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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 001-40592
________________________________________
Rapid Micro Biosystems, Inc.
(Exact name of registrant as specified in its charter)
https://cdn.kscope.io/02561ad6e6b2278b3971e3ae7d28ea7f-rmb-20220930_g1.jpg
________________________________________
Delaware20-8121647
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
1001 Pawtucket Boulevard West, Suite 280
Lowell, MA 01854
(Address of Principal Executive Offices)
(978) 349-3200
(Registrant’s telephone number)
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading symbolName of Exchange on which registered
Class A common stock, $0.01 par value per share
RPID
The Nasdaq Global Select Market
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 fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyxEmerging growth companyx
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 Exchange Act). Yes o No x
As of November 7, 2022, there were 36,440,906 of the registrant’s Class A common stock, par value $0.01, outstanding.
As of November 7, 2022, there were 5,553,379 of the registrant’s Class B common stock, par value $0.01, outstanding.


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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. These forward-looking statements are often, but not always, made through the use of words or phrases such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding:
our business strategy for our Growth Direct platform and systems;
our future results of operations and financial position, including our expectations regarding revenue, operating expenses and ability to generate cash flow;
our expectations and assumptions related to our future funding requirements and available capital resources, which may be impacted by market uptake of our Growth Direct system, our research and development activities and the expansion of our sales, marketing, manufacturing and distribution capabilities;
our ability to maintain and expand our customer base for our Growth Direct platform and systems;
our exploration of strategic alternatives for the Company;
the effectiveness of enhancements of our sales processes;
the anticipated impact of our restructuring on the Company;
anticipated trends and growth rates in our business and in the markets in which we operate;
our research and development activities and prospective new features, products and product approvals;
our ability to anticipate market needs and successfully develop new and enhanced solutions to meet those needs, including prospective products;
our expectations regarding the potential impact of the ongoing COVID-19 pandemic on our business, operations and the markets in which we and our customers operate;
our expectations regarding the potential impact of inflation and fluctuations in interest rates on our business and operating costs;
our ability to adequately protect our intellectual property; and
our ability to hire and retain necessary qualified employees to grow our business and expand our operations.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Risk Factors.” The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
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TRADEMARKS
Solely for convenience, our trademarks and trade names in this report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto.
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PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated balance sheets
(Unaudited)
(In thousands, except share and per share amounts)
September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$25,832 $178,387 
Short-term investments89,062 15,110 
Accounts receivable4,658 5,005 
Inventory20,924 15,671 
Prepaid expenses and other current assets4,101 3,951 
Total current assets144,577 218,124 
Property and equipment, net13,230 11,304 
Right-of-use assets, net7,298 — 
Long-term investments35,214 9,966 
Other long-term assets1,313 1,491 
Restricted cash284 284 
Total assets$201,916 $241,169 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$3,670 $3,944 
Accrued expenses and other current liabilities7,391 10,917 
Deferred revenue3,404 3,305 
Lease liabilities, short-term747 — 
Total current liabilities15,212 18,166 
Deferred rent, long term— 813 
Lease liabilities, long-term7,467 — 
Other long-term liabilities221 1,210 
Total liabilities22,900 20,189 
Commitments and contingencies (Note 17)
Stockholders’ equity:
Class A common stock, $0.01 par value; 210,000,000 shares authorized at September 30, 2022 and December 31, 2021; 36,440,906 shares and 34,564,040 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
