What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-05-04 · 184 added, 99 removed, 462 unchanged (38% of the section changed)

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(In Thousands, Except Per Share Amounts)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

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100,000 shares authorized;

66,696 shares and 65,811 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

69,804 shares and 65,811 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 579,555 566,081

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(In Thousands, Except Per Share Amounts)

Three Months Ended March 31,

Product revenue $ 8,364 $ 30,690

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

2023 2022 2023 2022

Product revenue ($ 0 , $ 143 , $ 0 and $ 143 from a related party)

$ 11,048 $ 34,645 $ 19,412 $ 65,335

Research and development revenue ($ 0 , $ 0 , $ 0 and $ 245 from a related party)

10,275 3,761 14,893 8,411

Total revenues 21,323 38,406 34,305 73,746

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Capital Accumulated Deficit Total Stockholders' Equity

Three Months Ended March 31, 2023 Shares Amount

Three Months Ended June 30, 2023 Shares Amount

Balance as of April 1, 2023

66,696 $ 6 $ 569,917 $ ( 443,907 ) $ 126,016

Exercise of stock options 71 — 141 — 141

Release of stock awards 285 — — — —

Employee stock-based compensation — — 2,716 — 2,716

Issuance of common stock, net of issuance costs of $ 331

2,752 — 6,781 — 6,781

Net loss — — — ( 11,523 ) ( 11,523 )

Balance as of June 30, 2023

69,804 $ 6 $ 579,555 $ ( 455,430 ) $ 124,131

Common Stock Additional

Capital Accumulated Deficit Total Stockholders' Equity

Three Months Ended June 30, 2022 Shares Amount

Balance as of April 1, 2022

65,304 $ 6 $ 554,683 $ ( 396,054 ) $ 158,635

Exercise of stock options 97 — 251 — 251

Release of stock awards 95 — — — —

Employee stock-based compensation — — 3,174 — 3,174

Non-employee stock-based compensation — — 57 — 57

Taxes paid related to net share settlement of equity awards ( 2 ) — ( 18 ) — ( 18 )

Net loss — — — ( 2,640 ) ( 2,640 )

Balance as of June 30, 2022

65,494 $ 6 $ 558,147 $ ( 398,694 ) $ 159,459

See accompanying notes to the unaudited condensed consolidated financial statements.

Codexis, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(In Thousands)

Common Stock Additional

Capital Accumulated Deficit Total Stockholders' Equity

Six Months Ended June 30, 2023 Shares Amount

Balance as of January 1, 2023

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Net loss — — — ( 34,140 ) ( 34,140 )

Balance as of March 31, 2023

Balance as of June 30, 2023

69,804 $ 6 $ 579,555 $ ( 455,430 ) $ 124,131

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Capital Accumulated Deficit Total Stockholders' Equity

Three Months Ended March 31, 2022 Shares Amount

Six Months Ended June 30, 2022 Shares Amount

Balance as of January 1, 2022

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Net loss — — — ( 10,996 ) ( 10,996 )

Balance as of March 31, 2022

Balance as of June 30, 2022

65,494 $ 6 $ 558,147 $ ( 398,694 ) $ 159,459

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(In Thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities:

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Stock-based compensation 5,525 7,069

Provision (recovery) for credit losses — ( 307 )

Equity securities earned from research and development activities ($ 0 and ($ 245 ) from a related party)

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Capital expenditures incurred but not yet paid $ 434 $ 409

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets as of March 31, 2023 and 2022 to the total of the same such amounts shown above in the unaudited condensed consolidated statements of cash flows:

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets as of June 30, 2023 and 2022 to the total of the same such amounts shown above in the unaudited condensed consolidated statements of cash flows:

Cash and cash equivalents $ 92,093 $ 90,113

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and its subsidiaries on a consolidated basis.

We are a leading enzyme engineering company leveraging our CodeEvolver ® technology platform to discover, develop, enhance, and commercialize novel, high performance enzymes and other classes of proteins.

