What changed in this filing

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Item 1A. Risk Factors

2022-08-11 compared with 2022-05-12 · 133 added, 100 removed, 1024 unchanged (19% of the section changed)

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Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below.

The risks relating to our business as set forth in the 2021 Annual Report on Form 10-K are set forth below and are unchanged substantively as of March 31, 2022, except for those risks designated by an asterisk (*).

The risks relating to our business as set forth in the 2021 Annual Report on Form 10-K are set forth below and are unchanged substantively as of June 30, 2022, except for those risks designated by an asterisk (*).

Risks Related to Our Business and Strategy

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We have incurred operating losses in the past, may incur operating losses in the future and may never achieve or maintain profitability.

While we had net income of approximately $3.6 million for the year ended December 31, 2020, we also incurred net losses prior to such time, including $1.3 million for the period from January 14, 2019 through December 31, 2019, and approximately $0.1 million for the period from January 1, 2019 through January 13, 2019.

In addition, during the three months ended March 31, 2022 and 2021, we incurred net losses of $5.5 million and $0.7 million, respectively.

For the period ending December 31, 2021, we incurred net losses of $9.8 million;

and although we had net income of approximately $3.6 million for the year ended December 31, 2020, we also incurred net losses prior to such time, including $1.3 million for the period from January 14, 2019 through December 31, 2019, and approximately $0.1 million for the period from January 1, 2019 through January 13, 2019.

In addition, during the three and six months ended June 30, 2022, we incurred net losses of $6.2 million and $11.7 million, respectively, and during the three and six months ended June 30, 2021, we incurred net losses of $2.3 million and $2.9 million.

We expect that our operating expenses will continue to increase as we grow our business and we anticipate additional costs in connection with legal, accounting and other administrative expenses related to operating as a public company.

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There can be no assurance that significant problems in these areas will not occur.

Any failure to develop these areas and implement and improve supporting systems, procedures and controls in an efficient manner and at a pace consistent with the growth of our business could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Any failure to develop these areas and

implement and improve supporting systems, procedures and controls in an efficient manner and at a pace consistent with the growth of our business could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

If our products do not possess the required or expected quality characteristics or perform as expected, or if the reliability of the technology on which our products are based is questioned, we could experience lost revenue, delayed or reduced market acceptance of our products, increased costs and damage to our reputation.

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expectations, our reputation could suffer and ultimately our sales and operating earnings could be negatively impacted.

In the course of conducting our business, we must adequately address quality issues associated with our products, including defects in our engineering, design, manufacturing and delivery processes, as well as defects in third-party components included in our

Because our consumables are highly complex, the occurrence of defects may increase as we continue to introduce new products and services and as we rapidly scale up manufacturing to meet increased demand for our products and services.

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Our business, financial condition and results of operations may be materially adversely affected by global epidemics, including, but not limited to, the COVID-19 pandemic.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how the pandemic will impact customers, employees, suppliers, vendors, business partners and distribution channels.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how the pandemic will impact customers, employees, suppliers, business partners and distribution channels.

The COVID-19 pandemic has and may continue to create significant volatility, uncertainty and economic disruption, which may materially and adversely affect our business operations, cash flows, liquidity and financial position.

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All of the foregoing factors and developments are highly uncertain and cannot be predicted.

In addition, we cannot predict the continued impact that the COVID-19 pandemic will have on our customers, suppliers, vendors, and other business partners, and each of their financial conditions;

In addition, we cannot predict the continued impact that the COVID-19 pandemic will have on our customers, suppliers, and other business partners, and each of their financial conditions;

however, any material effect on these parties could adversely impact us.

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Our chemical formulations are sold primarily to biopharmaceutical companies, life science research companies, contract research organizations (CROs), contract development and manufacturing organizations (CDMOs), in vitro diagnostics franchises, and academic and government research institutions developing novel vaccines and therapies and performing basic research.

Research and development spending by our customers and the availability of government research funding can fluctuate due to changes in available resources, mergers of pharmaceutical and biotechnology companies, spending priorities, general economic conditions and institutional and governmental budgetary policies.

Changes in government funding for certain research or reductions in overall healthcare spending could negatively impact us or our customers and, correspondingly, our sales to them.

Research and development spending by our customers and the availability of government and academic research funding of, or capital markets investment in, life sciences research and development can fluctuate due to changes in available resources, mergers of pharmaceutical and biotechnology companies, spending priorities, general economic conditions, and institutional and governmental budgetary policies.

Changes in governmental and academic funding of, or capital markets investment in, life sciences research and development or reductions in overall healthcare spending could negatively impact us or our customers and, correspondingly, our sales to them.

A substantial majority of our sales are made on a purchase order basis, which permits our customers to cancel, change or delay their product purchase commitments with little or no notice to us and often without penalty to them.

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The success of our business depends primarily on the number and size of purchase orders from our customers, primarily biopharmaceutical companies, life science research companies, CROs, CDMOs, in vitro diagnostics franchises, and academic and government research institutions, for our products.

Over the past several years, we have benefited from an increased demand for our products as a result of the continued growth of the global biologics and diagnostics market segments, increasing research and development budgets of our customers and greater degree of outsourcing by our customers.

development budgets of our customers and greater degree of outsourcing by our customers.