365 346 
Class B common stock, $0.01 par value; 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; 5,553,379 shares and 6,903,379 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
55 69 
Preferred stock, $0.01 par value: 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; zero shares issued and outstanding at September 30, 2022 and December 31, 2021
  
Additional paid-in capital539,459 535,693 
Accumulated deficit(359,471)(315,112)
Accumulated other comprehensive loss(1,392)(16)
Total stockholders’ equity179,016 220,980 
Total liabilities and stockholders’ equity$201,916 $241,169 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of operations
(Unaudited)
(In thousands, except share and per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue:
Product revenue$3,209 $4,824 $8,212 $12,630 
Service revenue1,530 1,479 4,547 4,152 
Non-commercial revenue 596  1,242 
Total revenue4,739 6,899 12,759 18,024 
Costs and operating expenses:
Cost of product revenue5,627 6,298 13,220 17,900 
Cost of service revenue1,906 1,516 5,478 3,997 
Cost of non-commercial revenue 396  1,282 
Research and development2,973 2,441 9,463 6,926 
Sales and marketing3,930 3,063 10,870 8,460 
General and administrative7,189 5,308 19,687 12,135 
Total costs and operating expenses21,625 19,022 58,718 50,700 
Loss from operations(16,886)(12,123)(45,959)(32,676)
Other income (expense):
Interest income (expense), net575 (761)947 (2,603)
Change in fair value of preferred stock warrant liability (8,160) (19,643)
Loss on extinguishment of debt (3,100) (3,100)
Other income (expense), net(21)(823)70 (840)
Total other income (expense), net554 (12,844)1,017 (26,186)
Loss before income taxes(16,332)(24,967)(44,942)(58,862)
Income tax expense (benefit)7 20 (583)57 
Net loss(16,339)(24,987)(44,359)(58,919)
Accretion of redeemable convertible preferred stock to redemption value 210  (1,761)
Cumulative redeemable convertible preferred stock dividends (451) (2,747)
Net loss attributable to common stockholders — basic and diluted$(16,339)$(25,228)$(44,359)$(63,427)
Net loss per share attributable to Class A and Class B common stockholders — basic and diluted$(0.38)$(0.71)$(1.05)$(5.14)
Weighted average common shares outstanding — basic and diluted42,517,99235,316,09942,404,24312,344,619
The accompanying notes are an integral part of these condensed consolidated financial statements.
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RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of comprehensive loss
(Unaudited)
(In thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net loss$(16,339)$(24,987)$(44,359)$(58,919)
Other comprehensive income:
Unrealized loss on short-term investments, net of tax(473) (1,376)(1)
Comprehensive loss$(16,812)$(24,987)$(45,735)$(58,920)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of stockholders’ equity
(Unaudited)
(In thousands, except share amounts)
Class A
Common stock
Class B
Common stock
Additional
paid-in
capital
Accumulated
deficit
Accumulated
other
comprehensive
loss
Total
SharesAmountSharesAmount
Balances at December 31, 202134,564,040$346 6,903,379$69 $535,693 $(315,112)$(16)$220,980 
Conversion of Class B common stock to Class A common stock1,350,00014 (1,350,000)(14)— — — — 
Restricted stock award liability accretion— — 154 — — 154 
Issuance of Class A common stock upon exercise of common stock options475,0335 — 466 — — 471 
Stock-based compensation expense— — 983 — — 983 
Net loss— — — (14,930)— (14,930)
Other comprehensive loss— — — — (588)(588)
Balances at March 31, 202236,389,073$365 5,553,379$55 $537,296 $(330,042)$(604)$207,070 
Restricted stock award liability accretion— — 44 — — 44 
Stock-based compensation expense— — 1,258 — — 1,258 
Net loss— — — (13,090)— (13,090)
Other comprehensive loss— — — — (315)(315)
Balances at June 30, 202236,389,073$365 5,553,379$55 $538,598 $(343,132)$(919)$194,967 
Issuance of Class A common stock under ESPP51,833— — — 159 — — 159 
Restricted stock award liability accretion— — — — 29 — — 29 
Stock-based compensation expense— — — — 673 — — 673 
Net loss— — — — — (16,339)— (16,339)
Other comprehensive loss— — — — — — (473)(473)
Balances at September 30, 202236,440,906$365 5,553,379$55 $539,459 $(359,471)$(1,392)$179,016 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of stockholders’ equity
(Unaudited), continued
(In thousands, except share amounts)
Redeemable convertible
preferred stock
Class A
Common stock
Class B
Common stock
Additional
paid-in
capital
Accumulated
deficit
Accumulated
other
comprehensive
income (loss)
Total
