ISOPLEXIS CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q and our audited consolidated financial statements and the related notes thereto and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Form 10-K filed with theSEC onMarch 30, 2022 (the "2021 10-K"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the sections titled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in the 2021 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Data as of and for the three and nine months endedSeptember 30, 2022 and 2021 has been derived from our unaudited condensed consolidated financial statements appearing at the beginning of this Form 10-Q. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period.
Overview
IsoPlexis Corporation is a company empowering labs to leverage the cells and proteome changing the course of human health. Our systems uniquely identify a comprehensive range of multifunctional single cells, i.e. the superhero cells in the human body. These cells enable researchers to understand and predict disease progression, treatment resistance and therapeutic efficacy to advance all of human health. We are a life sciences company building solutions to accelerate the development of curative medicines and personalized therapeutics. Our award-winning single-cell proteomics systems reveal unique biological activity in small subsets of cells, allowing researchers to connect more directly to in vivo biology and develop more precise and personalized therapies. We are enabling deeper access to in vivo biology and driving durable and potentially transformational research on disease in a new era of advanced medicine. We believe our platform is the first to employ both proteomics and single cell biology in an effort to fully characterize and link cellular function to patient outcomes by revealing treatment response and disease progression. Our single cell proteomics platform, which includes instruments, chip consumables and software, provides an end-to-end solution to reveal a more complete view of protein function at an individual cellular level. Since our commercial launch inJune 2018 , our platform has been adopted by the top 15 global biopharmaceutical companies by revenue and approximately three quarters of the comprehensive cancer centers inthe United States to help develop more durable therapeutics, overcome therapeutic resistance, and predict patient responses for advanced immunotherapies, cell therapies, gene therapies, vaccines, and regenerative medicines. Our initial focus has been on developing applications of our platform for cancer immunology and cell and gene therapy. We are now expanding our capabilities to include applications for infectious diseases, inflammatory conditions, and neurological diseases. We currently market and sell our technology with an in-house commercial team inthe United States ,China andEurope . We are also utilizing our distribution network to market and sell across multiple countries, includingAustralia ,Belgium ,Canada ,China ,Czech Republic ,France ,Germany ,Italy ,Israel ,Japan ,Portugal ,Singapore ,South Korea ,Spain ,Switzerland , and theUnited Kingdom . We intend to further expand our international presence by growing our distribution networks inBrazil ,India ,Mexico and beyond. We manufacture our instruments and chip consumables in our manufacturing facilities inBranford, Connecticut and do not outsource any of our production manufacturing to third party contract manufacturers. Certain of our suppliers of components and materials are single source suppliers and we do not have supply agreements with certain suppliers of these critical components and materials beyond purchase orders. As part of our overall risk management strategy, we continue to evaluate and identify alternative suppliers for each of our components and materials. Since our inception inMarch 2013 , we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, conducting research and development activities, and filing patent applications. Prior to the completion of our IPO, we financed our operations primarily through the private placement of our securities, the incurrence of indebtedness and, to a lesser extent, grant income and revenue derived from sales of our instruments and chip consumables. As ofSeptember 30, 2022 , our principal source of liquidity was cash, which totaled$53.1 million .
We completed our first sale of our systems in
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compared to$4.2 million and$11.7 million for the three and nine months endedSeptember 30, 2021 . Nevertheless, we have incurred recurring losses since inception. For the three and nine months endedSeptember 30, 2022 , our net losses were$18.5 million and$72.8 million as compared to$20.2 million and$56.3 million for the three and nine months endedSeptember 30, 2021 . As ofSeptember 30, 2022 , we had an accumulated deficit of$206.8 million . We expect to continue to incur significant expenses and operating losses for the foreseeable future in connection with ongoing development and business expansion activities, particularly as we continue to:
•expand our research and development activities;
•obtain, maintain and expand and protect our intellectual property portfolio;
•market and sell new and existing products and services; and
•attract, hire and maintain qualified personnel to support our expanding business efforts.
Furthermore, we will incur additional costs associated with operating as a public company, including significant legal, accounting, compliance, investor relations and other expenses that we did not incur as a private company.
As a result of these anticipated expenditures, we will need substantial additional financing to support our continuing operations and pursue our growth strategy. Until such time as we can generate positive cash flows from operations, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, sales of products and services to our customers and, to a lesser extent, grant income. We may be unable to raise additional funds when needed on favorable terms or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.
