QUANTUM-SI INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)

Class A
common stock

Class B
common stock
Additional
paid-in
Accumulated Total stockholders’
Shares Amount Shares Amount capital deficit
equity

Balance - December 31, 2021
118,025,410 $ 12 19,937,500 $ 2 $ 744,252 $ (267,232 ) $ 477,034
Net loss - - - - - (35,175 ) (35,175 )
Common stock issued upon exercise of stock options and vesting of restricted stock units
946,987 - - - 730 - 730
Stock-based compensation
- - - - (714 ) - (714 )
Balance - March 31, 2022
118,972,397 $ 12 19,937,500 $ 2 $ 744,268 $ (302,407 ) $ 441,875

	Class A common stock				Class B common stock				Additional paid-in		Accumulated			Total stockholders’
	Shares		Amount		Shares		Amount		capital		deficit			equity
Balance - December 31, 2022		120,006,757	$	12		19,937,500	$	2	$	758,366	$	(399,674	)	$	358,706
Net loss		-		-		-		-		-		(23,611	)		(23,611	)
Common stock issued upon vesting of restricted stock units		1,552,583		-		-		-		-		-			-
Stock-based compensation		-		-		-		-		3,908		-			3,908
Balance - March 31, 2023		121,559,340	$	12		19,937,500	$	2	$	762,274	$	(423,285	)	$	339,003
Net loss		-		-		-		-		-		(25,573	)		(25,573	)
Common stock issued upon vesting of restricted stock units		74,273		-		-		-		-		-			-
Stock-based compensation		-		-		-		-		1,865		-			1,865
Balance - June 30, 2023		121,633,613	$	12		19,937,500	$	2	$	764,139	$	(448,858	)	$	315,295

	Class A common stock				Class B common stock				Additional paid-in			Accumulated			Total stockholders’
	Shares		Amount		Shares		Amount		capital			deficit			equity
Balance - December 31, 2021		118,025,410	$	12		19,937,500	$	2	$	744,252		$	(267,232	)	$	477,034
Net loss		-		-		-		-		-			(35,175	)		(35,175	)
Common stock issued upon exercise of stock options and vesting of restricted stock units		946,987		-		-		-		730			-			730
Stock-based compensation		-		-		-		-		(714	)		-			(714	)
Balance - March 31, 2022		118,972,397	$	12		19,937,500	$	2	$	744,268		$	(302,407	)	$	441,875
Net loss		-		-		-		-		-			(32,414	)		(32,414	)
Common stock issued upon exercise of stock options and vesting of restricted stock units		271,731		-		-		-		264			-			264
Stock-based compensation		-		-		-		-		3,770			-			3,770
Balance - June 30, 2022		119,244,128	$	12		19,937,500	$	2	$	748,302		$	(334,821	)	$	413,495

Class A
common stock

Class B
common stock
Additional
paid-in
Accumulated
Total stockholders’

Shares Amount Shares Amount capital deficit
equity

Balance - December 31, 2022
120,006,757 $ 12 19,937,500 $ 2 $ 758,366 $ (399,674 ) $ 358,706
Net loss - - - - - (23,611 ) (23,611 )
Common stock issued upon exercise of stock options and vesting of restricted stock units
1,552,583 - - - - - -
Stock-based compensation
- - - - 3,908 - 3,908
Balance - March 31, 2023
121,559,340 $ 12 19,937,500 $ 2 $ 762,274 $ (423,285 ) $ 339,003

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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QUANTUM-SI INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three Months Ended March 31,						Six Months Ended June 30,
	2023			2022			2023			2022
Cash flows from operating activities:
Net loss	$	(23,611	)	$	(35,175	)	$	(49,184	)	$	(67,589	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		803			452			1,893			1,060
Non-cash lease expense		536			428			944			900
(Gain) loss on marketable securities (realized and unrealized)		(2,942	)		11,511
Loss on disposal of fixed assets		3			-
(Gain) loss on marketable securities								(1,761	)		16,144
(Gain) loss on disposal of fixed assets								(8	)		9
Change in fair value of warrant liabilities		(391	)		(2,647	)		(81	)		(4,984	)
Change in fair value of contingent consideration		34			54			(400	)		107
Stock-based compensation		3,908			(714	)		5,773			3,056
Changes in operating assets and liabilities:
Accounts receivable, net		(82	)		-			(327	)		-
Inventory, net		(1,708	)		-			(1,740	)		-
Prepaid expenses and other current assets		738			883			(431	)		1,432
Operating lease right-of-use assets		-			(8,490	)		(83	)		(9,338	)
Other assets								(4	)		-
Accounts payable		(730	)		1,481			(1,952	)		77
Accrued expenses and other current liabilities		(4,537	)		707			(3,059	)		810
Other long-term liabilities		24			-			32			-
Operating lease liabilities		(743	)		8,281			(1,235	)		9,142
Net cash used in operating activities	$	(28,698	)	$	(23,229	)	$	(51,623	)	$	(49,174	)
Cash flows from investing activities:
Purchases of property and equipment		(2,574	)		(2,500	)		(3,543	)		(5,462	)
Internally developed software - capitalized costs		(887	)		-			(719	)		-
Purchases of marketable securities		-			(802	)		-			(101	)
Sales of marketable securities		29,500			25,000			59,500			100,078
Net cash provided by investing activities	$	26,039		$	21,698		$	55,238		$	94,515
Cash flows from financing activities:
Proceeds from exercise of stock options		-			730			-			994
Payment of contingent consideration - business acquisition								-			(348	)
Payment of deferred consideration - business acquisition								-			(500	)
Net cash provided by financing activities	$	-		$	730		$	-		$	146
Net decrease in cash and cash equivalents		(2,659	)		(801	)
Net increase in cash and cash equivalents								3,615			45,487
Cash and cash equivalents at beginning of period		84,319			35,785			84,319			35,785
Cash and cash equivalents at end of period	$	81,660		$	34,984		$	87,934		$	81,272
Supplemental disclosure of noncash information:
Noncash acquisition of property and equipment	$	847		$	1,580
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment purchased but not paid							$	811		$	646

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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QUANTUM-SI INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~AS OF MARCH 31, 2023 AND DECEMBER 31, 2022~~

~~AND FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022~~

(in thousands, except share and per share amounts)

(Unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

~~Quantum-Si~~

Quantum-Si Incorporated (including its subsidiaries, the “Company” or “Quantum-Si”) (formerly HighCape Capital Acquisition Corp. (“HighCape”)) was ~~originally~~ incorporated in Delaware on June 10, ~~2020 as~~2020. The Company’s legal name became Quantum-Si Incorporated following a special purpose acquisition company under the name HighCape Capital Acquisition Corp. (“HighCape”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination ~~involving HighCape~~between the Company and ~~one or more businesses. On~~Q-SI Operations Inc. (formerly Quantum-Si Incorporated) on June 10, 2021 (the ~~“Closing”), the Company consummated the transactions contemplated by the Business Combination Agreement, dated February 18, 2021 (the~~ “Business ~~Combination Agreement”), by and among HighCape, Tenet Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and Quantum-Si Incorporated, a Delaware corporation (“Legacy Quantum-Si”~~Combination”).

Pursuant to the terms of the Business Combination Agreement, a business combination between HighCape was effected through the merger of Merger Sub with and into Legacy Quantum-Si, with Legacy Quantum-Si surviving as the surviving company and a wholly owned subsidiary of HighCape (the “Merger” and collectively with the other transaction described in the Business Combination Agreement, the “Business Combination”). Effective as of the Closing, HighCape changed its name to Quantum-Si Incorporated and Legacy Quantum-Si changed its name to Q-SI Operations Inc. The financial information prior to the Business Combination represents the financial results and condition of Legacy Quantum-Si.

The Company is 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. The Company has developed a proprietary universal single-molecule detection platform that the Company is 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), and can be used for the study of nucleic acids. The Company’s 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 its instruments.

Although the Company has incurred recurring losses each year since its inception, the Company expects its cash and cash equivalents, and marketable securities will be able to fund its operations for at least the next twelve months.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. All intercompany transactions are eliminated. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including certain notes required by U.S. GAAP, on an annual reporting basis.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods. The results for the three and six months ended ~~March 31,~~June 30, 2023 are not necessarily indicative of the results to be expected for any subsequent quarter, the year ending December 31, 2023, or any other period.

Except for revenue, inventory and capitalized software development costs discussed elsewhere in this note, there have been no material changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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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 the Company’s operating results, financial condition and cash flows. ~~The COVID-19 pandemic had, and is expected to continue to have, an adverse impact on~~On May 11, 2023, the Company’s operations, particularly as a result of preventive and precautionary measures that the Company, other businesses, and governments are taking. Governmental mandates related to COVID-19 or other infectious diseases, orfederal public health ~~crises, have impacted, and~~emergency for COVID-19, declared under Section 319 of the Company expects them to continue to impact, its 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 the Company’s receipt of instruments, components and supplies from the third parties the Company relies on to, among other things, produce its 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 the Company’s business and operations, such as additional workplace safety measures, the Company’s product development plans may be delayed, and the Company may incur further costs in bringing its 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 the Company’s 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.Public Health Service Act, expired.

The estimates of the impact on the Company’s 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. While the Company is unable to predict the full impact that the COVID-19 pandemic will have on the Company’s future results of operations, liquidity and financial condition due to numerous uncertainties, including 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 the Company’s operating results, financial condition, and cash flows.

~~The~~The Company has not incurred any significant impairment losses in the carrying values of the Company’s assets as a result of the COVID-19 pandemic and is not aware of any specific related event or circumstance that would require the Company to revise its estimates reflected in its condensed consolidated financial statements. ~~On May 11, 2023,~~The Company will continue to evaluate the ~~federal public health emergency for COVID-19, declared under Section 319~~impact of the ~~Public Health Service Act, expired.~~COVID-19 pandemic on its industry and the Company and has concluded that while it is possible that the virus could have a future negative effect on the Company’s financial position, results of operations and cash flows in its condensed consolidated financial statements, the specific future impact is not readily determinable as of the date of the filing of this Quarterly Report on Form 10-Q. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Other Global Developments

In 2022, various central banks around the world (including the Federal Reserve in the United States) raised interest rates. ~~While these~~These rate increases have ~~not had a significant adverse impact on~~caused an overall decline in the ~~Company~~fair value of the Company’s fixed income mutual funds to ~~date, the~~date. The impact of such rate ~~increases~~changes on the overall financial markets and the economy may ~~adversely~~continue to impact the Company in the ~~future.~~future, including by making capital more difficult and costly to obtain on reasonable terms and when needed. In addition, the global economy has experienced and is continuing to experience high levels of inflation and global supply chain disruptions. The Company continues to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic environment.

