10-Q 1 ef20012481_10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

or


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: 001-39486

QUANTUM-SI INCORPORATED
(Exact name of registrant as specified in its charter)



Delaware
 
85-1388175
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

29 Business Park Drive
   
Branford, Connecticut
 
06405
(Address of principal executive offices)
 
(Zip Code)

(866) 688-7374
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading
Symbol(s)
 
Name of each exchange on which registered
Class A common stock, $0.0001 per share
 
QSI
 
The Nasdaq Stock Market LLC
Redeemable warrants, each whole warrant exercisable for one share of Class A common stock, each at an exercise price of $11.50 per share
 
QSIAW
 
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company

   
Emerging growth company


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 2, 2023, the registrant had 121,790,534 shares of Class A common stock outstanding and 19,937,500 shares of Class B common stock outstanding.



QUANTUM-SI INCORPORATED
FORM 10-Q
For the quarterly period ended September 30, 2023

TABLE OF CONTENTS

   
Page
 
3
     
Part I
4
     
Item 1.
4
     
 
4
     
 
5
     
 
6
     
 
7
     
 
8
     
Item 2.
22
     
Item 3.
32
     
Item 4.
32
     
Part II
33
     
Item 1.
33
     
Item 1A.
33
     
Item 2.
34
     
Item 3.
34
     
Item 4.
34
     
Item 5.
34
     
Item 6.
35
     
36

In this Quarterly Report on Form 10-Q, the terms “we”, “us”, “our”, the “Company” or “Quantum-Si” mean Quantum-Si Incorporated (formerly HighCape Capital Acquisition Corp.) and our subsidiaries. Quantum-Si Incorporated was incorporated in Delaware on June 10, 2020. The Company’s legal name became Quantum-Si Incorporated following a business combination between the Company and Q-SI Operations Inc. (formerly Quantum-Si Incorporated) on June 10, 2021 (the “Business Combination”).

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that relate to future events, our future operations or financial performance, or our plans, strategies and prospects. These statements are based on the beliefs and assumptions of our management team. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or performance, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these identifying words. The forward-looking statements are based on projections prepared by, and are the responsibility of, our management. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:


the potential attributes and benefits of our commercialized PlatinumTM protein sequencing instrument and our other products once commercialized;

the success, cost and timing of our product development activities;

the commercialization and adoption of our existing products and the success of any product we may offer in the future;

our manufacturing capabilities;

our ability to obtain and maintain regulatory approval for our products, and any related restrictions and limitations of any approved product;

the ability to maintain the listing of our Class A common stock on The Nasdaq Stock Market LLC (“Nasdaq”);

our ongoing leadership transitions and our success in retaining or recruiting, or changes in, our officers, key employees or directors;

our ability to identify, in-license or acquire additional technology;

our intellectual property rights;

our ability to maintain our existing license agreements and manufacturing arrangements;

our ability to compete with other companies currently marketing or engaged in the development of products and services that serve customers engaged in proteomic analysis, many of which have greater financial and marketing resources than us;

the size and growth potential of the markets for our products, and the ability of each product to serve those markets once commercialized, either alone or in partnership with others;

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

our financial performance;

changes in applicable laws or regulations;

market conditions and global and economic factors, such as inflation; and

our ability to raise financing in the future.

These forward-looking statements are based on information available as of the date of this report, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Important factors could cause actual results, performance or achievements to differ materially from those indicated or implied by forward-looking statements such as those described under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, in Item 1A of Part II of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023, and in other filings that we make with the Securities and Exchange Commission. The risks described under the heading “Risk Factors” are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements

QUANTUM-SI INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share amounts)
(Unaudited)

   
September 30,
2023
   
December 31,
2022
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
93,822
   
$
84,319
 
Marketable securities
    180,803       266,990  
Accounts receivable, net of allowance for estimated credit losses of $0 and $0, respectively
    466       -  
Inventory, net
    2,325       -  
Prepaid expenses and other current assets
   
7,392
     
6,873
 
Total current assets
   
284,808
     
358,182
 
Property and equipment, net
   
17,606
     
16,849
 
Internally developed software
    627       -  
Operating lease right-of-use assets
   
14,354
     
15,757
 
Other assets     701       697  
Total assets
 
$
318,096
   
$
391,485
 
Liabilities and stockholders’ equity
               
Current liabilities:
               
Accounts payable
 
$
2,056
   
$
3,903
 
Accrued expenses and other current liabilities
   
7,428
     
10,434
 
Current portion of operating lease liabilities
    1,523       1,369  
Total current liabilities
   
11,007
     
15,706
 
Warrant liabilities
   
1,077
     
996
 
Other long-term liabilities
   
19
     
-
 
Operating lease liabilities
    13,928       16,077  
Total liabilities
   
26,031
     
32,779
 
                 
Commitments and contingencies (Note 15)
           