A slowing or reversal of any of these trends could have a significant adverse effect on the demand for our products.

In addition to these industry trends, our customers’

capacity, their spending priorities, their budgetary policies and practices and their need to develop new biological products, which, in turn, are dependent upon a number of factors, including their competitors’

willingness and ability to utilize our products are also subject to, among other things, their own financial performance, changes in their available resources, their decisions to acquire in-house manufacturing capacity, their spending priorities, their budgetary policies and practices and their need to develop new biological products, which, in turn, are dependent upon a number of factors, including their competitors’

discoveries, developments and commercial manufacturing initiatives and the anticipated market, clinical and reimbursement scenarios for specific products and therapeutic areas.

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If our customers reduce their spending on our products as a result of any of these or other factors, our business, financial condition, results of operations, cash flows and prospects would be materially and adversely affected.

The demand for our products and services depends in part on our customers’

research and development and the clinical and market success of their products.

Our business, financial condition, and results of operations may be harmed if our customers spend less on, or are less successful in, these activities.

In addition, customer spending may be affected by, among other things, the COVID-19 pandemic or adverse economic conditions caused in whole or in part by the pandemic.

Our customers are engaged in research, development, production, and marketing of pharmaceutical and biotechnology products.

Our customers' spending on research, development, production, and marketing, as well as the outcomes of such research, development, and marketing activities, has a substantial impact on our revenues and profitability, particularly the amount our customers choose to spend on our products.

Available resources, the need to develop new products, and consolidation in the industries in which our customers operate may have an impact on that spending.

Our customers finance their research and development spending from private investors and the public capital markets.

A reduction in spending by our customers, which may be influenced by the recent sharp downturn in available private and public funding for small and emerging biotechnology companies, and the continuing direct and indirect effects of the COVID-19 pandemic, could have a material adverse effect on our business, financial condition, and results of operations.

If our customers are not successful in attaining or retaining product sales due to market conditions, reimbursement issues, or other factors, our results of operations may be materially adversely affected.

The consumers of the products we manufacture for our customers may significantly influence our business, financial condition, and results of operations.

We depend on, and have no control over, consumer demand for the products our customers manufacture.

Consumer demand for our customers’

products could be adversely affected by, among other things, delays in regulatory approvals, the inability of our customers to demonstrate the efficacy and safety of their products, the loss of patent and other intellectual property rights protection, the emergence of competing or alternative products, including generic drugs, the degree to which private and government payment subsidies for a particular product offset the cost to consumers and changes in the marketing strategies for such products, and the outbreak of a pandemic such as the COVID-19 pandemic.

Additionally, if the products our customers manufacture do not gain market acceptance, our revenues and profitability may be adversely affected.

Ongoing changes to the healthcare industry, including ongoing healthcare reform, adverse changes in government or private funding of healthcare products and services, legislation or regulations governing the privacy of patient information or patient access to care, or the delivery, pricing or reimbursement of pharmaceuticals and healthcare services or mandated benefits, may cause healthcare industry participants to purchase fewer products and services from us or influence the price that others are willing to pay for our products and services.

Changes in the healthcare industry’s pricing, selling, inventory, distribution or supply policies or practices could also significantly reduce our revenue and profitability.

If orders for key products that we manufacture for our customers decline, our financial condition and results of operations may be adversely affected.

We depend on a limited number of customers for a high percentage of our revenue.

If we cannot maintain our current relationships with customers, if we fail to sustain recurring sources of revenue with our existing customers, or if we fail to enter into new relationships, our future operating results will be adversely affected.

For the three months ended March 31, 2022 and 2021, customers making up more than 10% of our total revenue accounted for 40% and 15% of our total revenue.

One of our largest customers is a distributor which made up 13% and 15% of total revenue for the three months ended March 31, 2022 and 2021.

For the three months ended June 30, 2022 and 2021, customers making up more than 10% of our total revenue accounted for 14% and 29% of our total revenue, both of which are distributors.

For the six months ended June 30, 2022 and 2021, customers making up more than 10% of our total revenue accounted for 13% and 17% of our total revenue, both of which are distributors.

Our customers that are distributors, as opposed to direct customers, represent highly diversified customer bases.

All customers buy from us on a purchase order basis.

The revenue attributable to our top customers has fluctuated in the past and may fluctuate in the future, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

The revenue attributable to our top customers has fluctuated in the past and may fluctuate in the future,

which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

In addition, the termination of these relationships could result in a temporary or permanent loss of revenue.

Our future success depends on our ability to maintain these relationships, to increase our penetration among these existing customers and to establish n ew relationships.

Our future success depends on our ability to maintain these relationships, to increase our penetration among these existing customers and to establish new relationships.

We engage in conversations with other companies and institutions regarding potential commercial opportunities on an ongoing basis, which can be time consuming.

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In addition, if our customers order our products but fail to pay on time or at all, our liquidity, financial condition, results of operations, cash flows and prospects could be materially and adversely affected.

We compete with life science, pharmaceutical and biotechnology companies, some of whom are our customers, who are substantially larger than we are and potentially capable of developing new approaches that could make our products and technology obsolete or develop their own internal capabilities that compete with our products.

