What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-07 · 197 added, 173 removed, 836 unchanged (31% of the section changed)

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(In Thousands, Except Per Share Amounts)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets:

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100,000 shares authorized;

59,125 shares and 58,877 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

59,232 shares and 58,877 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 453,294 447,920

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(In Thousands, Except Per Share Amounts)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Total costs and operating expenses 24,449 21,647 68,019 61,410

Loss from operations ( 6,107 ) ( 6,623 ) ( 13,935 ) ( 11,863 )

Income (loss) from operations ( 6,064 ) 259 ( 19,996 ) ( 11,602 )

Interest income 39 480 362 929

Other income (expenses), net 13 ( 88 ) ( 72 ) ( 211 )

Loss before income taxes ( 6,037 ) ( 6,491 ) ( 13,684 ) ( 11,624 )

Provision for income taxes 307 16 312 19

Net loss $ ( 6,344 ) $ ( 6,507 ) $ ( 13,996 ) $ ( 11,643 )

Net loss per share, basic and diluted $ ( 0.11 ) $ ( 0.12 ) $ ( 0.24 ) $ ( 0.21 )

Weighted average common stock shares used in computing net loss per share, basic and diluted 59,000 54,954 58,944 54,564

Other expenses, net ( 50 ) ( 403 ) ( 125 ) ( 615 )

Income (loss) before income taxes ( 6,075 ) 336 ( 19,759 ) ( 11,288 )

Provision for (benefit from) income taxes 19 ( 7 ) 331 12

Net income (loss) $ ( 6,094 ) $ 343 $ ( 20,090 ) $ ( 11,300 )

Net income (loss) per share, basic $ ( 0.10 ) $ 0.01 $ ( 0.34 ) $ ( 0.20 )

Net income (loss) per share, diluted $ ( 0.10 ) $ 0.01 $ ( 0.34 ) $ ( 0.20 )

Weighted average common stock shares used in computing net income (loss) per share, basic 59,061 58,287 58,984 55,818

Weighted average common stock shares used in computing net income (loss) per share, diluted 59,061 61,412 58,984 55,818

See accompanying notes to the unaudited condensed consolidated financial statements

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Capital Accumulated Deficit Total Stockholders' Equity

Three months ended June 30, 2020 Shares Amount

Balance as of April 1, 2020 59,017 $ 6 $ 449,121 $ ( 350,061 ) $ 99,066

Three months ended September 30, 2020 Shares Amount

Balance as of July 1, 2020 59,125 $ 6 $ 451,185 $ ( 356,405 ) $ 94,786

Exercise of stock options 55 — 342 — 342

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Net loss — — — ( 6,094 ) ( 6,094 )

Balance as of June 30, 2020 59,125 $ 6 $ 451,185 $ ( 356,405 ) $ 94,786

Balance as of September 30, 2020 59,232 $ 6 $ 453,294 $ ( 362,499 ) $ 90,801

Common Stock Additional

Capital Accumulated Deficit Total Stockholders' Equity

Three months ended June 30, 2019 Shares Amount

Balance as of April 1, 2019 54,541 $ 5 $ 386,815 $ ( 335,610 ) $ 51,210

Three months ended September 30, 2019 Shares Amount

Balance as of July 1, 2019 57,940 $ 6 $ 440,795 $ ( 342,117 ) $ 98,684

Exercise of stock options 441 — 1,778 — 1,778

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Employee stock-based compensation — — 1,732 — 1,732

Issuance of common stock, net of issuance costs of $ 74

3,049 1 49,925 — 49,926

Net loss — — — ( 6,507 ) ( 6,507 )

Balance as of June 30, 2019 57,940 $ 6 $ 440,795 $ ( 342,117 ) $ 98,684

Taxes paid related to net share settlement of equity awards ( 3 ) — ( 51 ) — ( 51 )

Issuance of common stock, issuance costs — — ( 55 ) — ( 55 )

Short swing profit settlement — — 77 — 77

Net income — — — 343 343

Balance as of September 30, 2019 58,386 $ 6 $ 444,276 $ ( 341,774 ) $ 102,508

See accompanying notes to the unaudited condensed consolidated financial statements

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Common Stock Additional paid-in Capital Accumulated Deficit Total Stockholders' Equity

Six months ended June 30, 2020 Shares Amount

Nine months ended September 30, 2020 Shares Amount

Balance as of January 1, 2020 58,877 $ 6 $ 447,920 $ ( 342,409 ) $ 105,517

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Net loss — — — ( 20,090 ) ( 20,090 )

Balance as of June 30, 2020 59,125 $ 6 $ 451,185 $ ( 356,405 ) $ 94,786

Balance as of September 30, 2020 59,232 $ 6 $ 453,294 $ ( 362,499 ) $ 90,801

Common Stock Additional paid-in Capital Accumulated Deficit Total Stockholders' Equity

Six months ended June 30, 2019 Shares Amount

Nine months ended September 30, 2019 Shares Amount

Balance as of January 1, 2019 54,065 $ 5 $ 386,775 $ ( 330,474 ) $ 56,306

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3,049 1 49,870 — 49,871

Short swing profit settlement — — 77 — 77

Net loss — — — ( 11,300 ) ( 11,300 )

Balance as of June 30, 2019 57,940 $ 6 $ 440,795 $ ( 342,117 ) $ 98,684

Balance as of September 30, 2019 58,386 $ 6 $ 444,276 $ ( 341,774 ) $ 102,508

See accompanying notes to the unaudited condensed consolidated financial statements

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(Unaudited, in Thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities:

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Stock-based compensation 6,092 5,783

Unrealized loss on investment in equity securities — 168

Allowance for credit losses 40 —

Loss on investment in equity securities — 526

Changes in operating assets and liabilities:

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Investment in equity securities ( 1,000 ) —

Proceeds from the sale of investment securities — 62

Net cash used in investing activities ( 3,260 ) ( 3,251 )

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Payments of lease obligations - Finance leases ( 60 ) ( 180 )

Recovery of short swing profit — 77

Taxes paid related to net share settlement of equity awards ( 1,257 ) ( 2,850 )

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Purchase of property and equipment recorded in accounts payable and accrued expenses $ 289 $ 536

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets as of June 30, 2020 and 2019 to the total of the same such amounts shown above:

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets as of September 30, 2020 and 2019 to the total of the same such amounts shown above:

September 30,

Cash and cash equivalents $ 71,516 $ 92,143

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economy and other economies worldwide.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including the duration and severity of the pandemic and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and may not be accurately predicted, including the duration and severity of the pandemic and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

To date, we and our collaboration partners have been able to continue to supply our enzymes to our customers worldwide.