We report our financial results based o n two r eportable segments:

We discover, develop, enhance, and commercialize novel, high performance enzymes and other classes of proteins leveraging our proprietary CodeEvolver ® directed evolution platform.

As of June 30, 2023, we reported our financial results based on two reportable segments:

Performance Enzymes and Novel Biotherapeutics.

Our Novel Biotherapeutics business includes a diverse pipeline of product candidates in clinical and preclinical development.

Our Performance Enzymes business consists primarily of two focus areas:

i) biocatalysts for the sustainable manufacturing of pharmaceuticals and ii) enzymes for life science applications, including genomic sequencing and nucleic acid synthesis.

Our Novel Biotherapeutics business includes product candidates in clinical and preclinical development.

The segment information aligns with how the chief operating decision maker ( “ CODM ” ), who is our Chief Executive Officer (CEO), reviews and manages the business.

In July 2023, we announced that we are discontinuing investment in Novel Biotherapeutics and expect to have just one business segment, Performance Enzymes, by the end of 2023.

Basis of Presentation and Summary of Significant Accounting Policies

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The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements.

The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements for the three months ended March 31, 2023 and 2022, are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 2022 Annual Report on Form 10-K and are updated below as necessary.

The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023 and 2022, are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 2022 Annual Report on Form 10-K and are updated below as necessary.

There have been no significant changes in our significant accounting policies or critical accounting estimates since December 31, 2022.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly our financial position as of March 31, 2023, results of our operations for the three months ended March 31, 2023 and 2022, changes in stockholders' equity for the three months ended March 31, 2023 and 2022, and cash flows for the three months ended March 31, 2023 and 2022.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly our financial position as of June 30, 2023, results of our operations for the three and six months ended June 30, 2023 and 2022, changes in stockholders' equity for the three and six months ended June 30, 2023 and 2022, and cash flows for the six months ended June 30, 2023 and 2022.

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

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The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities.

We regularly assess these estimates which primarily affect revenue recognition, inventories, valuation of equity investments, goodwill arising out of business acquisitions, accrued liabilities, stock awards, and the valuation allowances associated with deferred tax assets.

We regularly assess these estimates which primarily affect revenue recognition, deferred revenue, inventories, valuation of equity investments, goodwill arising out of business acquisitions, accrued liabilities, stock awards, and the valuation allowances associated with deferred tax assets.

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

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

Accounting Pronouncements

Recently adopted accounting pronouncements or recently issued accounting pronouncements not yet adopted

There were no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2023, that are of significance or potential significance to us.

There were no recent accounting pronouncements or changes in accounting pronouncements during the three and six months ended June 30, 2023, that are of significance or potential significance to us.

Revenue Recognition

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Segment information is as follows (in thousands):

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

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Total revenues $ 19,308 $ 2,015 $ 21,323 $ 36,530 $ 1,876 $ 38,406

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

Major products and service:

Product revenue $ 19,412 $ — $ 19,412 $ 65,335 $ — $ 65,335

Research and development revenue 9,382 5,511 14,893 4,294 4,117 8,411

Total revenues $ 28,794 $ 5,511 $ 34,305 $ 69,629 $ 4,117 $ 73,746

Primary geographical markets:

Americas $ 4,589 $ 1,932 $ 6,521 $ 4,861 $ 2,486 $ 7,347

EMEA 7,859 3,579 11,438 7,186 1,631 8,817

APAC 16,346 — 16,346 57,582 — 57,582

Total revenues $ 28,794 $ 5,511 $ 34,305 $ 69,629 $ 4,117 $ 73,746

Contract Balances

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Contract assets $ 2,248 $ 2,116

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deferred revenue $ 20,639 $ 30,609

We ha d no a sset impairment charges related to financial assets in the three months ended March 31, 2023 and 2022.

We had no asset impairment charges related to financial assets in the three and six months ended June 30, 2023 and 2022.

The increase in contract assets was primarily due to increases in product revenue from contracts subject to over time revenue recognition.

The increase in unbilled receivables was primarily due to the timing of billings.

The decrease in deferred revenue was primarily due to timing of recognition of revenue.

We recognized t he following revenues ( in thousands):

Three Months Ended March 31,

The increase in unbilled receivables was primari ly due to the timing of billings.

T he decrease in deferred revenue was primarily due to timing of recognition of revenue, including the $ 2.9 million release of prior periods' product revenue deferrals during the second quarter of 2023 due to early termination of the enzyme supply obligations to a customer .

We recognized the following revenues (in thousands):

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

Revenue recognized in the period for:

2023 2022 2023 2022

Amounts included in contract liabilities at the beginning of the period:

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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 March 31, 2023.

Th e balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts as of March 31, 2023 (in thousands):

The balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts as of June 30, 2023 (in thousands):

Remainder of 2023

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Shares issuable under the Equity Incentive Plan 9,312 5,792 9,312 5,792

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Non-Marketable Equity Securities

In March 2023, we purchased an additional 985,545 shares of Molecular Assemblies, Inc.

(“MAI”) Series B preferred stock for $ 0.8 million.

As of March 31, 2023, we hold an aggregate of 19,277,914 shares of MAI's Series A and B preferred stock that we have earned or purchased from MAI.

In March 2023, we purchased an additional 985,545 shares of Series B preferred stock for $ 0.8 million in Molecular Assemblies, Inc.

(“MAI”), a privately held life sciences company .

As of June 30, 2023, we held an aggregate of 19,277,914 shares of MAI's Series A and B preferred stock that we have earned or purchased from MAI.

See Note 11 “Related Party Transactions” for additional information on our investment in MAI.

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.

(“seqWell”), a privately held life sciences company, pursuant to which we purchased 1,000,000 shares of seqWell's Series C preferred stock for $ 5.0 million.

In March 2023, we entered into a Master Collaboration Agreement and Research Agreement with seqWell (the “seqWell Agreement”), pursuant to which we are providing research and experimental screening and protein engineering activities in exchange for compensation in the form of additional shares of seqWell's common stock.

We received 47,933 shares of seqWell's common stock from research and development services with seqWell and we recognized $ 50 thousand in research and development revenue from these services with seqWell during the three months ended March 31, 2023.

We received 65,982 and 113,915 shares of seqWell's common stock from research and development services with seqWell and we recognized $ 69 thousand and $ 118 thousand in research and development revenue from these services during the three and six months ended June 30, 2023, respectively.

We own 207,070 shares of Series B-2 preferred stock of Arzeda Corp.

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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.

Non-marketable equity securities are measured at fair value on a non-recurring basis and classified within Level 2 in the fair value hierarchy when 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 expense, net in the unaudited condensed consolidated statements of operations.

There was no remeasurement event for our investments in MAI, seqWell, Arzeda, and other non-marketable equity securities that occurred during the three months ended March 31, 2023 and 2022.

We recognized no realized gains or losses during the three months ended March 31, 2023 and 2022.

There was no remeasurement event for our investments in MAI, seqWell, Arzeda, and other non-marketable equity securities that occurred during the three and six months ended June 30, 2023 and 2022.

We recognized no realized gains or losses during the three and six months ended June 30, 2023 and 2022.

The following table presents the carrying value of our non-marketable equity securities (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

$ 14,671 $ 13,921

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The following tables present the financial instruments that were measured at fair value on a recurring basis within the fair value hierarchy (in thousands):

March 31, 2023

June 30, 2023

Level 1 Level 2 Level 3 Total

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Money market funds $ 77,309 $ — $ — $ 77,309

During the three months ended March 31, 2023 and 2022, we did no t recognize any significant credit losses no r other-than-temporary impairment losses on non-marketable securities.

During the three and six months ended June 30, 2023 and 2022, we did no t recognize any significant credit losses no r other-than-temporary impairment losses on non-marketable securities.

Balance Sheets Details

Cash Equivalents

Cash equivalents consisted of the following (in thousands):

March 31, 2023 December 31, 2022

Cash equivalents as of June 30, 2023 and December 31, 2022, consisted of the following (in thousands):

June 30, 2023 December 31, 2022

Adjusted Cost Estimated Fair Value Adjusted Cost Estimated Fair Value

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Average contractual maturities (in days) is not applicable.

As of March 31, 2023, the total cash and cash equivalents balance of $ 102.8 million consisted of money market funds of $ 100.2 million and cash of $ 2.6 million held with major financial institutions.

As of June 30, 2023, the total cash and cash equivalents balance of $ 92.1 million consisted of money market funds of $ 80.1 million and cash of $ 12.0 million held with major financial institutions.

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 with major financial institutions.

Inventories consisted of the following (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Raw materials $ 108 $ 108

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Total Inventories $ 2,052 $ 2,029

Inventories are recorded net of reserves o f $ 1.2 million a s of March 31, 2023 and December 31, 2022.

Inventories are recorded net of reserves of $ 1.2 million as of June 30, 2023 and December 31, 2022.

Property and Equipment, net

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Laboratory equipment $ 40,813 $ 39,679

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Depreciation expense included in both research and development expenses and selling, general and administrative expenses in the unaudited condensed consolidated statements of operations was as follows (in thousands):

Three Months Ended March 31,

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

2023 2022 2023 2022

Depreciation expense $ 1,480 $ 1,341 $ 2,946 $ 2,556

Goodwill had a carrying value of $ 3.2 million as of March 31, 2023 and December 31, 2022.

Goodwill had a carrying value of $ 3.2 million as of June 30, 2023 and December 31, 2022.

Other Accrued Liabilities

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Accrued professional and outside service fees $ 3,296 $ 3,495

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In January 2023, our board of directors (the “Board”) approved the 2022 Employment Inducement Award Plan (the “2022 Inducement Plan”) which provides for the grant of non-qualified stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance awards, other stock awards and dividend equivalents to eligible employees with respect to an aggregate of up to 2,000,000 shares of our common stock.

In 2019, the Board and stockholders approved the 2019 Incentive Award Plan (the “2019 Plan”).

In June 2023, the 2022 Inducement Plan was terminated upon the stockholders' approval of an amendment to the Company's 2019 Incentive Award Plan (the “2019 Plan”) at the 2023 annual meeting of the Company's stockholders (the “Annual Meeting”).

In 2019, the Board and stockholders approved 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;

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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”).

In April 2023, the Board approved an amendment to the 2019 Plan (the “2019 Amended Plan”) which became effective upon stockholders' approval at the Annual Meeting in June 2023.

The 2019 Amended Plan included the (i) increase in the number of shares available by 8,000,000 shares, such that an aggregate of 15,897,144 shares are reserved for issuance under the 2019 Amended Plan and any shares subject to awards granted under the 2010 Plan, and (ii) increase in the number of shares that may be granted as incentive stock options under the 2019 Amended Plan such that an aggregate of 22,000,000 shares of common stock may be granted as incentive stock options under the 2019 Amended Plan.

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.

Employee Stock Purchase Plan

In April 2023, the Board approved an employee stock purchase plan (the “ESPP”) which became effective upon the stockholders' approval at the Annual Meeting in June 2023.

The ESPP allows eligible employees of the Company to purchase shares of our common stock through payroll deductions over 24 -month offering periods.

The per share purchase price will be the lower of 85 % of the closing trading price per share of our common stock on the first trading date of an offering period in which a participant is enrolled or 85 % of the closing trading price per share on the purchase date.

Participant purchases are limited to a maximum of $ 25,000 of fair value or our stock per calendar year.

The Company is authorized to grant up to 2,000,000 shares of common stock under the ESPP.

As of June 30, 2023, the Company had not issued any shares of common stock nor recognized any stock-based compensation expenses related to the ESPP.

Stock Options

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

No PSUs and PBOs were granted during the first quarter of 2023.

No PSUs and PBOs were granted during the first half of 2023.

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.

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Cost of product revenue $ 83 $ 143 $ 212 $ 243

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The following table presents total stock-based compensation expense by security type included in the unaudited condensed consolidated statements of operations (in thousands):

Three Months Ended March 31,

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

2023 2022 2023 2022

Stock options $ 1,096 $ 794 $ 2,018 $ 1,600

RSUs and RSAs 1,373 1,333 2,499 2,495

PSUs 279 442 1,116 1,314

PBOs ( 32 ) 662 ( 108 ) 1,660

Total $ 2,716 $ 3,231 $ 5,525 $ 7,069

As of March 31, 2023, unr ecognized stock-based compensation expense, net of expected forfeitures, was $ 11.9 million related to unvested stock options, $ 8.6 million related to unvested RSUs and RSAs, $ 1.1 million related to unvested PSUs, and $ 0.2 million related to unvested PBOs based on current estimates of the level of achievement.

As of June 30, 2023, unrecognized stock-based compensation expense, net of expected forfeitures, was $ 10.8 million related to unvested stock options, $ 8.0 million related to unvested RSUs and RSAs, $ 0.8 million related to unvested PSUs, and $ 0.1 million related to unvested PBOs based on current estimates of the level of achievement.

Stock-based compensation expense for these awards will be recognized through 2027.

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Exercise of Options

For the three months ended March 31, 2023 and March 31, 2022, we issued 142,856 and 77,600 shares, respectively, upon option exercises at a weighted-average exercise price of $ 1.97 and $ 2.33 per share, respectively, with net cash proceeds of $ 0.3 million and $ 0.2 million, respectively.

For the six months ended June 30, 2023 and June 30, 2022, we issued 214,284 and 174,600 shares, respectively, upon option exercises at a weighted-average exercise price of $ 1.97 and $ 2.47 per share, respectively, with net cash proceeds of $ 0.4 million and $ 0.4 million, respectively.

Equity Distribution Agreement

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With the exception of certain expenses, we will pay PSC up to 8 % of the gross sales price of the shares sold pursuant to the EDA for a combined amount of commission and reimbursement of PSC's expenses and fees.

During the three months ended March 31, 2023, 327,480 shares of our common stock were issued pursuant to the EDA.

We received gross proceeds of $ 1.5 million, or $ 1.2 million in net proceeds after PSC's commissions and direct offering expenses of $ 0.4 million.

As of March 31, 2023, $ 48.5 million worth of shares remained available for sale under the EDA.

During the three months ended March 31, 2022, no shares of our common stock were issued pursuant to the EDA.

During the three and six months ended June 30, 2023, 2,751,941 and 3,079,421 shares of our common stock, respectively, were issued and sold pursuant to the EDA.

During the three and six months ended June 30, 2023, we received gross proceeds of $ 7.1 million and $ 8.7 million, or $ 6.8 million and $ 7.9 million in net proceeds after PSC's commissions and direct offering expenses of $ 0.3 million and $ 0.7 million, respectively.

As of June 30, 2023, $ 41.3 million worth of shares remained available for sale under the EDA.

During the three and six months ended June 30, 2022, no shares of our common stock were issued pursuant to the EDA.

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”).

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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 a s of March 31, 2023 and December 31, 2022, and are recorded as non-current restricted cash on the unaudited condensed consolidated balance sheets.

The letter of credit is collateralized by deposit balances held by the bank in the amount of $ 1.1 million as of June 30, 2023 and December 31, 2022, and are recorded as non-current restricted cash on the unaudited condensed consolidated balance sheets.

In January 2021, we entered into a lease agreement with ARE-San Francisco No.

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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 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 condensed consolidated balance sheet.

In July 2023, we announced that we expect to consolidate operations from our San Carlos facility to our headquarters in Redwood City.

The move is expected to occur during the second half of 2023, and we are actively pursuing options to substantially offset our lease obligation, including through a sublease or assignment.

We are required to restore certain areas of the Redwood City and San Carlos facilities that we are renting to their original form.

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

We recorded asset retirement obligations of $ 0.5 million as of March 31, 2023 and December 31, 2022, which are included in other liabilities on the unaudited condensed consolidated balance sheets.

Accretion expense related to our asset retirement obligations was nominal in the three months ended March 31, 2023 and 2022.

We recorded asset retirement obligations of $ 0.5 million as of June 30, 2023 and December 31, 2022, which are included in other liabilities on the unaudited condensed consolidated balance sheets.

Accretion expense related to our asset retirement obligations was nominal in the three and six months ended June 30, 2023 and 2022.

Lease and other information

Lease costs, amounts included in measurement of lease obligations and other information related to non-cancellable operating leases and finance leases were as follows (in thousands):

Three Months Ended March 31,

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

2023 2022 2023 2022

Finance lease costs $ — $ — $ — $ 18

Operating lease cost 1,830 1,831

Operating lease costs 1,830 1,829 3,660 3,660

Short-term lease costs (1)

Total lease cost (2)

Total lease costs (2)

$ 1,830 $ 1,839 $ 3,660 $ 3,718

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Weighted-average discount rate 5.4 %

Three Months Ended March 31,

Six Months Ended June 30,

Cash paid (in thousands):

Operating cash flows from operating leases $ 3,775 $ 2,817

As of March 31, 2023, our maturity analysis of annual undiscounted cash flows of the non-cancellable operating leases are as follows (in thousands):

As of June 30, 2023, our maturity analysis of annual undiscounted cash flows of the non-cancellable operating leases were as follows (in thousands):

Years Ending December 31, Operating Leases

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Payments Due by Period

Total 2023 (Remaining 9 Months) 2024 and

Total 2023 (Remaining 6 Months) 2024 and Thereafter

Development and manufacturing services agreements $ 3,221 $ 2,313 $ 908

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The right to take draws on the Term Debt expired on December 31, 2022.

We terminated the loan agreement with Western Alliance Bank in March 2023.

In March 2023, we terminated the Credit Facility with Western Alliance Bank.

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 recognize a loss contingency in the unaudited 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.

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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 June 2020, we entered into a Stock Purchase Agreement with MAI, a privately held life sciences company, pursuant to which we purchased 1,587,050 shares of MAI's Series A preferred stock for $ 1.0 million.

Nicols, our former President and CEO until August 2022, also joined MAI’s board of directors in June 2020.

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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.

Revenues recognized from transactions with MAI in the three months ended March 31, 2023, and subsequent to the related party period which ended in August 2022, are included in the condensed consolidated statement of operations.

We recognize d $ 0.2 million in research and development revenue from transactions with MAI in the three months ended March 31, 2022 and during the related party period .

Revenues recognized from transactions with MAI in the three and six months ended June 30, 2023, and subsequent to the related party period which ended in August 2022, are included in the condensed consolidated statement of operations.

We recognized nil and $ 0.2 million in research and development revenue from transactions with MAI in the three and six months ended June 30, 2022, respectively, and we recognized $ 0.1 million in product revenue from transactions with MAI in the three and six months ended June 30, 2022, during the related party period .

Segment, Geographical and Other Revenue Information

Segment Information

We manage our business as two business segments:

As of June 30, 2023, we managed our business as two business segments:

Performance Enzymes and Novel Biotherapeutics.

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.

In July 2023, we announced that we are discontinuing investment in Novel Biotherapeutics and expect to have just one business segment, Performance Enzymes, by the end of 2023.

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.

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All of our long lived assets are located in the United States.

Factors considered in determining the two reportable segments of the Company include the nature of business activities, the management structure directly accountable to our CODM for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors.

Factors considered in historically 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.

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

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

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Loss before income taxes $ ( 11,514 ) $ ( 2,532 )

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

Product revenue $ 19,412 $ — $ 19,412 $ 65,335 $ — $ 65,335

Research and development revenue 9,382 5,511 14,893 4,294 4,117 8,411

Total revenues 28,794 5,511 34,305 69,629 4,117 73,746

Costs and operating expenses:

Cost of product revenue 7,698 — 7,698 19,791 — 19,791

Research and development (1)

15,955 15,552 31,507 13,051 23,424 36,475

Selling, general and administrative (1)

4,830 1,142 5,972 7,416 1,400 8,816

Restructuring charges — 145 145 — — —

Total segment costs and operating expenses 28,483 16,839 45,322 40,258 24,824 65,082

Income (loss) from operations $ 311 $ ( 11,328 ) ( 11,017 ) $ 29,371 $ ( 20,707 ) 8,664

Corporate costs (2)

( 20,152 ) ( 16,994 )

Unallocated depreciation and amortization ( 2,946 ) ( 2,549 )

Loss before income taxes $ ( 34,115 ) $ ( 10,879 )

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

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

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

Three Months Ended March 31,

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

Three Months Ended June 30,

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

Stock-based compensation $ 924 $ ( 80 ) $ 1,872 $ 2,716 $ 1,493 $ 358 $ 1,380 $ 3,231

Six Months Ended June 30,

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

Stock-based compensation $ 1,959 $ 333 $ 3,233 $ 5,525 $ 3,183 $ 768 $ 3,118 $ 7,069

Significant Customers

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Percentage of Total Revenues for the

Three Months Ended March 31,

Customer A * 61 %

Customer B 23 % *

Customer C 14 % *

Customer D 13 % *

Customer E 10 % *

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

2023 2022 2023 2022

28 % 62 % 17 % 62 %

18 % * 11 % *

* Percentage was less than 10%

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Percentage of Accounts Receivables as of

March 31, 2023 December 31, 2022

Customer A * 53 %

Customer B 21 % *

Customer C 11 % 10 %

Customer F 14 % *

Customer G 12 % *

June 30, 2023 December 31, 2022

* Percentage was less than 10%

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Americas $ 3,937 $ 3,614 $ 6,521 $ 7,347

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

United States $ 60,070 $ 61,877

Identifiable goodwill by reporting unit was as follows (in thousands):

As of March 31, 2023 and December 31, 2022

As of June 30, 2023 and December 31, 2022

Performance Enzymes Novel Biotherapeutics Total

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The following table summarizes the financial assets allowance for credit losses (in thousands):

Three Months Ended March 31,

Three and Six Months Ended June 30,

Balance at beginning of period $ 163 $ 416

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

March 31, 2023

June 30, 2023

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

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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.

The plan was substantially completed in December 2022 and severance costs were paid through the first quarter of 2023.

During the three months ended March 31, 2023, we recorded an additional restructuring charge of $ 0.1 million related to severance, bonus and other termination benefits in connection with the workforce reduction, which is expected to be paid in the second quarter of 2023.

We do not expect to record any significant future charges related to the restructuring plan initiated in 2022.

The plan was substantially completed in December 2022 and severance costs were paid through the second quarter of 2023.

During the three and six months ended June 30, 2023, we recorded an additional restructuring charge of $ 0.1 million and $ 0.2 million, respectively, related to severance, bonus and other termination benefits in connection with the workforce reduction.

We do not expect to record any future charges related to the restructuring plan initiated in 2022.

Subsequent Events

On July 20, 2023, in alignment with our enhanced strategic focus, we announced a plan for a workforce reduction of approximately 25 %.

We further announced that we are discontinuing investment in our biotherapeutics business and as part of this enhanced strategic focus, we are prioritizing the advancement and commercialization of our ECO Synthesis ™ Platform and our complementary pharmaceutical manufacturing business, We expect to incur approximately $ 2.9 million of restructuring charges, comprised mainly of severance and related benefit costs.

The restructuring actions associated with this charge are expected to be substantially complete and paid by September 30, 2023.

We also announced that we will consolidate operations to our headquarters in Redwood City, California in the second half of 2023.

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

What changed 10-Q

Item 1. Financial Statements