SeqLL Inc

Notes to Condensed Consolidated Financial Statements

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 100% ownership interest in SeqLL, LLC (“Subsidiary”), a domestic limited liability company formed on March 11, 2013 in the State of Massachusetts. SeqLL Inc. is a holding company of the Subsidiary (together the “Company”, SeqLL”, “we”, “us” or “our”) and is a life sciences company focused on the development and application of innovative genetic analysis technologies and the monetization of that technology and related intellectual property. The Subsidiary owns technology to enable the analysis of large volumes of genetic material by directly sequencing single molecules of DNA or RNA. The Subsidiary’s principal office is located in Billerica, Massachusetts.

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 March 31, 2024, except for activities incidental to its formation and activities undertaken in connection with the Merger Agreement (defined below) and the Merger.

On August 30, 2023, the Company executedone-for-40 reverse stock split of its common stock as disclosed further below.

Proposed Merger

On May 29, 2023, the Company, SeqLL Merger LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Purchaser 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 Reorganization (as amended, the “Merger Agreement”), pursuant to which (i) Atlantic Merger Sub will be merged with and into Lyneer, with Lyneer continuing as the surviving entity (the “Lyneer Merger”), and (ii) Purchaser Sub will subsequently be merged with and into Lyneer, with Lyneer continuing as the surviving entity and as a wholly-owned subsidiary of the Company (the “SeqLL Merger” and, together with the Lyneer Merger, the “Mergers”).

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 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 (which approval has been received), and (ii) the Company completes the Capital Raise to certain amount of gross proceeds as defined in the Merger Agreement, part of which will be used to pay the Cash Consideration.

The Merger Agreement, as most recently amended on April 15, 2024, 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 June 30, 2024 (the “Termination Date”), (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. The most recent amendment also amended the closing conditions to the Mergers to remove the requirement that the common stock of the Company be listed on the Nasdaq Capital Market upon the closing of the Mergers and to, instead, require that the common stock of the Company be listed or approved for listing on the Cboe BZX Exchange, Inc. (“CBOE”) upon the closing of the Mergers and to require that the Company be in compliance with all CBOE rules and regulations.

Prior to its amendment, under the terms of the Merger Agreement, in connection with the consummation of the Mergers, the Company was required to declare (i) a cash dividend payable to its stockholders of record as of April 26, 2023 (the “Record Date”) in an amount equal to the Company’s cash and cash equivalents as of the closing date of the SeqLL Merger (exclusive of any proceeds of the Capital Raise), less any amounts withheld for taxes and certain other obligations as of such date and (ii) a stock dividend issuable to such stockholders of an aggregate of 819,352 shares of the Company’s common stock, assuming a public offering price of $10.00 per share in the Capital Raise.

Subsequent amendments removed the requirement for the declaration of such dividends in consideration of the Company’s agreement to make a settlement offer within 90 days of the closing of the Mergers to its stockholders of record as of the Record Date for such dividends to settle any claims for failing to pay such dividends by issuing to such stockholders the amount of cash and the number of shares of the Company’s common stock that such stockholders would have received had such dividends been declared and made.

The terms of the Merger Agreement as further disclosed and described in the Company’s filings with the Securities and Exchange Commission (the “SEC”), which can be accessed by the public over the Internet at the SEC’s website at http:/www.sec.gov or on the Company’s website at www.seqll.com/.

Reverse Stock Split

On August 29, 2023, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Company’s Third Amended and Restated Certificate of Incorporation to (i) effect a reverse stock split of its issued common stock, par value $0.00001 per share, in the ratio of one-for-40 (the “Reverse Stock Split”) to be effective at 11:59 p.m., eastern time, on August 30, 2023, and (ii) to increase the authorized capital stock of the Company to 320,000,000 shares, of which 300,000,000 shares shall be common stock, and 20,000,000 shares shall be preferred stock (the “Capital Stock Increase”). The common stock began trading on a split-adjusted basis at the market open on August 31, 2023.

All of the Company’s 2023 historical share and per share information related to issued and outstanding common stock and outstanding options and warrants exercisable for common stock in these financial statements have been adjusted, on a retroactive basis, to reflect this 1-for-40 reverse stock split.

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”) on May 29, 2023. SeqLL Omics was 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 $1,000, all of the Company’s rights, title and interests in the assets and properties of the Company as it exists immediately prior to consummation of the Mergers, excluding cash and cash equivalents, including without limitation:

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:

The Company will be responsible for the payment of transfer taxes, if any, related to the transfer of the transferred assets.

Delisting from the Nasdaq Stock Market

On September 8, 2023, and September 18, 2023, the Company received letters from Nasdaq regarding its compliance with Nasdaq Listing Rule 5550(a) (4), which requires the Company to have a minimum of 500,000 publicly-held shares of common stock, exclusive of shares held by officers, directors and 10% stockholders. The letters from Nasdaq indicated that according to its calculations, as of September 7, 2023, the Company no longer met the requirements of such Rule, and the Company was given until September 25, 2023 to submit a plan to Nasdaq to regain compliance. On September 22, 2023, the Company advised Nasdaq that it expected to regain compliance with Rule 5550(a)(4) upon consummation of the Merger and Nasdaq granted the Company an extension through October 15, 2023 to demonstrate compliance with the public float rule. On October 16, 2023, the Company submitted a late request asking that the public float exception be extended through October 31, 2023. On October 17, 2023, Nasdaq issued a final extension to October 31, 2023 and advised the Company that no further continuances would be granted and that the Company’s failure to meet the terms of the extension would result in the immediate delisting of the Company’s securities from Nasdaq.

On November 9, 2023, the Company confirmed to Nasdaq that its public float as of October 31, 2023 and November 10, 2023, was below the minimum requirement in Rule 5550(a)(4). On November 10, 2023, the Company received a letter from Nasdaq indicating that, in light of the Company’s inability to meet the terms of Nasdaq’s amended decision of October 17, 2023, Nasdaq determined to delist the Company’s securities from Nasdaq. Nasdaq suspended trading in the Company’s securities effective at the open of trading on November 13, 2023.

On February 21, 2024, the Company received notice from Nasdaq of the removal of the listing of the Company’s common stock and warrants. On March 20, 2024, the Company received the notification of termination of the registration of the Company’s common stock and warrants under Section 12(b) of the Securities and Exchange Act of 1934.

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 conflicts in Ukraine and the Israel-Hamas war. 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 March 31, 2024 and its results of operations for the three months ended March 31, 2024 and 2023, and changes in stockholders’ equity and cash flows for the periods presented. The results disclosed in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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, 2023 filed with the Securities and Exchange Commission.

Going Concern Uncertainty

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. We experienced negative cash flows from operations of $1 million for the three months ended March 31, 2024, which included our costs and expenses related to the transactions contemplated by the Merger Agreement. The Company had cash and cash equivalents of $1.7 million at March 31, 2024 and an accumulated deficit of $25 million.

The Company will need additional capital to fund its planned operations for the next 12 months if the Merger is not completed. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 were prepared under the assumption that the Company will continue as a going concern, which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business.

Note 2 – Significant Accounting Policies

During the three-month period ended March 31, 2024, 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, 2023.

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 stock-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.

Segments

The Company operates in a single business segment that includes the design, development and manufacturing of genetic analysis technologies.

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:

Recently Issued Accounting Standards

There were no recently issued but not yet effective accounting pronouncements that will have a material effect on the accompanying condensed consolidated financial statements.

Note 3 – 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:

There were no assets measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023.

There were no assets or liabilities measured at fair value on a non-recurring basis during the three month periods ended March 31, 2024 or 2023.

The carrying values of financial instruments such as accounts receivable, net, other assets, prepaid expenses, accounts payable, and accrued expenses approximated fair value as of March 31, 2024 and December 31, 2023 due to their short-term maturities. The carrying value of the Company’s Non-Convertible Promissory Note approximated its fair value as of March 31, 2024 and December 31, 2023.

Note 4 – Stock-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 87,500 shares.

As of March 31, 2024, there were 26,036 shares available for future issuance under the 2014 Plan. Generally, option awards are granted with an exercise price equal to the fair value of the Company’s stock at the date of grant and vest over a period of three to four years. No option may have a term in excess of ten years from the option grant date. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined by the 2014 Plan).

The stock option activity for the period ended March 31, 2024 was as follows:

The restricted stock unit activity for the period ended March 31, 2024 was as follows:

During the three-month periods ended March 31, 2024 and 2023, the Company recorded $65,653 and $82,594, respectively, of stock-based compensation associated with stock options and restricted stock units, of which $32,315 and $51,520 were included in general and administrative expenses for the three-month periods ended March 31, 2024 and 2023, respectively, and $33,338 and $31,074 were included in research and development expenses for the three-month periods ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, there was approximately $534,861 of unrecognized compensation expense related to unvested stock options and restricted stock units, which will be recognized over approximatelyone year.

Note 5 – Related Party Transactions

At March 31, 2024 and December 31, 2023, the Company had the following outstanding payables to its shareholders for past services, which are included within the Company’s accounts payable above:

St. Laurent Realty, Inc. assisted the Company by previously providing corporate accounting support, and is affiliated with William C. St. Laurent, a former member of the Company’s board of directors. No expense was recorded associated with these entities for the three month periods ended March 31, 2024 or 2023.

SeqLL Omics was 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. SeqLL Omics currently performs research and development services for the Company, in order to facilitate the Company’s pre-Merger research and development efforts. The Company recorded $34,382 of expenses associated with services provided by SeqLL Omics for the three-month period ended March 31, 2024. The Company did not incur expenses associated with services provided by SeqLL Omics for the three month period ended March 31, 2023.

Note 6 – 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 $1,375,000. The Promissory Notes had a one-year term, most recently extended through July 31, 2024. The Promissory Notes bear interest accruing at the rate of 5% per annum, which is compounded on an annual basis.

For the three months ended March 31, 2024 and 2023, interest expense on the Promissory Notes was $35,754 and $16,806, respectively.

Note 7 – Common Stock Warrants

The following table summarizes information with regard to outstanding warrants to purchase the Company’s common stock as of March 31, 2024. All warrants are accounted for as equity based on the U.S. GAAP guidance applicable to the instruments indexed to an entity’s own stock.

During the three-month period March 31, 2024, warrants to purchase 214 shares of common stock with exercise prices of $124.00, expired.

Note 8 – Commitments and Contingencies

Operating Leases

On February 2, 2022, the Company entered into a lease agreement for approximately 15,638 square feet of its new corporate office space in Billerica, Massachusetts (the “Billerica Lease”). The Billerica Lease has a term of 92 months from its effective date and included access to certain additional office space until August 1, 2022. In addition, the Company is required to share in certain taxes and operating expenses of the Billerica Lease. The Billerica Lease is classified as an operating lease. As of March 31, 2024, the remaining lease term was 5.5 years.

The Company recorded expense related to the Billerica Lease in the amount of $54,643 for the three months ended March 31, 2024 and 2023.

The Company made cash payments of $68,456 and $42,950 during the three-month period ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, the Company has presented $203,288 in current portion of operating lease liability and $1,193,059 in operating lease liability, less current portion.

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 36 months from its effective date, and an end of lease purchase option of $1. The Equipment Lease was classified as a finance lease. As of March 31, 2024, the remaining lease term was 1.5 years.

The Company made cash payments of $18,092 during the three months ended March 31, 2024. These cash payments, less interest expense of $4,066 for the three months ended March 31, 2024, reduced the Company’s finance lease liability in the amount of $14,026 as of March 31, 2024.

The equipment is included in property and equipment, net and is depreciated on a straight-line basis over a five-year period. The Company amortizes the equipment over its useful life as the Company is reasonably certain to exercise the $1 purchase option for the equipment at the end of the lease term.

Depreciation expense related to finance lease assets totaled $9,375 for the three months ended March 31, 2024.

As of March 31, 2024, the Company has presented $62,106 in current portion of finance lease liability and $35,008 in finance lease liability, less current portion.

The following table reconciles the undiscounted lease liabilities to the total lease liabilities recognized on the condensed consolidated balance sheet as of March 31, 2024: