CODEXIS, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Codexis, Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm ( BDO USA, LLP ; San Jose, CA ; PCAOB ID: 243 ) 80 Consolidated Balance Sheets 83 Consolidated Statements of Operations 84 Consolidated Statements of Stockholders' Equity 85 Consolidated Statements of Cash Flows 86 Notes to Consolidated Financial Statements 87 79 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Codexis, Inc. Redwood City, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Codexis, Inc. (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dat ed February 27, 2023 expressed an unqualified opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition As described in Notes 2 and 3 to the consolidated financial statements, the Company recognizes revenue in a manner that best depicts the transfer of promised goods or services to the customer when control of the product or service is transferred to a customer. The Company's contracts with customers include enzyme supply, licensing, and collaborative research and development agreements. Contracts with customers may contain multiple performance obligations, options, up-front or annual license fees, fees for full time employee research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage. The Company makes significant judgments in determining revenue recognition for certain customer contracts. We identified management’s significant judgments and estimates related to revenue recognition for contracts with customers as a critical audit matter. Auditing the evaluation of distinct performance obligations, allocation of transaction price to distinct performance obligations, determination and estimation of material rights, determination of the pattern of transfer of control for each distinct performance obligation and estimation of variable consideration required significant audit effort and subjective judgments in evaluating management's estimates. 80 The primary procedures we performed to address this critical audit matter included: • Testing the design and operating effectiveness of internal controls relating to the identification of distinct performance obligations and material rights, the determination of the timing of revenue recognition, allocation of transaction price to distinct performance obligations, and the estimation of variable consideration. • Examining a sample of revenue contracts and other source documents to test management's identification of significant terms for completeness, including the identification of distinct performance obligations, material rights and variable consideration including sending confirmations to a sample of customers to confirm our understanding of the parties’ rights and obligations. • Evaluating the reasonableness and accuracy of management’s judgments and estimates used in accounting for identified material rights. • Assessing the reasonableness of management’s judgments and estimates to calculate variable consideration, and the timing of recognizing the related revenue subject to any constraints. • Evaluating the appropriateness of management’s allocation of the transaction price to the distinct performance obligation and determination of whether identified performance obligations meet the criteria for over-time revenue recognition. /s/ BDO USA, LLP We have served as the Company's auditor since 2013. San Jose, California February 27, 2023 81 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Codexis, Inc. Redwood City, California Opinion on Internal Control over Financial Reporting We have audited Codexis, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria . We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 27, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Controls and Procedures”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, LLP San Jose, California February 27, 2023 82 Codexis, Inc. Consolidated Balance Sheets (In Thousands, Except Per Share Amounts) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 113,984 $ 116,797 Restricted cash, current 521 579 Financial assets: Accounts receivable 31,904 24,953 Contract assets 2,116 4,557 Unbilled receivables 7,016 8,558 Total financial assets 41,036 38,068 Less: allowances ( 163 ) ( 416 ) Total financial assets, net 40,873 37,652 Inventories 2,029 1,160 Prepaid expenses and other current assets 5,487 5,700 Total current assets 162,894 161,888 Restricted cash 1,521 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 39,263 44,095 Right-of-use assets - Finance leases, net — 17 Property and equipment, net 22,614 21,345 Goodwill 3,241 3,241 Other non-current assets 350 276 Total assets $ 250,393 $ 246,383 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 3,246 $ 2,995 Accrued compensation 11,453 11,119 Other accrued liabilities 15,279 12,578 Current portion of lease obligations - Operating leases 5,360 4,093 Deferred revenue ($ 0 and $ 245 to a related party) 13,728 2,586 Total current liabilities 49,066 33,371 Deferred revenue, net of current portion 16,881 3,749 Long-term lease obligations - Operating leases 38,278 43,561 Other long-term liabilities 1,371 1,311 Total liabilities 105,596 81,992 Commitments and contingencies (Note 13) 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; 65,811 and 65,109 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively 6 6 Additional paid-in capital 566,081 552,083 Accumulated deficit ( 421,290 ) ( 387,698 ) Total stockholders’ equity 144,797 164,391 Total liabilities and stockholders’ equity $ 250,393 $ 246,383 See accompanying notes to consolidated financial statements 83 Codexis, Inc. Consolidated Statements of Operations (In Thousands, Except Per Share Amounts) Year Ended December 31, 2022 2021 2020 Revenues: Product revenue ($ 514 , $ 0 and $ 0 from a related party) $ 116,676 $ 70,657 $ 30,220 Research and development revenue ($ 1,245 , $ 1,955 and $ 900 from a related party) 21,914 34,097 38,836 Total revenues 138,590 104,754 69,056 Costs and operating expenses: Cost of product revenue 38,033 22,209 13,742 Research and development 80,099 55,919 44,185 Selling, general and administrative 52,172 49,323 35,049 Restructuring charges 3,167 — — Total costs and operating expenses 173,471 127,451 92,976 Loss from operations ( 34,881 ) ( 22,697 ) ( 23,920 ) Interest income 1,441 459 405 Other income (expense), net ($ 208 , $ 983 and $ 0 from a related party) 124 1,148 ( 156 ) Loss before income taxes ( 33,316 ) ( 21,090 ) ( 23,671 ) Provision for income taxes 276 189 339 Net loss $ ( 33,592 ) $ ( 21,279 ) $ ( 24,010 ) Net loss per share, basic and diluted $ ( 0.51 ) $ ( 0.33 ) $ ( 0.40 ) Weighted average common stock shares used in computing net loss per share, basic and diluted 65,344 64,568 59,360 See accompanying notes to consolidated financial statements 84 Codexis, Inc. Consolidated Statements of Stockholders’ Equity (In Thousands) Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount December 31, 2019 58,877 $ 6 $ 447,920 $ ( 342,409 ) $ 105,517 Exercise of stock options 210 — 1,323 — 1,323 Release of stock awards 370 — — — — Employee stock-based compensation — — 7,622 — 7,622 Non-employee stock-based compensation — — 106 — 106 Taxes paid related to net share settlement of equity awards ( 103 ) — ( 1,257 ) — ( 1,257 ) Issuance of common stock, net of issuance costs of $ 5,448 4,929 — 80,802 — 80,802 Net loss — — — ( 24,010 ) ( 24,010 ) December 31, 2020 64,283 6 536,516 ( 366,419 ) 170,103 Exercise of stock options 699 — 5,180 — 5,180 Release of stock awards 181 — — — — Employee stock-based compensation — — 11,346 — 11,346 Non-employee stock-based compensation — — 247 — 247 Taxes paid related to net share settlement of equity awards ( 54 ) — ( 1,206 ) — ( 1,206 ) Net loss — — — ( 21,279 ) ( 21,279 ) December 31, 2021 65,109 6 552,083 ( 387,698 ) 164,391 Exercise of stock options 410 — 955 — 955 Release of stock awards 373 — — — — Employee stock-based compensation — — 14,398 — 14,398 Non-employee stock-based compensation — — 133 — 133 Taxes paid related to net share settlement of equity awards ( 81 ) — ( 1,488 ) — ( 1,488 ) Net loss — — — ( 33,592 ) ( 33,592 ) December 31, 2022 65,811 $ 6 $ 566,081 $ ( 421,290 ) $ 144,797 See accompanying notes to consolidated financial statements 85 Codexis, Inc. Consolidated Statements of Cash Flows (In Thousands) Year Ended December 31, 2022 2021 2020 Operating activities: Net loss $ ( 33,592 ) $ ( 21,279 ) $ ( 24,010 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 5,402 3,113 1,950 Amortization expense - right-of-use assets - operating and finance leases 4,849 2,834 2,604 Stock-based compensation 14,531 11,593 7,728 Provision for credit losses 4 342 40 Equity securities earned from research and development activities from a related party ( 1,245 ) ( 1,955 ) ( 900 ) Unrealized gain on non-marketable securities (($ 208 ) and ($ 983 ) from a related party) ( 208 ) ( 1,272 ) — Other non-cash items ( 29 ) ( 19 ) 15 Changes in operating assets and liabilities: Financial assets ($ 0 , $ 0 and ($ 450 ) from a related party) ( 3,225 ) ( 9,156 ) ( 8,723 ) Inventories ( 869 ) ( 196 ) ( 593 ) Prepaid expenses and other assets 181 ( 2,268 ) ( 1,012 ) Accounts payable 207 268 101 Accrued compensation and other accrued liabilities 5,983 6,575 6,175 Other long-term liabilities ( 5,223 ) ( 4,147 ) ( 2,586 ) Deferred revenue ($ 0 , $ 245 , $ 0 to a related party) 24,518 1,300 2,747 Net cash provided by (used in) operating activities 11,284 ( 14,267 ) ( 16,464 ) Investing activities: Purchase of property and equipment ( 8,307 ) ( 13,828 ) ( 3,748 ) Proceeds from sale of property and equipment 29 36 — Investment in non-marketable securities ($ 0 , ($ 7,630 ) and ($ 1,000 ) in a related party) ( 5,300 ) ( 7,630 ) ( 2,000 ) Net cash used in investing activities ( 13,578 ) ( 21,422 ) ( 5,748 ) Financing activities: Proceeds from exercises of stock options 955 5,180 1,323 Proceeds from issuance of common stock in connection with public offering — — 86,250 Costs incurred in connection with equity financing ( 42 ) ( 207 ) ( 5,448 ) Payments of lease obligations - Finance leases — — ( 60 ) Taxes paid related to net share settlement of equity awards ( 1,488 ) ( 1,206 ) ( 1,257 ) Net cash provided by (used in) financing activities ( 575 ) 3,767 80,808 Net increase (decrease) in cash, cash equivalents and restricted cash ( 2,869 ) ( 31,922 ) 58,596 Cash, cash equivalents and restricted cash at the beginning of the year 118,895 150,817 92,221 Cash, cash equivalents and restricted cash at the end of the year $ 116,026 $ 118,895 $ 150,817 Supplemental disclosure of cash flow information: Interest paid $ 34 $ 14 $ 52 Income taxes $ 100 $ 102 $ 312 Supplemental non-cash investing and financing activities: Capital expenditures incurred but not yet paid $ 897 $ 2,533 $ 1,750 The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown above (in thousands): Year Ended December 31, 2022 2021 2020 Cash and cash equivalents $ 113,984 $ 116,797 $ 149,117 Restricted cash, current and non-current 2,042 2,098 1,700 Total cash, cash equivalents and restricted cash at the end of the period $ 116,026 $ 118,895 $ 150,817 See accompanying notes to consolidated financial statements 86 Codexis, Inc. Notes to Consolidated Financial Statements Note 1. Description of Business In these notes to the 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 In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The spread of COVID-19 has affected segments of the global economy and may affect our operations, including the potential interruption of our supply chain. We are monitoring this situation closely, and although operations have not been materially affected by the COVID-19 outbreak to date, the ultimate duration and severity of the outbreak and its impact on the economic environment and our business is uncertain. As a result of the COVID-19 pandemic, we have received purchase orders from Pfizer Inc. (“Pfizer”) for large quantities of our proprietary enzyme product, CDX-616, for use by Pfizer in the manufacture of a critical intermediate for its proprietary API, nirmatrelvir, used by Pfizer in combination with the API ritonavir, as its PAXLOVID™ (nirmatrelvir tablets; ritonavir tablets) product for the treatment of COVID-19 infections in humans. In July 2022, we entered into an Enzyme Supply Agreement with Pfizer Ireland Pharmaceuticals, a subsidiary of Pfizer, Inc. (the “Pfizer Supply Agreement”), covering the manufacture, sale and purchase of CDX-616 for use by Pfizer in the manufacture of nirmatrelvir. Under the terms of the Pfizer Supply Agreement, Pfizer paid us a fee of $ 25.9 million in August 2022 which is creditable against future orders of CDX-616 used to manufacture PAXLOVID™ . Revenues in 2023 and in future years from our sales of CDX-616 to Pfizer and other potential customers (including sublicensees of Pfizer technology from The Medicine Patent Pool) are subject to a number of factors which are outside of our control and could reduce or eliminate our sales of CDX-616. The near-and-long term impact of COVID-19 to our financial condition, liquidity, or results of operations remains uncertain. Although some of the government orders that were enacted to control the spread of COVID-19 have been scaled back and the vaccine rollout has expanded, surges in the spread of COVID-19 due to the emergence of new more contagious or virulent variants or the ineffectiveness of the vaccines against such strains, may result in the reimplementation of certain government orders, which could adversely impact our business. The extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations in the future is uncertain. Note 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying 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") and include the accounts of Codexis, Inc. and its wholly-owned subsidiaries. The consolidated financial statements include the accounts of Codexis, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. 