                 
Stockholders’ equity
               
Class A Common stock, $0.0001 par value; 600,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 121,790,534 and 120,006,757 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
   
12
     
12
 
Class B Common stock, $0.0001 par value; 27,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 19,937,500 shares issued and outstanding as of September 30, 2023 and December 31, 2022
   
2
     
2
 
Additional paid-in capital
   
765,637
     
758,366
 
Accumulated deficit
   
(473,586
)
   
(399,674
)
Total stockholders’ equity
   
292,065
     
358,706
 
Total liabilities and stockholders’ equity
 
$
318,096
   
$
391,485
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

QUANTUM-SI INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 (in thousands, except share and per share amounts)
(Unaudited)

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2023
   
2022
   
2023
   
2022
 
Revenue:
                       
Product
  $ 216     $ -     $ 654     $ -  
Service
    7       -       28       -  
Total revenue
    223       -       682       -  
Cost of revenue
    115       -       372       -  
Gross profit     108       -       310       -  
Operating expenses:
                               
Research and development
   
16,587
     
16,675
     
50,588
     
53,905
 
Selling, general and administrative
   
10,696
     
10,983
     
33,010
     
31,093
 
Total operating expenses
   
27,283
     
27,658
     
83,598
     
84,998
 
Loss from operations
   
(27,175
)
   
(27,658
)
   
(83,288
)
   
(84,998
)
Dividend income     2,572       1,381       7,274       3,288  
Unrealized gain (loss) on marketable securities
    1,953       (4,240 )     8,302       (20,384 )
Realized loss on marketable securities
    (1,901 )     (1,348 )     (6,489 )     (2,399 )
Change in fair value of warrant liabilities
   
(162
)
   
137
     
(81
)
   
5,121
 
Other income (expense), net
   
(15
)
   
15
     
370
     
70
 
Loss before provision for income taxes
   
(24,728
)
   
(31,713
)
   
(73,912
)
   
(99,302
)
Provision for income taxes
   
-
     
-
     
-
     
-
 
Net loss and comprehensive loss
 
$
(24,728
)
 
$
(31,713
)
 
$
(73,912
)
 
$
(99,302
)
Net loss per common share attributable to common stockholders, basic and diluted
 
$
(0.17
)
 
$
(0.23
)
 
$
(0.52
)
 
$
(0.71
)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted
   
141,660,018
     
139,542,660
     
141,154,110
     
139,057,663
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

QUANTUM-SI INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 (in thousands, except share amounts)
(Unaudited)

   
Class A
common stock
   
Class B
common stock
    Additional
paid-in
capital
    Accumulated
deficit
   
Total
stockholders’
equity
 
   
Shares
   
Amount
   
Shares
   
Amount
             
Balance - December 31, 2022
   
120,006,757
   
$
12
     
19,937,500
   
$
2
   
$
758,366
   
$
(399,674
)
 
$
358,706
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
(23,611
)
   
(23,611
)
Common stock issued upon vesting of restricted stock units
   
1,552,583
     
-
     
-
     
-
     
-
     
-
     
-
 
Stock-based compensation
   
-
     
-
     
-
     
-
     
3,908

   
-
     
3,908

Balance - March 31, 2023
   
121,559,340
   
$
12
     
19,937,500
   
$
2
   
$
762,274
   
$
(423,285
)
 
$
339,003
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
(25,573
)
   
(25,573
)
Common stock issued upon vesting of restricted stock units
    74,273       -       -       -       -       -       -  
Stock-based compensation
   
-
     
-
     
-
     
-
     
1,865
     
-
     
1,865
 
Balance - June 30, 2023
   
121,633,613
   
$
12
     
19,937,500
   
$
2
   
$
764,139
   
$
(448,858
)
 
$
315,295
 
Net loss     -       -       -       -       -       (24,728 )     (24,728 )
Common stock issued upon exercise of stock options and vesting of restricted stock units
    156,921       -       -       -       357       -       357  
Stock-based compensation     -       -       -       -       1,141       -       1,141  
Balance - September 30, 2023
    121,790,534     $ 12       19,937,500     $ 2     $ 765,637     $ (473,586 )   $ 292,065  


   
Class A
common stock
   
Class B
common stock
   
Additional
paid-in
capital
    Accumulated
deficit
   
Total
stockholders’
equity
 
   
Shares
   
Amount
   
Shares
   
Amount
             
Balance - December 31, 2021
   
118,025,410
   
$
12
     
19,937,500
   
$
2
   
$
744,252
   
$
(267,232
)
 
$
477,034
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
(35,175
)
   
(35,175
)
Common stock issued upon exercise of stock options and vesting of restricted stock units
   
946,987
     
-
     
-
     
-
     
730
     
-
     
730
 
Stock-based compensation
   
-
     
-
     
-
     
-
     
(714
)
   
