Circle8 Group Inc 10-Q for FY2023 Q2
Circle8 Group Inc (CIRC)
About this 10-Q
Circle8 Group Inc filed this 10-Q on August 4, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $1.4M
- compared with a net loss of $994.92K a year earlier
- Diluted EPS
- -$0.10
- compared with -$0.08 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ______________ to ______________
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive office) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| The |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
| ☒ | Smaller reporting company | ||||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 3,
2023, there were
TABLE OF CONTENTS
i
EXPLANATORY NOTE
In this Quarterly Report on Form 10-Q, and unless the context otherwise requires, the “Company,” “we,” “us,” and “our” refer to SeqLL Inc. and its wholly owned Subsidiaries taken as a whole.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors discussed from time to time in this report and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to:
| ● | our ability to consummate the transactions contemplated by the Merger Agreement or the Asset Purchase Agreement, each as defined in Note 1 to the condensed consolidated financial statements included in this report; |
| ● | the success, cost and timing of our product development activities, including statements regarding the timing of initiation and completion of our research and development programs; |
| ● | developments regarding next generation sequencing technologies; |
| ● | our expectations regarding the market size and growth potential for our business; |
| ● | our ability to generate sustained revenue or achieve profitability; |
| ● | the potential for our identified research priorities to advance our technology; |
| ● | the pricing and expected gross margin for our products; and |
| ● | the other factors discussed in the “Risk Factors” section and elsewhere in this report. |
Any forward-looking statements speak only as of the date on which they are made, and except as may be required under applicable securities laws, we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the filing date of this report.
ii
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
SeqLL Inc.
Condensed Consolidated Balance Sheets
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Other receivables | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of finance lease liability | ||||||||
| Current portion of operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Finance lease liability, less current portion | ||||||||
| Operating lease liability, less current portion | ||||||||
| Non-convertible promissory notes - long-term | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
SeqLL Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | ||||||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Grant revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) and expenses | ||||||||||||||||
| Investment income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized gain on marketable equity securities | ( | ) | ||||||||||||||
| Realized loss on marketable equity securities | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive income | ||||||||||||||||
| Reclassification adjustment for net gains included in net loss | ( | ) | ( | ) | ||||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
SeqLL Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Equity | |||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs of $ | ||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Equity | |||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
SeqLL Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Write-off of obsolete inventory | ||||||||
| Unrealized gain on marketable equity securities | ( | ) | ||||||
| Realized (gain)/loss on marketable debt and equity securities | ( | ) | ||||||
| Provision for bad debts | ||||||||
| Stock-based compensation | ||||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable, net | ||||||||
| Other receivables | ||||||||
| Prepaid expenses | ||||||||
| Inventory | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchases of lab equipment | ( | ) | ( | ) | ||||
| Purchases of marketable debt securities | ( | ) | ( | ) | ||||
| Proceeds from sales of marketable equity securities | ||||||||
| Maturity of marketable debt securities | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from issuance of common stock, gross | ||||||||
| Payment for issuance costs of common stock | ( | ) | ||||||
| Repayments of finance lease liability | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information and non-cash financing transactions | ||||||||
| Right-of-use asset acquired through operating lease | $ | $ | ||||||
| Fixed assets acquired through finance lease | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
SeqLL Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Nature of Operations and Basis of Presentation
SeqLL Inc. was incorporated as a Delaware corporation
on April 3, 2014. On April 8, 2014, SeqLL Inc. acquired a
On April 26, 2023, SeqLL Merger LLC (“SeqLL Merger Sub”) was formed in the State of Delaware as a wholly-owned subsidiary of the Company. SeqLL Merger Sub was formed solely for the purpose of completing the Merger (defined below). SeqLL Merger Sub has not carried on any activities as of June 30, 2023, except for activities incidental to its formation and activities undertaken in connection with the Merger Agreement (defined below) and the Merger.
Proposed Merger
Merger Agreement
On May 29, 2023, the Company, SeqLL Merger Sub,
Atlantic Acquisition Corp, a Delaware corporation (“Atlantic”), Atlantic Merger LLC, a Delaware limited liability company
and a majority-owned subsidiary of Atlantic (“Atlantic Merger Sub”), Lyneer Investments, LLC, a Delaware limited liability
company (“Lyneer”), IDC Technologies, Inc., a California corporation (“IDC”), and Lyneer Management Holdings LLC,
a Delaware limited liability company (“Lyneer Management”), entered into an Agreement and Plan of Merger (the “Merger
Agreement”), pursuant to which (i) Atlantic Merger Sub will be merged with and into Lyneer, with Lyneer continuing as the surviving
entity and as an approximating
At the effective time of the SeqLL Merger, in
consideration of
(A/B) - [(C/B) + D]
Where:
A= $225,000,000
B= the Offering Price
C= $72,000,000
D= number of shares of SeqLL common stock sold in the Capital Raise
(exclusive of shares issued in respect of any over-allotment option).
If the Offering Price in the Capital Raise is
less than $
The Merger Agreement contains customary representations and warranties from the parties, and each party has agreed to customary covenants applicable to such party, including, among others, covenants relating to (i) the conduct of their respective businesses in the ordinary course prior to the effective time of the Mergers and (ii) the requirement of each party to maintain and preserve intact their respective business organizations, assets, properties and material business relations. The Merger Agreement also requires that, prior to the closing of the Mergers, the Company will declare a cash dividend payable to the Company’s stockholders of record as of the close of business on a date to be determined by the Company, but in any event prior to the date of pricing of the Capital Raise, in an amount equal to the Company’s cash and cash equivalents as of the closing date of the Mergers (exclusive of any proceeds of the Capital Raise), less any amounts withheld for taxes and certain other obligations as of such date.
5
The obligation of each of the Company, Atlantic
and Lyneer, and their respective subsidiaries, to complete the Mergers is subject to the fulfillment (or waiver, to the extent permissible
under applicable law) of certain customary closing conditions, plus the conditions that (i) the stockholders of the Company shall have
approved the issuance of the shares of the Company’s common stock in the Mergers, (ii) the Company completes the Capital Raise for
gross proceeds of approximately $
The Merger Agreement contains certain termination rights, including (i) by mutual consent of the Company, Atlantic, IDC and Lyneer Management, (ii) by any of the Company, Atlantic, IDC or Lyneer Management upon a material breach of the representations or of any covenants or agreements of certain other parties, (iii) by any of the Company, Atlantic, IDC or Lyneer Management if the Mergers have not been consummated by August 31, 2023, (iv) by any of the Company, Atlantic, IDC or Lyneer Management if any governmental authority shall have issued an order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by the Merger Agreement, (v) by any of the Company, Atlantic, IDC or Lyneer Management if the special meeting of the Company’s stockholders has been held and the approval of the issuance of the common stock of the Company in the Mergers and the change of control of the Company that will be effected as a result of such issuance and certain other proposals contemplated by the related proxy statement was not approved, or (vi) by Atlantic, IDC or Lyneer Management if the Company is in breach of the rules and regulations of the Nasdaq Stock Market LLC (“Nasdaq”) or has received a notice from Nasdaq relating to the delisting or maintenance of listing of the Company’s common stock on Nasdaq and the Company fails to cure and maintain its listing on Nasdaq prior to the closing of the Mergers.
Stockholders Meeting
Pursuant to the Merger Agreement, the Company has filed with the Securities
and Exchange Commission (the “SEC”), a preliminary proxy statement on Schedule 14A (as amended or supplemented from time to
time, the “Proxy Statement”) for the purpose of soliciting proxies from the Company’s stockholders for the matters to
be acted upon at a special meeting of such stockholders to be held in August, 2023 to vote on resolutions (i) approving the issuance of
the Company’s common stock in the Mergers and the change of control of the Company, (ii) authorizing a change in the size of the
Company’s board of directors (the “Board”) with a minimum of one director and a maximum of seven directors, (iii) authorizing
an amendment to the Company’s certificate of incorporation to effect a reverse stock split of the Company’s common stock on
a one new common share for up to 40 shares of old common stock basis, at the discretion of the Board in connection with the consummation
of the Mergers, (iv) authorizing an amendment to the Company’s certificate of incorporation to change the name of the Company following
consummation of the Mergers to “Atlantic International Corp.”, (v) authorizing an amendment to the Company’s certificate
of incorporation to increase the authorized shares of common stock from
In connection with the execution and delivery of the Merger Agreement, Daniel Jones, the Chairman of the Board and Chief Executive Officer of the Company, another member of the Board, William C. St. Laurent, one of the founders of the Company, and certain members of Mr. St. Laurent’s family (the “Major Stockholders”) entered into a voting agreement pursuant to which the Major Stockholders agreed to vote their shares of the Company’s common stock in favor of each of the proposals described in the Proxy Statement other than the proposal approving the Asset Purchase Agreement (as defined below), a proposal with respect to which Mr. Jones is an interested party and, as a result, on which he will abstain from voting. The Major Stockholders own shares of the Company’s common stock that together represent sufficient voting power to approve each of the proposals to be considered at the special meeting contemplated by the Proxy Statement (other than the Asset Sale Proposal, as to which Mr. Jones will abstain from voting). As a result, the approval of each of such proposals, other than the Asset Sale Proposal, by the Company’s stockholders is assured.
6
Asset Purchase Agreement
In connection with the execution and delivery
of the Merger Agreement, the Company entered into an asset purchase agreement (“Asset Purchase Agreement”) with SeqLL Omics,
Inc., a Delaware corporation (“SeqLL Omics”). SeqLL Omics was recently formed by Daniel Jones, the Chairman of the Board and
Chief Executive Officer of the Company, and certain other Company employees, for the purpose of carrying on the Company’s pre-Merger
business after the Mergers. Subject to the terms and conditions of the Asset Purchase Agreement, SeqLL Omics has agreed to purchase from
the Company, and the Company has agreed to sell to SeqLL Omics, for a purchase price of $
| ● | all inventory; |
| ● | all leasehold interests in real estate; |
| ● | all contracts with customers, vendors and suppliers and all technology license agreements; |
| ● | all intellectual property and general intangibles; |
| ● | all equipment and other tangible assets used in, or related to, its business operations; and |
| ● | all accounts receivable. |
In addition to keeping its cash and cash equivalents in order to make a cash dividend to the Company’s stockholders, the Company will not sell or transfer, and SeqLL Omics will not acquire, certain contracts unrelated to the Company’s pre-Merger business operations, the Company’s corporate records or its rights under the Merger Agreement.
Pursuant to the Asset Purchase Agreement, SeqLL Omics will assume from the Company all obligations or liabilities of the Company related to its pre-Merger business operations, including those under the contracts and leases that it will purchase, other than the following:
| ● | obligations to pay any rent pursuant to the Company’s real estate lease prior to the first anniversary of the closing under the Asset Purchase Agreement; |
| ● | all obligations of the Company under the Merger Agreement; |
| ● | obligations of the Company that are not related to the Company’s current business operations and arise following the closing; |
| ● | amounts payable under the promissory note of the Company in the principal amount of $ |
| ● | any obligations under the excluded contracts. |
The Company will be responsible for the payment of transfer taxes, if any, related to the transfer of the transferred assets.
