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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40538

ALPHA TEKNOVA, INC.

(Exact name of registrant as specified in its charter)


Delaware	94-3368109
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2451 Bert Dr. Hollister, CA	95023
(Address of principal executive offices)	(Zip Code)

(831) 637-1100

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.00001 per share

TKNO

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 9, 2022, the registrant had 28,042,479 shares of common stock, $0.00001 par value per share, outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements relating to our financial condition, results of operations, plans, objectives, future performance and business, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “would,” “potential,” “likely,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•

our future financial performance, including our revenue, costs of revenue and operating expenses;

•

our ability to achieve and grow profitability;

•

our ability to expand our operations and increase capacity;

•

our anticipated uses of cash in the short and long terms and the sufficiency of our sources of liquidity for funding our liquidity requirements;

•

our ability to defend against claims and mitigate adverse results in any legal proceedings against us and the merits of any claims or suits against us;

•

our ability to maintain cash and cash equivalents without losses or write-offs and limit our accounts receivable and credit risk exposure;

•

our future investments in additional facilities to facilitate our expected growth;

•

our future uses of liquidity to purse potential acquisitions that further or accelerate our strategy;

•

our future use of equity or debt financings to execute our business strategy;

•

our ability to take advantage of certain exemptions from various reporting requirements generally applicable to public companies;

•

our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the JOBS Act);

•

the impact of recent accounting pronouncements on our financial position, results of operations or cash flows, specifically the impact of the adoption of Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326);

•

any failure to fully remediate material weaknesses in our internal controls over financial reporting and maintain effective internal controls in the future;

•

the impact of changes to our internal control over financial reporting, other than changes intended to remediate material weaknesses;

•

the impact the novel coronavirus (COVID-19) or any pandemic, epidemic or outbreak of infectious disease, natural

•

disasters, geopolitical unrest, war, terrorism, public health issues or other catastrophic events may have on our business;

•

our ability to actively manage our response to the COVID-19 pandemic;

•

our future adoption of critical accounting policies and estimates;

•

our ability to increase the scale and capacity of our manufacturing processes and systems;

•

the impact of increased competition from additional companies entering the market and the availability of more advanced technologies in the market;

•

our ability to hire aggressively as we expand;

•

our ability to attract capital for product development and refinement on favorable terms;

•

our ability to generate future revenue growth from introducing new products to support the growing cell and gene therapy market and the increasing use of messenger ribonucleic acid (mRNA) vaccines and therapies;

•

the impact of increased costs of future global operations;

•

our ability to use cash on hand to meet current and future financial obligations, including funding our operations, debt service requirements and capital expenditures;

•

the enforceability of our exclusive forum provisions in our amended and restated certificate of incorporation;

•

our customers’ sensitivity to product nonconformances, defects and errors;

•

the availability of exemption of our products from compliance with the U.S. Food, Drug and Cosmetic Act (FDCA);

•

our ability to secure and maintain a stable supply of raw materials in the future;

•

our ability to maintain corporate culture that contributes to our success;

•

the applicability of our products across a wide range of markets and the probability of success or revenue opportunity in our target markets;

•

the impact of the phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, on the interests rates applicable to our financing arrangements;

•

regulatory developments in the United States and other foreign countries;

•

the impact of revenue recognition rules and other factors on our financial results;

•

our ability to obtain, maintain and enforce intellectual property protection for our current and future products, including our ability to protect our trade secrets, trademarks and trade names; and

•

the increased expenses associated with being a public company.

We caution you that the foregoing list may not contain all the forward-looking statements made in this Quarterly Report on Form 10-Q.

We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q include additional factors that could adversely impact our business and financial performance. Furthermore, new risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law.

ALPHA TEKNOVA, INC.

Form 10-Q for the Quarter Ended March 31, 2022

INDEX


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Financial Statements (Unaudited)	5
	Condensed Statements of Operations and Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, 2022 and 2021	5
	Condensed Balance Sheets (Unaudited) at March 31, 2022 and December 31, 2021	6
	Condensed Statements of Convertible and Redeemable Preferred Stock and Stockholders' Equity (Unaudited) for the Three Months Ended March 31, 2022 and 2021	7
	Condensed Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2022 and 2021	8
	Notes to Unaudited Condensed Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION	25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Default Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	61
Signatures		63

PART I – FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

ALPHA TEKNOVA, INC.

Condensed Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(in thousands, except share and per share data)


	For the Three Months Ended March 31,
	2022			2021
Revenue	$	11,147		$	9,078
Cost of sales		5,798			4,053
Gross profit		5,349			5,025
Operating expenses:
Research and development		2,013			700
Sales and marketing		1,597			705
General and administrative		7,295			4,161
Amortization of intangible assets		287			287
Total operating expenses		11,192			5,853
Loss from operations		(5,843	)		(828	)
Other (expenses) income, net
Interest (expense) income, net		(13	)		7
Other expense, net		—			1
Total other (expenses) income, net		(13	)		8
Loss before income taxes		(5,856	)		(820	)
Benefit from income taxes		(359	)		(165	)
Net loss		(5,497	)		(655	)
Change in unrealized loss on available-for-sale securities, net of tax		—			(7	)
Comprehensive loss	$	(5,497	)	$	(648	)
Net loss per share—basic and diluted	$	(0.20	)	$	(0.18	)
Weighted average shares used in computing net loss per share—basic and diluted		28,030,971			3,599,232

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

ALPHA TEKNOVA, INC.

Condensed Balance Sheets

(Unaudited)

(in thousands, except share and per share data)


	As of March 31, 2022			As of December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	76,455		$	87,518
Accounts receivable, net of allowance for doubtful accounts of $30 thousand and $23 thousand		5,978			4,666
Inventories, net		6,426			5,394
Income taxes receivable		1,188			1,188
Prepaid expenses and other current assets		1,891			2,438
Total current assets		91,938			101,204
Property, plant and equipment, net		37,059			29,810
Operating right-of-use lease assets		19,661			—
Goodwill		16,613			16,613
Intangible assets, net		18,417			18,704
Other non-current assets		396			180
Total assets	$	184,084		$	166,511
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,028		$	2,248
Accrued liabilities		7,510			5,495
Current portion of operating lease liabilities		2,098			—
Total current liabilities		12,636			7,743
Deferred tax liabilities		2,793			3,153
Other accrued liabilities		253			273
Long-term debt, net		11,916			11,870
Deferred rent		—			269
Long-term operating lease liabilities		17,938			—
Total liabilities		45,536			23,308
Stockholders’ equity:
Preferred stock, $0.00001 par value, 10,000,000 shares authorized at March 31, 2022 and December 31, 2021, respectively, zero shares issued and outstanding at March 31, 2022 and December 31, 2021		—			—
Common stock, $0.00001 par value, 490,000,000 shares authorized at March 31, 2022 and December 31, 2021, 28,042,479 and 28,012,017 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		—			—
Additional paid-in capital		151,583			150,741
Accumulated deficit		(13,035	)		(7,538	)
Total stockholders’ equity		138,548			143,203
Total liabilities and stockholders’ equity	$	184,084		$	166,511

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

ALPHA TEKNOVA, INC.

Condensed Statements of Convertible and Redeemable Preferred Stock and Stockholders’ Equity

(in thousands, except share data)

(Unaudited)


	Convertible and Redeemable Preferred Stock				Common Stock				Additional Paid-in		Accumulated other comprehensive		Retained Earnings (Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital		income (loss)		Deficit)			Equity
Balance at January 1, 2022		—	$	—		28,012,017	$	—	$	150,741	$	—	$	(7,538	)	$	143,203
Stock-based compensation		—		—		—		—		787		—		—			787
Issuance of common stock upon exercise of stock options		—		—		30,462		—		55							55
Net loss		—		—		—		—		—		—		(5,497	)		(5,497	)
Balance at March 31, 2022		—	$	—		28,042,479	$	—	$	151,583	$	—	$	(13,035	)	$	138,548


	Convertible and Redeemable Preferred Stock				Common Stock				Additional Paid-in		Accumulated other comprehensive			Retained Earnings (Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital		income (loss)			Deficit)			Equity
Balance at January 1, 2021		9,342,092	$	35,638		3,599,232	$	—	$	14,495	$	7		$	2,265		$	16,767
Stock-based compensation		—		—		—		—		183		—			—			183
Unrealized loss on available-for-sale securities		—		—		—		—		—		(7	)		—			(7	)
Net loss		—		—		—		—		—		—			(655	)		(655	)
Balance at March 31, 2021		9,342,092	$	35,638		3,599,232	$	—	$	14,678	$	—		$	1,610		$	16,288

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

ALPHA TEKNOVA, INC.

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)


	Three Months Ended March 31,
	2022			2021
Operating activities:
Net loss	$	(5,497	)	$	(655	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Bad debt expense		7			(88	)
Inventory reserve		(4	)		(2	)
Depreciation and amortization		751			652
Stock-based compensation		787			183
Deferred taxes		(360	)		(164	)
Amortization of debt financing costs		46			—
Non-cash lease expense		106			—
Other		—			(10	)
Changes in operating assets and liabilities:
Accounts receivable		(1,319	)		400
Inventories		(1,028	)		(295	)
Income taxes receivable		—			(177	)
Prepaid expenses and other current assets		547			348
Accounts payable		237			1,283
Accrued liabilities		762			847
Other		(236	)		79
Cash (used in) provided by operating activities		(5,201	)		2,401
Investing activities:
Purchase of property, plant and equipment		(5,917	)		(3,884	)
Proceeds from loan to related party		—			529
Proceeds on sales of short-term marketable securities		—			1,132
Proceeds from maturities of short-term marketable securities		—			695
Cash used in investing activities		(5,917	)		(1,528	)
Financing activities:
Proceeds from long-term debt		—			11,889
Debt issuance costs		—			(153	)
Payment of costs related to initial public offering		—			(1,458	)
Proceeds from exercise of stock options		55			—
Cash provided by financing activities		55			10,278
Change in cash and cash equivalents		(11,063	)		11,151
Cash and cash equivalents at beginning of period		87,518			3,315
Cash and cash equivalents at end of period	$	76,455		$	14,466
Supplemental cash flow disclosures:
Income taxes paid	$	—		$	—
Interest paid, net of amounts capitalized	$	—		$	13
Capitalized property, plant and equipment included in accounts payable and accrued liabilities	$	3,884		$	673
Deferred offering costs included in accounts payable and accrued liabilities	$	—		$	1,425
Recognition of operating right-of-use lease asset	$	20,237		$	—
Recognition of operating lease liabilities	$	20,507		$	—

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

ALPHA TEKNOVA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of the Business

Alpha Teknova, Inc. (referred to herein as the Company or Teknova), provides critical reagents that enable the discovery, development, and production of biopharmaceutical products such as drug therapies, novel vaccines, and molecular diagnostics. Product offerings include pre-poured media plates for cell growth and cloning, liquid cell culture media and supplements for cellular expansion, and molecular biology reagents for sample manipulation, resuspension, and purification. Teknova supports customers spanning the life sciences market, including pharmaceutical and biotechnology companies, contract development and manufacturing organizations, in vitro diagnostic franchises, and academic and government research institutions, with catalog and custom, made-to-order products.

Teknova manufactures its products at its Hollister, California headquarters and stocks inventory of raw materials, components, and finished goods at that location. The Company ships products directly from its warehouses in Hollister, California and Mansfield, Massachusetts.

Teknova manufactures its products in Research Use Only (RUO) or Good Manufacturing Practice (GMP) categories, the latter of which refers to more stringent quality standards supported by additional levels of documentation, testing, and traceability. In 2017, Teknova achieved International Organization for Standardization (ISO) 13485:2016 certification, enabling the Company to manufacture products for use in diagnostic and therapeutic applications.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Accounting, Presentation and Use of Estimates

The accompanying unaudited condensed interim financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations.

The unaudited condensed financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2021, and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the results for the interim periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain amounts of assets, liabilities, revenue, expenses, and related disclosures at the date of the financial statements and during the reporting period. The Company's critical and significant accounting estimates are influenced by the Company's assessment of the economic implications of COVID-19. Actual results can differ from those estimates. Certain prior period amounts have been reclassified to conform to presentation for the current year.

These unaudited condensed financial statements should be read in conjunction with the Company's audited financial statements and the related notes thereto as of and for the year ended December 31, 2021, included in the Company's Annual Report on Form 10-K filed with the SEC on March 18, 2022 (the 2021 Annual Report on Form 10-K). Refer to "Notes to Financial Statements—Note 2 Summary of Significant Accounting Policies," within the 2021 Annual Report on Form 10-K for a full list of the Company's significant accounting policies. The information in those notes has not changed except as a result of normal adjustments in the interim periods.

Teknova has determined that it operates in one reporting unit, one operating segment and one reportable segment, as the chief operating decision maker of the Company reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

Recently Adopted Accounting Pronouncements

Effective January 1, 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842) using the modified retrospective approach, applied at the beginning of the period of adoption, and elected the package of transitional practical expedients. The adoption of this standard resulted in recording operating right-of-use lease assets of $20.3 million, which included reclassifying approximately $0.2 million of deferred rent as a component of the operating lease asset as of January 1, 2022. The adoption also resulted in recording operating lease liabilities of $20.5 million as of January 1, 2022. The standard did not have an impact on the condensed statements of operations and cash flows. Refer to Note 7, Leases, herein for additional information pertaining to the adoption of the new standard.

Effective January 1, 2022, the Company adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which removed certain exceptions to the general principles in Accounting Standards Codification (ASC) 740 and clarified and amended certain guidance to promote consistent application. The adoption of this standard did not have a significant impact on the Company's condensed financial statements.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses and will apply to accounts receivable. The new guidance will be effective for Teknova’s annual and interim periods beginning after December 15, 2022. Teknova is currently evaluating the impact of the adoption of the standard on the financial statements and does not anticipate the standard to have a significant impact.

Note 3. Revenue Recognition

Teknova recognizes revenue from the sale of manufactured products and services when control of promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services. The majority of the Company’s sales agreements contain performance obligations satisfied at a point in time when control is transferred to the customer.

Teknova’s revenue, disaggregated by business line, was as follows (in thousands):


	For the Three Months Ended March 31,
	2022		2021
Lab Essentials	$	6,975	$	6,790
Clinical Solutions		3,812		1,071
Sample Transport		6		924
Other		354		293
Total revenue	$	11,147	$	9,078

Teknova’s revenue, disaggregated by geographic region, was as follows (in thousands):


	For the Three Months Ended March 31,
	2022		2021
United States	$	10,820	$	8,715
International		327		363
Total revenue	$	11,147	$	9,078

Note 4. Concentrations of Risk

Teknova’s financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high quality banking institutions. At times, the Company’s cash and cash equivalent balances may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit. Teknova has never experienced any losses related to its cash and cash equivalent balances. Teknova routinely communicates with its customers regarding payments and has a history of limited write-offs. Therefore, the Company believes that its accounts receivable credit risk exposure is limited.

Customers

Customers who accounted for 10% or more of the Company's revenues and outstanding balance of accounts receivable are presented as follows:


	For the Three Months Ended March 31,		As of	As of
	2022	2021	March 31, 2022	December 31, 2021
Distributor customer A	*	*	*	16%
Distributor customer B	13%	15%	11%	10%
Direct customer A	15%	*	*	*
Direct customer B	*	*	*	12%
Direct customer C	12%	*	11%	*
Direct customer D	*	*	12%	*

* Represents less than 10%.

The Company's customers that are distributors, as opposed to direct customers, represent highly diversified customer bases.

Suppliers

Suppliers who accounted for 10% or more of the Company's inventory purchases and outstanding balance of accounts payable are presented as follows:


	For the Three Months Ended March 31,		As of	As of
	2022	2021	March 31, 2022	December 31, 2021
Distributor supplier A	30%	41%	*	20%
Distributor supplier B	10%	*	*	*
Direct supplier A	18%	*	*	*
Direct supplier B	11%	*	*	*
Direct supplier C	*	11%	*	*

* Represents less than 10%.

Note 5. Inventories, Net

Inventories consist of the following (in thousands):


	As of March 31, 2022		As of December 31, 2021
Finished goods, net	$	3,891	$	3,172
Work in process		168		105
Raw materials, net		2,367		2,117
Total inventories, net	$	6,426	$	5,394

Note 6. Property, Plant and Equipment, Net

Property, plant and equipment consist of the following (in thousands):


	As of March 31, 2022		As of December 31, 2021
Machinery and equipment	$	10,696	$	9,942
Office furniture and equipment		673		649
Vehicles		70		70
Leasehold improvements		2,820		2,805
		14,259