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Furthermore, our ability to provide future research and development ("R&D") services will continue to be impacted as a result of governmental orders and any disruptions in operations of our customers with whom we collaborate.

We are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our product sales, R&D service revenue, expenses and manufacturing.

However, we are unable to fully determine and quantify the extent to which this pandemic affected our total revenues due to complex accounting judgments.

In the U.S., the impact of COVID-19, including governmental orders ("Orders") governing the operation of businesses during the pandemic, caused the temporary closure of our Redwood City, California facilities and has disrupted our research and development operations.

Research and development operations for all other projects were temporarily suspended from mid-March 2020 through the end of April in accordance with these Orders.

In May 2020, we initiated limited operations and gradually ramped up our R&D operations so that we are currently utilizing the majority of our normal R&D capacity.

We believe that these disruptions have had a negative impact on revenue for the nine months ending September 30, 2020, although we are unable to fully determine and quantify the extent to which this pandemic has affected the amount and timing of our total revenues.

The extent to which the pandemic may impact our business operations and operating results will continue to remain highly dependent on future developments, which are uncertain and cannot be predicted with confidence.

R&D operations for several projects were temporarily suspended from mid-March 2020 through the end of April in accordance with these Orders.

In May 2020, we initiated limited R&D operations and have gradually ramped up operations such that we are currently utilizing the majority of our normal R&D capacity.

Additionally, we have resumed small scale manufacturing at our Redwood City pilot plant in May 2020.

Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges faced by our customers.

As of the date of issuance of the unaudited condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations is uncertain in the future.

Recent Investing Activities

In June 2020, we entered into a Master Collaboration and Research Agreement with Molecular Assemblies, Inc.

(“MAI”), a privately held company, to engineer enzymes to deliver differentiated and cost-effective solutions for the enzymatic synthesis of DNA (“MAI Agreement”).

Under an associated stock purchase agreement, we purchased 1,587,050 shares of MAI's Series A preferred stock for $ 1.0 million, and in connection with our investment, John Nicols, our chief executive officer joined MAI’s board of directors.

Under the MAI Agreement, for a fixed monthly fee payable in shares of Series A preferred stock, we will apply our CodeEvolver ® protein engineering platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis.

Through the provision of these services, we are eligible to earn additional shares of Series A preferred stock.

MAI will combine its advanced chemistries with our enzymes to drive the process to commercialization.

For additional information, see Note 12, " Related Party Transactions," in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Basis of Presentation and Summary of Significant Accounting Policies

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The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements.

The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020 are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K and are updated below as necessary.

The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2020 are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K and are updated below as necessary.

Certain prior year amounts have been reclassified to conform to 2020 presentation.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance requiring implementation of a new impairment model applicable to financial assets measured at amortized cost which, among other things required that accounts receivable, contract assets, unbilled receivables and related allowances be reclassified as financial assets.

Except as noted above, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly our financial position as of June 30, 2020, results of our operations for the three and six months ended June 30, 2020 and 2019, changes in stockholders' equity for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019.

Except as noted above, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly our financial position as of September 30, 2020, results of our operations for the three and nine months ended September 30, 2020 and 2019, changes in stockholders' equity for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019.

The interim results are not necessarily indicative of the results for any future interim period or for the entire year.

The results of the six months ended June 30, 2020 reflect the adoption of the accounting standards including:

The results of the nine months ended September 30, 2020 reflect the adoption of certain accounting standards including:

Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326):

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Actual results could differ from those estimates and such differences may be material to the unaudited condensed consolidated financial statements.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers, markets and economies.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain and may not be accurately predicted, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers, markets and economies.

Financial assets and Allowances

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Adjustments to historical loss information may be qualitative or quantitative in nature and reflect changes related to relevant data.

In the three and six months ended June 30, 2020, inputs to our CECL forecast incorporated forward-looking adjustments associated with the COVID-19 pandemic which we believe are appropriate to incorporate due to the uncertainty of the economic impact on cash flows from our financial assets.

In the three and nine months ended September 30, 2020, inputs to our CECL forecast incorporated forward-looking adjustments associated with the COVID-19 pandemic which we believe are appropriate to incorporate due to the uncertainty of the economic impact on cash flows from our financial assets.

Allowance for credit losses before January 1, 2020

Prior to January 1, 2020, the allowances for doubtful accounts reflected our best estimates of probable losses inherent in our accounts receivable, contract assets, and unbilled receivables balances.

Prior to January 1, 2020, the allowances for doubtful accounts reflected our best estimates of probable losses inherent in our accounts receivable and contract assets balances.

The allowance determination was based on known troubled accounts, historical experience, and other currently available evidence.

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Recoveries were recognized when they were received.

Actual collection losses may differ from our estimates and could be material to our consolidated financial position, results of operations, and cash flows.

Investment in Equity Securities

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We evaluate our investment for impairment when circumstances indicate that we may not be able to recover the carrying value.

We impair our investment when we determine that there has been an “other-than-temporary” decline in the company's estimated fair value compared to its carrying value.

We impair our investment when we determine that there has been an “other-than-temporary” decline in MAI's estimated fair value compared to its carrying value.

We calculate the estimated fair value of the investment using information from the company, which may include:

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We allocated goodwill to the two reporting units using a relative fair value allocation methodology that primarily relied on our estimates of revenue and future earnings for each reporting unit.

Using the relative fair value allocation methodology, we have determined that approximately 76 % of goodwill was to be allocated to the Performance Enzymes segment and 24 % allocated to the Novel Biotherapeutics segment.

Using the relative fair value allocation methodology, we have determined that approximately 76 % of goodwill was to be allocated to the Performance Enzymes segment and 24 % allocated to the Novel

Biotherapeutics segment.

As a result of the calculation, $ 2.4 million of the goodwill is assigned to the Performance Enzymes segment and $ 0.8 million is assigned to the Novel Biotherapeutics segment.

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Goodwill impairment testing from January 1, 2020

On and subsequent to January 1, 2020, we test for goodwill impairment by comparing the fair value of each reporting unit to its respective carrying value.

Goodwill represents the excess of the consideration transferred over the fair value of net assets of businesses acquired and is assigned to reporting units.

We test goodwill for impairment considering amongst other things, whether there have been sustained declines in our share price.

If we conclude it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative fair value test is performed.

