# Quantum-Si Inc (QSI) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Quantum-Si Inc's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1816431/000114036123012126/brhc10049653_10k.htm
Accession: 0001140361-23-012126
Filing date: 2023-03-17
Report date: 2022-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/QSI/
All MD&A years: /company/QSI/mda/
Previous year: /company/QSI/mda/fy2021/ (FY 2021)
Next year: /company/QSI/mda/fy2023/ (FY 2023)

Overview

We are an innovative life sciences company with the mission of transforming single-molecule analysis and democratizing its use by providing researchers and clinicians access to the proteome, the set
of proteins expressed within a cell. We have developed a proprietary universal single-molecule detection platform that we are first applying to proteomics to enable Next-Generation Protein Sequencing (“NGPS”), the ability to sequence proteins in
a massively parallel fashion (rather than sequentially, one at a time), that can be used for the study of nucleic acids. We believe that with the ability to sequence proteins in a massively parallel fashion and offer a simplified workflow with a
faster turnaround time, NGPS has the potential to unlock significant biological information through improved resolution and unbiased access to the proteome at a speed and scale that is not available today. Traditionally, proteomic workflows to
sequence proteins required days or weeks to complete. Our platform is designed to offer a single-day workflow including both sample preparation and sequencing. Our platform is comprised of the Carbon™ automated sample preparation instrument, the
Platinum™ NGPS instrument, the Quantum-Si Cloud™ software service, and reagent kits and chips for use with our instruments. We intend to follow a systematic, phased approach to successfully launch our platform, for research use only (“RUO”). We
believe we are the first company to successfully enable NGPS on a semiconductor chip, thus digitizing a massive proteomics opportunity, which allows for a massively parallel solution at the ultimate level of sensitivity —single-molecule
detection.

We believe that our platform will offer a differentiated end-to-end workflow solution in a rapidly evolving proteomics tools market. Within our initial focus market of proteomics, our workflow will
be designed to provide users a seamless opportunity to gain key insights into the immediate state of biological pathways and cell state. Our platform aims to address many of the key challenges and bottlenecks with legacy proteomic solutions, such
as mass spectrometry (“MS”), which are complicated and often limited by manual sample preparation workflows, high instrument costs both in terms of acquisition and ownership and complexity with data analysis, which together prevent broad
adoption. We believe our platform, which is designed to streamline sample preparation, sequencing, and data analysis at a lower instrument cost than legacy proteomic solutions, could allow our product to have wide utility across the study of the
proteome. For example, our platform could be used for biomarker discovery and disease detection, pathway analysis, immune response, and vaccine development, among other applications.

In 2021, we introduced our Platinum early access program to sites with participation from leading academic centers and key industry partners. The early access program introduced the Platinum
single-molecule sequencing system to key opinion leaders across the globe, for both expansion and development of applications and workflows.  We launched the PlatinumTM
instrument and started to take orders in December 2022 and we began commercial shipments of Platinum™ in January 2023.

COVID-19

The outbreak of the novel coronavirus (“COVID-19”), which was declared a pandemic by the World Health Organization on March 11, 2020 and declared a National Emergency by the President of the United
States on March 13, 2020, has led to adverse impacts on the United States and global economies and created uncertainty regarding potential impacts on our operating results, financial condition and cash flows. The COVID-19 pandemic had, and is
expected to continue to have, an adverse impact on our operations, particularly as a result of preventive and precautionary measures that we, other businesses, and governments are taking. Governmental mandates related to COVID-19 or other
infectious diseases, or public health crises, have impacted, and we expect them to continue to impact, our personnel and personnel at third-party manufacturing facilities in the United States and other countries, and the availability or cost of
materials, which would disrupt or delay our receipt of instruments, components and supplies from the third parties we rely on to, among other things, produce our products currently under development. To the extent that any governmental authority
imposes additional regulatory requirements or changes existing laws, regulations, and policies that apply to our business and operations, such as additional workplace safety measures, our product development plans may be delayed, and we may incur
further costs in bringing our business and operations into compliance with changing or new laws, regulations, and policies. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and
financial condition, including expenses and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to
contain or treat COVID-19, as well as the economic impacts, including inflation on product and service costs.

