Releases Details

MaxCyte, Inc.
Statements of Cash Flow
For the Years Ended 31 December
(amounts in US dollars)
		2018		2017
Cash flows from operating activities:
Net loss		$    (8,869,200)		$   (9,917,000)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortisation	344,000		142,900
	Net book value of consigned equipment sold	45,600		63,200
	Stock-based compensation	1,324,200		514,500
	Bad debt expense	164,000		-
	Amortisation of discounts on short-term investments	(67,600)		-
	Non-cash interest expense	29,100		38,100
Changes in operating assets and liabilities:
	Accounts receivable	(1,947,900)		(784,900)
	Inventory	(1,289,700)		(174,900)
	Other current assets	(197,900)		(347,400)
	Accounts payable and accrued expenses	(464,000)		1,156,500
	Deferred revenue	469,200		(408,000)
	Other liabilities	(27,200)		39,900
	Net cash used in operating activities	(10,487,400)		(9,677,100)
Cash flows from investing activities:
Purchases of short-term investments		(12,673,400)		-
Maturities of short-term investments		9,550,000		-
Purchases of property and equipment		(709,700)		(609,700)
	Net cash used in investing activities	(3,833,100)		(609,700)
Cash flows from financing activities:
Borrowings under notes payable		283,700		-
Principal payments on notes payable		(283,700)		-
Proceeds from exercise of stock options		230,000		16,200
Principal payments on capital leases		(3,200)		(14,300)
Net proceeds from issuance of common stock		-		23,899,600
	Net cash provided by financing activities	226,800		23,901,500
Net (decrease)increase in cash and cash equivalents		(14,093,700)		13,614,700
Cash and cash equivalents, beginning of year		25,341,700		11,727,000
Cash and cash equivalents, end of year		$   11,248,000		$   25,341,700
Supplemental cash flow information:
Cash paid for interest		$        784,400		$       530,000
Supplemental non-cash information:
Property and equipment purchases included in accounts payable		$        256,300		$                  -

 

See accompanying notes to the financial statements.

 

 

MaxCyte, Inc.

Notes to Financial Statements

1.   Organization and Description of Business

 

MaxCyte, Inc. (the "Company" or "MaxCyte") was incorporated as a majority owned subsidiary of EntreMed, Inc. ("EntreMed") on 31 July 1998, under the laws and provisions of the state of Delaware, and commenced operations on 01 July 1999. In November 2002, MaxCyte was recapitalised and EntreMed was no longer deemed to control the Company.

 

MaxCyte is a global life sciences company utilizing its proprietary cell engineering technology to enable development of CARMA, MaxCyte's proprietary, mRNA-based immuno-oncology cell therapy, as well as the programmes of its biotechnology and pharmaceutical company customers who are engaged in cell therapy, including gene editing and immuno-oncology, and in drug discovery and development and biomanufacturing.  The Company licenses and sells its instruments and technology and sells its consumables to developers of cell therapies and to pharmaceutical and biotechnology companies for use in drug discovery and development and biomanufacturing.

 

2.   Summary of Significant Accounting Policies

 

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

The Company operates in a single business segment.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying financial statements, estimates are used for, but not limited to, revenue recognition, stock-based compensation, allowance for doubtful accounts, allowance for inventory obsolescence, accruals for contingent liabilities, deferred taxes and valuation allowance, and the depreciable lives of fixed assets. Actual results could differ from those estimates.

 

Concentration

During the years ended 31 December 2018 and 2017, one customer represented 11% and 10% of revenue, respectively.  As of 31 December 2018 and 2017, accounts receivable from this customer totalled 14% and 5% of net accounts receivable, respectively.

 

During the years ended 31 December 2018 and 2017, the Company purchased approximately 73% and 61%, respectively of its inventory from two suppliers. As of 31 December 2018 and 2017, amounts payable to these suppliers totalled 26% and 4% of total accounts payable, respectively.

 

Foreign Currency

The Company's functional currency is the US dollar; transactions denominated in foreign currencies are transacted at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in foreign currency is consummated and the date on which it is either settled or at the reporting date are recognised in the Statements of Operations as general and administrative expense. The foreign currency transaction gains (losses) were ($8,000) and $50,100 for the years ended 31 December 2018 and 2017, respectively.

