CYTEK BIOSCIENCES, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year endedDecember 31, 2021 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission (the "SEC") onMarch 17, 2022 . Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "we," "us" and "our" refer toCytek Biosciences, Inc.
Forward-Looking Statements
The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are subject to the "safe harbor" created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q and in our other filings with theSEC . The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.
Overview
We are a leading cell analysis solutions company advancing the next generation
of cell analysis tools by leveraging novel technical approaches. Our goal is to
become the premier cell analysis company through continued innovation that
facilitates scientific advances in biomedical research and clinical
applications. We believe our core instruments, the Aurora and Northern Lights
systems, are the first full spectrum flow cytometers able to deliver
high-resolution, high-content and high-sensitivity cell analysis by utilizing
the full spectrum of fluorescence signatures from multiple lasers to distinguish
fluorescent tags on single cells ("Full Spectrum Profiling" or "FSP"). Our novel
approach harnesses the power of information within the entire spectrum of a
fluorescent signal to achieve a higher level of multiplexing with exquisite
sensitivity. Our patented FSP technology optimizes sensitivity and accuracy
through its novel optical and electronic designs that utilize an innovative
method of light detection and distribution. Our FSP platform includes
instruments, reagents, software and services to provide a comprehensive and
integrated suite of solutions for our customers. Since our first U.S. commercial
launch in mid-2017, we have sold and deployed over 1,200 instruments-primarily
comprised of our Aurora and Northern Lights systems-to customers around the
world, including the largest pharmaceutical companies, over 150 biopharma
companies, leading academic research centers, and clinical research
organizations ("CROs"). In June 2021 , we began shipping the Aurora cell sorter
("Aurora CS"), which uses our FSP technology to further broaden our potential
applications across cell analysis.
We manufacture our instruments in our facilities in Fremont, California and in
Wuxi, China . We have designed our operating model to be capital efficient and to
scale efficiently as our product volumes grow.
Our total revenue was $35.1 million and $24.3 million in the three months ended
March 31, 2022 and 2021, respectively. The increase was primarily due to
continued demand across our full portfolio of product offerings and an increase
in the average blended selling price due to product mix.
To date, we have adopted a direct sales model in North America , Europe and
China , and sell our products through third-party distributors in certain
countries in Europe , Latin America , the Middle East , Africa and the Asia-Pacific
region . Revenue from direct sales represented 88% and 82% of total revenue for
the three months ended March 31, 2022 and 2021, respectively, and revenue from
distributors represented 12% and 18% of total revenue for the three months ended
March 31, 2022 and 2021, respectively.
We focus a substantial portion of our resources on developing new products and
solutions to meet our customers' needs. Our research and development efforts
focus on developing new and complementary instruments, reagents and reagent
kits, and continued operating software development. We incurred research and
development expenses of $8.0 million and $5.1 million for the three months ended
March 31, 2022 and 2021, respectively. We intend to continue to make significant
investments in research and development in the future.
We expect to continue to invest in our commercial infrastructure through hiring
additional employees with strong scientific and technical backgrounds to support
growth in sales of our Aurora, Northern Lights and Aurora CS systems, as well as
our planned
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expansion of reagents offerings and panel design capabilities. We also plan to continue to invest in sales, marketing and business development across the globe to drive commercialization of our products. We incurred sales and marketing expenses of$7.0 million and$4.3 million for the three months endedMarch 31, 2022 and 2021, respectively.
Since our inception in 2014, we have financed our operations primarily through sales of our securities and revenue from the sale of our products and services.
Our net loss was$2.2 million and net income was$0.1 million for the three months endedMarch 31, 2022 and 2021, respectively. The change for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 resulted primarily from expenses driven by an increase in headcount and salaries and efforts in research and development and marketing initiatives.
We expect our expenses will increase substantially in connection with our on-going activities, as we:
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attract, hire and retain qualified personnel;
•
invest in processes, commercial infrastructure and supporting functions to scale our business and introduce new products and services;
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support our research and development efforts;
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continue to expand geographically;
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protect and defend our intellectual property; and
•
make strategic investments in complementary businesses, services, products or technologies.
OnNovember 2, 2021 , we completed the acquisition of the reagents business ofTonbo Biotechnologies Corporation as detailed in Note 8, Acquisition, to our unaudited interim consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The acquired assets include a portfolio of life science research reagents related to cell preparation, flow cytometry, molecular immunology/polymerase chain reaction and cell culture covering application areas across immunology, apoptosis and immunoprofiling.
Key factors affecting our results of operations and future performance
We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by multiple factors as described below, each of which presents growth opportunities for our business. These factors also pose important challenges that we must successfully address to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risk and uncertainties, including those described under the heading "Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q.
Global customer adoption
Our financial performance has largely been driven by our ability to increase the adoption of our FSP platform, a key factor on which our future success depends. We plan to drive global customer adoption through business development efforts, direct sales and marketing and third-party distributions. We are investing in our direct sales organization and commercial support functions and developing third-party distributor relationships to support global expansion and drive revenue growth. As part of this effort, we increased our direct sales force by 34% in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . We intend to continue increasing our workforce in line with our growth. Recurring revenues We believe our expanding installed base of instruments to new and existing customers will provide us with greater leverage to drive pull-through for reagent and service revenue, which are recurring by nature. Furthermore, as we develop and identify new applications and products, we expect to further increase pull-through across our installed base. We expect recurring revenue on an absolute basis to increase and become an increasingly important contributor to our revenue as our installed base expands.
Revenue mix and gross margin
Our revenue is primarily derived from sales of our instruments and services with our instruments recognizing higher gross margins than our services. Although we expect sales of our instruments to continue to represent the largest percentage of our revenue in the future, we expect reagent sales to increase as a percentage of our total revenue and our gross margins to experience a corresponding improvement as we grow our installed base and increase our focus on commercializing reagents. We also expect a higher gross margin on our instruments as we increase manufacturing efficiency, instrument reliability and training for personnel using our instruments, which we expect to lead to a reduction in warranty claims. Our sales in certain regions, particularly outside ofthe United States , are 28
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realized through third-party distribution partners that typically receive discounted prices, thus resulting in lower gross margins than those recognized by our direct sales organization. Furthermore, our gross margins and instrument selling prices may fluctuate in the future as we continue to grow our volume of third-party distribution partners in geographies outside ofthe United States , introduce new products and reduce our production costs as a result of variability in the timing of new product introductions. In the near term, we expect the continued optimization of our manufacturing processes related to our instruments and the expansion of product manufacturing distribution facilities to have the greatest impact on our gross margin. In addition to the impact of competing products entering the market, the future gross margin profiles of our instruments, services and reagents will depend on the outcome of any royalties we are required to pay and the royalty rates and products to which such royalties apply.
Expansion into new markets
We focus our research and development efforts on the greatest value-additive FSP products to meet the growing and unmet needs of the research and clinical markets. We work closely with researchers and clinicians to optimize and implement new panels and applications to meet their specific needs. We also gain valuable insight on potential new products, new applications and enhancements to existing products, as well as biomarker combinations that would be beneficial in different fields, through collaborations with our customers, academic laboratories, KOLs and industry partners. We plan to continue to invest in new product development and enhancements to support our expansion into new markets. Our Northern Lights system obtained clinical certification inChina in 2019 and received CE Marking under the European Union In Vitro Diagnostic Medical Devices Directive inSeptember 2020 . With these achievements, our Northern Lights system is available for clinical diagnostic use in hospitals, laboratories, and clinics inChina and theEuropean Union .
Key business metrics
We regularly review the following key business metrics to evaluate our business,
measure our performance, identify trends affecting our business, formulate
financial projections and make strategic decisions. We believe that the
following metrics are representative of our current business; however, we
anticipate these will change or may be substituted for additional or different
metrics as our business grows.