In addition, although the Company has no operations in or direct exposure to Russia or Ukraine, the Company has experienced some constraints in product and material availability and increasing costs required to obtain some materials and supplies as a result of the impact of the Russia-Ukraine military conflict on the global ~~economy.~~economy, which has contributed to the global supply chain disruptions. To date, the Company’s business has not been materially impacted by the ~~conflict, however,~~conflict. However, as the conflict continues or worsens, it may adversely impact the Company’s business, financial condition, results of operations or cash flows.

Concentration of Credit Risk

~~Financial~~Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and marketable securities. As of ~~March 31,~~June 30, 2023 and December 31, 2022, substantially all of the Company’s marketable securities were invested in fixed income mutual funds at one financial institution. TSee Note 5 “Investments in Marketable Securities” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information regarding oheur realized losses on such accounts. The Company also maintains balances in certain operating accounts above federally insured ~~limits. After considering~~limits and, as a result, the ~~dividend income derived from such investments,~~Company is exposed to credit risk in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation.

Segment Reporting

The Company’s Chief Operating Decision Maker, its Chief Executive Officer, reviews the Company’s financial information on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has ~~not recognized any significant realized losses on such accounts and does not believe~~determined that it ~~is exposed to any significant credit risk on cash and cash equivalents and marketable securities.~~operates as a single reportable segment.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year’s presentation.

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Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions about future events that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with certainty. On an ongoing basis, management evaluates these estimates and assumptions. Significant estimates and assumptions include:

●

valuation allowance with respect to deferred tax assets;

●

inventory valuation;

●

assumptions used for leases;

●

valuation of warrant liabilities; ~~and~~

●

assumptions associated with revenue recognition; and

●

assumptions underlying the fair value used in the calculation of ~~the~~ stock-based compensation.

The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s condensed consolidated financial statements.

~~Investments in Marketable Securities~~

The Company’s investments in marketable securities are classified as trading securities and consist of ownership interests in fixed income mutual funds. The securities are stated at fair value, as determined by quoted market prices. As the securities have readily determinable fair value, unrealized gains and losses are reported as Other income (expense), net on the condensed consolidated statements of operations and comprehensive loss. Subsequent gains or losses realized upon redemption or sale of these securities are also recorded as Other income (expense), net on the condensed consolidated statements of operations and comprehensive loss. Dividends on marketable securities are recognized as income when declared. The Company considers all of its investments in marketable securities as available for use in current operations and therefore classifies these securities within current assets on the condensed consolidated balance sheets.

For the three months ended March 31, 2023 and 2022, the Company reported unrealized gains of $5,110 and unrealized losses of $11,511, respectively, related to securities held as of March 31, 2023 and 2022. Realized losses related to securities that matured or were sold during the three months ended March 31, 2023 and 2022 were $2,168 and $50, respectively. For the three months ended March 31, 2023 and 2022, the Company recognized $2,219 and $855, respectively, in dividend income from marketable securities.

~~Accounts Receivable, Net~~

Accounts receivable, net is stated as the amount the Company expects to collect. The Company maintains an allowance for estimated credit losses resulting from the inability of its customers to make required payments. As of March 31, 2023, the allowance for estimated credit losses was $0.

~~Inventory, Net~~

The Company’s inventory consists of raw materials, work in process and finished goods produced internally and at third-party manufacturers. Inventory is valued at the lower of actual cost (“first-in, first-out”) or market. Inventory values include not only standard costs, but also certain manufacturing variances and other product related costs incurred in producing or procuring the inventory on hand. Inventory includes allowances for: obsolescence; expired inventory; standard cost revisions; and lower of cost or market adjustments. The Company writes down specifically identified unusable, obsolete, or known unsalable inventory in the period that it is first recognized by using several factors including product expiration dates, open and unfulfilled orders and sales forecasts. Any write-down of its inventory to net realizable value establishes a new cost basis that will be maintained even if certain circumstances suggest that the inventory is recoverable in subsequent periods. Costs associated with the write-down of inventory will be recorded in Cost of revenue on the Company’s condensed consolidated statements of operations and comprehensive loss. As of March 31, 2023, the inventory reserves was $0.

~~Cost of Revenue~~

Cost of revenue primarily consists of product and service costs including material costs, personnel costs and benefits, inbound and outbound freight, packaging, warranty replacement costs, facilities costs, depreciation and amortization expense, and inventory obsolescence and write-offs.

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~~Warranty~~

Inventory, Net

Inventory is stated at the lower of cost or net realizable value with cost determined using the first-in, first-out method. Inventory primarily consists of raw materials and finished goods of $1,134 and $834, respectively, as of June 30, 2023.

Materials that may be utilized for either research and development or, alternatively, for commercial purposes, are classified as inventory. Amounts in inventory that are used for research and development purposes are charged to research and development expense when the product enters the research and development process and can no longer be used for commercial purposes and, therefore, does not have an “alternative future use” as defined in authoritative guidance.

The Company ~~offers a free 12-month warranty to customers with~~ ~~the initial purchase of a Platinum™ instrument. The cost~~performs an assessment of the ~~warranty~~recoverability of capitalized inventory during each reporting period and, if needed, writes down any excess and obsolete inventory to its estimated net realizable value in the period it is ~~accrued upon the initial purchase~~identified. As of ~~an instrument in Accrued expenses and other current liabilities on the condensed consolidated balance sheets.~~June 30, 2023, there were no write-downs recorded against inventory.

~~Leases~~

~~At inception, the Company determines if an arrangement is a lease in accordance with Accounting Standards Update (“ASU”) 2016-02,~~ ~~Leases~~ ~~(Topic 842), and records right-of-use (“ROU”) assets and lease liabilities on the condensed consolidated balance sheets at lease commencement.~~

The Company’s leases generally do not have a readily determinable implicit discount rate. As such, the Company uses an incremental borrowing rate based on the information available at the lease commencement date to determine the present value of the lease payments. The Company’s incremental borrowing rate is the estimated rate that would be required to pay for a collateralized borrowing equal to the total lease payment over the lease term. The Company measures ROU assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) tenant incentives under the lease. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term for operating leases. Finance leases will result in a front-loaded expense pattern. With respect to finance leases, amortization of the ROU asset is presented separately from interest expense related to the finance lease liability. In addition, the Company does not have significant residual value guarantees or restrictive covenants in the lease portfolio.

Certain of the Company’s lease agreements contain tenant improvement incentives and allowances, rent holidays, or rent escalation clauses. For tenant improvement incentives, if the incentive is determined to be a leasehold improvement owned by the lessee and the Company is reasonably certain to use the incentive, the Company generally records the incentive as a reduction to the fixed lease payments liability as a reduction to lease cost. Reimbursable construction costs incurred are recorded as leasehold improvements and are amortized over the term of the lease. For rent holidays and rent escalation clauses during the lease term, the Company records rental expense on a straight-line basis over the term of the lease. For these lease incentives, the Company uses the date of initial possession as the commencement date, which is generally when the Company is given the right of access to the space and begins to make improvements in preparation for intended use.

The Company expenses monthly rental payments as incurred in Cost of revenue, Research and development and Selling, general and administrative in the condensed consolidated statements of operations and comprehensive loss. The Company’s lease agreements contain variable lease costs for common area maintenance, utilities, taxes and insurance, which are expensed as incurred.

~~Impairment of Long-Lived Assets~~

The Company reviews its long-lived assets for impairment when the Company determines a triggering event has occurred. When a triggering event has occurred, each impairment test is based on a comparison of the future expected undiscounted cash flow to the recorded value of the asset. If the recorded value of the asset is less than the undiscounted cash flow, the asset is written down to its estimated fair value. No impairments were recorded for the three months ended March 31, 2023 or 2022.

Capitalized Software Development Costs

The Company capitalizes certain internal use software development costs related to its SaaS platform incurred during the application development stage when management with the relevant authority authorizes and commits to the funding of the project, it is probable that the project will be completed, and the software will be used as intended. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable that the ~~expenditures~~expenditure will result in additional functionality. Costs related to preliminary project activities and to post-implementation activities are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, which is generally two years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of the assets. Capitalized costs are recorded as Internally developed software in the condensed consolidated balance sheets. Amortization expense related to Internally developed software was $46 for the three and six months ended June 30, 2023. As of June 30, 2023 amortization expenseis expected to be ~~$333~~$180 for the remainder of the year ending December 31, 2023 and $~~443~~360 and ~~$111~~$133 for the years ending December 31, 2024 and 2025, respectively.

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Revenue Recognition

The Company’s revenue is derived from sales of products and services. Product revenue is primarily generated from the sales of instruments and consumables used in protein sequencing and analysis. Service revenue is primarily generated from service maintenance contracts including cloud access, proof of concept services and advanced training for instrument use. The Company recognizes revenue ~~in accordance with Accounting Standards Codification (“ASC”) Topic 606,~~ ~~“Revenue from Contracts with Customers.”~~

~~Revenue is recognized~~ when or as a customer obtains control of the promised goods and services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for these goods and services. ~~To achieve this core principle,~~ This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue as the performance obligations have been satisfied. Revenue recognition for contracts with multiple deliverables is based on the separate satisfaction of each distinct performance obligation within the contract. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company allocates transaction price to the performance obligations in a contract with a customer based on the relative standalone selling price of each performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company ~~applies~~estimates the ~~following five steps:~~

standalone selling price taking into account available information and specific factors such as competitive positioning, internal costs, profit objectives, and internally approved pricing guidelines related to the performance obligation.

●

~~Step 1: Identify Contracts with Customers:~~ The Company executes contracts in the form of purchase orders with its customers for the sale of products, which includes instruments and consumables, and services, which includes service maintenance contracts, cloud subscription access, proof of concept services, and advanced training for instrument use.

The ~~Company’s customers submit a purchase order~~Company considers performance obligation for sales of products is satisfied upon shipment of the goods to the customer in accordance with the ~~Company’s~~shipping terms (either upon shipment or delivery), which is when control of the product is deemed to be transferred; this would include instruments and consumables. Customers generally do not have a right of return, except for defective or damaged products during the warranty period or unless prior written consent is provided. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Revenues for service maintenance contracts, which start after the first year of purchase and are considered as service type warranties that effectively extend the standard first-year warranty coverage at the customer’s option, are recognized ratably over the contract service period as these services are performed evenly over time. Revenues for proof of concept services and advanced training is recognized upon satisfaction of the underlying performance obligation. The Company typically provides a standard one-year warranty which covers defects in materials and workmanship and manufacturing or performance conditions under normal use and service for the first year. The first year of ~~sale.~~the warranty of the products is considered an assurance-type warranty. The ~~purchase order specifies the goods or services~~Company has determined that ~~the customer wishes to purchase from the Company.~~this standard first-year warranty is not a distinct performance obligation.