The market for biologics components products and services in the biopharmaceutical development, life science research, and diagnostics space is intensely competitive, rapidly evolving, significantly affected by new product introductions and other market activities by industry participants and subject to rapid technological change.

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They may undertake their own development of products that are substantially similar to or compete with our products and they may succeed in developing products that are more effective or less costly than any that we may develop.

These competitors may be able to spend more aggressively on product and service development, marketing, sales and other initiatives than we can.

Customers may believe that larger companies are better able to compete as sole source suppliers, and therefore prefer to purchase from such businesses.

Additionally, our competitors may be able to spend more aggressively on product and service development, marketing, sales and other initiatives than we can.

Many of these competitors also have:

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These factors, among others, may enable our competitors to market their products and services at lower prices or on terms more advantageous to customers than we can offer.

Competition may result in price reductions, reduced gross margins and loss of

market share, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Moreover, consolidation trends in the pharmaceutical, biotechnology and diagnostics industries have served to create fewer customer accounts and to concentrate purchasing decisions for some customers, resulting in increased pricing pressure on us.

Additionally, our current and future competitors, including certain of our customers, may at any time develop additional products and services that compete with our products and new approaches by these competitors may make our products, technologies and methodologies obsolete or noncompetitive.

We may not be able to compete effectively against these organizations.

Failure to anticipate and respond to competitors' actions may impact our future revenue and profitability.

In addition, to develop and market our new products, services, technologies and methodologies successfully, we must accurately assess and meet customers’

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If we fail to create demand for our new products, services or technologies, our future business could be harmed.

It may be difficult for us to implement our strategies for revenue growth in light of competitive challenges.

We face significant competition across many of our product lines.

In addition, consolidation trends in the pharmaceutical, biotechnology and diagnostics industries have served to create fewer customer accounts and to concentrate purchasing decisions for some customers, resulting in increased pricing pressure on us.

Moreover, customers may believe that larger companies are better able to compete as sole source vendors, and therefore prefer to purchase from such businesses.

Failure to anticipate and respond to competitors’

actions may impact our future revenue and profitability.

Certain of our products are used by customers in the development and production of novel vaccines, drug therapies and molecular diagnostics, some of which represent relatively new and still-developing modes of treatment and testing.

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Certain of our products, such as RUO products, and some other products offered for limited uses or that are the subject of certain exemptions, are manufactured following QSR that, while not required by existing regulatory requirements, are in place to assure product quality throughout the process, from receiving through final packaging.

We believe these products are exempt from compliance with the U.S.

Food, Drug, and Cosmetic Act (FDCA) and the current GMP regulations of the FDA, as they are further processed by our customers and we do not make claims related to their safety or effectiveness.

We believe these products are exempt from compliance with the FDCA and the current GMP regulations of the FDA, as they are further processed by our customers and we do not make claims related to their safety or effectiveness.

In the event we or our suppliers manufacture products that fail to comply with required quality standards, we may incur delays in fulfilling orders, recalls, damages resulting from product liability claims and/or harm to our reputation.

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Problems in the design or quality of our products may have a material and adverse effect on our business, financial condition, results of operations, cash flows and prospects, and could result in us losing our ISO certification.

In the event we are unable to maintain process controls required to

maintain ISO certification, or in the event we fail to pass an ISO certification audit for any reason, we could lose our ISO certification.

In the event we are unable to maintain process controls required to maintain ISO certification, or in the event we fail to pass an ISO certification audit for any reason, we could lose our ISO certification.

We may also encounter quality issues in the future as a result of the expansion and reconfiguration of existing manufacturing facilities or ramping new products to full volume production.

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Certain of our raw materials are sourced from a limited number of suppliers.

For the three months ended March 31, 2022 and 2021, purchases from suppliers making up 10% or more of our total inventory purchases represented 80% and 52% of total inventory purchases, respectively.

For the three months ended June 30, 2022 and 2021, purchases from suppliers making up 10% or more of our total inventory purchases represented 55% and 58% of total inventory purchases, respectively.

For the six months ended June 30, 2022 and 2021, purchases from suppliers making up 10% or more of our total inventory purchases represented 61% and 50% of total inventory purchases, respectively.

However, we note that one of these suppliers is a distributor that sells products on behalf of a diversified supply chain.

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In addition, future acquisitions may require the issuance or sale of additional equity, or equity-linked securities, which may result in additional dilution to our stockholders.

The Credit Agreement imposes significant restrictions on our ability to make acquisitions or certain other investments and our ability to make such acquisitions or other investments may be further limited by the terms of any future debt or preferred securities we may issue or any future credit facilities we may enter into.

The Amended Credit Agreement imposes significant restrictions on our ability to make acquisitions or certain other investments and our ability to make such acquisitions or other investments may be further limited by the terms of any future debt or preferred securities we may issue or any future credit facilities we may enter into.

Natural disasters, geopolitical unrest, war, terrorism, public health issues or other catastrophic events, some possibly related to the increasing effects of climate change, could disrupt the supply, delivery or demand of our products, which could negatively affect our operations and performance.