Key Factors Affecting Our Performance
We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by the following factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to pursue our growth strategy and improve our results of operations. Our ability to successfully address the factors below is subject to various risks and uncertainties, including those factors set forth in the section titled "Risk Factors" included in our 2021 10-K.
New Customer Adoption of Our Platform
Our financial performance has been, and in the foreseeable future will continue to be, driven by our ability to increase the adoption of our platform and the installed base of our instruments. We plan to drive new customer adoption through a direct sales and marketing organization inthe United States ,China and parts ofEurope and third party distributors inEurope ,North America , theMiddle East andAsia-Pacific . As ofSeptember 30, 2022 , we market and sell our technology with an in-house commercial team and also utilize our distribution network to market and sell across multiple countries.
Recurring Revenues from Sales of our Chip Consumables
Our IsoCode chip consumables represent a source of recurring revenue from customers using our platform across a wide range of applications. Our instruments and consumables are designed to work together exclusively. As we expand our installed base of instruments, we expect consumable revenues to increase on an absolute basis and become an increasingly important contributor to our overall revenues.
Adoption of Our Platform Across Existing Customers' Organizations
There is an opportunity to grow our installed base and expand the number of instruments within organizations that are already utilizing our platform to advance their research and therapeutic development by their purchasing of additional instruments to support multiple locations or to increase capacity.
Adoption of Our Platform for New Applications
We founded our company to help solve critical challenges to accelerating
advanced medicines and since our inception, we have developed multiple
applications spanning cancer immunology, cell and gene therapy, infectious
diseases, inflammatory conditions, and neurological diseases. As we continue to
deploy our platform, we intend to concurrently expand the breadth of
applications for our technologies to encourage increased use of our platform
across our addressable
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markets. We expect our investments in these efforts to increase as we develop and market new applications, including a diagnostic application.
Components of Our Results of Operations
Revenue
Revenue consists of sales of instruments and consumables in addition to service revenue. Our total revenue for the three and nine months endedSeptember 30, 2022 was$4.5 million and$13.4 million and was$4.2 million and$11.7 million for the three and nine months endedSeptember 30, 2021 . We expect that our revenue will be less than our expenses for the foreseeable future and that we will experience losses as we continue to expand our business.
Cost of Product and Service Revenue
The Company's cost of product revenue primarily consists of manufacturing related costs incurred in the production process, including personnel and related costs, costs of components and materials, labor and overhead, packaging and delivery costs and allocated costs for facilities and information technology. Cost of service revenue consists primarily of personnel and related costs of service and warranty costs to support our customers.
Company re-organization and reduction in force (RIF)
OnApril 11, 2022 , the Company completed a re-organization of the Commercial team and company-wide RIF (Reduction in Force) which reduced total head count company-wide from approximately 500 as ofMarch 31, 2022 to approximately 380 as ofJune 30, 2022 . This action resulted in one-time non-recurring restructuring expenses of$4.3 million which were primarily associated with severance, benefits, and outplacement services during the second and third quarters of 2022. While the RIF was executed onApril 11, 2022 , we have continued to pursue further efficiencies and expect to achieve even lower operating expenses across multiple areas of our business, including but not limited to further savings in salaries and salary-related expenses, consultants and other professional services, internal material usage and licenses fees, in the fourth quarter of 2022 as seek to implement an accelerated path towards profitability. While we expect operating expenses to be lower in the short-term, over the longer-term operating expenses will go up as revenue increases, to support a larger installed instrument base and higher consumables sales.
Research and Development Expenses
Research and development expenses include:
•costs to obtain licenses to intellectual property and related future payments should certain success, development and regulatory milestones be achieved;
•employee-related expenses, including salaries, benefits and stock-based compensation expense;
•costs of purchasing lab supplies and non-capital equipment used in our research and development activities;
•consulting and professional fees related to research and development activities; and
•facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.
We expense research and development costs as incurred. Research and development activities are central to our business model.
Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of our current or future research and development efforts.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related
expenses, including salaries, benefits and stock-based compensation, for
personnel in executive, finance, business development, facility and
administrative functions. Other significant costs include facility costs not
otherwise included in research and development expenses, legal fees relating to
patent and corporate matters and fees for accounting, tax and consulting
services.
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We anticipate that our general and administrative expenses will increase in the long term to support continued expansion of our commercial, development and operating activities. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of compensation related expenses, including salaries, bonuses, benefits, non-cash stock-based compensation for sales and marketing personnel, advertising and promotion expenses, consulting and subcontractor fees, sales commissions, recruiting fees, and various other selling expenses. We anticipate that our sales and marketing expenses will increase in the long term as we pursue growth and as we identify and expand into new markets, increase our product offerings, and expand our install base.