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~~The five specific criteria for accounting for a contract under ASC 606 are:~~

The Company disaggregates revenue from contracts with customers by type of revenue – products and services. The Company believes that product revenue and service revenue aggregate the payor types by nature, amount, timing and uncertainty of its revenue streams. Total revenue generated from domestic sales for the three and six months ended June 30, 2023 was $102 and $356, respectively. Total revenue generated from international sales for the three and six months ended June 30, 2023 was $103.

a.	~~Contract approval and commitment of parties: Customer submits a purchase order (“PO”) and the Company accepts.~~

b.	~~Identification of rights and obligations: PO is compared to terms and conditions to ensure alignment.~~

c.	~~Identification of payment terms: e.g. Net 30.~~

d.	~~Commercial substance: Evidenced by fees exchanged for goods and services.~~

e.	~~Collectability is probable: Credit check measures performed before PO is accepted.~~

●

~~Step 2: Identify Performance Obligations:~~ Identifying the separately identifiable performance obligations in a contract involves two steps: (i) identifying the promised goods or services and (ii) determining which of those promised goods or services represent distinct performance obligations.

●

~~Step 3: Determine Transaction Price:~~ The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for providing goods or services under the contract. The Company estimates the transaction price at contract inception, including any variable consideration, and updates the estimate each reporting period for any changes in circumstances. When determining the transaction price, the Company assumes that the goods or services will be transferred to the customer based on the terms of the existing contract and does not take into consideration the possibility of a contract being canceled, renewed, or modified.

●

~~Step 4: Allocate Transaction Price to Performance Obligations:~~ ~~The~~ ~~Company~~ ~~allocates~~ ~~transaction price~~ ~~to the performance obligations in a contract with a customer, based on the relative standalone selling price of~~ ~~each performance obligation. The Company determines standalone selling price based on~~ ~~the~~ ~~price at~~ ~~which the~~ ~~performance obligation is sold separately. If~~ ~~the~~ ~~standalone selling price is not observable through past transactions,~~ ~~the~~ Company estimates the standalone selling price taking into account available information and specific factors such as competitive positioning, internal costs, profit objectives, and internally approved pricing guidelines related to the performance obligation. ~~The Company currently generates its revenue from~~ ~~products and services.~~

●

~~Step 5: Recognize Revenue as Performance Obligations are Satisfied:~~ The final step in the revenue model is to recognize the transaction price allocated to a performance obligation as revenue when (or as) the performance obligation is satisfied. The Company’s performance obligation is satisfied for goods upon shipment to the customer; this would include instruments and consumables. The Company’s performance obligation is satisfied for services in accordance with ASC 606 guidance; service maintenance contracts and cloud subscription access are straight-lined over the subscription period; proof of concept services and advanced training upon completion. Freight revenue is recognized ~~as Product revenue in the condensed consolidated statements of operations and comprehensive loss~~ ~~upon product shipment.~~

Deferred Revenue

Deferred revenue is a contract liability that consists of customer payments received in advance of performance or billings in excess of revenue recognized, net of revenue recognized from the balance at the beginning of the period.

Deferred revenue primarily consists of billings and payments received in advance of revenue ~~recognitio~~nrecognition from service maintenance contracts ~~effective after the first year~~including software subscription, proof of concept services and ~~cloud subscription access,~~ advanced training, and is reduced as the revenue recognition criteria are met. ~~The Company’s service maintenance contracts include hardware maintenance and support.~~ Deferred revenue also includes proof of concept services and advanced training provided to customers until the service has been performed. Deferred revenue is classified as current or non-current based on expected revenue recognition timing. Specifically, deferred revenue that will be recognized as revenue within the succeeding 12-month period is recorded as current and is included within Accrued expenses and other current liabilities, and the portion of deferred revenue where revenue is expected to be recognized beyond 12 months from the reporting date is recorded as non-current deferred revenue and is included in Other long-term liabilities in the Company’s condensed consolidated balance sheets.

As of June 30, 2023, the Company had remaining performance obligations amounting to $176, $144 of which is included within Accrued expenses and other current liabilities and $32 is included within Other long-term liabilities in the Company’s condensed consolidated balance sheets. The Company expects to recognize approximately 78% of its remaining performance obligations as revenue for the remainder of the year ending December 31, 2023, and an additional 22% for the year ending December 31, 2024 and thereafter.

The amount of revenue recognized during the three and six months ended June 30, 2023 that was included in the deferred revenue balance of $73 at December 31, 2022 was $1 and $70, respectively.

Warranty

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~~Warrant Liabilities~~

~~The Company’s outstanding warrants include publicly-traded warrants (the “Public Warrants”) which were issued as~~ ~~one-third~~ of one redeemable warrant per unit issued during HighCape’s initial public offering on September 9, 2020, and warrants sold in a private placement (the “Private Warrants”) to HighCape’s sponsor, HighCape Capital Acquisition LLC (the “Sponsor”). The Company ~~evaluated its warrants under ASC 815-40,~~ ~~Derivatives and Hedging-Contracts in Entity’s Own Equity~~ ~~and concluded that they do not meet~~provides a free 12-month assurance-type warranty to customers with the ~~criteria to be classified in stockholders’ equity. Since the Public Warrants and Private Warrants meet the definition~~initial purchase of a ~~derivative under ASC 815-40,~~PlatinumTM instrument. The cost of the ~~Company recorded these warrants as long-term~~warranty is accrued upon the initial sale of an instrument in Accrued expenses and other current liabilities on the condensed consolidated balance ~~sheet at fair value upon the Closing~~sheets.

Shipping and Handling Costs

Shipping and handling costs associated with outbound freight after control of ~~the Business Combination, with subsequent changes~~a product has transferred to a customer are accounted for as fulfillment costs and are included in ~~their respective fair values recognized~~Cost of revenue in the condensed consolidated statements of operations and comprehensive ~~loss at each reporting date.~~

loss. Shipping and handling costs billed to customers are considered part of the transaction price and are recognized as revenue with the underlying product sales.

Recently Issued Accounting Pronouncements

Accounting pronouncements issued but not yet adopted

No new accounting ~~pronouncement~~pronouncements issued or effective during the three and six months ended ~~March 31,~~June 30, 2023 had, or isare expected to have, a material impact on the Company’s condensed consolidated financial statements.

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9. EQUITY INCENTIVE PLAN

The Company’s 2013 Employee, Director and Consultant Equity Incentive Plan, as amended on March 12, 2021 (the “2013 Plan”), was originally adopted by its Board of Directors and stockholders in September 2013. In connection with the ~~Closing~~closing of the Business Combination, the Company adjusted the equity awards. The adjustments to the awards did not result in incremental expense as the equitable adjustments were made pursuant to a preexisting nondiscretionary antidilution provision in the 2013 Plan, and the fair-value, vesting conditions, and classification are the same immediately before and after the modification. In connection with the Business Combination, HighCape’s stockholders approved and adopted the Quantum-Si Incorporated 2021 Equity Incentive Plan (the “2021 Plan”) and the Company no longer makes issuances under the 2013 Plan. The 2021 Plan provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or cash-based awards. Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting or advisory services for the Company, are eligible for grants under the 2021 ~~Plan.~~ Plan. As of ~~March 31,~~June 30, 2023 and December 31, 2022, there were ~~9,940,335~~8,886,743 and 9,133,702 shares, respectively, available for issuance under the 2021 Plan.

On November 9, 2022, the Company granted ~~its Chief Executive Officer two performance-based stock option grants of 1,390,000 each, for a total~~inducement awards consisting of 2,780,000 performance-based stock options to purchase ~~shares of~~ Class A common ~~stock. These awards are inducement awards~~stock pursuant to Nasdaq Rule 5635(c)(4) ~~and the stock options~~. These awards were not granted pursuant to the 2013 Plan or the ~~2021~~2021 Plan.

On May 8, 2023, the Company adopted the 2023 Inducement Equity Incentive Plan (the “2023 Inducement Plan”) to reserve 3,000,000 shares of its common stock to be used exclusively for grants of awards to individuals that were not previously employees or directors of the Company as a material inducement to such individuals’ entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the 2023 Inducement Plan are substantially similar to those of the 2021 Plan. On May 15, 2023, the Company granted inducement awards under the 2023 Inducement Plan consisting of 1,000,000 time-based stock options and 1,000,000 performance-based stock options. As of June 30, 2023, there were 1,000,000 shares available for issuance under the 2023 Inducement Equity Incentive Plan.

Stock option activity

During the ~~three~~six months ended ~~March 31,~~June 30, 2023, the Company granted an aggregate of ~~5,175,550~~9,131,580 stock option awards to participants, with vesting subject to the participant’s continued employment with the Company through the applicable vesting dates. Stock-based compensation related to stock options for the three months ended ~~March 31,~~June 30, 2023 and 2022 was ~~$2,279~~$2,316 and ~~$1,494,~~$1,807, respectively. Stock-based compensation related to stock options for the six months ended June 30, 2023 and 2022 was $4,595 and $3,301, respectively.

A summary of the stock option activity is presented in the table below:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value		Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2022		19,427,755		$	3.69		8.68	$	378		19,427,755		$	3.69		8.68	$	378
Granted		5,175,550			1.82						9,131,580			1.66
Exercised		-			-						-			-
Forfeited		(384,413	)		4.88						(1,364,750	)		4.41
Outstanding at March 31, 2023		24,218,892		$	3.27		8.77	$	359
Options exercisable at March 31, 2023		5,457,016		$	4.03		6.49	$	316
Vested and expected to vest at March 31, 2023		21,144,855		$	3.30		8.67	$	352
Outstanding at June 30, 2023											27,194,585		$	2.97		8.70	$	1,781
Options exercisable at June 30, 2023											6,388,245		$	4.00		6.61	$	324
Vested and expected to vest at June 30, 2023											23,661,933		$	3.02		8.60	$	1,534

Restricted stock unit activity

During the ~~three~~six months ended ~~March 31,~~June 30, 2023, the Company ~~did not grant any~~granted 256,128 restricted stock unit (“RSU”) awards. Stock-based compensation related to RSU awards for the three months ended ~~March 31,~~June 30, 2023 and 2022 was ~~$1,629~~$(451) and ~~$(2,208)~~$1,963, respectively. Stock-based compensation related to RSU awards for the six months ended June 30, 2023 and 2022 was $1,178 and $(245), respectively.The ~~$(2,208)~~ $(451) for the three months ended ~~March 31,~~June 30, 2023 included a reversal of stock-based compensation for the Company’s former Chief Financial Officer and members of the Board of Directors as the service condition of certain awards previously granted were not met.The $(245) for the six months ended June 30, 2022 in~~cluded~~included a reversal of stock-based compensation for the Company’s former Chief Executive Officer as the service condition of certain awards previously granted were not ~~met.~~ met.

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A summary of the RSU activity is presented in the table below:

	Number of Shares Underlying RSUs			Weighted Average Grant- Date Fair Value		Number of Shares Underlying RSUs			Weighted Average Grant- Date Fair Value
Outstanding non-vested RSUs at December 31, 2022		2,018,449		$	8.41		2,018,449		$	8.41
Granted		-			-		256,128			1.56
Vested		(1,552,583	)		8.53		(1,626,856	)		8.56
Forfeited		-			-		(178,229	)		6.80
Outstanding non-vested RSUs at March 31, 2023		465,866		$	8.02
Outstanding non-vested RSUs at June 30, 2023							469,492		$	4.79

The Company’s stock-based compensation is allocated to the following operating expense categories as follows:

	Three months ended March 31,					Three months ended June 30,				Six months ended June 30,
	2023		2022			2023		2022		2023		2022
Research and development	$	967	$	1,192		$	1,085	$	1,154	$	2,052	$	2,346
Selling, general and administrative		2,941		(1,906	)		780		2,616		3,721		710
Total stock-based compensation	$	3,908	$	(714	)	$	1,865	$	3,770	$	5,773	$	3,056

10. NET LOSS PER SHARE

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net loss per share is computed by giving effect to all common share equivalents of the Company, including those presented in the table below, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all common share equivalents would have been anti-dilutive.

The following table presents the calculation of basic and diluted net loss per share for the Company’s common stock:

	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022			2023			2022
Numerator
Net loss	$	(23,611	)	$	(35,175	)	$	(25,573	)	$	(32,414	)	$	(49,184	)	$	(67,589	)
Numerator for basic and diluted EPS - loss attributable to common stockholders	$	(23,611	)	$	(35,175	)	$	(25,573	)	$	(32,414	)	$	(49,184	)	$	(67,589	)
Denominator
Common stock		140,280,332			138,619,929			141,506,818			139,000,261			140,896,963			138,811,146
Denominator for basic and diluted EPS - weighted-average common stock		140,280,332			138,619,929			141,506,818			139,000,261			140,896,963			138,811,146
Basic and diluted net loss per share	$	(0.17	)	$	(0.25	)	$	(0.18	)	$	(0.23	)	$	(0.35	)	$	(0.49	)

Since the Company was in a net loss position for all periods presented, the basic net loss per shares calculation excludes preferred stock as it did not participate in net losses of the Company. Additionally, netNet loss per share attributable to Class A and Class B common stockholders was the same on a basic and diluted basis, as the inclusion of all potential common equivalent shares outstanding would have been anti-dilutive. Anti-dilutive common equivalent shares were as follows:

	Three months ended March 31,				June 30,
	2023		2022		2023		2022
Outstanding options to purchase common stock		24,218,892		11,365,205		27,194,585		12,881,414
Outstanding restricted stock units		465,866		2,311,634		469,492		2,137,296
Outstanding warrants		3,968,319		3,968,319		3,968,319		3,968,319
		28,653,077		17,645,158		31,632,396		18,987,029

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11. WARRANT LIABILITIES

Public Warrants

As of ~~March 31,~~June 30, 2023 and December 31, 2022, there were an aggregate of 3,833,319 outstanding Public Warrants, which entitle the holder to acquire Class A common stock. Each whole warrant entitles the registered holder to purchase one share of Class A common stock at an exercise price of $11.50 per share, subject to adjustment as discussed below, beginning on September 9, 2021. The warrants will expire on June 10, 2026 or earlier upon redemption or liquidation.

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Redemptions

At any time while the warrants are exercisable, the Company may redeem not less than all of the outstanding Public Warrants:

●

in whole and not in part;

●

at a price of $0.01 per warrant;

●

upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and

●

if, and only if, the closing price of the Company’s common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders.

If the foregoing conditions are satisfied and the Company issues a notice of redemption of the Public Warrants at $0.01 per warrant, each holder of Public Warrants will be entitled to exercise ~~his, her or its~~held Public Warrants prior to the scheduled redemption date.

If the Company calls the Public Warrants for redemption for $0.01 as described above, the Company’s Board of Directors may elect to require any holder that wishes to exercise his, her or its Public Warrants to do so on a “cashless basis.” If the Company’s Board of Directors makes such election, all holders of Public Warrants would pay the exercise price by surrendering their warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the warrants, multiplied by the excess of the “fair market value” over the exercise price of the warrants by (y) the “fair market value”. For purposes of the redemption provisions of the warrants, the “fair market value” means the average last reported sale price of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.

The Company evaluated the Public Warrants under ASC 815-40, in conjunction with the SEC Division of Corporation Finance’s April 12, 2021 Public Statement, 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 should be classified as a liability.

Private Warrants

As of ~~March 31,~~June 30, 2023 and December 31, 2022, there were 135,000 Private Warrants outstanding. The Private Warrants are identical to the Public Warrants, except that so long as they are held by the Sponsor or any of its permitted transferees, (i) the Private Warrants and the shares of Class A common stock issuable upon the exercise of the Private Warrants were not transferable, assignable or saleable until 30 days after the completion of the Business Combination, (ii) the Private Warrants will be exercisable for cash or on a cashless basis, at the holder’s option, and (iii) the Private Warrants are not subject to the Company’s redemption option at the price of $0.01 per warrant. The Private Warrants are subject to the Company’s redemption option at the price of $0.01 per warrant, provided that the other conditions of such redemption are met, as described above. If the Private Warrants are held by a holder other than the Sponsor or any of its permitted transferees, the Private Warrants will be redeemable by the Company in all redemption scenarios applicable to the Public Warrants and exercisable by such holders on the same basis as the Public Warrants.

The Company 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.

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The fair value of warrant liabilities was ~~$605~~$915 and $996 as of ~~March 31,~~June 30, 2023 and December 31, 2022, respectively. The Company recognized losses of $310 and gains of ~~$391 and $2,647~~$81 as a Change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended ~~March 31,~~June 30, 2023, respectively. The Company recognized gains of $2,337 and $4,984 as a Change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2022, respectively. There were no exercises or redemptions of the Public Warrants or Private Warrants during the three and six months ended ~~March 31,~~June 30, 2023 or 2022.

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12. INCOME TAXES

Income taxes for the three and six months ended ~~March 31,~~June 30, 2023 and 2022 are recorded at the Company’s estimated annual effective income tax rate, subject to adjustments for discrete events, if they occur. The Company’s estimated annual effective tax rate was 0.0% for the three and six months ended ~~March 31,~~June 30, 2023 and 2022. The primary reconciling items between the federal statutory rate of 21.0% for these periods and the Company’s overall effective tax rate of 0.0% were related to the effects of deferred state income taxes, nondeductible stock-based compensation, changes in the fair value of warrant liabilities, research and development credits, and the valuation allowance recorded against the full amount of its net deferred tax assets.

A valuation allowance is required when it is more likely than not that some portion or all of the Company’s deferred tax assets will not be realized. The realization of deferred tax assets depends on the generation of sufficient future taxable income during the period in which the Company’s related temporary differences become deductible. The Company has recorded a full valuation allowance against its net deferred tax assets as of ~~March 31,~~June 30, 2023 and December 31, 2022 since management believes that based on the earnings history of the Company, it is more likely than not that the benefits of these assets will not be realized.

13. RELATED PARTY TRANSACTIONS

The Company ~~utilizes~~utilized and ~~subleases~~subleased office and laboratory space in a building owned by a related party. The Company paid ~~$80~~$76 and $81 under month-to-month lease arrangements for this space for the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively, and $156 and $161 for the six months ended June 30, 2023 and 2022, respectively. The Company no longer subleases this space as of June 30, 2023.

The Company was a party to an Amended and Restated Technology Services Agreement (the “ARTSA”), most recently amended on November 11, 2020, by and among 4Catalyzer Corporation (“4C”), the Company and other participant companies controlled by Dr. Jonathan Rothberg, the ~~Rothberg family. The~~Chairman of the Company’s Board of Directors. The Company entered into a First Addendum to the ARTSA on February 17, 2021 pursuant to which the Company agreed to terminate its participation under the ARTSA no later than immediately prior to the ~~Effective Time~~effective time of the Business Combination, resulting in the termination of the Company’s participation under the ARTSA on June 10, 2021. In connection with the termination of the Company’s participation under the ARTSA, the Company terminated its lease agreement with 4C and negotiated an arm’s length lease agreement. Under the ARTSA, the Company and the other participant companies had agreed to share certain non-core technologies, which means any technologies, information or equipment owned or otherwise controlled by the participant company that are not specifically related to the core business area of the participant and subject to certain restrictions on use. The ARTSA also provided for 4C to perform certain services for the Company and each other participant company such as monthly administrative, management and technical consulting services to the Company which were pre-funded approximately once per quarter. The Company incurred expenses of $~~126~~132 and $~~210~~158, which included ~~$27~~$21 and ~~$50~~$47 under month-to-month sublease arrangements for office and laboratory spaces from 4C, during the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively.The Company incurred expenses of $258 and $368, which included $48 and $97 under month-to-month sublease arrangements for office and laboratory spaces from 4C, during the six months ended June 30, 2023 and 2022, respectively. The ~~amounts~~amounts advanced and due to 4C at ~~March 31,~~June 30, 2023 and December 31, 2022 related to operating expenses were ~~$56~~$36 and $70, respectively, ~~and~~which are included in Accrued expenses and other current liabilities on the condensed consolidated balance sheets. The amounts advanced and due from 4C at ~~March 31,~~June 30, 2023 and December 31, 2022, related to operating expenses were $0 and $37, respectively, and are included in Prepaid expenses and other current assets on the condensed consolidated balance sheets.

The ARTSA also provided for the participant companies to provide other services to each other. The Company also had transactions with other entities under common ownership, which included payments made to third parties on behalf of the Company and payments made by the Company to third parties on behalf of the other entities. There were no amounts remaining payable to the Company or from the Company at ~~March 31,~~June 30, 2023 and December 31, 2022.

On September 20, 2021, the Company entered into a Binders Collaboration (the “Collaboration”) with Protein Evolution, Inc. (“PEI”) to develop technology and methods in the field of nanobodies and potentially other binders to produce novel biological reagents and related data. The Collaboration was made pursuant to and governed by the Technology and Services Exchange Agreement, effective as of June 10, 2021, by and among the Company and the participants named therein, including PEI. Dr. Rothberg serves as Chairman of the Board of Directors of PEI and the Rothberg family are controlling stockholders of PEI. Effective March 31, 2022, the Collaboration with PEI was terminated, and the Company paid a final payment of $1,135 under the Collaboration for all services rendered.