 

Fair Value

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. US GAAP establishes a hierarchical disclosure framework which prioritises and ranks the level of observability of inputs used in measuring fair value.  These tiers include:

 

·     Level 1-Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

·     Level 2-Observable market-based inputs other than quoted prices in active markets for identical assets or liabilities.

 

·    Level 3-Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

See Note 6 for additional information regarding fair value.

 

Cash, Cash Equivalents and Short-term Investments

Cash and cash equivalents consist of financial instruments including money market funds and commercial paper with original maturities of less than 90 days.  Short-term investments consist of commercial paper with original maturities greater than 90 days and less than 1 year.  All money market funds and commercial paper are recorded at amortised cost unless they are deemed to be impaired on an other-than-temporary basis, at which time they are recorded at fair value using Level 2 inputs. 

The following table summarizes the Company's investments at 31 December 2018:

 

Description	Classification	Amortised cost	Gross unrecognised holding gains	Gross unrecognised holding losses	Aggregate fair value
Money market funds	Cash equivalents	$       5,945,200	$                     -	$                   -	$   5,945,200
Commercial Paper	Cash equivalents	3,455,700	500	-	3,456,200
Commercial Paper	Short-term investments	3,191,000	500	-	3,191,500
Total Investments		$     12,591,900	$             1,000	$                   -	$ 12,592,900

 

The Company had no investments at 31 December 2017.

 

At times the Company's cash balances may exceed federally insured limits and cash may also be deposited in foreign bank accounts that are not covered by federal deposit insurance. The Company does not believe that this results in any significant credit risk.

 

Inventory

The Company sells or licenses products to customers. The Company uses the average cost method of accounting for its inventory, and adjustments resulting from periodic physical inventory counts are reflected in costs of goods sold in the period of the adjustment. Inventory consisted of the following at 31 December:

 

 

 

		2018		2017
Raw materials inventory		$     884,200		$        371,100
Finished goods inventory		1,358,600		975,900
	Total Inventory	$  2,242,800		$     1,347,000

 

The Company determined no allowance for obsolescence was necessary at 31 December 2018 or 2017.

 

Accounts Receivable

Accounts receivable are reduced by an allowance for doubtful accounts, if needed. The allowance for doubtful accounts reflects the best estimate of probable losses determined principally on the basis of historical experience and specific allowances for known troubled accounts. All accounts or portions thereof that are deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts. The Company recorded an allowance of $239,000 and $0 at 31 December 2018 or 2017, respectively.

 

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method. Office equipment (principally computers) is depreciated over an estimated useful life of three years. Laboratory equipment is depreciated over an estimated useful life of five years. Furniture is depreciated over a useful life of seven years. Leasehold improvements are amortised over the shorter of the estimated lease term or useful life. Instruments represent equipment held at a customer's site that is typically leased to customers on a short-term basis and is depreciated over an estimated useful life of five years. 

 

Property and equipment includes capitalised costs to develop internal-use software.  Applicable costs are capitalised during the development stage of the project and include direct internal costs, third-party costs and allocated interest expenses as appropriate.  

 

Property and equipment consist of the following at 31 December:

 

				2018		2017
Furniture and equipment				$1,743,200		$ 1,497,000
Instruments				735,600		419,700
Leasehold improvements				280,600		265,400
Internal-use software under development				666,700		-
Purchased software				28,300		-
Accumulated depreciation and amortisation				(1,636,500)		(1,334,500)
	Property and equipment, net			$1,817,900		$   847,600

 

For the years ended 31 December 2018 and 2017, the Company transferred $393,900 and $162,500, respectively of instruments previously classified as inventory to property and equipment leased to customers. 

 

For the years ended 31 December 2018 and 2017, the Company incurred depreciation and amortisation expense of $344,000 and $142,900, respectively.  Maintenance and repairs are charged to expense as incurred.

 

Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognised is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. The Company recognised no impairment in either of the years ended 31 December 2018 or 2017.

 

Revenue Recognition

On 1 January 2018, the Company adopted guidance for revenue recognition for contracts as defined by the Financial Accounting Standards Board ("FASB"), Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"), using the modified retrospective method applied only to contracts that were not completed at the date of adoption.  The modified retrospective method provides for recognition of the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings.  The implementation of the guidance had no material impact on the measurement or recognition of revenue from customer contracts recognised in prior periods. For the Company's revenue recognition policy prior to adopting the guidance for revenue recognition for contracts, please refer to the Company's financial statements for the year ended 31 December 2017 filed with the London Stock Exchange on 4 April 2018.

