Item 8. Financial Statements and Supplementary Data
Item 8. Financial Statements and Supplementary Data.
MaxCyte, Inc.
Index to Consolidated Financial Statements
Page No
Report of Independent Registered Public Accounting Firm ( CohnReznick LLP ; Tysons, Virginia ; PCAOB ID: 596 )
89
Consolidated Balance Sheets
90
Consolidated Statements of Operations
91
Consolidated Statements of Changes in Stockholders’ Equity
92
Consolidated Statements of Cash Flows
93
Notes to Consolidated Financial Statements
94
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of MaxCyte, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of MaxCyte, Inc. (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ CohnReznick LLP
We have served as the Company’s auditor since 2018.
Tysons, Virginia
March 15, 2023
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MaxCyte, Inc.
Consolidated Balance Sheets
December 31,
2022
2021
Assets
Current assets:
Cash and cash equivalents
$
11,064,700
$
47,782,400
Short-term investments, at amortized cost
216,274,900
207,261,400
Accounts receivable
11,654,600
6,877,000
Accounts receivable - TIA (Note 9)
1,912,400
—
Inventory
8,580,800
5,204,600
Prepaid expenses and other current assets
2,778,800
3,307,400
Total current assets
252,266,200
270,432,800
Property and equipment, net
23,724,700
7,681,200
Right-of-use asset - operating leases
9,853,500
5,689,300
Other assets
809,000
316,700
Total assets
$
286,653,400
$
284,120,000
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
531,800
$
1,820,300
Accrued expenses and other
8,025,300
6,523,500
Operating lease liability, current
156,800
527,200
Deferred revenue, current portion
6,712,600
6,746,800
Total current liabilities
15,426,500
15,617,800
Operating lease liability, net of current portion
15,938,100
5,154,900
Other liabilities
1,321,600
450,200
Total liabilities
32,686,200
21,222,900
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, $ 0.01 par value; 5,000,000 shares authorized and no shares issued and outstanding at December 31, 2022 and December 31, 2021
—
—
Common stock, $ 0.01 par value; 400,000,000 shares authorized, 102,397,913 and 101,202,705 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively
1,024,000
1,012,000
Additional paid-in capital
390,818,500
376,189,600
Accumulated deficit
( 137,875,300 )
( 114,304,500 )
Total stockholders’ equity
253,967,200
262,897,100
Total liabilities and stockholders’ equity
$
286,653,400
$
284,120,000
See accompanying notes to consolidated financial statements.
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MaxCyte, Inc.
Consolidated Statements of Operations
Year Ended December 31,
2022
2021
Revenue
$
44,261,500
$
33,894,100
Cost of goods sold
5,098,400
3,647,400
Gross profit
39,163,100
30,246,700
Operating expenses:
Research and development
19,514,400
15,407,300
Sales and marketing
18,652,900
13,002,900
General and administrative
25,828,700
18,676,000
Depreciation and amortization
2,527,600
1,349,100
Total operating expenses
66,523,600
48,435,300
Operating loss
( 27,360,500 )
( 18,188,600 )
Other income (expense):
Interest and other expense
( 126,900 )
( 1,044,400 )
Interest income
3,916,600
150,800
Total other income (expense)
3,789,700
( 893,600 )
Provision for income taxes
—
—
Net loss
$
( 23,570,800 )
$
( 19,082,200 )
Basic and diluted net loss per share
$
( 0.23 )
$
( 0.21 )
Weighted average shares outstanding, basic and diluted
101,702,664
90,619,057
See accompanying notes to consolidated financial statements.
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MaxCyte, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
Additional
Total
Common Stock
Paid-in
Accumulated
Stockholders’
Shares
Amount
Capital
Deficit
Equity
Balance at December 31, 2020
77,382,473
$
773,800
$
127,673,900
$
( 95,222,300 )
$
33,225,400
Issuance of common stock, net of issuance costs
5,740,000
57,400
51,751,500
—
51,808,900
Issuance of common stock upon initial public offering, net of issuance costs
15,525,000
155,300
184,113,100
—
184,268,400
Stock-based compensation expense
—
—
7,958,800
—
7,958,800
Exercise of stock options
2,490,629
24,900
3,606,300
—
3,631,200
Cashless exercise of warrant
64,603
600
1,086,000
—
1,086,600
Net loss
—
—
—
( 19,082,200 )
( 19,082,200 )
Balance at December 31, 2021
101,202,705
1,012,000
376,189,600
( 114,304,500 )
262,897,100
Stock-based compensation expense
—
—
11,752,400
—
11,752,400
Exercise of stock options
1,195,208
12,000
2,876,500
—
2,888,500
Net loss
—
—
—
( 23,570,800 )
( 23,570,800 )
Balance at December 31, 2022
102,397,913
$
1,024,000
$
390,818,500
$
( 137,875,300 )
$
253,967,200
See accompanying notes to consolidated financial statements.
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MaxCyte, Inc.