We test for impairment annually on a reporting unit basis, on the last day of the fourth fiscal quarter, and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The annual impairment test is completed using either:

a qualitative “Step 0” assessment based on reviewing relevant events and circumstances;

or a quantitative “Step 1” assessment, which determines the fair value of the reporting unit.

To the extent the carrying amount of a reporting unit is less than its estimated fair value, an impairment charge is recorded.

Using the relative fair value allocation methodology for assets and liabilities used in both of our reporting units, we compare the allocated carrying amount of each reporting unit’s net assets and the assigned goodwill to its fair value.

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Interim Goodwill Impairment Testing

We tested goodwill for impairment in the quarter ended June 30, 2020.

In late 2019, COVID-19 was reported to have surfaced and has since spread worldwide.

The impact of COVID-19 has caused a decline in global and domestic macroeconomic conditions, the general deterioration of the U.S.

We tested goodwill for impairment in the quarter ended September 30, 2020.

Since late 2019, the COVID-19 pandemic has spread worldwide.

The COVID-19 pandemic has caused a decline in global and domestic macroeconomic conditions, the general deterioration of the U.S.

economy and other economies worldwide, all of which may negatively impact our overall financial performance, driving a reduction in our cash flows.

We believe that the impact of the COVID-19 pandemic was a triggering event that gave rise to the need to perform a goodwill impairment test.

We tested for goodwill impairment by comparing the fair value of each reporting unit to its respective carrying value.

We used the relative fair value allocation methodology for assets and liabilities used in both of our reporting units.

We compared the allocated carrying amounts of each reporting unit’s net assets at June 30, 2020 and the assigned goodwill to its fair value at June 30, 2020.

We concluded that there was no goodwill impairment at June 30, 2020.

We conducted a qualitative interim impairment assessment as of September 30, 2020, which included an evaluation of our cash flow projections to reflect the current economic environment, including the uncertainty surrounding the nature, timing, and extent of the impact of the pandemic in operating our business.

We also considered the results of the prior quarters’ impairment test performed which reflected a significant cushion between the fair value and the carrying value for both of our reporting units.

We determined that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying amount as of September 30, 2020.

Therefore, an interim quantitative impairment test of our goodwill at the reporting unit level was not required to be performed.

Segment Reporting

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The Novel Biotherapeutics segment focuses on new opportunities in the pharmaceutical industry to dis cover or improve novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions.

The Performance Enzymes segment consists of protein catalyst products and services with focus on pharmaceutical, food, molecular diagnostics, and other industrial markets.

Performance Enzymes segment consists of protein catalyst products and services with focus on pharmaceutical, food, molecular diagnostics, and other industrial markets.

Changes to Tax Law

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(i) permitting net operating loss carrybacks to offset 100% of taxable income for taxable years beginning before 2021, (ii) accelerating alternative minimum tax credit refunds, (iii) temporarily increasing the allowable business interest deduction from 30% to 50% of adjusted taxable income, and (iv) providing a technical correction for depreciation related to qualified improvement property.

The Company is currently evaluating if it will claim the Employee Retention Credit and apply for payroll tax deferrals under the CARES Act.

The CARES Act had no impact on our unaudited condensed consolidated financial statements.

Accounting Pronouncements

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The standard also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants.

The standard is to be applied retrospectively to the date of the initial application of Topic 606 which also requires recognition of the cumulative effect of applying the amendments as an adjustment to the opening balance of retained earnings of the later or the earliest annual period presented and the annual period inclusive of the initial application of Topic 606.

We adopted the standard in the first quarter of 2020.

The adoption will adjust certain annual disclosures but had no impact on our unaudited condensed consolidated financial statements and related disclosures.

of the later or the earliest annual period presented and the annual period inclusive of the initial application of Topic 606.

We adopted the standard in the first quarter of 2020 and the adoption had no impact on our unaudited condensed consolidated financial statements and related disclosures.

Recently issued accounting pronouncements not yet adopted

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We are currently evaluating the effects of the standard on our consolidated financial statements and related disclosures.

In May 2020, the Securities and Exchange Commission formally adopted amendments to financial disclosure regulations regarding the acquisition and disposition of certain business and among other things, amends the definition of a “significant subsidiary” by altering prescribed significance tests under Rule 1-02(w) of Regulation S-X, as well as under Rule 405 of the Securities Act of 1933 and Rule 12b-2 under the Securities Exchange Act of 1934.

The amendments apply to reports and information filings as of January 1, 2021, with early adoption permitted.

The effect of adoption will adjust certain annual disclosures but we expect no impact on our consolidated financial statements.

Revenue Recognition

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Segment information is as follows (in thousands):

Three months ended June 30, 2020 Three months ended June 30, 2019

Three months ended September 30, 2020 Three months ended September 30, 2019

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

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Total revenues $ 13,005 $ 5,380 $ 18,385 $ 20,424 $ 1,482 $ 21,906

Six months ended June 30, 2020 Six months ended June 30, 2019

Nine months ended September 30, 2020 Nine months ended September 30, 2019

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

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The following table presents balances of contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Contract Assets $ 975 $ 1,027

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Deferred Revenue $ 4,056 $ 2,044

We had no asset impairment charges related to contract assets in the three and six months ended June 30, 2020 and 2019.

During the six months ended June 30, 2020, decreases in contract assets were primarily due to contract assets that were subsequently invoiced as our right to consideration for goods and services became unconditional.

We had no asset impairment charges related to contract assets in the three and nine months ended September 30, 2020 and 2019.

During the nine months ended September 30, 2020, decreases in contract assets were primarily due to contract assets that were subsequently invoiced as our right to consideration for goods and services became unconditional.

Increases in unbilled receivables were primarily due to the timing of billings.

The increase in deferred revenue were primarily due to cash advances received in excess of revenue recognized.

During the three and six months ended June 30, 2020 and 2019, we recognized the following revenues (in thousands):

Three months ended June 30, Six months ended June 30,

During the three and nine months ended September 30, 2020 and 2019, we recognized the following revenues (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

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Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting periods.

The estimated revenue does not include contracts with original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of June 30, 2020.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations

that are unsatisfied or partially unsatisfied at the end of the reporting periods.

The balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts (in thousands):

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Total revenues $ 558 $ 1,376 $ 2,122 $ 4,056

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, less restricted stock awards ("RSAs") subject to forfeiture.

Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding, less RSAs subject to forfeiture, plus all additional common stock shares that would have been outstanding, assuming dilutive potential common stock shares had been issued for other dilutive securities.

Net income (loss) per Share

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding, less restricted stock awards ("RSAs") subject to forfeiture.

Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding, less RSAs subject to forfeiture, plus all additional common stock shares that would have been outstanding, assuming dilutive potential common stock shares had been issued for other dilutive securities.

For periods of net loss, diluted and basic net loss per share are identical since potential common stock shares are excluded from the calculation, as their effect was anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share during the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts):

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Net income (loss) ( 6,094 ) 343 ( 20,090 ) ( 11,300 )

Weighted average common stock shares used in computing net income (loss) per share, basic 59,061 58,287 58,984 55,818

Effect of dilutive shares — 3,125 — —

Weighted average common stock shares used in computing net income (loss) per share, diluted 59,061 61,412 58,984 55,818

Net income (loss) per share, basic $ ( 0.10 ) $ 0.01 $ ( 0.34 ) $ ( 0.20 )

Net income (loss) per share, diluted $ ( 0.10 ) $ 0.01 $ ( 0.34 ) $ ( 0.20 )

Anti-Dilutive Securities

In periods of net loss, the weighted average number of shares outstanding, prior to the application of the treasury stock method, excludes potentially dilutive securities from the computation of diluted net loss per common share because including such shares would have an anti-dilutive effect.

The following shares were not included in the computation of diluted net loss per share (in thousands):

Three months ended June 30, Six months ended June 30,

The following shares were not considered in the computation of diluted net income (loss) per share because their effect was anti-dilutive (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

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In 2019, we received a $ 2.0 million milestone payment on the advancement of an enzyme developed by GSK using our CodeEvolver ® protein engineering platform technology.

We recognized no research and development revenue for the three and six months ended June 30, 2020 and 2019.

We recognized no research and development revenue for the three and nine months ended September 30, 2020 compared to $ 2.0 million for the three and nine months ended September 30, 2019.

Merck Platform Technology Transfer and License Agreement

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We received an up-front license fee upon execution of the Merck CodeEvolver ® Agreement, and milestone payments in September 2015 and in September 2016, when we completed the transfer of the engineering platform technology.

We recognized research and development revenues $ 0.2 million and $ 1.0 million for the three and six months ended June 30, 2020, respectively, compared to $ 1.0 million and $ 2.0 million for the three and six months ended June 30, 2019, respectively, for various research projects under our collaborative arrangement.

We have the potential to receive payments of up to a maximum of $ 15.0 million for each commercial active pharmaceutical ingredient ("API") that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver ® protein engineering technology platform.

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In January 2019, we entered into an amendment to the Merck CodeEvolver ® Agreement to install certain CodeEvolver ® protein engineering technology upgrades into Merck’s platform license installation and maintain those upgrades for a multi-year term.

The license installation was completed in 2019 and we recognized $ 0.9 million in the three and six months ended June 30, 2019 as a license fee revenue accordingly under the amendment.

The license installation was completed in 2019 and we recognized $ 0.1 million and $ 1.0 million in the three and nine months ended September 30, 2019 as a license fee revenue accordingly under the amendment.

Pursuant to the agreement, Merck has options to future technology enhancements for a specified fee.

As of June 30, 2020, Merck has not exercised its option for technology enhancements.

We recognized $ 25 thousand and $ 50 thousand in research and development revenues under the terms of the amendment in the three and six months ended June 30, 2020, respectively.

As of June 30, 2020 and December 31, 2019, we had deferred revenue balances of $ 0.1 million and nil , respectively.

As of September 30, 2020, Merck has not exercised its option for technology enhancements.

We recognized research and development revenues of $ 1.1 million and $ 2.1 million for the three and nine months ended September 30, 2020, respectively, compared to $ 1.1 million and $ 4.0 million for the three and nine months ended September 30, 2019, respectively, under the Merck CodeEvolver ® Agreement.

Merck Sitagliptin Catalyst Supply Agreement

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Merck received a distinct, functional license to manufacture a portion of its demand beginning January 1, 2018, which we recognized as research and development revenue.

We have determined that the variable pricing, which provides a discount based on the cumulative volume of sitagliptin catalyst purchased by Merck, provides Merck material rights and we are recognizing product revenues using the alternative method.

Under the alternative approach, we estimate the total expected consideration and allocate it proportionately with the expected sales.

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Pursuant to the terms of the Sitagliptin Catalyst Supply Agreement, Merck may purchase supply from us for a fee based on contractually stated prices.

Deferred revenues were offset against contract assets where the right of offset exists within the contract.

We recognized revenue of $ 2.0 million and $ 3.8 million for the three and six months ended June 30, 2020, respectively, compared to $ 2.5 million and $ 7.8 million in the three and six months ended June 30, 2019, respectively, in product revenue under this agreement.

As of June 30, 2020 and December 31, 2019, we had deferred revenue balances related to the Sitagliptin Catalyst Supply Agreement of $ 0.3 million and nil , respectively.

We recognized revenue of $ 3.2 million and $ 7.0 million for the three and nine months ended September 30, 2020, respectively, compared to $ 3.6 million and $ 11.4 million in the three and nine months ended September 30, 2019, respectively, in product revenue under this agreement.

Enzyme Supply Agreement

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We additionally have determined that the volume discounts under the supply agreement provides the customer material rights and we are recognizing revenues using the alternative method.

As of June 30, 2020 and December 31, 2019, we had deferred revenue balances from the supply agreement of $ 2.0 million.

Global Development, Option and License Agreement, Strategic Collaboration Agreement, and Development Agreement

As of September 30, 2020 and December 31, 2019, we had deferred revenue balances from the supply agreement of $ 2.0 million.

Global Development, Option and License Agreement;

Strategic Collaboration Agreement;

Development Agreement

In October 2017, we entered into a Global Development, Option and License Agreement (the “Nestlé Agreement”) with Société des Produits Nestlé (formerly known as Nestec Ltd.) (“Nestlé Health Science”) and, solely for the purpose of the integration and the dispute resolution clauses of the Nestlé Agreement, Nestlé Health Science S.A., to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU.

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Revenue was recognized using a single measure of progress that depicted our performance in transferring control of the services, which was based on the ratio of level of effort incurred to date compared to the total estimated level of effort required to complete all performance obligations under the agreement.

We recognized no minal research and development revenue for the three and six months ended June 30, 2020, respectively, compared to $ 0.5 million and $ 1.7 million for the three and six months ended June 30, 2019, respectively.

We recognized no minal research and development revenue for the three and nine months ended September 30, 2020, respectively, compared to $ 0.1 million and $ 1.8 million for the three and nine months ended September 30, 2019, respectively.

In January 2019, we received notice from the FDA that it had completed its review of our investigational new drug application ("IND") for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States.