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In addition, the facilities of our suppliers and customers may be harmed or rendered inoperable by such catastrophic events, which may cause disruptions, difficulties or otherwise materially and adversely affect our business.

We rely upon the use of water to produce many of the products we sell, including the sale of water products themselves.

Lack of sufficient water to manufacture our products could severely impact our operations and performance.

Extended periods of drought in California may put pressure on the use and availability of water for manufacturing purposes, and in some cases, governmental authorities could divert, or already have diverted, water to other uses.

As California has grown in population, there are increasing and multiple pressures on the use and distribution of water, which many view as a finite resource.

We believe we have access to adequate supplies of water for our manufacturing operations and currently do not anticipate that future drought conditions will have a material impact on our operating results.

However, if future drought conditions are worse than prior drought conditions or if regulatory responses to such conditions limit our access to water, our business could be negatively affected.

Because we rely heavily on third-party package-delivery services, a significant disruption in these services, damages or losses sustained during shipping or significant increases in prices could adversely affect our business, financial condition, results of operations, cash flows and prospects.

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We are highly dependent, and our success depends largely, upon the continued service of our management and scientific staff and our ability to attract, retain and motivate highly skilled technical, scientific, engineering, management and marketing personnel, who deliver high quality and timely services to our customers and keep pace with cutting-edge technologies and developments in biology and manufacturing.

We also face significant competition in the hiring and retention of such personnel from other companies, other providers of outsourced biologics services, research and academic institutions, government and other organizations who have superior funding and resources.

We also face significant competition in the hiring and retention of such personnel from other companies,

other providers of outsourced biologics services, research and academic institutions, government and other organizations who have superior funding and resources.

Each of our executive officers may terminate their employment with us at any time.

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We believe that our culture has been and will continue to be a critical contributor to our success.

We expect to continue to hire aggressively as we expand.

If we do not continue to develop our corporate culture or maintain and preserve our guiding principles as we grow and evolve, we may be unable to foster the innovation, curiosity, creativity, focus on execution, teamwork and the facilitation of critical knowledge transfer and knowledge sharing we believe we need to support our growth.

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Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Our internal computer systems, or those of our vendors, customers, or contractors, have been and may in the future be subject to cyberattacks or security breaches, which could result in a material disruption of our product development programs or otherwise adversely affect our business, financial condition, results of operations, cash flows and prospects.

Despite the implementation of security measures, our internal computer systems and those of our vendors, customers and contractors, are vulnerable to damage from computer viruses and unauthorized access.

We and our vendors, including security and infrastructure vendors, manage and maintain our data using a combination of on-site systems and cloud-based data centers.

Our internal computer systems, or those of our suppliers, customers, or contractors, have been and may in the future be subject to cyberattacks or security breaches, which could result in a material disruption of our product development programs or otherwise adversely affect our business, financial condition, results of operations, cash flows and prospects.

Despite the implementation of security measures, our internal computer systems and those of our suppliers, customers and contractors, are vulnerable to damage from computer viruses and unauthorized access.

We and our suppliers, including security and infrastructure suppliers, manage and maintain our data using a combination of on-site systems and cloud-based data centers.

We face a number of risks related to protecting information, including inappropriate use or disclosure, unauthorized access or acquisition, or inappropriate modification of information.

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federal and/or state, or non-U.S., data breach notification laws, or our contractual obligations, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information.

In addition, we could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in our information systems and networks and those of our vendors, including personal information of our employees, and company, customer and vendor confidential data.

In addition, outside parties have previously attempted and may in the future attempt to penetrate our systems or those of our vendors or fraudulently induce our personnel or the personnel of our vendors to disclose information in order to gain access to our data and/or systems or make unauthorized payments to third parties.

In addition, we could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in our information systems and networks and those of our suppliers, including personal information of our employees, and company, customer and suppliers confidential data.

In addition, outside parties have previously attempted and may in the future attempt to penetrate our systems or those of our suppliers or fraudulently induce our personnel or the personnel of our suppliers to disclose information in order to gain access to our data and/or systems or make unauthorized payments to third parties.

The number and complexity of these threats continue to increase over time.

If a material breach of our information technology systems or those of our vendors occurs, the market perception of the effectiveness of our security measures could be harmed and our reputation and credibility could be damaged.

If a material breach of our information technology systems or those of our suppliers occurs, the market perception of the effectiveness of our security measures could be harmed and our reputation and credibility could be damaged.

Our insurance coverage may not be adequate to cover losses associated with security incidents, and in any case, such insurance may not cover all of the types of costs, expenses and losses we could incur to address a security incident.

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We are subject to financial, operating, legal and compliance risk associated with global operations.

We engage in limited business globally, with approximately 2.9% and 4.0% of our revenue for the three months ended March 31, 2022 and 2021, respectively, coming from outside the U.S.

We engage in limited business globally, with approximately 3.5% and 3.0% of our revenue for the three months ended June 30, 2022 and 2021, respectively, and 3.2% and 3.5% of our revenue for the six months ended June 30, 2022 and 2021, respectively, coming from outside the U.S.

However, one of our strategies is to expand geographically, both through distribution and through direct sales.