-
     
(714
)
Balance - March 31, 2022
   
118,972,397
   
$
12
     
19,937,500
   
$
2
   
$
744,268
   
$
(302,407
)
 
$
441,875
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
(32,414
)
   
(32,414
)
Common stock issued upon exercise of stock options and vesting of restricted stock units
   
271,731
     
-
     
-
     
-
     
264
     
-
     
264
 
Stock-based compensation
   
-
     
-
     
-
     
-
     
3,770
     
-
     
3,770
 
Balance - June 30, 2022
   
119,244,128
   
$
12
     
19,937,500
   
$
2
   
$
748,302
   
$
(334,821
)
 
$
413,495
 
Net loss     -       -       -       -       -       (31,713 )     (31,713 )
Common stock issued upon exercise of stock options and vesting of restricted stock units
    604,042       -       -       -       1,625       -       1,625  
Stock-based compensation
    -       -       -       -       4,043       -       4,043  
Balance - September 30, 2022
    119,848,170     $ 12       19,937,500     $ 2     $ 753,970     $ (366,534 )   $ 387,450  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

QUANTUM-SI INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
(Unaudited)

   
Nine Months Ended September 30,
 
   
2023
   
2022
 
Cash flows from operating activities:
           
Net loss
 
$
(73,912
)
 
$
(99,302
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
3,063
     
1,789
 
Non-cash lease expense
    1,486
      1,273  
Unrealized (gain) loss on marketable securities
    (8,302 )     20,384  
Realized loss on marketable securities
    6,489       2,399  
(Gain) loss on disposal of fixed assets
    (8 )     9  
Change in fair value of warrant liabilities
   
81
     
(5,121
)
Change in fair value of contingent consideration
    (400 )     141
 
Stock-based compensation
   
6,914
     
7,099
 
Changes in operating assets and liabilities:
               
Accounts receivable, net
    (466 )     -  
Inventory, net
    (2,325 )     -  
Prepaid expenses and other current assets
   
(236
)
   
(931
)
Operating lease right-of-use assets     (83 )     (9,466 )
Other assets
    (4 )     (7 )
Accounts payable
   
(732
)
   
(444
)
Accrued expenses and other current liabilities
   
(2,656
)
   
2,224
 
Other long-term liabilities
    19       -  
Operating lease liabilities     (1,995 )     8,976  
Net cash used in operating activities
 
$
(73,067
)
 
$
(70,977
)
Cash flows from investing activities:
               
Purchases of property and equipment
   
(4,877
)
   
(7,241
)
Internally developed software - capitalized costs
    (763 )     -  
Purchases of marketable securities     -       (834 )
 Sales of marketable securities
    88,000       119,759  
Net cash provided by investing activities
 
$
82,360
   
$
111,684
 
Cash flows from financing activities:
               
Proceeds from exercise of stock options
   
357
     
2,619
 
Deferred offering costs
    (147 )     -  
Payment of contingent consideration - business acquisition
    -       (348 )
Payment of deferred consideration - business acquisition
    -       (500 )
Net cash provided by financing activities
 
$
210
   
$
1,771
 
Net increase in cash and cash equivalents
   
9,503
     
42,478
 
Cash and cash equivalents at beginning of period
   
84,319
     
35,785
 
Cash and cash equivalents at end of period
 
$
93,822
   
$
78,263
 
Supplemental disclosure of non-cash investing and financing activities:
               
Property and equipment purchased but not paid
 
$
59
   
$
798
 
Deferred offering costs payable
    136       -  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

QUANTUM-SI INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Quantum-Si Incorporated (including its subsidiaries, the “Company” or “Quantum-Si”) (formerly HighCape Capital Acquisition Corp. (“HighCape”)) was incorporated in Delaware on June 10, 2020. The Company’s legal name became Quantum-Si Incorporated following a business combination between the Company and Q-SI Operations Inc. (formerly Quantum-Si Incorporated) on June 10, 2021 (the “Business Combination”).


The Company is an innovative life sciences company with the mission of transforming single-molecule analysis and democratizing its use by providing researchers and clinicians access to the proteome, the set of proteins expressed within a cell. The Company has developed a proprietary universal single-molecule detection platform that the Company is first applying to proteomics to enable Next-Generation Protein SequencingTM (“NGPS”), the ability to sequence proteins in a massively parallel fashion (rather than sequentially, one at a time), and can be used for the study of nucleic acids. The Company’s platform is currently comprised of the Platinum™ NGPS instrument and the Quantum-Si Cloud software service, and reagent kits and chips for use with its instruments.

Although the Company has incurred recurring losses each year since its inception, the Company expects its cash and cash equivalents, and marketable securities will be able to fund its operations for at least the next twelve months.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation and Principles of Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. All intercompany transactions are eliminated. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including certain notes required by U.S. GAAP, on an annual reporting basis.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for any subsequent quarter, the year ending December 31, 2023, or any other period.

Except for revenue, inventory and capitalized software development costs discussed elsewhere in this note, there have been no material changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
  
Global Developments
 
In 2022, various central banks around the world (including the Federal Reserve in the United States) raised interest rates. These rate increases have caused an overall decline in the fair value of the Company’s fixed income mutual funds to date. The impact of such rate changes on the overall financial markets and the economy may continue to impact the Company in the future, including by making capital more difficult and costly to obtain on reasonable terms and when needed. In addition, the global economy has experienced and is continuing to experience high levels of inflation and global supply chain disruptions. The Company continues to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic environment.

In addition, although the Company has no operations in or direct exposure to Russia or Ukraine, the Company has experienced some constraints in product and material availability and increasing costs required to obtain some materials and supplies as a result of the impact of the Russia-Ukraine military conflict on the global economy, which has contributed to the global supply chain disruptions. To date, the Company’s business has not been materially impacted by the conflict. However, as the conflict continues or worsens, it may adversely impact the Company’s business, financial condition, results of operations or cash flows.

Concentration of Business Risk
 
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and marketable securities. As of September 30, 2023 and December 31, 2022, substantially all of the Company’s marketable securities were invested in fixed income mutual funds at one financial institution. See Note 5 “Investments in Marketable Securities” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information regarding our realized losses on such accounts. The Company also maintains balances in certain operating accounts above federally insured limits and, as a result, the Company is exposed to credit risk in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation.

The Company sources certain key materials and components utilized in the Company’s products from single or limited suppliers. Historically, the Company has not experienced significant issues sourcing these materials and components. However, if these suppliers were not able to supply the requested amount of materials or components, it could take a considerable length of time to obtain alternative sources, which could affect the Company’s development efforts and commercial operations.
 

Segment Reporting



The Company’s Chief Operating Decision Maker, its Chief Executive Officer, reviews the Company’s financial information on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates as a single reportable segment.

Reclassifications
 
Certain prior year amounts have been reclassified for consistency with the current year’s presentation.

Use of Estimates
 
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions about future events that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with certainty. On an ongoing basis, management evaluates these estimates and assumptions. Significant estimates and assumptions include:


valuation allowance with respect to deferred tax assets;


inventory valuation;


assumptions used for leases;


valuation of warrant liabilities;


assumptions associated with revenue recognition; and


assumptions underlying the fair value used in the calculation of stock-based compensation.

The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s condensed consolidated financial statements.

Inventory, Net

Inventory is stated at the lower of cost or net realizable value with cost determined using the first-in, first-out method. Inventory primarily consists of raw materials and finished goods of $1,030 and $1,285, respectively, as of September 30, 2023.


Materials that may be utilized for either research and development or, alternatively, for commercial purposes, are classified as inventory. Amounts in inventory that are used for research and development purposes are charged to research and development expense when the product enters the research and development process and can no longer be used for commercial purposes and, therefore, does not have an “alternative future use” as defined in authoritative guidance.



The Company performs an assessment of the recoverability of capitalized inventory during each reporting period and, if needed, writes down any excess and obsolete inventory to its estimated net realizable value in the period it is identified. As of September 30, 2023, there were no write-downs recorded against inventory.

Capitalized Software Development Costs

The Company capitalizes certain internal use software development costs related to its SaaS platform incurred during the application development stage when management with the relevant authority authorizes and commits to the funding of the project, it is probable that the project will be completed, and the software will be used as intended. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable that the expenditure will result in additional functionality. Costs related to preliminary project activities and to post-implementation activities are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, which is generally two years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of the assets. Capitalized costs are recorded as Internally developed software in the condensed consolidated balance sheets. There was no Internally developed software recorded in 2022. Amortization expense related to internally developed software was $90 and $136 for the three and nine months ended September 30, 2023, respectively.  As of September 30, 2023 amortization expense is expected to be $95 for the remainder of the year ending December 31, 2023 and $382 and $150 for the years ending December 31, 2024 and 2025, respectively.

Revenue Recognition

The Company’s revenue is derived from sales of products and services. Product revenue is primarily generated from the sales of instruments and consumables used in protein sequencing and analysis. Service revenue is primarily generated from service maintenance contracts including cloud access, proof of concept services and advanced training for instrument use. The Company recognizes revenue when or as a customer obtains control of the promised goods and services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for these goods and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue as the performance obligations have been satisfied. Revenue recognition for contracts with multiple deliverables is based on the separate satisfaction of each distinct performance obligation within the contract. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company allocates transaction price to the performance obligations in a contract with a customer based on the relative standalone selling price of each performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information and specific factors such as competitive positioning, internal costs, profit objectives, and internally approved pricing guidelines related to the performance obligation. 

The Company considers performance obligation for sales of products is satisfied upon shipment of the goods to the customer in accordance with the shipping terms (either upon shipment or delivery), which is when control of the product is deemed to be transferred; this would include instruments and consumables. Customers generally do not have a right of return, except for defective or damaged products during the warranty period or unless prior written consent is provided. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Revenues for service maintenance contracts, which start after the first year of purchase and are considered as service type warranties that effectively extend the standard first-year warranty coverage at the customer’s option, are recognized ratably over the contract service period as these services are performed evenly over time. Revenues for proof of concept services and advanced training is recognized upon satisfaction of the underlying performance obligation. The Company typically provides a standard one-year warranty which covers defects in materials and workmanship and manufacturing or performance conditions under normal use and service for the first year. The first year of the warranty of the products is considered an assurance-type warranty. The Company has determined that this standard first-year warranty is not a distinct performance obligation.

The Company disaggregates revenue from contracts with customers by type of revenue – products and services. The Company believes that product revenue and service revenue aggregate the payor types by nature, amount, timing and uncertainty of its revenue streams. Total revenue generated from domestic sales for the three and nine months ended September 30, 2023 was $209 and $565, respectively. Total revenue generated from international sales for the three and nine months ended September 30, 2023 was $14 and $117.
Deferred Revenue

Deferred revenue is a contract liability that consists of customer payments received in advance of performance or billings in excess of revenue recognized, net of revenue recognized from the balance at the beginning of the period.


Deferred revenue primarily consists of billings and payments received in advance of revenue recognition from service maintenance contracts including software subscription, proof of concept services and advanced training, and is reduced as the revenue recognition criteria are met. Deferred revenue also includes proof of concept services and advanced training provided to customers until the service has been performed. Deferred revenue is classified as current or non-current based on expected revenue recognition timing. Specifically, deferred revenue that will be recognized as revenue within the succeeding 12-month period is recorded as current and is included within Accrued expenses and other current liabilities, and the portion of deferred revenue where revenue is expected to be recognized beyond 12 months from the reporting date is recorded as non-current deferred revenue and is included in Other long-term liabilities in the Company’s condensed consolidated balance sheets.



As of September 30, 2023, the Company had deferred revenue amounting to $189, $170 of which is included within Accrued expenses and other current liabilities and $19 is included within Other long-term liabilities in the Company’s condensed consolidated balance sheets. The Company expects to recognize approximately 74% of its remaining performance obligations as revenue for the remainder of the year ending December 31, 2023, and an additional 26% for the year ending December 31, 2024 and thereafter.



The amount of revenue recognized during the three and nine months ended September 30, 2023 that was included in the deferred revenue balance of $73 at December 31, 2022 was $1 and $71, respectively.


Warranty

The Company provides a free 12-month assurance-type warranty to customers with the initial purchase of a PlatinumTM instrument. The cost of the warranty is accrued upon the initial sale of an instrument in Accrued expenses and other current liabilities on the condensed consolidated balance sheets.


Shipping and Handling Costs



Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as fulfillment costs and are included in Cost of revenue in the condensed consolidated statements of operations and comprehensive loss. Shipping and handling costs billed to customers are considered part of the transaction price and are recognized as revenue with the underlying product sales.

Recently Issued Accounting Pronouncements
 
Accounting pronouncements issued but not yet adopted

No new accounting pronouncements issued or effective during the three and nine months ended September 30, 2023 had, or are expected to have, a material impact on the Company’s condensed consolidated financial statements.

3. ACQUISITION

Majelac Technologies LLC

Pursuant to the terms and conditions of an Asset Purchase Agreement by and among the Company, Majelac Technologies LLC (“Majelac”), and certain other parties, on November 5, 2021 (the “Majelac Closing Date”), the Company acquired certain assets and assumed certain liabilities of Majelac, a privately-owned company providing semiconductor chip assembly and packaging capabilities located in Pennsylvania, for $4,632 in cash including $132 in reimbursement for certain recently purchased equipment, and 535,715 shares of Class A common stock, valued at $4,232, issued to Majelac subject to certain restrictions. An additional 59,523 shares of Class A common stock valued at $471 were issued to Majelac 12 months after the Majelac Closing Date on November 7, 2022. The Company also assumed the legal fees of Majelac of $50. Additional purchase price consideration of $500 in cash was to be paid six months after the Majelac Closing Date less any amount that could be required by the buyer indemnitees to satisfy any unresolved claims for indemnification, if any. The Company agreed to pay additional milestone-based consideration of up to $800, which was fair valued at $531 on the Majelac Closing Date. On May 4, 2022, the Company paid Majelac $900 in cash, which consisted of $500 for the additional purchase price consideration and $400 (fair value of $348 at the Majelac Closing Date) for the first of two milestones that was met. As of June 30, 2023, the Company determined that the estimated fair value of the contingent consideration was de minimis as the probability of the second milestone being met by November 1, 2023 was remote. As of September 30, 2023, there has been no change from the June 30, 2023 determination. As a result, the Company recorded a gain of $400 during the nine months ended September 30, 2023 in Other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

The acquisition brought semiconductor chip assembly and packaging capabilities in-house and secured the Company’s supply chain to support its commercialization efforts. Prior to the acquisition, Majelac was a vendor of the Company.

The following table summarizes the final purchase price allocation at the Majelac Closing Date as follows:

   
Purchase Price
Allocation
 
Prepaid expenses and other current assets
 
$
27
 
Property and equipment, net
   
906
 
Goodwill
   
9,483
 
Total
 
$
10,416
 

Goodwill represents the excess of the consideration transferred over the aggregate fair values of assets acquired and liabilities assumed. The goodwill recorded in connection with this acquisition was based on operating synergies and other benefits expected to result from the combined operations. The goodwill acquired is amortizable for tax purposes over a period of 15 years. During the fourth quarter ended December 31, 2022, the Company concluded the goodwill from the Majelac acquisition was fully impaired and recorded a charge of $9,483 on the consolidated statements of operations and comprehensive loss.

Acquisition-related costs recognized during the three and nine months ended September 30, 2022, including transaction costs such as legal, accounting, valuation and other professional services, were $0 and $26, respectively, and are included in Selling, general and administrative on the condensed consolidated statements of operations and comprehensive loss. There were no acquisition-related costs recognized during the three and nine months ended September 30, 2023.

4. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.
 
The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:


Level 1 -  Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.


Level 2 -  Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.


Level 3 -  Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying value of cash and cash equivalents, accounts payable and accrued expenses and other current liabilities approximates their fair values due to the short-term or on demand nature of these instruments. Fixed income mutual funds were valued using quoted market prices and accordingly were classified as Level 1. There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2023.

The Company’s outstanding warrants include publicly traded warrants (the “Public Warrants”) which were issued as one-third of one redeemable warrant per unit issued during HighCape’s initial public offering on September 9, 2020, and warrants sold in a private placement (the “Private Warrants”) to HighCape’s sponsor, HighCape Capital Acquisition LLC. The Company accounted for the warrants as liabilities in accordance with ASC 815-40 and are presented as Warrant liabilities on the condensed consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented as Change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive loss. There were no exercises or redemptions of the public or private warrants as of September 30, 2023.

The Public Warrants and Private Warrants were carried at fair value as of September 30, 2023 and December 31, 2022. The Public Warrants were valued using Level 1 inputs as they are traded in an active market. The Private Warrants were valued using a binomial lattice model, which results in a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Warrants was the expected volatility of the Company’s Class A common stock. The expected volatility was based on consideration of the implied volatility from the Company’s own Public Warrant pricing and on the historical volatility observed at guideline public companies. As of September 30, 2023, the significant assumptions used in preparing the binomial lattice model for valuing the Private Warrants liability include (i) volatility of 93.7%, (ii) risk-free interest rate of 4.80%, (iii) strike price of $11.50, (iv) fair value of common stock of $1.66, and (v) expected life of 2.7 years. As of December 31, 2022, the significant assumptions used in preparing the binomial lattice model for valuing the Private Warrants liability include (i) volatility of 75.1%, (ii) risk-free interest rate of 4.10%, (iii) strike price of $11.50, (iv) fair value of common stock of $1.83, and (v) expected life of 3.4 years.
 
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy:
 
         
Fair Value Measurement Level
 
September 30, 2023:
 
Total
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                       
Cash and cash equivalents - Money Market
 
$
88,354
   
$
88,354
   
$
-
   
$
-
 
Marketable securities
    180,803
      180,803
      -
      -
 
Total assets at fair value on a recurring basis
 
$
269,157
   
$
269,157
   
$
-
   
$
-
 
 
                               
Liabilities:
                               
Public Warrants
 
$
1,035
   
$
1,035
   
$
-
   
$
-
 
Private Warrants
   
42
     
-
     
-
     
42
 
Total liabilities at fair value on a recurring basis
 
$
1,077
   
$
1,035
   
$
-
   
$
42
 
 
         
Fair Value Measurement Level
 
December 31, 2022:  
Total
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                       
Cash and cash equivalents - Money Market
 
$
83,079
   
$
83,079
   
$
-
   
$
-
 
Marketable securities
    266,990       266,990       -       -  
Total assets at fair value on a recurring basis
 
$
350,069
   
$
350,069
   
$
-
   
$
-
 
 
                               
Liabilities:
                               
Public Warrants
 
$
958
   
$
958
   
$
-
   
$
-
 
Private Warrants
   
38
     
-
     
-
     
38
 
Total liabilities at fair value on a recurring basis
 
$
996
   
$
958
   
$
-
   
$
38
 

5. INVESTMENTS IN MARKETABLE SECURITIES

Unrealized gains/(losses) related to securities held as of September 30, 2023, realized losses related to securities that were sold during the three and nine months ended September 30, 2023 and dividend income from marketable securities were as follows for the three and nine months ended September 30, 2023 and 2022:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2023
   
2022
   
2023
   
2022
 
Unrealized gain (loss) on marketable securities
 
$
1,953
   
$
(4,240
)
 
$
8,302
   
$
(20,384
)
Realized loss on marketable securities
   
(1,901
)
   
(1,348
)
   
(6,489
)
   
(2,399
)
Dividend income from marketable securities
   
2,572
     
1,381
     
7,274
     
3,288
 

6. PROPERTY AND EQUIPMENT, NET
 
Property and equipment, net, are recorded at historical cost and consist of the following:

   
  September 30,
2023
   
December 31,
2022
 
Laboratory and production equipment
 
$
14,880
   
$
14,031
 
Computer equipment
   
1,736
     
1,073
 
Purchased software
   
188
     
188
 
Furniture and fixtures
   
260
     
218
 
Leasehold improvements     6,918       1,308  
Construction in process
   
2,776
     
6,234
 
Property and equipment, gross    
26,758
     
23,052
 
Less: Accumulated depreciation and amortization
   
(9,152
)
   
(6,203
)
Property and equipment, net
 
$
17,606
   
$
16,849
 
 
Depreciation and amortization expense associated with Property and equipment amounted to $1,080 and $729 for the three months ended September 30, 2023 and 2022, respectively, and $2,927 and $1,789 for the nine months ended September 30, 2023 and 2022, respectively. No impairments were recorded for the three and nine months ended September 30, 2023 or 2022.

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 
Accrued expenses and other current liabilities consist of the following:

   
September 30,
2023
   
December 31,
2022
 
Employee compensation and benefits
 
$
3,191
   
$
5,548
 
Contracted services
   
2,325
     
3,616
 
Restructuring costs     551       -  
Business acquisition costs and contingencies     -       343  
Legal fees
   
997
     
839
 
Other
   
364
     
88
 
Total accrued expenses and other current liabilities
 
$
7,428
   
$
10,434
 

8. LEASES

The Company has commitments under lease arrangements primarily for office and manufacturing space. The Company’s leases have initial lease terms ranging from two to 10 years. These leases include options to extend or renew the leases for an additional period of one to 10 years.

Operating leases are accounted for on the condensed consolidated balance sheets with right-of-use (“ROU”) assets being recognized in “Operating lease right-of-use assets” and lease liabilities recognized in “Current portion of operating lease liabilities” and “Operating lease liabilities”.

Lease-related costs for the three and nine months ended September 30, 2023  and 2022 are as follows:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2023
   
2022
    2023
    2022
 
Operating lease cost
 
$
864
   
$
819
    $ 2,613     $ 2,352  
Variable lease cost
   
545
     
321
      1,226       922  
Total lease cost
 
$
1,409
   
$
1,140
    $ 3,839     $ 3,274  

Other information related to operating leases as of September 30, 2023 and December 31, 2022 is as follows:

   
September 30,


December 31,

   
2023


2022

Weighted-average remaining lease term (years)
 
6.6



7.3

Weighted-average discount rate
 
7.9
%
 
7.9
%

The following table provides certain cash flow and supplemental cash flow information related to the Company’s lease liabilities for the nine months ended September 30, 2023  and 2022:

   
Nine months ended September 30,
 
   
2023
   
2022
 
Operating cash paid to settle operating lease liabilities
 
$
3,201
   
$
1,362
 
                 
Right-of-use assets obtained in exchange for lease liabilities
 
$
83
   
$
9,466
 

Future minimum lease payments under non-cancellable leases as of September 30, 2023 are as follows:

   
Operating Leases
 
Remainder of 2023
 
$
1,097
 
2024
   
4,436
 
2025
   
4,527
 
2026
   
4,585
 
2027
   
4,549
 
Thereafter
   
13,027
 
Total undiscounted lease payments
 
$
32,221
 
Less: Imputed interest
   
7,666
 
Less: Lease incentives (1)
   
9,104
 
Total lease liabilities
 
$
15,451
 

(1)
Includes lease incentives that may be realized in 2023 for the costs of leasehold improvements.

In December 2021, the Company signed a 10-year lease for approximately 67,000 square feet of space located at 115 Munson Street in New Haven, Connecticut.  The lease commenced on January 8, 2022 with rent payments beginning on July 7, 2022.  Under the lease, the landlord contractually agreed to reimburse the Company for up to $9,104 in improvements to the space, to be used for such improvements as the Company deems “necessary or desirable”.  On September 13, 2022, the Company filed a lawsuit against the landlord, alleging that the landlord has: (i) refused to reimburse the Company for costs related to improvements already incurred and submitted; (ii) delayed the Company’s completion of improvements, in order to avoid reimbursing the costs of those improvements; and (iii) improperly rejected the Company’s proposed improvement plans.

The Company accounted for the $9,104 of lease incentives as an offset to the lease liability recorded at the inception of the lease.  From the total lease incentives, the Company has incurred and recognized leasehold improvements of approximately $1,100 related to reimbursable construction costs included in construction in progress within Property and equipment, net on the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022.  Although the Company believes it is contractually entitled to the $9,104 of lease incentives, based on the current status of the litigation, the Company cannot determine the likely outcome or estimate the impact on such carrying values.

9. STOCKHOLDERS’ EQUITY
 
At-the-market Equity Offering Program

In August 2023, the Company filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”), which became effective on August 22, 2023, covering the offering of Class A common stock, preferred stock, debt securities, warrants, rights and units.

In August 2023, the Company also entered into an Equity Distribution Agreement (“EDA”) with an outside placement agent (the “Agent”), under which the Company may, from time to time, sell shares of the Company’s Class A common stock having an aggregate offering price of up to $75 million in “at-the-market” offerings through the Agent (the “ATM Offering”). The Shelf Registration Statement included a prospectus supplement covering the offering, issuance and sale of up to $75 million of the Company’s Class A common stock, from time to time, through the ATM Offering. The shares to be sold under the EDA may be issued and sold pursuant to the Shelf Registration Statement. The EDA also provides that the Agent will be entitled to compensation for its services in an amount up to 3.0% of the gross proceeds from the sales of shares sold through the Agent under the EDA. The Company has no obligation to sell any shares under the EDA and may at any time suspend solicitation and offers under the EDA. To date, the Company has not issued or sold any shares of the Company’s Class A common stock under the ATM Offering.

Equity Incentive Plan

The Company’s 2013 Employee, Director and Consultant Equity Incentive Plan, as amended on March 12, 2021 (the “2013 Plan”), was originally adopted by its Board of Directors and stockholders in September 2013. In connection with the closing of the Business Combination, the Company adjusted the equity awards. The adjustments to the awards did not result in incremental expense as the equitable adjustments were made pursuant to a preexisting nondiscretionary antidilution provision in the 2013 Plan, and the fair-value, vesting conditions, and classification are the same immediately before and after the modification. In connection with the Business Combination, HighCape’s stockholders approved and adopted the Quantum-Si Incorporated 2021 Equity Incentive Plan (the “2021 Plan”) and the Company no longer makes issuances under the 2013 Plan. The 2021 Plan provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or cash-based awards. Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting or advisory services for the Company, are eligible for grants under the 2021 Plan. As of September 30, 2023 and December 31, 2022, there were 13,071,147 and 9,133,702 shares, respectively, available for issuance under the 2021 Plan.
 
On November 9, 2022, the Company granted inducement awards consisting of 2,780,000 performance-based stock options to purchase Class A common stock pursuant to Nasdaq Rule 5635(c)(4). These awards were not granted pursuant to the 2013 Plan or the 2021 Plan.

On May 8, 2023, the Company adopted the 2023 Inducement Equity Incentive Plan (the “2023 Inducement Plan”) to reserve 3,000,000 shares of its common stock to be used exclusively for grants of awards to individuals that were not previously employees or directors of the Company as a material inducement to such individuals’ entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the 2023 Inducement Plan are substantially similar to those of the 2021 Plan. As of September 30, 2023, there were 60,250 shares remaining available for issuance under the 2023 Inducement Equity Incentive Plan.

Stock options
 
During the nine months ended September 30, 2023, the Company granted an aggregate of 10,138,730 stock option awards to participants, with vesting subject to the participant’s continued employment with the Company through the applicable vesting dates. Stock-based compensation related to stock options for the three months ended September 30, 2023 and 2022 was $1,133 and $1,868, respectively.  Stock-based compensation related to stock options for the nine months ended September 30, 2023 and 2022 was $5,728 and $5,169, respectively.
A summary of the stock option activity is presented in the table below:

   
Number of
Options
   
Weighted Average
Exercise Price
   
Weighted Average
Remaining
Contractual Term
(Years)
   
Aggregate
Intrinsic Value
 
Outstanding at December 31, 2022
   
19,427,755
   
$
3.69
     
8.68
   
$
378
 
Granted
   
10,138,730
     
1.79
                 
Exercised
   
(127,799
)
   
2.79
                 
Forfeited
   
(5,816,858
)
   
3.76
                 
Outstanding at September 30, 2023
   
23,621,828
   
$
2.86
     
8.46
   
$
1,129
 
Options exercisable at September 30, 2023
   
6,311,402
    $
3.98
     
6.38
   
$
286
 
Vested and expected to vest at September 30, 2023
   
19,261,890
   
$