Three months ended
2022 2021 Dollar Change
(In thousands)
Sales channel mix
Direct sales channel $ 30,919 $
19,862
Distributor channel 4,145 4,410 (265 ) Total revenue, net$ 35,064 $ 24,272 $ 10,792 Customer mix Academia and government$ 14,407 $
10,116 $ 4,291
Biotechnology, pharmaceutical, distributor and
CRO 20,657 14,156 6,501 Total revenue, net$ 35,064 $ 24,272 $ 10,792
Distributors typically sell to end customers identified in other customer categories.
The table below sets forth our cumulative instruments shipped as of the dates
presented:
March 31, December 31,
2022 2021
Instruments shipped 1,226 1,110
COVID-19
The global COVID-19 pandemic continues to evolve and we intend to continue to
monitor it closely. In response to the COVID-19 pandemic and various resulting
government directives, we took proactive measures to protect the health and
safety of our employees, contractors, customers and visiting vendors and
suppliers, including implementing social distancing and other protective
measures, restricting business travel and limiting access to our facilities to
vendors, suppliers and partners who are critical to our business operations. We
communicate regularly with our suppliers so that our supply chain remains
intact, and we have not experienced any material supply issues. We also
developed, and continue to develop, remote learning capabilities to help our
customers and partners
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operate and reduce the number of required customer/partner on-site visits for our field application scientists and field support engineers to comply with travel restrictions and country-specific quarantine requirements. While the COVID-19 pandemic has not had a material adverse effect on our business, results of operations or the operation of financial reporting systems, internal control over financial reporting and disclosure controls and procedures, given the considerable uncertainty around the duration and extent of the pandemic, the related financial and operational impact cannot be reasonably estimated. We continue to monitor the implications of the COVID-19 pandemic on our business, as well as our customers' and suppliers' business. Potential impacts of the COVID-19 pandemic, some of which we have already experienced, include those described throughout the "Risk Factors" section, including "A pandemic, epidemic or outbreak of an infectious disease inthe United States or worldwide could adversely affect our business. The COVID-19 pandemic has had and could continue to have an adverse impact on our business, operations, and the markets and communities in which we, our partners, and customers operate."
Components of our results of operations
Total revenue, net
We currently generate our total revenue, net from product revenue and service revenue.
Product. Our product revenue primarily consists of sales of our instruments, including the Aurora, Northern Lights and Aurora CS systems, instrument accessories, such as loaders and consumables, such as reagents. We offer multiple versions of our Aurora and Northern Lights systems with different price points based on the number of lasers integrated in the systems. We also derive revenue from sales of our conventional flow cytometry system, which is available for sale inChina . We recognize product revenue when control of the instrument is transferred to the customer.
Service. Our service revenue primarily consists of post-warranty service contracts, installations and repairs which are recognized over time. Post-warranty service contracts are recognized ratably over the term of the contract and installations and repair services are recognized as they are delivered to the customer.
We expect our revenue to increase in absolute dollars as we expand our sales organization and sales territories, broaden our customer base, and expand awareness of our products with new and existing customers. Our revenue was$35.1 million and$24.3 million for the three months endedMarch 31, 2022 and 2021, respectively.
Total cost of sales, gross profit and gross margin
Our total cost of sales is comprised of product cost of sales and service cost of sales.
Product. Cost of sales associated with our products primarily consist of manufacturing-related costs incurred in the production process, inventory write-downs, warranty costs, third party royalty costs, personnel and related costs, costs of component materials, overhead, packaging and delivery and depreciation expense.
Service. Cost of sales associated with our services primarily consists of personnel and related costs, expenses related to product replacements, product updates and qualification validation of our products and depreciation expense.
We expect our total cost of sales to increase in absolute dollars in future periods, corresponding to our anticipated growth in revenue and employee headcount to support our manufacturing, operations, field service team and support organizations.
Gross profit is calculated as revenue less total cost of sales. Gross margin is gross profit expressed as a percentage of revenue. Our gross profit in future periods will depend on a variety of factors, including market conditions that may impact our pricing, sales mix changes among our instruments and service agreements, product mix changes between established products and new products, excess and obsolete inventories, our cost structure for manufacturing operations relative to volume and product warranty obligations.
Operating expenses
Our operating expenses are primarily comprised of research and development, sales and marketing, and general and administrative expenses, depreciation and amortization, and related overhead.