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We may be required to record a significant charge to earnings if our goodwill and other intangible assets, or other investments become impaired.

We are required under U.S.

generally accepted accounting principles (GAAP) to test goodwill and indefinite lived intangibles for impairment at least annually and to review our goodwill, intangible assets and other assets acquired through merger and acquisition activity for impairment when events or changes in circumstance indicate the carrying value may not be recoverable.

We are required under GAAP to test goodwill and indefinite lived intangibles for impairment at least annually and to review our goodwill, intangible assets and other assets acquired through merger and acquisition activity for impairment when events or changes in circumstance indicate the carrying value may not be recoverable.

Factors that could lead to impairment of goodwill, intangible assets and other assets acquired via acquisitions include significant adverse changes in the business climate and actual or projected operating results (affecting our company as a whole or affecting any particular segment) and declines in the financial condition of our business.

As of March 31, 2022, goodwill and intangible assets represented approximately 19% of our total assets.

As of June 30, 2022, goodwill and intangible assets represented approximately 19% of our total assets.

If we determine that there has been impairment, our financial results for the relevant period would be reduced by the amount of the impairment, net of tax effects, if any.

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For example, during February 2016, the Financial Accounting Standards Board issued ASU No.

2016-02, Leases and its related interpretations, which updated requires lessees to generally recognize operating and finan cing lease liabilities and corresponding right-of-use assets on the balance sheet.

2016-02, Leases and its related interpretations, which updated requires lessees to generally recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet.

We adopted this new standard effective January 1, 2022 using the modified retrospective approach, applied at the beginning of the period of adoption, and elected the package of transitional practical expedients.

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Our existing indebtedness could adversely affect our business and growth prospects.

In March 2021, we entered into the Credit Agreement which provides for loan commitments in an aggregate amount of up to $27.0 million.

Our indebtedness, including the indebtedness we have incurred, and may in the future incur, under the Credit Agreement or otherwise, could require us to divert funds identified for other purposes for debt service and impair our liquidity position.

In May 2022, we entered into the Amended Credit Agreement which provides for loan commitments in an aggregate amount of up to $57.135 million.

Our indebtedness, including the indebtedness we have incurred, and may in the future incur, under the Amended Credit Agreement or otherwise, could require us to divert funds identified for other purposes for debt service and impair our liquidity position.

If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds.

We do not know whether we will be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.

Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in the Credit Agreement may have important consequences, including:

Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in the Amended Credit Agreement may have important consequences, including:

limiting funds otherwise available for financing our capital expenditures by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt;

limiting our ability to incur or prepay existing indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments and make changes in the nature of the business, among other things;

making us more vulnerable to rising interest rates, as certain of our borrowings, including borrowings under the Credit Agreement, bear variable rates of interest;

making us more vulnerable to rising interest rates, as certain of our borrowings, including borrowings under the Amended Credit Agreement, bear variable rates of interest;

making us more vulnerable in the event of a downturn in our business.

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In addition, tax laws, including the disallowance or deferral of tax deductions for interest paid on outstanding indebtedness, could have an adverse effect on our liquidity and our business, financial condition, results of operations, cash flows and prospects.

Further, our Credit Agreement contains customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.

Further, our Amended Credit Agreement contains customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.

We expect to use cash on hand to meet current and future financial obligations, including funding our operations, debt service requirements and capital expenditures.

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If new debt is added to our current indebtedness levels, the related risks that we face could intensify.

The phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.

Borrowings under our Credit Agreement bear interest at rates determined using LIBOR as the reference rate.

On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021.

It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be adopted, and currently it appears highly likely that LIBOR will be discontinued or substantially modified in future years.

On November 30, 2020, ICE Benchmark Administration (the administrator of LIBOR) with the support of the United States Federal Reserve and the Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for only the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors.

While this announcement extends the transition period to June 2023, the United States Federal Reserve concurrently issued a

statement advising banks to stop new USD LIBOR issuances by the end of 2021.

We believe that the administrative agent under our Credit Agreement, MidCap Financial Trust, will continue to use the one month USD LIBOR tenor in the ordinary course.

However, our Credit Agreement permits the agent in certain circumstances, including upon a determination that the LIBOR rate will no longer be provided or published on a date certain or that no reasonable means will exist for ascertaining such rate, to make adjustments that the agent determines necessary to preserve the current all-in rate of interest.

Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs.

The phase-out of the LIBOR, or the replacement of the LIBOR with a different reference rate, may adversely affect interest rates.

Borrowings under our Amended Credit Agreement bear interest at rates determined using the LIBOR as the reference rate.

On July 27, 2017, the Financial Conduct Authority (the authority that regulates the LIBOR) announced that it would phase out the LIBOR by the end of 2021.

It is unclear whether new methods of calculating the LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be adopted, and currently it appears highly likely that the LIBOR will be discontinued or substantially modified in future years.

On November 30, 2020, ICE Benchmark Administration (the administrator of the LIBOR) with the support of the United States Federal Reserve and the Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for only the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors.

While this announcement extends the transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021.

We believe that the administrative agent under our

Amended Credit Agreement, MidCap Financial Trust, will continue to use the one month USD LIBOR tenor in the ordinary course.