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Effective October 1, 2022, the Company entered into a Protein Engineering Collaboration (the “New Collaboration”) with PEI to develop technology and methods in the field of nanobodies and potentially other binders to produce novel biological reagents and related data. The New Collaboration was made pursuant to and governed by the Technology and Services Exchange Agreement, effective as of June 10, 2021, by and among the Company and the participants named therein, including PEI. Dr. Rothberg serves as Chairman of the Board of Directors of PEI and the Rothberg family are controlling stockholders of PEI. The Company incurred expenses of ~~$73~~$52 and $125 during the three and six months ended ~~March 31,~~June 30, 2023, respectively, related to the New Collaboration. The amounts advanced and due from PEI at ~~March 31,~~June 30, 2023 and December 31, 2022 related to operating expenses were ~~$118~~$170 and $45, respectively, and are included in Prepaid expenses and other current assets on the condensed consolidated balance sheets.

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Effective November 1, 2022, the Company entered into an Advisory Agreement with Dr. Rothberg (the “Advisory Agreement”), pursuant to which Dr. Rothberg serves as Chairman of the Board, advises the Chief Executive Officer and the Board on strategic matters, and provides consulting, business development and similar services on matters relating to our current, future and potential scientific and strategic initiatives and such other consulting services reasonably requested from time to time. Pursuant to the Advisory Agreement, as compensation for the services provided thereunder, in March 2023, the Company granted Dr. Rothberg an option to purchase 250,000 shares of Class A common stock pursuant to the 2021 Plan. In connection with the Advisory Agreement, Dr. Rothberg’s title was changed from Executive Chairman to Chairman of the Board.

Dr. Rothberg also receives fees as the ~~Company’s~~ Chairman of the Company’s Board of Directors and a member of the Board and Nominating and Corporate Governance Committee. The Company paid ~~$32~~$28 and $114 to Dr. Rothberg for the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively, and $60 and $228 for the six months ended June 30, 2023 and 2022, respectively, for all services provided to the Company.

14. RESTRUCTURING

During the quarter ended March 31, 2023, the Company committed to an organizational restructuring designed to decrease its costs and create a more streamlined organization to support its business. ~~As a result, the Company terminated approximately 12% of its workforce, effective in the first quarter of 2023. The Company substantially completed the restructuring in the first quarter of 2023.~~ During the three and six months ended ~~March 31,~~June 30, 2023, the Company recognized ~~$813~~$1,067 and $1,880 of restructuring costs, respectively, primarily for cash severance costs and other severance ~~benefits, which included $636~~benefits. For the three months ended June 30, 2023, $500 and ~~$177~~$567 were recognized in Research and development and in Selling, general and administrative, respectively, and for the six months ended June 30, 2023, $1,136 and $744 were recognized in Research and development and in Selling, general and administrative, respectively, in the condensed consolidated statements of operations and comprehensive loss. As of ~~March 31,~~June 30, 2023, the Company has recorded ~~$129 of~~ a $1,044 restructuring liability, which is included in Accrued expenses and other current liabilities in the condensed consolidated balance sheets.

15. COMMITMENTS AND CONTINGENCIES

Commitments

Licenses related to certain intellectual property:

The Company licenses certain intellectual property, some of which may be utilized in its current or future product ~~offering.~~offerings. To preserve the right to use such intellectual property, the Company is required to make annual minimum fixed payments totaling ~~$211. The Company commercialized its Platinum~~^TM ~~protein sequencing instrument and began to generate revenue in 2023. As a result, there will be~~$213 as well as royalties ~~payable by the Company~~ based on net sales if the ~~current anticipated utilization. During the three months ended March 31,~~royalties exceed annual minimum fixed payments. As of June 30, 2023, the Company ~~recognized~~recorded $112 in Accrued expenses ~~related to royalties of $3, which is included within Cost of revenue in the condensed consolidated statements of operations~~ and ~~comprehensive loss. As of March 31, 2023, the Company owed $3 in royalties payable which is recorded in Accounts payable~~other current liabilities on the condensed consolidated balance sheets.

Other commitments:

The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. The Company did not make any matching contributions to the 401(k) plan for the three and six months ended ~~March 31,~~June 30, 2023 and 2022.

Contingencies

The Company is subject to claims in the ordinary course of business; however, the Company is not currently a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect on its financial condition, results of operations, or cash flows. The Company accrues contingent liabilities to the extent that the liability is probable and estimable.

The Company enters into agreements that contain indemnification provisions with other parties in the ordinary course of business, including business partners, investors, contractors, and the Company’s officers, directors and certain employees. The Company has agreed to indemnify and defend the indemnified party claims and related losses suffered or incurred by the indemnified party from actual or threatened third-party claims because of the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in any particular case. To date, losses recorded in the Company’s condensed consolidated statements of operations and comprehensive loss in connection with the indemnification provisions have not been material.

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~~Other~~

~~Delaware Section 205 Petition:~~

On June 9, 2021, HighCape held a special meeting of stockholders (the “Special Meeting”) to approve certain matters relating to the Business Combination. Among these matters was a proposal to amend HighCape’s then effective Amended and Restated Certificate of Incorporation, to, among other things, (i) increase the total number of authorized shares of Class A common stock from 380,000,000 shares to 600,000,000 shares and (ii) opt out of the separate class voting requirements of Section 242(b)(2) of the Delaware General Corporation Law (the “DGCL”), providing that future increases or decreases to the authorized shares of the Company would not require a separate vote of the applicable class (collectively, the “Charter Amendments”). The Charter Amendments were approved by a majority of the shares of the Company’s Class A common stock and Class B common stock that were outstanding as of the record date for the Special Meeting, voting together as a single class. At the Special Meeting, the stockholders also voted to approve the Business Combination and, on that same date, the Company filed its Second Amended and Restated Certificate of Incorporation with the Office of the Secretary of State of the State of Delaware.

A recent ruling by the Court of Chancery in December 2022 introduced uncertainty as to whether Section 242(b)(2) of the DGCL would have required the Charter Amendments to be approved by a separate vote of the majority of the Company’s then-outstanding shares of Class A common stock, voting as a single class.

The Company had been proceeding with the understanding that the Charter Amendments and Second Amended and Restated Certificate of Incorporation are valid. To resolve potential uncertainty with respect to the Company’s capital structure, and consistent with the approach taken by other similarly situated companies, on February 28, 2023, the Company filed a petition (the “Petition”) in the Court of Chancery pursuant to Section 205 of the DGCL seeking an order: (i) validating the Charter Amendments and the effectiveness of its Second Amended and Restated Certificate of Incorporation implementing the Charter Amendments, retroactive to the date of its original filing, and all amendments effected thereby, and (ii) validating and declaring effective any securities issued in reliance on the validity of the Second Amended and Restated Certificate of Incorporation, effective as of the original date of issuance of such securities. Section 205 of the DGCL permits the Court of Chancery, in its discretion, to ratify and validate potentially defective corporate acts after considering a variety of factors.

On March 14, 2023, the Court of Chancery approved the Company’s request for relief and entered an order under Section 205 of the DGCL (i) declaring the Company’s Second Amended and Restated Certificate of Incorporation, including the filing and effectiveness thereof, as validated and effective retroactive to the date of its filing with the Office of the Secretary of State of the State of Delaware on June 10, 2021, and all amendments effected thereby and (ii) ordering that the Company’s securities (and the issuance of the securities) described in the Petition and any other securities issued in reliance on the validity of the Second Amended and Restated Certificate of Incorporation are validated and declared effective, each as of the original issuance dates.

2220

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with (i) the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2022 contained in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2023 and (iii) our other public reports filed with the SEC. This discussion contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022,, and this Quarterly Report on Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, the “Company” or “Quantum-Si” are intended to mean the business and operations of Quantum-Si Incorporated and its consolidated subsidiaries. The unaudited condensed consolidated financial statements for the three and six months ended ~~March 31,~~June 30, 2023 and 2022, respectively, present the financial position and results of operations of Quantum-Si Incorporated and its consolidated subsidiaries.

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 continue 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 offers a differentiated end-to-end workflow solution in a rapidly evolving proteomics tools market. Within our initial focus market of proteomics, our workflow is 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 Platinum^TM ~~protein sequencing~~ instrument and started to take orders in December 2022~~. We~~, and subsequently began commercial shipments of ~~the~~ Platinum™ ~~protein sequencing instrument~~ in January 2023.

Total revenue for the three and six months ended ~~March 31,~~June 30, 2023 was ~~$0.3 million.~~ ~~As of March 31, 2023, our backlog was approximately~~ ~~$0.2~~ ~~million.~~$0.2 million and $0.5 million, respectively. We define backlog as purchase orders or signed contracts from our customers ~~which we believe are firm and~~ for which we have not fulfilled and therefore have not yet recognized the associated revenue. We ~~expect to convert~~anticipate converting this backlog to revenue ~~during~~in the ~~second quarter of 2023;~~subsequent quarters; however, our ability to do so is subject to customers who may seek to cancel or delay their orders even if we are prepared to fulfill them. As of June 30, 2023, our backlog was approximately $0.1 million.

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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, orOn May 11, 2023, the federal public health ~~crises, have impacted, and we expect them to continue to impact, our personnel and personnel at third-party manufacturing facilities in~~emergency for COVID-19, declared under Section 319 of 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.Public Health Service Act, expired.

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. 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 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 condensed consolidated financial statements. ~~On May 11, 2023,~~We will continue to evaluate the ~~federal public health emergency for COVID-19, declared under Section 319~~impact of the ~~Public Health Service Act, expired.~~COVID-19 pandemic on our industry and have concluded that while it is possible that the virus could have a future negative effect on our financial position, results of operations and cash flows in our condensed consolidated financial statements, the specific future impact is not readily determinable as of the date of the filing of this Quarterly Report on Form 10-Q. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Other Global Developments

In 2022, various central banks around the world (including the Federal Reserve in the United States) raised interest rates. ~~While these~~These rate increases have ~~not had~~caused a ~~significant adverse impact on us~~decline in the fair value of our fixed income mutual funds to ~~date, the~~date. The impact of such rate ~~increases~~changes on the overall financial markets and the economy may ~~adversely~~continue to impact us in the ~~future.~~future, including by making capital more difficult and costly to obtain on reasonable terms and when needed. 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 impact of the Russia-Ukraine military conflict on the global ~~economy.~~economy, which has contributed to the global supply chain disruptions. To date, our business has not been materially impacted by the ~~conflict, however,~~conflict. However, as the conflict continues or worsens, it may adversely impact our business, financial condition, results of operations or cash flows.

Recent Developments

In April 2023, we informed the contract manufacturer who manufactures our Platinum and Carbon instruments that we intend to wind down the relationship and transition to a different contract manufacturer. ~~In connection with~~We intend to complete the ~~wind~~process of winding down ~~we intend~~ ~~to issue a last time buy order for finished instruments. Although the~~this relationship ~~was not subject to a contractual arrangement,~~ ~~we expect~~ ~~to negotiate the purchase of certain inventory parts and components currently owned and held by the contract manufacturer.~~ ~~We expect~~ ~~to have negotiated terms~~ by the end of the ~~third quarter.~~fourth quarter 2023.

On May 2, 2023, we announced that Jeffry Keyes was appointed by our Board of Directors as our Chief Financial Officer and Treasurer, effective on the date he commences employment with us on or before May 15, 2023 (the “Appointment Date”). In addition, on April 27, 2023, we and Claudia Drayton, our current Chief Financial Officer and Treasurer, mutually determined that Ms. Drayton will step down from such roles, effective as of the Appointment Date, and Ms. Drayton will assist with the transition by serving as a senior advisor to us until June 30, 2023.

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Description of Certain Components of Financial Data

Revenue

Revenue is derived from sales of products and services. Product revenue is generated from the following sources: (i) instrument sales of our Platinum instrument and (ii) consumables, which consist of sales of our sequencing reagents, chips, and library reagents. Service revenue is generated from service maintenance contracts including cloud ~~subscription~~ access, proof of concept services and advanced training for instrument use. Freight revenue is recognized as Product revenue in the condensed consolidated statements of operations and comprehensive loss upon product shipment.

See Note 2 “Summary of Significant Accounting Policies” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information regarding our revenue recognition policies.

Cost of revenue

Cost of revenue primarily consists of product and service costs including material costs, personnel costs and benefits, inbound and outbound freight, packaging, warranty replacement costs, royalty costs, facilities costs, depreciation and amortization expense, and inventory obsolescence and write-offs.

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, depreciation and amortization expense, 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.

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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.

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 income (expense), net

Other income (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 ~~March 31,~~June 30, 2023 and 2022. 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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Results of Operations

The following is a discussion of our results of operations for the three and six months ended ~~March 31,~~June 30, 2023 and 2022 and our accounting policies are described in Note 2 “Summary of Significant Accounting Policies” in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

	Three months ended March 31,									Three months ended June 30,									Six months ended June 30,
(in thousands, except for % changes)	2023			2022			% Change			2023			2022			% Change			2023			2022			% Change
Revenue:
Product	$	251		$	-		nm			$	187		$	-		nm			$	438		$	-		nm
Service		3			-		nm				18			-		nm				21			-		nm
Total revenue		254			-		nm				205			-		nm				459			-		nm
Cost of revenue		130			-		nm				127			-		nm				257			-		nm
Gross profit		124			-		nm				78			-		nm				202			-		nm
Operating expenses:
Research and development		18,167			18,771			(3.2	)%		15,834			18,459			(14.2	)%		34,001			37,230			(8.7	)%
Selling, general and administrative		11,178			8,369			33.6	%		11,136			11,741			(5.2	)%		22,314			20,110			11.0	%
Total operating expenses		29,345			27,140			8.1	%		26,970			30,200			(10.7	)%		56,315			57,340			(1.8	)%
Loss from operations		(29,221	)		(27,140	)		7.7	%		(26,892	)		(30,200	)		(11.0	)%		(56,113	)		(57,340	)		(2.1	)%
Dividend income		2,219			855			159.5	%		2,483			1,052			136.0	%		4,702			1,907			146.6	%
Change in fair value of warrant liabilities		391			2,647			(85.2	)%		(310	)		2,337			(113.3	)%		81			4,984			(98.4	)%
Other income (expense), net		3,000			(11,537	)		(126.0	)%		(854	)		(5,603	)		(84.8	)%		2,146			(17,140	)		(112.5	)%
Loss before provision for income taxes		(23,611	)		(35,175	)		(32.9	)%		(25,573	)		(32,414	)		(21.1	)%		(49,184	)		(67,589	)		(27.2	)%
Provision for income taxes		-			-		nm				-			-		nm				-			-		nm
Net loss and comprehensive loss	$	(23,611	)	$	(35,175	)		(32.9	)%	$	(25,573	)	$	(32,414	)		(21.1	)%	$	(49,184	)	$	(67,589	)		(27.2	)%

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Comparison of the Three Months Ended ~~March 31,~~June 30, 2023 and 2022

Revenue, Cost of revenue and Gross profit

	Three months ended March 31,				Change			Three months ended June 30,					Change
(in thousands, except for % changes)	2023		2022		Amount		%	2023			2022		Amount		%
Total revenue	$	254	$	-	$	254	nm	$	205		$	-	$	205	nm
Cost of revenue									127			-		127	nm
Gross profit									78			-		78	nm
Gross profit margin									38.0	%	nm

Total revenue increased by $0.3 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The increase was primarily due to revenue recognized on the sale of Platinum^TM ~~instruments and kits.~~ We launched the Platinum^TM instrument and started to take orders in December 2022~~. We~~, and subsequently began commercial shipments of ~~the~~ Platinum™ ~~protein sequencing instrument~~ in January 2023.

~~Cost of~~ Total revenue

Three months ended
March 31,
Change
(in thousands, except for % changes) 2023 2022 Amount %
Cost of revenue $ 130 $ - $ 130 nm

~~Cost of revenue increased by $0.1 million for~~ recognized in the three months ended ~~March 31,~~June 30, 2023 ~~compared to the three months ended March 31, 2022. The increase~~ was ~~primarily due to costs associated with~~$0.2 million for the sale of Platinum^TM instruments and kits. ~~We launched~~No revenue was recognized in 2022. Gross profit was $0.1 million for the ~~Platinum~~^TM ~~instrument and started to take orders in December 2022. We~~ ~~began commercial shipments of the Platinum™ protein sequencing instrument in January~~three months ended June 30, 2023.

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Research and development

	Three months ended March 31,				Change						Three months ended June 30,				Change
(in thousands, except for % changes)	2023		2022		Amount			%			2023		2022		Amount			%
Research and development	$	18,167	$	18,771	$	(604	)		(3.2	)%	$	15,834	$	18,459	$	(2,625	)		(14.2	)%

Research and development expenses decreased by ~~$0.6~~$2.6 million, or ~~3.2%~~14.2%, for the three months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31,~~June 30, 2022. The decrease was primarily due to refined research and development activities coupled with restructuring activities initiated in the first quarter of 2023.

Selling, general and administrative

	Three months ended June 30,				Change
(in thousands, except for % changes)	2023		2022		Amount			%
Selling, general and administrative	$	11,136	$	11,741	$	(605	)		(5.2	)%

Selling, general and administrative expenses decreased by $0.6 million, or 5.2%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The decrease was primarily due to a decrease of $1.0 million related to internal and external product development activities, $0.9 million of internally developed software costs that were capitalized as a result of product development milestones that were met during the three months ended March 31, 2023 and $0.2 million of reduced stock-based compensation. These decreases were partially offset by an increase of $1.5 million of payroll costs as a result of increased headcount and the payment of severance costs in connection with the restructuring efforts announced during the three months ended March 31, 2023.

~~Selling, general and administrative~~

Three months ended
March 31,
Change
(in thousands, except for % changes) 2023 2022 Amount %
Selling, general and administrative $ 11,178 $ 8,369 $ 2,809 33.6 %

Selling, general and administrative expenses increased by $2.8 million, or 33.6%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The increase was primarily due to an increase of $4.8$1.8 million of stock-based compensation, partially offset by ~~a reduction~~an increase of ~~$1.7 million of expenses primarily consulting, professional fees and insurances and a decrease of $0.3~~$0.9 million in personnel ~~costs. Personnel~~ costs inprimarily due to increased headcount for the ~~three months ended March 31, 2022 included costs related to the separation~~ramp up of ~~our former Chief Executive Officer from the Company.~~commercial sales.

Dividend income

	Three months ended March 31,				Change					Three months ended June 30,				Change
(in thousands, except for % changes)	2023		2022		Amount		%			2023		2022		Amount		%
Dividend income	$	2,219	$	855	$	1,364		159.5	%	$	2,483	$	1,052	$	1,431		136.0	%

Dividend income increased by $1.4 million, or 136.0%, for the three months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31,~~June 30, 2022 as a result of higher dividends earned on invested ~~balances in~~ marketable securities.

Change in fair value of warrant liabilities

	Three months ended March 31,				Change						Three months ended June 30,					Change
(in thousands, except for % changes)	2023		2022		Amount			%			2023			2022		Amount			%
Change in fair value of warrant liabilities	$	391	$	2,647	$	(2,256	)		(85.2	)%	$	(310	)	$	2,337	$	(2,647	)		(113.3	)%

The change in fair value of warrant liabilities decreased by ~~$2.3~~$2.6 million, or 113.3%, for the three months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31, 2022.~~June 30, 2022 primarily due to a decline in the Company’s underlying common stock price.

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Other income (expense), net

	Three months ended March 31,					Change					Three months ended June 30,						Change
(in thousands, except for % changes)	2023		2022			Amount		%			2023			2022			Amount		%
Other income (expense), net	$	3,000	$	(11,537	)	$	14,537		(126.0	)%	$	(854	)	$	(5,603	)	$	4,749		(84.8	)%

Other income (expense), net ~~increased~~decreased by ~~$14.5~~$4.7 million, or 84.8%, for the three months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31,~~June 30, 2022 primarily as a result of ~~an increase~~a decrease in unrealized ~~gains~~losses of ~~$16.6~~$5.9 million as a result of the ~~mark to~~ market adjustments of investments in marketable securities, which consist of fixed income mutual ~~funds. The increase in unrealized gains was~~funds, partially offset by an increase in realized losses of ~~$2.1 million.~~$1.4 million from sales of marketable securities.

Comparison of the Six Months Ended June 30, 2023 and 2022

Revenue, Cost of revenue and Gross profit

	Six months ended June 30,					Change
(in thousands, except for % changes)	2023			2022		Amount		%
Total revenue	$	459		$	-	$	459	nm
Cost of revenue		257			-		257	nm
Gross profit		202			-		202	nm
Gross profit margin		44.0	%	nm

Total revenue recognized in the six months ended June 30, 2023 was $0.5 million for the sale of Platinum^TM instruments and kits. No revenue was recognized in 2022. Gross profit was $0.2 million for the six months ended June 30, 2023.