Research and development. Our research and development expenses primarily consist of salaries, benefits, stock-based compensation costs for employees in our research and development department, independent contractor costs, laboratory supplies, equipment maintenance and materials expenses.
We plan to continue to invest in our research and development efforts, including
hiring additional employees to enhance existing products and develop new
products. We expect research and development expense will increase in absolute
dollars in future periods and vary from period to period as a percentage of
revenue due to our continuing investment in product development.
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Sales and marketing. Our sales and marketing expenses consist primarily of salaries, benefits, and stock-based compensation costs for employees in our sales and marketing department, sales commissions, marketing material costs, travel expenses and costs related to trade shows, trainings and various workshops. We expect our sales and marketing expense to increase in absolute dollars as we expand our commercial sales, marketing, and business development teams, increase our presence globally and increase marketing activities to drive awareness and adoption of our platform. While these expenses may vary from period to period as a percentage of revenue, we expect these expenses to increase as a percentage of sales in the short-term as we continue to grow our commercial organization to support anticipated growth of the business. General and administrative. Our general and administrative expenses primarily consist of salaries, benefits, and stock-based compensation costs for employees in our executive, accounting and finance, legal and human resource functions, as well as professional services fees, such as consulting, audit, tax, legal, general corporate costs and allocated overhead expenses. We expect our operating expenses to increase as a public company. In particular, we expect our accounting, legal, personnel-related expenses and directors' and officers' insurance costs reported within general and administrative expense to increase as we establish more comprehensive compliance and governance functions, maintain IT costs, review internal controls over financial reporting in accordance with the Sarbanes-Oxley Act and prepare and distribute periodic reports as required by the rules and regulations of theSEC . As a result, our historical results of operations may not be indicative of our results of operations in future periods.
We expect these expenses to vary from period to period as a percentage of revenue.
Other income (expense), net
Interest expense. Interest expense consists primarily of accretion of the present value of the litigation settlement liability. See Note 10 to our unaudited interim consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding the settlement.
Interest income. Our interest income consists primarily of interest earned on our cash and cash equivalents which are invested in cash deposits and in money market funds.
Other expense, net. Our other expense, net consists primarily of foreign exchange gains and losses.
Income taxes
Our (benefit from) provision for income taxes consists primarily of provision for federal taxes and local taxes inthe United States as well as foreign taxes. As we plan to expand the scale and scope of our international business activities, any changes inthe United States and foreign taxation of such activities may increase our overall provision for income taxes in the future. 31
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Results of operations
Comparison of the three months ended
The results of operations presented below should be reviewed in conjunction with the unaudited interim consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.
The following table sets forth our interim consolidated results of operations and comprehensive income data for the periods presented:
Three months ended March 31,
(In thousands) 2022 2021
Revenue, net:
Product $ 31,481 $ 22,700
Service 3,583 1,572
Total revenue, net 35,064 24,272
Cost of sales:
Product 11,767 7,308
Service 3,120 2,478
Total cost of sales 14,887 9,786
Gross profit 20,177 14,486
Operating expenses:
Research and development 8,025 5,094
Sales and marketing 6,960 4,277
General and administrative 7,549 3,983
Total operating expenses 22,534 13,354