However, our Amended Credit Agreement permits the agent in certain circumstances, including upon a determination that the LIBOR will no longer be provided or published on a date certain or that no reasonable means will exist for ascertaining such rate, to make adjustments that the agent determines necessary to preserve the current all-in rate of interest.

Changes in the method of calculating the LIBOR, or the replacement of the LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs.

This could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks.

Furthermore, we may need to renegotiate our Credit Agreement or incur other indebtedness, and changes in the method of calculating LIBOR, or the use of an alternative rate or benchmark, may negatively impact the terms of such indebtedness.

The terms of the Credit Agreement may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

If we fail to comply with the covenants and other obligations under the Credit Agreement, the lender may be able to accelerate amounts owed under the facilities and may foreclose upon the assets securing our obligations.

The Credit Agreement contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may, unless waived by the lender, limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:

We cannot predict the effect of the potential changes to the LIBOR or the establishment and use of alternative rates or benchmarks.

Furthermore, we may need to renegotiate our Amended Credit Agreement or incur other indebtedness, and changes in the method of calculating the LIBOR, or the use of an alternative rate or benchmark, may negatively impact the terms of such indebtedness.

The terms of the Amended Credit Agreement may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

If we fail to comply with the covenants and other obligations under the Amended Credit Agreement, the lender may be able to accelerate amounts owed under the facilities and may foreclose upon the assets securing our obligations.

The Amended Credit Agreement contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may, unless waived by the lender, limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:

incur additional indebtedness;

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These restrictions could limit, potentially significantly, our operational flexibility and affect our ability to finance our future operations or capital needs or to execute our business strategy.

Our indebtedness under the Credit Agreement is secured by substantially all of our assets.

If we fail to comply with the covenants and our other obligations under the Credit Agreement, the lender would be able to accelerate the required repayment of amounts due and, if they are not repaid, could foreclose upon the assets securing our obligations with respect to such indebtedness.

Our indebtedness under the Amended Credit Agreement is secured by substantially all of our assets.

If we fail to comply with the covenants and our other obligations under the Amended Credit Agreement, the lender would be able to accelerate the required repayment of amounts due and, if they are not repaid, could foreclose upon the assets securing our obligations with respect to such indebtedness.

Risks Related to Our Common Stock

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THP and its affiliates engage in a broad spectrum of activities, including investments in our industry generally.

In the ordinary course of their business activities, THP and its affiliates may engage in activities where their interests conflict with our interests or those of our other stockholders, such as investing in or advising businesses that directly or indirectly compete with certain

portions of our business or are suppliers or customers of ours.

In the ordinary course of their business activities, THP and its affiliates may engage in activities where their interests conflict with our

interests or those of our other stockholders, such as investing in or advising businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours.

Our amended and restated certificate of incorporation provides that none of THP and its affiliates and any person or entity who, while a stockholder, director, officer or agent of the Company or any of its affiliates, is a director, officer, principal, partner, member, manager, employee, agent and/or other representative of THP and its affiliates (each, an Identified Person) has any duty to refrain from (i) engaging in a corporate opportunity in the same or similar business activities or lines of business in which we or our affiliates are engaged or that are deemed to be competing with us or any of our affiliates or (ii) otherwise investing in or providing services to any person that competes with us or our affiliates engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate.

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Smaller reporting companies, such as Teknova, can satisfy the NASDAQ rules by having two females on its board.

In addition, September 2018, California’s Senate Bill 826 was signed into law.

Senate Bill 826 generally requires public companies with principal executive offices in California to have a minimum number of females on its board of directors.

As of December 31, 2021, each public company was required to have at least two females on its board of directors if the company had at

least five directors, and at least three females on its board of directors if the company had at least six directors as of December 31, 2021.

SB 826 has been challenged in legal proceedings and there is uncertainty as to whether a court would uphold SB 826.

Additionally, on September 30, 2020, Assembly Bill 979 was signed into law.

Assembly Bill 979 generally requires public companies with principal executive offices in California to include specified numbers of directors from “underrepresented communities.”

In addition, in September 2018, California’s Senate Bill 826 (SB 826) was signed into law.

SB 826 generally requires public companies with principal executive offices in California to have a minimum number of females on its board of directors.

December 31, 2021, each public company was required to have at least two females on its board of directors if the company had at least five directors, and at least three females on its board of directors if the company had at least six directors as of December 31, 2021.

On May 13, 2022, the Superior Court of California for the County of Los Angeles entered an order striking down SB 826, holding that the statute violates the Equal Protection Clause of the California Constitution.

As of May 17, 2022, the California Secretary of State indicated that she has directed counsel to file an appeal of the verdict with respect to SB 826.

As of the date of this Current Report on Form 10-Q, no appeal has been filed.

Therefore, ultimate enforceability of SB 826 remains uncertain.

Additionally, on September 30, 2020, Assembly Bill 979 (AB 979) was signed into law.

AB 979 generally requires public companies with principal executive offices in California to include specified numbers of directors from “underrepresented communities.”

A director from an “underrepresented community”

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On April 1, 2022, the Superior Court of California for the County of Los Angeles entered an order striking down AB 979, holding that the statute violates the Equal Protection Clause of the California Constitution.

As of May 9, 2022, no notice of appeal has been filed.

If an appeal is filed, litigation regarding AB 979 may continue.

On June 2, 2022, a notice of appeal was filed and thus litigation regarding AB 979 will continue.

Our board of directors currently includes two female directors, and no directors from “underrepresented communities.”

If the current composition of our board of directors changes, or if our current or future female or other “Diverse”

directors no longer serve on our board of directors prior to the applicable dates under the phase-in period for the new NASDAQ listing rules or applicable California law, if upheld, we could be out of compliance with these regulations.

We cannot assure that we can recruit, attract and/or retain qualified members of the board and meet gender and diversity requirements under NASDAQ listing rules or California law, if upheld, which may expose us to financial penalties and adversely affect our reputation.

directors no longer serve on our board of directors prior to the applicable dates under the phase-in period for the new NASDAQ listing rules or any California law that may become applicable to us, we could be out of compliance with these regulations.

We cannot assure that we can recruit, attract and/or retain qualified members of the board and meet gender and diversity requirements under NASDAQ listing rules or any California law that may become applicable to us, which may expose us to financial penalties and adversely affect our reputation.

Because we are a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act).

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The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and stock price.

To comply with the requirements of being a public company, we may need to undertake various costly and time-consuming actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which may adversely affect our business, financial condition, results of operations, cash flows and prospects.

To comply with the requirements of being a public company, we have, and may continue to have to undertake various costly and time-consuming actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which may adversely affect our business, financial condition, results of operations, cash flows and prospects.

We have previously identified material weaknesses in our internal control over financial reporting.

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in this Quarterly Report on Form 10-Q.

As of March 31, 2022 we have fully implemented our plan to remediate this material weakness and as a result management has concluded that the Company's internal control over financial reporting was effective.

Not withstanding this conclusion, we cannot assure you that we will not identify additional material weaknesses in our internal control over financial reporting in the future.

We have fully implemented our plan to remediate this material weakness and, as a result, during the quarter ended March 31, 2022, management concluded that the Company's internal control over financial reporting was effective.

Notwithstanding this conclusion, we cannot assure you that we will not identify additional material weaknesses in our internal control over financial reporting in the future.

If we identify future material weaknesses in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.

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Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.

We will remain a smaller reporting company for so long as either (i) the market value of our common shares held by non-affiliates is less than $250.0 million as of the end of our second fiscal quarter or (ii) we have annual revenues of less than $100.0 million and the market value of our common shares held by non-affiliates is less than $700.0 million as of the end of our second fiscal quarter.

second fiscal quarter.

To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

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The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting.

Furthermore, the need to continue to establish the corporate infrastructure demanded of a public company may divert our management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition, results of operations, cash flows and prospects.

Furthermore, the need to continue to establish and maintain the corporate infrastructure demanded of a public company may divert our management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition, results of operations, cash flows and prospects.

We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company.

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provide that, at any time after the THP Trigger Event, special meetings may only be called by or at the direction of the Chairman of our board of directors, our board of directors or our Chief Executive Officer;

voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class;

provide that, at any time after the THP Trigger Event, any alteration, amendment or repeal, in whole or in part, of any provision of our bylaws by our stockholders will require the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class;

establish advance notice requirements for nominations for elections to our board of directors and for proposing matters that can be acted upon by stockholders at stockholder meetings.

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If the enforceability of our forum selection provisions were to be challenged, we may incur additional costs associated with resolving such challenge.

While we currently have no basis to expect any such challenge would be successful, if a court were to find our forum selection provisions to be inapplicable or unenforceable with respect to one or more of these specified types of actions or proceedings, we may incur additional costs associated with having to litigate in other jurisdictions, which could have an adverse effect on our business, financial condition, results of operations, cash flows and prospects and result in a diversion of the time and resources of our employees, management and board of directors.

business, financial condition, results of operations, cash flows and prospects and result in a diversion of the time and resources of our employees, management and board of directors.

An active, liquid trading market for our common stock may not be sustained, which may limit your ability to sell your shares.

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All shares sold in our IPO were freely tradable upon such sale without restriction or further registration under the Securities Act, except for any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act (Rule 144), including our directors, executive officers and other affiliates (including THP), which may be sold only in compliance with certain limitations.

As of March 31, 2022, we have 28,042,479 shares of common stock outstanding, substantially all of which are held by directors, executive officers and other affiliates and will be subject to volume, manner of sale and other limitations under Rule 144.

As of June 30, 2022, we have 28,080,484 shares of common stock outstanding, substantially all of which are held by directors, executive officers and other affiliates and will be subject to volume, manner of sale and other limitations under Rule 144.

Registration of any of these outstanding shares of common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement.

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In addition, shares of our common stock that are issued pursuant to our equity incentive plans and our Employee Stock Purchase Plan (ESPP) will become eligible for sale in the public market, subject to provisions relating to various vesting agreements, lock-up agreements and Rule 144, as applicable.