Consolidated Statements of Cash Flows
Year Ended December 31,
2022
2021
Cash flows from operating activities:
Net loss
$
( 23,570,800 )
$
( 19,082,200 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
2,697,900
1,423,900
Net book value of consigned equipment sold
76,400
51,600
Loss on disposal of fixed assets
139,500
32,500
Fair value adjustment of liability classified warrant
—
645,400
Stock-based compensation
11,752,400
7,958,800
Amortization of discounts on short-term investments
( 2,667,400 )
( 70,300 )
Non-cash interest expense
—
5,400
Changes in operating assets and liabilities:
Accounts receivable
( 4,777,600 )
( 1,705,100 )
Accounts receivable – TIA
( 1,912,400 )
—
Inventory
( 3,493,300 )
( 1,405,800 )
Prepaid expense and other current assets
528,600
( 2,304,400 )
Right of use asset – operating leases
( 4,164,200 )
( 3,806,200 )
Right of use asset – finance lease
—
63,500
Other assets
( 492,300 )
( 282,800 )
Accounts payable, accrued expenses and other
( 149,700 )
2,090,900
Operating lease liability
10,412,800
3,874,900
Deferred revenue
( 34,200 )
1,903,800
Other liabilities
871,400
( 73,500 )
Net cash used in operating activities
( 14,782,900 )
( 10,679,600 )
Cash flows from investing activities:
Purchases of short-term investments
( 290,942,100 )
( 268,683,600 )
Maturities of short-term investments
284,596,000
77,500,000
Purchases of property and equipment
( 18,477,200 )
( 3,834,200 )
Proceeds from sale of equipment
—
4,600
Net cash used in investing activities
( 24,823,300 )
( 195,013,200 )
Cash flows from financing activities:
Net proceeds from issuance of common stock
—
51,808,900
Net proceeds from issuance of common stock upon initial public offering
—
184,268,400
Principal payments on notes payable
—
( 4,922,400 )
Proceeds from exercise of stock options
2,888,500
3,631,200
Principal payments on finance leases
—
( 66,100 )
Net cash provided by financing activities
2,888,500
234,720,000
Net (decrease) increase in cash and cash equivalents
( 36,717,700 )
29,027,200
Cash and cash equivalents, beginning of year
47,782,400
18,755,200
Cash and cash equivalents, end of year
$
11,064,700
$
47,782,400
Supplemental cash flow information:
Cash paid for interest
$
—
$
420,900
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment purchases included in accounts payable
$
363,000
$
296,400
Reduction of lease right-of-use asset due to early termination
$
540,000
$
304,600
Right-of-use assets obtained in exchange for new operating lease obligations
$
5,476,300
$
4,804,800
Other liability reduction due to exercise of warrant
$
—
$
1,086,600
See accompanying notes to consolidated financial statements.
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MaxCyte, Inc.
Notes to Consolidated Financial Statements
1.
Organization and Description of Business
MaxCyte, Inc. (the “Company” or “MaxCyte”) was incorporated as a majority owned subsidiary of EntreMed, Inc. (“EntreMed”) on July 31, 1998, under the laws and provisions of the state of Delaware and commenced operations on July 1, 1999. In November 2002, MaxCyte was recapitalized and EntreMed was no longer deemed to control the Company.
MaxCyte is a global life sciences company focused on advancing the discovery, development and commercialization of next-generation cell therapies. MaxCyte leverages its proprietary cell engineering technology platform to enable the programs of its biotechnology and pharmaceutical company customers who are engaged in cell therapy, including gene editing and immuno-oncology, as well as in drug discovery and development and biomanufacturing. The Company licenses and sells its instruments and technology and sells its consumables to developers of cell therapies and to pharmaceutical and biotechnology companies for use in drug discovery and development and biomanufacturing.
The Company’s registration statement on Form S-1 related to its initial public offering of common stock in the United States (the “IPO”) was declared effective on July 29, 2021, and the Company’s common stock began trading on the Nasdaq Global Select Market on July 30, 2021. On August 3, 2021, the Company issued and sold 15,525,000 shares of common stock in the IPO at a price to the public of $ 13.00 per share, inclusive of 2,025,000 shares issued pursuant to the full exercise of the underwriters’ option to purchase additional shares. The IPO generated gross proceeds to the Company of $ 201.8 million. The Company received aggregate net proceeds of $ 184.3 million from the IPO after deducting aggregate underwriting commissions and offering costs of $ 17.6 million.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, revenue recognition, stock-based compensation, allowance for doubtful accounts, allowance for inventory obsolescence, accruals for contingent liabilities, deferred taxes and valuation allowance, and the depreciable lives of fixed assets. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances have been eliminated in consolidation.
Concentrations of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and trade receivables. The Company’s cash and cash equivalents balances may exceed federally insured limits and cash may also be deposited in foreign bank accounts that are not covered by federal deposit insurance. The Company does not believe that this results in any significant credit risk. The Company
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invests its excess cash in money market funds, commercial paper and corporate debt. The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity.
Significant customers are those that accounted for 10% or more of the Company’s total revenue for the period or accounts receivable as the end of a reporting period. During the years ended December 31, 2022 and 2021, one customer represented 23 % and 21 % of revenue, respectively. As of December 31, 2022, one customer accounted for 14 % of accounts receivable. Two customers accounted for 16 % and 13 % of accounts receivable, respectively, at December 31, 2021.
Certain components included in the Company’s products are obtained from a single source or a limited group of suppliers. Of the inventory on hand at December 31, 2022 and 2021, the Company purchased approximately 34 % and 33 %, respectively, from a single supplier. At December 31, 2022, amounts payable to two suppliers totaled 34 % of total accounts payable. As of December 31, 2021, amounts payable to one supplier totaled 14 % of total accounts payable.
Foreign Currency
The Company’s functional currency is the US Dollar; transactions denominated in foreign currencies are transacted at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in foreign currency is consummated and the date on which it is either settled or at the reporting date are recognized in the consolidated statements of operations as general and administrative expense. For the years ended December 31, 2022 and 2021, the Company recognized $ 79,100 and $ 72,000 in foreign currency transaction loss, respectively.
Fair Value
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. US GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include:
● Level 1—Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
● Level 2—Observable market-based inputs other than quoted prices in active markets for identical assets or liabilities.
● Level 3—Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
See Note 7 for additional information regarding fair value.
Cash and Cash Equivalents and Short-term Investments
Cash and cash equivalents consist of financial instruments including money market funds and commercial paper with original maturities of less than 90 days. Short-term investments consist of commercial paper and corporate bonds with original maturities greater than 90 days and less than one year. All money market funds, commercial paper and corporate debt instruments are recorded at amortized cost unless they are deemed to be impaired on an other-than-temporary basis, at which time they are recorded at fair value using Level 2 inputs.
Inventory
The Company sells or licenses products to customers. The Company uses the average cost method of accounting for its inventory and adjustments resulting from periodic physical inventory counts are reflected in costs of goods sold in the
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period of the adjustment. Inventory is carried at the lower of cost or net realizable value. Inventory that is obsolete or in excess of forecasted usage is written down to its estimated net realizable value based on assumptions about future demand and market conditions. Inventory write-downs are charged to cost of goods sold and establish a new cost basis for the inventory.
Accounts Receivable
Accounts receivable are reduced by an allowance for doubtful accounts, if needed. The allowance for doubtful accounts reflects the best estimate of probable losses determined principally on the basis of historical experience and specific allowances for known troubled accounts. All accounts or portions thereof that are deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts. The Company determined no allowance was necessary at December 31, 2022 and 2021.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method. Office equipment (principally computers) is depreciated over an estimated useful life of three years . Laboratory equipment is depreciated over an estimated useful life of five years . Furniture is depreciated over a useful life of seven years . Leasehold improvements are amortized over the shorter of the estimated lease term or useful life. Instruments represent equipment held at a customer’s site that is typically leased to customers on a short-term basis and is depreciated over an estimated useful life of five years .
Property and equipment include capitalized costs to develop internal-use software. Applicable costs are capitalized during the development stage of the project and include direct internal costs, third-party costs and allocated interest expenses as appropriate.
Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. The Company recognized no impairment in either of the years ended December 31, 2022 or 2021.
Deferred Offering Costs
The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs (non-current) until such financings are consummated or determined not to be probable of consummation. After consummation of the equity financing, these costs are recorded in stockholders’ equity as a reduction of proceeds received as a result of the offering. If the equity financing is no longer considered probable of being consummated, all deferred offering costs will be charged to operating expenses in the consolidated statement of operations at such time.
During the third quarter of 2021, the Company netted $ 17.6 million in issuance costs against IPO proceeds (see Note 1) and additional paid-in capital. As of December 31, 2022 and 2021, there were no capitalized deferred offering costs in the consolidated balance sheets.
Revenue Recognition
The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligations.
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In some arrangements, product and services have been sold together representing distinct performance obligations. In such arrangements the Company allocates the sale price to the various performance obligations in the arrangement on a relative selling price basis. Under this basis, the Company determines the estimated selling price of each performance obligation in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis.
The Company recognizes revenue upon the satisfaction of its performance obligation (generally upon transfer of control of promised goods or services to its customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.
The Company defers incremental costs of obtaining a customer contract and amortizes the deferred costs over the period that the goods and services are transferred to the customer. The Company had no material incremental costs to obtain customer contracts in any period presented.
Deferred revenue results from amounts billed in advance to customers or cash received from customers in advance of services being provided.
Cost of Goods Sold
Cost of goods sold primarily consists of costs for raw material parts, contract manufacturer costs, salaries, overhead, leased equipment depreciation and other direct costs related to sales recognized as revenue in the period.
Research and Development Costs
Research and development costs consist of independent proprietary research and development costs and the costs associated with work performed for fees from third parties. Research and development costs are expensed as incurred. Research costs performed for fees paid by customers are included in cost of goods sold.
Stock-Based Compensation Expense
Stock-based compensation expense is measured based on grant-date fair value. The Company grants stock-based awards in exchange for employee, consultant and non-employee director services. The value of the award is recognized as expense on a straight-line basis over the requisite service period.