 

The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract transaction price to the performance obligations and (v) determination of revenue recognition based on timing of satisfaction of the performance obligations.

 

In some arrangements, product and services have been sold together representing distinct performance obligations. In such arrangements the Company allocates the sale price to the various performance obligations in the arrangement on a relative selling price basis. Under this basis, the Company determines the estimated selling price of each performance obligation in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis.

 

The Company recognises revenue upon the satisfaction of its performance obligation (generally upon transfer of control of promised goods or services to its customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

 

The Company defers incremental costs of obtaining a customer contract and amortises the deferred costs over the period that the goods and services are transferred to the customer. The Company had no material incremental costs to obtain customer contracts in any period presented.  

 

Deferred revenue results from amounts billed in advance to customers or cash received from customers in advance of services being provided.

 

Research and Development Costs

Research and development costs consist of independent proprietary research and development costs and the costs associated with work performed for fees from third parties. Research and development costs are expensed as incurred.  Research costs performed for fees from customers are included in cost of goods sold. 

 

Stock-Based Compensation

The Company grants stock-based awards in exchange for employee, consultant and non-employee director services.  The value of the award is recognised as expense on a straight-line basis over the requisite service period. 

 

The Company utilises the Black-Scholes option pricing model for estimating fair value of its stock options granted. Option valuation models, including the Black-Scholes model, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant-date fair value of an award. These assumptions include the expected volatility, expected dividend yield, risk-free rate of interest and the expected life of the award.  A discussion of management's methodology for developing each of the assumptions used in the Black-Scholes model is as follows:

 

Expected volatility

Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company does not currently have sufficient history with its common stock subsequent to its 2016 initial public offering to determine its actual volatility. The Company has been able to identify several public entities of similar size, complexity and stage of development; accordingly, historical volatility has been calculated at between 47% and 48% for 2018 and 47% and 49% for 2017 using the volatility of these companies.

 

Expected dividend yield

The Company has never declared or paid common stock dividends and has no plans to do so in the foreseeable future. Additionally, the Company's long-term debt agreement restricts the payment of cash dividends.

 

Risk-free interest rate

This approximates the US Treasury rate for the day of each option grant during the year, having a term that closely resembles the expected term of the option. The risk-free interest rate was between 2.7% and 3.0% for 2018 and 1.8% and 2.4% for 2017.

 

Expected term

This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years. The Company estimates the expected term of the options to be 6.25 years for options with a standard four-year vesting period, using the simplified method. Over time, management intends to track estimates of the expected term of the option term so that estimates will approximate actual behaviour for similar options.

 

Expected forfeiture rate

The Company records forfeitures as they occur.

 

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more-likely-than-not that all or a portion of the deferred tax asset will not be realised.

 

Management uses a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. For those benefits to be recognised, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognises interest and penalties accrued on any unrecognised tax exposures as a component of income tax expense.  The Company has not identified any uncertain income tax positions that could have a material impact to the financial statements.

 

The Company is subject to taxation in various jurisdictions in the United States and abroad and remains subject to examination by taxing jurisdictions for 2014 and all subsequent periods.  The Company had a Federal Net Operating Loss ("NOL") carry forward of $40.5m as of 31 December 2018, which was generally available as a deduction against future income for US federal corporate income tax purposes, subject to applicable carryforward limitations.  As a result of the March 2016 initial public offering, the Company's NOLs are limited on an annual basis, subject to certain carryforward provisions, pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, as a result of a greater than 50% change in ownership that occurred in the three-year period ending at the time of the March AIM IPO.  The Company has calculated that for the period ending 31 December 2022, the cumulative limitation amount exceeds the NOLs subject to the limitation. 

 

On 22 December 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the "Tax Act") which included significant changes to the existing income tax laws for domestic corporations.  Key features of the Tax Act effective in 2018 include:

 

·    Reduction of the corporate tax rate from 35% to 21%;

·    Elimination of the alternative minimum tax;

·    Changes in the deductibility of certain aspects of executive compensation;

·    Changes in the deductibility of certain entertainment and recreation expenses; and

·    Changes in incentive tax breaks for US production activities.

 

Because of the Company's existing Federal net operating loss carryforwards and current expectations as to the recovery of its net deferred tax assets, the Company believes that the Tax Act will not have a significant impact on its financial results and financial position, including on its liquidity, for the foreseeable future.

 

Loss Per Share

Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding during the period.

 

For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options and stock purchase warrants using the treasury stock method.

 

For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive. The number of anti-dilutive shares, consisting of stock options and stock purchase warrants, which has been excluded from the computation of diluted loss per share, was 8.4m and 7.2m for the years ended 31 December 2018 and 31 December 2017, respectively.

 

Recent Accounting Pronouncements

Recently Adopted

In May 2017, the FASB issued guidance clarifying when changes in the terms or conditions of share-based payment awards should be accounted for as modifications.  This guidance is effective for fiscal years beginning after 15 December 2017 and early adoption is permitted.  This guidance must be applied prospectively to awards modified after the adoption date.  The Company adopted this new guidance on 1 January 2018.  The adoption of this new guidance did not have a material impact on the Company's financial statements.

 

Unadopted

In February 2016, the FASB issued guidance for the accounting for leases. The guidance requires lessees to recognise assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. The guidance is effective for reporting periods beginning after 15 December 2018 and early adoption is permitted. The guidance must be adopted on a modified retrospective basis and provides for certain practical expedients. The Company is currently calculating the total amount of lease assets and liabilities to be recorded on in its financial statements as a result of the adoption. 

 

In June 2016, the FASB issued guidance with respect to measuring credit losses on financial instruments, including trade receivables. The guidance eliminates the probable initial recognition threshold that was previously required prior to recognising a credit loss on financial instruments. The credit loss estimate can now reflect an entity's current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions. The guidance is effective for fiscal years beginning after 15 December 2020, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after 15 December 2018, including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. The Company is currently evaluating the impact, if any, that this new accounting pronouncement will have on its financial statements.

 

In July 2017, the FASB issued guidance addressing several issues involving financial instruments. Part I of the guidance simplifies the accounting for certain equity-linked financial instruments and embedded features with down round features that reduce the exercise price when the pricing of a future round of financing is lower ("down round protection").  Current accounting guidance provides that instruments with down round protection be classified as derivative liabilities with changes in fair value recorded through earnings.  The updated guidance provides that instruments with down round protection are no longer precluded from being classified as equity.  This guidance is effective for fiscal years beginning after 15 December 2018 for public business entities and early adoption is permitted.  This guidance must be applied retrospectively.  The Company is currently evaluating the impact, if any, that this new accounting pronouncement will have on its financial statements.

 

In June 2018, the FASB issued guidance simplifying the accounting for non-employee stock-based compensation awards. The guidance aligns the measurement and classification for employee stock-based compensation awards to non-employee stock-based compensation awards. Under the guidance, non-employee awards will be measured at their grant date fair value. Upon transition, the existing non-employee awards will be measured at fair value as of the adoption date. The guidance is effective for reporting periods beginning after 15 December 2018, including interim periods within that fiscal year. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on its financial statements.

 

In August 2018, the FASB issued guidance addressing the accounting for implementation, setup and other upfront costs paid by a customer in a cloud computing or hosting arrangement.  The guidance aligns the accounting treatment of these costs incurred in a hosting arrangement treated as a service contract with the requirements for capitalization and amortisation costs to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after 15 December 2019.  The guidance can be adopted either retrospectively or prospectively.  Early adoption is permitted. The Company is currently evaluating the impact, if any, that this guidance will have on the financial statements. 

 

In August 2018, the FASB issued guidance addressing the disclosure requirements for fair value measurements.  The guidance intends to improve the effectiveness of the disclosures relating to recurring and nonrecurring fair value measurements.  The guidance is effective for fiscal years beginning after 15 December 2019.  Portions of the guidance are to be adopted prospectively while other portions are to be adopted retrospectively.  Early adoption is permitted. The Company is currently evaluating the impact, if any, that this guidance will have on the financial statements. 

 

The Company has evaluated all other issued and unadopted Accounting Standards Updates and believes the adoption of these standards will not have a material impact on its results of operations, financial position, or cash flows.