In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sub-licensable license for the global development and commercialization of CDX-6114 for the management of PKU and paid us $ 3.0 million which we recognized as research and development revenue in 2019.

Upon exercising its option, Nestlé Health Science assumed all responsibilities for future clinical development and commercialization of CDX-6114, with the exception of the completion of an extension study, CDX-6114-004, which was substantially completed in the fourth quarter of 2019.

Upon exercising its option, Nestlé Health Science assumed all responsibilities for future clinical development and commercialization of CDX-6114 was substantially completed in the fourth quarter of 2019.

Other potential payments from Nestlé Health Science to us under the Nestlé Agreement include (i) development and approval milestones of up to $ 85.0 million, (ii) sales-based milestones of up to $ 250.0 million in the aggregate, which aggregate amount is achievable if net sales exceed $ 1.0 billion in a single year, and (iii) tiered royalties, at percentages ranging from the middle single digits to low double-digits, of net sales of product.

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In January 2020, we entered into a development agreement with Nestlé Health Science pursuant to which we and Nestlé Health Science are collaborating to advance a lead candidate targeting a gastro-intestinal disorder discovered through our Strategic Collaboration Agreement into pre-clinical and early clinical studies.

We recognized research and development fees of $ 1.7 million and $ 3.3 million for the three and six months ended June 30, 2020, respectively, compared to $ 1.2 million and $ 2.5 million in the three and six months ended June 30, 2019, respectively.

Under the Strategic Collaboration Agreement and development agreement, we recognized research and development fees of $ 2.8 million and $ 6.1 million for the three and nine months ended September 30, 2020, respectively, compared to $ 1.4 million and $ 3.9 million in the three and nine months ended September 30, 2019, respectively.

Strategic Collaboration Agreement

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Under the Porton Agreement, we are eligible to receive annual collaboration fees and research and development revenues.

In the second quarter of 2020, we recognized $ 1.0 million in research and development revenue on the second anniversary of the effective date of the agreement.

We are eligible to receive $ 1.0 million on the third anniversary of the effective date of the agreement.

We received an initial collaboration fee of $ 0.5 million within 30 days of the effective date of the Porton Agreement, $ 1.5 million upon the first anniversary of the effective date of the agreeme nt, and $ 1.0 million upon the second anniversary of the effective date of the agreement and we are eligible to receive $ 1.0 million on the third anniversary of the effective date of the agreement.

We completed the technica l transfer in the fourth quarter of 2018 and recognized $ 2.8 million in research and development revenue.

We recognized revenue related to the functional license provided to Porton at a point in time when control of the license was transferred to the customer.

We recognized research and development revenue related to the Porton Agreement of $ 1.0 million and $ 1.1 million in the three and six months ended June 30, 2020, respectively, and no revenue in the three and six months ended June 30, 2019.

We recognized research and development revenue related to the Porton Agreement of nil and $ 1.1 million in the three and nine months ended September 30, 2020, respectively, and no revenue in the three and nine months ended September 30, 2019.

As of September 30, 2020 and December 31, 2019, we had deferred revenue balances related to the strategic collaboration agreement of $ 0.1 million and nil , respectively.

Platform Technology Transfer and License Agreement

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As a part of this technology transfer, the Company provided to Novartis our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms.

In addition, teams of the Company and Novartis scientists participated in technology training sessions and collaborative research projects at the our laboratories in Redwood City, California and at a designated Novartis laboratory in Basel, Switzerland.

In addition, teams of the Company and Novartis scientists participated in technology training sessions and collaborative research projects at our laboratories in Redwood City, California and at a designated Novartis laboratory in Basel, Switzerland.

Upon completion of technology transfer, Novartis will have the CodeEvolver ® protein engineering platform technology installed at its designated laboratory.

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Revenue allocated to future improvements will be recognized during the Improvement Term.

We recognized $ 0.9 million and $ 3.7 million in research and

development revenue for the three and six months ended June 30, 2020, respectively and no revenue in the three and six months ended June 30, 2019 from the Novartis CodeEvolver ® Agreement.

We recognized $ 0.9 million and $ 4.1 million in research and development revenue for the three and nine months ended September 30, 2020, respectively, compared to $ 3.8 million in revenue for the three and nine months ended September 30, 2019 from the Novartis CodeEvolver ® Agreement.

License Agreement

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The agreement also contemplates milestone payments to the Company upon the achievement of various development and commercialization events and royalty payments from commercial sales of the enzyme.

We recognized research and development fees of $ 0.2 million and $ 0.8 million for the three and six months ended June 30, 2020, respectively.

We recognized research and development fees of $ 0.1 million and $ 0.9 million for the three and nine months ended September 30, 2020, respectively.

Strategic Collaboration and License Agreement

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In March 2020, we received an up-front nonrefundable cash payment of $ 8.5 million and we initiated activities under three Program Plans for Fabry Disease, Pompe Disease, and an unnamed blood factor deficiency respectively (the “Initial Programs”).

We are primarily responsible for the research and development of protein sequences under the Program Plans (the “Protein Sequences”) and we are eligible to receive up to $ 22.3 million of research and development fees and pre-clinical milestone payments for the Initial Programs.

We are primarily responsible for the research and development of protein sequences under the Program Plans (the “Protein Sequences”) and we are eligible to earn $ 18.3 million of research and development fees and pre-clinical milestone payments for the Initial Programs.

Takeda has the right, but not the obligation, to develop, manufacture and commercialize gene therapy products that include nucleic acid sequences that encode the Protein Sequences (“Products”) at their expense.

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We are also eligible to receive tiered royalties based on net sales of Products at percentages ranging from the middle-single digits to low single-digits.

We recognized research and development revenue related to the Takeda Agreement of $ 5.7 million and $ 8.0 million in the three and six months ended June 30, 2020, respectively.

As of June 30, 2020, we had a deferred revenue balance of $ 2.2 million from Takeda.

We recognized research and development revenue related to the Takeda Agreement of $ 2.6 million and $ 10.6 million in the three and nine months ended September 30, 2020, respectively.

As of September 30, 2020, we had a deferred revenue balance of $ 1.9 million from Takeda.

Master Collaboration and Research Agreement and Stock Purchase Agreement

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Payments for bonuses, targets and milestones on achievement of timeline and project goals are to be issued thirty days after the Company provides notification of completion.

Under the MAI Agreement, the Company will have the right to use and sell the engineered enzymes to third parties for any purpose other than for the synthesis of native DNA.

We did not receive any shares of MAI's Series A preferred stock based on services provided in the nine months ended September 30, 2020.

Under the MAI Agreement, we will have the right to use and sell the engineered enzymes to third parties for any purpose other than for the synthesis of native DNA.

Under the MAI Agreement, we would make a $ 0.5 million payment to MAI upon our achievement of a milestone of $ 5.0 million in aggregate commercial sales to third parties of the engineered enzymes or any product incorporating or derived from the engineered enzymes for any purpose other than the synthesis of native DNA.

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(a) that MAI would receive an exclusive license to use the DNA polymerase enzymes engineering by us under the MAI Agreement in the synthesis of native DNA and a non-exclusive license to use these enzymes for research and development on the synthesis of non-native DNA, and (b) we would become the exclusive manufacturer of these enzymes for MAI, its affiliates and licensees.

We recognized no research and development revenue in the three and six months ended June 30, 2020 from transactions with MAI.

We recognized $ 0.5 million in research and development revenue in the three and nine months ended September 30, 2020 from transactions with MAI.

At September 30, 2020, we had $ 0.5 million of financial assets due from MAI.

Payment for the services was subsequently received in form of additional Series A preferred stock of MAI in October.

Cash Equivalents and Equity Securities

Cash equivalents at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30, 2020 December 31, 2019

Cash equivalents at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

September 30, 2020 December 31, 2019

Adjusted Cost Estimated

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(1) Money market funds are classified in cash and cash equivalents on our unaudited condensed consolidated balance sheets.

As of June 30, 2020, the total cash and cash equivalents balance of $ 75.6 million was comprised of money market funds of $ 58.5 million and cash of $ 17.1 million held with major financial institutions worldwide.

As of September 30, 2020, the total cash and cash equivalents balance of $ 71.5 million was comprised of money market funds of $ 51.5 million and cash of $ 20.0 million held with major financial institutions worldwide.

As of December 31, 2019, the total cash and cash equivalents balance of $ 90.5 million was comprised of money market funds of $ 71.2 million and cash of $ 19.3 million held with major financial institutions worldwide.

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Concurrently with our initial equity investment, John Nicols, our chief executive officer, joined MAI’s board of directors, and we entered into the MAI Agreement pursuant to which we will provide technical services and expertise in exchange for compensation in the form of additional shares of voting preferred stock.

Our investment was $ 1.0 million at June 30, 2020.

We recorded no impairments or upward adjustments due to observable price changes in the investment in the three and nine months ended

September 30, 2020.

The carrying amount of the investment was $ 1.0 million at September 30, 2020.

For additional information, see Note 12, "Related Party Transactions."

Fair Value Measurements

The following tables present the financial instruments that were measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019 by level within the fair value hierarchy (in thousands):

June 30, 2020

The following tables present the financial instruments that were measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019 by level within the fair value hierarchy (in thousands):

September 30, 2020

Level 1 Level 2 Level 3 Total

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Inventories consisted of the following (in thousands):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Raw materials $ 77 $ 7

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Property and equipment, net consisted of the following (in thousands):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Laboratory equipment $ 24,837 $ 23,561

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Property and equipment, net $ 7,289 $ 6,282

Goodwill had a carrying value of approximately $ 3.2 million as of June 30, 2020 and December 31, 2019.

Goodwill had a carrying value of approximately $ 3.2 million as of September 30, 2020 and December 31, 2019.

Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Accrued purchases $ 3,810 $ 4,386

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Achievement below the threshold level would result in no shares being eligible to vest in respect of the PSUs and PBOs.

In the first quarter of 2020, we awarded PSUs ("2020 PSUs") and PBOs ("2020 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including sustained revenue and performance enzyme growth, strategic advancements of biotherapeutics pipeline, safety and technology development.

As of June 30, 2020, we estimated that the 2020 PSUs and 2020 PBOs performance goals would be achieved at 100 % of the target level, and recognized expenses accordingly.

In the first half of 2020, we awarded PSUs ("2020 PSUs") and PBOs ("2020 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including sustained revenue and performance enzyme growth, strategic advancements of biotherapeutics pipeline, safety and technology development.

As of September 30, 2020, we estimated that the 2020 PSUs and 2020 PBOs performance goals would be achieved at 100 % of the target level, and recognized expenses accordingly.

In 2019, we awarded PSUs ("2019 PSUs") and PBOs ("2019 PBOs"), each of which commenced vesting based upon the achievement of various weighted performance goals, including sustained revenue and performance enzyme growth, strategic advancement of biotherapeutics, cash balance and strategic plan development.

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Stock-based compensation expense is included in the unaudited condensed consolidated statements of operations as follows (in thousands):

Three Months Ended June 30, Six months ended June 30,

Three Months Ended September 30, Nine months ended September 30,

2020 2019 2020 2019

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Total $ 1,984 $ 1,732 $ 6,092 $ 5,783

The following table presents total stock-based compensation expense by security type included in the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended June 30, Six months ended June 30,

The following table presents total stock-based compensation expense by security type included in the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended September 30, Nine months ended September 30,

2020 2019 2020 2019

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The option vests over 2 years from the date of grant with 50 % vesting after one year and the remaining 50 % vesting monthly in the second year.

We recognized stock-based compensation expense related to the non-employee of $ 4 thousand for the three and six months ended June 30, 2020.

As of June 30, 2020, unrecognized stock-based compensation expense, net of expected forfeitures, was $ 4.8 million related to unvested employee stock options, $ 0.2 million related to unvested non-employee stock options, $ 2.7 million related to unvested RSUs and RSAs, $ 1.1 million related to unvested PSUs, and $ 1.7 million related to unvested PBOs based on current estimates of the level of achievement.

In August 2020, we granted an option to purchase 16,000 shares of common stock to a non-employee as compensation for services.

The estimated fair value of the grant was valued at $ 0.1 million using the Black-Scholes-Merton option pricing model with the following assumptions used to estimate the fair value of non-employee stock options:

(i) volatility rate at 50.5 %, (ii) risk-free interest rate of 0.3 % and (iii) no expected dividend yield.

The option vests over 1 year with 100 % on the first anniversary of the grant date.

We recognized stock-based compensation expense related to the non-employees of $ 43 thousand and $ 47 thousand for the three and nine months ended September 30, 2020, respectively.

As of September 30, 2020, unrecognized stock-based compensation expense, net of expected forfeitures, was $ 4.2 million related to unvested employee stock options, $ 0.3 million related to unvested non-employee stock options, $ 2.3 million related to unvested RSUs and RSAs, $ 0.8 million related to unvested PSUs, and $ 1.3 million related to unvested PBOs based on current estimates of the level of achievement.

Stock-based compensation expense for these awards will be recognized through the year of 2024.

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Exercise of Options

For the six months ended June 30, 2020 and June 30, 2019, we issued 32,749 and 529,187 shares, respectively, upon option exercises at a weighted-average exercise price of $ 6.03 and $ 5.37 per share, respectively, with net cash proceeds of $ 0.2 million and $ 2.8 million, respectively.

For the nine months ended September 30, 2020 and September 30, 2019, we issued 87,240 and 970,256 shares, respectively, upon option exercises at a weighted-average exercise price of $ 6.17 and $ 4.76 per share, respectively, with net cash proceeds of $ 0.5 million and $ 4.6 million, respectively.

Private Offering

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We review the estimated obligation each reporting period and make adjustments if our estimates change.

We recorded asset retirement obligations of $ 0.2 million as of June 30, 2020 and December 31, 2019, which are included in other liabilities on the unaudited condensed consolidated balance sheets.

We recorded asset retirement obligations of $ 0.2 million as of September 30, 2020 and December 31, 2019, which are included in other liabilities on the unaudited condensed consolidated balance sheets.

Accretion expense related to our asset retirement obligations was no minal.

Pursuant to the terms of the Lease, we exercised our right to deliver a letter of credit in lieu of a security deposit.

The letter of credit is collateralized by deposit balances held by the bank in the amount of $ 1.1 million as of June 30, 2020 and December 31, 2019, and are recorded as non-current restricted cash on the unaudited condensed consolidated balance sheets.

The letter of credit is collateralized by deposit balances held by the bank in the amount of $ 1.1 million as of September 30, 2020 and December 31, 2019, and are recorded as non-current restricted cash on the unaudited condensed consolidated balance sheets.

Finance Leases

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Lease related costs were as follows (in thousands):

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

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(1) Short-term lease costs on leases with terms of over one month and less than one year.

Other information related to non-cancellable finance leases and operating leases under non-cancellable subleases as of June 30, 2020 was as follows:

Other information related to non-cancellable finance leases and operating leases as of September 30, 2020 was as follows:

Operating Leases

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Cash paid for amounts included in the measurement of lease obligations was as follows (in thousands):

Six months ended June 30,

Nine months ended September 30,

Operating cash flows from operating leases $ 1,795 $ 2,456

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Financing cash flows from finance leases $ 60 $ 180

As of June 30, 2020, our maturity analysis of annual undiscounted cash flows of the non-cancellable finance and operating leases are as follows (in thousands):

As of September 30, 2020, our maturity analysis of annual undiscounted cash flows of the non-cancellable finance and operating leases are as follows (in thousands):

Years ending December 31, Operating Leases

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In June 30, 2017, we entered into a credit facility (the “Credit Facility”) consisting of term loans (“Term Debt”) up to $ 10.0 million, and advances (“Advances”) under a revolving line of credit ("Revolving Line of Credit") up to $ 5.0 million with an accounts receivable borrowing base of 80 % of eligible accounts receivable.

At June 30, 2020 and December 31, 2019, we have not drawn from the Credit Facility.

We may draw on the Revolving Line of Credit at any time prior to the September 30, 2020 maturity date.

On October 1, 2023, loans drawn under the Term Debt mature and the Revolving Line of Credit terminates.

Loans made under the Term Debt bears interest through maturity at a variable rate based on the LIBOR plus 3.60 %.

Advances under the Revolving Line of Credit bear interest at a variable annual rate equal to the greater of (i) 1.00 % above the prime rate and (ii) 5.00 %.

At September 30, 2020 and December 31, 2019, we have not drawn from the Credit Facility.

We may draw on the Term Debt and the Revolving Line of Credit at any time prior to October 1, 2021 and October 1, 2024, respectively.

On October 1, 2024 loans drawn under the Term Debt mature and the Revolving Line of Credit terminate.

Loans made under the Term Debt bear interest through maturity equal to the greater of (i) 3.75 % and (ii) the sum of (A) Index Rate (prime rate published in the Money Rates section of the Western Edition of The Wall Street Journal plus (B) 0.50 %.

Advances made under the Revolving Line of Credit bear interest at a variable annual rate equal to the equal to the greater of (i) 4.25 % and (ii) the sum of (A) the prime rate plus (B) 1.00 %.

Our obligations under the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property.

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A failure to comply with these covenants could permit the lender to exercise remedies against us and the collateral securing the Credit Facility, including foreclosure of our properties securing the Credit Facilities and our cash.

At June 30, 2020, we were in compliance with the covenants for the Credit Facility.

At September 30, 2020, we were in compliance with the covenants for the Credit Facility.

The Credit Facility allows for interest-only payments on the Term Debt through November 1, 2022.

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economy and other economies worldwide.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and may not be accurately predicted, including the duration and severity of the pandemic and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

To date, we and our collaboration partners have been able to continue to supply our enzymes to our customers worldwide.

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We are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our product sales, R&D service revenue, expenses and manufacturing.

However, we are unable to fully determine and quantify the extent to which this pandemic affected our total revenues due to complex accounting judgments.

Research and development operations for all other projects were temporarily suspended from mid-March 2020 through the end of April in accordance with these Orders.

In May 2020, we initiated limited operations and gradually ramped up our R&D operations so that we are currently utilizing the majority of our normal R&D capacity.

R&D operations for several projects were temporarily suspended from mid-March 2020 through the end of April in accordance with these Orders.

In May 2020, we initiated limited R&D operations and have gradually ramped up operations such that we are currently utilizing the majority of our normal R&D capacity.

Additionally, we have resumed small scale manufacturing at our Redwood City pilot plant in May 2020.

As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations is uncertain.

Related Party

AstraZeneca PLC

Cheng, a member of our board of directors for a three-year term expiring at our Annual Shareholder Meeting in June 2020, joined AstraZeneca PLC as Executive Vice President, Operations and Information Technology in June 2015.

We sell biocatalyst products to AstraZeneca PLC and its controlled purchasing agents and contract manufacturers.

We recognized $ 20 thousand and $ 0.1 million in revenue in the three and six months ended June 30, 2020, respectively, compared to $ 0.4 million and $ 0.4 million in the three and six months ended June 30, 2019, respectively, from transactions with AstraZeneca PLC and its controlled purchasing agents and contract manufacturers.

At June 30, 2020 and December 31, 2019, we had no minal and $ 0.3 million, respectively, of receivables from AstraZeneca PLC and its controlled purchasing agents and contract manufacturers, respectively.

Molecular Assemblies, Inc.

In June 2020, we entered into a Stock Purchase Agreement with Molecular Assemblies, Inc (“MAI”) pursuant to which we purchased 1,587,050 shares of Series A preferred stock for $ 1.0 million in MAI and, concurrently with our initial equity investment, John Nicols, our chief executive officer, joined MAI’s board of directors.

In June 2020, we entered into a Stock Purchase Agreement with Molecular Assemblies, Inc (“MAI”) pursuant to which we purchased 1,587,050 shares of MAI's Series A preferred stock for $ 1.0 million.

In connection with the transaction, our chief executive officer, John Nicols, also joined MAI’s board of directors.

At the same time, we entered into a Master Collaboration and Research Agreement (the “MAI Agreement”) with MAI to engineer DNA polymerase enzymes to deliver differentiated and cost-effective solutions for the enzymatic synthesis of DNA.

Under the MAI Agreement and its related statement of work (“SOW”), we will apply our CodeEvolver ® protein engineering platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis.

Based on these services, we are eligible to earn additional Series A preferred stock of MAI.

Based on these services, we are eligible to earn additional Series A preferred stock of MAI contingent on the achievement of certain results and milestones.

MAI will combine its advanced chemistries with our enzymes to drive the process to commercialization.

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Payments for bonuses, targets and milestones on achievement of timeline and project goals are to be issued thirty days after the Company provides notification of completion.

We did not receive any shares of MAI's Series A preferred stock based on services provided in the nine months ended September 30, 2020.

Under the MAI Agreement, we will have the right to use and sell the engineered enzymes to third parties for any purpose other than for the synthesis of native DNA.

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(a) that MAI would receive an exclusive license to use the DNA polymerase enzymes engineering by us under the MAI Agreement in the synthesis of native DNA and a non-exclusive license to use these enzymes for research and development on the synthesis of non-native DNA, and (b) that we would become the exclusive manufacturer of these enzymes for MAI, its affiliates and licensees.

We recognized no research and development revenue in the three and six months ended June 30, 2020 from transactions with MAI.

We recognized $ 0.5 million in research and development revenue in the three and nine months ended September 30, 2020 from transactions with MAI.

At September 30, 2020, we had $ 0.5 million of financial assets due from MAI.

Payment for the services was subsequently received in the form of additional Series A preferred stock of MAI in October.

AstraZeneca PLC

Cheng, who served as a member of our board of directors until June 2020, joined AstraZeneca PLC as Executive Vice President, Operations and Information Technology in June 2015.

We sold biocatalyst products to AstraZeneca PLC and its controlled purchasing agents and contract manufacturers.

We recognized $ 0.1 million of revenue in 2020 through the date of Ms.

Cheng’s departure from our board of directors.

We recognized $ 0.2 million and $ 0.6 million of revenue from transactions with AstraZeneca in the three and nine months ended September 30, 2019, respectively.

At September 30, 2020 and December 31, 2019, we had no receivables from AstraZeneca.

Segment, Geographical and Other Revenue Information

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This provides the CODM with more meaningful segment profitability reporting to support operating decisions and allocate resources.

The following tables provide financial information by our reportable business segments along with a reconciliation to consolidated loss before income taxes (in thousands):

Three months ended June 30, 2020 Three months ended June 30, 2019

The following tables provide financial information by our reportable business segments along with a reconciliation to consolidated income (loss) before income taxes (in thousands):

Three months ended September 30, 2020 Three months ended September 30, 2019

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

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Depreciation and amortization ( 528 ) ( 471 )

Loss before income taxes $ ( 6,037 ) $ ( 6,491 )

Income (loss) before income taxes $ ( 6,075 ) $ 336

(1) Research and development expenses and Selling, general and administrative expenses exclude depreciation and amortization of finance leases.

(2) Corporate costs include unallocated selling, general and administrative expense, interest income, and other income and expenses.

Six months ended June 30, 2020 Six months ended June 30, 2019

Nine months ended September 30, 2020 Nine months ended September 30, 2019

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

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Total segment costs and operating expenses 31,154 18,576 49,730 33,618 11,020 44,638

Loss from operations ( 1,274 ) ( 370 ) ( 1,644 ) ( 526 ) ( 25 ) ( 551 )

Income (loss) from operations $ 231 $ ( 1,938 ) ( 1,707 ) $ 7,482 $ ( 2,312 ) 5,170

Corporate costs (2)

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(2) Corporate costs include unallocated selling, general and administrative expense, interest income, and other income and expenses.

The following tables provides stock-based compensation expense included in loss from operations (in thousands):

Three months ended June 30,

The following tables provides stock-based compensation expense included in income (loss) from operations (in thousands):

Three months ended September 30,

Performance Enzymes Novel Biotherapeutics Corporate cost Total Performance Enzymes Novel Biotherapeutics Corporate cost Total

Stock-based compensation $ 839 $ 132 $ 1,013 $ 1,984 $ 736 $ 225 $ 771 $ 1,732

Six months ended June 30,

Nine months ended September 30,

Performance Enzymes Novel Biotherapeutics Corporate cost Total Performance Enzymes Novel Biotherapeutics Corporate cost Total

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Percentage of Total Revenues for the

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Percentage of Accounts Receivables as of

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Customer A 36 % 38 %

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Customer D 14 % *

Customer F 10 % *

* Percentage was l ess than 10%

* Percentage was less than 10%

Geographical Information

Geographic revenues are identified by the location of the customer and consist of the following (in thousands):

Three Months Ended June 30, Six months ended June 30,

Three Months Ended September 30, Nine months ended September 30,

2020 2019 2020 2019

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Identifiable long-lived assets by location was as follows (in thousands):

Long-lived assets June 30, 2020 December 31, 2019

Long-lived assets September 30, 2020 December 31, 2019

United States $ 7,289 $ 6,282

Identifiable goodwill was as follows (in thousands):

As of June 30, 2020 and December 31, 2019

As of September 30, 2020 and December 31, 2019

Performance Enzymes Novel Biotherapeutics Total

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An analysis of the allowance for credit losses is as follows (in thousands):

Three and six months

June 30, 2020

Three and nine

September 30, 2020

Beginning Balance January 1, 2020 $ 34

Current period provision 40

Write-offs charged against the allowance —

Recoveries of amounts previously written off —

Ending Balance June 30, 2020 $ 34

Ending Balance September 30, 2020 $ 74

The following tables below summarizes accounts receivable by aging category (in thousands):

June 30, 2020

September 30, 2020

31-60 Days 61-90 Days 91 days and over Total over 31 days Current Total balance

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements