STANDARD BIOTOOLS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of Standard BioTools Inc. MD&A is provided as a supplement to, and should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Form 10-Q. This Form 10-Q contains 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, or Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the section entitled “Risk Factors” and this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include information concerning our possible or assumed future cash flow, revenue, sources of revenue and results of operations, cost of product revenue and product margin, operating and other income and expenses, unit sales and the selling prices of our products, business strategies, financing plans, expansion of our business, competitive position, industry environment, potential growth opportunities, market growth expectations, and the effects of competition and public health crises (including the COVID-19 pandemic) on our business, the global supply chain, and our customers, suppliers, and other business partners. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties, and other 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. We discuss these risks in greater detail in Part II, Item 1A, “Risk Factors,” located elsewhere in this quarterly report on Form 10-Q, and in our annual report on Form 10-K filed with the Securities and Exchange Commission (SEC). Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You should read this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. Standard BioTools™, the Standard BioTools logo, Fluidigm®, the Fluidigm logo, Access Array™, Acculift™, Advanta™, Atlas™, Biomark™, Bringing new insights to life™, C1™, Callisto™, Cell-ID™, CyTOF®, CyTOF XT™, CyTOF XT logo, D3™, Delta Gene™, Direct™, Digital Array™, Dynamic Array™, EP1™, EQ™, FC1™, Flex Six™, Flow Conductor™, GeckoGrip™, Helios™, High-Precision 96.96 Genotyping™, HTI™, Hyperion™, IMC™, Imaging Mass Cytometry™, Immune Profiling Assay™, Juno™, Maxpar®, MCD™, MSL®, Nanoflex™, Open App™, Pathsetter™, Polaris™, qdPCR 37K™, Script Builder™, Script Hub™, Singular™, SNP Trace™, and SNP Type™ are trademarks or registered trademarks of Standard BioTools Inc. Other service marks, trademarks and trade names referred to in this quarterly report on Form 10-Q are the property of their respective owners. ___________________________ Unless the context requires otherwise, references in this Form 10-Q to “Standard BioTools” the “Company,” “we,” “us,” and “our” refer to Standard BioTools Inc. and its subsidiaries. Our MD&A is organized in the following sections: • Overview • Recent Developments • Critical Accounting Policies, Significant Judgments and Estimates • Recent Accounting Changes and Accounting Pronouncements • Results of Operations • Liquidity and Capital Resources Overview Standard BioTools Inc., previously known as Fluidigm Corporation, is driven by a bold vision – unleashing tools to accelerate breakthroughs in human health. Standard BioTools has an established portfolio of essential, standardized next-generation technologies that help biomedical researchers develop medicines faster and better. As a leading solutions provider, we provide reliable and repeatable insights in health and disease using our proprietary mass cytometry and microfluidics technologies that help transform scientific discoveries into better patient outcomes. We work with leading academic, 25 government, pharmaceutical, biotechnology, plant and animal research, and clinical laboratories worldwide, focusing on the most pressing needs in translational and clinical research, including oncology, immunology, and immunotherapy. We distribute our systems through our direct sales force and support organizations located in North America, Europe, and Asia-Pacific, and through distributors or sales agents in several European, Latin American, Middle Eastern, and Asia-Pacific countries. Our manufacturing operations are located in Singapore and Canada. Our facility in Singapore manufactures our integrated fluidic circuits (IFCs) as well as our microfluidics instruments, which are assembled by our contract manufacturer located within our Singapore facility. Our mass cytometry instruments, assays and reagents are manufactured at our facility in Canada. Our total revenue for the three months ended March 31, 2022 was $26.5 million and $32.8 million for the three months ended March 31, 2021. We have incurred significant net losses since our inception in 1999 and, as of March 31, 2022, our accumulated deficit was $812.3 million. Recent Developments Private Placement Issuance On January 23, 2022, we entered into (i) a Loan Agreement (the Casdin Bridge Loan Agreement) with Casdin Private Growth Equity Fund II, L.P. and Casdin Partners Master Fund, L.P. (collectively, Casdin) and (ii) a Loan Agreement (the Viking Bridge Loan Agreement, and together with the Casdin Bridge Loan Agreement, the Bridge Loan Agreements) and each a Bridge Loan) with Viking Global Opportunities Illiquid Investments Sub-Master LP and Viking Global Opportunities Drawdown (Aggregator) LP (collectively, Viking and, together with Casdin, the Purchasers and each, a Purchaser). Each Bridge Loan Agreement provided for a $12.5 million term loan to the Company. The Bridge Loans were fully drawn on January 24, 2022. The Bridge Loans automatically converted into Series B Preferred Stock, defined below, upon the completion of the Preferred Equity Financing, defined below. The proceeds of the Bridge Loans may be used for working capital and general corporate purposes. Also on January 23, 2022, we entered into separate Series B Convertible Preferred Stock Purchase Agreements (the Purchase Agreements) with each of the Purchasers pursuant to which, among other things, at the closing of the transactions contemplated thereby, and on the terms and subject to the conditions set forth therein, including the approval of our stockholders, we issued and sold an aggregate of $225 million of convertible preferred stock on April 4, 2022, consisting of: (i) 112,500 shares of the Company’s Series B-1 Convertible Preferred Stock, par value $0.001 per share (the Series B-1 Preferred Stock), at a purchase price of $1,000 per share to Casdin; and (ii) 112,500 shares of the Company’s Series B-2 Convertible Preferred Stock, par value $0.001 per share (the Series B-2 Preferred Stock, and together with the Series B-1 Preferred Stock, the Series B Preferred Stock) at a purchase price of $1,000 per share to Viking (the Preferred Equity Financing, and together with the issuance of shares of Series B Preferred Stock in connection with the conversion of the Bridge Loans, the Private Placement Issuance). The proceeds of the Preferred Equity Financing will be used for expenses related to the Private Placement Issuance, as well as working capital, general corporate purposes and potential future merger and acquisition opportunities that we may identify from time to time. Our board of directors (the Board) called a meeting (Special Meeting) to ask our stockholders to consider, vote upon and approve (i) a proposal to amend the Company’s Eighth Amended and Restated Certificate of Incorporation (the Charter) to, among other things, increase the number of shares of common stock, par value $0.001 per share, (Common Stock) of the Company that we are authorized to issue from two hundred million (200,000,000) shares to four hundred million (400,000,000) shares and to change our name to Standard BioTools Inc. (the Charter Amendment Proposal); (ii) a proposal to approve, in accordance with Nasdaq Listing Rule 5635, the issuance of (A) the Series B-1 Preferred Stock and the Series B-2 Preferred Stock pursuant to the Purchase Agreements, (B) the Series B-1 Preferred Stock and the Series B-2 Preferred Stock issuable pursuant to the terms of the Bridge Loan Agreements and (C) the Common Stock issuable upon the conversion of the Series B Preferred Stock (the Private Placement Issuance Proposal); and (iii) a proposal to adjourn the Special Meeting if the Special Meeting were convened and a quorum were present, but there were not sufficient votes to approve the Charter Amendment Proposal and the Private Placement Issuance Proposal (the Adjournment Proposal, and, together with the Private Placement Issuance Proposal and the Charter Amendment Proposal, the Stockholder Proposals). Each of the Private Placement Issuance Proposal and Charter Amendment Proposal were conditioned on the approval of the other proposal, and neither proposal would take effect unless both were approved by our stockholders. Our stockholders approved the Charter Amendment Proposal and Private Placement Issuance Proposal on April 1, 2022. The Private Placement Issuance closed on April 4, 2022. On April 1, 2022, the Company filed with the Secretary of State of the State of Delaware (i) the Charter Amendment, (ii) the Series B-1 Preferred Stock Certificate of Designations to establish the preferences, limitations and relative rights of the Series B-1 Preferred Stock and (iii) the Series B-2 Preferred Stock Certificate of Designations to establish the preferences, 26 limitations and relative rights of the Series B-2 Preferred Stock. The Charter Amendment, Series B-1 Certificate of Designations and Series B-2 Certificate of Designations became effective upon filing. On April 4, 2022, following stockholder approval of the Charter Amendment Proposal and the Private Placement Issuance Proposal, we received $225 million, before expenses, and issued 225,000 shares of Series B Preferred Stock, pursuant to the Purchase Agreements. The Bridge Loans converted into 30,559 shares of Series B Preferred Stock. With the approval of the proposals, our name was changed to Standard BioTools Inc. Shortly after the closing of the Private Placement Issuance we also changed our ticker symbol for our common stock to LAB. Upon the closing of the Private Placement Issuance, Dr. Michael Egholm was appointed as the Company’s President and Chief Executive Officer and as a member of the Board of Directors. Business Update The capital from the Private Placement Issuance is expected to help fuel a realization of identified growth and cost opportunities and allow for new growth drivers as we pursue and consolidate complementary technologies across the life science ecosystem. • Achieving significantly greater breadth and scale . With a strong platform and deeply experienced management team, we will strive to accelerate growth both organically and, importantly, inorganically to deliver breadth and scale to the Company. • Optimizing the cost structure . As we work toward our goal of being sustainably cash flow positive, we intend to have a leaner general and administrative expense structure and a sales and marketing spend that is better aligned to support high-growth areas. • Leveraging a larger menu to expanding customer base. We expect to direct sales and marketing towards expanding our relationships deeper into the life science ecosystem, including large biopharma, emerging biotech, and diagnostic companies and the broader contract research organization and contract manufacturing organization service provider network. • Accelerating growth in mass cytometry . With particular emphasis on expanding our CyTOF and Imaging Mass Cytometry™ platforms to further support translational and clinical research, we intend to simplify the design and execution of deep cell profiling, standardize sample analysis with reproducible workflows and automation, and significantly advance capabilities for novel therapeutic development. • Realizing and rationalizing opportunities in targeted high-profit areas within microfluidics . We plan to focus on targeted end-applications (e.g., proteomics, biomarker analysis) and key partnerships (e.g., Olink® Bioscience) while rationalizing business processes and execution . In the audited consolidated financial statements and the related notes for the year ended December 31, 2021 included in our annual report on Form 10-K, filed with the SEC on March 8, 2022, we disclosed that we had performed an assessment to determine whether there were conditions or events, considered in the aggregate, that raised substantial doubt about our ability to continue as a going concern for at least the twelve-month period following the date the financial statements were issued. We believed that our then-current level of cash and cash equivalents, together with committed financing facilities, were not sufficient to fund ongoing operations for at least the twelve-month period after the financial statements were issued. Since then, we have closed the $225 million Series B Preferred Equity Financing, as discussed in Note 3. The financing, which was contingent upon stockholder approval, was previously disclosed in Note 18 to our audited financial statements included in our 2021 annual report on Form 10-K. The completion of this investment has eliminated the doubt about the Company’s ability to continue as a going concern. See Note 3 and Note 17 for additional discussion. Critical Accounting Policies, Significant Judgments and Estimates Our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions believed to be reasonable, which together form the basis for making judgments about the carrying values of assets and liabilities. We also assessed certain accounting matters that generally require consideration of forecasted financial information, including the unknown impact of the COVID-19 pandemic and the war in Ukraine. Accounting matters that rely on forecasted financial information included, but were not limited to, our inventory, and related reserves, and the carrying value of goodwill and other long-lived assets and liabilities. Actual results could differ materially from these estimates and could have a material adverse effect on our condensed consolidated financial statements. The full extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will 27 depend on numerous evolving factors including, but not limited to, the magnitude and duration of the pandemic, the extent to which it will impact worldwide macroeconomic conditions, including the speed of recovery, and governmental and business reactions to the pandemic. We also use significant judgment in determining the fair value of financial instruments, including debt and equity instruments. Recent Accounting Changes and Accounting Pronouncements Adoption of New Accounting Guidance In August 2020, the FASB issued ASU 2020-06 Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendment to this ASU reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification, which is expected to result in more convertible instruments being accounted for as a single unit, rather than being bifurcated between debt and equity. The new guidance is effective for fiscal years beginning after December 15, 2021. We adopted ASU 2020-06 effective January 1, 2022. The adoption of ASU 2020-06 did not have an impact on our 2014 and 2019 Convertible Notes. In November 2021, the FASB issued ASU 2021-10 Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendment is effective for annual periods beginning after December 15, 2021. The amendment establishes financial disclosure requirements for business entities that receive government assistance that they account for by analogizing to a grant or contribution model because there is no specific authoritative guidance under U.S. GAAP that applies to the transaction. Entities that receive this type of assistance should include the following information in their annual report: (1) the nature of the transaction, (2) the significant terms and conditions, (3) the accounting treatment, (4) the line items on the balance sheet and income statement that are affected along with (5) the respective amounts that have been recorded. We adopted ASU 2021-10 effective January 1, 2022. The adoption of ASU 2021-10 did not have a material impact on our financial statements. Recent Accounting Pronouncements None. 28 Results of Operations The following table presents our historical condensed consolidated statements of operations data for the three months ended March 31, 2022 and 2021, and as a percentage of total revenue (in thousands): Three Months Ended March 31, 2022 2021 Revenue $ 26,504 100 % $ 32,794 100 % Costs and expenses Cost of product revenue 12,339 47 11,663 35 Cost of service revenue 1,928 7 2,090 6 Research and development 8,865 33 10,753 34 Selling, general and administrative 30,875 117 27,608 84 Total costs and expenses 54,007 204 52,114 159 Loss from operations (27,503) (104) (19,320) (59) Interest expense (1,030) (4) (887) (2) Loss on forward sale of Series B Preferred Stock (37,792) (143) — — Unrealized loss on bridge loans (10,655) (40) — — Other income (expense), net 118 — (285) (1) Loss before income taxes (76,862) (290) (20,492) (62) Income tax benefit 574 2 1,671 5 Net loss $ (76,288) (288) % $ (18,821) (57) % Revenue We generate revenue primarily from sales of our products and services, and by entering into product development agreements, license and royalty agreements, and grants. Our product revenue consists of sales of instruments and consumables. Consumables revenue is largely driven by the size of our installed base of instruments and the annual level of pull-through per instrument. Service revenue is linked to the sales and active installed base of our instruments as our service revenue primarily consists of post-warranty service contracts, preventive maintenance plans, instrument parts, installation and training. We sell our products to leading academic and government laboratories, as well as pharmaceutical, biotechnology, clinical, plant and animal research organizations and clinical laboratories worldwide. Development Revenue . On March 31, 2020, we entered into an OEM Supply and Development Agreement (Development Agreement) with a customer to develop products based on our microfluidics technology. The Development Agreement provided for up-front and periodic milestone payments during its development stage, which was completed in the third quarter of 2021, and for on-going annual payments of $0.4 million for sustaining efforts. During the three months ended March 31, 2022, we recognized $0.1 million of development revenue associated with these fees. During the three months ended March 31, 2021, we recognized $1.5 million of revenue from the project. Costs associated with the Development Agreement were recorded in research and development expense in the condensed consolidated statement of operations. Grant Revenue . During the three months ended March 31, 2021, we recognized $0.3 million of grant revenue by providing research and development services under a contractual arrangement we entered into in the second half of 2019. The contract was completed during the third quarter of 2021. Costs associated with the agreement were recorded in research and development expense in the condensed consolidated statement of operations. License Revenue . We recognize revenue from license agreements when the license is transferred to the customer and the customer is able to use and benefit from the license. During the three months ended March 31, 2022, we entered into an agreement to settle intellectual property infringement claims and received a $0.3 million payment in exchange for a license to certain of our intellectual property. No single customer represented more than 10% of our total revenue for the three months ended March 31, 2022. Revenue from one customer exceeded 10% of total revenue for the three months ended March 31, 2021. Revenue from our five largest customers represented 21% and 27% of total revenue for the three months ended March 31, 2022 and 2021, respectively. 29 The following table presents our revenue disaggregated by source for the three months ended March 31, 2022 and 2021 (in thousands): Three Months Ended March 31, Year-over-Year Change 2022 2021 Revenue: Instruments $ 7,523 28 % $ 7,708 24 % (2) % Consumables 12,481 47 17,020 52 (27) % Product revenue 20,004 75 24,728 76 (19) % Service revenue 6,144 23 6,286 19 (2) % Product and service revenue 26,148 98 31,014 95 (16) % Development revenue 88 — 1,480 4 (94) % Grant revenue — — 300 1 (100) % License revenue 268 2 — — NA Total revenue $ 26,504 100 % $ 32,794 100 % (19) % The following table presents our total revenue by geographic area for the three months ended March 31, 2022 and 2021 (in thousands): Three Months Ended March 31, Year-over-Year Change 2022 2021 Americas $ 12,930 49 % $ 18,523 56 % (30) % EMEA 8,609 32 9,142 28 (6) % Asia-Pacific 4,965 19 5,129 16 (3) % Total revenue $ 26,504 100 % $ 32,794 100 % (19) % Total Revenue Total revenue decreased by $6.3 million, or 19%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily driven by a decline in consumables revenue and development revenue. A weaker dollar negatively impacted Company total revenues by 1.1 percentage points . Americas revenue decreased by $5.6 million, or 30%, for the three months ended March 31, 2022 compared to th e three months ended March 31, 2021. The decline is primarily attributable to a reduction in product revenue driven by the sharp decline in the demand for COVID-19 testing products and by a $1.4 million decline in development revenue. EMEA revenue decreased by $0.5 million driven by a decline in mass cytometry instruments, and partially offset by an increase in microfluidics instruments revenue primarily from products launched in the second half of 2021 . A weaker dollar contributed 4.0 percentage points of the 5.8 percentage point decrease in EMEA revenue. In Asia-Pacific, revenue decreased by $0.2 million, or 3.2%, primarily due to a decline in consumables revenue, which was largely offset by an increase in instruments revenue. 30 Product and Service Revenue . The following tables present the split of product and service revenue between mass cytometry and microfluidics product categories and as a percentage of the respective category’s total product and service revenue for the three months ended March 31, 2022 and 2021 (in thousands): Three Months Ended March 31, Year-Over-Year Change 2022 2021 Mass cytometry: Instruments $ 4,370 32% $ 4,965 35% (12)% Consumables 4,766 35 4,575 33 4% Total product revenue 9,136 67 9,540 68 (4) % Service revenue 4,394 33 4,482 32 (2)% Total product and service revenue $ 13,530 100% $ 14,022 100% (4) % Microfluidics: Instruments $ 3,153 25% $ 2,743 16% 15% Consumables 7,715 61 12,445 73 (38)% Total product revenue 10,868 86 15,188 89 (28)% Service revenue 1,750 14 1,804 11 (3)% Total product and service revenue $ 12,618 100% $ 16,992 100% (26)% Mass cytometry revenue decreased by $0.5 million, or 4%, during the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The year-over-year decrease was primarily attributable to an overall decrease in legacy mass cytometry instruments revenue, partially offset by an increase in revenue from CyTOF XT instruments, which were released in May 2021. The decline in microfluidics revenue of $4.4 million, or 26%, during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 is directly attributable to reduced demand for our COVID-19 testing products, partially offset by revenues from new BioMark O and BioMark X instruments, which were both released in the second half of 2021. We expect the average selling prices of our products to fluctuate over time based on market conditions, product mix, and currency fluctuations. Product and Service Cost, Product and Service Gross Profit and Product and Service Margin Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, installation, packaging, and delivery costs. In addition, cost of product revenue includes amortization of developed technology and intangibles, royalty costs for licensed technologies included in our products, warranty, provisions for slow-moving and obsolete inventory, and stock-based compensation expense. Our cost of product revenue and related product margin may fluctuate depending on the capacity utilization of our manufacturing facilities in response to market conditions and the demand for our products. Cost of service revenue includes direct labor hours, overhead, and instrument parts. Our cost of service revenue and related service margin may fluctuate depending on the variability in material and labor costs of servicing instruments. 31 The following table presents our product and service cost, product and service gross profit, and product and service margin for the three months ended March 31, 2022 and 2021 (in thousands): Three Months Ended March 31, Year-over-Year Change 2022 2021 Cost of product revenue $ 12,339 $ 11,663 6 % Cost of service revenue 1,928 2,090 (8) % Cost of product and service revenue $ 14,267 $ 13,753 4 % Product and service gross profit $ 11,881 $ 17,261 (31) % Product and service margin 45.4 % 55.7 % (10.3) ppt Product and service margin decreased by 10.3 percentage points for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Products introduced in the second half of 2021, which have lower average gross margins, reduced product and service margins by 2.4 percentage points for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Higher inventory reserves and warranty costs contributed 2.2 percentage points and 1.7 percentage points, respectively, to the decline in product and service margins. Fixed depreciation and amortization costs on a lower revenue base contributed 2.4 percentage points to the decline in product and service margins for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Other factors, including unfavorable product mix from lower COVID-19 consumables sales in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, coupled with the impact of lower plant utilization for mass cytometry products account for the majority of the remaining decline in product and service gross margins for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Operating Expenses The following table presents our operating expenses for the three months ended March 31, 2022 and 2021 (in thousands): Three Months Ended March 31, Year-over-Year Change 2022 2021 Research and development $ 8,865 $ 10,753 (18) % Selling, general and administrative 30,875 27,608 12 % Total operating expenses $ 39,740 $ 38,361 4 % Research and Development Research and development expense consists primarily of compensation-related costs, product development and material expenses, and other allocated facilities and information technology expenses. Our research and development efforts have focused primarily on enhancing our technologies and supporting development and commercialization of new and existing products and services. Research and development expense also includes costs incurred in conjunction with research grants and development arrangements. We have made substantial investments in research and development since our inception and expect to continue to do so. Research and development expense decreased by $1.9 million, or 18%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 as the year-ago period includes development costs related to products that were launched in the second half of 2021. Selling, General and Administrative Selling, general and administrative expense consists primarily of personnel costs for our sales and marketing, business development, finance, legal, human resources, information technology, and general management, as well as professional services, such as legal and accounting services. Selling, general and administrative expense increased by $3.3 million, or 12%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to $3.4 million of costs associated with the Private Placement Issuance, and $1.2 million of severance costs for our former CEO. Litigation costs decreased by $1.1 million due to the resolution of patent infringement claims. 32 Selling, general and administrative expenses for the rest of 2022 will be negatively impacted by costs associated with approximately $5.0 million of cash retention bonuses and approximately $2.9 million of stock-based compensation that will pay out over the next year through the first quarter of 2023. Interest Expense and Other Non-Operating Items The following table presents these items for the three months ended March 31, 2022 and 2021 (in thousands): Three Months Ended March 31, Year-over-Year Change 2022 2021 Interest expense $ (1,030) $ (887) 16 % Loss on forward sale of Series B Preferred Stock (37,792) — NA Unrealized loss on bridge loans (10,655) — NA Other income (expense), net 118 (285) (141) % Total $ (49,359) $ (1,172) 4112 % I nterest expense i s comprised primarily of interest on our convertible debt and Term Loan Facility. The increase in interest expense for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 is due primarily to our Term Loan Facility. The Purchase Agreements, which promised to exchange 225,000 shares of Series B Preferred Stock for $225 million at a future date, accounted for as forward sales contracts at fair value in accordance with ASC 480 because the Series B Preferred Stock includes certain contingent redemption features which created an obligation for the Company to repurchase its shares. The fair value of the forward sales contracts was determined using a Monte Carlo Simulation (MCS) analysis. Given the convertibility of the Series B Preferred Stock into cash or our common stock under several scenarios, the MCS analysis simulated the value of the Series B Preferred Stock under numerous scenarios, reflecting the impact of the various conversion and redemption provisions of the Series B Preferred Stock. The fair value of 225,000 shares of Series B Preferred Stock was $262.8 million as of March 31, 2022. The increase in the fair value of the Series B Preferred Stock from January 23, 2022 to March 31, 2022 reflects the increase in the price of our common stock price since the inception of the contracts and the change in the value of the various conversion rights and key provisions discussed below. The loss of $37.8 million on the forward sale of the Series B Preferred Stock represents the difference between the fair value of the Series B Preferred Stock of $262.8 million and the $225.0 million of cash to be received. Applying the guidance in ASC 825 to the Bridge Loans, we have elected to record the Bridge Loans at their fair value, given the short period of time in which the Bridge Loans were expected to be outstanding. The Unrealized Loss on the Bridge Loans reflects the entire change in the value of the Bridge Loans as a single line item on the condensed consolidated statement of operations, including the portion attributable to accrued interest. Accordingly, we have recognized no interest expense on the Bridge Loans for the three months ended March 31, 2022. The fair value of the Bridge Loans is largely driven by the value of our common stock and the value of the Series B Preferred Stock into which they were converted. The Unrealized Loss on the Bridge Loans of $10.7 million was largely driven by an increase in the value in the price of our common stock from $2.84 per share at inception to $3.59 per share as of March 31, 2022 and, to a lesser extent, by the impact of the change in value of the various conversion options of the Series B Preferred Stock. Income Tax Benefit Our tax provision is generally driven by three components: (i) tax provision from our foreign operations, (ii) tax benefits from the amortization of acquisition-related intangible assets, and (iii) discrete items, such as changes in valuation allowances or adjustments upon finalization of tax returns. Depending on the relative value of these components, we can have either a tax benefit or expense for any given period. We recorded a tax benefit of $0.6 million, or an effective tax rate of 0.7%, for the three months ended March 31, 2022. In the three months ended March 31, 2021, we recorded a tax benefit of $1.7 million, or an effective tax rate of 8.2%. Lower losses in certain of our foreign operations in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 resulted in a lower tax benefit for our foreign operations for the three months ended March 31, 2022. 33 Liquidity and Capital Resources Sources of Liquidity As of March 31, 2022, our principal sources of liquidity consisted of $30.0 million of cash and cash equivalents, as well as $1.0 million of restricted cash and $8.4 million of availability under the Revolving Credit Facility. The following table presents our cash flow summary for the three months ended March 31, 2022 and 2021 (in thousands): Three Months Ended March 31, 2022 2021 Cash flow summary: Net cash used in operating activities $ (15,590) $ (12,901) Net cash used in investing activities (868) (4,923) Net cash provided by (used in) financing activities 18,075 (1,026) Effect of foreign exchange rate fluctuations on cash and cash equivalents (85) 74 Net increase (decrease) in cash, cash equivalents and restricted cash $ 1,532 $ (18,776) Purchase obligations consist of contractual and legally binding commitments to purchase goods and services. The majority of our contracts are cancellable with little or no notice or penalty. However, once a vendor has incurred costs to fulfill a contract with us, and which costs cannot be otherwise deployed, we are liable for those costs upon cancellation. We have additional obligations as part of our ordinary course of business, beyond those committed for capital expenditures and other purchase obligations and commitments for purchases of goods and services. For example, see Note 3 and Note 9 within our condensed consolidated financial statements for information about our short-term and long-term debt obligations and the Private Placement Issuance. See Note 10 within our condensed consolidated financial statements for information about our lease obligations, and see Note 16 within our condensed consolidated financial statements included elsewhere in this Form 10-Q for information about our various contractual and legally binding purchase commitments to purchase goods and services. Other than as disclosed above, there have been no material changes during the three months ended March 31, 2022 to our contractual obligations disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our annual report on Form 10-K for the year ended December 31, 2021. The expected timing of payments of our obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the timing of receipt of goods or services, or changes to agreed-upon amounts for some obligations. In addition, some of our purchasing requirements are not current obligations and are therefore not included in the amounts above. For example, some of these requirements are not handled through binding contracts or are fulfilled by vendors on a purchase order basis within short time horizons. Net Cash Used in Operating Activities We derive cash flows from operations primarily from cash collected from the sale of our products and services, license agreements and grants. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses and working capital to support the business. We have historically experienced negative cash flows from operating activities as we have expanded our business and built our infrastructure domestically and internationally. Net cash used in operating activities for the three months ended March 31, 2022 was $15.6 million and consisted of net loss of $76.3 million, less non-cash items of $57.6 million and cash provided by assets and liabilities, net, of $3.1 million. Non-cash items included a loss on forward sale of Series B Preferred Stock of $37.8 million , an unrealized loss on the Bridge Loans of $10.7 million, st ock-based compensation expense of $4.0 million, amortization of developed technology of $3.0 million, depreciation and amortization of $1.0 million, provision for excess and obsolete inventory of $0.9 million, and a variety of smaller items. The net decrease in assets and liabilities was primarily attributable to a $3.0 million increase of accrued compensation and related benefits due to an increase in severance and retention bonuses, a reduction of accounts receivable, net of $2.9 million, and an increase of accounts payable of $1.9 million. These decreases were partially offset by an increase in inventories, net of $3.6 million, and a decrease of other liabilities of $1.3 million. 