 

3.  Revenue

Revenue is principally from the sale or lease of instruments and processing assemblies, as well as from extended warranties.  In some arrangements, products and services have been sold together representing distinct performance obligations. In such arrangements the Company allocates the sale price to the various performance obligations in the arrangement on a relative selling price basis. Under this basis, the Company determines the estimated selling price of each performance obligation in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis.

 

Revenue is recognised at the time control is transferred to the customer and the performance obligation is satisfied.  Revenue from the sale of instruments and processing assemblies is generally recognised at the time of shipment to the customer, provided no significant vendor obligations remain and collectability is reasonably assured.  Revenue from equipment leases are recognised ratably over the contractual term of the lease agreement.  Licensing fee revenue is recognised ratably over the licence period.  Revenue from fees for research services is recognised when services have been provided.

 

Disaggregated revenue for the year ended 31 December 2018 is as follows:

 

 

		Revenue (ASC 606 Revenue)		Revenue (Non-     ASC 606 Revenue)		Total Revenue
Product Sales		$ 10,459,200		$                -		$10,459,200
Leased Equipment		-		4,928,100		4,928,100
Other		264,500		1,015,200		1,279,700
Total		$ 10,723,700		$  5,943,300		$  16,667,000

 

 

Disaggregated revenue for the year ended 31 December 2017 is as follows:

 

		Revenue (ASC 606 Revenue)		Revenue (Non-     ASC 606 Revenue)		Total Revenue
Product Sales		$  8,134,500		$                -		$ 8,134,500
Leased Equipment		-		4,275,900		4,275,900
Other		359,500		1,215,100		1,574,600
Total		$ 8,494,000		$  5,491,000		$ 13,985,000

 

Additional disclosures relating to Revenue from Contracts with Customers (ASC 606)

Changes in deferred revenue for the year ended 31 December 2018 were as follows:

Balance at 1 January 2018		$2,222,900
Revenue recognised in the current period from    amounts included in the beginning balance		2,051,100
Current period deferrals, net of amounts    recognised in the current period		2,598,200
Balance at 31 December 2018		$2,770,100

 

Remaining contract consideration for which revenue has not been recognised due to unsatisfied performance obligations with a duration greater than one year was approximately $428,100 at 31 December 2018, the majority of which the Company expects to recognise over the next four years. 

 

In the year ended 31 December 2018, the Company did not incur, and therefore did not defer, any material incremental costs to obtain contracts or costs to fulfill contracts. 

 

4.   Debt

The Company originally entered into a credit facility with Midcap Financial SBIC, LP ("MidCap") in March 2014.  The MidCap facility carries a variable interest rate equal to the greater of (i) 1.50% above the London Interbank Offered Rate ("LIBOR") then in effect, or (ii) 10.00% and is collateralized by substantially all tangible assets of the Company.  The Company amended the MidCap facility multiple times through August 2018 to, among other things, (i) revise certain covenants, (ii) extend the maturity date to 1 June 2023, (iii) extend the interest only period to 1 July 2020 and change the exit fee to 4.75% and (iv) increase the principal amount to $5,105,400. 

 

The Company accounted for all amendments as "modifications" to the facility.  Accordingly, the Company has deferred additional fees incurred and paid to the lender in connection with the amendments and expensed all fees paid to third parties.  The deferred fees are being amortised using the effective interest method over the remaining term of the amended debt. Unamortised deferred financing costs were approximately $45,600 and $72,500 at 31 December 2018 and 31 December 2017, respectively, and are included as reductions to the note payable balance.

 

The total balance of the MidCap credit facility at both 31 December 2018 and 31 December 2017 was $5,105,400, with an interest rate of 10%; the balance of the unamortised debt discount at 31 December 2018 and 31 December 2017 was $3,600 and $5,700, respectively. 

 

In February 2019, prior to its capital raise, the Company paid off the MidCap credit facility in full in accordance with its terms and conditions.

 

 

In the year ended December 31, 2018, the Company capitalised approximately $17,300 of interest expense related to capitalised software development projects.

 

 

5.   Stockholders' Equity

Common Stock

On 21 April 2017, the Company completed an equity capital raise issuing 7,275,000 shares of Common Stock at a price of ₤2.75 per share (or approximately $3.51 per share).  The transaction generated gross proceeds of approximately ₤20m (or approximately $25.5m).  In conjunction with the transaction, the Company incurred costs of approximately $1.6m which resulted in the Company receiving net proceeds of approximately $23.9m.