87 Use of Estimates The preparation of our 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. Segment Reporting We report two business segments, Performance Enzymes and Novel Biotherapeutics, which are based on our operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regula rly by the CODM, in deciding how to allocate resources, and in assessing performance. O ur 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 do not allocate or evaluate assets by segment. The Novel Biotherapeutics segment focuses on new opportunities in the pharmaceutical industry to discover or improve novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions. Similarly, we believe that we can deploy our platform technology to improve specific characteristics of a customer’s pre-existing biotherapeutic drug candidate, such as its activity, stability, or immunogenicity. The Performance Enzymes segment consists of biocatalyst products and services with focus on pharmaceutical, molecular diagnostics, and other industrial markets. Foreign Currency Translation The USD is the functional currency for our operations outside the United States. Accordingly, non-monetary assets and liabilities originally acquired or assumed in other currencies are recorded in USD at the exchange rates in effect at the date they were acquired or assumed. Monetary assets and liabilities denominated in other currencies are translated into United States dollars at the exchange rates in effect at the balance sheet date. Translation adjustments are recorded in other expense in the consolidated statements of operations. Gains and losses realized from non-USD transactions, including intercompany balances not considered as permanent investments, are included in other expense in the accompanying consolidated statements of operations. Revenue Recognition Our revenues are derived primarily from product revenue and collaborative research and development agreements. The majority of our contracts with customers typically contain multiple products and services. We account for individual products and services separately if they are distinct-that is, if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our product revenue and collaborative research and development agreements, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each performance obligation. The majority of our collaborative contracts contain multiple revenue streams such as upfront and/or annual license fees, fees for research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage, among others. We determine the stand-alone selling price (“SSP”) and allocate consideration to distinct performance obligations. Typically, we base our SSPs on our historical sales. If an SSP is not directly observable, then we estimate the SSP taking into consideration market conditions, forecasted sales, entity-specific factors and available information about the customer. We estimate the SSP for license rights by using historical information if licenses have been previously sold to customers and for new licenses, we consider multiple methods, including a discounted cash flow method which includes the following key assumptions: the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success. 88 We account for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Non-cancellable purchase orders received from customers to deliver a specific quantity of product, when combined with our order confirmation, in exchange for future consideration, create enforceable rights and obligations on both parties and constitute a contract with a customer. We measure revenue based on the consideration specified in the contract with each customer, net of any sales incentives and taxes collected on behalf of government authorities. We recognize revenue in a manner that best depicts the transfer of promised goods or services to the customer, when control of the product or service is transferred to a customer. We make significant judgments when determining the appropriate timing of revenue recognition. The following is a description of principal activities from which we generate revenue: Product Revenue Product revenue consist of sales of biocatalysts, pharmaceutical intermediates and Codex ® biocatalyst panels and kits. A majority of our product revenue is made pursuant to purchase orders or supply agreements and is recognized either at a point in time when the control of the product has been transferred to the customer typically upon shipment or over time as the product is manufactured because we have a right to payment from the customer under a binding, non-cancellable purchase order, and there is no alternate use of the product for us as it is specifically made for the customer’s use. Certain of our agreements provide options to customers which they can exercise at a future date, such as the option to purchase our product during the contract duration at discounted prices and an option to extend their contract, among others. In accounting for customer options, we determine whether an option is a material right and this requires us to exercise significant judgment. If a contract provides the customer an option to acquire additional goods or services at a discount that exceeds the range of discounts that we typically give for that product or service for the same class of customer, or if the option provides the customer certain additional goods or services for free, the option may be considered a material right. If the contract gives the customer the option to acquire additional goods or services at their normal SSPs, we would likely determine that the option is not a material right and, therefore, account for it as a separate performance obligation when the customer exercises the option. We primarily account for options which provide material rights using the alternative approach available pursuant to the applicable accounting guidance, as we concluded we meet the criteria for using the alternative approach. Therefore, the transaction price is calculated as the expected consideration to be received for all the goods and services we expect to provide under the contract. We update the transaction price for expected consideration, subject to constraint, each reporting period if our estimates of future goods to be ordered by customers change. Research and Development Revenue We perform research and development activities as specified in each respective customer agreement. We identify each performance obligation in our research and development agreements at contract inception. We allocate the consideration to each distinct performance obligation based on the SSP of each performance obligation. Performance obligations included in our research and services agreements typically include research and development services for a specified term, periodic reports and small samples of enzyme produced. The majority of our research and development agreements are based on a contractual rate per dedicated project team working on the project. The underlying product that we develop for customers does not create an asset with an alternative use to us and the customer receives benefits as we perform the work towards completion. Thus, our performance obligations are generally satisfied over time as the service is performed. We utilize an appropriate method of measuring progress towards the completion of our performance obligations to determine the timing of revenue rec ognition. For each performance obligation that is satisfied over time, we recognize revenue using a single measure of progress either based on hours incurred or based on stage of progress under the project. Our contracts frequently provide customers with rights to use or access our products or technology, along with other promises or performance obligations. We must first determine whether the license is distinct from other promises, such as our promise to manufacture a product. If we determine that the customer cannot benefit from the license without our manufacturing capability, the license will be accounted for as combined with the other performance obligations. If we determine that a license is distinct and has significant standalone functionality, we recognize revenues from a functional license at a point in time when the license is transferred to the customer, and the customer can use and benefit from it. We estimate the SSP for license rights by using historical information if licenses have been previously sold to customers and for new licenses, we consider multiple methods, including a discounted cash flow method which includes the following key assumptions: the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success. For licenses that have been previously sold to other customers, we use historical information to determine SSP. 89 At the inception of each arrangement that includes variable consideration such as development milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. Our CodeEvolver ® platform technology transfer collaboration agreements typically include license fees, upfront fees, and variable consideration in the form of milestone payments, and sales or usage-based royalties. We have recognized revenues from our platform technology transfer agreements over time as our customer uses our technology. For license agreements that include sales or usage-based royalty payments to us, we do not recognize revenue until the underlying sales of the product or usage has occurred. At the end of each reporting period, we estimate the royalty amount. We recognize revenue at the later of (i) when the related sale of the product occurs, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied. Practical Expedients, Elections, and Exemptions We apply certain practical expedients available which permit us not to adjust the amount of consideration for the effects of a significant financing component if, at contract inception, the expected period between the transfer of promised goods or services and customer payment is one year or less. We perform monthly services under our research and development agreements, and we use a practical expedient permitting us to recognize revenue at the same time that we have the right to invoice our customer for monthly services completed to date. We have elected to treat shipping and handling activities as fulfillment costs. We have elected to record revenue net of sales and other similar taxes. Contract Assets Contract assets include amounts related to our contractual right to consideration for completed performance obligations not yet invoiced. Contract assets are reclassified to receivables when the rights become unconditional. Contract Liabilities Contract liabilities are recorded as deferred revenues and include payments received in advance of performance under the contract. Contract liabilities are realized when the development services are provided to the customer or control of the products has been transferred to the customer. A portion of our contract liabilities relate to supply arrangements that contain material rights that are recognized using the alternative method, under which the aggregate amount invoiced to the customer for shipped products, including contractual fees, is higher than the amount of revenue recognized based on the transaction price allocated to the shipped products. Contract Costs We recognize a non-current asset for the incremental costs of obtaining a contract with a customer if the entity expects to recover such costs and if those costs would not have been incurred if the contract had not been obtained, such as commissions paid to sales personnel. We do not typically incur significant incremental costs because the compensation of our salespeople is not based on contracts closed but on a mixture of company goals, individual goals, and sales goals. If a commission paid is directly related to obtaining a specific contract, our policy is to capitalize and amortize such costs on a systematic basis, consistent with the pattern of transfer of the good or service to which the asset relates, and over a period beyond 12 months. Contract costs are reported in other non-current assets and were not significant in any of the periods presented. 