Research and development

	Six months ended June 30,				Change
(in thousands, except for % changes)	2023		2022		Amount			%
Research and development	$	34,001	$	37,230	$	(3,229	)		(8.7	)%

Research and development expenses decreased by $3.2 million, or 8.7%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease was primarily due to refined research and development activities coupled with restructuring activities initiated in the first quarter of 2023 and collaboration fees, which includes $1.1 million paid to Protein Evolution, Inc. in 2022.

Selling, general and administrative

	Six months ended June 30,				Change
(in thousands, except for % changes)	2023		2022		Amount		%
Selling, general and administrative	$	22,314	$	20,110	$	2,204		11.0	%

Selling, general and administrative expenses increased by $2.2 million, or 11.0%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase was primarily due to an increase of $3.0 million of stock-based compensation and $0.7 million in personnel costs primarily due to increased headcount for the ramp up of commercial sales, partially offset by a reduction of $1.5 million of expenses primarily for consulting, professional fees and insurances.

Dividend income

	Six months ended June 30,				Change
(in thousands, except for % changes)	2023		2022		Amount		%
Dividend income	$	4,702	$	1,907	$	2,795		146.6	%

Dividend income increased by $2.8 million, or 146.6%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 as a result of higher dividends earned on invested marketable securities.

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~~Non-GAAP Financial Measures~~Change in fair value of warrant liabilities

We present non-GAAP financial measures in order to assist readers of our condensed 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.

	Six months ended June 30,				Change
(in thousands, except for % changes)	2023		2022		Amount			%
Change in fair value of warrant liabilities	$	81	$	4,984	$	(4,903	)		(98.4	)%

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.

~~EBITDA and Adjusted EBITDA~~

~~We calculate EBITDA as net loss adjusted to exclude dividend income and depreciation and amortization expense. Adjusted EBITDA is calculated as EBITDA adjusted to exclude~~The change in fair value of warrant liabilities ~~other (income) expense, net, stock-based compensation, and other non-recurring items. The other non-recurring items include costs related~~decreased by $4.9 million, or 98.4%, for the six months ended June 30, 2023 compared to the ~~organizational restructuring incurred during the three~~six months ended ~~March 31, 2023.~~June 30, 2022 primarily due to a decline in the Company’s underlying common stock price.

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

Three months ended March 31,
(in thousands) 2023 2022
Net loss $ (23,611 ) $ (35,175 )
Adjustments to reconcile to EBITDA:
Dividend income (2,219 ) (855 )
Depreciation and amortization 803 452
EBITDA (25,027 ) (35,578 )
Adjustments to reconcile to Adjusted EBITDA:
Change in fair value of warrant liabilities (391 ) (2,647 )
Other (income) expense, net (3,000 ) 11,537
Stock-based compensation 3,908 (714 )
Restructuring costs 813
-
Adjusted EBITDA $ (23,697 ) $ (27,402 )

	Six months ended June 30,					Change
(in thousands, except for % changes)	2023		2022			Amount		%
Other income (expense), net	$	2,146	$	(17,140	)	$	19,286		(112.5	)%

Other income (expense), net increased by $19.3 million, or 112.5%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily as a result of a decrease in unrealized losses of $22.5 million as a result of the market adjustments of investments in marketable securities, which consist of fixed income mutual funds, partially offset by an increase in realized losses of $3.5 million from sales of marketable securities.

Liquidity and Capital Resources

Since our inception, we have funded our operations primarily with proceeds from the issuance of equity to private ~~investors. In addition,~~investors, as well as 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.~~closing of the Business Combination. Additionally, we began to generate revenue during 2023. 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 ~~generate more significant revenue.~~scale our revenue growth.

We expect that our existing cash and cash equivalents and investments in marketable securities, together with revenue from the sale of our products and services, 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 our cash and cash equivalents and investments in marketable securities and funds from revenue generated to invest in ~~the commercial launch of~~ our ~~Carbon~~^™~~product,~~continued commercialization efforts, to further invest in research and development, for other operating expenses, business acquisitions and for working capital and general corporate purposes.

As of ~~March 31,~~June 30, 2023, we had cash and cash equivalents and investments in marketable securities totaling ~~$322.1~~$297.2 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.

~~Table of Contents~~

We launched the Platinum^TM instrument and started to take orders in December 2022~~. We~~, and subsequently began commercial shipments of Platinum™ ~~protein sequencing instrument~~ in January 2023. ~~We plan~~In addition, we are continuing further research and development efforts to ~~launch~~enhance our Platinum™ instrument as well as completing a business case evaluation surrounding our Carbon^TM ~~in 2023. Our~~sample preparation solution. Based on these initiatives and activities, 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:

	Three months ended March 31,						Six months ended June 30,
(in thousands)	2023			2022			2023			2022
Net cash (used in) provided by:
Net cash used in operating activities	$	(28,698	)	$	(23,229	)	$	(51,623	)	$	(49,174	)
Net cash provided by investing activities		26,039			21,698			55,238			94,515
Net cash provided by financing activities		-			730			-			146
Net decrease in cash and cash equivalents	$	(2,659	)	$	(801	)
Net increase in cash and cash equivalents							$	3,615		$	45,487

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 ~~$28.7~~$51.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023 was due primarily to a net loss of ~~$23.6~~$49.2 million ~~a gain~~resulting from continued spend on ~~marketable securities (realized~~research and ~~unrealized) of $2.9 million,~~development efforts and commercialization ramp up and net cash outflows from changes in operating assets and liabilities of ~~$7.0 million and a change in fair value of warrant liabilities of $0.4~~$8.8 million, partially offset by ~~stock-based compensation of $3.9 million,~~ depreciation and amortization of ~~$0.8 million and non-cash lease expense of $0.5~~$1.9 million.

The net cash used in operating activities of ~~$23.2~~$49.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 was due primarily to a net loss of ~~$35.2~~$67.6 million resulting from continued spend on research and development efforts and commercialization ramp up and a change in fair value of warrant liabilities of ~~$2.6~~$5.0 million, partially offset by unrealized losses of marketable securities of ~~$11.5 million and net cash inflows from changes in operating assets and liabilities of $2.9~~$16.1 million.

Net cash provided by investing activities

The net cash provided by investing activities of ~~$26.0~~$55.2 million in the ~~three~~six months ended ~~March 31,~~June 30, 2023 was due primarily to sales of marketable securities of ~~$29.5~~$59.5 million, offset by purchases of property and equipment of ~~$2.6~~$3.5 million and capitalized internally developed software costs of ~~$0.9~~$0.7 million.

The net cash provided by investing activities of ~~$21.7~~$94.5 million in the ~~three~~six months ended ~~March 31,~~June 30, 2022 was due primarily to sales of marketable securities of ~~$25.0~~$100.1 million, partially offset by purchases of property and equipment of ~~$2.5 million and marketable securities of $0.8~~$5.5 million.

Net cash provided by financing activities

There were no financing activities in the ~~three~~six months ended ~~March 31,~~June 30, 2023.

~~Net~~The net cash provided by financing activities of ~~$0.7~~$0.1 million in the ~~three~~six months ended ~~March 31,~~June 30, 2022 ~~resulted~~was due primarily from $1.0 million from proceeds from exercise of stock ~~options.~~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.

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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 ~~March 31,~~June 30, 2023, the future payments, before adjustments for tenant incentives, under leases was ~~$34.1~~$33.3 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~~we are required to make annual minimum ~~annual~~ fixed ~~royalty~~ payments oftotaling approximately $0.2 ~~million. We commercialized our Platinum™ protein sequencing instrument and began to generate revenue in 2023. As a result, there will be~~million as well as royalties ~~payable by us~~ based on net sales if the ~~current anticipated utilization.~~royalties exceed annual minimum fixed payments.

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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 condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed 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 condensed 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.

Revenue ~~recognition~~Recognition

Revenue is derived from sales of products and services. Product revenue is primarily generated from the ~~following sources: (i) instrument~~ sales of ~~our Platinum~~ instrument and ~~(ii)~~ consumables ~~which consist of sales of our~~used in protein sequencing ~~reagents, chips,~~ and ~~library reagents.~~analysis. Service revenue is primarily generated from service maintenance contracts including cloud ~~subscription~~ access, proof of concept services and advanced training for instrument use. Freight revenue is recognized as Product revenue in the condensed consolidated statements of operations and comprehensive loss upon product shipment.

We recognize revenue when control of our products and services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the distinct performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. Revenue recognition for contracts with multiple deliverables is based on the separate satisfaction of each distinct performance obligation within the contract. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. We allocate transaction price to the performance obligations in a contract with a customer, based on the relative standalone selling price of each performance obligation. We determine standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information and specific factors such as competitive positioning, internal costs, profit objectives, and internally approved pricing guidelines related to the performance obligation.

Our performance obligation for sales of products is considered satisfied upon shipment of the goods to the customer in accordance with the shipping terms (either upon shipment or delivery);, which is when control of the product is deemed to be transferred; this would include instruments and consumables. Customers generally do not have a right of return, except for defective or damaged products during the warranty period or unless prior written consent is provided. In instances where right of payment or transfer of title is contingent upon the customer’s acceptance of the product, revenue is deferred until all acceptance criteria have been met. Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as fulfillment costs and are included in Cost of revenue in the condensed consolidated statements of operations and comprehensive loss. Shipping and handling costs billed to customers are considered part of the transaction price and are recognized as revenue with the underlying product sales. Invoicing typically occurs upon shipment and payment is typically due within 30 days from invoice. Revenue from services is generated from services rendered related to service maintenance contracts, cloud subscription access, proof of concept services, and advanced training. Revenues for service maintenance contracts, which start after the first year of purchase and ~~cloud subscription access~~are considered as service type warranties that effectively extend the standard first-year warranty coverage at the customer’s option, are recognized ratably over the contract service ~~period.~~period as these services are performed evenly over time. Revenues for proof of concept services and advanced training is recognized upon satisfaction of the underlying performance obligation. We typically provide a standard one-year warranty which covers defects in materials and workmanship and manufacturing or performance conditions including bug fixes under normal use and service for the first year. The first year of the warranty of our products is considered an assurance-type ~~warranty. We~~warranty and we have determined that this standard first-year warranty is not a distinct performance obligation. We also sell service maintenance contracts, which are considered to be service type warranties, that effectively extend the standard first-year warranty coverage at the customer’s option. Customers have an option to renew or cancel the service maintenance contracts on an annual basis. We make certain judgments in the application of the revenue recognition model including determination of the timing and pattern of satisfaction of performance obligations, determination of the transaction price of performance obligations and estimation of variable consideration if any. Customers generally do not have a right of return, except for defective or damaged products during the warranty period or unless prior written consent is provided. Revenue for these agreements is recognized when each distinct performance obligation is satisfied. Deferred revenue primarily consists of billings and payments received in advance of revenue recognition from service maintenance contracts ~~after the first year,~~including cloud ~~subscription~~ access, proof of concept services and advanced training, and is reduced as the revenue recognition criteria are met.

~~Table of Contents~~

There have been no additional material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 17, 2023.

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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 condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Inflation risk

We do not believe that inflation has had a material effect on our business, financial condition, results of operations or cash flows, other than its impact on the general economy. Nonetheless, to the extent our costs are impacted by general inflationary pressures, we may not be able to fully offset such higher costs through price increases or manufacturing efficiencies. Our inability or failure to do so could harm our business, financial condition, results of operations or cash flows.

Interest rate risk

Our ~~cash and cash equivalents, and~~ marketable securities are comprised primarily of ~~cash and~~ investments in fixed income mutual funds. The primary objective of our investments is the preservation of capital to fulfill liquidity needs. We do not enter into investments for trading or speculative purposes. ~~Due~~Interest rate increases have resulted in changes in the fair value of our fixed income mutual funds to date. As of June 30, 2023, this cumulative impact is a net unrealized loss of $14.8 million. The impact of such rate changes on the ~~short-term nature of these investments, we do not expect cash flows~~overall financial markets and the economy may continue to ~~be affected to any significant degree by a sudden change~~impact us in ~~market interest rates.~~the future.

Foreign Currency Risk

WePresently, we operate our business primarily within the United States and currently execute the majority of our transactions in U.S. dollars. This limited foreign currency translation risk is not expected to have a material impact on our condensed consolidated financial statements. To date, we have not entered into any hedging arrangements with respect to foreign currency risk. As our international operations grow, we will continue to reassess our approach to managing our risk relating to fluctuations in currency rates.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2023.

Changes in Internal Control over Financial Reporting

We began commercial shipments of the Platinum™ protein sequencing instrument in the first quarter of 2023. We are in the process of evaluating and implementing additional controls over the processes that are associated with the commercial launch of Platinum including but not limited to revenue recognition and inventory. There were no additional changes in our internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

We are not currently a party to any material legal proceedings.

ITEM 1A.

RISK FACTORS.

Our business, results of operations and financial condition are subject to various risks and uncertainties including the risk factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 17, 2023, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed, with the SEC on May 11, 2023, and the risk factor described below.~~below~~.

Product orders included in our backlog may be cancelled or delayed and may not be indicative of future revenues.

~~As of March 31, 2023, our backlog was approximately $0.2 million.~~

We define backlog as purchase orders or signed contracts from our customers ~~which we believe are firm and~~ for which we have not fulfilled and therefore have not yet recognized the associated revenue. We ~~expect to convert~~anticipate converting this backlog to revenue ~~during~~in the ~~second quarter of 2023;~~subsequent quarters; however, our ability to do so is subject to customers who may seek to cancel or delay their orders even if we are prepared to fulfill them. No assurance can be given that these amounts will be recovered after cancellation. Any cancellation or delay of orders may result in revenues that are lower than expected. As a result, we cannot provide assurances as to the portion of backlog orders to be filled in a given quarter or year, and our order backlog as of any particular date may not be representative of actual revenues for any subsequent period.

As of June 30, 2023, our backlog was approximately $0.1 million.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Unregistered Sales of Equity Securities

Not applicable.

Issuer Purchases of Equity Securities

Not applicable.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5.

OTHER INFORMATION.

Not applicable.

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ITEM 6.

EXHIBITS

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

Exhibit Number	Exhibit Description	Filed Herewith	Incorporated by Reference Herein from Form or Schedule	Filing Date	SEC File/ Reg. Number
~~10.1~~3.1	~~Protein Engineering Collaboration Agreement,~~ Second Amended and Restated Certificate of Incorporation of Quantum-Si Incorporated, as amended.	X

10.1+	Offer Letter of Employment, dated ~~as of March 13,~~April 27, 2023, by and between ~~Quantum-Si Incorporated~~the Registrant and ~~Protein Evolution, Inc.~~Jeffry Keyes.		Form ~~10-K~~8-K (Exhibit ~~10.14)~~10.1)	~~3/17/~~5/2/2023	001-39486

10.2+	Separation Agreement, dated as of June 1, 2023, by and between the Registrant and Claudia Drayton.		Form 8-K (Exhibit 10.1)	6/7/2023	001-39486

10.3+	2023 Inducement Equity Incentive Plan.		Form S-8 (Exhibit 99.1)	7/20/2023	333-273350

10.4+	Form of Stock Option Agreement under the 2023 Inducement Equity Incentive Plan.		Form S-8 (Exhibit 99.2)	7/20/2023	333-273350

31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X

31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X

32*	Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X

101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)	X

101.SCH	Inline XBRL Taxonomy Extension Schema Document	X

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	X

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	X

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	X

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	X

104	Cover Page Interactive Data File (embedded within the Inline XBRL document)	X

+ Management contract or compensatory plan or arrangement.

* The certifications attached as Exhibit 32 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Quantum-Si Incorporated under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of such Form 10-Q), irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements ~~of Section 13 or 15(d)~~ of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	QUANTUM-SI INCORPORATED

Date: ~~May 11,~~August 7, 2023	By:	/s/ Jeffrey Hawkins
		Jeffrey Hawkins
		Chief Executive Officer

Date: ~~May 11,~~August 7, 2023	By:	/s/ ~~Claudia Drayton~~Jeffry Keyes
		~~Claudia Drayton~~Jeffry Keyes
		Chief Financial Officer

3432

Delaware		85-1388175
(State or other jurisdiction of incorporation or organization)		(~~IRS~~I.R.S Employer Identification No.)

~~530 Old Whitfield Street~~29 Business Park Drive
~~Guilford,~~Branford, Connecticut		~~06437~~06405
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading ~~Symbols(s)~~ Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.0001 per share	QSI	The Nasdaq Stock Market LLC
Redeemable warrants, each whole warrant exercisable for one share of Class A common stock, each at an exercise price of $11.50 per share	QSIAW	The Nasdaq Stock Market LLC

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

		Page
	Cautionary Note Regarding Forward-Looking Statements	3

Part I	Financial Information	4

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2023 and December 31, 2022 (Unaudited)	4

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended ~~March 31,~~June 30, 2023 and 2022 (Unaudited)	5

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended ~~March 31,~~June 30, 2023 and 2022 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2321

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3129

Item 4.	Controls and Procedures	3129

Part II	Other Information	3230

Item 1.	Legal Proceedings	3230

Item 1A.	Risk Factors	3230

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3230

Item 3.	Defaults Upon Senior Securities	3230

Item 4.	Mine Safety Disclosures	3230

Item 5.	Other Information	3230

Item 6.	Exhibits	3331

Signatures		3432

	March 31, 2023			December 31, 2022			June 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	81,660		$	84,319		$	87,934		$	84,319
Marketable securities		240,432			266,990			209,251			266,990
Accounts receivable, net		82			-
Accounts receivable, net of allowance for estimated credit losses of $0 and $0, respectively								327			-
Inventory, net		1,708			-			1,978			-
Prepaid expenses and other current assets		6,135			6,873			7,304			6,873
Total current assets		330,017			358,182			306,794			358,182
Property and equipment, net		18,203			16,849			18,104			16,849
Internally developed software		887			-			673			-
Operating lease right-of-use assets								14,896			15,757
Other assets		697			697			701			697
Operating lease right-of-use assets		15,221			15,757
Total assets	$	365,025		$	391,485		$	341,168		$	391,485
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,657		$	3,903		$	833		$	3,903
Accrued expenses and other current liabilities		6,033			10,434			7,882			10,434
Short-term operating lease liabilities		1,406			1,369			1,478			1,369
Total current liabilities		10,096			15,706			10,193			15,706
Long-term liabilities:
Warrant liabilities		605			996			915			996
Other long-term liabilities		24			-			32			-
Operating lease liabilities		15,297			16,077			14,733			16,077
Total liabilities		26,022			32,779			25,873			32,779

Commitments and contingencies (Note 15)

Stockholders’ equity
Class A Common stock, $0.0001 par value; 600,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 121,559,340 and 120,006,757 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		12			12
Class B Common stock, $0.0001 par value; 27,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 19,937,500 shares issued and outstanding as of March 31, 2023 and December 31, 2022		2			2
Class A Common stock, $0.0001 par value; 600,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 121,633,613 and 120,006,757 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively								12			12
Class B Common stock, $0.0001 par value; 27,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 19,937,500 shares issued and outstanding as of June 30, 2023 and December 31, 2022								2			2
Additional paid-in capital		762,274			758,366			764,139			758,366
Accumulated deficit		(423,285	)		(399,674	)		(448,858	)		(399,674	)
Total stockholders’ equity		339,003			358,706			315,295			358,706
Total liabilities and stockholders’ equity	$	365,025		$	391,485		$	341,168		$	391,485

	Purchase Price Allocation
Prepaid expenses and other current assets	$	27
Property and equipment, net		906
Goodwill		9,483
Total	$	10,416

			Fair Value Measurement Level								Fair Value Measurement Level
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
March 31, 2023:
June 30, 2023:
Assets:
Cash and cash equivalents - Money Market	$	79,798	$	79,798	$	-	$	-	$	82,781	$	82,781	$	-	$	-
Marketable securities		240,432		240,432		-		-		209,251		209,251		-		-
Total assets at fair value on a recurring basis	$	320,230	$	320,230	$	-	$	-	$	292,032	$	292,032	$	-	$	-

Liabilities:
Public Warrants	$	575	$	575	$	-	$	-	$	881	$	881	$	-	$	-
Private Warrants		30		-		-		30		34		-		-		34
Total liabilities at fair value on a recurring basis	$	605	$	575	$	-	$	30	$	915	$	881	$	-	$	34

	March 31,			December 31,			June 30,			December 31,
	2023			2022			2023			2022
Weighted-average remaining lease term (years)		7.1			7.3			6.8			7.3
Weighted-average discount rate		7.9	%		7.9	%		7.9	%		7.9	%

	Operating Leases		Operating Leases
Remainder of 2023	$	3,225	$	2,179
2024		4,394		4,436
2025		4,507		4,527
2026		4,590		4,585
2027		4,554		4,549
Thereafter		12,811		13,027
Total undiscounted lease payments	$	34,081	$	33,303
Less: Imputed interest		8,274		7,988
Less: Lease incentives ⁽¹⁾		9,104		9,104
Total lease liabilities	$	16,703	$	16,211