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The estimates of the impact on our business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or address its impact and the economic impact on
local, regional, national and international markets as well as other changes in macroeconomic factors. The COVID-19 pandemic and related economic disruptions have not had a material adverse impact on our operations to date. While we are unable to
predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the duration of the pandemic, the actions that may be taken by government
authorities across the United States, adverse changes in macroeconomic conditions, if sustained or recurrent, could result in significant changes in costs going forward with material adverse effect on our operating results, financial condition,
and cash flows.

We have not incurred any impairment losses in the carrying values of our assets as a result of the COVID-19 pandemic and are not aware of any specific related event or circumstance that would
require us to revise our estimates reflected in our consolidated financial statements.

Other Global Developments

In 2022, various central banks around the world (including the Federal Reserve in the United States) raised interest rates. While these rate increases have not had a significant adverse impact on us to date, the
impact of such rate increases on the overall financial markets and the economy may adversely impact us in the future. In addition, the global economy has experienced and is continuing to experience high levels of inflation and global supply chain
disruptions. We continue to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic environment.

In addition, although we have no operations in or direct exposure to Russia or Ukraine, we have experienced some constraints in product and material
availability and increasing costs required to obtain some materials and supplies as a result of the Russia-Ukraine military conflict on the global economy. To
date, our business has not been materially impacted by the conflict, however, as the conflict continues or worsens, it may impact our business, financial condition or results of operations.

Business Combination

On June 10, 2021, we consummated the previously announced Business Combination. The Business Combination was approved by HighCape’s stockholders at its special meeting held on June 9,
2021. The transaction resulted in the combined company being renamed “Quantum-Si Incorporated” and Legacy Quantum-Si being renamed “Q-SI Operations Inc.” The combined company’s Class A common stock and warrants to purchase Class A common stock
commenced trading on Nasdaq on June 11, 2021 under the symbol “QSI” and “QSIAW”, respectively. As a result of the Business Combination, we received proceeds of approximately $511.2 million on the day of the Closing. See Note 3 “Business
Combination” in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information regarding the business combination.

Recent Developments

Restructuring

On January 30, 2023, we announced that we committed to an organizational restructuring designed to decrease our costs and create a more streamlined organization to support our business. As a result,
we are terminating approximately 12% of our workforce, effective in the first quarter of 2023. In connection with the restructuring, we currently estimate we will incur up to $1.0 million of costs, consisting primarily of cash severance costs and
other severance benefits. We expect to substantially complete the restructuring in the first quarter of 2023. The estimates of costs and expenses that we expect to incur in connection with the restructuring are subject to a number of assumptions
and actual results may differ materially. We may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the restructuring.

Partnership Agreements

On January 9, 2023, we announced that we entered into a partnership and license agreement with Biovista Inc. effective as of December 16, 2022 to provide our customers greater proteomic insights
beyond their protein sequence output. We believe the partnership enhances our offering by making proteomic-to-drug workflows more efficient for researchers. Biovista’s VIZIT™ exploration tool will be integrated into our cloud-based suite of
analytic tools enabling researchers to visualize the connections of their protein sequences identified during their experiment to diseases, other proteins, and post-translational modifications.

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Additionally, on January 9, 2023, we announced that we entered into a partnership with Aviva Systems Biolog effective as of December 16, 2022. This partnership seeks to co-develop protein enrichment
kits to enable deep interrogation of proteins of interest and their variants (proteoforms) through protein sequencing. The co-developed products will include immunoprecipitation kits that fit into existing research workflows to conveniently
enrich target proteins prior to amino acid mutation or post-translational modification (“PTM”) analysis with our PlatinumTM protein sequencing platform.

Description of Certain Components of Financial Data

Research and development

Research and development expenses primarily consist of personnel costs and benefits, stock-based compensation, lab supplies, consulting and professional services, fabrication services, facilities
costs, software, and other outsourced expenses. Research and development expenses are expensed as incurred. All of our research and development expenses are related to developing new products and services.

Selling, general and administrative

Selling, general and administrative expenses primarily consist of personnel costs and benefits, stock-based compensation, patent and filing fees, consulting and professional services, legal and
accounting services, facilities costs, depreciation and amortization expense, insurance and office expenses, product advertising and marketing.

Goodwill impairment

Goodwill was recorded as part of the Majelac Technologies LLC (“Majelac”) acquisition in 2021 and it was fully impaired in the fourth quarter of 2022.

Interest expense

Interest expense primarily consists of interest that was paid on our Paycheck Protection Program (“PPP”) loan.

Dividend income

Dividend income primarily consists of dividends earned on fixed income mutual funds classified as marketable securities.

Change in fair value of warrant liabilities

Change in fair value of warrant liabilities primarily consists of the change in the fair value of our publicly traded warrants (the “Public Warrants”) and our warrants sold in a private placement
(the “Private Warrants”).

Other (expense), net

Other (expense), net primarily consists of realized and unrealized losses on fixed income mutual funds in marketable securities.

Provision for income taxes

We utilize the asset and liability method of accounting for income taxes where deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities using the enacted statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A
valuation allowance is established against net deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized. We recorded a full valuation
allowance as of December 31, 2022 and 2021. Based on the available evidence, we believe that it is more likely than not that we will be unable to utilize all of our deferred tax assets in the future.

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Comparison of the Years Ended December 31, 2022 and 2021

Results of Operations

The following is a discussion of our results of operations for the years ended December 31, 2022 and 2021.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Research and development

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Research and development expenses increased by $25.5 million, or 54.7%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily due to the
following elements: $14.5 million related to internal and external product development activities; $12.3 million in personnel costs as a result of increased headcount; and $1.9 million of collaboration fees, which includes $1.1 million paid to
Protein Evolution, Inc. These increases were partially offset by decreases primarily related to the Business Combination in 2021: $1.2 million of stock-based compensation and $2.0 million of transaction bonuses.

Selling, general and administrative

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Selling, general and administrative expenses decreased by $8.0 million, or 16.0% for the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was primarily due to
the following elements related to the Business Combination in 2021: $3.9 million in consulting and professional fees; $1.0 million of transaction bonuses; and $12.5 million of reduced stock-based compensation due primarily to stock option and
restricted stock unit awards granted and vested in connection with the Closing of the Business Combination in 2021.  The reduced stock-based compensation of $12.5 million also resulted from a reversal of $4.7 million of restricted stock unit
awards that were forfeited by our former Chief Executive Officer upon his separation. These decreases were partially offset by the following increases: $6.3 million of headcount expenses to scale up our administrative and executive functions and
$3.1 million of expenses primarily due to being a publicly traded company including consulting, professional fees and insurance.

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Goodwill impairment

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Goodwill impairment increased for the year ended December 31, 2022 compared to the year ended December 31, 2021.  Goodwill was recorded as part of the Majelac acquisition in
2021 and was fully impaired in the fourth quarter of 2022.

Interest expense

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","","Change"],["(in thousands, except for % changes)","","2022","","","2021","","","Amount","","","%"],["Interest expense","","$","-","","","$","(5",")","","$","5","","","","(100.0","%)"]]
[[/GREPCENT_TABLE]]

Interest expense on the PPP loan decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021 as a result of us repaying the loan in full in June 2021 in connection
with the Business Combination.

Dividend income

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","","Change"],["(in thousands, except for % changes)","","2022","","","2021","","","Amount","","","%"],["Dividend income","","$","5,301","","","$","2,549","","","$","2,752","","","","108.0","%"]]
[[/GREPCENT_TABLE]]

Dividend income increased by $2.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 as a result of higher dividends earned on invested balances in marketable
securities.

Change in fair value of warrant liabilities

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","","Change"],["(in thousands, except for % changes)","","2022","","","2021","","","Amount","","","%"],["Change in fair value of warrant liabilities","","$","6,243","","","$","4,379","","","$","1,864","","","","42.6","%"]]
[[/GREPCENT_TABLE]]

The fair value of warrant liabilities decreased, which resulted in a gain of $1.9 million, or 42.6% for the year ended December 31, 2022 compared to the year ended December 31, 2021. The warrant
liabilities were recorded at fair value as part of the Business Combination.

Other (expense), net

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","","Change"],["(in thousands, except for % changes)","","2022","","","2021","","","Amount","","","%"],["Other (expense), net","","$","(20,145",")","","$","(5,004",")","","$","(15,141",")","","","302.6","%"]]
[[/GREPCENT_TABLE]]

Other (expense), net increased by $15.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily as a result of an increase in reported unrealized and
realized losses on investments in marketable securities, which consist of fixed income mutual funds that are marked to market.

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Comparison of the Years Ended December 31, 2021 and 2020

Results of Operations

The following is a discussion of our results of operations for the years ended December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Research and development

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","","Change"],["(in thousands, except for % changes)","","2021","","","2020","","","Amount","","","%"],["Research and development","","$","46,575","","","$","27,555","","","$","19,020","","","","69.0","%"]]
[[/GREPCENT_TABLE]]

Research and development expenses increased by $19.0 million, or 69.0%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. This increase was primarily due to an increase of $14.4
million in personnel costs as a result of increased headcount, including $4.4 million of stock-based compensation, as well as other internal and external product development activities.

Selling, general and administrative

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Selling, general and administrative expenses increased by $41.2 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. This increase was primarily due to an increase of $24.7
million in personnel costs as a result of increased headcount associated with investments to scale up our administrative and executive functions, including $18.5 million of stock-based compensation. In addition to personnel costs, the increase
was primarily due to an increase of $9.8 million in consulting, legal and professional fees.  This increase included a $3.8 million payment to a third-party service provider in connection with the Closing of the Business Combination and a write
off of Other assets – related party of $0.7 million in connection with the termination of our participation under the Amended and Restated Technology Services Agreement, most recently amended on November 11, 2020, by and among 4Catalyzer
Corporation (“4C”), us and other participant companies controlled by the Rothberg family, as well as other general and administrative costs incremental to being a publicly traded company.

Interest expense

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Interest expense on the PPP loan decreased for the year ended December 31, 2021 compared to the year ended December 31, 2020 as a result of the Company repaying the loan in full in June of 2021 in connection with
the Business Combination.

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Dividend income

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","","Change"],["(in thousands, except for % changes)","","2021","","","2020","","","Amount","","%"],["Dividend income","","$","2,549","","","$","97","","","$","2,452","","nm"]]
[[/GREPCENT_TABLE]]

Dividend income increased by $2.5 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 as a result of higher invested balances in marketable securities.

Change in fair value of warrant liabilities

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","","Change"],["(in thousands, except for % changes)","","2021","","","2020","","","Amount","","%"],["Change in fair value of warrant liabilities","","$","4,379","","","$","-","","","$","4,379","","nm"]]
[[/GREPCENT_TABLE]]

Change in fair value of warrant liabilities resulted in a gain of $4.4 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The warrant liabilities were recorded as part of the
Business Combination and therefore did not exist in the prior year.

Other (expense), net

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Other (expense), net increased by $5.0 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily as a result of unrealized losses on cash invested in marketable securities.

Non-GAAP Financial Measures

We present non-GAAP financial measures in order to assist readers of our consolidated financial statements in understanding the core operating results that our management uses to evaluate the
business and for financial planning purposes. Our non-GAAP financial measures, EBITDA and Adjusted EBITDA, provide an additional tool for investors to use in comparing our financial performance over multiple periods.

EBITDA and Adjusted EBITDA are key performance measures that our management uses to assess our operating performance. EBITDA and Adjusted EBITDA facilitate internal comparisons of our operating
performance on a more consistent basis. We use these performance measures for business planning purposes and forecasting. We believe that EBITDA and Adjusted EBITDA enhance an investor’s understanding of our financial performance as it is useful
in assessing our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business.

Our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate these measures in the same manner. EBITDA and Adjusted EBITDA are
not prepared in accordance with U.S. GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S. GAAP. When evaluating our performance, you should consider EBITDA and Adjusted EBITDA
alongside other financial performance measures prepared in accordance with U.S. GAAP, including net loss.