Grant Income
We are engaged in variousSmall Business Innovation Research ("SBIR") grants with the federal government to help fund the costs of certain research and development activities. We believe that we have complied with all contractual requirements of the SBIR grants through the date of the financial statements. We do not currently expect future grant income to be a material source of funding for the Company.
Research and Development State Tax Credits
Research and development ("R&D") tax credits exchanged for cash pursuant to the
Connecticut R&D Tax Credit Exchange Program, which permits qualified small
businesses engaged in R&D activities within Connecticut to exchange their unused
R&D tax credits for a cash amount equal to 65% of the value of exchanged
credits, are recorded as a receivable and other income in the year the R&D tax
credits relate to, as it is reasonably assured that the R&D tax credits will be
received, based upon our history of filing for and receiving the tax credits.
R&D tax credits receivable where cash is expected to be received by us more than
one year after the balance sheet date are classified as noncurrent in the
consolidated balance sheets.
Fair Value Adjustment for Warrants and Loan Commitments
Warrants and loan commitments are freestanding financial instruments that qualify as liabilities and assets, respectively, required to be recorded at their estimated fair value at the inception date and remeasured at each reported balance sheet date thereafter until settlement, with gains and losses arising from changes in fair value recognized in the statement of operations during each period. Our preferred share warrants were converted to common share warrants upon our IPO and were reclassified from liabilities to equity for the year endedDecember 31, 2021 . 26
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Results of Operations
Comparisons of the Three Months Ended
The following table summarizes our results of operations for the three months endedSeptember 30, 2022 and 2021, together with the dollar change in those items: Three months ended September 30, Period to (in thousands) 2022 2021 period change Revenue Product revenue$ 3,633 $ 3,890 $ (257) Service revenue 851 303 548 Total revenue 4,484 4,193 291 Cost of product revenue 2,187 2,207 (20) Cost of service revenue 40 13 27 Gross profit 2,257 1,973 284 Operating expenses: Research and development expenses 4,169 4,700 (531) General and administrative expenses 8,782 7,106 1,676 Sales and marketing expenses 5,702 10,066 (4,364) Restructuring expenses 574 - 574 Total operating expenses 19,227 21,872 (2,645) Loss from operations (16,970) (19,899) 2,929 Other income (expense), net: Interest expense, net (1,485) (1,065) (420) Other income (expense), net - 765 (765) Net loss$ (18,455) $ (20,199) $ 1,744 Revenue Total revenue increased$0.3 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . This consisted primarily of a decrease of$0.5 million from sales of instruments, more than offset by an increase of$0.3 million for consumable revenue and$0.5 million increase in service revenue. The decrease in instruments revenue for the three months endedSeptember 30, 2022 was driven by a decrease in unit sales outside ofNorth America and average sales price attributable to a difference in product mix between IsoLights and IsoSparks. Service revenue was up primarily due to additional collaboration revenue and an increase in service contracts compared to the prior period.
Gross Profit
Gross profit as a percentage of total revenues was 50% for the three months
ended
Operating Expenses
Operating expenses decreased by$2.6 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . This included$0.6 million of one-time restructuring charges associated with the re-organization of the sales and marketing teams, manufacturing operations and research and development. These costs consisted of severance, benefits, and outplacement services provided as part of the Company's reduction in force. Total 27
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operating expenses of$19.2 million for the quarter endedSeptember 30, 2022 represent a reduction of$7.2 million or 27% from the preceding quarter-endedJune 30, 2022 .
Research and Development Expenses
Three months ended September 30, Period to
(in thousands) 2022 2021 period change
Compensation related expenses $ 2,760 $ 2,674 $ 86
Professional fees and sub-contractor - 365 (365)
Prototyping 339 591 (252)
Recruiting - 89 (89)
Lab materials 184 155 29
Supplies expense 273 465 (192)
Depreciation and amortization 581 15 566
Other 32 346 (314)
Total $ 4,169 $ 4,700 $ (531)
Research and development expenses decreased by $0.5 million , or 11%, for the
three months ended September 30, 2022 compared to the three months ended
September 30, 2021 , primarily due to reduced spending around categories of
professional fees and contractors by $0.4 million due to capitalization of
software expense, prototyping by $0.3 million and supplies by $0.2 million . This
was partially offset by a $0.1 million increase in compensation related expense
and a $0.6 million increase in depreciation and amortization expense.