(Loss) income from operations (2,357 ) 1,132 Other income (expense): Interest expense (590 ) (375 ) Interest income 18 10 Other expense, net (374 ) (615 ) (Loss) income before income taxes (3,303 ) 152 (Benefit from) provision for income taxes (1,145 ) 50 Net (loss) income$ (2,158 ) $ 102 Foreign currency translation adjustment, net of tax 14 202 Net comprehensive (loss) income$ (2,144 ) $ 304 Total revenue, net Three months ended March 31, Change (In thousands, except percentages) 2022 2021 Amount % Revenue, net Product$ 31,481 $ 22,700 $ 8,781 39 % Service 3,583 1,572 2,011 128 % Total revenue, net$ 35,064 $ 24,272 $ 10,792 44 % Total revenue, net increased by$10.8 million , or 44%, for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The increase in revenue was primarily driven by an increase in product revenue due to higher unit sales of our Aurora and Northern Lights systems, sales of our Aurora CS system, which commercially launched inJune 2021 , recently launched reagents and consumables, and an increase in the average blended selling price due to product mix. Product revenue increased by$8.8 million , or 39%, to$31.5 million , for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The increase was primarily driven by an increase in our instrument sales due to higher unit sales of our Aurora and Northern Lights systems, sales of our Aurora CS system, which commercially launched inJune 2021 , recently launched reagents and consumables, and an increase in the average blended selling price due to product mix. Service revenue increased by$2.0 million , or 128%, to$3.6 million , for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The increase in service revenue was mainly driven by more instruments coming off warranty. 32
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Total cost of sales, gross profit and gross margin
Three months ended March 31 , Change
(In thousands, except percentages) 2022 2021 Amount % Cost of sales: Product$ 11,767 $ 7,308 $ 4,459 61 % Service 3,120 2,478 642 26 % Total cost of sales$ 14,887 $ 9,786 $ 5,101 52 % Gross profit$ 20,177 $ 14,486 $ 5,691 39 % Gross margin 58 % 60 % Total cost of sales increased by$5.1 million , or 52%, for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . This is primarily due to more instruments shipped and increased service and manufacturing headcount and associated personnel cost, including$0.6 million stock-based compensation. Gross profit margin was 58% and 60% as a percent of total revenue for the three months endedMarch 31, 2022 and 2021, respectively. The decrease is primarily due to increased material costs and increased service and manufacturing headcount and associated personnel cost for the three months endedMarch 31, 2022 . Three months ended March 31, Change (In thousands, except percentages) 2022 2021 Amount % Product: Revenue$ 31,481 $ 22,700 $ 8,781 39 % Cost of sales 11,767 7,308 4,459 61 % Product gross profit$ 19,714 $ 15,392 $ 4,322 28 % Gross margin 63 % 68 % Service: Revenue$ 3,583 $ 1,572 $ 2,011 128 % Cost of sales 3,120 2,478 642 26 % Service gross profit $ 463 $ (906 )$ 1,369 -151 % Gross margin 13 % -58 % While we have seen a decrease in total gross profit margin, the gross profit margin of our service revenue has increased from (58)% in the three months endedMarch 31, 2021 to 13% in the three months endedMarch 31, 2022 . This was driven by the growth in service revenue derived from a higher installed base year-over-year coupled with a slower growth of service related material, labor and overhead expense year-over-year. Operating expenses Research and development Three months ended March 31, Change (In thousands, except percentages) 2022 2021 Amount % Research and development$ 8,025 $ 5,094 $ 2,931 58 % Research and development expenses were$8.0 million for the three months endedMarch 31, 2022 as compared to$5.1 million for the three months endedMarch 31, 2021 . The increase of$2.9 million in research and development expenses was primarily due to an increase in headcount and personnel-related expenses, including stock-based compensation of$1.1 million .
We expect our research and development expense to increase in absolute dollars as we continue to develop new products and enhance existing instruments and technologies.
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Sales and marketing
Three months ended March 31, Change
(In thousands, except percentages) 2022 2021 Amount %
Sales and marketing $ 6,960 $ 4,277 $ 2,683 63 %
Sales and marketing expenses were $7.0 million for the three months ended March
31, 2022 as compared to $4.3 million for the three months ended March 31, 2021 .
The increase of $2.7 million in sales and marketing expenses was primarily due
to an increase in headcount, commissions, and personnel-related expenses of $2.0
million , including stock-based compensation of $0.6 million . There was also an
increase in advertising and marketing activities of $0.2 million .
We expect our sales and marketing expenses to increase in absolute dollars as we
hire additional sales and marketing personnel, expand our sales support
infrastructure and invest in our brand and product awareness to further
penetrate
General and administrative
Three months ended March 31 , Change
(In thousands, except percentages) 2022 2021 Amount % General and administrative$ 7,549 $ 3,983 $ 3,566 90 % General and administrative expenses were$7.5 million for the three months endedMarch 31, 2022 as compared to$4.0 million for the three months endedMarch 31, 2021 . The increase of$3.6 million in general and administrative expenses was primarily due to an increase in general corporate personnel-related costs and infrastructure services to support the growth of our overall operations. The increase in personnel-related costs was primarily due to increased headcount and stock-based compensation of$1.0 million . We expect to continue to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of theSEC and theNasdaq Stock Market , additional insurance costs, investor relations activities and other administrative and professional services. As a result, we expect general and administrative expenses to increase in absolute dollars in future periods.
Interest expense
Three months ended March 31, Change
(In thousands, except percentages) 2022 2021 Amount %
Interest expense $ (590 ) $ (375 ) (215 ) 57 %
Interest expense was $0.6 million for the three months ended March 31, 2022 as
compared to $0.4 million for the three months ended March 31, 2021 . The increase
of $0.2 million was mainly due to the accretion of the present value discount
related to the settlement agreement with Becton , Dickinson and Company ("BD").
See Note 10 to our unaudited interim consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-Q for further details.
Interest income
Three months ended March 31 , Change
(In thousands, except percentages) 2022 2021 Amount % Interest income $ 18 $ 10 8 80 % Interest income was$18,000 for the three months endedMarch 31, 2022 as compared to$10,000 for the three months endedMarch 31, 2021 . The increase of$8,000 in interest income was the result of higher interest earned on our cash and short-term deposits due to an increase in interest rates as compared to three months endedMarch 31, 2021 .
Other expense, net
Three months ended March 31, Change
(In thousands, except percentages) 2022 2021 Amount %
Other expense, net $ (374 ) $ (615 ) 241 -39 %
Other expense, net was $374,000 for the three months ended March 31, 2022 as
compared to other expense, net of $615,000 for the three months ended March 31,
2021 . The decrease of $241,000 was primarily the result of the net impact of
foreign exchange gains and losses during the three months ended March 31, 2022 .
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Income Taxes
Three months ended March 31, Change
(In thousands, except percentages) 2022 2021 Amount %
(Benefit from) provision for income taxes
(1,195 ) -2390 %
Benefit from income tax was $1.1 million for the three months ended March 31,
2022 as compared to income tax provision of $50,000 for the three months ended
March 31, 2021 . The net change of $1.2 million was the result of net loss in the
three months ended March 31, 2022 .
Liquidity and capital resources
Overview
To date, our primary sources of capital have been through sales of our securities and revenue from the sale of our products and services. As ofMarch 31, 2022 andDecember 31, 2021 , we had approximately$362.5 million and$364.6 million , respectively, in cash and cash equivalents, which were primarily held inU.S. short-term bank deposit accounts and money market funds.
Funding and material cash requirements
We anticipate continuing to expend significant amounts of cash in the foreseeable future as we continue to invest in research and development of our product offerings, commercialization of new products and services, and expansion into new markets. Our future capital requirements will depend on many factors including our revenue, research and development efforts, the new and continued impacts of the COVID-19 pandemic, the timing and extent of additional capital expenditures to invest in existing and new facilities, as well as our manufacturing operations, the expansion of sales and marketing and the introduction of new products. We have entered into, and may in the future enter into, arrangements to acquire or invest in businesses, services and technologies, and any such acquisitions or investments could significantly increase our capital needs.
We currently anticipate making additional capital expenditures during the next
12 months, which is expected to primarily include equipment to be used for
manufacturing and investment in research and development, as well as spend
associated with the expansion of our facilities in
Based on our current business plan, we believe our existing cash and cash equivalents and anticipated cash flows from operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months from the date of this Quarterly Report on Form 10-Q. In addition, we lease certain office facilities under operating lease arrangements that expire on various dates through fiscal year 2027. Under the terms of the leases, we are responsible for certain expenses related to operations, maintenance, repairs and management fees. Future minimum lease payments under non-cancelable operating leases totaled$16.1 million as ofMarch 31, 2022 Sources of liquidity We have financed our operations primarily through sales of our securities. InJuly 2021 , we completed our IPO, which resulted in net proceeds to us of approximately$215.7 million . We have also benefited from operating cash flows from the sale of our products and services. OnMay 7, 2020 , we received loan proceeds in the amount of approximately$4.1 million under the PPP. The PPP, established as part of the CARES Act, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. OnMay 4, 2021 , we fully repaid the PPP loan. 35
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Cash flows
The following table summarizes our cash flows for the periods presented:
Three months ended March 31 ,
(In thousands) 2022 2021
Net cash (used in) provided by:
Operating activities$ (1,480 ) $ 1,935 Investing activities (780 ) (138 ) Financing activities 364 187 Effect of exchange rate changes on cash and cash equivalents (216 )
481
Net (decrease) increase in cash and cash equivalents$ (2,112 ) $ 2,465 Operating activities Net cash used in operating activities for the three months endedMarch 31, 2022 was$1.5 million . We incurred non-cash stock-based compensation expense, depreciation and amortization, amortization of right-of-use assets, and interest expenses for accretion of the legal settlement liabilities of$3.8 million ,$0.8 million ,$0.7 million , and$0.5 million , respectively. Usage of cash included an increase of inventories of$5.9 million , an increase of trade accounts receivable of$1.0 million due to an increase in sales, and an increase in prepaid expenses and other assets of$4.2 million . This was partially offset by an increase of trade accounts payables of$2.8 million , an increase in deferred revenue of$2.6 million , an increase in the legal settlement liability of$0.5 million , and an increase in accrued expenses and other liabilities of$0.6 million . Net cash provided by operating activities for the three months endedMarch 31, 2021 was$1.9 million consisting primarily of our net income of$102,000 , an increase in inventories of$3.6 million , an increase in prepaid expenses and other assets of$477,000 and a decrease of trade accounts receivable of$2.2 million due to seasonality with our first quarter typically being lower than our fourth quarter due to marketing campaign closing activity. This was partially offset by an increase in deferred revenue of$1.7 million and an increase in accrued expenses and other liabilities of$135,000 .
Investing activities
Net cash used in investing activities during the three months ended
Net cash used in investing activities during the three months endedMarch 31, 2021 was$138,000 driven by an increase in the purchases of property and equipment of$509,000 partially offset by the payment for the additional investment in Cytek Japan, net of cash acquired of$371,000 . See Note 18 to our unaudited interim consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Financing activities
Net cash provided by financing activities during the three months endedMarch 31, 2022 was$0.4 million driven by the issuance of common stock upon option exercises. Net cash provided by financing activities during the three months endedMarch 31, 2021 was$187,000 , primarily driven by the issuance of common stock upon option exercises.
Critical accounting estimates and significant judgments
This management's discussion and analysis of our financial condition and results of operations is based on our unaudited interim consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America , or GAAP. The preparation of our unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited interim consolidated financial statements and notes to the unaudited interim consolidated financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates are different assumptions and conditions. A summary of our critical accounting policies is presented in our audited financial statements and notes thereto as of and for the year endedDecember 31, 2021 included in our Annual Report on Form 10-K filed with theSEC onMarch 17, 2022 . There were no material changes to our critical accounting policies during the three months endedMarch 31, 2022 , except as discussed in "Recently adopted accounting pronouncements" in Note 2, Basis of presentation and summary of significant accounting policies, of the Notes to unaudited interim consolidated financial statements included in this quarterly report. 36
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Recently adopted accounting pronouncements
See Note 2 to our unaudited interim consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.
Emerging growth company and smaller reporting company status
InApril 2012 , the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" may 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. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. In addition, as an emerging growth company, we may take advantage of certain reduced disclosure and other requirements that are otherwise applicable generally to public companies. We may take advantage of these exemptions until such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO; (ii) the last day of the fiscal year in which our total annual gross revenue is equal to or more than$1.07 billion ; (iii) the date on which we have issued more than$1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of theSEC . We are also a "smaller reporting company," as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than$250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than$100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than$700.0 million measured on the last business day of our second fiscal quarter. If we are a smaller reporting company at the time, we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited consolidated financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. 37
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