34 Net Cash Used in Investing Activities Our primary investing activities consist of purchases, sales, and maturities of ou r short-term investments and capital expenditures for manufacturing, laboratory, computer equipment and software to support our infrastructure and workforce. We expect to continue to incur costs for capital expenditures to improve manufacturing efficiencies and strengthen information technology and network security. However, we may choose to decrease or defer certain capital expenditures and development activities, while further optimizing our organization. Net cash used in investing activities for the three months ended March 31, 2022 was $0.9 million. Capital expenditures of $0.9 million were incurred primarily to expand our microfluidics IFC production capacity in Singapore related to the NIH Contract. Net Cash Provided by (Used in) Financing Activities Net cash provided by financing activities totaled $18.1 million during the three months ended March 31, 2022. The principal source of cash was proceeds from the $25.0 million Bridge Loans, which occurred as part of the Private Placement Issuance. This was partially offset by repayments of $6.8 million of advances under the Revolving Credit Facility. Capital Resources At March 31, 2022 and December 31, 2021, our working capital, excluding deferred revenues, current and deferred grant income, current, and restricted cash, was $41.9 million and $38.0 million, respectively, including cash and cash equivalents of $30.0 million and $28.5 million, respectively. We had no investments as of March 31, 2022 and December 31, 2021. In February 2014, we closed an underwritten public offering of our 2014 Notes. Pursuant to the Indenture governing the 2014 Notes, holders of the 2014 Notes have the right, subject to certain conditions specified in such indenture, to require us to repurchase all or a portion of their 2014 Notes on each of February 6, 2024 and February 6, 2029, at a repurchase price in cash equal to 100% of the principal amount of the 2014 Notes plus accrued and unpaid interest. On February 6, 2021, holders of $0.5 million of the 2014 Notes caused us to repurchase their notes in accordance with this provision leaving $0.6 million of 2014 Notes outstanding as of March 31, 2022. In November 2019, we closed a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of $55.0 million aggregate principal amount of our 2019 Notes. The 2019 Notes bear interest at 5.25% per annum, payable semiannually on June 1 and December 1 of each year, beginning on June 1, 2020. The 2019 Notes will mature on December 1, 2024, unless earlier repurchased or converted pursuant to their terms. The 2019 Notes will be convertible at the option of the holder at any point prior to close of business on the second scheduled trading day preceding the maturity date. The initial conversion rate of the 2019 Notes is 344.8276 shares of the Company’s common stock per $1,000 principal amount of 2019 Notes (which is equivalent to an initial conversion price of $2.90 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. The 2019 Notes will also be convertible at our option upon certain conditions in accordance with the terms of the indenture governing the 2019 Notes. On or after December 1, 2021 to December 1, 2022, if the price of the Company’s common stock has equaled or exceeded 150% of the Conversion Price (as defined in the indenture, currently $2.90, subject to adjustment) for a specified number of days (Issuer’s Conversion Option), we may, at our option, elect to convert the 2019 Notes in whole but not in part into shares of the Company, determined in accordance with the terms of the indenture. On or after December 1, 2022, if the price of the Company’s common stock has equaled or exceeded 130% of the Conversion Price then in effect for a specified number of days, we may, at our option, elect to convert the 2019 Notes in whole but not in part into shares of the Company, determined in accordance with the terms of the indenture. The foregoing summaries of the 2014 Notes and the 2019 Notes are not complete and are qualified in their entirety by the applicable indentures, forms of global notes, and other agreements and documents filed with the SEC. On August 2, 2018, we entered into a Loan and Security Agreement with SVB (the Credit Agreement) for our Revolving Credit Facility, which provides for secured revolving loans in an aggregate amount of up to $15.0 million, In August 2021, we amended our Revolving Credit Facility to extend the maturity date to August 2, 2023 and to provide for a new $10.0 million Term Loan Facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Credit Facility). The Credit Facility is collateralized by substantially all our property, other than intellectual property. The maturity date of the Term Loan Facility is July 1, 2025, subject to the following condition: in the event the principal amount of our convertible debt exceeds $0.6 million as o f June 1, 2024 or if the maturity date of our 2019 Notes has not been extended beyond January 1, 2026 by that date, then the maturity date of the Term Loan Facility will be June 1, 2024. 35 As of March 31, 2022, the balance outstanding on the Term Loan Facility was $10.1 million . Interest on the term loan accrues on the outstanding principal amount thereof at the greater of (i) a floating per annum rate equal to three quarters of one percentage point (0.75%) above the prime rate (as customarily defined), or 4% with a final payment equal to 6.5% of the aggregate original principal amounts of each term loan advance due on the earlier of the maturity date of the Term Loan Facility, the acceleration of the term loan advances or any prepayment of a term loan advance. Interest is payable monthly. The principal amount of the term loan advances is repayable beginning on August 1, 2023, in twenty-four equal monthly installments of principal plus monthly payments of accrued interest. The Amendment also added a financial covenant to the Credit Facility, requiring us to maintain a minimum Adjusted Quick Ratio (as defined) of at least 1.25 to 1.00. As of March 31, 2022, tota l availability under the Revolving Credit Facility was $8.4 million. We currently have no outstanding debt under the Revolving Credit Facility, and we are in compliance with all the terms and conditions of the Revolving Credit Facility as of March 31, 2022. See Note 9 to our condensed consolidated financial statements for more information about the Revolving Credit Facility and Term Loan Facility. On January 23, 2022, we entered into $25 million of Bridge Loans Agreements with Casdin and Viking. On April 4, 2022, we completed the Private Placement Issuance, receiving $225 million of funding in exchange for the issuance of 225,000 shares of Series B Preferred Stock. The Bridge Loans also automatically converted into 30,559 shares of Series B Preferred Stock on April 4, 2022. The rights, preferences and privileges of the Series B Preferred Stock are set forth in the Series B-1 Certificate of Designations and Series B-2 Certificate of Designations. The Series B Preferred Stock ranks senior to our common stock with respect to dividend rights, redemption rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The holders of Series B Preferred Stock will be entitled to participate in all dividends declared on our common stock on an as-converted basis, on the terms and subject to the conditions set forth in the Series B Certificates of Designations. The following is a brief summary of the conversion rights and other key provisions of the Series B Preferred Stock: Holder Voluntary Conversion Rights The Series B Preferred Stock is convertible at the option of the holders thereof at any time into a number of shares of Common Stock equal to the Conversion Rate (as defined in the Series B Certificates of Designations), which is initially 294.1176 shares of common stock per share of Series B Preferred Stock, in each case subject to certain adjustments and limitations on conversion. Issuer Call Provision At any time after the fifth anniversary of the closing of the Private Placement Issuance, if the last reported sale price of the Common Stock is greater than 250% of the Conversion Price (as defined in the Series B Certificates of Designations) as of such time for at least 20 consecutive trading days immediately preceding the date of the notice of mandatory conversion, we may elect to convert all of the outstanding shares of Series B Preferred Stock into shares of common stock. Issuer Redemption Provision After the seventh anniversary of the closing of the Private Placement Issuance, subject to certain conditions, we may, at our option, redeem all of the outstanding shares of Series B Preferred Stock at a redemption price per share of Series B Preferred Stock, payable in cash, equal to the Liquidation Preference. Change of Control Provisions If we undergo certain change of control transactions, each holder of outstanding shares of Series B Preferred Stock will have the option, subject to the holder’s right to convert all or a portion of the shares of Series B Preferred Stock held by such holder into Common Stock prior to such redemption, to require us to purchase all or a portion of such holder’s outstanding shares of Series B Preferred Stock that have not been converted into Common Stock at a purchase price per share of Series B Preferred Stock, payable in cash, equal to the greater of (A) the Liquidation Preference of such share of Series B Preferred Stock, and (B) the amount of cash and/or other assets that such holder would have been entitled to receive if such holder had converted such share of Series B Preferred Stock into Common Stock immediately prior to the change of control transaction (Change of Control Put). In the event of a change of control in which we are anticipated to merge with another person and will not be the surviving corporation or if the Common Stock will no longer be listed on a U.S. national securities exchange, we will have a right to redeem, subject to the holder’s right to convert into Common Stock prior to such redemption, all of such holder’s shares of Series B Preferred Stock, or if a holder exercises the Change of Control Put in part, the remainder of such holder’s shares of 36 Series B Preferred Stock, at a redemption price per share payable in cash, equal to the greater of (A) the Liquidation Preference of such share of Series B Preferred Stock, and (B) the amount of cash and/or other assets that the holder would have received if such holder had converted such share of Series B Preferred Stock into Common Stock immediately prior to the change of control transaction. Liquidation Rights In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the Series B Preferred Stock has a liquidation preference equal to the greater of (i) the Liquidation Preference (as defined in the Certificate of Designations, currently $3.40) and (ii) the amount per share of Series B Preferred Stock that such holder would have received had all holders of Series B Preferred Stock, immediately prior to such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, converted all shares of Series B Preferred Stock into Common Stock pursuant to the terms of the Series B Certificates of Designations (without regard to any limitations on conversion contained therein). We believe our existing cash, cash equivalents, and investments, along with funding available from Private Placement Issuance and the Revolving Credit Facility, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.