 

During the year ended 31 December 2017, the Company issued 81,849 shares of common stock as a result of stock option exercises, receiving gross proceeds of $16,200.  During the year ended 31 December 2018, the Company issued 436,388 shares of common stock as a result of stock option exercises, receiving gross proceeds of $230,000.

 

In March 2019, the Company completed an equity capital raise issuing approximately 5.9m shares of common stock at a price of ₤1.70 (or approximately $2.25).  The transaction generated gross proceeds of approximately ₤10m (or approximately $13.3m).  In conjunction with the transaction, the Company incurred costs of approximately $0.9m which resulted in the Company receiving net proceeds of approximately $12.4m.

 

Stock Options

The Company adopted the MaxCyte, Inc. Long-Term Incentive Plan (the "Plan") in January of 2016 to amend and restate the MaxCyte 2000 Long-Term Incentive Plan to provide for the awarding of (i) stock options, (ii) restricted stock, (iii) incentive shares, and (iv) performance awards to employees, officers, and directors of the Company and to other individuals as determined by the Board of Directors.  Under the Plan, the maximum number of shares of common stock of the Company that the Company may issue is (a) 6,264,682 shares plus (b) ten percent (10%) of the shares that are issued and outstanding at the time awards are made under the Plan.

 

On 21 February 2018, the Company's Board resolved to increase the number of stock options under the Plan by 2,000,000 to provide sufficient shares to allow competitive equity compensation in its primary markets for staff and consistent with practices of comparable companies.

 

The Company has not issued any restricted stock, incentive shares, or performance awards under the Plan.  Stock options granted under the Plan may be either incentive stock options as defined by the Internal Revenue Code or non-qualified stock options. The Board of Directors determines who will receive options under the Plan and determines the vesting period. The options can have a maximum term of no more than ten years. The exercise price of options granted under the Plan is determined by the Board of Directors and must be at least equal to the fair market value of the common stock of the Company on the date of grant.

 

A summary of stock option activity for the years ended 31 December 2018 and 2017 is as follows:

 

 

.		Number of Options		Weighted Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at 1 January 2017		5,774,366		$              0.39		8.3		$      7,520,400
Granted		1,630,100		$              3.18
Exercised		(81,849)		$              0.20				$      256,400
Forfeited		(81,398)		$              1.11
Outstanding at 31 December 2017		7,241,219		$              1.01		7.8		$    16,266,800
Granted		1,983,200		$              3.24
Exercised		(436,388)		$              0.52				$       1,266,300
Forfeited		(399,531)		$              2.49
Outstanding at 31 December 2018		8,388,500		$              1.49		7.4		$     10,354,900
Exercisable at 31 December 2018		5,519,222		$              0.76		6.6		$       9,862,300

 

The weighted-average fair values of the options granted during 2018 and 2017 were estimated to be $1.60 and $1.53, respectively. 

 

As of 31 December 2018, total unrecognised compensation expense was $5,060,200 which will be recognised over the following three years.

 

Stock-based compensation expense for the years ended 31 December was as follows:

 

		2018		2017
General and administrative		$   458,200		$210,100
Sales and marketing		194,100		124,400
Research and development		671,900		180,000
Total		$1,324,200		$514,500

 

 

6.   Fair Value

The Company's Balance Sheets include various financial instruments (primarily cash and cash equivalents, short-term investments, accounts receivable and accounts payable and accrued expenses) that are carried at cost, which approximates fair value due to the short-term nature of the instruments. Notes payable and capital lease obligations are reflective of fair value based on market comparable instruments with similar terms. 

 

 

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company has no financial assets or liabilities measured at fair value on a recurring basis.

 

Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Money market funds and commercial paper classified as held-to-maturity are measured at fair value on a non-recurring basis when they are deemed to be impaired on an other-than-temporary basis.  No such fair value impairment was recognised during the years ended 31 December, 2018 or 2017.

 

Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company has no non-financial assets and liabilities that are measured at fair value on a recurring basis.

 

Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company measures its long-lived assets, including property and equipment, at fair value on a non-recurring basis. These assets are recognised at fair value when they are deemed to be impaired. No such fair value impairment was recognised during the years ended 31 December, 2018 or 2017.

 

7.   Retirement Plan

The Company sponsors a defined-contribution 401(k) retirement plan covering eligible employees.  Participating employees may voluntarily contribute up to limits provided by the Internal Revenue Code.  The Company matches employee contributions equal to 50% of the salary deferral contributions, with a maximum Company contribution of 3% of the employees' eligible compensation. In the years ended 31 December, 2018 and 2017, Company matching contributions amounted to $199,900 and  $148,700, respectively.

 

8.   Income Taxes

The Company did not recognise a provision (benefit) for income taxes in 2018 or 2017.  Based on the Company's historical operating performance, the Company has provided a full valuation allowance against its net deferred tax assets.

 

In December 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the "Tax Act") which included significant changes to the existing

income tax laws for domestic corporations including a reduction of the corporate tax rate from 35% to 21%.  The effects of the Tax Act are reflected in deferred tax assets and liabilities at both 31 December 2018 and 2017.

 

 

 

 

Net deferred tax assets as of 31 December are presented in the table below:

 

				2018	2017
Deferred tax assets:
Net operating loss carryforwards				$   10,431,600	$   8,349,400
Research and development credits				875,400	620,000
Stock-based compensation				666,400	337,900
Deferred revenue				746,000	599,500
Accruals and other				124,200	57,600
Deferred tax liabilities:
Depreciation				(45,700)	(59,000))
				12,797,900	9,905,400
Valuation allowance				(12,797,900)	(9,905,400))
Net deferred tax assets				$               -	$                -

 

The Federal NOL carryforwards of approximately $40.7m as of 31 December 2018 will begin to expire in various years beginning in 2025. The use of NOL carryforwards is limited on an annual basis under Internal Revenue Code Section 382 when there is a change in ownership (as defined by this code section).  Based on changes in Company ownership in the past, the Company believes that the use of its NOL carryforwards generated prior to the date of the change is limited on an annual basis; NOL carryforwards generated subsequent to the date of change in ownership can be used without limitation. The use of the Company's net operating loss carryforwards may be restricted further if there are future changes in Company ownership. Additionally, despite the net operating loss carryforwards, the Company may have a future tax liability due to alternative minimum tax or state tax requirements.

 

Income tax expense reconciled to the tax computed at statutory rates for the years ended 31 December is as follows:

 

					2018	2017
Federal income taxes (benefit) at statutory rates					$   (1,862,500)	$  (3,359,000)
State income taxes (benefit), net of Federal benefit					(526,100)	(492,700)
Effect of 2017 Tax Act					-	4,468,600
Windfall tax benefits					(314,900)	(97,400)
Permanent differences, rate changes and other					(188,900)	439,700
Change in valuation allowance					2,892,400	(959,200)
					$                 -	$                   -

 

9.   Commitments and Contingencies

The Company entered into a five-year non-cancellable operating lease agreement for office and laboratory space in February 2009 with an initial expiration of 31 January 2014 which was subsequently extended to January 2020.  In April 2017, the Company entered into leases for additional office and laboratory space.  A member of the Company's Board of Directors is the CEO and Board member of the lessor in the April 2017 lease.  Rent payments under the April 2017 lease totalled $371,600 and $221,300 in 2018 and 2017, respectively.

 

All the Company's office and laboratory leases expire in January 2020 and provide for annual 3% increases to the base rent.  The current monthly base lease payment for all leases is approximately $41,000.  In addition to base rent, the Company pays a pro-rated share of common area maintenance ("CAM") costs for the entire building, which is adjusted annually based on actual expenses incurred. 

 

Estimated future minimum payments under the operating leases are $520,700 and $43,700 in 2019 and 2020, respectively.

 

Total rent expense, including base rent and CAM for the years ended 31 December 2018 and 2017, was $692,300 and $585,600, respectively. Rent expense is recognised on a straight-line basis in the accompanying financial statements.

 

10.  Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through 23 April 2019 the date the financial statements were available to be issued.

 

In February 2019, the Company paid off the MidCap credit facility in full (see Note 4).  In March 2019, the Company sold approximately 5.9m shares of common stock for gross proceeds of approximately $13.3m (see Note 5).