Item 1. Financial Statements
Item 1. Financial Statements
Codexis, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In Thousands, Except Per Share Amounts)
September 30, 2022 December 31, 2021
Assets
Current assets:
Cash and cash equivalents $ 108,689 $ 116,797
Restricted cash, current 528 579
Financial assets:
Accounts receivable 16,527 24,953
Contract assets 5,867 4,557
Unbilled receivables 7,490 8,558
Total financial assets 29,884 38,068
Less: allowances ( 109 ) ( 416 )
Total financial assets, net 29,775 37,652
Inventories 1,623 1,160
Prepaid expenses and other current assets 5,382 5,700
Total current assets 145,997 161,888
Restricted cash 1,520 1,519
Investment in non-marketable equity securities ($ 13,921 and $ 12,713 with a related party)
20,510 14,002
Right-of-use assets - Operating leases, net 40,493 44,095
Right-of-use assets - Finance leases, net — 17
Property and equipment, net 23,319 21,345
Goodwill 3,241 3,241
Other non-current assets 208 276
Total assets $ 235,288 $ 246,383
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,621 $ 2,995
Accrued compensation 9,463 11,119
Other accrued liabilities 12,992 12,578
Current portion of lease obligations - Operating leases 5,230 4,093
Deferred revenue ($ 0 and $ 245 to a related party)
1,602 2,586
Total current liabilities 31,908 33,371
Deferred revenue, net of current portion 8,238 3,749
Long-term lease obligations - Operating leases 39,655 43,561
Other long-term liabilities 1,356 1,311
Total liabilities 81,157 81,992
Commitments and Contingencies (Note 10)
Stockholders' equity:
Preferred stock, $ 0.0001 par value per share; 5,000 shares authorized, none issued and outstanding
— —
Common stock, $ 0.0001 par value per share; 100,000 shares authorized;
65,613 shares and 65,109 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
6 6
Additional paid-in capital 562,811 552,083
Accumulated deficit ( 408,686 ) ( 387,698 )
Total stockholders' equity 154,131 164,391
Total liabilities and stockholders' equity $ 235,288 $ 246,383
See accompanying notes to the unaudited condensed consolidated financial statements.
3
Codexis, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Revenues:
Product revenue ($ 215 , $ 0 , $ 358 and $ 0 from a
related party)
$ 28,042 $ 28,731 $ 93,376 $ 53,674
Research and development revenue ($ 1,000 , $ 199 ,
$ 1,245 and $ 675 from a related party)
6,428 8,038 14,839 26,579
Total revenues 34,470 36,769 108,215 80,253
Costs and operating expenses:
Cost of product revenue 9,786 6,867 29,577 15,403
Research and development 21,821 15,165 60,410 39,562
Selling, general and administrative 13,499 13,407 39,859 37,600
Total costs and operating expenses 45,106 35,439 129,846 92,565
Income (loss) from operations ( 10,636 ) 1,330 ( 21,631 ) ( 12,312 )
Interest income 436 41 618 424
Other income, net 216 983 150 920
Income (loss) before income taxes ( 9,984 ) 2,354 ( 20,863 ) ( 10,968 )
Provision for income taxes 8 110 125 121
Net income (loss) $ ( 9,992 ) $ 2,244 $ ( 20,988 ) $ ( 11,089 )
Net income (loss) per share, basic $ ( 0.15 ) $ 0.03 $ ( 0.32 ) $ ( 0.17 )
Net income (loss) per share, diluted $ ( 0.15 ) $ 0.03 $ ( 0.32 ) $ ( 0.17 )
Weighted average common stock shares used in computing net income (loss) per share, basic 65,426 64,628 65,271 64,452
Weighted average common stock shares used in computing net income (loss) per share, diluted 65,426 67,741 65,271 64,452
See accompanying notes to the unaudited condensed consolidated financial statements.
4
Codexis, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In Thousands)
Common Stock Additional
Paid-in
Capital Accumulated Deficit Total Stockholders' Equity
Three Months Ended September 30, 2022 Shares Amount
Balance as of July 1, 2022
65,494 $ 6 $ 558,147 $ ( 398,694 ) $ 159,459
Exercise of stock options 77 — 180 — 180
Release of stock awards 47 — — — —
Employee stock-based compensation — — 4,516 — 4,516
Non-employee stock-based compensation — — 15 — 15
Taxes paid related to net share settlement of equity awards ( 5 ) — ( 47 ) — ( 47 )
Net loss — — — ( 9,992 ) ( 9,992 )
Balance as of September 30, 2022
65,613 $ 6 $ 562,811 $ ( 408,686 ) $ 154,131
Common Stock Additional
Paid-in
Capital Accumulated Deficit Total Stockholders' Equity
Three Months Ended September 30, 2021 Shares Amount
Balance as of July 1, 2021
64,623 $ 6 $ 542,519 $ ( 379,752 ) $ 162,773
Exercise of stock options 210 — 1,022 — 1,022
Employee stock-based compensation — — 2,955 — 2,955
Non-employee stock-based compensation — — 61 — 61
Net income — — — 2,244 2,244
Balance as of September 30, 2021
64,833 $ 6 $ 546,557 $ ( 377,508 ) $ 169,055
See accompanying notes to the unaudited condensed consolidated financial statements.
5
Codexis, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In Thousands)
Common Stock Additional
Paid-in
Capital Accumulated Deficit Total Stockholders' Equity
Nine Months Ended September 30, 2022 Shares Amount
Balance as of January 1, 2022
65,109 $ 6 $ 552,083 $ ( 387,698 ) $ 164,391
Exercise of stock options 252 — 612 — 612
Release of stock awards 332 — — — —
Employee stock-based compensation — — 11,467 — 11,467
Non-employee stock-based compensation — — 133 — 133
Taxes paid related to net share settlement of equity awards ( 80 ) — ( 1,484 ) — ( 1,484 )
Net loss — — — ( 20,988 ) ( 20,988 )
Balance as of September 30, 2022
65,613 $ 6 $ 562,811 $ ( 408,686 ) $ 154,131
Common Stock Additional
Paid-in
Capital Accumulated Deficit Total Stockholders' Equity
Nine Months Ended September 30, 2021 Shares Amount
Balance as of January 1, 2021
64,283 $ 6 $ 536,516 $ ( 366,419 ) $ 170,103
Exercise of stock options 423 — 2,700 — 2,700
Release of stock awards 181 — — — —
Employee stock-based compensation — — 8,360 — 8,360
Non-employee stock-based compensation — — 187 — 187
Taxes paid related to net share settlement of equity awards ( 54 ) — ( 1,206 ) — ( 1,206 )
Net loss — — — ( 11,089 ) ( 11,089 )
Balance as of September 30, 2021
64,833 $ 6 $ 546,557 $ ( 377,508 ) $ 169,055
See accompanying notes to the unaudited condensed consolidated financial statements.
6
Codexis, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
Nine Months Ended September 30,
2022 2021
Operating activities:
Net loss $ ( 20,988 ) $ ( 11,089 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation 3,961 2,143
Amortization expense - right-of-use assets - operating and finance leases 3,618 1,980
Stock-based compensation 11,600 8,547
Provision (recovery) for credit losses ( 307 ) —
Equity securities earned from research and development activities from a related party ( 1,245 ) ( 675 )
Unrealized gain on non-marketable securities ( 208 ) ( 1,033 )
Other non-cash items ( 29 ) ( 19 )
Changes in operating assets and liabilities:
Financial assets 8,184 ( 19,633 )
Inventories ( 463 ) ( 120 )
Prepaid expenses and other assets 429 ( 1,195 )
Accounts payable ( 351 ) 575
Accrued compensation and other accrued liabilities 2,279 7,036
Other long-term liabilities ( 3,863 ) ( 2,324 )
Deferred revenue 3,750 880
Net cash provided by (used in) operating activities 6,367 ( 14,927 )
Investing activities:
Purchase of property and equipment ( 8,340 ) ( 8,348 )
Proceeds from sale of property and equipment 29 36
Investment in non-marketable securities ( 5,300 ) ( 7,630 )
Net cash used in investing activities ( 13,611 ) ( 15,942 )
Financing activities:
Proceeds from exercises of stock options 612 2,700
Costs incurred in connection with equity financing ( 42 ) ( 153 )
Taxes paid related to net share settlement of equity awards ( 1,484 ) ( 1,206 )
Net cash provided by (used in) financing activities ( 914 ) 1,341
Net decrease in cash, cash equivalents and restricted cash ( 8,158 ) ( 29,528 )
Cash, cash equivalents and restricted cash at the beginning of the period 118,895 150,817
Cash, cash equivalents and restricted cash at the end of the period $ 110,737 $ 121,289
Supplemental disclosure of cash flow information:
Interest paid $ 22 $ 6
Income taxes paid $ 100 $ 101
Supplemental non-cash investing and financing activities:
Capital expenditures incurred but not yet paid $ 128 $ 2,012
7
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, 2022 and 2021 to the total of the same such amounts shown above in the unaudited condensed consolidated statements of cash flows:
September 30,
2022 2021
Cash and cash equivalents $ 108,689 $ 119,189
Restricted cash, current and non-current 2,048 2,100
Total cash, cash equivalents and restricted cash $ 110,737 $ 121,289
See accompanying notes to the unaudited condensed consolidated financial statements.
8
Codexis Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of Business
In these notes to the unaudited condensed consolidated financial statements, the “Company,” “we,” “us,” and “our” refers to Codexis, Inc. and its subsidiaries on a consolidated basis.
We discover, develop and sell enzymes and other proteins that deliver value to our clients in a growing set of industries to commercialize an increasing number of novel enzymes, both as proprietary Codexis products and in partnership with our customers.
We report our financial results based on two reportable segments: Performance Enzymes and Novel Biotherapeutics. The segment information aligns with how the chief operating decision maker (CODM), who is our Chief Executive Officer (CEO), reviews and manages the business.
Business Update Regarding COVID-19
We are subject to risks and uncertainties as a result of the current COVID-19 pandemic. The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the U.S. 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, the prevalence of more contagious and or virulent variants, 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. However, we are dependent on our manufacturing and logistics partners and consequently, disruptions in operations of our partners and customers may affect our ability to supply enzymes to our customers. Furthermore, our ability to provide future R&D services may continue to be impacted by any disruptions in operations of our customers with whom we collaborate. We believe that these disruptions have had a minimal impact on revenue for the three and nine months ended September 30, 2022. 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. Should these disruptions escalate in the future, they may negatively and materially impact our business, results of operations and financial condition.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial information but does not include all the information and notes required by GAAP for complete financial statements. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2021. The condensed consolidated balance sheet at December 31, 2021 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 nine months ended September 30, 2022 and 2021, are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 2021 Annual Report on Form 10-K and are updated below as necessary. There have been no significant changes in our significant accounting policies or critical accounting estimates since December 31, 2021.
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, 2022, results of our operations for the three and nine months ended September 30, 2022 and 2021, changes in stockholders' equity for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The interim results are not necessarily indicative of the results for any future interim period or for the entire year.
9
The unaudited condensed consolidated financial statements include the accounts of Codexis, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. We regularly assess these estimates which primarily affect revenue recognition, inventories, valuation of equity investments, goodwill arising out of business acquisitions, accrued liabilities, stock awards, and the valuation allowances associated with deferred tax assets. Actual results could differ from those estimates and such differences may be material to the 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, 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.
Accounting Pronouncements
Recently adopted accounting pronouncements
In May 2021, FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force . The standard establishes a principles-based framework in accounting for modifications of freestanding equity-classified written call options on the basis of the economic substance of the underlying transaction. The standard also requires increment al financial statement disclosures. The standard affects entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share. We adopted the standard on January 1, 2022 on a prospective basis. The adoption of this standard had no impact on our Unaudited Condensed Consolidated Financial Statements and related disclosures.
In August 2020, FASB issued ASU No 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) No. 2020-06 August 2020 Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to reduce the complexity and to simplify the accounting for convertible debt instruments and convertible preferred stock, and the derivatives scope exception for contracts in an entity's own equity. In addition, the guidance on calculating diluted earnings per share has been simplified and made more internally consistent. We adopted the standard on January 1, 2022 on a modified retrospective basis. The adoption of this standard had no impact on our Unaudited Condensed Consolidated Financial Statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) : Facilitation of the Effects of Reference Rate Reform on Financial Reporting . The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions in which the reference LIBOR or another reference rate are expected to be discontinued as a result of the Reference Rate Reform. We adopted the standard on January 1, 2022 on a prospective basis. The adoption of this standard had no significant impact on our Unaudited Condensed Consolidated Financial Statements and related disclosures.
Recently issued accounting pronouncements not yet adopted
There have been no other recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended September 30, 2022, that are of significance or potential significance to us.
10
Note 3. Revenue Recognition
Disaggregation of Revenue
The following table provides information about disaggregated revenue from contracts with customers into the nature of the products and services, and geographic regions, and includes a reconciliation of the disaggregated revenue with reportable segments. The geographic regions that are tracked are the Americas (United States, Canada, and Latin America), EMEA (Europe, Middle East, and Africa), and APAC (Australia, New Zealand, Southeast Asia, and China).
Segment information is as follows (in thousands):
Three Months Ended September 30, 2022 Three Months Ended September 30, 2021
Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total
Major products and service:
Product revenue $ 28,042 $ — $ 28,042 $ 28,731 $ — $ 28,731
Research and development revenue 3,104 3,324 6,428 3,853 4,185 8,038
Total revenues $ 31,146 $ 3,324 $ 34,470 $ 32,584 $ 4,185 $ 36,769
Primary geographical markets:
Americas $ 3,654 $ 1,168 $ 4,822 $ 5,999 $ 1,817 $ 7,816
EMEA 3,831 2,156 5,987 2,317 2,368 4,685
APAC 23,661 — 23,661 24,268 — 24,268
Total revenues $ 31,146 $ 3,324 $ 34,470 $ 32,584 $ 4,185 $ 36,769
Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total
Major products and service:
Product revenue $ 93,376 $ — $ 93,376 $ 53,674 $ — $ 53,674
Research and development revenue 7,398 7,441 14,839 14,723 11,856 26,579
Total revenues $ 100,774 $ 7,441 $ 108,215 $ 68,397 $ 11,856 $ 80,253
Primary geographical markets:
Americas $ 8,514 $ 3,653 $ 12,167 $ 12,573 $ 6,015 $ 18,588
EMEA 11,017 3,788 14,805 11,294 5,841 17,135
APAC 81,243 — 81,243 44,530 — 44,530
Total revenues $ 100,774 $ 7,441 $ 108,215 $ 68,397 $ 11,856 $ 80,253
Contract Balances
The following table presents balances of contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands):
September 30, 2022 December 31, 2021
Contract assets $ 5,867 $ 4,557
Unbilled receivables $ 7,490 $ 8,558
Contract costs $ 28 $ 56
Contract liabilities: deferred revenue $ 9,840 $ 6,335
We had no asset impairment charges related to financial assets in the three and nine months ended September 30, 2022 and 2021.
11
The increase in contract assets was primarily due to increases in product revenue from contracts subject to over time revenue recognition. The decrease in unbilled receivables was primari ly due to the timing of billings. T he increase in deferred revenue was primarily due to the receipt of the $ 25.9 million fee from Pfizer in August 2022, pursuant to the terms of the Enzyme Supply Agreement (the “Pfizer Supply Agreement” ) that was executed in July 2022 , which was partially offset by the recognition of $ 19.4 million in contract assets relating to the same performance obligation within the same agreement.
We recognized the following revenues (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
Revenue recognized in the period for: 2022 2021 2022 2021
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied $ 889 $ 658 $ 1,694 $ 1,997
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods 495 1,521 365 5,848
Performance obligations satisfied from new activities in the period - contract revenue 33,086 34,590 106,156 72,408
Total revenues $ 34,470 $ 36,769 $ 108,215 $ 80,253
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 September 30, 2022.
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 as of September 30, 2022 (in thousands):
Remainder of 2022
2023 2024 2025 and Thereafter
Total
Product revenue $ 5 $ 127 $ 5,276 $ 2,962 $ 8,370
Research and development revenue 423 1,047 — — 1,470
Total revenues $ 428 $ 1,174 $ 5,276 $ 2,962 $ 9,840
Note 4. N et Income (Loss) per S hare
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 shares outstanding, less RSAs subject to forfeiture, plus all additional common shares that would have been outstanding, assuming dilutive potential common stock shares had been issued for other dilutive securities.
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 table sets forth the computation of basic and diluted net income (loss) per share during the three and nine months ended September 30, 2022 and 2021 (in thousands, except per share amounts):
12
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Numerator:
Net income (loss) $ ( 9,992 ) $ 2,244 $ ( 20,988 ) $ ( 11,089 )
Denominator:
Weighted average common stock shares used in computing net income (loss) per share, basic 65,426 64,628 65,271 64,452
Effect of dilutive shares — 3,113 — —
Weighted average common stock shares used in computing net income (loss) per share, diluted 65,426 67,741 65,271 64,452
Net income (loss) per share, basic $ ( 0.15 ) $ 0.03 $ ( 0.32 ) $ ( 0.17 )
Net income (loss) per share, diluted $ ( 0.15 ) $ 0.03 $ ( 0.32 ) $ ( 0.17 )
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,
2022 2021 2022 2021
Shares issuable under the Equity Incentive Plan 6,604 451 6,604 5,148
Note 5. Investments in Non-Marketable Securities
Non-Marketable Debt Securities
We classify non-marketable debt securities, which are accounted for as available-for-sale, within Level 3 in the fair value hierarchy because we estimate the fair value based on a qualitative analysis using the most recent observable transaction price and other significant unobservable inputs including volatility, rights, and obligations of the securities we hold.
We determine gains or losses on the sale or extinguishment of non-marketable debt securities using a specific identification method. Unrealized gains and losses from bifurcated embedded derivatives, which represent share-settled redemption features, are recorded as other expense, net, in the unaudited condensed consolidated statements of operations. Unrealized gains and losses on non-marketable debt securities are recorded as a component of other comprehensive loss until realized. Realized gains or losses are recorded as a component of other income, net.
In November 2020, we purchased convertible subordinated notes issued by Arzeda Corp. (“Arzeda”), an early-stage computational protein design company, for $ 1.0 million and the investment was classified as available-for-sale non-marketable interest-bearing debt securities. In July 2021, we converted the non-marketable debt security with a carrying value of $ 1.3 million into 207,070 shares of Series B-2 preferred stock of Arzeda Corp. During the three and nine months ended September 30, 2021, we recognized nil and $ 0.3 million, respectively, in interest income from interest earned on our investment in this debt security.
There were no investments in non-marketable debt securities as of September 30, 2022 and December 31, 2021.
Non-Marketable Equity Securities
In March 2022, we entered into a Stock Purchase Agreement with seqWell, Inc. (“seqWell”), a privately held biotechnology company, pursuant to which we purchased 1,000,000 shares of seqWell's Series C preferred stock for $ 5.0 million.
Our non-marketable equity securities are investments in privately held companies without readily determinable market value. These investments are accounted for under the measurement alternative and are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes for identical or similar securities of the same issuer. Non-marketable equity securities are measured at fair value on a non-recurring basis and classified within Level 2 in the fair value hierarchy because we estimate the fair value of these investments using the observable transaction price paid by third party investors for the same or similar security of the same issuers. We adjust the carrying value of non-marketable equity securities which have been remeasured during the period and recognize resulting gains or losses as a component of other income, net in the unaudited condensed consolidated statements of operations.
13
For the three months ended September 30, 2022, we recognized a $ 0.2 million unrealized gain in other income, net, and included as adjustment to the carrying value of our investment in MAI, for the remeasurement of the additional 1,587,049 shares of Series B preferred stock received as milestone payment during the three months ended September 30, 2022 based on the latest observed transaction price of MAI's preferred stock. See Note 11 “Related Party Transactions” for additional information on our investment in MAI. For the three months ended September 30, 2021, we recognized a $ 0.7 million unrealized gain in other income, net, due to an adjustment to the carrying value of our investment in MAI based on an analysis of observed transaction price from MAI's round of financing during the third quarter of 2021. There wa s no re measurement event for our investments in MAI and in other non-marketable equity securities that occurred during the remainder of 2022 and 2021. We recognized no realized gains or losses during the three and nine months ended September 30, 2022 and 2021.
The following table presents the carrying value of our non-marketable equity securities (in thousands):
September 30, 2022 December 31, 2021
Molecular Assemblies, Inc. (“MAI”)
$ 13,921 $ 12,713
seqWell 5,000 —
Arzeda 1,289 1,289
Other investments in non-marketable equity securities 300 —
Total non-marketable equity securities $ 20,510 $ 14,002
Note 6. Fair Value Measurements
The following tables present the financial instruments that were measured at fair value on a recurring basis within the fair value hierarchy (in thousands):
September 30, 2022
Level 1 Level 2 Level 3 Total
Money market funds $ 83,599 $ — $ — $ 83,599
December 31, 2021
Level 1 Level 2 Level 3 Total
Money market funds $ 86,095 $ — $ — $ 86,095
During the three and nine months ended September 30, 2022 and 2021, we did no t recognize any significant credit losses no r other-than-temporary impairment losses on non-marketable securities.
Note 7. Balance Sheets Details
Cash Equivalents
Cash equivalents as of September 30, 2022 and December 31, 2021, consisted of the following (in thousands):
September 30, 2022 December 31, 2021
Adjusted Cost Estimated Fair Value Adjusted Cost Estimated Fair Value
Money market funds (1)
$ 83,599 $ 83,599 $ 86,095 $ 86,095
(1) Money market funds are classified in cash and cash equivalents on our unaudited consolidated balance sheets. Average contractual maturities (in days) is not applicable.
As of September 30, 2022, the total cash and cash equivalents balance of $ 108.7 million consisted of money market funds of $ 83.6 million and cash of $ 25.1 million held with major financial institutions. As of December 31, 2021, the total cash and cash equivalents balance of $ 116.8 million consisted of money market funds of $ 86.1 million and cash of $ 30.7 million held with major financial institutions.
14
Inventories
Inventories consisted of the following (in thousands):
September 30, 2022 December 31, 2021
Raw materials $ 49 $ 49
Work-in-process 22 65
Finished goods 1,552 1,046
Inventories $ 1,623 $ 1,160
Inventories are recorded net of reserves of $ 1.3 million and $ 1.4 million as of September 30, 2022 and December 31, 2021, respectively.
Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
September 30, 2022 December 31, 2021
Laboratory equipment $ 39,355 $ 33,101
Leasehold improvements 16,617 16,117
Computer equipment and software 3,912 3,481
Office equipment and furniture 1,326 1,297
Construction in progress 1,459 3,231
Property and equipment 62,669 57,227
Less: accumulated depreciation and amortization ( 39,350 ) ( 35,882 )
Property and equipment, net $ 23,319 $ 21,345
Depreciation expense included in both research and development expenses and selling, general and administrative expenses in the unaudited condensed consolidated statements of operations was as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Depreciation expense $ 1,405 $ 768 $ 3,961 $ 2,143
Goodwill
Goodwill had a carrying value of $ 3.2 million as of September 30, 2022 and December 31, 2021.
Other Accrued Liabilities
Other accrued liabilities consisted of the following (in thousands):
September 30, 2022 December 31, 2021
Accrued purchases $ 7,573 $ 6,755
Accrued professional and outside service fees 4,276 5,147
Other 1,143 676
Total $ 12,992 $ 12,578
Note 8. Stock-based Compensation
Equity Incentive Plans
In 2019, our board of directors (the "Board") and stockholders approved the 2019 Incentive Award Plan (the "2019 Plan"). The 2019 Plan superseded and replaced in its entirety our 2010 Equity Incentive Plan (the “2010 Plan”) which was effective in March 2010, and no further awards will be granted under the 2010 Plan; however, the terms and conditions of the 2010 Plan will continue to govern any outstanding awards thereunder.
15
The 2019 Plan provides for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance-contingent restricted stock units ("PSUs"), performance based options ("PBOs"), other stock or cash based awards and dividend equivalents to eligible employees and consultants of the Company or any parent or subsidiary, as well as members of the Board.
The number of shares of our common stock available for issuance under the 2019 Plan is equal to the sum of (i) 7,897,144 shares, and (ii) any shares subject to awards granted under the 2010 Plan that were outstanding as of April 22, 2019 and thereafter terminate, expire, lapse or are forfeited; provided that no more than 14,000,000 shares may be issued upon the exercise of incentive stock options (“ISOs”). In June 2019, 8.1 million shares authorized for issuance under the 2019 Plan were registered under the Securities Act of 1933, as amended (the “Securities Act”).
The 2010 Plan provided for the grant of incentive stock options, non-statutory stock options, RSUs, RSAs, PSUs, PBOs, stock appreciation rights, and stock purchase rights to our employees, non-employee directors and consultants.
Stock Options
The option exercise price for incentive stock options must be at least 100 % of the fair value of our common stock on the date of grant and the option exercise price for non-statutory stock options is at least 85 % of the fair value of our common stock on the date of grant, as determined by the Board. If, at the time of a grant, the optionee directly or by attribution owns stock possessing more than 10 % of the total combined voting power of all of our outstanding capital stock, the exercise price for these options must be at least 110 % of the fair value of the underlying common stock. Stock options granted to employees generally have a maximum term of ten years and vest over four years from the date of grant, of which 25 % vest at the end of one year , and 75 % vest monthly over the remaining three years . We may grant options with different vesting terms from time to time. Unless an employee's termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier.
Restricted Stock Units ("RSUs")
We also grant employees RSUs, which generally vest over either a three year period with 33 % of the shares subject to the RSUs vesting on each yearly anniversary of the vesting commencement date or over a four year period with 25 % of the shares subject to the RSU vesting on each yearly anniversary of the vesting commencement date, in each case contingent upon such employee’s continued service on such vesting date. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. We may grant RSUs with different vesting terms from time to time.
Performance-contingent Restricted Stock Units ("PSUs") and Performance Based Options ("PBOs")
The compensation committee of the Board approved, solely in respect of non-executive employees, delegated to our Chief Executive Officer the authority to approve grants of PSUs. The compensation committee of the Board also approved grants of PBOs and PSUs to our executives. The PSUs and PBOs vest based upon both the successful achievement of certain corporate operating milestones in specified timelines and continued employment through the applicable vesting date. When the performance goals are deemed to be probable of achievement for these types of awards, recognition of stock-based compensation expense commences. Once the number of shares eligible to vest is determined, those shares vest in two equal installments with 50 % vesting upon achievement and the remaining 50 % vesting on the first anniversary of achievement, in each case, subject to the recipient’s continued service through the applicable vesting date. If the performance goals are achieved at the threshold level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to half the number of PSUs granted and one-quarter the number of shares underlying the PBOs granted. If the performance goals are achieved at the target level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to the number of PSUs granted and half of the shares underlying the PBOs granted. If the performance goals are achieved at the superior level, the number of shares eligible to vest in respect of the PSUs would be equal to two times the number of PSUs granted and equal to the number of PBOs granted. The number of shares issuable upon achievement of the performance goals at the levels between the threshold and target levels for the PSUs and PBOs or between the target level and superior levels for the PSUs would be determined using linear interpolation. Achievement below the threshold level would result in no shares being eligible to vest in respect of the PSUs and PBOs.
16
In the first quarter of 2022, we awarded PSUs ("2022 PSUs") and PBOs ("2022 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including total revenues, research and development revenue, product revenue (excluding sales of CDX-616 to Pfizer for its use in the manufacture of a critical intermediate for nirmatrelvir, an active pharmaceutical ingredient (API) in its PAXLOVID™ product), operating expenses excluding cost of product revenue, strategic performance enzyme deliverables, strategic biotherapeutics deliverables, organization and infrastructure upgrades, corporate developments, and significant events that can be publicly announced, subject to the recipient's continued service. As of September 30, 2022, we estimated that the 2022 PSUs and 2022 PBOs performance goals would be achieved at 97 % and 49 % o f the target level, respectively, and recognized stock-based compensation expenses accordingly.
In 2021, we awarded PSUs ("2021 PSUs") and PBOs ("2021 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including total revenues, product revenue, performance enzymes pipeline advancements, biotherapeutics pipeline advancements, organization and infrastructure upgrades, and significant events that can be publicly announced. In the first quarter of 2022, we determined that the 2021 PSUs and 2021 PBOs performance goals had been achieved at 146 % and 73 % of the target level, respectively, and recognized stock-based compensation expenses accordingly. Accordingly, 50 % of the shares underlying the 2021 PSUs and PBOs vested in the first quarter of 2022 and 50 % of the shares underlying the 2021 PSUs and PBOs will vest in the first quarter of 2023, in each case , subject to the recipient’s continued service on each vesting date.
In 2020, we awarded PSUs ("2020 PSUs") and PBOs ("2020 PBOs"), each of which commenced vesting based upon the achievement of various weighted performance goals, including total revenues, performance enzyme segment gross margin, major new biotherapeutics publicity events, strategic performance enzyme and biotherapeutics deliverables, and strategic plan development. In the first quarter of 2021, we determined that the 2020 PSUs and 2020 PBOs performance goals had been achieved at 88 % and 44 % of the target level, respectively, and recognized stock-based compensation expenses accordingly. Accordingly, 50 % of the shares underlying the 2020 PSUs and PBOs vested in the first quarter of 2021 and 50 % of the shares underlying the 2020 PSUs and PBOs vested in the first quarter of 2022, in each case subject to the recipient’s continued service on each vesting date.
Stock-Based Compensation Expense
Stock-based compensation expense is included in the unaudited condensed consolidated statements of operations as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Research and development $ 958 $ 652 $ 2,853 $ 1,726
Selling, general and administrative 3,573 2,364 8,747 6,821
Total $ 4,531 $ 3,016 $ 11,600 $ 8,547
The following table presents total stock-based compensation expense by security type included in the unaudited condensed consolidated statements of operations (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Stock options $ 1,679 $ 693 $ 3,279 $ 2,040
RSUs and RSAs 1,290 742 3,785 1,974
PSUs 965 640 2,279 1,683
PBOs 597 941 2,257 2,850
Total $ 4,531 $ 3,016 $ 11,600 $ 8,547
In connection with the retirement of John Nicols, our former President and Chief Executive Officer, in August 2022, and the Transition and Separation Agreement between Mr. Nicols and the Company effective as of July 26, 2022, certain supplementary modifications were made to Mr. Nicols’ vested and unvested stock option and PBOs awards including voluntary forfeiture of certain unvested stock option and PBOs awards and the extension of the post-termination exercise period of certain vested stock option and PBOs awards. During the three and nine months ended September 30, 2022 , we recorded a one-time, non-cash incremental compensation expense of $ 1.0 million, net of the required reversal of previously recognized stock-based compensation expenses attributed to unvested shares, in selling, general and administrative expenses related to these stock option award modifications.
17
As of September 30, 2022, unrecognized stock-based compensation expense, net of expected forfeitures, was $ 6.7 million related to unvested stock options, $ 7.5 million related to unvested RSUs and RSAs, $ 2.9 million related to unvested PSUs, and $ 1.7 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 2026.
Note 9. Capital Stock
Exercise of Options
For the nine months ended September 30, 2022 and September 30, 2021, we issued 252,100 and 422,964 shares, respectively, upon option exercises at a weighted-average exercise price of $ 2.43 and $ 6.45 per share, respectively, with net cash proceeds of $ 0.6 million and $ 2.7 million, respectively.
Equity Distribution Agreement
We filed a shelf Registration Statement on Form S-3 with the SEC, under which we may sell common stock, preferred stock, debt securities, warrants, purchase contracts, and units from time to time in one or more offerings. The registration statement became effective on May 7, 2021. In May 2021, we entered into an Equity Distribution Agreement (“EDA”) with Piper Sandler & Co (“PSC”), under which PSC, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the execution of the EDA up to a maximum of $ 50.0 million of shares of our common stock. Under the terms of the EDA, PSC may sell the shares at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended.
We are not required to sell any shares at any time during the term of the EDA. The EDA will terminate upon the earlier of: (i) the issuance and sale of all shares through PSC on the terms and conditions of the EDA, or (ii) the termination of the EDA in accordance with its terms. Either party may terminate the EDA at any time upon written notification to the other party in accordance with the EDA, and upon such notification, the offering will terminate. Under no circumstances shall any shares be sold pursuant to the EDA after the date which is three years after the registration statement is first declared effective by the SEC. We agreed to pay PSC a commission of 3 % of the gross sales price of any shares sold pursuant to the EDA. With the exception of certain expenses, we will pay PSC up to 8 % of the gross sales price of the shares sold pursuant to the EDA for a combined amount of commission and reimbursement of PSC's expenses and fees.
During the three and nine months ended September 30, 2022, no shares of our common stock were issued pursuant to the EDA. As of September 30, 2022, $ 50.0 million worth of shares remained available for sale under the EDA.
Note 10. Commitments and Contingencies
Operating Leases
Our headquarters are located in Redwood City, California, where we occupy approximately 77,300 square feet of office and laboratory space in multiple buildings within the same business park of Metropolitan Life Insurance Company ("MetLife"). Our lease agreement with MetLife ("RWC Lease") includes approximately 28,200 square feet of space located at 200 and 220 Penobscot Drive, Redwood City, California (the “200/220 Penobscot Space”) and approximately 37,900 square feet of space located at 400 Penobscot Drive, Redwood City, California (the “400 Penobscot Space”) (the 200/220 Penobscot Space and the 400 Penobscot Space are collectively referred to as the “Penobscot Space”), and approximately 11,200 square feet of space located at 501 Chesapeake Drive, Redwood City, California (the “501 Chesapeake Space”).
We entered into the initial lease with MetLife for our facilities in Redwood City in 2004 and the RWC Lease has been amended multiple times since then to adjust the leased space and terms of the Lease. In February 2019, we entered into an Eighth Amendment to the Lease (the “Eighth Amendment”) with MetLife with respect to the Penobscot Space and the 501 Chesapeake Space to extend the term of the Lease for additional periods. Pursuant to the Eighth Amendment, the term of the lease of the Penobscot Space has been extended through May 2027. The lease term for the 501 Chesapeake Space has been extended to May 2029. We have one (1) option to extend the term of the lease for the Penobscot Space for five ( 5 ) years, and one (1) separate option to extend the term of the lease for the 501 Chesapeake Space for five ( 5 ) years.
Pursuant to the terms of the RWC 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 September 30, 2022 and December 31, 2021, and are recorded as non-current restricted cash on the unaudited condensed consolidated balance sheets.
18
In January 2021, we entered into a lease agreement with ARE-San Francisco No. 63, LLC (“ARE”) to lease a portion of a facility consisted of approximately 36,593 rentable square feet in San Carlos, California to serve as additional office and research and development laboratory space (the “San Carlos Space”). The terms include an initial annualized base rent of $ 2.5 million, subject to scheduled 3 % annual rent increases, an annualized additional allowance payment of $ 0.4 million, plus certain operating expenses. The lease has a 10 -year term from the lease commencement date of November 30, 2021 with one option to extend the term for an additional period of 5 years. We have provided ARE with a $ 0.5 million security deposit in the form of a letter of credit and we commenced occupancy of the San Carlos Space in December 2021. We have the right to sublease the facility, subject to landlord consent.
We are required to restore certain areas of the Redwood City and San Carlos facilities that we are renting to their original form. We are expensing the asset retirement obligation over the terms of the respective leases. We review the estimated obligation each reporting period and make adjustments if our estimates change. We recorded asset retirement obligations of $ 0.5 million an d $ 0.4 million as of September 30, 2022 and December 31, 2021, respectively, which are included in other liabilities on the unaudited condensed consolidated balance sheets. Accretion expense related to our asset retirement obligations was nominal in the three and nine months ended September 30, 2022 and 2021.
Lease and other information
Lease costs, amounts included in measurement of lease obligations and other information related to non-cancellable operating leases and finance leases were as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Finance lease costs $ — $ 26 $ 18 $ 79
Operating lease cost 1,831 1,032 5,491 3,097
Short-term lease costs (1)
— 30 40 40
Total lease cost (2)
$ 1,831 $ 1,088 $ 5,549 $ 3,216
(1) Short-term lease costs on leases with terms of over one month and less than one year.
(2) The Company had no variable lease costs.
Other information: Operating Leases
Weighted-average remaining lease term (in years) 7.3 years
Weighted-average discount rate 5.4 %
Nine Months Ended September 30,
Cash paid: 2022 2021
Operating cash flows from operating leases $ 4,658 $ 3,145
19
As of September 30, 2022, our maturity analysis of annual undiscounted cash flows of the non-cancellable operating leases are as follows (in thousands):
Years ending December 31, Operating Leases
2022 (remaining 3 months) $ 1,847
2023 7,568
2024 7,783
2025 8,004
2026 8,232
2027 and thereafter 20,706
Total minimum lease payments 54,140
Less: imputed interest 9,255
Lease obligations $ 44,885
Reconciliation of operating lease liabilities as shown within the unaudited condensed consolidated balance sheets
Current portion of lease obligations - Operating leases $ 5,230
Long-term lease obligations - Operating leases 39,655
Total operating lease liabilities $ 44,885
Other Commitments
We enter into supply and service arrangements in the normal course of business. Supply arrangements are primarily for fixed-price manufacture and supply. Service agreements are primarily for the development of manufacturing processes and certain studies. Commitments under service agreements are subject to cancellation at our discretion which may require payment of certain cancellation fees. The timing of completion of service arrangements is subject to variability in estimates of the time required to complete the work.
The following table provides quantitative data regarding our other commitments. Future minimum payments reflect amounts that we expect to pay including potential obligations under services agreements subject to risk of cancellation by us (in thousands):
Payments Due by Period
Total 2022 (Remaining 3 Months) 2023 2024 2025 and Thereafter
Development and manufacturing services agreements $ 2,866 $ 1,770 $ 991 $ 105 $ —
Facility maintenance agreement 1,608 — 1,608 — —
Total other commitments $ 4,474 $ 1,770 $ 2,599 $ 105 $ —
Credit Facility
In June 30, 2017, we entered into a credit facility (the “Credit Facility”) with Western Alliance Bank 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. The right to take draws on the Term Debt expired on December 31, 2021. On October 1, 2024, loans drawn, if any, under the Revolving Line of Credit terminate. Advances made under the Revolving Line of Credit bear interest at a variable annual rate equal to the greater of (i) 4.25 % or (ii) the sum of (A) the prime rate plus (B) 1.00 %. As of September 30, 2022 and December 31, 2021, we have not drawn from the Credit Facility.
20
Our obligations under the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property. The Credit Facility includes a number of customary covenants and restrictive financial covenants including meeting minimum product revenue levels and maintaining certain minimum cash levels with the lender. The Credit Facility's financial covenants restrict the ability of the Company to transfer collateral, incur additional indebtedness, engage in mergers or acquisitions, pay dividends or make other distributions, make investments, create liens, sell assets, or sell certain assets held at foreign subsidiaries. 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. As of September 30, 2022 and December 31, 2021, we were in compliance with the covenants for the Credit Facility.
Legal Proceedings
We may be involved in legal actions in the ordinary course of business, including inquiries and proceedings concerning business practices and intellectual property infringement, employee relations and other claims. We will recognize a loss contingency in the condensed consolidated financial statements when it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. We will disclose any loss contingencies that do not meet both conditions if there is a reasonable possibility that a material loss may have been incurred. Gain contingencies are not recorded until they are realized.
In April 2022, we reached a settlement resolving a non-material dispute involving the Company's trademark. The terms of the settlement are not material to the business or the results of operations of the Company. We are currently not a party to any material pending litigation of other material proceedings.
Indemnifications
We are required to recognize a liability for the fair value of any obligations we assume upon the issuance of a guarantee. We have certain agreements with licensors, licensees and collaborators that contain indemnification provisions. In such provisions, we typically agree to indemnify the licensor, licensee and collaborator against certain types of third party claims. The maximum amount of the indemnifications is not limited. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. There were no accruals for expenses related to indemnification issues for any periods presented.
Note 11. Related Party Transactions
Molecular Assemblies, Inc.
In June 2020, we entered into a Stock Purchase Agreement with 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, Mr. Nicols, our former President and Chief Executive Officer, also joined MAI’s board of directors. Concurrently with our initial equity investment, we entered into a Master Collaboration and Research Agreement with MAI (the “MAI Agreement”), pursuant to which we are leveraging our CodeEvolver ® protein engineering platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis. Under the MAI Agreement, we are performing services utilizing our CodeEvolver ® protein engineering platform technology to improve DNA polymerase enzymes in exchange for compensation in the form of additional shares of MAI's Series A and B preferred stock which are valued based on the observed transaction price of similar securities of MAI issued to third parties . We completed the R&D service with MAI pursuant to the MAI Agreement during the first quarter of 2022. In December 2021, we received the primary milestone payment pursuant to the MAI Agreement of $ 1.0 million in the form of an additional 1,587,049 shares of Series B preferred stock. Upon execution of the Commercial License and Enzyme Supply Agreement with MAI (“MAI Supply Agreement”) in July 2022, we received the commercialization and enzyme supply agreement milestone payment pursuant to the MAI Agreement of $ 1.0 million in the form of an additional 1,587,049 shares of Series B preferred stock. In addition to our initial equity investment and the shares we have received under the MAI Agreement, in April 2021, we purchased an additional 1,000,000 shares of MAI's Series A preferred stock for $ 0.6 million and in September 2021, we purchased 9,198,423 shares of MAI's Series B preferred stock for $ 7.0 million.
21
We recognized $ 1.0 million and $ 1.2 million in research and development revenue from transactions with MAI in the three and nine months ended September 30, 2022, respectively, and we recognized $ 0.2 million and $ 0.7 million in research and development service transactions with MAI in the three and nine months ended September 30, 2021, respectively. Payment for the R&D services rendered under the MAI Agreement was received in the form of additional shares of MAI's Series A and Series B preferred stock. We received an aggregate of 1,587,049 shares of MAI's Series A and B preferred stock in the three and nine months ended September 30, 2022 and we received an aggregate of 476,114 and an aggregate of 1,904,456 shares of MAI's Series A and B preferred stock in the three and nine months ended September 30, 2021, respectively. As of September 30, 2022 we hold an aggregate of 18,292,369 shares of MAI's Series A and B preferred stock that we have earned or purchased since executing the Stock Purchase Agreement with MAI.
In April 2022, we received a purchase order from MAI for the delivery of certain enzyme products to MAI in 2022. In July 2022, we and MAI executed the MAI Supply Agreement that will enable MAI to utilize an evolved terminal deoxynucleotidyl transferase (TdT) enzyme in MAI’s Fully Enzymatic Synthesis™ (or FES™) technology. We recognized $ 0.2 million and $ 0.4 million in product revenue in the three and nine months ended September 30, 2022, respectively.
The carrying value of our investment in MAI Series A and B preferred stock was $ 13.9 million and $ 12.7 million as of September 30, 2022 and December 31, 2021, respectively (s ee Note 6 “Fair Value Measurements”) . We had nil and $ 0.2 million in deferred revenue from MAI as of September 30, 2022 and December 31, 2021 respectively.
Note 12. Segment, Geographical and Other Revenue Information
Segment Information
We manage our business as two business segments: Performance Enzymes and Novel Biotherapeutics. Our chief operating decision maker ("CODM") is our Chief Executive Officer. Our business segments are primarily based on our organizational structure and our operating results as used by our CODM in assessing performance and allocating resources for the Company.
We report corporate-related expenses such as legal, accounting, information technology, and other costs that are not otherwise included in our reportable business segments as "corporate costs." All items not included in income (loss) from operations are excluded from the business segments.
We manage our assets on a total company basis, not by business segment, as the majority of our operating assets are shared or commingled. Our CODM does not review asset information by business segment in assessing performance or allocating resources, and accordingly, we do not report asset information by business segment. All of our long lived assets are located in the United States.
Factors considered in determining the two reportable segments of the Company include the nature of business activities, the management structure directly accountable to our CODM for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors. Our CODM regularly reviews our segments and the approach provided by management for performance evaluation and resource allocation.
Operating expenses that directly support the segment activity are allocated based on segment headcount, revenue contribution or activity of the business units within the segments, based on the corporate activity type provided to the segment. The expense allocation excludes certain corporate costs that are separately managed from the segments. This provides the CODM with more meaningful segment profitability reporting to support operating decisions and allocate resources.
The following table provides financial information by our reportable business segments along with a reconciliation to consolidated income (loss) before income taxes (in thousands):
22
Three Months Ended September 30, 2022 Three Months Ended September 30, 2021
Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total
Revenues:
Product revenue $ 28,042 $ — $ 28,042 $ 28,731 $ — $ 28,731
Research and development revenue 3,104 3,324 6,428 3,853 4,185 8,038
Total revenues 31,146 3,324 34,470 32,584 4,185 36,769
Costs and operating expenses:
Cost of product revenue 9,786 — 9,786 6,867 — 6,867
Research and development (1)
6,782 13,855 20,637 5,670 8,850 14,520
Selling, general and administrative (1)
3,791 888 4,679 3,306 831 4,137
Total segment costs and operating expenses 20,359 14,743 35,102 15,843 9,681 25,524
Income (loss) from operations $ 10,787 $ ( 11,419 ) ( 632 ) $ 16,741 $ ( 5,496 ) 11,245
Corporate costs (2)
( 7,947 ) ( 8,097 )
Unallocated depreciation and amortization ( 1,405 ) ( 794 )
Income (loss) before income taxes $ ( 9,984 ) $ 2,354
Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total
Revenues:
Product revenue $ 93,376 $ — $ 93,376 $ 53,674 $ — $ 53,674
Research and development revenue 7,398 7,441 14,839 14,723 11,856 26,579
Total revenues 100,774 7,441 108,215 68,397 11,856 80,253
Costs and operating expenses:
Cost of product revenue 29,577 — 29,577 15,403 — 15,403
Research and development (1)
19,833 37,279 57,112 17,172 20,649 37,821
Selling, general and administrative (1)
11,208 2,288 13,496 9,294 2,052 11,346
Total segment costs and operating expenses 60,618 39,567 100,185 41,869 22,701 64,570
Income (loss) from operations $ 40,156 $ ( 32,126 ) 8,030 $ 26,528 $ ( 10,845 ) 15,683
Corporate costs (2)
( 24,940 ) ( 24,431 )
Unallocated depreciation and amortization ( 3,953 ) ( 2,220 )
Loss before income taxes $ ( 20,863 ) $ ( 10,968 )
(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 expenses, interest income, and other income, net.
The following table provides stock-based compensation expense in cluded in income (loss) from operations (in thousands):
Three Months Ended September 30,
2022 2021
Performance Enzymes Novel Biotherapeutics Corporate cost Total Performance Enzymes Novel Biotherapeutics Corporate cost Total
Stock-based compensation $ 1,382 $ 414 $ 2,735 $ 4,531 $ 1,228 $ 272 $ 1,516 $ 3,016
23
Nine Months Ended September 30,
2022 2021
Performance Enzymes Novel Biotherapeutics Corporate cost Total Performance Enzymes Novel Biotherapeutics Corporate cost Total
Stock-based compensation $ 4,151 $ 1,182 $ 6,267 $ 11,600 $ 3,337 $ 767 $ 4,443 $ 8,547
Significant Customers
Customers that each accounted for 10% or more of our total revenues were as follows:
Percentage of Total Revenues for the
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Customer A 39 % 51 % 54 % 29 %
Customer B * * * 12 %
Customer C 13 % * * 10 %
* Percentage was less than 10%
Customers that each accounted for 10% or more of accounts receivable balances as of the periods presented as follows:
Percentage of Accounts Receivables as of
September 30, 2022 December 31, 2021
Customer A 21 % 62 %
Customer B 16 % *
Customer D 14 % *
Geographical Information
Geographic revenues are identified by the location of the customer and consist of the following (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Revenues
Americas $ 4,822 $ 7,816 $ 12,167 $ 18,588
EMEA 5,987 4,685 14,805 17,135
APAC 23,661 24,268 81,243 44,530
Total revenues $ 34,470 $ 36,769 $ 108,215 $ 80,253
Identifiable long-lived assets by location was as follows (in thousands):
September 30, 2022 December 31, 2021
United States $ 63,812 $ 65,457
Identifiable goodwill by reporting unit was as follows (in thousands):
As of September 30, 2022 and December 31, 2021
Performance Enzymes Novel Biotherapeutics Total
Goodwill $ 2,463 $ 778 $ 3,241
24
Note 13. Allowance for Credit Losses
The following table summarizes the financial assets allowance for credit losses (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Balance at beginning of period $ 109 $ 74 $ 416 $ 74
Provision for credit losses — — — —
Write-offs — — ( 257 ) —
Adjustment to the existing allowance — — ( 50 ) —
Balance at end of period $ 109 $ 74 $ 109 $ 74
The following tables summarize accounts receivable by aging category (in thousands):
September 30, 2022
Current 31-60 Days 61-90 Days 91 Days and over Total over 31 Days Total balance
Accounts receivable $ 13,044 $ 1,941 $ 345 $ 1,197 $ 3,483 $ 16,527
December 31, 2021
Current 31-60 Days 61-90 Days 91 Days and over Total over 31 Days Total balance
Accounts receivable $ 22,697 $ 536 $ 569 $ 1,151 $ 2,256 $ 24,953
25