As of March 31, 2022, there were 322,174, 2,111,830 and 159,934 shares of common stock reserved for issuance pursuant to outstanding stock option awards under the 2016 Stock Plan, as amended (2016 Plan), the 2020 Equity Incentive Plan, as amended (2020 Plan) and the 2021 Equity Incentive Plan (2021 Plan), respectively.

As of June 30, 2022, there were 322,174, 1,890,908 and 1,302,979 shares of common stock reserved for issuance pursuant to outstanding stock option awards under the 2016 Stock Plan, as amended (2016 Plan), the 2020 Equity Incentive Plan, as amended (2020 Plan) and the 2021 Equity Incentive Plan (2021 Plan), respectively.

In addition, the 2021 Plan and the ESPP provide for annual automatic increases in the number of shares reserved thereunder.

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Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

Because we have no current plans to pay regular cash dividends on our common stock and are prohibited from paying cash dividends under the Credit Agreement, you may not receive any return on investment unless you sell your common stock for a price higher than you paid for it.

Because we have no current plans to pay regular cash dividends on our common stock and are prohibited from paying cash dividends under the Amended Credit Agreement, you may not receive any return on investment unless you sell your common stock for a price higher than you paid for it.

We do not anticipate paying any regular cash dividends on our common stock.

Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant.

In addition, the terms of the Credit Agreement prohibit us from paying dividends, other than dividends payable in our stock, without the prior written consent of the lender.

In addition, the terms of the Amended Credit Agreement prohibit us from paying dividends, other than dividends payable in our stock, without the prior written consent of the lender.

Our future ability to pay cash dividends on our common stock may also be limited by the terms of any future debt or preferred securities we may issue or any future credit facilities we may enter into.

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Our future capital needs are uncertain and we may need to raise additional funds in the future.

We believe that our existing cash and cash equivalents as of March 31, 2022 together with our credit facility under the Amended Credit Agreement will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months.

We believe that our existing cash and cash equivalents as of June 30, 2022 together with our credit facility under the Amended Credit Agreement will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months.

However, we may need to raise substantial additional capital to:

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Any debt or equity financing may contain terms that are not favorable to us or our stockholders.

Further, we are not eligible to file a "short-form" registration statement on Form S-3 under the Securities Act to register our securities in connection with a follow-on, secondary or shelf offering until July 1, 2022.

If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us.

Moreover, we cannot assure you that we will be able to comply with the financial covenants in our Amended Credit Agreement, including the financial covenant based upon a trailing twelve months of net revenue, which includes a requirement of $42.5 million in the twelve months ending December 31, 2022.

If we are unable to comply with the financial covenants in our Amended Credit Agreement, we may be unable to maintain the Amended Credit Agreement as an external source of funds.

If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our products.

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we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law.

Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or

not opposed to the best interests of the Company and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;

Delaware law provides that a corporation may

indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;

we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;

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Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

If securities or industry analysts do not publish research or reports about our business, if they publish unfavorable research or reports, or adversely change their recommendations regarding our common stock or if our results of operations do not meet their expectations, our stock price and trading volume could decline.

If securities or industry analysts do not publish research or reports about our business, if our results of operations do not meet their expectations, if they publish unfavorable research or reports, adversely change their recommendations regarding our common stock or cease coverage of us, our stock price and trading volume could decline.

If a trading market for our common stock develops, the trading market will be influenced by the research and reports that industry or securities analysts publish about us or our business.

We do not have any control over these analysts.

As a newly public company, we may be slow to attract research coverage.

In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research, issue an adverse opinion regarding our stock price or if our results of operations do not meet their expectations, our stock price could decline.

Moreover, if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

In the event we obtain securities or industry analyst coverage, we will not have any control over that coverage.

Analysts may develop and publish their own projections of our business, which may form a consensus about our future performance.

Our actual business results may vary significantly from such guidance or other expectations or that consensus due to a number of factors, many of which are outside of our control, including due to the global economic uncertainty and financial market conditions caused by the ongoing COVID-19 pandemic, and which could adversely affect our business and future operating results.

In addition, if our publicly announced guidance or other expectations of future operating results fail to meet expectations of securities analysts, investors or other interested parties, the price of our common stock could decline.

Moreover, if any of the analysts who cover us provide inaccurate or unfavorable research, issue an adverse opinion regarding our stock price, cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets and our stock price or trading volume could decline.

We may fail to meet our publicly announced guidance or other expectations about our business, which could cause our stock price to decline.

We may provide from time to time guidance regarding our expected financial and business performance.

Correctly identifying key factors affecting business conditions and predicting future events is inherently an uncertain process, and our guidance may not ultimately be accurate.

Guidance, as well as other expectations, are forward-looking and represent our management’s estimates as of the date of release and are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies on our business, many of which are beyond our control, including due to the global economic uncertainty and financial market conditions caused by the ongoing COVID-19 pandemic, geopolitical events, such as the crisis in Ukraine, and rising inflation, which could adversely affect our business and future operating results, and are based upon specific assumptions with respect to future business decisions, some of which will change.

If our guidance varies from actual results due to our assumptions not being met or the impact on our financial performance that could occur as a result of various risks and uncertainties, the market value of our common stock could decline significantly.

Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors”

section in this report could result in the actual operating results being different from our guidance, and the differences may be adverse and material.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors