bears an annual interest rate of 9.25%[58] - The draw period for additional tranches totaling $25.0 million under the SVB Loan expired without being drawn[59] - The company was in compliance with all covenants under the SVB Loan as of March 31, 2024[65] | SVB Loan Balances (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------- | :------------- | :---------------- | | Total debt | $10,500 | $10,500 | | Less: issuance costs | $(248) | $(287) | | Total debt, net of issuance costs | $10,252 | $10,213 | | Less: current portion of long-term debt | $2,625 | $1,312 | | Total long-term debt | $7,627 | $8,901 | 9. Commitments and Contingencies Commitments include a license agreement with Columbia University and operating lease obligations totaling $116.9 million extending to 2036; no material legal proceedings are pending - The company has an Exclusive License Agreement with Columbia University, requiring annual license fees, royalties on net sales of Patent Products (low to mid-single digits) and Other Products (low single-digit), and milestone payments up to $3.9 million[66] - Operating lease agreements for office, laboratory, and manufacturing spaces in San Diego extend to October 2036[67][68][69] | Future Minimum Lease Payments (in thousands) | Amount | | :------------------------------------------- | :----- | | 2024 (9 months remaining) | $6,097 | | 2025 | $5,716 | | 2026 | $8,607 | | 2027 | $8,580 | | 2028 | $8,837 | | Thereafter | $79,058 | | Total lease liabilities | $65,914 | - The company is not currently a party to any material legal proceedings[73] 10. Preferred Stock Series A Preferred Stock is non-voting, convertible to common stock (subject to 4.9% ownership limit), classified as permanent equity and a participating security for EPS - The company has 2,500 shares of Series A Common Stock Equivalent Convertible Preferred Stock, convertible into 1,000 shares of common stock per preferred share[74] - Conversion is prohibited if it would result in the holder exceeding 4.9% of total outstanding common stock[74] - The preferred stock is classified as permanent equity and is a participating security for EPS calculation[75] 11. Stock Incentive Plans The company operates 2021 Equity Incentive Plan and ESPP, with 6.3 million and 1.3 million shares available respectively; Q1 2024 stock-based compensation was $2.9 million - As of March 31, 2024, 6,318,044 shares of common stock remained available for future grants under the 2021 Equity Incentive Plan[76][79] - As of March 31, 2024, 1,278,910 shares of common stock remained available for future issuance under the Employee Stock Purchase Plan (ESPP)[79][85] | Stock-based Compensation Expense (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Research and development | $918 | $923 | | Selling, general and administrative | $1,978 | $2,158 | | Total stock-based compensation expense | $2,896 | $3,081 | - Total unrecognized stock-based compensation expense was $16.7 million as of March 31, 2024, with a weighted-average recognition period of approximately 2.2 years[87] 12. Net Loss per Share Basic and diluted net loss per share was $(0.34) for Q1 2024, with anti-dilutive common stock equivalents excluded from diluted EPS calculation | Net Loss per Share | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------- | :-------------------------------- | :-------------------------------- | | Basic and diluted net loss per share | $(0.34) | $(0.33) | | Weighted-average shares used | 73,925,966 | 71,926,412 | - Common stock equivalents (stock options, RSUs, Series A Preferred Stock) totaling 19.3 million shares in 2024 and 16.1 million in 2023 were excluded from diluted EPS as they were anti-dilutive[90] 13. Workforce Reduction A 20% workforce reduction in March 2024 incurred $1.5 million in Q1 expenses for termination benefits and accelerated stock-based compensation, with $0.2 million expected in Q2 - A workforce reduction of approximately 20% of headcount was approved in March 2024 to focus on the spatial sequencing roadmap[91] - Expenses for these activities totaled $1.5 million in Q1 2024, comprising $1.2 million for termination benefits and $0.3 million for accelerated stock-based compensation[91] - An additional $0.2 million in expenses related to the workforce reduction is expected in Q2 2024[91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial condition, performance, liquidity, capital resources, and accounting policies, focusing on G4X development and market challenges Overview Singular Genomics specializes in NGS and multiomics, offering the G4 Sequencing Platform and developing the G4X Spatial Sequencer for in situ multiomic analysis - The company develops NGS and multiomics technologies, including the G4 Sequencing Platform and the G4X Spatial Sequencer[94] - The G4X Spatial Sequencer is designed for in situ multiomic analysis, offering high-throughput direct sequencing of RNA, targeted transcriptomics, proteomics, and fluorescent H&E profiling[97] - The G4X is expected to be the first dual-purpose instrument offering both traditional NGS and tissue-based spatial sequencing capabilities, with an early access program planned by the end of 2024[97] Corporate and Financial Overview Since 2016, the company incurred significant losses and negative cash flows, with an accumulated deficit of $362.6 million, funded by equity and debt, holding $150.7 million in cash - The company has incurred significant losses and negative cash flows from operations since 2016, with a net loss of $25.0 million in Q1 2024 and an accumulated deficit of $362.6 million[98] - Operations are primarily financed through equity sales and debt, raising approximately $447.4 million in net proceeds since inception[99] - As of March 31, 2024, the company had $150.7 million in cash, cash equivalents, and short-term investments[99] - Operating expenses are expected to be slightly down in the near term but increase in the longer term due to continued development of G4X, spatial biology services, and other strategic investments[100][103] The Macroeconomic Environment Downward macroeconomic pressures, including volatility and rising interest rates, impact the company's capital raising ability and could weaken product demand - Global markets face downward pressure, volatility, and rising interest rates, impacting the company's ability to raise capital[101] - Geopolitical conflicts (Russia-Ukraine, Middle East) and potential energy crises could adversely affect capital and credit markets[101] - A severe or prolonged economic downturn could weaken demand for products and cause delays in customer payments[101] Results and Components of Operations Q1 2024 saw significant revenue decline and negative gross margin; R&D expenses decreased slightly, while SG&A increased, leading to a higher operating loss | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | $ Change | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Revenue | $442 | $863 | $(421) | -49% | | Cost of revenue | $861 | $807 | $54 | 7% | | Gross margin | $(419) | $56 | $(475) | -848% | | Research and development | $11,494 | $12,230 | $(736) | -6% | | Selling, general and administrative | $14,935 | $13,204 | $1,731 | 13% | | Loss from operations | $(26,848) | $(25,378) | $(1,470) | 6% | | Net loss | $(27,132) | $(25,637) | $(1,495) | -6% | Revenue, Cost of Revenue and Gross Margin Revenue decreased 49% to $0.4 million in Q1 2024 due to fewer instrument purchases, resulting in a negative gross margin of $(0.4) million | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | $ Change | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Revenue | $442 | $863 | $(421) | -49% | | Cost of revenue | $861 | $807 | $54 | 7% | | Gross margin | $(419) | $56 | $(475) | -848% | - Revenue decreased due to fewer instrument capital purchases, offset by higher consumables pull-through[108] - Gross margin was negative due to additional discounts and higher costs associated with system placements and support[111] Research and Development Expense R&D expense decreased 6% to $11.5 million in Q1 2024 due to lower compensation from reduced headcount, partially offset by severance costs | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | $ Change | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Research and development | $11,494 | $12,230 | $(736) | -6% | - Decrease primarily due to a $1.0 million reduction in employee compensation costs (excluding stock-based compensation) from reduced headcount, partially offset by $0.3 million in severance costs[113] - R&D expenses are expected to be roughly flat to slightly down in the near term and increase in the longer term as the company invests in its product development pipeline, including the G4X and spatial biology service offerings[113] Selling, General and Administrative Expense SG&A expenses increased 13% to $14.9 million in Q1 2024, driven by higher employee compensation (including severance) and increased marketing/legal costs | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | $ Change | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Selling, general and administrative | $14,935 | $13,204 | $1,731 | 13% | - Increase due to $1.7 million in employee compensation costs (excluding stock-based compensation), including $0.8 million for severance, and $0.6 million for increased marketing, legal, and other G&A expenses[116] - Partially offset by a $0.4 million decrease in stock-based compensation expense and a $0.4 million decrease in insurance costs[116] Other Income (Expense) Total other income remained relatively flat, increasing slightly by $0.1 million to $1.8 million in Q1 2024 due to consistent interest rates | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | $ Change | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Interest income | $2,108 | $2,004 | $104 | 5% | | Interest expense | $(284) | $(259) | $(25) | 10% | | Total other income | $1,824 | $1,745 | $79 | 5% | Liquidity and Capital Resources Accumulated deficit of $362.6 million and $150.7 million in cash are expected to fund operations for at least 12 months, but substantial additional financing may be required - Accumulated deficit of $362.6 million and $150.7 million in cash, cash equivalents, and short-term investments as of March 31, 2024[118] - Existing capital is believed to be sufficient for at least 12 months, but additional financing may be required for future operations, R&D, and commercialization[120][121] - Capital obligations include minimum lease payments of $116.9 million and SVB Loan payments of $12.5 million (including interest and fees) over the next few years, plus Columbia License Agreement payments[119] - A shelf registration statement allows for up to $250 million in securities offerings, but the company is subject to 'Baby Shelf Limitations' due to its public float being below $75 million, restricting offerings to one-third of its public float over any 12-month period[122] Cash Flows Net cash increased by $7.9 million in Q1 2024, significantly lower than Q1 2023, driven by investing activities offsetting $23.7 million used in operations | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(23,703) | $(17,934) | | Net cash provided by investing activities | $31,579 | $72,945 | | Net cash provided by financing activities | $- | $6 | | Net increase in cash and cash equivalents and restricted cash | $7,876 | $55,017 | Operating Activities Cash used in operating activities increased to $23.7 million in Q1 2024, primarily due to a $25.0 million net loss and working capital changes - Cash used in operating activities was $23.7 million in Q1 2024, driven by a $25.0 million net loss and $2.6 million in working capital changes[125] - Non-cash charges offsetting the loss included $2.9 million in stock-based compensation, $0.7 million in ROU lease asset amortization, and $1.0 million in depreciation[125] Investing Activities Cash provided by investing activities decreased significantly to $31.6 million in Q1 2024, mainly from sales and maturities of available-for-sale securities - Cash provided by investing activities was $31.6 million in Q1 2024, primarily from $50.8 million in sales and maturities of available-for-sale securities, offset by $19.2 million in purchases[127] Financing Activities No cash was provided by financing activities in Q1 2024, compared to less than $0.1 million in Q1 2023 from common stock issuance - No cash was provided by financing activities in Q1 2024[129] - In Q1 2023, cash provided by financing activities was less than $0.1 million, from common stock issuance under equity incentive plans[129] Indebtedness The $10.5 million SVB Loan, secured by company assets (excluding IP), was refinanced in 2021; additional tranches expired undrawn, and the company is in compliance - The company has $10.5 million outstanding under the SVB Loan, refinanced in 2021 and amended in 2022[132] - The draw period for additional tranches of up to $25.0 million under the SVB Loan expired without being utilized[133] - Obligations under the SVB Loan are secured by a first priority security interest in substantially all current and future assets, excluding intellectual property[134] Critical Accounting Policies, Significant Judgments and Use of Estimates Financial statements require management estimates; no material changes to critical accounting policies since the December 31, 2023 Annual Report on Form 10-K - Financial statements require management estimates and judgments based on historical experience and assumptions[136] - No material changes to critical accounting policies and estimates since the December 31, 2023 Annual Report on Form 10-K[137] Recent Accounting Pronouncements No new accounting pronouncements adopted in Q1 2024 are expected to materially impact the company's financial statements - No additions to new accounting pronouncements not yet adopted as described in the Annual Report on Form 10-K for 2023[48] - Other amendments to GAAP not yet adopted are not expected to have a material impact on financial statements[48] Off–Balance Sheet Arrangements The company has not engaged in any off-balance sheet arrangements since its inception - The company has not engaged in any off-balance sheet arrangements since inception[139] JOBS Act As an 'emerging growth company' under the JOBS Act, the company uses reduced reporting requirements and an extended transition period for new accounting standards - The company is an 'emerging growth company' under the JOBS Act, allowing it to use reduced reporting requirements[140] - It has elected to use the extended transition period for complying with new or revised financial accounting standards, adopting them when required for private companies[142] Item 3. Quantitative and Qualitative Disclosures about Market Risk No substantial changes to the company's market risks occurred during Q1 2024 compared to the disclosures in its 2023 Annual Report on Form 10-K - No substantial changes to market risks occurred during Q1 2024 compared to the previous Annual Report on Form 10-K[143] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2024, with no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Principal executive and financial officers deemed disclosure controls effective as of March 31, 2024, ensuring timely and accurate information reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024[144] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during the period covered by this report - No material changes in internal control over financial reporting occurred during the period[145] Inherent Limitations on Effectiveness of Disclosure Controls and Procedures Management acknowledges control systems have inherent limitations, such as faulty judgments, errors, circumvention, and management override, preventing absolute assurance - Control systems provide only reasonable, not absolute, assurance due to inherent limitations[146] - Limitations include faulty judgments, simple errors, circumvention by individuals or collusion, and management override[146] Part II Item 1. Legal Proceedings The company is not currently involved in material legal proceedings, but litigation could negatively impact it due to costs, resource diversion, and reputational harm - The company is not currently a party to any material legal proceedings[149] - Litigation can have an adverse impact due to defense and settlement costs, diversion of management resources, and negative publicity[149] Item 1A. Risk Factors This section details significant risks across business, product development, financial position, manufacturing, IP, regulatory compliance, and common stock ownership Risks Related to Our Business and Industry Risks include limited operating history, accumulated losses, intense competition, dependence on G4/G4X commercialization, R&D spending, and macroeconomic pressures - Limited operating history makes it difficult to evaluate future prospects and challenges[152] - Significant losses incurred since inception ($362.6 million accumulated deficit as of March 31, 2024) are expected to continue, with no guarantee of profitability[153] - The life sciences technology market is highly competitive, with larger, more established competitors having significant advantages[157][158] - Dependence on G4, G4X, and spatial biology service offerings means any delays or failures in development and commercialization could have a substantial adverse effect[162] - Business depends significantly on R&D spending by academic and research institutions, which is subject to government funding fluctuations[164][167] - Operating results may fluctuate significantly due to various factors, making future results difficult to predict[168][170] - Recent macroeconomic pressures, including market volatility and instability in the global banking system, could adversely affect the business[175][176] Risks Related to the Development and Commercialization of Our Products Risks involve delays in G4X development, failure to meet performance, challenges in sales/marketing, inaccurate market estimates, and international commercialization risks - Efforts to support the G4 and complete development/commercialization of G4X and spatial biology services may not be successful due to various factors, including meeting target specifications and manufacturing efficiency[177][178] - Failure to establish adequate sales, marketing, or laboratory services capabilities could hinder successful commercialization of G4X and spatial biology services[181][183] - Products and service offerings could fail to achieve key performance metrics, adversely affecting market adoption and revenue[184] - Failure to continue improving planned products/services or introduce compelling new ones could harm revenue and prospects[187] - Market size estimates for products, services, and technologies may be smaller or grow slower than anticipated, limiting sales ability[188][189] - Commercializing products outside the U.S. exposes the company to business, regulatory, political, operational, financial, and economic risks[190][192] Risks Related to Our Financial Position and Need for Additional Capital Substantial additional funding is required, which may not be available, risking program delays; inaccurate demand forecasting and existing debt also pose risks - Substantial additional funding may be required, which may not be available on acceptable terms, potentially leading to delays or cessation of product development/commercialization[191][195] - Inaccurate forecasting of customer demand for products and services could lead to inventory write-downs, write-offs, or inability to meet customer requirements[196][197][198] - Existing indebtedness ($10.5 million principal under SVB Loan) may limit financial flexibility and operating capacity due to restrictive covenants[199] - Ability to use net operating loss carryforwards and other tax attributes may be limited by ownership changes (Sections 382 and 383 of the Code) or state tax laws[200] - U.S. federal income tax reform (TCJA, CARES Act) and its implementation could adversely affect the company's tax position[201][202] Risks Related to Manufacturing Our Products Challenges include manufacturing G4/G4X timely and cost-effectively, reliance on single-source suppliers, product defects, and facility disruptions - Inability to manufacture G4 or G4X to meet commercialization plans on a timely or cost-effective basis due to complex processes, hiring needs, and component sourcing challenges[203] - Dependence on single-source suppliers for some components creates risk of supply disruption if suppliers fail to meet specifications or cease provision[204][205] - Limited manufacturing experience and complexity of products may lead to inability to consistently produce to necessary specifications or quantities, resulting in defects, recalls, and increased costs[206][207][208][209][210][211] - Profitability depends on reducing per-unit manufacturing costs, which requires increased volumes, improved efficiency, and leveraging overhead[213] - Disruption to facilities (San Diego) or third-party suppliers' facilities due to natural disasters, pandemics, or other catastrophic events could severely impact R&D, commercialization, and manufacturing[214][215] - Costs to maintain and provide customer support for G4 and future products (G4X, spatial biology services) may exceed expectations, negatively impacting gross margin and results[216] Risks Related to Our Intellectual Property Risks include IP litigation, insufficient patent protection, trade secret challenges, disputes with licensees, inadequate patent terms, and evolving U.S. patent law - Risk of being sued for infringing, misappropriating, or violating third-party intellectual property rights, leading to costly and time-consuming litigation, and potential delays in product development/commercialization[228][229] - Inability to obtain and maintain sufficient intellectual property protection (patents, trademarks, trade secrets) could allow competitors to develop similar products, impairing commercialization[234][235][236][237][238] - Difficulty in protecting the confidentiality of trade secrets, which could be disseminated through independent development or personnel movement, harming competitive position[240][241][243] - Disputes with contractual counterparties, such as Columbia University regarding the License Agreement, could lead to breach of contract claims, termination of licenses, or adverse financial impacts[244][245][246] - Patent terms may be inadequate to protect competitive position for a sufficient duration, especially for products requiring extended development or regulatory review[247] - Uncertainty and rapid changes in U.S. patent law for life sciences technology (e.g., America Invents Act, Supreme Court decisions) may negatively impact existing patents or future patentability[249][250][251][252] - Inability to license necessary third-party technologies on reasonable terms could prevent commercialization of new products[253][254] - Use of open source software may pose risks, including requirements to make source code public or claims of intellectual property infringement[256] Risks Related to Regulatory and Legal Compliance Matters Products may face FDA medical device regulations, increased LDT scrutiny, evolving data privacy laws, and non-compliance risks with environmental, export, and anti-corruption laws - If products are labeled or promoted as clinical diagnostics or medical devices, prior FDA approval/clearance would be required, which is time-consuming, expensive, and uncertain[257][259] - Changes in regulatory landscape could subject RUO products (G4, G4X) to government regulation as medical devices, even without seeking diagnostic approval, impacting marketing and sales[262] - Increased FDA regulation of Laboratory Developed Tests (LDTs), including a proposed rule to treat LDTs as medical devices, could impact product sales and customer usage[263][264] - Subject to U.S. federal and state laws (e.g., CCPA, CPRA, HIPAA) and foreign regulations (e.g., GDPR) regarding personal information collection, storage, and processing, with non-compliance risking fines, litigation, and reputational harm[268][269][270][271][273][274] - Failure to comply with environmental, health, and safety laws (hazardous materials) could lead to fines, penalties, and substantial costs[275][277] - Subject to U.S. and foreign export/import controls, sanctions, embargoes, anti-corruption laws (FCPA), and anti-money laundering laws, with violations leading to criminal liability and severe consequences[279] Risks Related to Ownership of Our Common Stock Nasdaq non-compliance risks delisting; stock price volatility, concentrated ownership, no dividends, and corporate provisions making mergers difficult are also risks - Not in compliance with Nasdaq's minimum bid price rule ($1.00), risking delisting if compliance is not regained by July 15, 2024, potentially through a reverse stock split[280][281][282] - The common stock price has been and may continue to be volatile or decline, regardless of operating performance, due to numerous factors including commercialization timing, financial results, competition, and macroeconomic conditions[283][284] - Concentration of stock ownership (officers, directors, >5% holders own ~41%) limits other stockholders' ability to influence corporate matters[285] - The company does not intend to pay dividends for the foreseeable future, requiring stockholders to rely on stock price appreciation for gains[291] - Delaware law and provisions in the company's charter/bylaws (e.g., classified board, preferred stock issuance, restrictions on stockholder action) could make mergers, tender offers, or proxy contests difficult[292][293] - Exclusive forum provisions in the certificate of incorporation could limit stockholders' ability to choose a favorable judicial forum for disputes[295][296][297] - Sales of a substantial number of common stock shares in the public market, including through shelf registration or equity plans, could cause the stock price to fall and result in dilution[298][299][300][301] General Risk Factors General risks include potential stock price decline from analyst coverage, securities class action litigation, increased public company compliance costs, and internal control failures - Stock price and trading volume could decline if securities or industry analysts cease publishing research or publish inaccurate/unfavorable research[302] - Risk of securities class action litigation, especially given past stock price volatility, which could result in substantial costs and diversion of management's attention[303] - Being a public company increases costs and diverts significant resources and management attention due to reporting requirements and compliance[304][305] - Failure to maintain proper and effective internal controls over financial reporting could impair the ability to produce accurate and timely financial statements, leading to sanctions and harm to the business[306][307][308] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The June 2021 IPO generated $237.2 million in net proceeds from 11,730,000 common stock shares, with no material change in the planned use of these proceeds - IPO in June 2021 resulted in approximately $237.2 million in net proceeds from the sale of 11,730,000 common stock shares[309] - No material change in the planned use of IPO proceeds[309] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities[310] Item 4. Mine Safety Disclosures There are no mine safety disclosures to report - No mine safety disclosures[311] Item 5. Other Information There is no other information to report in this section - No other information to report[312] Item 6. Exhibits This section lists exhibits including organizational documents, executive officer certifications (Sarbanes-Oxley Act), and Inline XBRL documents - Exhibits include Amended and Restated Certificate of Incorporation and Bylaws, Certificate of Designation of Series A Preferred Stock[313] - Certifications of Principal Executive Officer and Principal Financial Officer are included, as required by Sections 302 and 906 of the Sarbanes-Oxley Act[313] - Inline XBRL Instance Document, Taxonomy Extension Schema Document, and Cover Page Interactive Data File are also filed[313] Signatures The Quarterly Report on Form 10-Q was signed by Andrew Spaventa (CEO) and Dalen Meeter (CFO) on May 14, 2024 - The report was signed by Andrew Spaventa (CEO) and Dalen Meeter (CFO) on May 14, 2024[317]