7
Common Stock Issuance
On February 15, 2023, the Company issued
Notice from the Nasdaq Stock Market
On June 21, 2022, the Company received a deficiency
letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq informing the Company that its common stock
was below the minimum $
On December 20, 2022, the Company received notice from Nasdaq indicating that, while the Company had not regained compliance with the Bid Price Requirement, Nasdaq had determined that the Company was eligible for an additional 180-day period, or until June 19, 2023, to regain compliance. According to the notification from Nasdaq, the Staff’s determination was based on (i) the Company meeting the continued listing requirement for market value of its publicly-held securities and all other Nasdaq initial listing standards, with the exception of the minimum bid price requirement, and (ii) the Company’s written notice to Nasdaq of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
On June 20, 2023, the Company received a determination letter from the Staff stating that the Company had not regained compliance with the Bid Price Requirement and that, accordingly, the Company’s securities will be delisted from the Nasdaq Capital Market. In that regard, the Company was notified that unless it requested an appeal of this determination, trading of its securities would be suspended at the opening of business on June 29, 2023, and a Form 25-NSE would be filed with the SEC that would remove SeqLL’s securities from listing and registration on The Nasdaq Stock Market. On June 26, 2023, the Company appealed the Staff’s delisting determination, and on July 17, 2023, the Company received notice from Nasdaq that the Company was granted an additional extension to September 15, 2023 to regain compliance with the minimum bid price requirement..
In connection with the proposed Mergers, on June 14, 2023, the Company also re-applied for listing of its shares and warrants on the Nasdaq Capital Market. While it is a condition to the Mergers for the Company to have its shares and warrants listed on Nasdaq upon consummation the Merger, the Company must meet Nasdaq’s initial listing requirements to do so. There can be no assurance that the Company will regain compliance with the Nasdaq minimum bid price requirement in a timely manner or that the Company’s re-listing application will be approved. Even if the Company’s securities are listed on Nasdaq following the Mergers, it may be unable to maintain the listing of its securities in the future.
Risks and Uncertainties
The Company is subject to a number of risks similar to other companies in its industries, including rapid technological change, competition from larger pharmaceutical and biotechnology companies and dependence on key personnel.
Results of operations may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond the Company’s control. The Company’s business could be impacted by, among other things, downturns in the financial markets or in economic conditions, inflation, increases in interest rates, and geopolitical instability, such as the military conflict in Ukraine. The Company cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact the Company’s business.
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, SeqLL, LLC and SeqLL Merger Sub. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s condensed consolidated financial position as of June 30, 2023 and its results of operations for the three- and six-months ended June 30, 2023 and 2022, and changes in shareholders’ equity and cash flows for the periods presented. The results disclosed in the condensed consolidated statements of operations and comprehensive loss for the three-and six-months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 filed with the Securities and Exchange Commission.
Note 2 – Significant Accounting Policies
During the six-month period ended June 30, 2023, there were no changes to the significant accounting policies in relation to what was described in the Annual Report on Form 10-K for the year ended December 31, 2022, other than the items noted in the Recently Adopted Accounting Standards section below.
8
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates include but are not limited to share-based compensation expense and discount rates used to establish operating and finance lease liabilities. Actual results could differ from those estimates and changes in estimates may occur.
Inventory
Inventory consists of finished goods, work-in-process and raw materials and is valued at the lower of cost or net realizable value, determined by the first-in, first-out (“FIFO”) method. As the Company manufactures the finished goods and work-in-process materials, overhead costs are included in inventory. The Company evaluates the carrying cost of finished goods, work-in-process, and raw materials items. To the extent that such costs exceed future demand estimates and/or exhibit historical turnover at rates less than current inventory levels, the Company reduces the carrying value of the applicable inventories. Inventory consisted of the following:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Total inventory | $ | $ | ||||||
In March 2023, the Company performed a detailed evaluation of its inventory and given the lack of sales activity in prior periods, the Company has written off its remaining inventory.
Stock-based Compensation
The Company’s share-based compensation program grant awards include stock options and restricted stock units. The fair value of stock option grants is estimated as of the date of the grant using the Black-Scholes option pricing model. The fair value of restricted stock units is based on the fair value of the Company’s common stock on the date of the grant. The fair value of the share-based awards are then expensed over the requisite service period, generally the vesting period, for each award.
The Company’s expected stock price volatility
assumption is based on the volatility of comparable public companies. The expected term of a stock option granted to employees and directors
(including non-employee directors) is based on the average of the contractual term (generally
The Company has periodically granted stock options and restricted stock units to non-employees for services pursuant to the Company’s stock plans at the fair market value on the respective dates of grant. Should the Company terminate any of its consulting agreements, the unvested options underlying the agreements would be cancelled. For awards granted to non-employees, compensation expense is recognized over the service period of the awards.
The assumptions used in determining the fair value of share-based awards granted during the six-months ended June 30, 2023 are as follows:
| June 30, | ||
| 2023 | ||
| Risk-free interest rate | ||
| Expected option life | ||
| Expected dividend yield | ||
| Expected stock price volatility |
9
Segments
The Company operates in a single business segment that includes the design, development and manufacturing of genetic analysis technologies.
Leases
In the first quarter of 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842). The Company assesses its contracts at inception to determine whether the contract contains a lease, including evaluation of whether the contract conveys the right to control an explicitly or implicitly identified asset for a period of time. The Company classifies its leases as either finance or operating leases, with classification affecting the pattern of expense recognition in the Company’s condensed consolidated financial statements. The Company accounts for the leases of less than 12 months as short-term leases.
The Company recognizes right-of-use assets and lease liabilities that represent the net present value of future lease payments utilizing the discount rate implicit in the lease. If the implicit rate is not available, the Company uses incremental borrowing rate. The Company amortized the right-of-use assets over the remaining terms of the lease
The Company’s operating lease is included in Operating lease right-of-use asset, and Current portion of operating lease liability and Operating lease liability, less current portion in the condensed consolidated balance sheets. The Company’s finance lease is included in Property and equipment, net, Current portion of finance lease liability and Finance lease liability, less current portion in the condensed consolidated balance sheets.
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 outstanding for the period, without consideration for potentially dilutive securities if their effect is antidilutive. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury stock and if-converted methods. Dilutive common stock equivalents are comprised of restricted stock units, options outstanding under the Company’s stock option plan, and warrants. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities would be antidilutive.