SharesAmountSharesAmountSharesAmount
Balances at December 31, 2020133,021,640$151,826 612,850$6  $114,575 $(241,588)$1 $(127,006)
Issuance of Series D1 redeemable convertible preferred stock, net of issuance costs of $1,278
22,086,72578,338 — — — — — — 
Issuance of Series D2 redeemable convertible preferred stock, net of issuance costs of $19
413,2681,470 — — — — — — 
Accretion of redeemable convertible preferred stock to redemption value787 — — (787)— — (787)
Cumulative redeemable convertible preferred stock dividends1,411 — — (1,411)— — (1,411)
Issuance of Class A common stock upon exercise of common stock options— 67,4181 — 66 — — 67 
Issuance of restricted Class A common stock awards— 248,9032 — (2)— — — 
Stock-based compensation expense— — — 191 — — 191 
Net loss— — — — (22,101)— (22,101)
Balances at March 31, 2021155,521,633$233,832 929,171$9  $112,632 $(263,689)$1 $(151,047)
Series D1 issuance costs(64)— — — — — — 
Series D2 issuance costs(1)— — — — — — 
Accretion of redeemable convertible preferred stock to redemption value1,184 — — (1,184)— — (1,184)
Cumulative redeemable convertible preferred stock dividends885 — — (885)— — (885)
Issuance of Class A common stock upon exercise of common stock options— 37,1461 — 31 — — 32 
Stock-based compensation expense— — — 390 — — 390 
Net loss— — — — (11,831)— (11,831)
Other comprehensive income— — — — — (1)(1)
Balances at June 30, 2021155,521,633$235,836 966,317$10  $110,984 $(275,520)$ $(164,526)
Accretion of redeemable convertible preferred stock to redemption value— (210)— — — — 210 — — 210 
Cumulative redeemable convertible preferred stock dividends— 451 — — — — (451)— — (451)
Conversion of preferred stock to common stock-155,521,633(236,077)24,200,920242 6,903,37969 235,766 — — 236,077 
Conversion of preferred stock warrants to Class A common stock warrants— — — — — 23,760 — — 23,760 
Issuance of Class A common stock in initial public offering, net of issuance costs of $16,087
— — 9,006,60490 — 163,955 — — 164,045 
RSA liability accretion— — 0— — 5 — — 5 
Issuance of Class A common stock upon exercise of common stock warrants— — 268,7182 — 11 — — 13 
Issuance of Class A common stock upon exercise of common stock options— — 6,595 — 15 — — 15 
Stock-based compensation expense— — 0— — 584 — — 584 
Net loss— — 0— — — (24,987)— (24,987)
Balances at September 30, 2021 $ 34,449,154$344 6,903,379$69 $534,839 $(300,507)$ $234,745 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of cash flows
(Unaudited)
(In thousands)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Net loss$(44,359)$(58,919)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense1,977 1,079 
Stock-based compensation expense2,914 1,165 
Change in fair value of preferred stock warrant liability 19,643 
Provision recorded for inventory219 44 
Noncash lease expense846 — 
Noncash interest expense 390 
Loss (gain) on disposal of property and equipment19 (18)
Accretion on investments(237)(4)
Loss on extinguishment of debt 3,100 
Other(116) 
Changes in operating assets and liabilities:
Accounts receivable346 (18)
Inventory(5,472)(5,247)
Prepaid expenses and other current assets(152)(2,552)
Other long-term assets69 (653)
Accounts payable(275)(2,216)
Accrued expenses and other current liabilities(2,770)2,646 
Deferred revenue99 (520)
Other long-term liabilities 3 
Net cash used in operating activities(46,892)(42,077)
Cash flows from investing activities:
Purchases of property and equipment(5,929)(1,251)
Proceeds from sale of property and equipment 20 
Purchases of investments(155,340) 
Maturity of investments55,000 15,000 
Net cash (used) provided by investing activities(106,269)13,769 
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs 79,743 
Proceeds from issuance of Class A common stock - stock option exercise471 294 
Proceeds from issuance of Class A common stock - employee stock purchase plan159  
Proceeds from issuance of restricted Class A stock award 523 
Payments on finance lease obligations(24)— 
Proceeds from initial public offering of Class A common stock, net of issuance costs 165,453 
Proceeds from exercise of common stock warrants 13 
Repayment of term loans (26,159)
Payment of debt extinguishment fees (1,866)
Net cash provided by financing activities606 218,001 
Net (decrease) increase in cash, cash equivalents and restricted cash(152,555)189,693 
Cash, cash equivalents and restricted cash at beginning of period178,671 30,179 
Cash, cash equivalents and restricted cash at end of period$26,116 $219,872 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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RAPID MICRO BIOSYSTEMS, INC.
Condensed consolidated statements of cash flows, continued
(Unaudited)
(In thousands)
Nine Months Ended September 30,
20222021
Supplemental disclosure of cash flow information
Cash paid for interest$32 $1,891 
Supplemental disclosure of non-cash investing activities
Establishment of property and equipment retirement cost asset$ $188 
Establishment of right of use operating assets$7,605 $— 
Purchases of property and equipment in accounts payable$11 $857 
Supplemental disclosure of non-cash financing activities
Establishment of right of use finance assets$366 $— 
Assets acquired under capital lease$— $372 
Offering costs included in accounts payable and accrued expenses$ $1,408 
Conversion of preferred stock to common stock$ $235,766 
Conversion of preferred stock warrants to common stock warrants$ $23,760 
Accretion of redeemable convertible preferred stock to redemption value$ $1,761 
Cumulative redeemable convertible preferred stock dividends$ $2,747 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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RAPID MICRO BIOSYSTEMS, INC.
Notes to condensed consolidated financial statements
(Amounts in thousands, except share and per share amounts)
(Unaudited)
1. Nature of the business and basis of presentation
Rapid Micro Biosystems, Inc. (the “Company”) was incorporated under the laws of the State of Delaware on December 29, 2006. The Company develops, manufactures, markets and sells Growth Direct systems (“Systems”) proprietary consumables, laboratory information management system (“LIMS”) connection software, and services to address rapid microbial analysis used for quality control in the manufacture of pharmaceuticals, medical devices and personal care products. The Company’s technology uses a highly sensitive camera and the natural auto fluorescence of living cells to identify and quantify microbial growth faster and more accurately than the traditional method, which relies on the human eye. The Company currently sells to customers in North America, Europe and Asia. The Company is headquartered in Lowell, Massachusetts.
In March 2020, the World Health Organization declared the global novel coronavirus disease 2019 (“COVID-19”) outbreak a pandemic. The impact of this pandemic has been and may continue to be extensive in many aspects of society, which has resulted in and may continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. The Company cannot at this time predict the ultimate extent, duration, or full impact that the COVID-19 pandemic will have on its future financial condition and operations. The impact of the ongoing COVID-19 pandemic on the Company’s financial performance will depend on future developments, including the duration and spread of the pandemic and related governmental advisories and restrictions. These developments and the impact of COVID-19, and its variants, on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be materially adversely affected.
Future impacts to the Company’s business as a result of COVID-19, and its variants, could include disruptions to the Company’s manufacturing operations and supply chain caused by facility closures, reductions in operating hours, staggered shifts and other social distancing efforts; labor shortages; decreased productivity and unavailability of materials or components; limitations on its employees’ and customers’ ability to travel, and delays in shipments to and from affected countries and within the United States. While the Company maintains an inventory of finished products and raw materials used in its products, the effects of the ongoing COVID-19 pandemic could still lead to shortages in the raw materials necessary to manufacture its products.
Basis of presentation
These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries in Germany and Switzerland. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s audited consolidated financial statements for the year ended December 31, 2021. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2022 and the results of its operations and its cash flows for the three and nine months ended September 30, 2022 and 2021. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2022 and 2021 are also unaudited. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period.
Reclassification
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Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.
Reverse split
On July 9, 2021, the Company effected a one-for-five reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s Preferred Stock (see Note 10). Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the Preferred Stock conversion ratios.
Initial public offering
On July 19, 2021, the Company closed an initial public offering (“IPO”) of its Class A common stock, which resulted in the sale of 7,920,000 shares of its Class A common stock at the initial public offering price of $20.00 per share, before underwriting discounts. The offering resulted in gross proceeds of $158.4 million and net proceeds to the Company of $143.8 million from the IPO after deducting underwriting discounts, commissions and offering expenses payable by the Company.
On August 4, 2021, the underwriters exercised their overallotment option in part and purchased 1,086,604 shares of Class A common stock at the initial public offering price of $20.00 per share less underwriting discounts and commissions. The overallotment option exercise resulted in net proceeds of $20.2 million.
Liquidity
The Company has incurred recurring losses and net cash outflows from operations since its inception. The Company expects to continue to generate significant operating losses for the foreseeable future. The Company expects that its existing cash and cash equivalents and investments will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months following the date these unaudited interim condensed consolidated financial statements were issued.
2. Summary of significant accounting policies
Use of estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, calculating the standalone selling price for revenue recognition, the valuation of inventory, the valuation of common stock and stock-based awards, and the valuation of the preferred stock warrant liability. The Company bases its estimates on historical experience, known trends and other market-specific and relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information is obtained.
Other than policies noted below, there have been no significant changes to the significant accounting policies during the three and nine months ended September 30, 2022, as compared to the significant accounting policies disclosed in Note 2 of the audited consolidated financial statements as of December 31, 2021 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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Risk of concentrations of credit, significant customers and significant suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term and long-term investments and accounts receivable. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company maintains its cash and cash equivalents and investments with financial institutions that management believes to be of high credit quality. The Company has not experienced any other-than-temporary losses with respect to its cash equivalents and investments and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Significant customers are those which represent more than 10% of the Company’s total revenue or accounts receivable balance at each respective balance sheet date. The following table presents customers that represent 10% or more of the Company’s total revenue:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Customer A23.1 %32.1 %22.2 %16.4 %
Customer B19.5 %***
Customer D*11.4 %**
42.6 %43.5 %22.2 %16.4 %
____________________________
*– less than 10%
The following table presents customers that represent 10% or more of the Company’s accounts receivable:
September 30,December 31,
20222021
Customer A29.8 %19.5 %
Customer B25.5 %*
Customer C10.8 %*
Customer D*12.6 %
Customer E*10.6 %
Customer F*10.0 %
66.1 %52.7 %
____________________________
*– less than 10%
The Company relies on third parties for the supply and manufacture of certain components of its products as well as third-party logistics providers. There are no significant concentrations around a single third-party supplier or manufacturer for the three and nine months ended September 30, 2022 or 2021.
Debt issuance costs
The Company capitalizes certain legal and other third-party fees that are directly associated with the issuance of debt as debt issuance costs. Debt issuance costs are recorded as a direct reduction of the carrying amount of the associated debt on the condensed consolidated balance sheets and amortized as interest expense on the condensed consolidated statements of operations using the effective interest method, which approximates the straight-line method.
As of September 30, 2022 and December 31, 2021, the Company had no debt issuance costs on its condensed consolidated balance sheets. During the three months ended September 30, 2022 and 2021, the Company recorded zero and $0.1 million, respectively, and during the nine months ended September 30, 2022 and 2021, the Company recorded zero and $0.4 million, respectively, of interest expense related to amortization of debt issuance costs in the condensed consolidated statements of operations.
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Cash equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents that are readily convertible to cash are stated at cost, which approximates fair value. At September 30, 2022 and December 31, 2021, the Company held cash of $0.2 million and $0.3 million, respectively, in banks located outside of the United States.
Restricted cash
As of September 30, 2022 and December 31, 2021, the Company was required to maintain guaranteed investment certificates of $0.3 million with maturities of three months to one year that are subject to an insignificant risk of changes in value. The guaranteed investment certificates are held for the benefit of the landlord in connection with operating leases which have remaining terms of greater than one year and are classified as restricted cash (non-current) on the Company’s consolidated balance sheets.
Software Development Costs
The Company accounts for software development costs for internal-use software under the provisions of ASC 350-40, “Internal-Use Software” (“ASC 350”). Accordingly, certain costs to develop internal-use computer software are capitalized, provided these costs are expected to be recoverable. The Company had $1.1 million of software development costs, net of amortization, capitalized in other long-term assets at September 30, 2022. These capitalized costs are being amortized on a straight-line basis over the initial subscription term of five years. For the three months ended September 30, 2022 and 2021, there was $0.1 million and zero, respectively, and for the nine months ended September 30, 2022 and 2021, there was $0.3 million and zero, respectively, of amortization expense related to capitalized software development costs recorded in the condensed consolidated statements of operations.
Fair value measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The Company’s cash equivalents, short-term and long-term investments are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts
receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities.
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Product warranties
The Company offers a one-year limited assurance warranty on System sales, which is included in the selling price. The accrual for these warranty obligations is included in accrued expenses and other current liabilities in the condensed consolidated balance sheets. The following table presents a summary of changes in the amount reserved for warranty cost (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Balance, beginning of period$936 $612 $598 $637 
Warranty provisions295  646  
Warranty repairs(320) (333)(25)
Balance, end of period$911 $612 $911 $