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EBITDA and Adjusted EBITDA

We calculate EBITDA as net loss adjusted to exclude interest expense, dividend income and depreciation and amortization expense.  Adjusted EBITDA is calculated as EBITDA adjusted to exclude goodwill
impairment, change in fair value of warrant liabilities, other expense, net, stock-based compensation, and other non-recurring items.  The other non-recurring items include costs related to discretionary transaction bonuses and other costs
incurred with the Closing of the Business Combination on June 10, 2021.

The following table reconciles Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

Since our inception, we have generated no revenue and have funded our operations primarily with proceeds from the issuance of equity to private investors. In addition, on June 10, 2021, we completed
the Business Combination, and as a result we received proceeds of approximately $511.2 million on the day of the Closing. Our primary uses of liquidity have been operating expenses, capital expenditures and our acquisition of certain assets of
Majelac. Cash flows from operations have been historically negative as we continue to invest in the development of our technology in NGPS. We expect to incur negative operating cash flows on an annual basis for the foreseeable future until such
time that we can successfully commercialize our products that are currently under development. However, we can provide no assurance that such products will be successfully developed and commercialized in the future.

We expect that the funds raised in connection with the Business Combination will be sufficient to meet our liquidity, capital expenditure, and anticipated working capital requirements and fund our
operations for at least the next 12 months. We expect to use the funds raised in connection with the Business Combination to invest in the commercial launch of our products, to further invest in research and development, for other operating
expenses, business acquisitions and for working capital and general corporate purposes.

As of December 31, 2022, we had cash and cash equivalents and investments in marketable securities totaling $351.3 million. Our future capital requirements may vary from those currently planned and
will depend on various factors including the pace and success of product commercialization.

We launched the PlatinumTM instrument and started to take orders in December 2022 and we began commercial shipments
of Platinum™ in January 2023.  We plan to launch CarbonTM in 2023.  Our business will require an accelerated amount of spending to enhance the sales and marketing
teams, continue to drive development, and build inventory. Other factors that could accelerate cash needs include: (i) delays in achieving scientific and technical milestones; (ii) unforeseen capital expenditures and fabrication costs related to
manufacturing for commercialization; (iii) changes we may make in our business or commercialization strategy; (iv) the impact of the COVID-19 pandemic; (v) costs of running a public company; (vi) other items affecting our forecasted level of
expenditures and use of cash resources including potential acquisitions; and (vii) increased product and service costs.

In the future, we may be unable to obtain any required additional financing on terms favorable to us, if at all.  If adequate funds are not available to us on acceptable terms or otherwise, we may
be unable to successfully develop or enhance products and services, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business, financial condition, operating
results and cash flows.

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Cash flows

The following table summarizes our cash flows for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(in thousands)","","2022","","","2021","","","2020"],["Net cash (used in) provided by:"],["Net cash used in operating activities","","$","(90,560",")","","$","(66,813",")","","$","(32,573",")"],["Net cash provided by (used in) investing activities","","","137,185","","","","(450,937",")","","","(461",")"],["Net cash provided by financing activities","","","1,909","","","","516,625","","","","37,014"],["Net increase (decrease) in cash and cash equivalents","","$","48,534","","","$","(1,125",")","","$","3,980"]]
[[/GREPCENT_TABLE]]

Net cash used in operating activities

The net cash used in operating activities represents the cash receipts and disbursements related to our activities other than investing and financing activities. We expect that the cash provided by
financing activities in 2021 will continue to be our primary source of funds to support operating needs and capital expenditures for the foreseeable future.

The net cash used in operating activities of $90.6 million for the year ended December 31, 2022 was due primarily to a net loss of $132.4 million and a change in fair value of warrant liabilities of
$6.2 million, partially offset by losses on marketable securities (realized and unrealized) of $20.6 million, stock-based compensation of $11.2 million, goodwill impairment of $9.5 million, net cash inflows from changes in operating assets and
liabilities of $4.3 million and depreciation and amortization of $2.6 million.

The net cash used in operating activities of $66.8 million for the year ended December 31, 2021 was due primarily to a net loss of $95.0 million and a change in fair value of warrant liabilities of $4.4 million,
partially offset by stock-based compensation of $24.9 million, losses on marketable securities (realized and unrealized) of $5.0 million, net cash inflows from changes in operating assets and liabilities of $1.5 million and depreciation and
amortization of $1.0 million.

The net cash used in operating activities of $32.6 million for the year ended December 31, 2020 was due primarily to a net loss of $36.6 million, offset by net cash inflows from changes in operating assets and
liabilities of $1.2 million and adjustments for stock-based compensation of $1.9 million and depreciation and amortization of $0.9 million.

Net cash provided by (used in) investing activities

The net cash provided by investing activities of $137.2 million in the year ended December 31, 2022 was due primarily to sales of marketable securities of $148.8 million, partially offset by
purchases of property and equipment of $10.7 million and marketable securities of $0.8 million.

The net cash used in investing activities of $450.9 million in the year ended December 31, 2021 was due to purchases of marketable securities of $440.5 million, purchases of property and equipment of $5.8 million,
and the payment of $4.6 million related to the Majelac acquisition.

The net cash used in investing activities of $0.5 million in the year ended December 31, 2020 was due to purchases of property and equipment.

Net cash provided by financing activities

The net cash provided by financing activities of $1.9 million in the year ended December 31, 2022 was due primarily from $2.8 million from proceeds from exercise of stock options, offset by $0.5
million from payment of deferred consideration and $0.3 million from payment of contingent consideration related to the Majelac acquisition.

The net cash provided by financing activities of $516.6 million in the year ended December 31, 2021 was primarily from $512.8 million from proceeds from the Business Combination and $5.6 million from proceeds from
exercise of stock options, partially offset by a $1.7 million payment of notes payable.

The net cash provided by financing activities of $37.0 million in the year ended December 31, 2020 was primarily from $35.3 million from proceeds from issuance of Series E convertible preferred stock and $1.7
million from proceeds from notes payable.

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Contractual Obligations

We lease certain facilities and equipment under non-cancellable lease agreements that expire at various dates through 2032. As of December 31, 2022, the future payments, before adjustments for
tenant incentives, under leases was $35.1 million, which includes a lease we entered into in December 2021 for a facility in New Haven, Connecticut, which commenced in January 2022 and a lease that commenced in April 2022 for a facility in
Branford, Connecticut.

Licenses related to certain intellectual property

We license certain intellectual property, some of which may be utilized in our current or future product offerings. To preserve the right to use such intellectual property, there are minimum annual
fixed royalty payments of approximately $0.2 million. Once we commercialize and begin to generate revenue, there will be royalties based on the current anticipated utilization.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S.
GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, as well as expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Stock-based compensation

The fair values of stock option grants are estimated using a Black-Scholes option-pricing model. Key inputs and assumptions include the expected term of the option, stock price volatility, risk-free
interest rate, dividend yield, stock price and exercise price. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of stock-based compensation.

Key assumptions used to value option grants were as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","Risk-free interest rate: The risk-free interest rate for periods within the expected term of the awards is based on the U.S. Treasury yield curve in effect at the time of the grant;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Expected dividend yield: We have never declared or paid any cash dividends and do not expect to pay any cash dividends in the foreseeable future;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Expected term: For awards, we calculate the expected term using the \u201csimplified\u201d method, which is the simple average of the vesting period and the contractual term; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Expected volatility: We determined expected annual equity volatility to be 70% based on the historical volatility of guideline public companies for the year ended December 31, 2020 and from January to June 10, 2021. After June 10, 2021, the volatility is calculated by a third-party professional services firm and reviewed by the Company."]]
[[/GREPCENT_TABLE]]

The fair value of awards with market conditions is primarily estimated using the Monte Carlo simulation method.

Stock options granted to non-employees are accounted for based
on their fair value on the measurement date using the Black-Scholes option-pricing model. Beginning January 1, 2020, the treatment of grants to nonemployees was aligned with those granted to employees in accordance with Accounting Standards
Update 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). 
See Note 10 “Equity Incentive Plan” in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information regarding our equity incentive plans.

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Warrant liability

We account for  warrants  as  either  equity-classified  or  liability classified  instruments  based  on  an  assessment  of  the  warrant’s  specific  terms  and applicable authoritative guidance in Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from  Equity  (“ASC  480”)  and  ASC  815,  Derivatives  and  Hedging  (“ASC  815”).  The 
assessment  considers  whether  the  warrants  are  freestanding  financial instruments  pursuant  to  ASC  480,  meet  the  definition  of  a  liability  pursuant  to  ASC  480,  and  whether  the  warrants  meet  all  of  the  requirements 
for  equity classification under ASC 815, including whether the warrants are indexed to our own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the
time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as
a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of
issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a noncash gain or loss on the consolidated statements of operations and comprehensive loss. The fair value of the Private
Warrants was valued using a binomial lattice model and the Public Warrants are traded in an active market in which the value is known. Subsequent to trading on the public markets, the warrants were valued using the closing price at the balance
sheet date. See Note 12 “Warrant Liabilities” in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information regarding warrants.

We evaluated the Public Warrants under ASC 815-40, in conjunction with the statement regarding the accounting and reporting considerations for
warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies” (“SPACs”) (the “SEC Statement”) and concluded that they do not meet the criteria to be classified in stockholders’ equity. Specifically, the exercise of the warrants may be settled in cash upon the occurrence of
a tender offer or exchange offer in which the maker of the tender offer or exchange offer, upon completion of the tender offer or exchange offer, beneficially owns more than 50% of the outstanding shares of the Company’s Class A common stock,
even if it would not result in a change of control of the Company. This provision would preclude the warrants from being classified in equity and thus the warrants have been classified as a liability.

We evaluated the Private Warrants under ASC 815-40, in conjunction with the SEC Statement, and concluded that they do not meet the criteria to be classified
in stockholders’ equity. Specifically, the terms of the warrants provide for potential changes to the settlement amounts depending upon the characteristics of the warrant holder, and, because the holder of a warrant is not an input into the
pricing of a fixed-for-fixed option on equity shares, such provision would preclude the warrant from being classified in equity and thus the warrant has been classified as a liability.

Acquisition

Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of
assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets and liabilities acquired also requires management to make estimates, which are based on all available information. This judgment and
determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.

See Note 2 “Summary of Significant Accounting Policies” in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information regarding our
significant accounting policies and estimates.

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Goodwill Impairment

Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by
applying a fair value-based test. Beginning in 2022, the Company reviews goodwill for possible impairment annually during the fourth quarter as of October 1, or whenever events or circumstances indicate that the carrying amount may not be
recoverable.

In order to test goodwill for impairment, an entity is permitted to first assess qualitative factors to determine whether a quantitative assessment of goodwill is necessary. The qualitative factors considered by
the Company may include, but are not limited to, general economic conditions, the Company’s outlook, market performance of the Company’s industry and recent and forecasted financial performance. Further testing is only required if the entity
determines, based on the qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. If a quantitative assessment is required,
the Company determines the fair value of its reporting unit using a combination of the income and market approaches. If the net book value of the reporting unit exceeds its fair value, the Company recognizes a goodwill impairment charge for the
reporting unit equal to the lesser of (i) the total goodwill allocated to that reporting unit and (ii) the amount by which that reporting unit’s carrying amount exceeds its fair value.  Assumptions and estimates used in the evaluation of
impairment which primarily include, but are not limited to, discount rates, terminal growth rates, market comparables, and capital expenditure and cash flow forecasts, may affect the fair value of goodwill, which could result in impairment
charges in future periods.

Majelac was fully integrated into the Company after the acquisition. As a result, the Company operates as a single reporting unit. Accordingly, all of the goodwill is associated with
the entire Company.  The Company performed its annual goodwill impairment test during the fourth quarter of 2022 quantitatively evaluating its reporting unit.

See Note 2 “Summary of Significant Accounting Policies” in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information regarding our
significant accounting policies and estimates.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 “Summary of Significant Accounting
Policies – Recently Issued Accounting Pronouncements” in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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