The following potential shares of common stock were not considered in the computation of diluted net loss per share as their effect would have been antidilutive:
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Restricted stock units | ||||||||
| Stock options | ||||||||
| Warrants for common stock | ||||||||
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, or ASU 2016-13. The guidance is effective for fiscal years beginning after December 15, 2022. The Company adopted this standard on January 1, 2023, which had no material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Standards
The Company does not believe that any recently issued but not yet effective accounting pronouncements will have a material effect on the accompanying condensed consolidated financial statements.
Note 3 – Accrued Expenses
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accrued interest | $ | $ | ||||||
| Accrued bonuses | ||||||||
| Other | ||||||||
| $ | $ | |||||||
10
Note 4 – Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and requires disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| Level 1: | Observable inputs such as quoted prices in active markets. |
| Level 2: | Inputs, other than the quoted prices in active markets that are observable either directly or indirectly. |
| Level 3: | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
| Fair Value Measurements Using | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Cash equivalents | $ | $ | ||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| U.S. government and agency obligations | $ | $ | ||||||||||||||
There were no assets or liabilities measured at fair value on a non-recurring basis during the three- and six- month periods ended June 30, 2023 or 2022.
The carrying values of financial instruments such as accounts receivable, net, other receivables, prepaid expenses, accounts payable, and accrued expenses approximated fair value as of June 30, 2023 and December 31, 2022 due to their short-term maturities. The carrying value of the Company’s Non-Convertible Promissory Note approximated its fair value as of June 30, 2023 and December 31, 2022.
Note 5 – Share-based Compensation
The Company’s 2014 Equity Incentive Plan
(the “2014 Plan”) permits the grant of options and restricted stock units for its common stock and shares of common stock
to its employees, board members and consultants for up to
As of June 30, 2023, there were
| Number of Options | Weighted- Average Exercise Price per Share | Weighted Average Remaining Contractual Term (in Years) | ||||||||||
| Outstanding as of December 31, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Outstanding as of June 30, 2023 | $ | |||||||||||
| Exercisable at June 30, 2023 | $ | |||||||||||
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| Number of Shares | Weighted- Average Exercise Price per Share | Weighted Average Remaining Contractual Term (in Years) | ||||||||||
| Outstanding as of December 31, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Outstanding of June 30, 2023 | $ | |||||||||||
| Exercisable at June 30, 2023 | $ | |||||||||||
During the three-month periods ended June 30,
2023 and 2022, the Company recorded $
During the six-month periods ended June 30, 2023
and 2022, the Company recorded $
As of June 30, 2023, there was approximately $
Note 6 – Related Party Transactions
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Genomic Diagnostic Technologies | $ | $ | ||||||
| St. Laurent Institute | ||||||||
| St. Laurent Realty, Inc. | ||||||||
| $ | $ | |||||||
The above entities are affiliated with (1) William C. St. Laurent, a former member of the Company’s board of directors, (2) relatives of Mr. St. Laurent or (3) entities controlled by the St. Laurent family. St. Laurent Realty, Inc. and Genomic Diagnostic Technologies assisted the Company by previously providing corporate accounting support; St. Laurent Institute, a non-for-profit company, provided bioinformatics specialist support for certain sequencing services.
Note 7 – Notes Payable
From April 29, 2019 to April 29, 2020, the Company
entered into a series of non-convertible promissory notes (the “Promissory Notes”) with St. Laurent Investments LLC amounting
to $
For the three months ended June 30, 2023 and 2022,
interest expense on the Promissory Notes was $
For the six months ended June 30, 2023 and 2022,
interest expense on the Promissory Notes was $
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Note 8 – Common Stock Warrants
| Number of | ||||||||||
| Shares | ||||||||||
| Issuable | ||||||||||
| Upon | ||||||||||
| Exercise of | ||||||||||
| Outstanding | Exercise | |||||||||
| Issuance Date | Warrants | Price | Expiration Date | |||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
Note 9 – Commitments and Contingencies
Operating Leases
The Company’s office space lease in Woburn,
Massachusetts (the “Woburn Lease”) for the Company’s corporate headquarters was on a month-to-month basis since November
2020 and was terminated in February 2022. The rent expense for this lease was $
On February 2, 2022, the Company entered into
a lease agreement for approximately
The Billerica Lease is classified as an operating
lease. At the inception date of the Billerica Lease, the Company recorded a right-of-use asset of $
13
In August 2022, the Company received the tenant
improvement allowance from the landlord, which totaled approximately $
As of June 30, 2023, the remaining lease term
was
The Company recorded expense related to the Billerica
Lease in the amount of $
The Company made cash payments of $
As of June 30, 2023, the Company has presented
$
Finance Lease
On May 1, 2023, the Company entered into a lease
agreement for laboratory equipment (the “Equipment Lease”). The Equipment Lease has a term of
As of June 30, 2023, the remaining lease term
was
The Company recorded expense related to the Equipment
Lease in the amount of $
The Company made cash payments of $
Interest expense related to the Equipment Lease
totaled $
As of June 30, 2023, the Company has presented
$
| Operating Lease | Finance Lease | |||||||
| 2023 (remaining) | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total undiscounted lease liabilities | $ | $ | ||||||
| Less effects of discounting | ||||||||
| Total lease liabilities | $ | $ | ||||||
Note 10 – Subsequent Events
The Company did not identify any subsequent events that require adjustment or disclosure in the unaudited condensed consolidated financial statements other than discussed below.
As described in Note 1, on July 17, 2023, the Company received notice from Nasdaq that the Company was granted an additional extension to September 15, 2023 to regain compliance with the minimum bid price requirement.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023, and related notes included elsewhere in this filing. This discussion and analysis and other parts of this filing contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this filing. You should carefully read the “Risk Factors” section of this filing to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements” in this filing.
Overview
This overview and outlook provide a high-level discussion of our operating results and significant known trends that affect our business. We believe that an understanding of these trends is important to understanding our financial results for the periods being reported herein as well as our future financial performance. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this report.
About SeqLL
We are an early commercial-stage life sciences instrumentation and research services company engaged in the development of scientific assets and novel intellectual property across multiple “omics” fields. We leverage our expertise with True Single Molecule Sequencing (tSMS) technology enabling researchers and clinicians to contribute major advancements to scientific research and development.
Our customers are primarily the early adopters of genomics technology and tSMS in academic research, biomarker discovery, and molecular diagnostic product development.
Our financial results have been, and will continue to be, impacted by several significant trends, which are described below. While these trends are important to understanding and evaluating our financial results, this discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto within the Condensed Consolidated Financial Statements section of this report, and trends discussed in “Risk Factors” in Item 1-A of Part II of this report.
Proposed Merger Agreement
Terms used and not defined in the following discussion have the respective meanings set forth in Note 1 to our unaudited condensed consolidated financial statements included in Part I to this report.
On May 29, 2023, we entered into the Merger Agreement with Atlantic, Atlantic Merger Sub, SeqLL Merger Sub, Lyneer, and the Sellers subject to the approval of our stockholders at a special meeting. Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, Atlantic Merger Sub will initially be merged into Lyneer, and SeqLL Merger Sub will then be merged into Lyneer, with Lyneer continuing as the surviving entity and as our wholly-owned subsidiary. In connection with the consummation of the Merger, we will be renamed “Atlantic International Corp.”
Lyneer, through its subsidiaries, specializes in the placement of temporary and temporary-to-permanent labor across various industries within the United States. Lyneer primarily places individuals in accounting and finance, administrative and clerical, information technology, legal, light industrial, and medical roles. It is also a leading provider of productivity consulting and workforce management solutions. Lyneer is headquartered in Lawrenceville, New Jersey and has more than 100 locations in the U.S.
We will hold a special meeting of stockholders at which our stockholders will be asked to approve, among other proposals, amendments to our amended and restated certificate of incorporation to (i) authorize an increase in the size of our board of directors to seven individuals, (ii) increase our authorized shares of common stock from 80,000,000 shares to 300,000,000 shares, (iii) authorize the reverse stock split of our outstanding common stock on an up to one-for-40 basis, at the discretion of our board of directors, and (iv) change our corporate name upon the consummation of the Merger from “SeqLL, Inc.” to “Atlantic International Corp.”
15
In connection with the closing of the Merger:
| ● | our cash assets will be distributed to our stockholders of record as of the close of business a record date prior to the consummation of the Merger in the form of a cash dividend to be distributed promptly following the Merger; |
| ● | our remaining assets will be sold to, and the majority of our liabilities will be assumed by, a newly-formed affiliated entity (SeqLL Omics Inc.). Following such divesture, we will have no or nominal assets and no or nominal operations. |
| ● | Atlantic Merger Sub will initially be merged into Lyneer, and SeqLL Merger Sub will then be merged into Lyneer, with Lyneer continuing as the surviving entity and as our wholly-owned subsidiary. Lyneer will be the continuing operating company. |
| ● | IDC will receive cash consideration of $60,000,000 and shares of SeqLL common stock valued at $60,000,000 equal to the Offering Price in a proposed public offering or private placement of approximately $75 million of SeqLL common stock to be consummated on or about the closing date of the Merger. A portion of the cash consideration received by IDC will be used to settle certain Lyneer debt obligations. |
| ● | The value of the shares of SeqLL’s common stock retained by our pre-Merger stockholders, including shares that may be issued to such stockholders in a stock dividend, and the value of the shares of our common stock that will be issued to IDC in the Merger and to investors in connection with the Capital Raise is expected to total approximately $147,000,000, based upon the Offering Price in the Capital Raise. |
| ● | we will issue our common stock to IDC and Lyneer Management in connection with the Merger equal to the quotient of $60,000,000 divided by the price per share at which our common stock is sold in the Capital Raise (the “Offering Price”), of which 90% percent of such shares will be issued to IDC and 10% percent of such shares will be issued to Lyneer Management. Atlantic will receive a number of shares of our common stock in connection with the Merger to be determined based upon the following formula: |
(A/B) – [(C/B) + D]
Where:
A= $225,000,000
B= the Offering Price
C= $72,000,000
D= number of shares of our common stock sold in the Capital Raise
(exclusive of shares issued in respect of any over-allotment option).
Results of operations
We incurred net losses of $1,400,114 and $994,915 for the three months ended June 30, 2023 and 2022, respectively, and net losses of $3,118,480 and $1,932,869 for the six months ended June 30, 2023 and 2022, respectively. We had negative cash flow from operating activities of $2,935,099 and $2,013,997 for the six months ended June 30, 2023 and 2022, respectively, and had an accumulated deficit of $21,627,164 as of June 30, 2023.
Results of operations may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, inflation, increases in interest rates, and geopolitical instability, such as the military conflict in Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business.
Our financial results have been, and will continue to be, impacted by several significant trends, which are described below. While these trends are important to understanding and evaluating our financial results, this discussion should be read in conjunction with our consolidated financial statements and the notes thereto within the Consolidated Financial Statements section of this report, and trends discussed in “Risk Factors” in Item 1-A of Part II of this report.