General and Administrative Expenses
General and administrative expenses increased by$1.7 million , or 24%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily driven by an increase of$0.6 million related to stock based compensation, an increase of$0.7 million to support compliance as a publicly traded company, increases in compensation related expenses of$0.5 million in personnel to support organizational growth, and an increase of$0.3 million in software and networking expenses to support a larger organization. This was partially offset by a decrease of$0.3 million of recruiting related to our overall cost reduction effort.
Sales and Marketing Expenses
Sales and marketing expenses decreased by$4.4 million , or 43%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily due to decreases in compensation related expenses of$2.3 million around personnel reduction from restructuring, a decrease in professional fees of$1.1 million related to the reduced spending on consultants, a decrease in recruiting expenses of$0.5 million , and a decrease in usage of internal inventory items of$0.7 million .
Interest expense
As a result of the Credit Agreement we entered into onDecember 30, 2020 , we had$50.0 million of borrowings outstanding as ofSeptember 30, 2022 , and we recognized$1.5 million in interest expense for the three months endedSeptember 30, 2022 . We recognized$1.0 million in interest expense for the three months endedSeptember 30, 2021 . 28 -------------------------------------------------------------------------------- Table of Contents Comparisons of the Nine Months EndedSeptember 30, 2022 and 2021 The following table summarizes our results of operations for the nine months endedSeptember 30, 2022 and 2021, together with the dollar change in those items: Nine months ended September 30, Period to period (in thousands) 2022 2021 change Revenue Product revenue$ 11,410 $ 10,906 $ 504 Service revenue 1,990 810 1,180 Total revenue 13,400 11,716 1,684 Cost of product revenue 6,329 5,758 571 Cost of service revenue 182 41 141 Gross profit 6,889 5,917 972 Operating expenses: Research and development expenses 18,359 13,869 4,490 General and administrative expenses 28,705 16,670 12,035 Sales and marketing expenses 24,992 27,097 (2,105) Restructuring expenses 4,273 - 4,273 Total operating expenses 76,329 57,636 18,693 Loss from operations (69,440) (51,719) (17,721) Other income (expense): Interest expense, net (3,679) (2,678) (1,001) Other income (expense), net 334 (1,915) 2,249 Net loss$ (72,785) $ (56,312) (16,473) Revenue Total revenue increased$1.7 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . This consisted primarily of an increase of$0.9 million from consumables and an increase of$1.2 million in service revenue partially offset by a decrease of$0.4 million from sales of instruments driven by product mix of IsoLights and IsoSparks.
Gross Profit
Gross profit as a percentage of total revenues was 51% for both the nine months
ended
Research and Development Expenses
Nine months ended September 30, Period to
(in thousands) 2022 2021 period change
Compensation related expenses $ 10,373 $ 6,716 $ 3,657
Professional fees and sub-contractor 366 1,087 (721)
Prototyping 1,687 1,778 (91)
Recruiting 115 407 (292)
Lab materials 1,073 667 406
Supplies expense 1,565 2,325 (760)
Depreciation and amortization 1,652 259 1,393
Other 1,528 630 898
Total $ 18,359 $ 13,869 $ 4,490
Research and development expenses increased by $4.5 million , or 32%, for the
nine months ended September 30, 2022 compared to the nine months ended September
30, 2021 , primarily due to increases in compensation related expenses of
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$3.7 million from hiring approximately 20 new employees year over year, an increase of$1.4 million related to depreciation and amortization expense, an increase of$0.9 million in other expenses, and an increase of$0.4 million in lab materials, partially offset by a$0.7 million decrease in professional fees related to new product development and cost reduction projects, a decrease of$0.1 million in prototyping for next generation product development, a decrease of$0.3 million in recruiting expenses and a decrease of$0.8 million in supplies expense.
General and Administrative Expenses
General and administrative expenses increased by$12.0 million , or 72%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , largely driven by increases in compensation related expenses of$6.6 million due to year over year increase in personnel, an increase of$1.7 million of stock based compensation, an increase of$1.4 million of technology costs, an increase of$1.2 million of depreciation and amortization expense, an increase of$1.0 million of professional fees related to organizational process improvements, and an increase of$0.7 million in office related expenses. This was offset to a smaller extent by a decrease of$0.4 million in recruiting expense.
Sales and Marketing Expenses
Sales and marketing expenses decreased by$2.1 million , or 8%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily due to decreases in professional fees and contractors of$1.1 million , decrease in inventory items used of$0.7 million , a decrease in recruiting of$1.6 million , and a decrease in technology cost of$0.2 million , partially offset by an increase in compensation related expense of$0.9 million , and an increase in marketing expense of$0.5 million . Overall, the decrease was driven by controlled spending in categories of outside consultants and recruiting expense.
Interest expense
As a result of the Credit Agreement we entered into onDecember 30, 2020 , we had$50.0 million of borrowings outstanding as ofSeptember 30, 2022 , and we recognized$3.7 million in interest expense for the nine months endedSeptember 30, 2022 . We recognized$2.7 million in interest expense for the nine months endedSeptember 30, 2021 .
Liquidity and Capital Resources
AtSeptember 30, 2022 , we had$53.1 million in cash. Cash as ofSeptember 30, 2022 decreased by$73.4 million compared toDecember 31, 2021 , primarily due to the factors described under the heading "-Cash Flows" below. Our primary source of liquidity, other than cash on hand, has been cash flows from issuances of common stock in our IPO, issuances of preferred stock, debt financings and, to a lesser extent, grant income. Cash Flows
Comparisons of the Nine Months Ended
The following table provides information regarding our cash flows for the nine
months ended
(in thousands) 2022 2021 Net cash provided by (used in): Operating activities (81,164) (58,619) Investing activities (7,548) (22,471) Financing activities 15,274 15,188 Net change in cash$ (73,438) $ (65,902) Operating Activities Net cash used by operating activities in the nine months endedSeptember 30, 2022 primarily consisted of net loss of$72.8 million , partially offset by net non-cash adjustments of$8.7 million , plus net changes in operating assets and liabilities of$17.1 million , including a$14.1 million inventory increase. The primary non-cash adjustments to net income 30
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included share-based compensation of$3.5 million , depreciation and amortization expenses of$2.8 million and amortization of debt discount of$0.9 million . Cash flow impact from changes in net operating assets and liabilities were primarily driven by an increase in inventories and decrease in accrued expenses and other liabilities. Net cash used by operating activities in the nine months endedSeptember 30, 2021 primarily consisted of net loss of$56.3 million , partially offset by net non-cash adjustments of$7.7 million , plus net changes in operating assets and liabilities of$10.0 million , including a$16.0 million inventory increase. The primary non-cash adjustments to net income included share-based compensation of$1.2 million , depreciation and amortization expenses of$1.5 million , change in fair value of warrants and loan commitment of$4.1 million , amortization of debt discount of$0.5 million , provision for excess and obsolete inventories of$0.2 million and provision for warranty costs of$0.2 million . Cash flow impact from changes in net operating assets and liabilities were primarily driven by an increase in accounts receivable, inventories and prepaid expenses and other current assets and partially offset by increases in accounts payable, accrued liabilities, deferred revenue, deferred rent and a decrease in other assets.
Investing Activities
Net cash used in investing activities totaled$7.5 million in the nine months endedSeptember 30, 2022 . We purchased$7.2 million of property and equipment. We paid$0.3 million related to patents acquired and patent costs that were capitalized. Net cash used in investing activities totaled$22.5 million in the nine months endedSeptember 30, 2021 . We purchased$2.2 million of property and equipment. We paid$20.3 million related to patents acquired and patent costs that were capitalized. Financing Activities Net cash provided by financing activities was$15.3 million in the nine months endedSeptember 30, 2022 . We drew$15.0 million from our Tranche C and D term loans. Net cash provided by financing activities was$15.2 million in the nine months endedSeptember 30, 2021 . We raised cash through the issuance of Series D redeemable convertible preferred stock, with net proceeds of$10.0 million . We also borrowed the Tranche B term loan under our Credit Agreement, with net proceeds of$10.0 million . We paid$4.9 million in costs related to the IPO.
Funding Requirements
We expect to continue to generate operating losses in connection with our ongoing activities, particularly as we continue our research and development efforts and expand our business efforts. Furthermore, we have incurred and will continue to incur additional costs as a result of being a public company. Accordingly, we will need to obtain additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. At the time of issuance of our unaudited consolidated interim financial statements for the nine months endedSeptember 30, 2022 , we concluded that there was substantial doubt about our ability to continue as a going concern for one year from the issuance of such unaudited consolidated interim financial statements. However, we believe that, based on our current business plan and anticipated amendment with our lender as to the current revenue covenant, we will be able to fund our operating expenses and capital expenditure requirements into mid-2024. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with our research and development efforts, we are unable to estimate the exact amount of our operating capital requirements. Our future capital requirements will depend on many factors, including:
•future research and development efforts;
•the need to service and refinance our indebtedness;
•our ability to enter into and terms and timing of any collaborations, licensing agreements or other arrangements;
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•the costs of sales, marketing, distribution and manufacturing efforts;
•our headcount growth and associated costs as we expand our business;
•the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims; and
•the costs of operating as a public company
Until such time, if ever, as we can generate positive cash flows from operations, we expect to finance our additional cash needs through a combination of equity offerings, debt financings, sales of products and services to our customers and, to a lesser extent, grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, stockholder ownership interest will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect the rights of holders of common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through additional strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or future revenue streams or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity offerings, debt financings or grants when needed, we may be required to delay, limit, or reduce our expansion efforts.
Contractual Obligations and Commitments
Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude orders for goods and services entered into in the normal course of business that are not enforceable or legally binding. OnDecember 30, 2020 , we entered into the Credit Agreement, which provides for senior secured financing of up to$50.0 million , originally consisting of a$25.0 million Tranche A term loan and a$25.0 million Tranche B term loan. The Tranche A term loan of$25.0 million was drawn at the initial closing of the Credit Agreement onDecember 30, 2020 . The Credit Agreement was amended onMay 27, 2021 to split the previously remaining$25.0 million delayed draw term loan commitments under the Credit Agreement into a$10.0 million Tranche B term loan and a$15.0 million Tranche C term loan. The Tranche B term loan of$10.0 million was drawn onMay 27, 2021 . The Credit Agreement was further amended onMarch 30, 2022 to split the remaining$15.0 million Tranche C term loan into a$7.5 million Tranche C term loan and a$7.5 million Tranche D term loan. The Tranche C term loan was drawn onMarch 30, 2022 . The Tranche D term loan was drawn onJune 29, 2022 . Borrowings under the Credit Agreement bear interest at a rate per annum equal to the one-month LIBOR rate (with a minimum LIBOR rate for such purposes of 1.75%) plus a margin of 9.50% (12.07% atSeptember 30, 2022 ). Monthly payments of interest only are due over the term of the Credit Agreement with no scheduled loan amortization. Unless accelerated prior to such date, all amounts outstanding under the Credit Agreement are due to be repaid onDecember 30, 2025 . In addition, the Credit Agreement includes a quarterly minimum total revenue covenant for the applicable trailing twelve month period. OnOctober 29, 2021 , we entered into the Second Amendment to, among other things, eliminate the minimum total revenue covenant for the twelve months endingDecember 31, 2021 and reset the total minimum revenue covenants thereafter. As ofSeptember 30, 2022 , the Company was not in compliance with the minimum total revenue covenant requirement of$21.7 million . OnNovember 8, 2022 , the Company obtained a waiver of the total minimum revenue requirements for the twelve month period endingSeptember 30, 2022 under the Credit Agreement. The following table summarizes our commitments to settle contractual obligations as ofSeptember 30, 2022 : Less than 1 More than 5 (in thousands) Total year 1-3 Years 4-5 Years years Lease commitments (1)$ 6,147 $ 1,799 $ 3,290 $ 1,058 $ - Purchase obligations (2) 35,625 3,625 11,250 18,250 2,500 Total$ 41,772 $ 5,424 $ 14,540 $ 19,308 $ 2,500 (1) Represents commitments under our non-cancelable leases. 32 -------------------------------------------------------------------------------- Table of Contents (2) Purchase obligations relate to our Patent Purchase Agreement withQIAGEN Sciences, LLC andQIAGEN GmbH for certain reagents.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of financial statements in accordance withU.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Management bases its estimates on historical experience, market and other conditions, and various other assumptions it believes to be reasonable. Although these estimates are based on management's best knowledge of current events and actions that may impact us in the future, the estimation process is, by its nature, uncertain given that estimates depend on events over which we may not have control. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to inform our critical accounting estimates. If market and other conditions change from those that we anticipate, our consolidated financial statements may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material effect on our consolidated financial statements. During the three and nine months endedSeptember 30, 2022 , there were no material changes to our critical accounting policies and use of estimates from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in the Form 10-K for the year endedDecember 31, 2021 and filed with theSEC onMarch 30, 2022 .
Recent Accounting Pronouncements
Refer to Note 2, "Summary of Significant Accounting Policies," in the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for a discussion of recent accounting pronouncements.
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