90 Cost of Product Revenue Cost of product revenue comprises both internal and third party fixed and variable costs including materials and supplies, labor, facilities, and other overhead costs associated with our product sales. Shipping costs are included in our cost of product revenue. Shipping costs were $ 3.0 million, $ 1.8 million, and $ 0.1 million for the years ended December 31, 2022, 2021, and 2020, respectively. Fulfillment costs, such as shipping and handling, are recognized at a point in time and are included in cost of product revenue. Cost of Research and Development Services Cost of research and development services related to services under research and development agreements approximate the research funding over the term of the respective agreements and is included in research and development expense. Costs of services provided under license and platform technology transfer agreements are included in research and development expenses and are expensed in the periods in which such costs are incurred. Research and Development Expenses Research and development expenses consist of costs incurred for internal projects and partner-funded collaborative research and development activities, as well as license and platform technology transfer agreements, as mentioned above. These costs include our direct and research-related overhead expenses, which include salaries and other personnel-related expenses (including stock-based compensation), occupancy-related costs, supplies, and depreciation of facilities and laboratory equipment, as well as external costs, and are expensed as incurred. Costs to acquire technologies that are utilized in research and development and that have no alternative future use are expensed when incurred. Advertising Advertising costs are expensed as incurred and included in selling, general and administrative expenses in the consolidated statements of operations. Advertising costs were $ 0.3 million for each of the years ended December 31, 2022, 2021 and 2020. Stock-Based Compensation We use the Black-Scholes-Merton option pricing model to estimate the fair value of options granted under our equity incentive plans. The Black-Scholes-Merton option pricing model requires the use of assumptions, including the expected term of the award and the expected stock price volatility. The expected term is based on historical exercise behavior for similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. We use historical volatility to estimate expected stock price volatility. The risk-free rate assumption is based on United States Treasury instruments whose terms are consistent with the expected term of the stock options. The expected dividend assumption is based on our history and expectation of dividend payouts. Restricted Stock Units ("RSUs"), Restricted Stock Awards ("RSAs”) and performance-contingent restricted stock units ("PSUs”) are measured based on the fair market values of the underlying stock on the dates of grant. Performance based options ("PBOs") are measured using the Black-Scholes-Merton option pricing model. The vesting of PBOs and PSUs awarded is conditioned upon the attainment of one or more performance objectives over a specified period and upon continued employment through the applicable vesting date. At the end of the performance period, shares of stock subject to the PBOs and PSUs vest based upon both the level of achievement of performance objectives within the performance period and continued employment through the applicable vesting date. Stock-based compensation expense is calculated based on awards ultimately expected to vest and is reduced for estimated forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated annual forfeiture rates for stock options, RSUs, PSUs, PBOs, and RSAs are based on historical forfeiture experience. The estimated fair value of stock options, RSUs and RSAs are expensed on a straight-line basis over the vesting term of the grant and the estimated fair value of PSUs and PBOs are expensed using an accelerated method over the term of the award once management has determined that it is probable that the performance objective will be achieved. Compensation expense is recorded over the requisite service period based on management's best estimate as to whether it is probable that the shares awarded are expected to vest. Management assesses the probability of the performance milestones being met on a continuous basis. 91 Cash and Cash Equivalents We consider all highly liquid investments with maturity dates of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market funds. The majority of cash and cash equivalents is maintained with major financial institutions in the United States. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits. Restricted Cash In 2016, we began the process of liquidating our Indian subsidiary. The local legal requirements for liquidation required us to maintain our subsidiary's cash balance in an account managed by a legal trustee to satisfy our financial obligations. This balance is recorded as current restricted cash on the consolidated balance sheets of $ 0.5 million and $ 0.6 million as of December 31, 2022 and 2021, respectively. Pursuant to the terms of the lease agreements for our Redwood City and San Carlos facilities, we obtained letters of credit collateralized by cash deposit balances of $ 1.5 million as of December 31, 2022 and 2021. These cash deposits balances are recorded as non-current restricted cash on the consolidated balance sheets. For additional information, see Note 13, "Commitments and Contingencies". Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and we consider counterparty credit risk in our assessment of fair value. Carrying amounts of financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate their fair values as of the balance sheet dates because of their short maturities. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: • Level 1: Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. • Level 2: Inputs that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. • Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and unbilled receivables, contract assets, non-marketable securities, and restricted cash. Cash that is not required for immediate operating needs is invested principally in money market funds. Cash and cash equivalents are invested through banks and other financial institutions in the United States, India, and the Netherlands. Such deposits in those countries may be in excess of insured limits. The Company has not experienced material losses on its deposits of cash and cash equivalents. We perform ongoing credit evaluations of our customer's financial condition whenever deemed necessary. We maintain an allowance for doubtful accounts based on the expected collectability of all financial assets, which takes into consideration an analysis of historical bad debts, specific customer creditworthiness and current economic trends. As of December 31, 2022, we h ad two customers that accounted for 63 % of our ac counts receivable balance. As of December 31, 2021, one customer accounted for 62 % of our accounts receivable balance. We believe the accounts receivable balances from our largest customers do not represent a significant credit risk, based on cash flow forecasts, balance sheet analysis, and past collection experience. 92 Financial Assets and Allowances W e currently sell enzymes primarily to pharmaceutical and fine chemicals companies throughout the world by the extension of trade credit terms based on an assessment of each customer's financial condition. Trade credit terms are generally offered without collateral and may include an insignificant discount for prompt payment for specific customers. To manage our credit exposure, we perform ongoing evaluations of our customers' financial conditions. In addition, accounts receivable include amounts owed to us under our collaborative research and development agreements. We recognize accounts receivable at invoiced amounts and we maintain a valuation allowance for credit losses using an impairment model (known as the "current expected credit loss model" or "CECL") based on estimates and forecasts of future conditions requiring recognition of a lifetime of expected credit losses at inception on our financing receivables measured at amortized costs which consisted of accounts receivable, contract assets, and unbilled receivables. We have determined that our financing receivables share similar risk characteristics including: (i) customer origination in the pharmaceutical and fine chemicals industry, (ii) similar historical credit loss pattern of customers (iii) no meaningful trade receivable differences in terms, (iv) similar historical credit loss experience and (v) our belief that the composition of certain assets are comparable to our historical portfolio used to develop loss history. As a result, we measured the allowance for credit loss ("ACL") on a collective basis. Our ACL methodology considers how long the asset has been past due, the financial condition of the customers, which includes ongoing quarterly evaluations and assessments of changes in customer credit ratings, and other market data that we believe are relevant to the collectability of the assets. Nearly all financing receivables are due from customers that are highly rated by major rating agencies and have a long history of no credit loss. We derive our ACL by establishing an impairment rate attributable to assets not yet identified as impaired. Unbilled Receivable The timing of revenue recognition may differ from the timing of invoicing to our customers. When we satisfy (or partially satisfy) a performance obligation, prior to being able to invoice the customer, we recognize an unbilled receivable when the right to consideration is unconditional. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using a weighted-average approach, assuming full absorption of direct and indirect manufacturing costs, or based on cost of purchasing from our vendors. If inventory costs exceed expected net realizable value due to obsolescence or lack of demand, valuation adjustments are recorded for the difference between the cost and the expected net realizable value. Concentrations of Supply Risk We rely on a limited number of suppliers for our products. We believe that other vendors would be able to provide similar products; however, the qualification of such vendors may require substantial start-up time. In order to mitigate any adverse impacts from a disruption of supply, we attempt to maintain an adequate supply of critical single-sourced materials. For certain materials, our vendors maintain a supply for us. We outsource the large - scale manufacturing of our products to contract manufacturers with facilities in Austria and Italy. Property and Equipment Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization calculated using the straight-line method over their estimated useful lives as follows: Asset classification Estimated useful life Laboratory equipment 5 years Computer equipment and software 3 to 5 years Office equipment and furniture 5 years Leasehold improvements Lesser of useful life or lease term Property and equipment classified as construction in process includes equipment that has been received but not yet placed in service. Normal repairs and maintenance costs are expensed as incurred. 93 Impairment of Long-Lived Assets We have not identified property and equipment by segment since these assets are shared or commingled. We evaluate the carrying values of long-lived assets, which include property and equipment and right-of-use assets, whenever events, changes in business circumstances or our planned use of long-lived assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. If these facts and circumstances exist, we assess for recovery by comparing the carrying values of long-lived assets with their future net undiscounted cash flows. If the comparison indicates that impairment exists, long-lived assets are written down to their respective fair values based on discounted cash flows. Management judgment is required in the forecast of future operating results that are used in the preparation of undiscounted cash flows. As of December 31, 2022 and 2021, there were no events or changes in circumstances which indicated that the carrying amount of our asset group might not be recoverable. No impairment charges for long-lived assets were recorded during the years ended December 31, 2022, 2021 and 2020. Investment in Non-Marketable Securities Investment in Non-Marketable Equity Securities We measure investments in non-marketable equity securities without a readily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or minus changes resulting from observable price changes on a non-recurring basis. Gains and losses on these securities are recognized in other income (expense), net. Investment in Non-Marketable Debt Securities We measure available-for-sale investments in non-marketable debt securities a t fair value. Unrealized gains and losses on these securities are recognized in other comprehensive income until realized. Non-marketable debt securities are classified as available-for-sale securities. We classify non-marketable debt securities as 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. Significant changes to the unobservable inputs may result in a significantly higher or lower fair value estimate. We may value these securities based on significant recent arms-length transactions with sophisticated non-strategic unrelated new investors. We evaluate both equity and debt securities for impairment when circumstances indicate that we may not be able to recover the carrying value. We may impair these securities and establish an allowance for a credit loss when we determine that there has been an "other-than-temporary” decline in the estimated fair value of the debt or equity security compared to its carrying value. We calculate the estimated fair value of these securities using information from the investee, which may include: • Audited and unaudited financial statements; • Projected technological developments of the company; • Projected ability of the company to service its debt obligations; • If a deemed liquidation event were to occur; • Current fundraising transactions; • Current ability of the company to raise additional financing if needed; • Changes in the economic environment which may have a material impact on the operating results of the company; • Contractual rights, obligations or restrictions associated with the investment; and • Other factors deemed relevant by our management to assess valuation. • The valuation may be reduced if the company's potential has deteriorated significantly. If the factors that led to a reduction in valuation are overcome, the valuation may be readjusted. 94 Goodwill 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 manage our business as two reporting units and we test goodwill for impairment at the reporting unit level. 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 approximatel y $ 2.4 million, or 76 %, of the goodwill is allocated to the Performance Enzymes segment and $ 0.8 million, or 24 %, is assigned to the Novel Biotherapeutics segment. We test goodwill 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. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. Any excess of the reporting unit’s carrying amount of goodwill over its fair value is recognized as an impairment. During 2022, 2021 and 2020, we did not record impairment charges related to goodwill. Lease Accounting We determine if an arrangement is a lease at inception. Where an arrangement is a lease, we determine if it is an operating lease or a finance lease. At lease commencement, we record a lease liability and ROU asset. Lease liabilities represent the present value of our future lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of our lease liability is determined using our incremental collateralized borrowing rate at lease inception. ROU assets represent our right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease liability for leases with an initial term greater than 12 months. Over the lease term, we use the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized to the consolidated statement of operations in a manner that results in straight-line expense recognition. We do not apply lease recognition requirements for short-term leases. Instead, we recognize payments related to these arrangements in the consolidated statement of operations as lease costs on a straight-line basis over the lease term. Income Taxes We use the liability method of accounting for income taxes, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount that will more likely than not be realized. We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenues and expenses for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized on a jurisdiction by jurisdiction basis. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income in the future. We have recorded a valuation allowance against these deferred tax assets in jurisdictions where ultimate realization of deferred tax assets is more likely than not to occur. As of December 31, 2022, we maintain a full valuation allowance in all jurisdictions against the net deferred tax assets as we believe that it is more likely than not that the majority of deferred tax assets will not be realized. We make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation allowance may be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the statements of operations for the periods in which the adjustment is determined to be required. 95 We account for uncertainty in income taxes as required by the provisions of ASU 2009-06, Income Taxes (Topic 740) Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities , which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual outcomes. The Tax Reform Act of 1986 and similar state provisions limit the use of net operating loss (“NOL") carryforwards in certain situations where equity transactions result in a change of ownership as defined by Internal Revenue Code Section 382. In the event we should experience such a change of ownership, utilization of our federal and state NOL carryforwards could be limited. 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 incremental financial statement disclosures. The standard affects entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share. The standard was adopted beginning January 1, 2022 on a prospective basis. The adoption of ASU 2021-04 did not have an impact on our 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. The standard was adopted beginning January 1, 2022 on a modified retrospective basis. The adoption of ASU 2020-06 did not have an impact on our consolidated financial statements and related disclosures. In March 2020, the FASB issued ASU No. 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. The standard was adopted beginning January 1, 2022 on a prospective basis. The adoption of ASU 2020-04 had no significant impact on our consolidated financial statements and related disclosures. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 , which extends the period of time preparers can utilize the reference rate reform guidance in Topic 848. The standard was adopted upon its issuance on a prospective basis. The adoption of ASU 2022-06 did not have an impact on our 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 year ended December 31, 2022 that are of significance or potential significance to us. 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). 96 Segment information is as follows (in thousands): Year Ended December 31, 2022 Performance Enzymes Novel Biotherapeutics Total Major products and service: Product revenue $ 116,676 $ — $ 116,676 Research and development revenue 9,936 11,978 21,914 Total revenues $ 126,612 $ 11,978 $ 138,590 Primary geographical markets: Americas $ 12,089 $ 4,911 $ 17,000 EMEA 49,473 7,067 56,540 APAC 65,050 — 65,050 Total revenues $ 126,612 $ 11,978 $ 138,590 Year Ended December 31, 2021 Performance Enzymes Novel Biotherapeutics Total Major products and service: Product revenue $ 70,657 $ — $ 70,657 Research and development revenue 19,858 14,239 34,097 Total revenues $ 90,515 $ 14,239 $ 104,754 Primary geographical markets: Americas $ 16,114 $ 7,367 $ 23,481 EMEA 13,315 6,872 20,187 APAC 61,086 — 61,086 Total revenues $ 90,515 $ 14,239 $ 104,754 Year Ended December 31, 2020 Performance Enzymes Novel Biotherapeutics Total Major products and service: Product revenue $ 30,220 $ — $ 30,220 Research and development revenue 17,886 20,950 38,836 Total revenues $ 48,106 $ 20,950 $ 69,056 Primary geographical markets: Americas $ 11,111 $ 13,241 $ 24,352 EMEA 11,548 7,709 19,257 APAC 25,447 — 25,447 Total revenues $ 48,106 $ 20,950 $ 69,056 97 Contract Balances The following table presents balances of contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands): December 31, 2022 December 31, 2021 Contract assets $ 2,116 $ 4,557 Unbilled receivables $ 7,016 $ 8,558 Contract costs $ 19 $ 56 Contract liabilities: deferred revenue $ 30,609 $ 6,335 We recognize accounts receivable when we have an unconditional right to recognize revenue and have issued an invoice to the customer. Our payment terms are generally between 30 and 90 days. We recognize unbilled receivables when we have an unconditional right to recognize revenue and have not issued an invoice to our customer. Unbilled receivables are transferred to accounts receivable on issuance of an invoice. Unbilled receivables are classified separately on the consolidated balance sheets as an asset. We maintain a valuation allowance on accounts receivables and unbilled receivables. Contract assets represent our right to recognize revenue for custom products with no alternate use and under binding non-cancellable contracts and are largely related to our procurement of product. We recognize contract assets when we have a conditional right to recognize revenue. The transfer of control of certain products occurs in advance of the invoicing process, which generates contract assets. In addition, we recognize a contract asset related to milestones not eligible for royalty accounting when we assess it is probable of being achieved and there will be no significant reversal of cumulative revenues. Contract assets are classified separately on the consolidated balance sheets as an asset and transferred to accounts receivables when our rights to payment become unconditional. Contract liabilities, or deferred revenue, represent our obligation to transfer a product or service to the customer, and for which we have received consideration from the customer. We recognize a contract liability when we receive advance customer payments under development agreements for research and development services, upfront license payments, and from upfront customer payments received under product supply agreements. Contract liabilities are classified as a liability on the consolidated balance sheets. Contract costs relate to incremental costs of obtaining a contract with a customer. Contract costs are amortized along with the associated revenue over the term of the contract. During the years ended December 31, 2022, 2021 and 2020, we had no asset impairment charges related to contract assets. We recognized the following revenues (in thousands): Year Ended December 31, Revenue recognized in the period for: 2022 2021 Amounts included in contract liabilities at the beginning of the period: Performance obligations satisfied $ 2,038 $ 1,858 Changes in the period: Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods 279 7,645 Performance obligations satisfied from new activities in the period - contract revenue 136,273 95,251 Total revenues $ 138,590 $ 104,754 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 December 31, 2022. 98 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): 2023 2024 2025 2026 and Thereafter Total Product revenue $ 12,136 $ 13,080 $ 140 $ 3,640 $ 28,996 Research and development revenue 1,592 21 — — 1,613 Total revenues $ 13,728 $ 13,101 $ 140 $ 3,640 $ 30,609 Note 4. 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 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. For all periods presented, 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. 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 considered in the computation of diluted net loss per share because their effect was anti-dilutive (in thousands): Year Ended December 31, 2022 2021 2020 Shares issuable under the Equity Incentive Plan 7,442 5,215 5,348 Note 5. Collaborative Arrangements GSK Platform Technology Transfer, Collaboration and License Agreement In July 2014, we entered into a CodeEvolver ® protein engineering platform technology transfer collaboration and license agreement (the "GSK CodeEvolver ® Agreement") with GSK. Pursuant to the terms of the agreement, we granted GSK a non-exclusive license to use the CodeEvolver ® protein engineering platform technology to develop novel enzymes for use in the manufacture of GSK's pharmaceutical and health care products. We completed the transfer of the CodeEvolver ® protein engineering platform technology to GSK in April 2016 and all revenues relating to the technology transfer have been recognized as of April 2016. Depending upon GSK's successful application of the licensed technology, we have the potential to receive additional contingent payments that range from $ 5.75 million to $ 38.5 million per project. In 2019, we received a $ 2.0 million milestone payment relating to the advancement of an enzyme developed by GSK using our CodeEvolver ® protein engineering platform technology. In 2021, we received two additional milestone payments from GSK under the agreement. We recognized research and development revenue of nil , $ 4.3 million, and nil in the years ended December 31, 2022, 2021, and 2020, respectively. Merck Platform Technology Transfer and License Agreement In August 2015, we entered into a CodeEvolver ® platform technology transfer collaboration and license agreement (the "Merck CodeEvolver ® Agreement") with Merck, Sharp & Dohme ("Merck") which allows Merck to use the CodeEvolver ® protein engineering technology platform in the field of human and animal healthcare. In 2016, we completed the final phase in the transfer of CodeEvolver ® technology to Merck under the Merck CodeEvolver ® Agreement. We recognized research and development revenues of $ 40 thousand, $ 0.6 million, and $ 3.1 million in the years ended December 31, 2022, 2021 and 2020, respectively, for various research projects under our collaborative arrangement. 99 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. The API payments, which are currently not recognized in revenue, are based on the quantity of API developed and manufactured by Merck and will be recognized as usage-based royalties. In October 2018, we entered into an amendment to the Merck CodeEvolver ® Agreement which amended certain licensing provisions and one exhibit. In January 2019, we amended 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 that expired in January 2022. The license installation was completed in 2019. We recognized nil , $ 0.1 million and $ 0.1 million in research and development revenues under the terms of the amendment in 2022, 2021 and 2020 respectively. Merck Sitagliptin Catalyst Supply Agreement In February 2012, we entered into a five-year Sitagliptin Catalyst Supply Agreement ("Sitagliptin Supply Agreement") with Merck whereby Merck may obtain commercial scale enzyme for use in the manufacture of Januvia ® , its product based on the active ingredient Sitagliptin. In December 2015, Merck exercised its options under the terms of the Sitagliptin Catalyst Supply Agreement to extend the agreement for an additional five years through February 2022. In September 2021, the Sitagliptin Catalyst Supply Agreement was amended to extend the agreement through December 2026. Effective as of January 2016, we and Merck amended the Sitagliptin Supply Agreement to prospectively provide for variable pricing based on the cumulative volume of sitagliptin enzyme purchased by Merck. We have previously determined that the variable pricing, which provides a discount based on the cumulative volume of sitagliptin enzyme purchased by Merck, provides Merck material rights and we recognized product revenues using the alternative method wherein we estimated the total expected consideration and allocated it proportionately with the expected sales. Pursuant to the latest amendment of the Sitagliptin Supply Agreement, we have determined that the latest price per volume of sitagliptin enzyme to be purchased by Merck no longer provides Merck material rights, and as such we are recognizing product revenue based on contractually stated prices effective as of February 2022. We recognized $ 5.9 million, $ 9.8 million and $ 13.4 million in product revenue under this contract for the years ended December 31, 2022, 2021 and 2020, respectively. Revenues recognized by us under the Sitagliptin Supply Agreement comprised 4 %, 9 %, and 19 % of our total revenues for the years ended December 31, 2022, 2021 and 2020, respectively. During the year ended December 31, 2022, we recorded revenue of $ 1.6 million from sitagliptin enzyme sales that were recognized over time based on the progress of the manufacturing process. These products will be shipp ed in the first quarter of 2023. Enzyme Supply Agreement In November 2016, we entered into a supply agreement whereby our customer may purchase quantities of one of our proprietary enzymes for use in its commercial manufacture of a product. Pursuant to the supply agreement, we received an upfront payment in December 2016 which was recorded as deferred revenue. Such upfront payment will be recognized over the period of the supply agreement as the customer purchases our proprietary enzyme. We additionally have determined that the volume discounts under the supply agreement provide the customer material rights and we are recognizing revenues using the alternative method. As of December 31, 2022 and 2021, we had deferred revenue balances from the supply agreement of $ 3.3 million and $ 2.6 million. Commercial Agreement In April 2019, we entered into a multi-year commercial agreement with Tate & Lyle under which Tate & Lyle has received an exclusive license to use a suite of Codexis novel performance enzymes in the manufacture of Tate & Lyle’s zero-calorie stevia sweetener, TASTEVA ® M, and other stevia products. Under the agreement, we will supply Tate & Lyle with its requirements for these enzymes over a multiple year period and receive royalties on stevia products. In November 2020, we amended the commercial agreement based on Tate & Lyle's intent to use a specific Codexis novel performance enzyme in its production of TASTEVA ® M Stevia Sweetener and became eligible to receive milestone payments of up to $ 1.1 million. In the fourth quarter of 2020, we became eligible to receive a milestone payment of $ 0.4 million which we subsequently received in February 2021. Global Development, Option and License Agreement and Strategic Collaboration Agreement In October 2017, we entered into the Nestlé License Agreement with Nestlé Health Science and, solely for the purpose of the integration and the dispute resolution clauses of the Nestlé License Agreement, Nestlé Health Science S.A., to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU. 100 In January 2019, we received notice from the U.S. Food and Drug Administration (“FDA”) that it had completed its review of our 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. Upon exercising its option, Nestlé Health Science made an option payment and assumed all responsibilities for future clinical development and commercialization of CDX-6114. We are also eligible to receive payments from Nestlé Health Science under the Nestlé License Agreement that 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 mid-single digits to low double-digits of net sales of product. In October 2017, we entered into the Nestlé SCA pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver ® protein engineering technology platform to develop novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas. The term of the Nestlé SCA has been extended through December 2023 with an automatic renewal through December 2024. 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 CDX-7108, targeting a gastrointestinal disorder discovered through our Nestlé SCA, into preclinical and early clinical studies. We, together with Nestlé Health Science, are continuing to advance CDX-7108 and initiated a Phase 1 clinical trial with the first subject being dosed in the fourth quarter of 2021. The term of the development agreement has been extended through December 2023 with an automatic renewal through December 2024. Under the Nestlé SCA and the development agreement, we recognized $ 7.1 million, $ 6.9 million and $ 7.9 million in research and development revenue for the years ended December 31, 2022, 2021 and 2020, respectively. Strategic Collaboration Agreement In April 2018, we entered into the Porton Agreement with Porton to license key elements of our biocatalyst technology for use in Porton’s global custom intermediate and API development and manufacturing business. Under the Porton Agreement, we are eligible to receive annual collaboration fees and research and development revenues. We received initial collaboration payments of $ 0.5 million and $ 0.5 million within 30 days of the effective date and on the first anniversary of the effective date of the Porton Agreement, respectively. We also received annual collaboration payments of $ 1.0 million each during the first through third anniversaries of the effective date of the Porton Agreement and are eligible to receive $ 1.0 million on the fourth anniversary of the effective date of the Porton Agreement. We completed the technical transfer in the fourth quarter of 2018 and recognized the related revenue in 2018. 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. The initial term of the Porton Agreement will expire on April 22, 2023 and is not being renewed for an extended term. We recognized research and development revenue related to the Porton Agreement of $ 0.1 million, $ 1.1 million and $ 1.1 million in the years ended December 31, 2022, 2021 and 2020, respectively. Platform Technology Transfer and License Agreement In May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver ® Agreement”) with Novartis. The Agreement allows Novartis to use our proprietary CodeEvolver ® protein engineering platform technology in the field of human healthcare. In July 2021, we announced the completion of the technology transfer period during which we transferred our CodeEvolver ® protein engineering platform technology to Novartis (the "Technology Transfer Period"). As a part of this technology transfer, we provided to Novartis our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms. In addition, our teams 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. Novartis has now installed the CodeEvolver ® protein engineering platform technology at its designated laboratory. 101 Pursuant to the agreement, we received an upfront payment of $ 5.0 million shortly after the effective date of the Novartis CodeEvolver ® Agreement. We completed the second technology milestone transfer under the agreement in 2020 and received a milestone payment of $ 4.0 million. We have also received an aggregate of $ 5.0 million for the completion of the third technology milestone in 2021. In consideration for the continued disclosure and license of improvements to the technology and materials during a multi-year period that began on the conclusion of the Technology Transfer Period (“Improvements Term”), Novartis will pay Codexis annual payments over four years which amount to an additional $ 8.0 million in aggregate. We received the first annual payment of $ 2.0 million in the fourth quarter of 2022. The Company also has the potential to receive quantity-dependent, usage payments for each API that is manufactured by Novartis using one or more enzymes that have been developed or are in development using the CodeEvolver ® protein engineering platform technology during the period that began on the conclusion of the Technology Transfer Period and ends on the expiration date of the last to expire licensed patent. Revenue for the combined initial license and technology transfer performance obligation was recognized using a single measure of progress that depicted our performance in transferring control of the services. Revenue allocated to improvements made during the Improvements Term are being recognized during the Improvement Term. We rec ognized $ 1.0 million, $ 1.6 million and $ 6.2 million in research and development revenue in the year ended December 31, 2022, 2021 and 2020, respectively. License Agreement In December 2019, we entered a license agreement with Roche Sequencing Solutions, Inc. (“Roche”) to provide Roche with our EvoT4 DNA™ ligase high-performance molecular diagnostic enzyme. The royalty bearing license grants Roche worldwide rights to include the EvoT4 DNA™ ligase in its nucleic acid sequencing products and workflows. Under the license agreement, we received an initial collaboration fee payment of $ 0.8 million within 45 days of the effective date of the agreement, and we received an additional $ 0.9 million milestone payment after the completion of technology transfer in October 2020. The agreement also contemplates milestone payments to Codexis 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 nil , $ 0.9 million and $ 0.9 million for t he years ended December 31, 2022, 2021 and 2020, respectively. Strategic Collaboration and License Agreement In March 2020, we entered into a Strategic Collaboration and License Agreement (the “Takeda Agreement”) with Takeda under which we are collaborating to research and develop protein sequences for use in gene therapy products for certain diseases (each, a "Field") in accordance with each applicable program plan (each, a “Program Plan”). On execution of the Takeda Agreement in March 2020, we received an upfront nonrefundable cash payment of $ 8.5 million and we initiated activities under three Program Plans for Fabry Disease, Pompe Disease, and an undisclosed blood factor deficiency respectively (the "Initial Programs"). In May 2021, Takeda elected to exercise its option to initiate an additional program for a certain undisclosed rare genetic disorder; as a result, we received the option exercise fee during the third quarter of 2021. Pursuant to the Takeda Agreement, we are eligible to receive other payments that include (i) reimbursement of research and development fees and preclinical development milestones for the three initial programs of $ 10.5 million, in aggregate, and $ 3.4 million for the fourth program, (ii) clinical development and commercialization-based milestones, per target gene, of up to $ 104.0 million and (iii) tiered royalty payments based on net sales of applicable products at percentages ranging from the mid-single digits to low single-digits. Revenue relating to the functional licenses provided to Takeda was recognized at a point in time when the control of the license transferred to the customer. We recognized research and development revenue related to the Takeda Agreement of $ 4.9 million, $ 7.4 million and $ 13.2 million in the years ended December 31, 2022, 2021, and 2020, respectively. As of December 31, 2022 and 2021, we had deferred revenue balances of $ 0.9 million and $ 2.2 million, respectively. Master Collaboration and Research Agreement, Stock Purchase Agreement and Enzyme Supply Agreement In June 2020, we entered into a Stock Purchase Agreement with MAI in which we purchased 1,587,050 shares of MAI's Series A preferred stock for $ 1.0 million. In connection with the June 2020, transaction, John Nicols, our former President and Chief Executive Officer, joined MAI’s board of directors. For additional information, see Note 14, "Related Party Transactions". 102 Concurrently with our initial equity investment, we entered into the MAI Agreement, pursuant to which we performed 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. 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. As contemplated in the MAI Agreement, we executed the Commercial License and Enzyme Supply Agreement with MAI (“MAI Supply Agreement”) in July 2022 following the completion of certain timelines specified in the SOW. W e 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 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. We recognized $ 1.2 million, $ 2.0 million and $ 0.9 million in research and development revenue from transactions with MAI in the years ended December 31, 2022, 2021 and 2020, respectively. Payment for the services rendered was received in the form of additional MAI Series A and Series B preferred stock. We received an aggregate of 1,587,049 , 3,491,505 and 714,171 shares of MAI's Series A and B preferred stock in the years ended December 31, 2022, 2021 and 2020, respectively. 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™ (“FES™”) technology. We recognized $ 0.5 million in product revenue for the year ended December 31, 2022. Pfizer Enzyme Supply Agreement During 2021 and 2022, we received purchase orders from Pfizer, Inc. (“Pfizer”) for large quantities of our proprietary enzyme product, CDX-616, for use by Pfizer in the manufacture of a critical intermediate for its proprietary active pharmaceutical ingredient, nirmatrelvir, used by Pfizer in combination with the active pharmaceutical ingredient ritonavir, as its PAXLOVID™ (nirmatrelvir tablets; ritonavir tablets) product for the treatment of COVID-19 infections in humans. We are a party to an Enzyme Supply Agreement with Pfizer Ireland Pharmaceuticals, a subsidiary of Pfizer (the “Pfizer Supply Agreement”), covering the manufacture, sale and purchase of CDX-616 for use by Pfizer in the manufacture of nirmatrelvir. Under the terms of the Pfizer Supply Agreement, Pfizer paid us a fee of $ 25.9 million in August 2022 which was recorded as deferred revenue. The fee is creditable against future orders of CDX-616 used to manufacture PAXLOVID™ with shipment dates prior to December 31, 2023 and for fees associated with any new development and licensing agreements with Pfizer entered into prior to March 31, 2023 that are invoiced prior to December 31, 2023. Up to 50% of any portion of the fee which has not been credited pursuant to credits granted under the preceding sentence is creditable against future orders of CDX-616 used to manufacture PAXLOVID™ with shipment dates prior to December 31, 2024. In the fourth quarter of 2022, we and Pfizer agreed to adjust the terms of certain existing non-cancelable purchase orders of CDX-616 issued under the Pfizer Supply Agreement pursuant to which Pfizer will pay us $ 36.8 million in lieu of the delivery of certain quantities of CDX-616 under those purchase orders, thereby relieving both parties of further obligations under those p urchase orders. We recognized $ 36.8 million in product revenue in 2022 for these existing orders that were invoiced in 2022, of which $ 19.8 million was collected in December 2022 and the remaining amount was included in accounts receivable as of December 31, 2022, as our right to payment became unconditional upon modification. We expect to receive the $ 16.9 million in accounts receivable in the first quarter of 2023. We recognized product revenue of $ 75.4 million and $ 34.5 million in the years ended December 31, 2022 and 2021, respectively, from the sale of quantities of CDX-616 to Pfizer. Revenues recognized by us from sale of CDX-616 to Pfizer comprised 54 % and 33 % of our total revenues for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had $ 24.4 million in deferred revenue related to the $ 25.9 million fee received from Pfizer, net of $ 1.5 million of product revenue recognized from the fee during the year ended December 31, 2022. We had nil and $ 1.7 million in contract assets as of December 31, 2022 and 2021, respectively. 103 Note 6. 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 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 (expense), 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. During the year ended December 31, 2021, we recognized $ 0.3 million in interest income from interest earned on our investment in this debt security. There were no investments in non-marketable debt securities as of December 31, 2022 and 2021. Non-Marketable Equity Securities 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 (expense), net in the consolidated statements of operations. 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. For the year ended December 31, 2022, we recogniz ed a $ 0.2 million u nrealized 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 a milestone payment during the third quarter of 2022 based on the latest observed transaction price of MAI's preferred stock. For the year ended December 31, 2021, we recognized a $ 1.0 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 the observed transaction price from MAI's round of financing during the third and fourth quarters of 2021. See Note 14 “Related Party Transactions” for additional information on our investment in MAI. Other than as disclosed above, there were no remeasurement events for our investments in MAI and other non-marketable equity securities in 2022 and 2021. We recognized no realized gains or losses during the years ended December 31, 2022 and 2021. The following table presents the carrying value of our non-marketable equity securities (in thousands): December 31, 2022 December 31, 2021 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 $ 14,002 104 Note 7. 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): December 31, 2022 Level 1 Level 2 Level 3 Total Money market funds $ 77,309 $ — $ — $ 77,309 December 31, 2021 Level 1 Level 2 Level 3 Total Money market funds $ 86,095 $ — $ — $ 86,095 During the years ended December 31, 2022 and 2021, we did no t recognize any significant credit losses no r other-than-temporary impairment losses on non-marketable securities. Note 8. Balance Sheet Details Cash Equivalents Cash equivalents consisted of the following (in thousands): December 31, 2022 December 31, 2021 Adjusted Cost Estimated Fair Value Adjusted Cost Estimated Fair Value Money market funds (1) $ 77,309 $ 77,309 $ 86,095 $ 86,095 (1) Money market funds are classified in cash and cash equivalents on our consolidated balance sheets. Average contractual maturities (in days) is not applicable. As of December 31, 2022, the total cash and cash equivalents balance of $ 114.0 million consisted of money market funds of $ 77.3 million and cash of $ 36.7 million held w ith 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. Inventories Inventories consisted of the following (in thousands): December 31, 2022 2021 Raw materials $ 108 $ 49 Work in process 91 65 Finished goods 1,830 1,046 Total inventories $ 2,029 $ 1,160 Inventories are recorded net of reserves of $ 1.2 million and $ 1.4 million as of December 31, 2022 and December 31, 2021 respectively. 105 Property and Equipment, net Property and equipment, net consisted of the following (in thousands): December 31, 2022 2021 Laboratory equipment (1) $ 39,679 $ 33,101 Leasehold improvements 16,633 16,117 Computer equipment and software 3,039 3,481 Office equipment and furniture 1,345 1,297 Construction in progress (2) 1,739 3,231 Property and equipment 62,435 57,227 Less: accumulated depreciation and amortization ( 39,821 ) ( 35,882 ) Property and equipment, net $ 22,614 $ 21,345 (1) Fully depreciated property and equipment with a cost of $ 1.5 million and $ 0.6 million were retired during the years ended December 31, 2022 and 2021, respectively. (2) Construction in progress includes equipment received but not yet placed into service pending installation. Depreciation expense included in both research and development expenses and selling, general and administrative expenses in the consolidated statements of operations was as follows (in thousands): Year Ended December 31, 2022 2021 2020 Depreciation expense $ 5,402 $ 3,113 $ 1,950 Goodwill Goodwill had a carrying value of $ 3.2 million as of December 31, 2022 and 2021. Other Accrued Liabilities Other accrued liabilities consisted of the following (in thousands): December 31, 2022 2021 Accrued purchases $ 10,852 $ 6,755 Accrued professional and outside service fees 3,495 5,147 Other 932 676 Total other accrued liabilities $ 15,279 $ 12,578 Note 9. 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. 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"). 106 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. As of December 31, 2022, total shares remaining available for issuance under the 2019 Plan were 2.8 million s hares. 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, 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 approves 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. In 2022, we awarded PSUs ("2022 PSUs") and PBOs ("2022 PBOs"), each of which commence vesting based upon the achievement of various weighted performance go als, including finance and corporate strategy, performance enzymes and biotherapeutics deliverables, research plans, and organizational development. As of December 31, 2022, we estimated that the 2022 PSUs and 2022 PBOs performance goals would be achieved at 85.0 % and 42.5 % of 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. 107 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 consolidated statements of operations as follows (in thousands): Year Ended December 31, 2022 2021 2020 Costs of product revenue $ 452 $ 224 $ 104 Research and development $ 3,907 $ 2,663 $ 1,843 Selling, general and administrative 10,172 8,706 5,781 Total $ 14,531 $ 11,593 $ 7,728 The following table presents total stock-based compensation expense by security type included in the consolidated statements of operations (in thousands): Year Ended December 31, 2022 2021 2020 Stock options $ 4,167 $ 2,764 $ 2,381 RSUs and RSAs 4,807 2,768 2,231 PSUs 3,268 2,333 1,160 PBOs 2,289 3,728 1,956 Total $ 14,531 $ 11,593 $ 7,728 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, 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 year ended December 31, 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. Grant Award Activities: Stock Option Awards We estimated the fair value of stock options using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarizes the weighted-average assumptions used to estimate the fair value of employee stock options granted: Year Ended December 31, 2022 2021 2020 Expected life (years) 5.7 5.6 5.3 Volatility 62.1 % 52.5 % 50.4 % Risk-free interest rate 3.1 % 0.8 % 1.0 % Expected dividend yield 0.0 % 0.0 % 0.0 % 108 No stock options were granted to non-employees for services during year ended December 31, 2022. The following summarizes the weighted-average assumptions used to estimate the fair value of 9,000 and 76,000 shares of stock options granted to non-employees for services valued at $ 0.1 million and $ 0.4 million during the years ended December 31, 2021 and 2020 respectively: Year Ended December 31, 2021 2020 Expected life (years) 5.6 5.4 Volatility 54.1 % 51.6 % Risk-free interest rate 0.9 % 0.4 % Expected dividend yield 0.0 % 0.0 % The weighted average grant date fair value per share of non-employee stock options granted respectively in 2021 and 2020 was $ 11.29 and $ 5.04 . The following tables summarize s stock option activities: Number of Shares Weighted Average Exercise Price Per Share (In Thousands) Outstanding at December 31, 2019 3,147 $ 6.31 Granted 496 $ 13.30 Exercised ( 210 ) $ 6.30 Forfeited/Expired ( 48 ) $ 16.71 Outstanding at December 31, 2020 3,385 $ 7.19 Granted 286 $ 26.85 Exercised ( 664 ) $ 6.96 Forfeited/Expired ( 72 ) $ 17.99 Outstanding at December 31, 2021 2,935 $ 8.90 Granted 2,000 $ 8.90 Exercised ( 410 ) $ 2.33 Forfeited/Expired ( 275 ) $ 19.01 Outstanding at December 31, 2022 4,250 $ 8.88 Number of Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In Thousands) (In Years) (In Thousands) Outstanding at December 31, 2022 4,250 $ 8.88 6.2 $ 1,556 Exercisable at December 31, 2022 2,162 $ 8.26 3.1 $ 1,556 Vested and expected to vest at December 31, 2022 3,898 $ 8.91 5.9 $ 1,556 The weighted average grant date fair value per share of employee stock options granted in 2022, 2021 and 2020 were $ 4.99 , $ 12.80 and $ 6.03 , respectively. The total intrinsic value of options exercised in 2022, 2021 and 2020 were $ 3.1 million, $ 14.9 million and $ 1.8 million, respectively. As of December 31, 2022, the re was $ 8.1 million of unrecognized stock-based compensation, net of expected forfeitures, related to unvested stock options, which we expect to recognize over a weighted average period of 3.4 years. 109 Restricted Stock Awards ("RSAs") The following table summarizes RSA activities: Number of Shares Weighted Average Grant Date Fair Value Per Share (In Thousands) Non-vested balance at December 31, 2019 35 $ 17.18 Granted 96 $ 11.44 Vested ( 35 ) $ 17.18 Non-vested balance at December 31, 2020 96 $ 11.44 Granted 46 $ 21.91 Vested ( 62 ) $ 11.31 Non-vested balance at December 31, 2021 80 $ 17.53 Granted 159 $ 7.53 Vested ( 58 ) $ 18.42 Non-vested balance at December 31, 2022 181 $ 8.45 The total fair value, as of the vesting date, of RSAs vested in fiscal years 2022, 2021 and 2020 were $ 0.5 million, $ 1.3 million and $ 0.4 million respectively. As of December 31, 2022, there was $ 0.8 million of unrecognized stock-based compensation cost related to non-vested RSAs, which we expect to recognize over a weighted average period of 1.4 years. Restricted Stock Units ("RSUs") The following table summarizes RSU activities: Number of Shares Weighted Average Grant Date Fair Value Per Share (In Thousands) Non-vested balance at December 31, 2019 201 $ 10.76 Granted 156 $ 14.22 Vested ( 168 ) $ 10.05 Forfeited/Expired ( 13 ) $ 15.16 Non-vested balance at December 31, 2020 176 $ 14.17 Granted 163 $ 26.59 Vested ( 70 ) $ 13.57 Forfeited/Expired ( 37 ) $ 21.89 Non-vested balance at December 31, 2021 232 $ 21.83 Granted 518 $ 17.46 Vested ( 106 ) $ 21.21 Forfeited/Expired ( 126 ) $ 19.55 Non-vested balance at December 31, 2022 518 $ 18.15 The total fair value, as of the vesting date, of RSUs vested in fiscal years 2022, 2021 and 2020 were $ 1.8 million , $ 1.8 million and $ 2.1 million respectively. As of December 31, 2022, there was $ 5.2 million of unrecognized stock-based compensation cost related to non-vested RSUs, which we expect to recognize over a weighted average period of 1.9 years. 110 Performance-Contingent Restricted Stock Units ("PSUs") The following table summarizes PSU activities: Number of Shares Weighted Average Grant Date Fair Value Per Share (In Thousands) Non-vested balance at December 31, 2019 120 $ 13.88 Granted 124 $ 13.59 Vested ( 107 ) $ 11.28 Forfeited/Expired ( 6 ) $ 21.80 Non-vested balance at December 31, 2020 131 $ 15.34 Granted 82 $ 26.16 Vested ( 66 ) $ 16.14 Forfeited/Expired ( 19 ) $ 19.38 Non-vested balance at December 31, 2021 128 $ 21.24 Granted 686 $ 9.55 Vested ( 107 ) $ 20.52 Forfeited/Expired ( 40 ) $ 19.93 Non-vested balance at December 31, 2022 667 $ 9.41 The total fair value, as of the vesting date, of PSUs vested in the years ended December 31, 2022, 2021, and 2020 were $ 2.1 million, $ 1.3 million, and $ 1.3 million, respectively. As of December 31, 2022, there was $ 2.2 million of unrecognized stock-based compensation cost related to non-vested PSUs, which we expect to recognize over a weighted average period of 0.7 years. Performance Based Options ("PBOs") We estimated the fair value of PBOs using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarize the weighted-average assumptions used to estimate the fair value of PBOs granted: Year Ended December 31, 2022 2021 2020 Expected life (years) 5.6 5.5 5.3 Volatility 54.9 % 51.9 % 49.9 % Risk-free interest rate 1.8 % 0.7 % 1.3 % Expected dividend yield 0.0 % 0.0 % 0.0 % 111 The following tables summarizes PBOs activities: Number of Shares Weighted Average Grant Date Fair Value Per Share (In Thousands) Outstanding at December 31, 2019 1,260 $ 4.75 Granted 689 $ 6.37 Forfeited/Expired ( 389 ) $ 6.42 Outstanding at December 31, 2020 1,560 $ 5.05 Granted 433 $ 12.23 Exercised ( 35 ) $ 9.02 Forfeited/Expired ( 118 ) $ 12.23 Outstanding at December 31, 2021 1,840 $ 4.11 Granted 733 $ 9.89 Forfeited/Expired ( 747 ) $ 8.29 Outstanding at December 31, 2022 1,826 $ 4.70 Number of Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In Thousands) (In Years) (In Thousands) Exercisable at December 31, 2022 1,674 $ 11.09 5.4 $ 40 Vested and expected to vest at December 31, 2022 1,808 $ 11.85 5.7 $ 40 The total fair value of e xercised PBOs for 2022, 2021 and 2020, was nil , $ 0.3 million and nil , respectively. As of December 31, 2022, there was $ 0.4 million of unrecognized stock-based compensation cost related to non-vested PBOs, which we expect to recognize over a weighted average period of 1.0 years. Note 10. Capital Stock 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 year ended December 31, 2022, no shares of our common stock were issued pursuant to the EDA. As of December 31, 2022, $ 50.0 million worth of shares remained available for sale under the EDA. 112 Public Offerings In December 2020, we completed an underwritten public offering in which we issued and sold 4.9 million shares of our common stock, par value $ 0.0001 per share, at a public offering price of $ 17.50 per share. We received gross proceeds of $ 86.3 million, net of underwriting discounts and commissions of $ 5.2 million and direct offering expenses of $ 0.3 million for net proceeds of $ 80.8 million. Note 11. 401(k) Plan In January 2005, we implemented a 401(k) Plan covering certain employees. Currently, all of our United States based employees over the age of 18 are eligible to participate in the 401(k) Plan. Under the 401(k) Plan, eligible employees may elect to reduce their current compensation up to a certain annual limit and contribute these amounts to the 401(k) Plan. We may make matching or other contributions to the 401(k) Plan on behalf of eligible employees. We recorded employer matching contributions expense o f $ 1.6 million, $ 1.1 million, and $ 0.8 million in the years ended December 31, 2022, 2021, and 2020, respectively. Note 12. Income Taxes Our loss before provision for income taxes were as follows (in thousands): Year Ended December 31, 2022 2021 2020 United States $ ( 33,269 ) $ ( 21,037 ) $ ( 23,452 ) Foreign ( 47 ) ( 53 ) ( 219 ) Loss before provision for income taxes $ ( 33,316 ) $ ( 21,090 ) $ ( 23,671 ) The tax provision for the year ended December 31, 2022 consists primarily of current year state and foreign income taxes. The tax provision for the years ended December 31, 2021 and 2020 consists primarily of taxes attributable to foreign operations. The components of the provision for income taxes are as follows (in thousands): Year Ended December 31, 2022 2021 2020 Current provision: State $ 141 $ — $ 5 Foreign 142 198 342 Total current provision $ 283 $ 198 $ 347 Deferred benefit: Foreign ( 7 ) ( 9 ) ( 8 ) Total deferred benefit $ ( 7 ) $ ( 9 ) $ ( 8 ) Provision for income taxes $ 276 $ 189 $ 339 Reconciliation of the provision for income taxes calculated at the statutory rate to our provision for income taxes is as follows (in thousands): Year Ended December 31, 2022 2021 2020 Tax benefit at federal statutory rate $ ( 6,996 ) $ ( 4,429 ) $ ( 4,971 ) State taxes ( 494 ) ( 2,235 ) ( 708 ) Research and development credits ( 1,793 ) ( 1,132 ) ( 811 ) Foreign operations taxed at different rates 78 80 245 Stock-based compensation 239 ( 2,698 ) 140 Other nondeductible items ( 238 ) 711 61 Executive compensation 80 257 24 Change in valuation allowance 9,400 9,635 6,359 Provision for income taxes $ 276 $ 189 $ 339 113 Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. Significant components of our deferred tax assets and liabilities are as follows (in thousands): December 31, 2022 2021 Deferred tax assets: Net operating losses $ 69,915 $ 78,525 Credits 14,806 11,895 Deferred revenues 1,123 1,490 Stock-based compensation 4,967 3,946 Reserves and accruals 2,487 2,928 Depreciation — 514 Intangible assets 866 1,356 Capital losses 413 26 R&D Capitalization 16,502 — Unrealized gain/loss 1 418 Lease liability 9,586 11,206 Other assets 124 122 Total deferred tax assets: 120,790 112,426 Valuation allowance ( 111,183 ) ( 101,762 ) Deferred tax liabilities: Right-of-use assets ( 8,624 ) ( 10,373 ) Property and Equipment ( 736 ) — Other ( 263 ) ( 314 ) Total deferred tax liabilities: ( 9,623 ) ( 10,687 ) Net deferred tax liabilities $ ( 16 ) $ ( 23 ) ASC 740 requires that the tax benefit of NOLs, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a valuation allowance against our deferred tax assets. Accordingly, the net deferred tax assets in all our jurisdictions have been fully reserved by a valuation allowance. The net valuation allowance increased by $ 9.4 million d uring the year ended December 31, 2022, increased by $ 9.6 million during the year ended December 31, 2021, and increased by $ 6.4 million during the year ended December 31, 2020. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced. The following table sets forth our federal, state and foreign NOL carryforwards and federal research and development tax credits as of December 31, 2022 (in thousands): December 31, 2022 Amount Expiration Years Net operating losses, federal $ 183,022 2026-2037 Net operating losses, federal $ 109,069 Do not expire Net operating losses, state $ 138,775 2028-2041 Tax credits, federal $ 16,228 2023-2041 Tax credits, state $ 17,168 Do not expire 114 Current U.S. federal and California tax laws include substantial restrictions on the utilization of NOLs and tax credit carryforwards in the event of an ownership change of a corporation. Accordingly, the Company's ability to utilize NOLs and tax credit carryforwards may be limited as a result of such ownership changes . We performed an analysis in 2022 and determined that there was not a limitation that would result in the expiration of carryforwards before they are utilized. Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. In 2014, we determined that the undistributed earnings o f our India subsidiary will be repatriated to the United States, and accordingly, we have provided a deferred tax liability totaling $ 16 thousand and $ 23 thousand as of December 31, 2022 and 2021 respectively, for local taxes that would be incurred upon repatriation. We apply the provisions of ASC 740 to account for uncertain income tax es. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): December 31, 2022 2021 2020 Balance at beginning of year $ 15,261 $ 12,683 $ 11,330 Additions based on tax positions related to current year 3,553 2,206 1,357 Additions to tax position of prior years — 372 — Reductions to tax position of prior years ( 243 ) — ( 4 ) Balance at end of year $ 18,571 $ 15,261 $ 12,683 We recognize interest and penalties as a co mponent of our income tax expense. Total interest and penalties recognized in the consolidated statements of operations were $ 42 thousand, $ 61 thousand and $ 39 thousand in 2022, 2021 and 2020, respectively. Total penalties and interest recognized in the balance sheet was $ 0.5 million, $ 0.5 million and $ 0.4 million as of December 31, 2022, 2021 and 2020, respectively. The total unrecognized tax benefits that, if recognized currently, would impact our company’s effective tax rate were $ 0.3 million as of December 31, 2022, 2021 and 2020. We do not expect any material changes to our uncertain tax positions within the next 12 months. We are not subject t o examination by United States federal or state tax authorities for years prior to 2002 and foreign tax authorities for years prior to 2014. Note 13. 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 December 31, 2022 and 2021, and are recorded as non-current restricted cash on the consolidated balance sheets. 115 We entered into a short-term office lease in San Carlos, California during the second quarter of 2021 and this lease expired in April 2022. 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 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 is recorded as non-current restricted cash on the consolidated balance sheets. 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 and $ 0.4 million as of December 31, 2022 and 2021, respectively, which are included in other liabilities on the consolidated balance sheets. Accretion expense related to our asset retirement obligations was nominal in 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): Year Ended December 31, 2022 2021 2020 Amortization of right-of-use assets $ 18 $ 106 $ 152 Interest on lease obligations — — 1 Finance lease costs 18 106 153 Operating lease cost 7,321 4,396 3,879 Short-term lease costs (1) 40 70 47 Sublease income — — ( 55 ) Total lease cost (2) $ 7,379 $ 4,572 $ 4,024 (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. Amounts included in measurement of lease obligations (in thousands): Year Ended December 31, 2022 2021 2020 Cash paid: Operating cash flows from operating leases $ 6,506 $ 4,197 $ 2,816 Operating cash flow from finance leases $ — $ — $ 1 Financing cash flows from finance leases $ — $ — $ 60 Non-cash activity: Operating Lease - Right-of-use assets obtained in exchange for lease liabilities $ — $ 25,445 $ — Finance Lease - Right-of-use assets obtained in exchange for lease liabilities $ — $ — $ — Operating Lease Other information: Weighted-average remaining lease term (in years) 7.1 years Weighted-average discount rate 5.4 % 116 As of December 31, 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 2023 $ 7,568 2024 7,783 2025 8,004 2026 8,232 2027 5,835 Thereafter 14,871 Total minimum lease payments 52,293 Less: imputed interest 8,655 Lease obligations $ 43,638 Reconciliation of operating lease liabilities as shown within the audited consolidated balance sheets: Current portion of lease obligations - Operating leases $ 5,360 Long-term lease obligations - Operating leases 38,278 Total operating lease liabilities $ 43,638 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 2023 2024 and Thereafter Development and manufacturing services agreements $ 3,093 $ 2,938 $ 155 Facility maintenance agreement 2,249 2,249 — Total other commitments $ 5,342 $ 5,187 $ 155 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 equal to the greater of (i) 4.25 % or (ii) the sum of (A) the prime rate plus (B) 1.00 %. As of December 31, 2022 and 2021, we have not drawn from the Credit Facility. 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 December 31, 2022 and 2021, we were in compliance with the covenants for the Credit Facility. 117 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 our business or the results of operations. 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 14. 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 the MAI Agreement, pursuant to which we performed 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. W e 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. We recogniz ed $ 1.2 million , $ 2.0 million and $ 0.9 million in research and development revenue from transactions with MAI in the years ended December 31, 2022, 2021 and 2020, 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 , 3,491,505 and 714,171 shares of MAI's Series A and B preferred stock for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, we hold an aggregate 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 $ 0.5 million in product revenue for the year ended December 31, 2022. The carrying value of our investment in MAI's Series A and B preferred stock was $ 13.9 million and $ 12.7 million at December 31, 2022 and 2021, respectively. We had nil a nd $ 0.2 million in deferred revenue as of December 31, 2022 and 2021, respectively . 118 Note 15. 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. All of our long lived assets are located in the United States. 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. 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 loss before income taxes (in thousands): Year Ended December 31, 2022 Year Ended December 31, 2021 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Revenues: Product revenue $ 116,676 $ — $ 116,676 $ 70,657 $ — $ 70,657 Research and development revenue 9,936 11,978 21,914 19,858 14,239 34,097 Total revenues 126,612 11,978 138,590 90,515 14,239 104,754 Costs and operating expenses: Cost of product revenue 38,033 — 38,033 22,209 — 22,209 Research and development (1) 25,786 49,770 75,556 23,140 30,219 53,359 Selling, general and administrative (1) 14,724 2,421 17,145 12,105 2,755 14,860 Restructuring charges 1,708 966 2,674 — — — Total segment costs and operating expenses 80,251 53,157 133,408 57,454 32,974 90,428 Income (loss) from operations $ 46,361 $ ( 41,179 ) 5,182 $ 33,061 $ ( 18,735 ) 14,326 Corporate costs (2) ( 33,080 ) ( 32,201 ) Depreciation and amortization ( 5,418 ) ( 3,215 ) Loss before income taxes $ ( 33,316 ) $ ( 21,090 ) (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 and restructuring charges, interest income, and other income (expense), net. 119 Year Ended December 31, 2021 Year Ended December 31, 2020 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Revenues: Product revenue $ 70,657 $ — $ 70,657 $ 30,220 $ — $ 30,220 Research and development revenue 19,858 14,239 34,097 17,886 20,950 38,836 Total revenues 90,515 14,239 104,754 48,106 20,950 69,056 Costs and operating expenses: Cost of product revenue 22,209 — 22,209 13,742 — 13,742 Research and development (1) 23,140 30,219 53,359 20,923 21,705 42,628 Selling, general and administrative (1) 12,105 2,755 14,860 9,597 2,355 11,952 Total segment costs and operating expenses 57,454 32,974 90,428 44,262 24,060 68,322 Income (loss) from operations $ 33,061 $ ( 18,735 ) 14,326 $ 3,844 $ ( 3,110 ) 734 Corporate costs (2) ( 32,201 ) ( 22,306 ) Depreciation and amortization ( 3,215 ) ( 2,099 ) Loss before income taxes $ ( 21,090 ) $ ( 23,671 ) (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 (expense), net. The following table provides stock-based compensation expense included in income (loss) from operations (in thousands): Year Ended December 31, 2022 2021 2020 Performance Enzymes $ 6,035 $ 5,047 $ 3,296 Novel Biotherapeutics 903 1,100 768 Corporate cost 7,593 5,446 3,664 Total $ 14,531 $ 11,593 $ 7,728 Significant Customers Customers that each accounted for 10% or more of our total revenues were as follows: Percentage of Total Revenues For the Year Ended December 31, 2022 2021 2020 Customer A 56 % 33 % * Customer B * 11 % 26 % Customer C * * 19 % Customer D * * 11 % * Percentage was less than 10% Customers that each accounted for 10% or more of accounts receivable balances as of the periods presented are as follows: As of December 31, 2022 2021 Customer A 53 % 62 % Customer D 10 % * * Percentage was less than 10% 120 Geographical Information Geographic revenues are identified by the location of the customer and consist of the following (in thousands): Year Ended December 31, 2022 2021 2020 Revenues Americas $ 17,000 $ 23,481 $ 24,352 EMEA 56,540 20,187 19,257 APAC 65,050 61,086 25,447 Total revenues $ 138,590 $ 104,754 $ 69,056 Identifiable long-lived assets by location was as follows (in thousands): December 31, 2022 2021 United States $ 61,877 $ 65,457 Identifiable goodwill by reporting unit was as follows (in thousands): December 31, 2022 December 31, 2021 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Goodwill $ 2,463 $ 778 $ 3,241 $ 2,463 $ 778 $ 3,241 Note 16. Allowance for Credit Losses The following table summarizes the financial assets allowance for credit losses (in thousands): December 31, 2022 2021 2020 Balance at beginning of period $ 416 $ 74 $ 34 Provision for credit losses 54 342 40 Write-offs ( 257 ) — — Recoveries collected ( 50 ) — — Balance at end of period $ 163 $ 416 $ 74 The following tables summarize accounts receivable by aging category (in thousands): December 31, 2022 Current 31-60 Days 61-90 Days 91 Days and Over Total over 31 Days Total Balance Accounts receivable $ 28,896 $ 1,747 $ 469 $ 792 $ 3,008 $ 31,904 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 Note 17. Restructuring Charges In November 2022, we announced a plan for a workforce reduction of approximat ely 18 % of our total employee to realign and optimize our workforce requirements in alignment with our refined corporate strategy. During the year ended December 31, 2022, we recorded a restructuring charge of $ 3.2 million related to severance, bonus and other termination benefits in connection with the workforce reduction. As of December 31, 2022, we have accrued $ 1.2 million as a current liability within accrued compensation on our consolidated balance sheets and is expected to be paid in the first quarter of 2023. We do not expect to record any significant future charges related to the restructuring plan. 121 Note 18. Subsequent Events On January 23, 2023, we announced the appointment of Sriram Ryali as our new Chief Financial Officer, effective immediately. In connection with Mr. Ryali's appointment as Chief Financial Officer, Ross Taylor ceased to serve as our Chief Financial Officer and principal financial and accounting officer, effective as of January 23, 2023. Mr. Taylor will provide transition and advisory services on an as-needed basis until March 6, 2023. 122 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.