The Company uses the market closing price of its common stock as reported on the Nasdaq Global Select Market for the fair value of equity awards. The grant-date fair value of stock options is estimated using the Black-Scholes option pricing model for estimating fair value of its stock options granted. Option valuation models, including the Black-Scholes option pricing model, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant-date fair value of an award. These assumptions include the expected volatility, expected dividend yield, risk-free rate of interest and the expected life of the award. Historically, the Company exclusively used identified comparable companies’ stock price volatility to calculate expected volatility for the periods presented due to lack of history with its own common stock available to determine its volatility. Beginning with the third quarter of 2022, the Company has observed sufficient historical information regarding its common stock to use the Company’s common stock for the estimate of volatility in the Black-Scholes option pricing model. Management’s methodology for developing other assumptions has not changed from prior periods. A discussion of management’s methodology for developing each of the assumptions used in the Black-Scholes option pricing model is as follows:
Expected Volatility
Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. For 2021 and the first two quarters of 2022, the Company identified several public entities of similar size, complexity and stage of development to calculate historical volatility using the volatility of these companies. Beginning with the third
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quarter of 2022, the Company estimates its expected stock volatility based on historical volatility of its own common stock.
Expected Dividend Yield
The Company has never declared or paid common stock dividends and has no plans to do so in the foreseeable future. Therefore, the Company used an expected dividend yield of zero .
Risk-Free Interest Rate
This approximates the US Treasury rate for the day of each option grant during the year, having a term that closely resembles the expected term of the option.
Expected Term
This is the period that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years . The Company estimates the expected term of the options to be approximately six years for options, with a majority vesting over a four-year period, using the simplified method. Over time, management intends to track estimates of the expected term of the option term so that estimates will approximate actual behavior for similar options.
Expected Forfeiture Rate
The Company records forfeitures as they occur.
The fair value of stock options was estimated using the Black-Scholes option-pricing model based on the following assumptions during the years ended:
December 31,
2022
2021
Expected volatility
44 - 58 %
55 - 57 %
Risk-free interest rate
1.9 - 4.0 %
0.7 - 1.3 %
Expected term (in years)
6
6
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more-likely-than-not that all or a portion of the deferred tax asset will not be realized.
Management uses a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense. The Company has not identified any uncertain income tax positions that could have a material impact on the consolidated financial statements.
The Company is subject to taxation in various jurisdictions in the United States and abroad and remains subject to examination by taxing jurisdictions for 2018 and all subsequent periods. The Company has a federal Net Operating Loss
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(“NOL”) carryforward of approximately $ 93.9 million as of December 31, 2022, of which approximately $ 32.7 million begins to expire in 2025. Certain of the Company’s NOLs were initially limited on an annual basis pursuant to Section 382 of the Internal Revenue Code of 1986 (“Section 382”), as amended, as a result of a cumulative change in ownership that occurred in 2016; however, as of December 31, 2022 the Company has determined that the cumulative limitation amount exceeds the NOLs subject to the limitation and, as a result, no annual limitation remains.
Leases
Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. In transactions where the Company is the lessee, at the inception of a contract, the Company determines if the arrangement is, or contains, a lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Lease expense is recognized on a straight-line basis over the lease term.
The Company has made certain accounting policy elections for leases where it is the lessee whereby the Company (i) does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12-months or less) and (ii) combines lease and non-lease elements of its operating leases. See Note 9 for additional details about leases where the Company is the lessee.
All transactions in which the Company is the lessor are short-term (one year or less) and have been classified as operating leases. All leases require upfront payments covering the full period of the lease and thus, there are no future payments expected to be received from existing leases. See Note 3 for details about revenue recognition related to lease agreements.
Loss Per Share
Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of Common Stock outstanding during the period.
For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options and stock purchase warrants using the treasury stock method.
For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive. The number of anti-dilutive shares, consisting of stock options and restricted stock units excluded from the computation of diluted loss per share, was 15.0 million and 12.4 million for the years ended December 31, 2022 and 2021, respectively.
Recent Accounting Pronouncements
New Accounting Pronouncements Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance with respect to measuring credit losses on financial instruments, including trade receivables. The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. The Company is currently evaluating the impact, if any, that this new accounting pronouncement will have on its consolidated financial statements.
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The Company has evaluated all other issued and unadopted Accounting Standards Updates and believes the adoption of these standards will not have a material impact on its results of operations, financial position or cash flows.
3.
Revenue
Revenue is principally from the sale of instruments and processing assemblies, and extended warranties and the lease of instruments, which lease agreements also include customer-specific milestone payments. In some arrangements, product and services have been sold together representing distinct performance obligations. In these arrangements the Company allocates the sale price to the various performance obligations in the arrangement on a relative selling price basis. Under this basis, the Company determines the estimated selling price of each performance obligation in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis.
Revenue is recognized at the time control is transferred to the customer and the performance obligation is satisfied. Revenue from the sale of instruments and processing assemblies is generally recognized at the time of shipment to the customer, provided no significant vendor obligations remain and collectability is reasonably assured. Revenue from equipment leases is recognized ratably over the contractual term of the lease agreement and when specific milestones are achieved by a customer. Licensing fee revenue is recognized ratably over the license period. Revenue from fees for research services is recognized when services have been provided.
Disaggregated revenue for the year ended December 31, 2022 was as follows:
Year ended December 31, 2022
Revenue from
Revenue
Contracts
from
with
Lease
Total
Customers
Elements
Revenue
Product sales
$
27,730,400
$
—
$
27,730,400
Lease elements
—
15,512,600
15,512,600
Other
1,018,500
—
1,018,500
Total
$
28,748,900
$
15,512,600
$
44,261,500
Disaggregated revenue for the year ended December 31, 2021 was as follows:
Year ended December 31, 2021
Revenue from
Revenue
Contracts
from
with
Lease
Total
Customers
Elements
Revenue
Product sales
$
20,786,800
$
—
$
20,786,800
Lease elements
—
12,322,700
12,322,700
Other
784,600
—
784,600
Total
$
21,571,400
$
12,322,700
$
33,894,100
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Additional disclosures relating to Revenue from Contracts with Customers
Changes in deferred revenue for the years ended December 31, 2022 and 2021 were as follows:
Year Ended December 31,
2022
2021
Balance at January 1
$
7,197,000
$
5,014,300
Revenue recognized in the current period from amounts included in the beginning balance
( 6,738,400 )
( 4,828,000 )
Current period deferrals, net of amounts recognized in the current period
6,577,100
7,010,700
Balance at December 31
$
7,035,700
$
7,197,000
Remaining contract consideration for which revenue has not been recognized due to unsatisfied performance obligations with a duration greater than one year was $ 551,400 at December 31, 2022, of which the Company expects to recognize $ 228,400 in 2023 , $ 113,800 in 2024 , $ 45,800 in 2025, $ 25,400 in 2026 , and $ 138,000 thereafter .
In the years ended December 31, 2022 and 2021, the Company did not incur, and therefore did not defer, any material incremental costs to obtain contracts or costs to fulfil contracts.
4.
Debt
In 2019, the Company entered into a credit facility with MidCap Financial SBIC, LP (“MidCap”) that provided for a $ 5 million term loan maturing on November 1, 2024. In March 2021, the Company repaid the MidCap loan in full. The Company incurred fees of $ 260,000 associated with early repayment of the loan. The unamortized debt discounts and fees were expensed and recorded as interest expense.
5.
Stockholders’ Equity
Common Stock
In February 2021, the Company completed an equity capital raise on the AIM, a market operated by the London Stock Exchange Plc, issuing 5,740,000 shares of its common stock at a price of ₤ 7.00 (or approximately $ 9.64 ) per share. The transaction generated gross proceeds of ₤ 40.2 million (or $ 55.3 million). In conjunction with the transaction, the Company incurred costs of $ 3.5 million, which resulted in the Company receiving net proceeds of $ 51.8 million.
In August 2021, the Company completed the IPO and received aggregate net proceeds of $ 184.3 million (see Note 1). During the year ended December 31, 2021, the Company also issued 2,490,629 shares of common stock as a result of stock option exercises, receiving gross proceeds of $ 3.6 million.
During the year ended December 31, 2022, the Company issued 1,195,208 shares of common stock as a result of stock option exercises, receiving gross proceeds of $ 2.9 million.
Preferred Stock
In July 2021, upon stockholder approval, the Company amended its certificate of incorporation to authorize 5,000,000 shares of preferred stock, par value $ 0.01 per share. As of December 31, 2022 and 2021, no shares of preferred stock were issued or outstanding.
Warrant
In connection with the 2019 credit facility (see Note 4) the Company issued the lender a warrant to purchase 71,168 shares of Common Stock at an exercise price of £ 1.09081 per share. The warrant was exercisable at any time through the
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tenth anniversary of issuance. The warrant was classified as a liability as its strike price is in a currency other than the Company’s functional currency. The warrant was recorded at fair value at the end of each reporting period with changes from the prior balance sheet date recorded on the consolidated statements of operations (see Note 7).
In a cashless settlement in August 2021, the lender fully exercised the warrant in exchange for 64,603 shares of common stock.
Stock Incentive Plans
The Company adopted the MaxCyte, Inc. Long-Term Incentive Plan (the “2016 Plan”) in January 2016 to provide for the awarding of (i) stock options, (ii) restricted stock, (iii) incentive shares, and (iv) performance awards to employees, officers, and directors of the Company and to other individuals as determined by the board of directors.
In December 2021, the Company adopted the MaxCyte, Inc. 2021 Inducement Plan (the “Inducement Plan”) to provide for the awarding of (i) non-qualified stock options; (ii) stock appreciation rights; (iii) restricted stock awards; (iv) restricted stock unit awards; (v) performance awards; and (vi) other awards only to persons eligible to receive grants of awards who satisfy the standards for inducement grants under Nasdaq Marketplace Rule 5635(c)(4) or 5635(c)(3), if applicable, and the related guidance under Nasdaq IM 5635-1. The board of directors reserved 2,500,000 shares for issuance under the Inducement Plan, and as of December 31, 2021 no awards had been granted. As of December 31, 2022, options to purchase 855,900 shares had been granted under the Inducement Plan.
In May 2022, the Company’s board of directors adopted, and in June 2022 the Company’s stockholders approved, the MaxCyte, Inc. 2022 Equity Incentive Plan (the “2022 Plan”) to provide for the awarding of (i) incentive stock options, (ii) non-qualified stock options, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock unit awards, (vi) performance awards, and (vii) other awards. Following the approval of the 2022 Plan, no additional awards can be granted under the 2016 Plan or the Inducement Plan, but all outstanding awards will continue to remain subject to the terms of the applicable plan.
Upon the effectiveness of the 2022 Plan, a total of 3,692,397 shares were initially reserved for issuance pursuant to future awards under the 2022 Plan, consisting of 1,928,000 new shares and 1,764,397 shares previously available under the 2016 Plan. If and to the extent that outstanding options under the 2016 Plan or the Inducement Plan are forfeited, the shares underlying such forfeited options will become available for issuance under the 2022 Plan.
The Company has not issued performance awards under any plan.
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Stock Option Activity
A summary of stock option activity for the years ended December 31, 2022 and 2021 is as follows:
Weighted-
Average
Weighted
Remaining
Number of
Average
Contractual Life
Aggregate
Options
Exercise Price
(in years)
Intrinsic Value
Outstanding at December 31, 2020
12,864,230
$
2.11
7.1
$
65,576,300
Granted
4,117,956
13.96
Exercised
( 2,490,629 )
1.44
$
25,133,200
Forfeited
( 2,057,818 )
4.54
Outstanding at December 31, 2021
12,433,739
$
6.03
7.5
$
66,547,300
Granted
4,408,400
6.45
Exercised
( 1,195,208 )
2.38
$
4,163,300
Forfeited
( 1,285,839 )
7.31
Outstanding at December 31, 2022
14,361,092
5.94
7.2
$
23,825,000
Exercisable at December 31, 2022
7,653,735
$
4.15
5.8
$
21,348,700
The weighted-average fair value of the options granted during the years ended December 31, 2022 and 2021 was estimated to be $ 3.48 and $ 7.39 , respectively.
The value of a stock option is recognized as expense on a straight-line basis over the requisite service period. As of December 31, 2022, total unrecognized compensation expense for outstanding stock options was $ 26,287,100 , which will be recognized over the next 2.7 years.
Restricted Stock Unit Activity
During the year ended December 31, 2022, the Company issued restricted stock unit awards (“RSUs”) under the 2022 Plan. Each RSU represents the contingent right to receive one share of common stock. The Company had not issued RSUs in any prior period.
RSUs activity for the year ended December 31, 2022 is presented below:
Weighted-
Average
Weighted
Remaining
Number of
Average
Contractual Life
RSUs
Market Price
(in years)
Outstanding at January 1, 2022
—
$
—
Granted
662,900
5.56
Forfeited
( 19,300 )
5.39
Outstanding at December 31, 2022
643,600
5.57
3.2
Exercisable at December 31, 2022
—
$
—
The weighted-average fair value of the RSUs granted during the year ended December 31, 2022 was $ 5.56 .
The value of an RSU is recognized as expense on a straight-line basis over the requisite service period. As of December 31, 2022, total unrecognized compensation expense for outstanding RSUs was $ 2,914,700 , which will be recognized over the next 2.1 years.
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Stock-based Compensation Expense
Stock-based compensation expense recognized in connection with stock options and RSUs for the years ended December 31, 2022 and 2021 was classified as follows on the consolidated statements of operations:
Year Ended December 31,
2022
2021
General and administrative
$
5,621,400
$
4,609,900
Research and development
3,614,200
1,894,100
Sales and marketing
2,516,800
1,454,800
Total
$
11,752,400
$
7,958,800
6. Consolidated Balance Sheet Components
Inventory
The following tables show the components of inventory:
December 31,
December 31,
2022
2021
Raw materials inventory
$
5,650,500
$
2,684,100
Finished goods inventory
2,930,300
2,520,500
Total inventory
$
8,580,800
$
5,204,600
The Company determined no allowance for obsolescence was necessary at December 31, 2022 or 2021.
Property and Equipment, Net
Property and equipment, net comprised the following:
December 31,
December 31,
2022
2021
Leasehold improvements
$
14,195,500
$
641,400
Furniture and equipment
9,516,500
4,914,500
Internal-use software
3,220,500
2,125,600
Instruments
2,440,300
3,208,900
Construction and internal-use software in process
627,400
1,163,200
Accumulated depreciation and amortization
( 6,275,500 )
( 4,372,400 )
Property and equipment, net
$
23,724,700
$
7,681,200
For the years ended December 31, 2022 and 2021, the Company transferred $ 265,300 and $ 517,000 , respectively, of instruments previously classified as inventory to property and equipment leased to customers.
For the years ended December 31, 2022 and 2021, the Company incurred depreciation and amortization expense of $ 2,697,900 and $ 1,423,900 , respectively.
Maintenance and repairs are charged to expense as incurred.
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7.
Fair Value
The Company’s consolidated balance sheets include various financial instruments (primarily cash and cash equivalents, short-term investments, accounts receivable and accounts payable) that are carried at cost, which approximates fair value due to the short-term nature of the instruments.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company had an outstanding warrant accounted for as a liability and measured at fair value on a recurring basis, using Level 3 inputs. The lender exercised the warrant, in whole, in August 2021 (see Note 5). The Company did not have any outstanding warrants at December 31, 2022 and 2021.
The following table presents the activity for those items measured at fair value on a recurring basis using Level 3 inputs for the year ended December 31, 2021:
Mark-to-market liabilities — warrant
Year Ended December 31,
2021
Balance at January 1
$
441,200
Issuance
—
Change in fair value
645,400
Exercise of warrant
( 1,086,600 )
Balance at December 31
$
—
The gains and losses resulting from the changes in the fair value of the liability classified warrant were classified as other income or expense in the accompanying 2021 consolidated statements of operations. The fair value of the warrant was determined based on the Black-Scholes option pricing model or other option pricing models as appropriate and included the use of unobservable inputs such as the expected term, anticipated volatility and expected dividends.
The Company has no other financial assets or liabilities measured at fair value on a recurring basis.
Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Money market funds, commercial paper and corporate debt instruments classified as held-to-maturity are measured at fair value on a non-recurring basis when they are deemed to be impaired on an other-than-temporary basis. No such fair value impairment was recognized during the years ended December 31, 2022 or 2021.
The following table summarizes the Company’s financial instruments that were measured at fair value on a non-recurring basis at December 31, 2022:
Gross
Gross
Amortized
unrecognized
unrecognized
Aggregate
Description
Classification
cost
holding gains
holding losses
fair value
Money market funds and cash equivalents
Cash equivalents
$
5,741,800
$
—
$
—
$
5,741,800
Commercial paper
Short-term investments
172,740,700
156,400
( 235,700 )
172,661,400
Corporate debt
Short-term investments
5,792,000
—
( 42,700 )
5,749,300
US Treasury securities and government agency bonds
Short-term investments
37,742,200
4,500
( 196,100 )
37,550,600
Total cash equivalents and short-term investments
$
222,016,700
$
160,900
$
( 474,500 )
$
221,703,100
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The following table summarizes the Company’s financial instruments that were measured at fair value on a non-recurring basis at December 31, 2021:
Gross
Gross
Amortized
unrecognized
unrecognized
Aggregate
Description
Classification
cost
holding gains
holding losses
fair value
Money market funds
Cash equivalents
$
19,341,500
$
—
$
—
$
19,341,500
Commercial paper
Cash equivalents
25,492,200
4,400
—
25,496,600
Corporate debt
Short-term investments
4,909,200
—
( 1,800 )
4,907,400
Commercial paper
Short‑term investments
202,352,200
22,900
—
202,375,100
Total cash equivalents and short-term investments
$
252,095,100
$
27,300
$
( 1,800 )
$
252,120,600
Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company has no non-financial assets and liabilities that are measured at fair value on a recurring basis.
Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company measures its long-lived assets, including property and equipment, at fair value on a non-recurring basis. These assets are recognized at fair value when they are deemed to be impaired. No such fair value impairment was recognized during the years ended December 31, 2022 or 2021.
8.
Income Taxes
The Company’s provision (benefit) for income taxes in 2022 and 2021 consisted of the following:
December 31,
2022
2021
Current provision (benefit):
Federal
$
—
$
—
State
—
—
Total current provision
—
—
Deferred tax provision (benefit):
Federal
( 2,581,400 )
( 7,780,600 )
State
( 659,100 )
( 702,100 )
Change in valuation allowance
3,240,500
8,482,700
Total deferred provision
—
—
Total provision (benefit) for income taxes
$
—
$
—
The Company is required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers projected future taxable income and tax planning strategies in making this assessment. As of December 31, 2022 and 2021, the Company established a full valuation allowance against its net deferred tax assets.
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Net deferred tax assets as of December 31, 2022 and 2021 are presented in the table below:
December 31,
2022
2021
Deferred tax assets:
Net operating loss carryforwards
$
22,297,700
$
22,306,600
Research and experimental expenditures
3,733,100
—
Stock-based compensation
5,649,200
3,177,500
Deferred revenue
1,807,600
1,873,100
Lease liability
4,135,100
1,478,800
Tenant incentive
1,329,500
—
Accruals and other
1,250,200
1,103,900
Deferred tax liabilities:
ROU asset
( 2,531,600 )
( 1,480,700 )
Depreciation
( 4,605,300 )
( 70,100 )
33,065,500
28,389,100
Valuation allowance
( 33,065,500 )
( 28,389,100 )
Net deferred tax assets
$
—
$
—
The difference between the expected income tax provision (benefit) from applying the U.S. Federal statutory rate to pre-tax income (loss) and the actual income tax provision (benefit) for the years ended December 31, 2022 and 2021 relates primarily to the effect of the following:
Year Ended December 31,
2022
2021
Federal income taxes (benefit) at statutory rates
$
( 4,949,900 )
$
( 4,007,300 )
State income taxes (benefit), net of Federal benefit
( 968,200 )
( 959,100 )
Excess tax benefits
( 562,900 )
( 6,082,100 )
Permanent differences, rate changes and other
3,240,500
2,565,800
Change in valuation allowance
3,240,500
8,482,700
Total Income Tax Expense
$
—
$
—
On August 16, 2022, the U.S. Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was signed into law. The Inflation Reduction Act includes, among other provisions, (i) a new corporate alternative minimum tax of 15 percent on the adjusted financial statement income (AFSI) of corporations with average AFSI exceeding $1.0 billion over a three-year period, and (ii) a new excise tax of 1 percent on the fair market value of net corporate stock repurchases. The provisions of the Inflation Reduction Act are effective for tax years beginning after December 31, 2022. The Company does not expect the Inflation Reduction Act to have a material impact on its provision for income taxes.
The Tax Cuts and Jobs Act of 2017 (TCJA) amended IRC Section 174 to require capitalization of all research and developmental (“R&D”) costs incurred in tax years beginning after December 31, 2021. These costs are required to be amortized over five years if the R&D activities are performed in the United States or over 15 years if the activities were performed outside the United States. The Company capitalized approximately $ 16.1 million of R&D expenses incurred during the year ended December 31, 2022.
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9.
Commitments and Contingencies
Leases
Operating Leases
The Company was a party to various leases for office and laboratory and other space that were terminated in 2022. One portion of leased space was an operating lease (the “Original Headquarters Lease”), which was originally scheduled to expire in October 2023. The Original Headquarters Lease was early terminated as allowed for under the lease on June 9, 2022. The Company was also a sublessee of certain additional office, laboratory, and other space under several subleases (the “Original Headquarters Subleases”) that were originally scheduled to expire in October 2023, all of which were terminated as allowed for under the subleases on various dates between June and August 2022.
A member of the Company’s board of directors is the Chief Executive Officer and a member of the board of directors of the sublandlord under the Original Headquarters Subleases, and the Company’s Chairman is also a member of the sublandlord’s board of directors. The Company’s rent payments to the sublandlord totaled $ 296,300 and $ 692,000 in the years ended December 31, 2022 and 2021, respectively.
In May 2021, the Company entered into a lease for its new headquarters (the “New Headquarters Lease”), consisting of an operating lease agreement, as amended, for new office, laboratory, manufacturing and other space. The New Headquarters Lease consists of three phases, with Phase 1 having commenced in December 2021 and Phase 2 having commenced in the first quarter of 2022. Phase 3 will commence no later than November 1, 2023. The current lease term for all phases will expire on August 31, 2035. The Company designed and constructed the leasehold improvements with the approval of the landlord. The New Headquarters Lease agreement includes a landlord-provided tenant improvement allowance (“TIA”) of $ 6.3 million to offset the cost of construction of leasehold improvements. As of December 31, 2022, the Company had received TIA reimbursements of $ 4.3 million. Under the New Headquarters Lease, the Company has three five-year options to extend the term of the lease. However, the Company is not reasonably certain to exercise any of these options.
The initial monthly base rents for Phases 1 and 2 are $ 66,000 and $ 72,100 , respectively, with such base rent increasing during the initial term by 3 % annually on the anniversary of the commencement date. The Company is obligated to pay its portion of real estate taxes and costs related to the lease premises, including costs of operations, maintenance, repair, replacement and management of the new leased premises. The Phase 1 and 2 lease commencements resulted in the Company establishing approximately $ 10.3 million of ROU assets and $ 10.2 million of lease liabilities. The Company used an incremental borrowing rate of 6.5 % in calculating its Phase 1 and 2 lease liability. The total incremental non-cancellable lease payments under the New Headquarters Lease are approximately $ 29.6 million over the lease term.
Finance Leases
In 2020, the Company entered into a three-year laboratory equipment lease that provided for monthly payments of approximately $ 9,200 per month and included an end of lease bargain purchase option. The lease was classified as a finance lease. The Company used a discount rate of 5.5 % in calculating its lease liability under this finance lease resulting in the establishment of approximately a $ 301,700 ROU asset and offsetting lease liabilities .
In August 2021, the Company exercised its purchase option under the finance lease and acquired the associated leased laboratory equipment. At December 31, 2022 and 2021, the Company had no ROU finance asset or lease liability.
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All Leases
The components of lease cost and balance sheet information for the Company’s lease portfolio were as follows:
Year ended December 31,
2022
2021
Finance lease cost
Amortization of right-of-use asset
$
—
$
55,600
Interest expense
—
7,000
Operating lease cost
1,623,500
714,100
Short-term lease cost
47,400
43,300
Variable lease cost
530,200
302,400
Total lease cost
$
2,201,100
$
1,122,400
As of December 31,
As of December 31,
2022
2021
Operating leases
Assets:
Operating lease right-of-use assets
$
9,853,500
$
5,689,300
Liabilities
Current portion of operating lease liabilities
$
156,800
$
527,200
Operating lease liabilities, net of current portion
15,938,100
5,154,900
Total operating lease liabilities
$
16,094,900
$
5,682,100
Other information
Weighted-average remaining lease term (in years)
12.7
11.7
Weighted-average discount rate
6.5 %
6.6 %
As of December 31, 2022, maturities of lease liabilities that had commenced prior to December 31, 2022 were as follows:
Operating Leases
2023
$
1,226,700
2024
1,734,500
2025
1,777,700
2026
1,822,100
2027
1,867,700
2028 and thereafter
15,963,200
Total undiscounted lease payments
24,391,900
Discount factor
( 8,297,000 )
Present value of lease liabilities
$
16,094,900
401(k) Retirement Plan
The Company sponsors a defined-contribution 401(k) retirement plan covering eligible employees. Participating employees may voluntarily contribute up to limits provided by the Internal Revenue Code of 1986, as amended. The Company matches employee contributions equal to 50 % of the salary deferral contributions, with a maximum Company contribution of 5 % of the employees’ eligible compensation. In the years ended December 31, 2022 and 2021, Company matching contributions amounted to $ 723,100 and $ 378,900 , respectively.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.