16
Comparison of the Three Months Ended June 30, 2023 and 2022
The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022:
| Three months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Sales | $ | - | $ | 1,177 | ||||
| Grant revenue | - | 30,000 | ||||||
| Total revenue | - | 31,177 | ||||||
| Cost of sales | - | 690 | ||||||
| Gross profit | - | 30,487 | ||||||
| Operating expenses | ||||||||
| Research and development | 581,718 | 365,845 | ||||||
| General and administrative | 862,686 | 625,739 | ||||||
| Total operating expenses | 1,444,404 | 991,584 | ||||||
| Operating loss | (1,444,404 | ) | (961,097 | ) | ||||
| Other (income) and expenses | ||||||||
| Investment income | (67,138 | ) | (5,748 | ) | ||||
| Unrealized gain on marketable equity securities | - | - | ||||||
| Realized loss on marketable equity securities | - | - | ||||||
| Interest expense | 22,848 | 39,566 | ||||||
| Net loss | (1,400,114 | ) | (994,915 | ) | ||||
| Other comprehensive income | ||||||||
| Reclassification adjustment for net gains included in net loss | (17,939 | ) | - | |||||
| Total comprehensive loss | $ | (1,418,053 | ) | $ | (994,915 | ) | ||
| Net loss per share - basic and diluted | $ | (0.10 | ) | $ | (0.08 | ) | ||
| Weighted average common shares - basic and diluted | 13,886,379 | 11,886,379 | ||||||
Revenues
Our revenues during the three-month period ended June 30, 2023, were $0 as compared to revenues of $31,177 during the three-month period ended June 30, 2022, representing a decrease of $31,177, or 100%. During the three-month period ended June 30, 2023, we had no revenues from product sales, grants or research services as compared to revenue in the same period of 2022 of $30,000 from grants and $1,177 of revenue related to product sales. The decrease in revenue was due to the fact that we do not currently have any active grants under which we are providing services.
Gross Profit
Gross profit for the three-month period ended June 30, 2023 was $0, as compared to gross profit of $30,487 for the three-month periods ended June 30, 2022, which represented a 100% decrease due to the fact that we did not have any revenue-generating transactions in the three-month period ended June 30, 2023.
Research and Development Expenses
Research and development expenses increased by $215,873, or 59%, from $365,845 for the three-month period ended June 30, 2022 compared to $581,718 for the three-month period ended June 30, 2023. The increase in expenses was a result of our progressive return to research and development activities to pre-COVID-19 levels. We expect to incur significant research and development expenses throughout 2023 and beyond as we pursue our research and development efforts.
17
General and Administrative Expenses
General and administrative expenses increased by $236,947, or 38%, from $625,739 for the three-month period ended June 30, 2022 compared to $862,686 for the three-month period ended June 30, 2023. The increase was attributable to approximately $20,000 in legal fees incurred in relation to the Merger and $50,000 of additional operating expenses related to the reporting activities as a public company, including the addition of accounting, legal, insurance and audit related expenses. General and administrative expenditures will continue to increase to support ongoing financial reporting and compliance activities.
Other Income/Loss
We recognized $67,138 investment income related to $57,979 earnings from marketable debt securities and $9,159 income from funds in money market accounts during the three-month period ended June 30, 2023 as compared to $0 of investment of income related to marketable debt securities and $5,748 of income earned from money market accounts during the three-month period ended June 30, 2022. This increase in investment income was attributable to the maturity of marketable debt securities during the three-months ended June 30, 2023.
Net Loss
Overall, the net loss increased by $405,199, or 41%, to $1,400,114 as compared to $994,915 for the three-month period ended June 30, 2022, primarily due to increased operating expenses during the three-month period ended June 30, 2023.
Comparison of the Six Months Ended June 30, 2023 and 2022
The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022:
| Six months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Sales | $ | - | $ | 1,177 | ||||
| Grant revenue | - | 77,482 | ||||||
| Total revenue | - | 78,659 | ||||||
| Cost of sales | - | 690 | ||||||
| Gross profit | - | 77,969 | ||||||
| Operating expenses | ||||||||
| Research and development | 1,358,438 | 700,515 | ||||||
| General and administrative | 1,843,793 | 1,210,611 | ||||||
| Total operating expenses | 3,202,231 | 1,911,126 | ||||||
| Operating loss | (3,202,231 | ) | (1,833,157 | ) | ||||
| Other (income) and expenses | ||||||||
| Investment income | (123,405 | ) | (8,476 | ) | ||||
| Unrealized gain on marketable equity securities | - | (54,508 | ) | |||||
| Realized loss on marketable equity securities | - | 106,324 | ||||||
| Interest expense | 39,654 | 56,372 | ||||||
| Net loss | (3,118,480 | ) | (1,932,869 | ) | ||||
| Other comprehensive income | ||||||||
| Reclassification adjustment for net gains included in net loss | (22,451 | ) | - | |||||
| Total comprehensive loss | $ | (3,140,931 | ) | $ | (1,932,869 | ) | ||
| Net loss per share - basic and diluted | $ | (0.23 | ) | $ | (0.16 | ) | ||
| Weighted average common shares - basic and diluted | 13,389,141 | 11,886,379 | ||||||
18
Revenues
Our revenues during the six-month period ended June 30, 2023, were $0 as compared to revenues of $78,659 during the six-month period ended June 30, 2022, representing a decrease of $78,659, or 100%. During the six-month period ended June 30, 2023, we had no revenues from product sales, grants or research services as compared to revenue in the same period of 2022 of $77,482 from grants and $1,177 of revenue related to product sales. The decrease in revenue was due to the fact that we do not currently have any active grants under which we are providing services.
Gross Profit
Gross profit for the six-month period ended June 30, 2023 was $0, as compared to gross profit of $77,969 for the six-month periods ended June 30, 2022, which represented a 100% decrease due to the fact that we did not have any revenue-generating transactions in the six-month period ended June 30, 2023.
Research and Development Expenses
Research and development expenses increased by $657,923, or 94%, from $700,515 for the six-month period ended June 30, 2022 compared to $1,358,438 for the six-month period ended June 30, 2023. The increase in expenses was a result of our progressive return to research and development activities to pre-COVID-19 levels. We expect to incur significant research and development expenses throughout 2023 and beyond as we pursue our research and development efforts.
General and Administrative Expenses
General and administrative expenses increased by $633,182, or 52%, from $1,210,611 for the six-month period ended June 30, 2022 compared to $1,843,793 for the six-month period ended June 30, 2023. The increase was primarily attributable to approximately $450,000 in legal and professional fees related to the Merger, increased operating expenses of approximately $120,000 related to the reporting activities as a public company, including the addition of accounting, legal, insurance and audit related expenses, and approximately $78,000 related to the write-off of uncollectible receivables. General and administrative expenditures will continue to increase to support ongoing financial reporting and compliance activities.
Other Income/Loss
We recognized $123,405 related to investment income from marketable debt securities of $106,051 and $17,354 for funds in money market accounts during the six-month period ended June 30, 2023 as compared to $0 of investment of income related to marketable debt securities and $8,476 of income earned from money market accounts during the six-month period ended June 30, 2022. This increase in investment income was attributable to the maturity of marketable debt securities during the six-months ended June 30, 2023. We recognized $51,816 in net realized and unrealized losses on the marketable equity securities during the six-month period ended June 30, 2022.
Net Loss
Overall, the net loss increased by $1,185,611, or 61%, to $3,118,480 as compared to $1,932,869 for the six-month period ended June 30, 2022, primarily due to increased operating expenses during the six-month period ended June 30, 2023.
Liquidity and Capital Resources
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Even though we experienced negative cash flows from operations of $2,935,099 for the six-month period ended June 30, 2023, as a result of our recent common stock offerings in August 2021 and February of 2023 and the maturity of our marketable debt securities, we had cash and cash equivalents of $4,789,870 at June 30, 2023. Therefore, we estimate that our available cash resources will be sufficient to fund our operations for at least one year from the date this report is filed with the SEC.
As of June 30, 2023, we had approximately $4.8 million in cash and cash equivalents. Since inception, we have funded our operations primarily through equity and debt financings, as well as from modest sales of products and research services. As of June 30, 2023, we had an accumulated deficit of $21,627,164.
On February 15, 2023, we issued 2,000,000 shares of common stock to investors at a price of $0.90 per share. The gross proceeds of the issuance were $1.8 million. We incurred offering expenses of approximately $0.3 million, which were paid with proceeds from the common stock issuance.
We believe the net proceeds from our February 2023 common stock issuance will enable us to fund our operations for at least one year from the date this report is filed with the SEC. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking estimate that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect.
19
Our future capital requirements will depend on many factors, including:
| ● | our ability to successfully and further develop our technologies and create innovative products in our markets, including the costs associated with the development of our tSMS platform across multiple market segments, for which we have budgeted approximately $1.5 million in 2023 in support of our collaborative efforts in detection tools for heart disease and cancer, and chromatin mapping in genome biology, |
| ● | scientific progress in research and development of our collaborative programs, including the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights, as well as the costs associated with any product or technology that we may in-license or acquire; and |
| ● | the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; including the need to enter into other collaborations to enhance or complement our product and service offerings. |
If the Merger is not consummated, we plan to continue seeking additional financing sources from time to time to meet our working capital requirements, make continued investment in research and development and make capital expenditures needed for us to maintain and expand our business. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, or if we expend capital on projects that are not successful, our ability to continue to support our business growth and to respond to business challenges could be significantly limited. In addition, if we raise additional funds through further issuances of equity or debt securities, our existing stockholders could experience significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.
Cash Flows
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented.
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash proceeds (used in) provided by: | ||||||||
| Operating activities | $ | (2,935,099 | ) | $ | (2,013,997 | ) | ||
| Investing activities | 4,057,627 | 5,852,775 | ||||||
| Financing activities | 1,486,817 | - | ||||||
| Net increase in cash and cash equivalents | $ | 2,609,345 | $ | 3,838,778 | ||||
Net cash used in operating activities
Net cash used in operating activities was approximately $2.9 million and $2.0 million for the six months ended June 30, 2023 and 2022, respectively. The increase in operating spending was a result of our progressive return to research and development activities to levels of pre-COVID-19 pandemic. In addition, we experienced an increase in our general and administrative spending since we became a public company in August 2021 and we also incurred legal and consulting fees in connection with the Merger.
Net cash used in investing activities
Net cash provided by investing activities was approximately $4.1 million and $5.8 million for the six months ended June 30, 2023 and 2022, respectively. The decrease was primarily attributable to the decrease in sales and maturities of marketable securities during the six months ended June 30, 2023 as compared to the six month period ended June 30, 2022.
Net cash provided by financing activities
Net cash provided by financing activities was $1.5 million, and $0, for the six-month periods ended June 30, 2023 and 2022, respectively. We issued 2,000,000 shares of common stock to investors at a price of $0.90 per share during the six-month period ended June 30, 2023. The gross proceeds of the issuance was $1.8 million. We incurred offering costs of approximately $0.3 million, which were paid with proceeds from the common stock issuance. No such transaction occurred during the six-month period ended June 30, 2022.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, or ASU 2016-13. The guidance is effective for fiscal years beginning after December 15, 2022. We adopted this standard on January 1, 2023, which had no material impact on our condensed consolidated financial statements.
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We do not believe that any other recently issued but not yet effective accounting pronouncements will have a material effect on the accompanying consolidated financial statements.
Critical Accounting Policies and Estimates
We prepare our financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions about future events that affect reported amounts. Estimations are considered critical accounting estimates based on, among other things, its impact on the portrayal of our financial condition, results of operations, or liquidity, as well as the degree of difficulty, subjectivity, and complexity in its deployment. Critical accounting estimates address accounting matters that are inherently uncertain due to unknown future resolution of such matters. Management routinely discusses the development, selection, and disclosure of each critical accounting estimates.
Other than those noted within Note 2 to our unaudited condensed consolidated financial statements, there have been no significant changes to our critical accounting policies and estimates during the three- and six-month periods ended June 30, 2023 as compared to the information contained in our 2022 Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC. Reference should be made to the consolidated financial statements and related notes included in the 2022 Form 10-K for a full description of other significant accounting policies.
JOBS Act
Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
For as long as we remain an emerging growth company under the recently-enacted JOBS Act, we will, among other things:
| ● | be permitted to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure; |
| ● | be entitled to rely on an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act; |
| ● | be entitled to reduced disclosure obligations about executive compensation arrangements in our periodic reports, registration statements and proxy statements; and |
| ● | be exempt from the requirements to seek non-binding advisory votes on executive compensation or golden parachute arrangements. |
We currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company.” Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected.
Likewise, so long as we qualify as an emerging growth company, we may elect not to provide certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. As a result, investor confidence in our company and the market price of our common stock may be materially and adversely affected.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required under Regulation S-K for smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
Our Chief Executive Officer (who is our principal executive officer) and Chief Financial Officer (who is our principal financial officer), 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 Securities Exchange Act of 1934 (the “Exchange Act”) as of June 30, 2023. As of June 30, 2023, based upon the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective. Disclosure controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to reasonably ensure that designed control objectives are achieved. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 16, 2023 ( our “Annual Report”), except for the risk factors relating to the Merger, the Merger Agreement and the Asset Sale Agreement set forth in the Proxy Statement and except as follows:
We have failed to maintain a minimum bid price for our Nasdaq listing and we may be unable to satisfy Nasdaq listing requirements in the future, which could limit investors’ ability to effect transactions in our securities and subject us to additional trading restrictions.
On June 21, 2022, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of Nasdaq informing us that our common stock was below the minimum $1.00 per share requirement for continued inclusion on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”) based on the closing bid price of our common stock for the 30 consecutive business days prior to the date of notice from Nasdaq.
On December 20, 2022, we received notice from Nasdaq indicating that, while we had not regained compliance with the Bid Price Requirement, Nasdaq had determined that we were eligible for an additional 180-day period, or until June 19, 2023, to regain compliance. According to the notification from Nasdaq, the Staff’s determination was based on (i) our meeting the continued listing requirement for market value of our publicly held securities and all other Nasdaq initial listing standards, with the exception of the minimum bid price requirement, and (ii) our written notice to Nasdaq of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
On June 20, 2023, we received a determination letter from the Staff stating that we had not regained compliance with the Bid Price Requirement and that, accordingly, our securities will be delisted from the Nasdaq Capital Market. In that regard, unless we request an appeal of this determination, trading of our securities will be suspended at the opening of business on June 29, 2023, and a Form 25-NSE will be filed with the SEC that would remove our securities from listing and registration on The Nasdaq Stock Market. On June 26, 2023, we appealed the Staff’s determination, and on July 17, 2023, we received notice from Nasdaq that we were granted an additional extension to September 15, 2023 to regain compliance with the minimum bid price requirement.
In connection with the proposed Merger, on June 14, 2023, we also re-applied for listing of our shares and warrants on the Nasdaq Capital Market. While it is a condition to the Merger for us to have our shares and warrants listed on Nasdaq upon consummation of the Merger, we must meet Nasdaq’s initial listing requirements to do so. There can be no assurance that we will regain compliance with the Nasdaq minimum bid price requirement in a timely manner or that our re-listing application will be approved. Even if our securities are listed on Nasdaq following the Merger, we may be unable to maintain the listing of our securities in the future.
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If we fail to maintain the listing requirements of Nasdaq and our securities are delisted, or if our re-listing application is not approved, there could be significant material adverse consequences to us, including:
| ● | the possibility that Atlantic or Lyneer will terminate the Merger Agreement due to our failure to meet a material condition to the consummation of the Merger, which condition may, but is unlikely to, be waived by Atlantic or Lyneer; |
| ● | a limited availability of market quotations for our securities; |
| ● | a limited amount of news and analyst coverage for our company; and |
| ● | a decreased ability to obtain capital or pursue acquisitions by issuing additional equity or convertible securities. |
Our business involves significant risks. You should carefully consider the risks and uncertainties described in our Annual Report, together with all of the other information in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as included in our Annual Report. The risks and uncertainties described in our Annual Report, the Proxy Statement and this report are not the only ones we face. Additional risk and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives. In that event, the market price of our common stock could decline and you could lose part or all of your investment.
Item 2. Unregistered Securities Sales of Equity Securities and Use of Proceeds
Sales of Unregistered Securities
There have been no sales of unregistered securities within the period covered by this report that would be required to be disclosed pursuant to Item 701 of Regulation S-K.
Repurchases of Shares or of Company Equity Securities
None.
Item 3. Default Upon Senior Securities
None
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
The following documents are filed as a part of this report or incorporated herein by reference:
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SEQLL INC. | |
| Date: August 4, 2023 | /s/ Daniel Jones |
| Daniel Jones | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: August 4, 2023 | /s/ Frances Scally |
| Frances Scally | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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Exhibit 31.1
SEQLL INC.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A)
I, Daniel Jones, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of SeqLL, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: | August 4, 2023 | ||
| By: | /s/ Daniel Jones | ||
| Name: | Daniel Jones | ||
| Title: | Chief Executive Officer | ||
Exhibit 31.2
SEQLL INC.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A)
I, Frances Scally, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of SeqLL, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: | August 4, 2023 | ||
| By: | /s/ Frances Scally | ||
| Name: | Frances Scally | ||
| Title: | Chief Financial Officer | ||
Exhibit 32.1
SEQLL INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SeqLL, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel Jones, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| By: | /s/ Daniel Jones | |
| Name: | Daniel Jones | |
| Title: | Chief Executive Officer | |
| Date: | August 4, 2023 |
Exhibit 32.2
SEQLL INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SeqLL, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frances Scally, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| By: | /s/ Frances Scally | |
| Name: | Frances Scally | |
| Title: | Chief Financial Officer | |
| Date: | August 4, 2023 |