EDGAR 10-K Filing

Company CIK: 1850079
Filing Year: 2022
Filename: 1850079_10-K_2022_0001850079-22-000025.json

---

ITEM 1. BUSINESS
Item 1. Business

---

ITEM 1A. RISK FACTORS
Item 1A. Risk Factors

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

---

ITEM 2. PROPERTIES
Item 2. Properties
Our principal facility is located at 9535 Waples Street in San Diego, California and functions as our worldwide headquarters. The facility is approximately 28,000 square feet on two stories and was leased from BioMed Realty. The lease expires in January 2025 and has an option to extend for an additional five years at the then current fair market value rental rate for comparable office and laboratory space. The 9535 Waples building contains infrastructure for reagent manufacturing and for research and development of new products, as well as for supporting supply chain, logistics and limited office space for administrative and commercial functions. The facility includes wet labs for both reagent manufacturing and research and development on both floors as well as specialized labs for instrument engineering to support the development of new instruments. A designated instrument services lab space supports our current instrument installed base customers.
In August 2021, we entered into a sublease agreement for 21,366 square feet of temporary office space at 10182 Telesis Court, San Diego, California. The sublease agreement has a term of one year and one option to extend the sublease term for an additional six months.
In September 2021, we entered into a lease, or Wateridge Lease, for future office and laboratory space and concurrently signed a second amendment, or the Second Amendment, to the operating lease agreement for the Waples Building. Under the Second Amendment, the lease for the Waples Building will terminate upon the occupancy of office and laboratory space at 10421 and 10431 Wateridge Circle, San Diego, California, which will occur subsequent to the renovation and build-out of the spaces. The Wateridge Pointe lease provides for a 10 year and 3 month term and we are entitled to one option to extend the lease term for an additional five years. Occupancy of 10421 and 10431 Wateridge Circle and the corresponding termination of the lease at 9535 Waples Street are expected to occur in the second half of 2022.
In connection with the EtonBio Inc., (Eton) acquisition in November 2021, we assumed a lease of office and laboratory space located at 10179 Huennekens Street, San Diego, California. The facility is approximately 8,600 square feet and was leased from Oberlin Realty LLC. The lease term expires in December 2022.
In connection with the Eton acquisition in November 2021, we assumed a lease of office and laboratory space located at 10717 Sorrento Valley Road, San Diego, California. The facility is approximately 8,000 square feet and was leased from
Sorrento Realty LLC. The lease term expires in November 2024 and has an option to extend the term for an additional three years at the then current fair market value rental rate for comparable office and laboratory space.
In connection with the Eton acquisition in November 2021, we assumed a lease of office and laboratory space located at 400 Park Offices Drive, Durham County, North Carolina. The facility is approximately 3,000 square feet. and was leased from Davis 54, LLC. The lease term expires in October 2023.
In connection with the Eton acquisition in November 2021, we assumed a lease office and laboratory space located at 56 Roland Street, Boston, Massachusetts. The facility is approximately 4,300 square feet and was leased from Paradigm Direct Roland. The lease term expires in June 2022.
In connection with the Eton acquisition in November 2021, we assumed a lease of office and laboratory space located at 1075 Morris Avenue, Union, New Jersey. The facility is approximately 1,200 square feet and was leased from Institute for Life Sciences Entrepreneurship. The lease term expires in November 2022.

---

ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
Codexis Trademark Litigation
In May 2020 Codexis, Inc. (Codexis) filed a complaint against us relating to our CODEX DNA name based on its rights in the CODEX and CODEXIS mark in the U.S. District Court, Northern District of California for federal and common law trademark infringement and unfair competition/false designation (the Complaint). Codexis seeks injunctive relief, including that we cease all use of the term CODEX and any other trademark confusingly similar to the marks CODEX and CODEXIS and not apply for registration of or register the CODEX mark or any other mark confusingly similar to the CODEX or CODEXIS marks, transfer to Codexis all domain names and social media accounts/user names that include the term “codex” and pay damages (consisting of Codexis’s actual damages, a disgorgement of our profits and punitive damages as permitted by California common law) as well as attorneys’ fees and costs.
According to the Complaint, Codexis primarily operates in the field of protein engineering and began using the CODEXIS and CODEX marks in or before 2006 and 2007, respectively. Codexis also asserts that it owns U.S. Trademark Registrations 3177355, 3779907, 87706489, 87706494 for the marks CODEXIS, CODEX, CODEXIS & Design, and CODEXIS PROTEIN ENGINEERING EXPERTS & Design for biochemical, chemical and scientific research services and product development and chemicals and biochemicals for research and commercial applications pertaining to chemistry, pharmaceuticals and medicines, among other things.
We do not currently own a U.S. trademark registration or U.S. trademark application for CODEX or Codex DNA but we do not believe there is any material customer confusion as a result of our use of the CODEX DNA name. In April 2020, we began using the name CODEX DNA, a rebrand from our prior name SGI-DNA to empower scientific researchers in academic and commercial setting. We plan to vigorously defend ourselves. If we cannot resolve this matter with Codexis, then a jury trial is set for May 2022.
Eurofins Pharma Non-Competition/Non-Solicitation Litigation
In October 2018, Eurofins Pharma US Holdings II, Inc. (EPUSH II) and Eurofins DiscoverX Corporation, or Eurofins DiscoverX and collectively, Plaintiffs, filed a complaint against Todd R. Nelson, SGI-DNA, Inc., which is our prior name, and Synthetic Genomics, Inc. (our former parent company), which, together with Dr. Nelson and SGI-DNA are the Defendants, to enforce non-competition and non-solicitation provisions of an agreement.
In September 2017, EPUSH II acquired DiscoveRx (now Eurofins DiscoverX), with Dr. Nelson as the acting Chief Executive Officer. As a condition of the closing, in July 2017, Dr. Nelson signed a Confirmation of Sales of Shares of Stock and Goodwill by Merger with Covenant Not to Compete Agreement, or the Non-Compete Agreement. The Non-Compete Agreement established that Dr. Nelson would transfer stock and goodwill. In addition, the Non-Compete Agreement stipulated that for a period of three years, Dr. Nelson agreed not to hire, influence or solicit any employee of DiscoveRx or its affiliates. He also agreed to disclose the Non-Compete Agreement and its restrictions to any future employer and to notify EPUSH II of any employment with another entity during the three-year period. According to the complaint, in July 2018, Dr. Nelson became the Chief Executive Officer of SGI-DNA but failed to provide notice of the employment to EPUSH II. Subsequently, Dr. Nelson allegedly also solicited and hired two Eurofins DiscoverX employees. In August 2018, Plaintiffs sent a letter to Dr. Nelson and SGI-DNA claiming that Dr. Nelson breached the Non-Compete Agreement and seeking concessions from Defendants. Defendants have denied liability, challenged the enforceability of the Non-Compete Agreement and rejected Plaintiffs’ demands.
The complaint, filed in the Superior Court of California, County of San Diego, charges Dr. Nelson with breach of contract, SGI-DNA with tortious interference, and both with unfair competition. The complaint seeks permanent injunctive relief, monetary damages and other equitable relief (including restitution) against the Defendants.
On April 9, 2021, the Defendants filed a motion for summary judgment, or in the alternative, summary adjudication, with regard to all causes of action. A hearing on this motion was held on June 25, 2021, at which time the court granted the motion in summary judgement on behalf of SGI-DNA and Dr. Nelson on three of the four claims. The court directed the parties back to mediation on the remaining claim but there was no resolution. The civil jury trial, initially scheduled for April 24, 2020, and rescheduled to August 27, 2021, is now a bench trial that has been rescheduled to begin May 6, 2022.

---

ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
Part II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock trades under the symbol “DNAY” on the Nasdaq Global Select Market and has been publicly traded since June 18, 2021. Prior to this time, there was no public market for our common stock.
Holders of Our Common Stock
As of January 6, 2022, there were approximately 52 holders of record of shares of our common stock. This number does not include stockholders for whom shares are held in “nominee” or “street” name.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to fund the development and expansion of our business, and therefore we do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors.
Unregistered Sales of Equity Securities
The following list sets forth information regarding all unregistered securities sold by us since January 1, 2019.
Warrant Issuances
On March 8, 2019, we issued SGI a warrant to purchase common stock, equal to 6% of the shares of common stock issued and outstanding as of the time of exercise, which will automatically be exercised immediately prior to the consummation of an initial public offering. This warrant and participation right were later amended on August 27, 2019 to provide a warrant on 1,081,745 shares of common stock at an exercise price of $3.00.
On December 14, 2019, we issued SGI a warrant to purchase 154,022 shares of Series A-1 convertible preferred stock at an exercise price of $3.61 per share.
On March 4, 2021, we issued SVB a warrant to purchase shares of convertible preferred stock (the Preferred Warrant). The Preferred Warrant is exercisable into the number of preferred shares equal to approximately $0.2 million divided by the applicable warrant price. The Preferred Warrant is initially exercisable for Series A-1 convertible preferred stock at an exercise price of $3.61 per share, and will become exercisable for any series of convertible preferred stock issued by the Company in the future prior to August 1, 2021, at an exercise price equal to the lowest original purchase price paid by investors for such convertible preferred stock.
Use of Proceeds from Public Offering of Common Stock
On June 22, 2021, we closed our initial public offering of 7,666,664 shares of common stock (inclusive of 999,999 shares of common stock from the full exercise of the overallotment option of shares granted to the underwriters). The offer and sale of all of the shares in the initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-256644), which was declared effective by the SEC on June 17, 2021. Jefferies LLC, Cowen and Company, LLC and KeyBanc Capital Markets Inc. acted as the underwriters. The public offering price of the shares sold in the offering was $16.00 per share. The total gross proceeds from the offering were $122.7 million.
After deducting underwriting discounts and commissions of $8.6 million and offering expenses paid by us of $1.6 million, the net proceeds from the offering were approximately $112.5 million.
There has been no material change in the planned use of proceeds from our IPO as described in our final IPO prospectus filed with the SEC on June 21, 2021 pursuant to rule 424(b) of the Securities Act. We invested the funds received in short-term and long-term, interest-bearing investment-grade securities and government securities.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by Item 5 of Form 10-K regarding equity compensation plans will be set forth in the Proxy Statement and is incorporated herein by reference.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our registered equity securities during the period covered by this Annual Report.

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved].

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, all references in this section to the “Company,” “we,” “us, or “our” refer to the business of Codex DNA, Inc. and its subsidiaries.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans, strategy for our business and beliefs, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Risk Factors” and “Special Note Regarding Forward-Looking Statements” sections and elsewhere in this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We are a leading synthetic biology company focused on enabling researchers to rapidly, accurately and reproducibly build or “write” high-quality synthetic DNA and mRNA that is ready to use in many downstream synthetic biology enabled markets. Our synthetic biology solution addresses the bottlenecks across the multi-step process of building DNA and mRNA, as well as the significant limitations of existing solutions that prevent the rapid building of high-quality DNA and mRNA at a useable scale. A key part of our solution is our BioXp system, an end-to-end automated workstation that fits on the benchtop and is broadly accessible due to its ease-of-use and hands-free automation. We believe our BioXp system can democratize synthetic biology by simplifying the process of building DNA and mRNA, thereby accelerating the discovery, development and production of novel high-value products, including antibody-based biologics, mRNA-based vaccines and therapeutics and precision medicines.
Our synthetic biology solution is comprised of our:
■BioXp system: which we believe is the first commercially available push-button, walkaway, end-to-end automated workstation that empowers researchers to go from a digital DNA sequence to endpoint-ready synthetic DNA in as few as 8 hours and mRNA in less than 24 hours, exclusive of shipment time;
■BioXp portal: a user-friendly online portal that offers an intuitive guided workflow and design tools for building new DNA sequences and assembling them into vector(s) of choice;
■BioXp kits: contain all the necessary building blocks and reagents, including our proprietary Gibson Assembly branded reagents, for specific synthetic biology workflow applications;
■Benchtop reagents: contain all the reagents necessary to proceed with a specific synthetic biology workflow on the benchtop using products generated on the BioXp system; and
■Biofoundry Services: enable a customer to order and receive any of the BioXp system endpoint-ready products, such as genes, clones, cell-free amplified DNA and variant libraries.
■Short Oligo Ligation Assembly (SOLA) enzymatic DNA synthesis (EDS): SOLA EDS is a sustainable, scalable, and cost-effective approach designed to significantly reduce timelines for constructing synthetic DNA, RNA, and proteins compared to traditional chemical synthesis, paving the way for more efficient and effective development of mRNA-based vaccines, diagnostics, therapeutics, and personalized medicines. SOLA EDS technology will be integrated into Codex DNA’s future BioXp Oligo Printer and BioXp Digital-to-Biological Converter systems, providing customers with an end-to-end solution for their life science research and synthetic biology needs.
We have developed and commercialized products that include BioXp systems, including our current BioXp 3250 system, BioXp kits for generating a wide array of synthetic DNA and mRNA, and benchtop reagents that complement the automated synthetic biology workflow applications and workflow solutions. We believe that our integrated BioXp systems and BioXp kits represent the industry’s leading synthetic biology workflow automation solution and provide us with a first mover advantage in the rapidly growing synthetic biology market. As part of our continuing effort to improve the processes of synthetic biology, we are currently developing next-generation BioXp systems and BioXp kits with the goal of transforming rapid demand-response workflows in synthetic biology and consolidating supply chains and enabling global distributed manufacturing for discovery, pre-clinical and clinical applications. We also use our BioXp 3250 system, BioXp kits and benchtop reagents to perform services for customers.
We were incorporated in the state of Delaware in March 2011, as Synthetic Genomics Solution, Inc., a wholly owned subsidiary of Synthetic Genomics, Inc. (SGI). We changed our name to SGI-DNA, Inc. (SGI-DNA) in February 2013. On March 8, 2019, SGI sold SGI-DNA to GATTACA Mining, LLC (GATTACA) by entering into a stock purchase agreement to sell all of our outstanding common and preferred stock in exchange for a $10 million non-recourse promissory note (the
Purchase Note) and a warrant to purchase common stock equal to 6% of the shares of common stock issued and outstanding as of the time of exercise, which will automatically be exercised immediately prior to the consummation of an initial public offering. This warrant and participation right were later amended in August 2019 to provide a warrant on 1,081,745 shares of common stock, a participation right to receive property with a value equal to the net proceeds a person would receive as a holder of 1,081,745 shares of common stock in a change of control transaction, and additional warrants equal to 3% of the shares sold in future equity financings prior to an initial public offering or certain change of control transactions. In connection with our Series A-1 convertible preferred stock financing in December 2019, we issued SGI warrants in connection with the participation right described above to purchase Series A-1 convertible preferred stock. These warrants have an exercise price of $3.61 per share. The common stock warrant has an aggregate exercise price of $3.00. We were a co-borrower with GATTACA on the Purchase Note. See the section titled “Certain Relationships and Related Party Transactions, and Director Independence” for more information regarding this transaction. Subsequently, we focused our efforts on launching new synthetic biology products and expanding our distribution and marketing efforts on our existing research using only products. We also changed our name to Codex DNA, Inc. in March 2020.
We commercially launched our current synthetic biology solution in September 2019, which now includes the BioXp 3250 system, BioXp kits with associated cloud-based application scripts, and benchtop reagent kits. Since the introduction of our solution through December 31, 2021, we have launched eight BioXp kits, three benchtop reagent kits, and several other synthetic biology products, including 14 SARS-CoV-2 full-length genomes and RNA controls as well as our Vmax X2 cells. We have placed approximately 200 BioXp systems globally. We target customers in the fields of personalized medicine, biologics drug discovery, vaccine development, genome editing and cell and gene therapy. As of December 31, 2021, our customer base was composed of over 450 customers and included 15 of the 25 largest biopharmaceutical companies in the world ranked by 2020 revenue, excluding affiliates of those companies. Our customer base also includes leading academic research institutions, government institutions, CROs and synthetic biology companies.
Our BioXp system placements in 2021 represent the following markets and customer segments:
■Areas of focus: 35% cell and gene therapy, 31% biologics, 14% vaccine development, 10% genome editing and 10% other.
■Research area: 25% genetic/rare disease, 24% infectious disease, 12% immuno-oncology and 39% other.
■Application: 23% cell engineering, 21% protein engineering, 18% vaccines, 14% antibody engineering, 12% nucleic acid engineering and 10% other.
■Customer type: 29% biotechnology development, 25% pharmaceutical development, 20% academic institutions, 16% contract research and 10% other.
We estimate that our 2021 product sales mix statistics were as follows:
■Sales mix: 57% BioXp systems, 23% BioXp kits, 14% biofoundry services and 6% benchtop reagents.
■Geographic mix: 62% North America, 29% Europe/Middle East/Africa and 9% Asia Pacific.
■Distribution mix: 87% direct sales and 13% distributors.
Since our inception as a stand-alone company on March 8, 2019, we have devoted substantially all of our efforts to raising capital, organizing, and staffing our company, commercializing existing products and developing new products. On June 18, 2021, we completed our initial public offering (IPO) of 7,666,664 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 999,999 additional shares of common stock, for aggregate gross proceeds of $122.7 million. We received $112.5 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us. Prior to our IPO, we had funded our operations with proceeds from the issuance of convertible notes and convertible preferred stock, payments received from royalties and product sales, and proceeds from borrowings under our credit facilities. Prior to our IPO, we had received gross proceeds of $32.8 million from sales of our convertible preferred stock, $6.8 million from the issuance of our convertible notes and and gross proceeds of $20.0 million through borrowings under our loan and security agreements with Oxford Finance LLC (the 2019 Loan Agreement) and Silicon Valley Bank (the 2021 Loan Agreement).
We have incurred significant operating losses since our inception. During the years ended December 31, 2021 and 2020, our revenue was $11.0 million and $6.6 million, respectively. As of December 31, 2021, we had cash and cash equivalents of $82.8 million. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of our products. We reported net losses of $39.0 million and $18.0 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $65.3 million.
Impact of COVID-19
In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability.
In response to public health directives and orders and to help minimize the risk of the virus to employees, we have taken precautionary measures, including implementing work-from home policies for certain employees. The COVID-19 pandemic has the potential to significantly impact our manufacturing supply chain, distribution or logistics and other services. Additionally, our service providers and their operations may be disrupted, temporarily closed or experience worker or supply shortages, which could result in additional disruptions or delays in shipments of purchased equipment, materials or the development of new products. To date, we have not suffered material supply chain disruptions.
The COVID-19 pandemic has had a mixed impact on our revenues. We sell our products to pharmaceutical and academic laboratories. Many such laboratories temporarily closed or reduced work hours due to the pandemic which reduced sales to existing customers. Furthermore, many business and academic conferences were cancelled and travel restrictions were imposed world-wide, which impacted customer acquisition and reduced sales. However, we were able to quickly develop new COVID-19 specific products and sell these and our existing products to entities working on COVID-19 products and vaccine development, which contributed to revenue growth.
We are not able to estimate the duration of the pandemic and potential impact on the business if disruptions or delays in shipments of product occur. In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including weakened demand for product and a decreased ability to raise additional capital when needed on acceptable terms, if at all. As the situation continues to evolve, we will continue to closely monitor market conditions and respond accordingly.
Reverse Stock Split
On June 10, 2021, our Board of Directors and stockholders approved a 3-for-1 reverse stock split of our issued and outstanding common stock and outstanding shares of convertible preferred stock, which was effected on June 11, 2021. The reverse stock split also applied to all outstanding securities or rights convertible into, or exchangeable or exercisable for, common stock or convertible preferred stock. Accordingly, all shares, stock options, warrants and per share information presented in this Annual Report have been retroactively adjusted to reflect the reverse stock split. There was no change in the par value and authorized number of shares of the Company’s common stock or preferred stock.
Initial Public Offering
On June 18, 2021, we completed our IPO of 7,666,664 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 999,999 additional shares of common stock, for aggregate gross proceeds of $122.7 million. Our shares began trading on the Nasdaq Global Select Market under the ticker symbol “DNAY” on June 18, 2021. We received $112.5 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us. Upon closing of the IPO, all outstanding convertible preferred stock converted into 15,079,329 shares of common stock and SGI’s outstanding warrants were automatically exercised into 1,201,059 shares of common stock.
Acquisition
On November 18, 2021 (the Acquisition Date), we entered into a Share Purchase Agreement, with the stockholders of EtonBio Inc. (Eton), a California corporation, pursuant to which we agreed to purchase all of the outstanding shares of capital stock of Eton. The total purchase price was approximately $13.6 million, which was funded with our existing cash on hand.
Eton is a San Diego-based biotech company specializing in synthetic biology products and services, including DNA sequencing and oligo synthesis, for the global academic research, pharmaceutical, and biotechnology industries. Eton also markets DNA prep services and products such as antibodies, peptides, and metabolism assay kits.
Components of Results of Operations
Revenue
Revenue consists of product sales and royalties and other revenue. Net product sales primarily consist of sales of our BioXp systems, BioXp kits, benchtop reagents and biofoundry services. In providing biofoundry services, we use our own
instruments and reagents to create DNA products for our customers. Royalties and other revenue consist of fees charged for the license of non-exclusive rights of our patents to third parties and grant revenue received from government entities as reimbursement of expenses related to the development and use of synthetic biology tools to develop solutions to address various areas of concern. The grants typically require the performance of specific activities and timely reporting of results.
Historically, revenue growth has come from BioXp systems, BioXp kits and biofoundry services. Growth in BioXp systems sales has come from investments in direct and indirect distribution channels and new product introductions. Growth in BioXp kit sales has come from the growth of the installed base of BioXp systems and new application kits. Biofoundry services were launched late in 2019. Growth in biofoundry services has been driven by new product introductions and prospective customers using biofoundry services to validate our BioXp systems. We have also seen an increase in demand for our biofoundry services driven by COVID-19-related access problems to researchers’ labs. As we continue to expand our revenue opportunities, we launched our collaboration research program which works with government entities to develop solutions to specific areas of concern.
Collaboration and License Agreement with Pfizer
In December 2021, we entered into a Research Collaboration and License Agreement (Pfizer Agreement) with Pfizer Inc. (Pfizer), pursuant to which we agreed to collaborate with Pfizer to further develop our novel enzymatic DNA synthesis technology for Pfizer’s use in its research and development of mRNA-based vaccines and biotherapies. The financial terms of the deal include an upfront payment from Pfizer to us, along with success-based technical milestone payments that could be earned in the near term. We are also eligible to receive additional milestone payments based on the achievement of specified development, regulatory and commercialization goals associated with any products developed from the application of our technology developed and licensed under the agreement.
We granted Pfizer a non-exclusive, worldwide license to use our enzymatic DNA synthesis technology for purposes of researching, developing, manufacturing and commercializing pharmaceutical and biopharmaceutical products and a limited-time option to convert such license to exclusive for specific applications. If Pfizer exercises its option for these application(s) within the applicable period, then the license to Pfizer will become exclusive for products for such application(s); provided that Pfizer may later convert the particular application back to non-exclusive.
Under the Pfizer Agreement, Pfizer made an upfront payment to us of $8 million and if we meet certain technical milestones, we will be eligible to receive an additional $10 million in near-term milestone payments associated with the Research Plan.
In addition to the upfront payment and technical milestone payments, Pfizer has agreed to make milestone payments to us upon the products meeting certain clinical milestones, with each product (other than exclusive products) being eligible for milestone payments up to $20 million if it were to meet the applicable clinical milestones and the first exclusive product in each exclusive field being eligible for milestone payments up to $55 million if it were to meet the applicable clinical milestones. Pfizer has also agreed to pay us up to $60 million in sales milestones for products (other than exclusive products) if aggregate net sales of such products meet certain thresholds and up to $180 million in sales milestones for exclusive products if aggregate net sales of the exclusive products meet certain thresholds. Provided the Pfizer Agreement remains in place, Pfizer will also pay escalating royalties from a low to mid-fraction of one percent of net sales of all products. Pfizer’s obligations to pay royalties with respect to a product within a country will expire after specific criteria including such product no longer being covered by patent rights licensed to Pfizer by us in such country. Royalty payments are subject to reduction after the introduction of a biosimilar product in such country by a third party.
Cost of Revenue
Cost of revenue primarily consists of material and labor costs, freight and indirect overhead costs associated with sales of our BioXp instruments, BioXp kits, benchtop reagents, biofoundry services and collaboration research programs. Cost of revenue also includes period costs related to certain inventory adjustment charges, and unabsorbed manufacturing and overhead costs, as well as any write-offs of inventory that fail to meet specification or are otherwise no longer suitable for commercial manufacture. Cost of revenue is expected to increase as revenue increases.
Research and Development Expenses
Research and development expenses include pre-production costs related to the design, development and improvement of our products and technologies, including employee compensation, benefits and related costs of sustaining our engineering teams, project material costs, third party fees paid to consultants, prototype development expenses, legal costs related to intellectual property, patent fees, and other costs incurred in the product design and development process. We expense research and development costs as incurred. Non-refundable advance payments that we make for goods or services to be received in the future are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed, or when it is no longer expected that the goods will be delivered or the services rendered.
We expect that our research and development expenses will increase significantly, both in the near term and subsequently, in connection with our planned product development activities. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of any of our future products. The successful development and commercialization of our future products is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including but not limited to the following:
■we can never be certain that we can solve any technical challenge;
■if such solution can be found, we can never be certain of the timing of such a solution;
■once we find a technical solution, we cannot be certain that the solution will be commercially feasible; and
■any solution may not be desired by our customers.
These uncertainties with respect to the development of any of our future products could significantly impact the costs and timing associated with the development of these products.
Sales and Marketing Expenses
Sales and marketing expenses include employee compensation and benefits for sales, marketing, customer service, corporate development personnel and related administrative expenses. In addition, sales and marketing expenses also include costs for international employees and facility overhead based on headcount. We anticipate that our sales and marketing expenses will increase in the future as we increase our headcount to support increasing sales and continued expansion of our international operations. Sales and marketing costs are expensed as incurred.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, IT, and administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs, administrative travel expenses, other operating costs; and facility costs not otherwise included in research and development or sales and marketing expenses.
We anticipate that our general and administrative expenses will increase in the future as we increase our administrative headcount to support our continued research, development and commercialization activities. We also anticipate that we will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a publicly traded company. General and administrative expenses are expensed as incurred.
Other Income (Expense)
Interest Expense
Interest expense primarily consists of cash and non-cash interest on our term loan facilities, the Purchase Note, and our finance leases.
Change in Fair Value of Derivative Liabilities
Change in fair value of derivative liabilities consists of the change in fair value of our SGI participation right liability, warrant liabilities, contingent put option liability, and success fee contingent liability. We classify derivative liabilities as a liability on our consolidated balance sheets that we remeasure to fair value at each reporting date. We recognize changes in the fair value of the derivative liabilities as a component of other income (expense) in our consolidated statements of operations and comprehensive loss. In connection with our IPO in June 2021, the participation right was extinguished and the warrants underlying our warrant liability were exercised. The success fee contingent liability was paid in full in July 2021. At December 31, 2021, the contingent put option liability is listed as a derivative liability on our consolidated balance sheets.
Other Income (Expense),Net
Other income (expense), net consists primarily of gains on the disposal of fixed assets and losses on the write off of intangible assets.
Income Taxes
Since our inception, we have not recorded any income tax benefits for the NOLs we have incurred in each year or for our earned research and development tax credits generated in each period, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credit carryforwards will not be realized. As of December 31, 2021 and 2020, we had federal NOL carryforwards of $62.1 million and $28.4 million, respectively and state NOL carryforwards of $38.5 million and $15.9 million, respectively. The federal NOL carryforwards of $1.3 million generated before January 1, 2018 will begin to expire in 2034, but can be used to offset up to 100% of taxable income.
Amounts generated after December 31, 2017 will carryforward indefinitely, but will be subject to 80% taxable income limitation beginning in tax years after December 31, 2020, as provided by the CARES Act. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
On March 27, 2020, the CARES Act was passed by the U.S. Congress and signed into United States law. The CARES Act, among other things, includes certain provisions for individuals and corporations; however, these benefits did not impact our income tax provisions in the years presented given the existence of the full valuation allowance.
Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:
Year Ended December 31,
2021 2020 Change
(in thousands)
Revenue
Product sales $ 8,462 $ 5,131 $ 3,331
Royalties and other revenue 2,581 1,445 1,136
Total revenue 11,043 6,576 4,467
Cost of revenue 6,744 2,951 3,793
Gross profit 4,299 3,625 674
Operating expenses:
Research and development 14,548 8,925 5,623
Sales and marketing 10,896 6,931 3,965
General and administrative 14,229 4,130 10,099
Total operating expenses 39,673 19,986 19,687
Loss from operations (35,374) (16,361) (19,013)
Other income (expense):
Interest expense, net (1,369) (690) (679)
Change in fair value of derivative liabilities (1,521) (880) (641)
Loss on extinguishment of debt (618) - (618)
Other expense, net (62) (74) 12
Total other income (expense), net (3,570) (1,644) (1,926)
Loss before provision for income taxes (38,944) (18,005) (20,939)
Provision for income taxes (14) (5) (9)
Net loss $ (38,958) $ (18,010) $ (20,948)
Revenue
Revenue for the year ended December 31, 2021 was $11.0 million, compared to $6.6 million for the year ended December 31, 2020. The increase of $4.5 million was primarily driven by a $3.3 million increase in product sales comprised of a $1.6 million increase in product sales of new 3250 BioXp instruments, a $0.9 million increase in reagent product sales due to an increased base of installed instruments, a $0.5 million increase in revenue attributable to the Eton acquisition, primarily in DNA sequencing, and a $0.3 million increase in biofoundry services as we continue to grow this service offering. Royalties and other revenue increased by $1.1 million because of collaboration research programs which began in 2021, as well as an increase in revenue related to the licensing of our products.
Cost of Revenue
Cost of revenue for the year ended December 31, 2021 was $6.7 million, compared to $3.0 million for the year ended December 31, 2020. The increase of $3.8 million was primarily driven by an increased volume of revenue and higher raw material costs associated with our reagent product sales of $1.5 million, a $1.2 million increase due to higher instrument sales and shipping charges, a $0.6 million increase in costs related to our collaboration research programs, a $0.6 million
increase in biofoundry services costs, and $0.3 million in costs primarily related to DNA sequencing. These increases were partially offset by a $0.4 million decrease in other costs,which are composed of overhead, indirect costs, manufacturing and pricing variances.
Research and Development Expenses
Research and development expenses for the year ended December 31, 2021 were $14.5 million, compared to $8.9 million for the year ended December 31, 2020. The increase of $5.6 million was primarily due to higher personnel expenses, facility related and other costs. Personnel expenses increased $3.7 million as we continue to increase our headcount related to our ongoing product development efforts, as well as costs associated with our Eton acquisition. This increase was partially offset by allocations of research and development costs attributable to our revenue from collaboration research programs. Facility related and other costs increased $1.9 million and were mainly due to general increases in research and development activities as part of our product development efforts and higher allocations due to the increase in headcount over the prior year.
Sales and Marketing Expenses
Sales and marketing expenses for the year ended December 31, 2021 were $10.9 million compared to $6.9 million for the year ended December 31, 2020, an increase of $4.0 million. Higher personnel expenses accounted for $3.4 million of the increase and was due to increased headcount as we build out our European and US sales and marketing teams to support increased revenue, a $0.3 million increase in professional services due to increased marketing activities, and an increase of $0.3 million in subscription based marketing platforms and programs.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2021 were $14.2 million, compared to $4.1 million for the year ended December 31, 2020. The increase of $10.1 million was primarily due to increases in professional services, personnel expenses, facility related and other costs. Professional services increased $3.9 million and were due to higher utilization of consultants, as well as increases in audit, accounting and legal services as part of our initial public offering and ongoing public company requirements, and an increase of $3.8 million in personnel expenses due to higher headcount including additions to our executive leadership team, employee stock option compensation expense and employee recruiting fees. Facility related and other costs increased $2.4 million and were primarily due to higher insurance costs related to being a publicly traded company, cyber security and other general expenses in support of our increased headcount.
Other Income (Expense), Net
Other income (expense), net for the year ended December 31, 2021 was a net expense of $3.6 million, compared to a net expense of $1.6 million for the year ended December 31, 2020. The increase of $1.9 million was primarily due to an increase in interest expense as a result of the 2021 Loan Agreement, the change in fair value of derivative liabilities due to the completion of the IPO, and the loss on extinguishment of debt under the 2019 Loan Agreement.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have incurred significant operating losses. On June 18, 2021, we completed our IPO of 7,666,664 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 999,999 additional shares of common stock, for aggregate gross proceeds of $122.7 million. We received $112.5 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us. Prior to our IPO, we had funded our operations with proceeds from the issuance of convertible notes and convertible preferred stock, payments received from royalties and product sales, and proceeds from borrowings under our credit facilities. Prior to our IPO, we had received gross proceeds of $32.8 million from sales of our convertible preferred stock, $6.8 million from the issuance of our convertible notes and gross proceeds of $20.0 million through borrowings under our loan and security agreements with Oxford Finance LLC (the 2019 Loan Agreement) and Silicon Valley Bank (the 2021 Loan Agreement). As of December 31, 2021, we had cash and cash equivalents of $82.8 million.
We will continue to incur significant expenses and expect to incur increasing operating losses for the foreseeable future. We also expect that our expenses and capital expenditures will increase substantially in connection with our ongoing activities, particularly as we:
■seek to develop new products and services and hire additional research, development and engineering personnel;
■expand our distribution and marketing infrastructure to further commercialize current and future products and support our growing customer base;
■add operational, financial, and administrative systems and personnel to support growing sales; and
■maintain, expand, enforce, defend and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio.
Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, or other capital sources, including collaborations with other companies, and other strategic transactions. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and equity offerings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
The field of synthetic biology is rapidly developing and subject to numerous risks and uncertainties associated with new technologies and novel products. Consequently, we are unable to accurately predict the timing or amount of increased product sales or expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to continue to generate significant product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Cash Flows
Comparison of the Years Ended December 31, 2021 and 2020
The following table summarizes our consolidated cash flows for the years ended December 31, 2021 and 2020:
Year Ended December 31,
2021 2020
(in thousands)
Net cash used in operating activities $ (36,698) $ (15,381)
Net cash used in investing activities (15,040) (204)
Net cash provided by (used in) financing activities 121,081 (96)
Net increase (decrease) in cash $ 69,343 $ (15,681)
Operating Activities
During the year ended December 31, 2021, we used $36.7 million of cash in operations, primarily resulting from our net loss of $39.0 million and net cash used in changes in our operating assets and liabilities of $3.0 million, partially offset by non-cash charges of $5.3 million. Net changes in our operating assets and liabilities for the period ended December 31, 2021, compared to the prior year period consisted primarily of a $3.9 million increase in deposits, prepaid expenses and other current assets, a $1.5 million increase in inventories, a $0.8 million increase in lease liabilities, a $0.7 million increase in accounts receivable, and a $0.5 million increase in deferred revenue, partially offset by a $4.4 million increase in accounts payable, accrued payroll and accrued liabilities. Non-cash charges consisted primarily of the change in fair value of derivative liabilities of $1.5 million, stock-based compensation expense of $1.1 million, depreciation and amortization expense of $0.9 million, amortization of lease right-of-use assets of $0.7 million, loss on the extinguishment of debt of $0.6 million, and amortization of the debt discount of $0.5 million.
During the year ended December 31, 2020, operating activities used $15.4 million of cash, primarily resulting from our net loss of $18.0 million, partially offset by non-cash charges of $2.6 million. Non-cash charges consisted primarily of depreciation and amortization expense of $0.9 million, change in fair value of derivative liabilities of $0.9 million, amortization of our right-of-use operating lease asset of $0.6 million, as well as amortization of the debt discount of $0.2 million.
Investing Activities
During the year ended December 31, 2021, net cash used in investing activities was $15.0 million, consisting of the Eton business acquisition, net of cash acquired of $13.2 million and $1.8 million related to purchases of property and equipment.
During the year ended December 31, 2020, net cash used in investing activities was $0.2 million, consisting of purchases of property and equipment.
Financing Activities
During the year ended December 31, 2021, net cash provided by financing activities was $121.1 million, consisting primarily of net proceeds from our IPO of $112.5 million and from borrowings of $14.9 million from the issuance of debt under the 2021 Loan Agreement, partially offset by $6.1 million related to the repayment and extinguishment of debt from the 2019 Loan Agreement and $0.2 million in principal payments on leased equipment and other.
During the year ended December 31, 2020, net cash used in financing activities was $0.1 million, consisting primarily of principal payments on leased equipment.
2019 Loan and Security Agreement
On September 5, 2019, we entered into a Loan and Security Agreement with Oxford Finance LLC (Oxford) as the lender (the 2019 Loan Agreement). Under the 2019 Loan Agreement we borrowed a total of $5.0 million in secured loans. These loans were repaid in full in March 2021. These loans bore interest at the greater of (i) 8.79% per annum and (ii) the sum of (a) the thirty day U.S. LIBOR rate reported in The Wall Street Journal on the last Business Day of the month that immediately precedes the month in which the interest will accrue, plus (b) 6.38%. They would have matured on October 1, 2023 and were secured by substantially all of our assets, other than our intellectual property, which was subject to a negative pledge. In connection with the 2019 Loan Agreement, we had a contingent obligation to pay Oxford a success fee of $0.8 million upon the completion of our initial public offering. Upon the loan’s inception and on December 31, 2019, the fair value of this success fee contingent liability was estimated to be $0.4 million and was recorded as a derivative liability on our consolidated balance sheets with the corresponding discount applied against the notes. Issuance costs related to the loans, inclusive of the success fee contingent liability, were $0.5 million.
Payments on the loans were interest-only until May 1, 2021, followed by equal monthly principal payments and accrued interest through the scheduled maturity date of October 1, 2023.
We had identified a contingent liability to pay a success fee to the lender as well as a bifurcated compound derivative liability related to a contingent interest feature and acceleration clause (contingent put option). The success fee contingent liability and the bifurcated embedded derivative were valued and separately accounted for in the accompanying consolidated financial statements. The fair value of the success fee was recorded as a contingent liability within derivative liabilities on our consolidated balance sheets and corresponding discount to the loans under the 2019 Loan Agreement. We classified the contingent put option liability within derivative liabilities on our consolidated balance sheets. We remeasured both liabilities to fair value at each reporting date, and we recognized changes in the fair value as a component of other income (expense) in our consolidated statements of operations and comprehensive loss. We continued to recognize changes in the fair value of the success fee contingent liability until the success fee was paid. The contingent put option liability was extinguished when the 2019 Loan Agreement was repaid in full in March 2021. The success fee contingent liability was paid in full in July 2021.
2021 Loan Agreement
On March 4, 2021, we entered into a Loan and Security Agreement with Silicon Valley Bank (SVB) as the lender (the 2021 Loan Agreement). Under the 2021 Loan Agreement, on March 5, 2021, we borrowed a $15.0 million senior secured term loan, the proceeds of which were used to repay all of our existing obligations under the 2019 Loan Agreement, with the remaining proceeds available for our working capital and general corporate purposes.
Under the 2021 Loan Agreement, SVB may elect to make a second term loan to us in a principal amount up to but not exceeding $5.0 million, as SVB may determine in its sole discretion.
In connection with the 2021 Loan Agreement, we issued to SVB a warrant to purchase a number of shares of preferred stock (the Preferred Warrant). The Preferred Warrant was exercisable into the number of preferred shares equal to approximately $0.2 million divided by the applicable warrant price. The Preferred Warrant was initially exercisable for Series A-1 convertible preferred stock at an exercise price of $3.61 per share. The Preferred Warrant also provides for the grant of additional shares upon the disbursement of an advance under the 2021 Loan Agreement. Such additional shares will be equal to 1.5% of the principal amount of the advance divided by the warrant price. The Preferred Warrant is exercisable at the original purchase price of the Series A-1 convertible preferred stock. When the Series A-1 convertible preferred stock in which the warrant would have been exercisable into converted into common stock, the warrant holder gained the right to
exercise the warrant for such number of shares of common stock into which the preferred shares would have converted into had they been exercised prior to the conversion. The Preferred Warrant may be exercised at any time, in whole or in part. Unless previously exercised, the Preferred Warrant will expire on March 4, 2031. The Preferred Warrant was exercised in June 2021 in exchange for 51,409 shares of common stock.
The term loan bears interest at a per annum rate equal to the greater of (a) 4.0% above the prime rate and (b) 7.25%. The interest rate as of March 5, 2021 was 7.25% per annum. The loan is secured by substantially all of our assets, other than our intellectual property. We have also agreed not to encumber our intellectual property assets, except as permitted by the 2021 Loan Agreement.
The term loan matures on January 1, 2024; provided, the loan maturity date will be extended by one year to January 1, 2025, if SVB is satisfied that we have achieved at least $4.0 million in trailing three-month instruments and reagents revenue for any three-month period occurring after March 4, 2021 but ending on or before December 31, 2021, subject to confirmatory lender calls.
Payments on the term loan are interest-only until February 1, 2022, followed by equal principal payments and monthly accrued interest payments through the scheduled maturity date; provided, the interest-only period may be extended to August 1, 2022 if SVB is satisfied that we have achieved at least $4.0 million in trailing three-month instruments and reagents revenue for any three-month period occurring after March 4, 2021, but ending on or before December 31, 2021, subject to confirmatory lender calls.
We may elect to prepay the term loan, in whole but not in part, at any time. If we elect to voluntarily prepay the term loan before the scheduled maturity date, we are required to pay the lender a prepayment fee, equal to 3.0% of the then outstanding principal balance if the prepayment occurs on or before March 4, 2022, 2.0% of the outstanding principal balance if the prepayment occurs after March 4, 2022, but on or before March 4, 2023, or 1.0% of the outstanding principal balance if the prepayment occurs after March 4, 2023, but on or before the scheduled maturity date. No prepayment fee is applicable to a mandatory prepayment of the loan upon an acceleration of the loan. Upon a voluntary or mandatory prepayment of the loan, we are also required to pay SVB’s expenses and all accrued but unpaid interest on the loan through the prepayment date.
A final payment (the Final Payment) equal to $0.4 million will be due at the earlier of the maturity date, acceleration of the loan, or a voluntary or mandatory prepayment of the loan. The Final Payment is being accrued through interest expense using the effective interest method.
Under the 2021 Loan Agreement, we covenant to maintain as of the last day of each month, certain consolidated trailing three-month minimum revenue levels as set forth in the 2021 Loan Agreement. In August 2021, the 2021 Loan Agreement was amended to change the monthly compliance reporting to quarterly reporting. For the three months ended September 30, 2021, we were not in compliance with the trailing three-month minimum revenue requirement. In November 2021, we further amended the 2021 Loan Agreement so that the trailing three-month minimum revenue requirement begins December 31, 2021 and when our cash balance falls below $55.0 million. Additionally, the interest-only period was extended until August 1, 2022 and the maturity date was amended to January 1, 2025. We assessed the amendment to the 2021 Loan Agreement under ASC 470 and determined that the amendment met the criteria of a debt modification. We accounted for the change prospectively.
The 2021 Loan Agreement includes customary representations and covenants that, subject to exceptions and qualifications, restrict our ability to do the following things: engage in mergers, acquisitions, and asset sales; transact with affiliates; undergo a change in control; engage in businesses that are not related to our existing business; add or change business locations; incur additional indebtedness; incur additional liens; make loans and investments; declare dividends or redeem or repurchase equity interests; and make certain amendments or payments in respect of any subordinated debt. In addition, the 2021 Loan Agreement contains customary affirmative covenants, including covenants regarding the payment of taxes and other obligations, maintenance of insurance, maintenance of our bank accounts, protection of our intellectual property, reporting requirements, compliance with applicable laws and regulations, and formation or acquisition of new subsidiaries.
The 2021 Loan Agreement also includes customary indemnification obligations and customary events of default, including, among other things, payment defaults, breaches of covenants following any applicable cure period, material misrepresentations, a failure of the loans or the lender’s security interest in the collateral to have the priority as required under the 2021 Loan Agreement, a material adverse change as defined in the 2021 Loan Agreement (including without limitation as a result of a government approval having been revoked, rescinded, suspended, modified or not renewed), certain material judgments and attachments, and events relating to bankruptcy or insolvency. The 2021 Loan Agreement also contains a cross default provision under which, if a third party (under any agreement) has a right to accelerate indebtedness greater than $0.5 million, we would be in default of the 2021 Loan Agreement. During the continuance of an
event of default, SVB may apply a default interest rate of an additional 5% to the outstanding loan balances, and SVB may declare all outstanding obligations immediately due and payable and may exercise other rights and remedies as set forth in the 2021 Loan Agreement and related loan documents. Acceleration would result in the payment of all outstanding loans, any default interest charged by the lender, all expenses of the lender and the Final Payment.
Funding Requirements
We expect our expenses to increase significantly in connection with our ongoing activities, particularly with respect to research and development efforts related to our future products and our efforts to expand sales of current products and to commercialize future products. In addition, we expect to incur additional costs associated with operating as a public company. The timing and amount of our operating and capital expenditures will depend largely on:
■the cost of developing new products that are commercially viable;
■the costs of marketing and selling our products globally; and
■the potential additional expenses attributable to adjusting our development plans (including any supply-related matters) due to the COVID-19 pandemic.
We believe that our existing cash and available borrowings will enable us to fund our operating expenses and capital expenditure requirements for the next twelve months.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
The following table summarizes our commitments to settle contractual obligations at December 31, 2021:
Payments Due by Period
Total Less than 1 Year 1 to 3 Years 4 to 5 Years More than 5 Years
(in thousands)
Operating lease commitments (1)
$ 3,003 $ 1,310 $ 711 $ 675 $ 307
Finance lease commitments (2)
85 85 - - -
Debt obligations (3)
17,652 1,103 16,149 400 -
Total $ 20,740 $ 2,498 $ 16,860 $ 1,075 $ 307
(1)Consists of payments due for our leases of office and laboratory space in San Diego, California and Durham County, North Carolina that expire between in September 2022 and November 2027.
(2)Consists of payments due for our leases of two pieces of equipment that expire between October 2022 and December 2022.
(3)Consists of the contractually required principal and interest payable under the 2021 Loan Agreement. For purposes of this table, the interest due under the 2021 Loan Agreement was calculated using an assumed interest rate of 7.25% per annum, which was the interest rate in effect as of December 31, 2021 and assumes no borrowings under the second term loan.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have any, off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and
assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
To date, our revenues have consisted primarily of payments received related to product sales and royalty agreements. We adopted the provisions of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (ASC 606), at inception. Under ASC 606, we recognize revenue when our customers obtain control of the goods, warranty services are delivered or royalties are earned.
Revenue for our product sales is recognized upon delivery to the customer. Revenue related to extended product warranty arrangements is deferred and recognized over time, as services are delivered. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, we perform the following five 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 assessment of the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as we satisfy each performance obligation. As part of the accounting for arrangements under ASC 606, we must use significant judgment to determine: (a) the performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; and (c) the standalone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. We also use judgment to determine whether milestones or other variable consideration, except for royalties and sales-based milestones, should be included in the transaction price as described below. The transaction price is allocated to each performance obligation based on the relative stand-alone selling price of each performance obligation in the contract, and we recognize revenue based on those amounts when, or as, the performance obligations under the contract are satisfied.
The standalone selling price is the price at which an entity would sell a promised good or service separately to a customer. Management estimates the standalone selling price of each of the identified performance obligations in our customer contracts, maximizing the use of observable inputs. Because we have not sold the same goods or services in our contracts separately to any customers on a standalone basis and there are no similar observable transactions in the marketplace, we estimate the standalone selling price of each performance obligation in our customer arrangements based on our estimate of costs to be incurred to fulfil our obligations associated with the performance, plus a reasonable margin.
We determined that our only contract liability under ASC 606 is deferred revenue. Amounts received prior to revenue recognition are recorded as deferred revenue in the consolidated balance sheets. Amounts expected to be recognized as revenue within the 12 months following the consolidated balance sheet date are classified as deferred revenue, current in the consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the consolidated balance sheet date are classified as deferred revenue, net of current portion in the consolidated balance sheets. Amounts are recorded as accounts receivable when our right to consideration is unconditional.
Product Revenue, Net
We recognize revenue on product sales to customers when the transfer of control happens, which generally occurs upon shipment. We recognize revenue on installation and training when the service has been rendered. We include a standard one year warranty with our product sales. These standard warranties are accounted for at the time product revenues are recognized. We also offer extended warranty for an additional fee. Revenue related to extended warranty is recognized on a straight-line basis over the term. Product revenues are recorded net of variable consideration, including discounts.
Product Returns
We generally do not accept product returns and have received an insignificant amount of returns to date.
Royalties and Other Revenue
Royalties and other revenue consist of fees charged for the license of non-exclusive rights of our patents to third parties and grant revenue received from government entities as reimbursement of expenses related to the development and use of synthetic biology tools to develop solutions to address various areas of concern. The royalties and other revenue are recognized at the same time as the third parties record the revenue associated with the use of the license. The grant revenue from the contracts is recognized as the services are performed or ratably over the milestone period and typically require the performance of specific activities and timely reporting of results. Associated expenses are recognized when
incurred. Revenue and related expenses are presented gross in the consolidated statements of operations and comprehensive loss.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Net realizable value is evaluated by considering obsolescence, excess levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence or impaired inventory. Excess and obsolete inventory is charged to cost of revenue and a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Goodwill
We test goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Our goodwill impairment tests are performed at the enterprise level as we have concluded that we have one reporting unit and that our chief operating decision maker is our chief executive officer. The fair value of the reporting unit was substantially in excess of the carrying value of the reporting unit at each date impairment was tested and consequently we have not recorded any impairment of goodwill.
Acquired Intangible Assets
Acquired intangible assets consist of rights to technologies and trade names. We engaged third party valuation specialists to assist us with the initial measurement of the fair value of acquired intangible assets. Acquired intangible assets, other than goodwill, are amortized over their estimated useful lives based upon the estimated economic value derived from the related intangible assets.
Business Acquisitions
We account for acquisitions using the acquisition method of accounting. The fair value of purchase consideration is allocated to the tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values. The excess of the fair value of purchase consideration over the values of the identifiable assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.
Significant estimates in valuing certain identifiable assets include, but are not limited to, the selection of valuation methodologies, future expected cash flows, discount rates, and useful lives. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Acquisition costs, such as legal and consulting fees, are expensed as incurred and are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statements of operations and comprehensive loss.
Stock-Based Compensation
We measure all stock-based awards granted to employees and directors based on their fair value on the date of the grant using the Black-Scholes option-pricing model for options. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award for the employees and directors.
For stock-based awards granted to non-employees, the measurement date for non-employee awards is the date of the grant. The compensation expense for non-employees is recognized in the same manner as if we had paid cash in exchange for the goods or services, which is generally the vesting period of the award.
We use the straight-line method to record the expense of awards with service-based vesting conditions. As inputs, the Black-Scholes option-pricing model uses the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options, our expected dividend yield, and an expected forfeiture rate.
Determination of Fair Value of Common Stock
Prior to our IPO, as there was no public market for our common stock, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the
guidance outlined in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common stock valuations were prepared using either an option pricing method (OPM), or a hybrid method, both of which used market approaches to estimate our enterprise value. The hybrid method also used an income approach to estimate our enterprise value. The hybrid method is a probability-weighted expected return method (PWERM), where the equity value is calculated based on income and market approaches, and that resulting equity value is allocated to the company’s classes of stock in one or more scenarios using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:
■the prices at which we sold shares of preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;
■the progress of our research and development programs;
■our stage of development and our business strategy;
■external market conditions affecting the biopharmaceutical and synthetic biology industries and trends within those industries;
■our financial position, including cash on hand, and our historical and forecasted performance and operating results;
■the lack of an active public market for our common stock and our preferred stock;
■the likelihood of achieving a liquidity event, such as an initial public offering, or sale of our company in light of prevailing market conditions; and
■the analysis of initial public offerings and the market performance of similar companies in the biopharmaceutical industry.
The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.
Following our IPO, the fair value of our common stock has been determined based on the quoted market price of our common stock.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing in this Annual Report.
Emerging Growth Company Status
In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company,” or an EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early.
We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (iv) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
We are a smaller reporting company as defined by Item 10 of Regulation S-K and are not required to provide the information otherwise required under this Item.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 100) for the year ended December 31, 2021
Report of Independent Registered Public Accounting Firm for the year ended December 31, 2020
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years Ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Codex DNA, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Codex DNA, Inc. (the “Company”) as of December 31, 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for the year ended December 31, 2021, and the related notes to the consolidated financial statements (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, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
The consolidated financial statements of the Company as of and for the year ended December 31, 2020 were audited by OUM & Co. LLP, who joined WithumSmith+Brown, PC on July 15, 2021, and rendered their opinion on such statements on March 16, 2021 (June 14, 2021, as to the effects of the reverse stock split discussed in Note 18).
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 audit. 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 audit 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ WithumSmith+Brown, PC
We have served as the Company's auditor since 2020.
San Francisco, California
March 23, 2022
PCAOB ID Number 100
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Codex DNA, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Codex DNA, Inc. (the Company) as of December 31, 2020, and the related consolidated statement of operations and comprehensive loss, convertible preferred stock and stockholders’ deficit, and cash flows for the year ended December 31, 2020, and the related notes to the consolidated financial statements (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, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has had recurring losses and negative operating cash flows since inception, an accumulated deficit at December 31, 2020, and insufficient cash and loan proceeds at December 31, 2020 to fund operations for twelve months from the date of issuance. All of these matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 audit. 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 audit 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ OUM & CO. LLP
We served as the Company’s auditor since 2020.
San Francisco, California
March 16, 2021 (June 14, 2021, as to the effects of the reverse stock split discussed in Note 18)
Codex DNA, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31,
2021 2020
Assets
Current assets:
Cash and cash equivalents $ 82,806 $ 13,463
Accounts receivable, net of allowance for bad debts of $0 and $105 at December 31, 2021 and 2020, respectively
3,665 2,266
Inventory 2,368 601
Prepaid expenses and other current assets 4,345 851
Total current assets 93,184 17,181
Property and equipment, net 3,456 689
Right-of-use assets 2,281 3,090
Other long-term assets 609 81
Goodwill 14,330 3,497
Other intangible assets, net 2,397 2,325
Total Assets
$ 116,257 $ 26,863
Liabilities, convertible preferred stock and stockholders' equity (deficit)
Current liabilities:
Accounts payable $ 2,499 $ 1,191
Accrued employee expenses 3,849 1,470
Finance lease liability, current portion 81 90
Operating lease liability, current portion 1,156 693
Deferred revenue, current portion 205 606
Other accrued liabilities 1,005 220
Notes payable, current portion 603 1,333
Other current liabilities 335 22
Total current liabilities 9,733 5,625
Finance lease liability, net of current portion - 81
Operating lease liability, net of current portion 1,394 2,776
Notes payable, net of discount and current portion 14,088 3,353
Derivative liabilities 108 1,533
Deferred revenue, net of current portion 150 40
Total liabilities
$ 25,473 $ 13,408
Commitments and contingencies (Note 12)
Convertible preferred stock
Series Z Preferred stock, $0.0001 par value; 0 and 7,500,000 shares authorized at December 31, 2021 and 2020, respectively; 0 and 2,500,000 shares issued and outstanding at December 31, 2021 and 2020, respectively
- 1
Series A Preferred stock, $0.0001 par value; 0 and 22,797,830 shares authorized at December 31, 2021 and 2020, respectively; 0 and 7,599,274 shares issued and outstanding at December 31, 2021 and 2020, respectively
- 20,992
Series A1 Preferred stock, $0.0001 par value; 0 and 15,402,237 shares authorized at December 31, 2021 and 2020, respectively; 0 and 4,980,055 shares issued and outstanding at December 31, 2021 and 2020, respectively
- 17,921
Stockholders' equity (deficit)
Preferred stock, $0.0001 par value; 5,000,000 and 0 shares authorized at December 31, 2021 and 2020, respectively. No shares issued and outstanding
- -
Common stock, $0.0001 par value; 100,000,000 and 72,000,000 shares authorized at December 31, 2021 and 2020, respectively; 29,318,578 and 5,023,957 shares issued and outstanding at December 31, 2021 and 2020, respectively
5 2
Additional paid-in capital 156,049 851
Accumulated deficit (65,270) (26,312)
Total stockholders' equity (deficit) 90,784 (25,459)
Total liabilities, convertible preferred stock and stockholders' equity (deficit) $ 116,257 $ 26,863
The accompanying notes are an integral part of these consolidated financial statements.
Codex DNA, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
Year Ended December 31,
2021 2020
Revenue:
Product sales $ 8,462 $ 5,131
Royalties and other revenue 2,581 1,445
Total revenue 11,043 6,576
Cost of revenue 6,744 2,951
Gross profit 4,299 3,625
Operating expenses:
Research and development 14,548 8,925
Sales and marketing 10,896 6,931
General and administrative 14,229 4,130
Total operating expenses 39,673 19,986
Loss from operations (35,374) (16,361)
Other expense, net:
Interest expense, net (1,369) (690)
Change in fair value of derivative liabilities (1,521) (880)
Loss on extinguishment of debt (618) -
Other expense, net (62) (74)
Total other expense, net (3,570) (1,644)
Loss before provision for income taxes (38,944) (18,005)
Provision for income taxes $ (14) (5)
Net loss and comprehensive loss $ (38,958) $ (18,010)
Net loss attributable to common stockholders $ (38,958) $ (18,010)
Net loss per share attributable to common stockholders-basic and diluted $ (2.14) $ (3.60)
Weighted average common stock outstanding-basic and diluted 18,222,495 5,001,538
The accompanying notes are an integral part of these consolidated financial statements.
Codex DNA, Inc.
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)
(in thousands, except share data)
Convertible Preferred Stock Common Stock Additional
Paid-In
Capital Accumulated
Deficit Total Stockholders’ Equity (Deficit)
Shares Amount Shares Amount
Balances at December 31, 2019 15,079,329 $ 38,914 5,000,000 $ 2 $ 797 (8,302) $ (7,503)
Issuance of Common Stock upon exercise of stock options - - 23,957 - 11 - 11
Stock-based compensation expense - - - - 43 - 43
Net loss - - - - - (18,010) (18,010)
Balances at December 31, 2020
15,079,329 38,914 5,023,957 2 851 (26,312) (25,459)
Issuance of shares of common stock upon initial public offering, net of issuance costs of $8,587
- - 7,666,664 1 112,483 - 112,484
Conversion of shares of convertible preferred stock into an equivalent number of shares of common stock (15,079,329) (38,914) 15,079,329 2 38,912 - 38,914
Issuance of warrant and conversion into shares of common stock - - 1,252,468 - 2,770 - 2,770
Payment of offering costs - - - - (226) - (226)
Issuance of Common Stock upon exercise of stock options - - 296,160 - 173 - 173
Stock-based compensation expense - - - - 1,086 - 1,086
Net loss - - - - - (38,958) (38,958)
Balances at December 31, 2021
- - 29,318,578 5 156,049 (65,270) 90,784
The accompanying notes are an integral part of these consolidated financial statements.
Codex DNA, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
2021 2020
Cash Flows From Operating Activities:
Net loss $ (38,958) $ (18,010)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 450 403
Amortization of intangible assets 458 463
Amortization of debt discount 480 214
Loss on disposal of assets 27 -
Impairment of intangible asset - 73
Loss on debt extinguishment 618 -
Stock-based compensation 1,086 43
Amortization of lease right-of-use assets 666 591
Change in fair value of warrant liability 1,854 425
Change in fair value of put option liability (195) (55)
Change in fair value of participation right liability (420) 420
Change in fair value of success fee liability 282 89
Non-cash interest on finance leases (9) (17)
Changes in assets and liabilities:
Accounts receivable (735) (774)
Inventories (1,462) 111
Deposits, prepaid expenses and other current assets (3,916) (765)
Accounts payable, accrued payroll and accrued liabilities 4,394 1,404
Deferred revenue (542) 501
Operating lease liabilities (776) (497)
Net cash used in operating activities (36,698) (15,381)
Cash Flows From Investing Activities:
Purchase of acquired business, net of cash acquired (13,186) -
Purchase of property and equipment (1,854) (204)
Net cash used in investing activities (15,040) (204)
Cash Flows From Financing Activities:
Borrowings on term loan, net 14,872 -
Repayment of term loan (5,000) -
Debt extinguishment costs (1,141) -
Finance lease liability (81) (107)
Net proceeds from issuance of shares of common stock in initial public offering 112,484 -
Payments of offering costs (226) -
Proceeds from the exercise of common stock options 173 11
Net cash provided by (used in) financing activities 121,081 (96)
Net Increase (Decrease) In Cash And Cash Equivalents 69,343 (15,681)
Cash and cash equivalents at beginning of year 13,463 29,144
Cash and cash equivalents at end of year $ 82,806 $ 13,463
Supplemental Disclosure Of Cash Flow Information:
Cash paid for interest $ 825 $ 464
Purchases of property and equipment included in accounts payable and accrued expenses $ 684 $ -
Issuance of preferred stock warrant in connection with term loan $ 322 $ -
Extinguishment of put option derivative liability in connection with term loan $ (51) $ -
Issuance of put option derivative liability in connection with term loan $ 303 $ -
Conversion of shares of convertible preferred stock into common stock $ 38,914 $ -
Conversion of warrant into shares of common stock $ 2,770 $ -
Right-of-use-assets obtained in exchange for operating lease liabilities $ 1,904 $ -
Right-of-use asset derecognized upon lease modification $ 2,047 $ -
The accompanying notes are an integral part of these consolidated financial statements.
Codex DNA, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED ON DECEMBER 31, 2020 AND DECEMBER 31, 2021
1.ORGANIZATION AND OPERATIONS
Business
Codex DNA, Inc. (the Company) was incorporated in the state of Delaware in March 2011, as Synthetic Genomics Solution, Inc., a wholly owned subsidiary of Synthetic Genomics, Inc. (SGI). The Company changed its name to SGI-DNA, Inc. (SGI-DNA) in February 2013, and then to Codex DNA, Inc. in September 2020. SGI-DNA Limited, a United Kingdom company focused on sales and marketing activities, is a wholly owned subsidiary of Codex DNA, Inc. The Company manufactures and sells laboratory equipment, specifically synthetic biology instruments, reagents and associated products and related services, primarily to pharmaceutical and academic laboratories worldwide.
On March 8, 2019, SGI sold SGI-DNA to GATTACA Mining, LLC (Purchaser or GATTACA) by entering into a stock purchase agreement to sell all of the Company’s outstanding common and preferred stock in exchange for a $10 million non-recourse promissory note. Both the Company and Purchaser are co-borrowers of the promissory note. As this transaction was a change in control transaction in accordance with generally accepted accounting principles in the United States (U.S. GAAP), the Company elected to apply push-down accounting and recognized a step up in the basis of the assets acquired and liabilities assumed in the acquisition.
On June 10, 2021, the Company’s Board of Directors and stockholders approved a 3-for-1 reverse stock split of the Company’s issued and outstanding common stock and outstanding shares of convertible preferred stock, which was effected on June 11, 2021. The reverse stock split also applied to all outstanding securities or rights convertible into, or exchangeable or exercisable for, common stock or convertible preferred stock. Accordingly, all shares, stock options, warrants and per share information presented in the accompanying consolidated financial statements and notes thereto have been retroactively adjusted to reflect the reverse stock split. There was no change in the par value and authorized number of shares of the Company’s common stock or preferred stock.
On June 18, 2021, the Company completed an initial public offering (IPO) of 7,666,664 shares of its common stock, including the exercise in full by the underwriters of their option to purchase up to 999,999 additional shares of common stock, for aggregate gross proceeds of $122.7 million. The Company’s shares began trading on the Nasdaq Global Select Market under the ticker symbol “DNAY” on June 18, 2021. The Company received $112.5 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by the Company. Upon closing of the IPO, all outstanding convertible preferred stock converted into 15,079,329 shares of common stock and SGI’s outstanding warrants were automatically exercised into 1,201,059 shares of common stock.
On November 18, 2021, the Company entered into a Share Purchase Agreement, with the stockholders of EtonBio Inc., a California corporation (“Eton”), pursuant to which, the Company agreed to purchase all of the outstanding shares of capital stock of Eton (see Note 15). The total purchase price was approximately $13.6 million, which was funded with the Company’s existing cash on hand. Eton is a San Diego-based biotech company specializing in synthetic biology products and services, including DNA sequencing and oligo synthesis, for the global academic research, pharmaceutical, and biotechnology industries. Eton also markets DNA prep services and products such as antibodies, peptides, and metabolism assay kits.
Since its inception, the Company has devoted substantially all of its efforts to raising capital, commercializing its current products, and developing new product offerings. The Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of products. Principal among these risks are a dependence on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development and manufacturing of its products. The Company’s success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, commercialize its products, generate revenue, meet its obligations, and, ultimately, become profitable.
Products currently under development will require significant additional research and development efforts. These efforts require significant amounts of additional capital, adequate personnel and infrastructure.
Impact of COVID-19
In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in
business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability.
In response to public health directives and orders and to help minimize the risk of the virus to employees, the Company has taken precautionary measures, including implementing work-from home policies for certain employees. The COVID-19 pandemic has the potential to significantly impact the Company’s manufacturing supply chain, distribution or logistics and other services. Additionally, the Company’s service providers and their operations may be disrupted, temporarily closed or experience worker or supply shortages, which could result in additional disruptions or delays in shipments of laboratory equipment or the advancement of the scientific research. To date, the Company is not aware of any such disruptions. Furthermore, to date, the Company has not experienced the pandemic’s adverse impacts in any material respect. The Company is not able to estimate the duration of the pandemic or potential impact on the business if disruptions or delays in shipments of product occur. In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including weakened demand for product and a decreased ability to raise additional capital when needed on acceptable terms, if at all. As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company has prepared the accompanying consolidated financial statements in accordance with U.S. GAAP and included the accounts of the Company and its wholly owned subsidiaries after the elimination of all significant intercompany accounts and transactions.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. Key estimates in the consolidated financial statements include revenue recognition, impairment assessment for goodwill and intangible assets, allowance for doubtful accounts, estimated useful lives of property and equipment, valuation of inventory, accrued expenses, valuation of deferred income tax assets, valuation of derivative liabilities, share-based compensation, accrued warranty and valuation of acquired businesses are subject to significant estimation. Actual results could differ from those estimates.
Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable.
The Company’s accounts receivable are derived from revenue earned from customers. The Company does not require collateral on accounts receivable. The Company maintains reserves for estimated potential credit losses. For the year ended December 31, 2021, one customer accounted for 11% of the Company’s accounts receivable balance. For the year ended December 31, 2021, one customer accounted for 14% of the Company’s revenue. For the year ended December 31, 2020, one customer accounted for 23% of the Company’s accounts receivable balance and one customer accounted for 21% of the Company’s revenue.
The Company maintains its cash with financial Institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposited with banks and money market funds. The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. The Company’s cash equivalents of $79.9 million, which are funds held in a money market account, are measured at fair value on a recurring basis. Cash equivalents for the year ended December 31, 2020 was $0.
Accounts Receivable
Accounts receivable is comprised of amounts due from third-party payors recorded at the invoice amount and does not bear interest. The Company reports accounts receivable net of estimated contractual adjustments and any allowance for doubtful accounts. The Company reviews accounts receivable on an ongoing basis to determine collectability. The Company maintains an allowance for doubtful accounts based on its assessment of the collectability of the amounts owed to the Company by its customers. The Company considers the following in determining the level of allowance required: its customer’s payment history, the age of the receivable, the credit quality of its customers, the general financial condition of its customer base and other factors that may affect the customers’ ability to pay. The Company writes off accounts against
the allowance for doubtful accounts when they are deemed to be uncollectible. The Company’s allowance for doubtful accounts at December 31, 2021 and 2020 was $0 and $0.1 million, respectively.
Inventory
Inventory, which primarily consists of raw materials, labor and overhead related to work in process and sub-assemblies are stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence or impaired inventory. Excess and obsolete inventory is charged to cost of revenue and a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration of amounts previously written off.
Property and Equipment
Property and equipment are recorded at cost, net of accumulated depreciation and amortization. The Company depreciates property and equipment using the straight-line method over estimated useful lives ranging from three to five years. Leasehold improvements and equipment held under capital leases are amortized on a straight-line basis over the shorter of the lease term or the estimated life of the asset.
Upon the sale or retirement of assets, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in other income (expense) in the consolidated statements of operations and comprehensive loss. Maintenance and repairs are charged to the general and administrative expenses in the consolidated statements of operations and comprehensive loss as incurred.
Intangible Assets
The Company has intangible assets and goodwill recorded in connection with its acquisition in March 2019, as well as from the Eton acquisition. Intangible assets are recognized apart from goodwill if they arise from contractual or other legal rights or if they are separable. An asset is considered separable if (a) it is capable of being separated from the acquired entity and sold, transferred, licensed, rented or exchanged, or (b) it can be conveyed in combination with a related asset or liability. Those assets that do not meet either criterion are included in goodwill for financial reporting purposes. The following assets were recognized as part of the March 2019 and Eton acquisitions:
■March 2019 Acquisition
■Purchased technology: valued by management using an income approach.
■Trade name: valued by management using an income approach. The amount allocated to trade name was deemed impaired as the Company changed its name to Codex DNA, Inc. in 2020 (see Notes 1 and 6).
■Eton Acquisition
■Customer relationships: valued by management using an income approach.
■Trade name: valued by management using an income approach.
■Non-competition agreements: valued by management using an income approach.
Intangible assets are amortized over their estimated useful lives based upon the estimated economic value derived from the related intangible asset. Intangible assets are reviewed for impairment whenever events or changes in circumstances, such as service discontinuance, technological obsolescence, or significant decreases in the Company’s market capitalization indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If this comparison indicates that an impairment is present, the amount of the impairment is calculated as the difference between the carrying amount and the fair value of the asset. There was no impairment recorded for the year ended December 31, 2021. For the year ended December 31, 2020, the Company recorded an impairment charge of $0.1 million on its trademark (see Notes 1 and 6).
Goodwill
The Company recognizes the excess of the purchase price over the fair value of identifiable net assets acquired as goodwill. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. The Company’s goodwill impairment tests are performed at the enterprise level given the Company’s single reporting unit.
The Company’s goodwill impairment analysis first assesses qualitative factors to determine whether events or circumstances existed that would lead the Company to conclude it is more likely than not that the fair value of the reporting unit is below its carrying amount. If the Company determines that it is more likely than not that the fair value of the
reporting unit is below the carrying amount, a quantitative goodwill assessment is required. In the quantitative evaluation, the fair value of the reporting unit is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying value exceeds the reporting unit’s fair value and a charge would be recognized as impairment of goodwill in the consolidated statements of operations and comprehensive loss.
Accounting for Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the future undiscounted cash flows expected to be generated by the asset or asset group. No such impairments have been identified for the years ended December 31, 2021 and 2020, except for the $0.1 million trademark impairment charge recorded in 2020.
Business Combinations
The Company accounts for acquisitions using the acquisition method of accounting. The fair value of purchase consideration is allocated to the tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of the identifiable assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.
Significant estimates in valuing certain identifiable assets include, but are not limited to, the selection of valuation methodologies, future expected cash flows, discount rates, and useful lives. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Acquisition costs, such as legal and consulting fees, are expensed as incurred and are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss. During the measurement period, which is up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statements of operations and comprehensive loss. See Note 15 for additional information regarding business combinations.
Deferred Offering Costs
The Company capitalizes within other current assets certain legal, consulting and other third-party fees that are directly related to the Company’s in-process equity financings, until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds received as a result of the offering. Should a planned equity financing be abandoned, terminated, or significantly delayed, the deferred offering costs are immediately written off to operating expenses. There were $0.9 million and $0 offering costs capitalized during the years ended December 31, 2021 and 2020, respectively.
Deferred Financing Costs
The Company capitalizes certain legal and other third-party fees that are directly associated with obtaining access to capital under credit facilities. Deferred financing costs incurred in connection with obtaining access to capital under credit facilities are recorded as a reduction to the carrying amount of the debt and amortized to interest expense using the effective interest method over the repayment term.
Income Taxes
The Company is a C Corporation for federal income tax purposes. The Company was not profitable during 2021 and 2020. Accordingly, no provision for federal income taxes has been presented in the accompanying consolidated statements of operations and comprehensive loss.
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, including operating losses and tax credit carryforwards, if applicable. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance may be established for carryforwards and other deferred tax assets when it is more likely than not that such deferred tax assets will not be realized. Based on its facts, the Company considered all available evidence, both positive and negative, including historical levels of taxable income, expectations, and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation
allowance. The Company recorded a valuation allowance against the deferred tax asset as the Company believes it is more likely than not that the deferred asset will not be utilized.
The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest and penalties in general and administrative expenses. The Company has determined that it has an uncertain tax position as it relates to its state research and development credits for the years ended December 31, 2021 and 2020 (see Note 11).
Share-Based Compensation
For share-based awards granted to employees and directors, the Company estimates the grant-date fair value using the Black-Scholes option-pricing model. Compensation expense for these awards is recognized net of the estimated forfeiture rate, over the requisite service period, which is generally the vesting period of the respective award.
For share-based awards granted to non-employees, the Company adopted Accounting Standards Update No. (ASU) 2018-07, Compensation-Stock Compensation (Topic 718) (ASU 2018-07) at inception, as discussed below, in which the measurement date for non-employee awards is the date of grant. The compensation expense for non-employees is recognized in the same manner as if the Company had paid cash in exchange for the goods or services, which is generally the vesting period of the award. The Company applies an estimated forfeiture rate to share-based compensation.
The Company classifies share-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified.
Revenue Recognition
The Company recognizes revenues in accordance with Financial Accounting Standards Board (FASB) ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASC 606). To date, revenues have consisted primarily of payments received related to product sales and royalty agreements. Under ASC 606, the Company recognizes revenue when customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.
Revenue for product sales is recognized upon delivery to the customer. Revenue related to extended product warranty arrangements is deferred and recognized over time as services are delivered. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five 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 assessment of the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as the Company satisfies each performance obligation. As part of the accounting for arrangements under ASC 606, management must use its significant judgment to determine: (a) the performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; and (c) the standalone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. Management also uses its judgment to determine whether milestones or other variable consideration, except for royalties and sales-based milestones, should be included in the transaction price as described below. The transaction price is allocated to each performance obligation based on the relative stand-alone selling price of each performance obligation in the contract, and revenue is recognized based on those amounts when, or as, the performance obligations under the contract are satisfied.
The standalone selling price is the price at which an entity would sell a promised good or service separately to a customer. Management estimates the standalone selling price of each of the identified performance obligations in customer contracts, maximizing the use of observable inputs. Because the Company has not sold the same goods or services in the contracts separately to any customers on a standalone basis and there are no similar observable transactions in the marketplace, the Company estimates the standalone selling price of each performance obligation in customer arrangements based on estimated costs to be incurred to fulfil obligations associated with the performance, plus a reasonable margin.
Amounts received prior to revenue recognition are recorded as deferred revenue in the consolidated balance sheets. Amounts expected to be recognized as revenue within the twelve months following the balance sheet date are classified as deferred revenue, current portion in the consolidated balance sheets. Amounts not expected to be recognized as revenue within the twelve months following the balance sheet date are classified as other long-term liabilities in the consolidated balance sheets. Amounts are recorded as accounts receivable when the right to consideration is unconditional.
Product Revenue, Net
The Company recognizes revenue on product sales to customers when the transfer of control happens, which generally occurs upon shipment. The Company recognizes revenue on installation and training when the service has been rendered. The Company includes a standard one year warranty with its product sales.These standard warranties are accounted for at the time product revenues are recognized. The Company also offers extended warranty for an additional fee. Revenue related to extended warranty is recognized on a straight-line basis over the term. Product revenues are recorded net of variable consideration, including discounts.
Product Returns
The Company does not generally offer customers the ability to return product and has received an immaterial amount of returns to date.
Royalties and Other Revenue
Royalties and other revenue consist of fees charged for the license of non-exclusive rights of the Company’s patents to third parties and grant revenue received from government entities as reimbursement of expenses related to the development and use of synthetic biology tools to develop solutions to address various areas of concern. The royalties and other revenue are recognized at the same time as the third parties record the revenue associated with the use of the license. The grant revenue from the contracts is recognized as the services are performed or ratably over the milestone period and typically require the performance of specific activities and timely reporting of results. Associated expenses are recognized when incurred. Revenue and related expenses are presented gross in the consolidated statements of operations and comprehensive loss.
Warranties
The Company provides warranty coverage on its systems. Warranty coverage includes providing labor and parts necessary to repair the systems during the warranty period. The standard warranty coverage is twelve months for system sales. In addition, customers may pay for enhanced warranty service or to extend the warranty period to 24 months. Warranty revenue is deferred and recognized over the warranty period as a part of product sales in the consolidated statements of operations and comprehensive loss. The Company charges warranty expenses to cost of revenue in the period the expense is incurred. The changes in deferred revenue for warranties during the years ended December 31, 2021 and 2020 are summarized as follows (in thousands):
Balance at December 31, 2019
$ 145
Warranty revenue deferred 404
Warranty revenue recognized (292)
Balance at December 31, 2020
Warranty revenue deferred 487
Warranty revenue recognized (389)
Balance at December 31, 2021
$ 355
The deferred revenue for warranties at December 31, 2021 and 2020 are summarized as follows (in thousands):
December 31,
2021 2020
Deferred warranty revenue, current portion $ 205 $ 217
Deferred warranty revenue, net of current portion 150 40
Total deferred warranty revenue $ 355 $ 257
Shipping and Handling Costs
Shipping and handling costs are included as a component of cost of revenue in the consolidated statements of operations and comprehensive loss.
Fair Value of Assets and Liabilities
In accordance with ASC 820, 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. When determining fair value, the Company considers the principal or most advantageous market in which the Company would transact, and considers
assumptions that market participants would use when pricing the asset or liability. 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, which gives 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 as described below:
Level 1-Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2-Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumption used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets substantially the full term of the financial instrument.
Level 3-Unobservable inputs that are supported by little or no market data and require the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
The Company’s participation right liability, warrant liability, contingent put liability, and success fee contingent liability are carried at fair value, determined according to Level 3 inputs in the fair value hierarchy described above (see Note 3).The carrying value of financial instruments included in current assets and liabilities approximate their fair value principally because of the short-term maturities of these instruments.
Research and Development
Research and development costs, including direct and allocated expenses, are expensed in the period incurred. Research and development costs include payroll and personnel expense, consulting costs, external contract research and development costs, raw materials and allocated overhead such as depreciation and amortization, rent and utilities. Advance payments for goods and services to be used in future research and development activities are recorded as prepaid expenses and are expensed over the service period as the services are provided or when the goods are consumed.
Advertising
The Company expenses the cost of advertising, including promotional expenses, as incurred. Advertising and promotional expenses for the years ended December 31, 2021 and 2020 were $0.9 million and $0.8 million, respectively.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. There was no difference between net loss and comprehensive loss for each of the years ended December 31, 2021 and 2020 as presented in the accompanying consolidated financial statements.
Classification of Convertible Preferred Stock
The Company’s convertible preferred stock is classified outside of stockholders’ equity (deficit) because the holders of such shares have liquidation rights in the event of a deemed liquidation that, in certain situations, are not solely within the control of the Company.
Net Loss per Share
The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, including potential dilutive shares of common stock
assuming the dilutive effect of common stock equivalents. For purposes of this calculation, outstanding stock options, unvested restricted common stock, and convertible preferred stock are considered potential dilutive common stock and are excluded from the computation of diluted net loss per share attributable to common stockholders if their effect is anti-dilutive.
The Company’s convertible preferred stock contractually entitles the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2021 and 2020.
Segments Information
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the chief operating decision maker (CODM), in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its chief executive officer. The Company has determined it operates in one segment.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) (ASU 2016-13). ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU 2016-13 within ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This update is effective for entities other than public business entities, including emerging growth companies that elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards, for annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact that ASU 2016-13 will have on the consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This update is effective for entities other than public business entities, including emerging growth companies that elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards, for annual reporting periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company is currently evaluating the impact that ASU 2019-12 will have on its consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This update simplifies the accounting for convertible debt instruments by removing certain accounting separation models as well as the accounting for debt instruments with embedded conversion features that are not required to be accounted for as derivative instruments. The update also updates and improves the consistency of earnings per share calculations for convertible instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is currently evaluating the impact that the implementation of this standard will have on the Company’s consolidated financial statements and related disclosures.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. Entities should apply the amendments prospectively and early adoption is permitted. The Company does not expect the adoption of ASU 2021-08 to have a material impact on its consolidated financial statements and related disclosures.
In November 2021, the FASB issued ASU No. 2021-10, Disclosures by Business Entities about Government Assistance. The ASU codifies new requirements to disclose information about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions
were recorded and significant terms and conditions associated with such transactions. The guidance is effective for annual periods beginning after December 15, 2021. The Company does do not expect the adoption of ASU No. 2021-10 to have a material impact to its consolidated financial statements and related disclosures.
3.FAIR VALUE MEASUREMENT
The following table summarizes the fair values of the Company’s derivative liabilities on the consolidated balance sheets which comprise money market funds, the participation right liability, warrant liability, contingent put liability, and success fee contingent liability (in thousands):
Fair value measurements as of December 31, 2021
Level 1 Level 2 Level 3 Total
Assets
Money market funds $ 79,893 $ - $ - $ 79,893
Total $ 79,893 $ - $ - $ 79,893
Liabilities
Contingent put option liability $ - $ - $ 108 $ 108
Total $ - $ - $ 108 $ 108
Fair value measurements as of December 31, 2020
Level 1 Level 2 Level 3 Total
Liabilities
Participation right liability $ - $ - $ 420 $ 420
Warrant liability - - 594 594
Contingent put option liability - - 51 51
Success fee contingent liability - - 468 468
Total $ - $ - $ 1,533 $ 1,533
During the year ended December 31, 2020 there were no transfers between Level 1, Level 2 and Level 3.
Participation Right Liability
The participation right liability consists of the fair value of 3% of the securities sold in a future equity financing round and was originated from the participation right that was given to SGI in conjunction with the Company acquisition (see Note 1). The fair value of the participation right liability was based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy.
The quantitative elements associated with the Company’s Level 3 inputs impacting the fair value measurement of the participation right liability include management’s expectation of amounts to be raised and the probability of success in obtaining the funds. As of December 31, 2020, the Company determined the estimated capital raised from the financing round to be $20.0 million with a probability of success of 70%. The fair value was determined by multiplying the amount expected to be raised versus the probability of success and the percentage right (3%). As of December 31, 2021 and 2020, the fair value of the participation right was valued at $0 due to the liability’s extinguishment pursuant to the Company’s IPO and $0.4 million, respectively.
Preferred Stock Warrants
The preferred stock warrant liability consists of the fair value of warrants to purchase Series A-1 Preferred Stock issued in conjunction with the Series A-1 financing in December 2019 with SGI and the 2021 Loan Agreement (See Note 8) and was based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. As of December 31, 2020, the significant quantitative inputs were a 0.1% risk-free interest rate, an expected term of 2.0 years, an expected volatility of 83.6% and a 0% expected dividend yield. Based on these significant quantitative inputs, the fair value of the Series A-1 convertible preferred stock warrant as of December 31, 2020 was $3.87 per share. Upon the closing of the IPO, SGI’s outstanding preferred stock warrants were automatically exercised into 119,315 shares of common stock. Subsequent to the closing of the IPO, all outstanding warrants issued pursuant to the 2021 Loan
Agreement were exercised into 51,409 shares of common stock. As of December 31, 2021, there were no outstanding preferred stock warrants.
Contingent Put Option Liability
The contingent put option liability consists of the fair value of the contingent interest feature and acceleration clause (contingent put option) under the 2019 Loan Agreement and 2021 Loan Agreement (see Note 8). The fair value of the contingent put option liability was based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the contingent put option liability utilized a risk-neutral valuation model wherein the fair value of the underlying debt facility is estimated, both with and without the presence of the default provisions, holding all other assumptions constant. The Company assesses these assumptions and estimates at least annually as additional information impacting the assumptions are obtained. Changes in the fair value of the contingent put option liability are recognized in other income (expense) as part of the change in fair value of derivative liabilities in the consolidated statements of operations and comprehensive loss. The significant inputs not observable in the market consist of the adjusted market rate of debt and the probability of default. As of December 31, 2021 and 2020, the adjusted market rate of debt was 4.24% and 7.23%, respectively and the probability of default was 21% and 39%, respectively. A significant change in those inputs could cause a significant change in valuation.
Success Fee Contingent Liability
The success fee contingent liability consists of the fair value of contingent obligation to pay the lender a success fee of $0.8 million upon a Liquidity Event under the 2019 Loan Agreement (see Note 8). Due to the Company’s IPO on June 18, 2021, the fair value of the success fee contingent liability was classified as a Level 1 input due to the use of an observable market quote in an active market. The success fee was paid in full in July 2021, and the liability was extinguished. As of December 31, 2020, the fair value of the success fee contingent liability was based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the success fee contingent liability utilized a liquidity event scenario analysis, discounted at the Company’s cost of capital. This analysis consists of both the probability adjusted fair value of the success fee based on liquidity scenarios, and the risk adjusted present value of the success fee, discounted at the Company’s cost of capital on the valuation date to take into account the risk of achieving the liquidity scenarios. The Company assesses these assumptions and estimates at least annually as additional information impacting the assumptions is obtained. Changes in the fair value of the success fee contingent liability are recognized in other income (expense) as part of the change in fair value of derivative liabilities in the consolidated statements of operations and comprehensive loss.
The following table provides a roll-forward of the aggregate fair value of the Company’s derivative liabilities for which fair value is determined using Level 3 inputs (in thousands):
Participation right liability Warrant liability Contingent put liability Success fee contingent liability
Fair value at December 31, 2019 $ - $ 169 $ 106 $ 379
Change in fair value 420 425 (55) 89
Fair value at December 31, 2020
420 594 51 468
Change in fair value (30) 1,854 (195) 282
Issuance of liability - 322 303 -
Extinguishment of liability (390) (2,770) (51) -
Transfer out of Level 3 to Level 1 - - - (750)
Fair value at December 31, 2021
$ - $ - $ 108 $ -
For the years ended December 31, 2021 and 2020, the Company recorded a change in fair value of derivative liabilities included in other expense of $1.5 million and $0.9 million, respectively.
4.INVENTORY
Inventories include material, labor and overhead and are stated at the lower of cost (first-in, first-out method) or net realizable value. The components of inventory are as follows as of December 31, 2021 and 2020 (in thousands):
December 31,
2021 2020
Raw materials $ 962 $ 299
Work in process and sub-assemblies 896 201
Finished goods 510 101
Total
$ 2,368 $ 601
5.PROPERTY AND EQUIPMENT
Property and equipment consisted of the following on December 31, 2021 and 2020 (in thousands):
December 31,
2021 2020
Machinery and equipment $ 2,589 $ 1,315
Computer hardware and software 29 6
Leasehold improvements 95 32
Construction in progress 1,536 102
Total 4,249 1,455
Less: Accumulated depreciation and amortization (793) (766)
Total property and equipment, net $ 3,456 $ 689
Depreciation expense for the years ended December 31, 2021 and 2020 was $0.5 million and $0.4 million, respectively, and is included in operating expenses.
6.GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
As part of the March 8, 2019 transaction (see Note 1) and the Eton acquisition (See Note 1 and Note 15), the Company acquired intangible assets with resulting goodwill. The resulting goodwill carries a value of approximately $14.3 million. Due to the recent decline in global economic and labor market conditions caused by the global outbreak of the COVID-19 pandemic, the Company considered the effects on its goodwill and determined that there was no material significant impact that would cause a change in its analysis. There were no other events or circumstances that have changed since the last annual assessment that could reduce the fair value of the Company’s reporting segments below its carrying values.
For the years ended December 31, 2021 and 2020, the Company has not recorded any impairment of goodwill.
Other Intangible Assets
Other intangible assets acquired as a part of the March 8, 2019 transaction (see Note 1) include the rights to technology and the SGI-DNA trade name. The Company engaged an independent consultant to value the intangible assets and to determine the useful lives. The technology was valued at approximately $3.2 million with a seven year useful life and the SGI-DNA trade name at approximately $0.1 million with a three year useful life. During 2020, the Company changed its name to Codex DNA, Inc. (See Note 1), and as a result the amount allocated to the trade name of $0.1 million was deemed impaired and written off in April 2020.
The Company acquired $0.5 million of additional intangible assets as a part of the Eton acquisition with useful lives ranging from 3 to 15 years (see Note 15).
Amortization expense related to the intangible assets for the each of the years ended December 31, 2021 and 2020 was approximately $0.5 million.
The following table summarizes the estimated future amortization expense of the intangible assets (in thousands):
Years ending December 31:
2022 $ 515
2023 515
2024 510
2025 478
2026 103
Thereafter 276
Total $ 2,397
7.LEASES
As of December 31, 2021, the Company had seven outstanding leases for office and laboratory space and scientific manufacturing equipment. The leases have terms between 9 and 70 months. Included among these are five leases for office and laboratory space assumed by the Company in connection with the Eton acquisition in November 2021 (Note 15).
Corporate Headquarters
In September 2021, the Company entered into the Wateridge Pointe lease for future office and laboratory space and concurrently signed a second amendment to the operating lease agreement for its corporate headquarters located at 9535 Waples Street, San Diego, California (the Second Amendment). Under the Second Amendment, the lease at 9535 Waples Street will terminate upon the occupancy of office and laboratory space at 10421 and 10431 Wateridge Circle, San Diego, California, which will occur subsequent to the renovation and build-out of the spaces. The Wateridge Pointe lease provides for a tenant improvement (TI) allowance for the renovation and build-out of the spaces up to $185.00 per square foot, or approximately $12.3 million, with an additional allowance of up to $10.00 per square foot, or approximately $0.7 million if properly requested by the Company. The lessor is solely responsible for the management and payment of the tenant improvements and these expenses will be recorded as lessor improvements per ASC 842 guidance. Rent for the Wateridge Pointe lease will be approximately $3.9 million per year beginning upon lease commencement, subject to annual increases of 3%. The Wateridge Pointe lease provides for a 10 year and 3 month term and the Company is entitled to one option to extend the lease term for an additional five years. Occupancy of 10421 and 10431 Wateridge Circle and the corresponding termination of the lease at 9535 Waples Street are expected to occur in the second half of 2022.
Upon the execution of the Second Amendment, which was deemed to be a lease modification, the Company re-evaluated the assumptions made at the original lease commencement date. The Company determined the Second Amendment consists of a single contract under ASC 842. Accordingly, the Company bifurcated the components of the modified lease. Upon execution of the Second Amendment the Company adjusted the right-of-use asset and lease liability for the reduced term of the 9535 Waples Street lease component. In addition the Company will record a right-of-use asset and lease liability on the commencement date of the 10421 and 10431 Wateridge Circle lease components.
Equipment
The Company entered into finance lease agreements for equipment in November 2017 (the 2017 Equipment Lease), January 2018 (the 2018 Equipment Lease), and in March 2019 (the 2019 Equipment Lease). The terms of the leases commenced when the equipment was delivered which occurred in the same months and years as above, respectively, and accordingly the related right-of-use assets and lease liabilities were recognized on the consolidated balance sheets at their respective commencement dates. The November 2017 Equipment Lease is scheduled to expire on October 1, 2022, the 2018 Equipment Lease on December 31, 2022, and the March 2019 Equipment Lease expired on April 25, 2021.
Summary of Lease Cost
The components of lease cost under ASC 842 are as follows (in thousands):
December 31,
2021 2020
Lease costs
Finance lease cost:
Payment of finance lease liability $ 81 $ 107
Interest on lease liabilities 9 17
Amortization of right-of-use asset 666 591
Variable lease cost 475 350
Total lease cost $ 1,231 $ 1,065
Supplemental disclosure of cash flow information related to leases are as follows (in thousands):
December 31,
2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,031 $ 826
Operating cash flows from finance leases $ 9 $ 17
Financing cash flows from finance leases $ 81 $ 107
The weighted-average remaining lease term and discount rate were as follows:
December 31,
2021 2020
Weighted-average remaining lease term
Finance leases 1.0 years 1.8 years
Operating leases 3.9 years 4.1 years
Weighted-average discount rate
Finance leases 7.7 % 7.9 %
Operating leases 8.5 % 8.9 %
The following table summarizes the minimum lease payments of the Company’s operating and finance lease liabilities as of December 31, 2021 (in thousands):
Year Ending December 31,
Operating Finance
2022 $ 1,310 $ 85
2023 388 -
2024 323 -
2025 333 -
2026 343 -
Thereafter 307 -
Total future minimum lease payments 3,004 85
Less: imputed interest (454) (4)
Present value of operating lease liability $ 2,550 $ 81
Less: current portion of lease liability $ (1,156) $ (81)
Non-current portion of lease liability $ 1,394 $ -
The table above excludes an estimated $45.1 million of legally binding minimum lease payments to be made over a period of approximately 10 years for the lease at 10421 and 10431 Wateridge Circle, San Diego, California that has been executed but not yet commenced as of December 31, 2021. Commencement of the lease at 10421 and 10431 Wateridge Circle is expected to occur in the second half of 2022.
8.NOTES PAYABLE
Loan and Security Agreement
As of December 31, 2021 and 2020, the loans payable on the consolidated balance sheets pertains to the Loan and Security Agreement with Silicon Valley Bank and the Loan and Security Agreement with Oxford, respectively, and consists of the following (in thousands):
December 31,
2021 2020
Principal amount of loans payable $ 15,000 $ 5,000
Less: Current portion of loans payable (603) (1,333)
Loans payable, net of current portion 14,397 3,667
Accrued Interest 94 90
Final debt payment liability 400 287
Debt discount and financing costs, net of accretion (803) (691)
Loans payable, net of discount and current portion $ 14,088 $ 3,353
2019 Loan and Security Agreement
On September 5, 2019, the Company entered into a Loan and Security Agreement with Oxford Finance LLC as the lender (the 2019 Loan Agreement). Under the 2019 Loan Agreement the Company borrowed a total of $5.0 million in secured loans. These loans were repaid in full in March 2021 with the proceeds from the 2021 Loan Agreement. In connection with the repayment, the Company recognized a loss on debt extinguishment of $0.6 million which is included in other expense, net in the consolidated statements of operations and comprehensive loss. These loans bore interest at the greater of (i) 8.79% per annum and (ii) the sum of (a) the thirty (30) day U.S. LIBOR rate reported in The Wall Street Journal on the last Business Day of the month that immediately precedes the month in which the interest will accrue, plus (b) 6.38%. They would have matured on October 1, 2023 and were secured by substantially all of the Company’s assets, other than intellectual property, which was subject to a negative pledge. Payments on the loans were interest-only until May 1, 2021, followed by equal monthly principal payments and accrued interest through the scheduled maturity date of October 1, 2023.
In connection with the 2019 Loan Agreement, the Company had a contingent obligation to pay Oxford a success fee of $0.8 million upon the completion of the Company’s IPO. The Company had also identified a bifurcated compound derivative liability related to a contingent interest feature and acceleration clause (contingent put option). The fair value of the success fee and the contingent put option were recorded within derivative liabilities on the consolidated balance sheets and corresponding discount to the loans under the 2019 Loan Agreement. The Company remeasured both liabilities to fair value at each reporting date, and recognized changes in the fair value as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. The Company continued to recognize changes in the fair value of the success fee contingent liability until the success fee was paid. The success fee contingent liability was paid in full during in July 2021. The contingent put option liability was extinguished when the 2019 Loan Agreement was terminated in March 2021.
2021 Loan Agreement
On March 4, 2021, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (SVB) as the lender (the 2021 Loan Agreement). Under the 2021 Loan Agreement, the Company borrowed a $15.0 million senior secured term loan, the proceeds of which were used to repay all existing obligations under the 2019 Loan Agreement, with the remaining proceeds available for working capital and general corporate purposes. Under the 2021 Loan Agreement, SVB may elect to make a second term loan to the Company in a principal amount up to but not exceeding $5.0 million, as SVB may determine in its sole discretion.
In connection with the 2021 Loan Agreement, the Company issued to SVB a warrant to purchase a number of shares of preferred stock (the Preferred Warrant). The Preferred Warrant was exercisable into the number of preferred shares equal to approximately $0.2 million divided by the applicable warrant price. The Preferred Warrant also provides for the grant of additional shares upon the disbursement of an advance under the 2021 Loan Agreement. Such additional shares will be equal to 1.5% of the principal amount of the advance divided by the warrant price. The Preferred Warrant was exercisable at the original purchase price of the Series A-1 convertible preferred stock. When the Series A-1 convertible preferred stock in which the warrant would have been exercisable into converted into common stock, the warrant holder gained the right to exercise the warrant for such number of shares of common stock into which the preferred shares would have converted into had they been exercised prior to the conversion. The Preferred Warrant was exercised in June 2021 in exchange for 51,409 shares of common stock.
The term loan bears interest at a per annum rate equal to the greater of (a) 4.0% above the prime rate and (b) 7.25%. The interest rate as of March 5, 2021 was 7.25% per annum. The loan is secured by substantially all of the Company’s assets, other than intellectual property. The Company has agreed not to encumber its intellectual property assets, except as permitted by the 2021 Loan Agreement. For the year ended December 31, 2021, the effective interest rate on outstanding borrowings was approximately 10.15%.
The term loan matures on January 1, 2024; provided, the loan maturity date will be extended by one year to January 1, 2025, if SVB is satisfied that the Company has achieved at least $4.0 million in trailing three-month instruments and reagents revenue for any three-month period occurring after March 4, 2021 but ending on or before December 31, 2021, subject to confirmatory lender calls.
Payments on the term loan are interest-only until February 1, 2022, followed by equal principal payments and monthly accrued interest payments through the scheduled maturity date; provided, the interest-only period may be extended to August 1, 2022 if SVB is satisfied that we have achieved at least $4.0 million in trailing three-month instruments and reagents revenue for any three-month period occurring after March 4, 2021, but ending on or before December 31, 2021, subject to confirmatory lender calls.
The Company may elect to prepay the term loan, in whole but not in part, at any time. If the Company elects to voluntarily prepay the term loan before the scheduled maturity date, the Company is required to pay the lender a prepayment fee, equal to 3.0% of the then outstanding principal balance if the prepayment occurs on or before March 4, 2022, 2.0% of the outstanding principal balance if the prepayment occurs after March 4, 2022, but on or before March 4, 2023, or 1.0% of the outstanding principal balance if the prepayment occurs after March 4, 2023, but on or before the scheduled maturity date. No prepayment fee is applicable to a mandatory prepayment of the loan upon an acceleration of the loan. Upon a voluntary or mandatory prepayment of the loan, the Company is also required to pay SVB’s expenses and all accrued but unpaid interest on the loan through the prepayment date.
A final payment (the Final Payment) equal to $0.4 million will be due at the earlier of the maturity date, acceleration of the loan, or a voluntary or mandatory prepayment of the loan. The Final Payment is being accrued through interest expense using the effective interest method.
Under the 2021 Loan Agreement, the Company agrees to maintain as of the last day of each month, certain consolidated trailing three-month minimum revenue levels as set forth in the 2021 Loan Agreement. In August 2021, the 2021 Loan
Agreement was amended to change the monthly compliance reporting to quarterly reporting. For the three months ended September 30, 2021, the Company was not in compliance with the trailing three-month minimum revenue requirement. In November 2021, the Company further amended the 2021 Loan Agreement so that the trailing three-month minimum revenue requirement begins December 31, 2021 and once the Company’s cash balance falls below $55.0 million. Additionally, the interest-only period was extended until August 1, 2022 and the maturity date was amended to January 1, 2025, provided the interest-only period may be extended to January 1, 2023 if SVB is satisfied the Company has achieved the revenue milestone as per the second amendment, subject to confirmatory lender calls. The Company assessed the amendment to the 2021 Loan Agreement under ASC 470 and determined that the amendment met the criteria of a debt modification. The Company accounted for the change prospectively.
The 2021 Loan Agreement includes customary representations and covenants that, subject to exceptions and qualifications, restrict the Company’s ability to do the following things: engage in mergers, acquisitions, and asset sales; transact with affiliates; undergo a change in control; engage in businesses that are not related to the Company’s existing business; add or change business locations; incur additional indebtedness; incur additional liens; make loans and investments; declare dividends or redeem or repurchase equity interests; and make certain amendments or payments in respect of any subordinated debt. In addition, the 2021 Loan Agreement contains customary affirmative covenants, including covenants regarding the payment of taxes and other obligations, maintenance of insurance, maintenance of our bank accounts, protection of our intellectual property, reporting requirements, compliance with applicable laws and regulations, and formation or acquisition of new subsidiaries. The Company is in compliance with its covenants as of December 31, 2021.
The 2021 Loan Agreement also includes customary indemnification obligations and customary events of default, including, among other things, payment defaults, breaches of covenants following any applicable cure period, material misrepresentations, a failure of the loans or the lender’s security interest in the collateral to have the priority as required under the 2021 Loan Agreement, a material adverse change as defined in the 2021 Loan Agreement (including without limitation as a result of a government approval having been revoked, rescinded, suspended, modified or not renewed), certain material judgments and attachments, and events relating to bankruptcy or insolvency.
The 2021 Loan Agreement also contains a cross default provision under which, if a third party (under any agreement) has a right to accelerate indebtedness greater than $0.5 million, the Company would be in default of the 2021 Loan Agreement. During the continuance of an event of default, SVB may apply a default interest rate of an additional 5% to the outstanding loan balances, and SVB may declare all outstanding obligations immediately due and payable and may exercise other rights and remedies as set forth in the 2021 Loan Agreement and related loan documents. Acceleration would result in the payment of all outstanding loans, any default interest charged by the lender, all expenses of the lender and the Final Payment.
The Company bifurcated a compound derivative liability related to the contingent interest feature and acceleration clause (contingent put option) under the 2021 Loan Agreement. The contingent put option liability was valued and separately accounted for in the Company’s consolidated financial statements. The contingent put option liability is classified as a component of derivative liabilities on the consolidated balance sheets. As of December 31, 2021, the estimated fair value of the contingent put option liability was $0.1 million, which was determined by using a risk-neutral valuation model wherein the fair value of the underlying debt facility is estimated, both with and without the presence of the default provisions, holding all other assumptions constant (see Note 3).
As of December 31, 2021, the estimated future principal payments due were as follows:
Estimated future principal payments due
2022 $ -
2023 7,500
2024 7,500
Total $ 15,000
9.STOCKHOLDERS’ EQUITY
On June 18, 2021, the Company completed its IPO of 7,666,664 shares of its common stock, including the exercise in full by the underwriters of their option to purchase up to 999,999 additional shares of common stock, for aggregate gross proceeds of $122.7 million. The Company’s common stock began trading on the Nasdaq Global Select Market under the ticker symbol “DNAY” on June 18, 2021. The Company received $112.5 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by the Company. Upon closing of the IPO, all outstanding convertible preferred stock converted into 15,079,329 shares of common stock and SGI’s outstanding warrants
were automatically exercised into 1,201,059 shares of common stock. Subsequent to the closing of the IPO, all outstanding warrants issued pursuant to the 2021 Loan Agreement were exercised into 51,409 shares of common stock.
10.STOCK-BASED COMPENSATION
For the year ended on December 31, 2021 and 2020, the Company recorded stock-based compensation expense of approximately $1.1 million and $43,000, respectively. No income tax benefit was recognized in the accompanying consolidated statements of operations and comprehensive loss for the Company’s equity incentive plan.
The Company’s Board of Directors approved the adoption of the SGI-DNA, Inc. 2019 Stock Plan (the 2019 Plan) in March 2019. The 2019 Plan permitted the Company to grant up to 5,544,187 shares for options and restricted stock units of the Company’s common stock. On March 3, 2021, the Company’s Board of Directors and stockholders approved the termination of the 2019 Plan and the adoption of the 2021 Equity Incentive Plan (the 2021 Plan). 6,000,000 shares of common stock were reserved for issuance under the 2021 Plan.
The 2021 Plan provided for the grant of incentive and non-statutory stock options to employees, non-employee directors and consultants of the Company. Options granted under the 2019 Plan and 2021 Plan generally become exercisable over a 4-year period following the date service begins and expire 10 years from the date of grant. The exercise price of incentive stock options granted under the 2019 Plan and 2021 Plan must be at least equal to 100% of the fair value of the Company’s common stock at the date of the grant, except for greater than 10% stockholders for which the exercise price of incentive stock options granted under the 2019 Plan and 2021 Plan must be at least equal to 110% of the fair value of the Company’s common stock at the date of the grant, as determined by the Board of Directors. The exercise price of non-statutory options granted under the 2019 Plan and 2021 Plan must be at least equal to 100% of the fair value of the Company’s common stock at the date of grant, as determined by the Board of Directors. The 2019 Plan and 2021 Plan granted the Company a right of first refusal to repurchase shares issued under the plan at a price set by the optionee, which right terminated upon the IPO. As of December 31, 2021 and 2020, there were no outstanding shares subject to these repurchase rights.
Effective in connection with the IPO, the Company established the 2021 Employee Stock Purchase Plan (the ESPP). The maximum number of shares of common stock that may be issued under the ESPP was initially 350,000. Additionally, the number of shares reserved and available for issuance under the ESPP automatically increases each January 1, beginning on January 1, 2022 and each January 1 thereafter, by the lesser of (i) 1,050,000 shares of common stock, (ii) 1.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or (iii) such smaller number of shares of common stock as the Company’s board of directors may designate. As of December 31, 2021, the number of shares of common stock that may be issued under the ESPP is 350,000.
The ESPP enables eligible employees to purchase shares of common stock of the Company at the end of each offering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Participation in the ESPP is voluntary. Eligible employees become participants in the ESPP by enrolling in the plan and authorizing payroll deductions. At the end of each offering period, payroll deductions that have accumulated are used to purchase shares of the Company’s shares at the discounted price. The Company makes no contributions to the ESPP. A participant may withdraw from the ESPP or suspend contributions to the ESPP. If the participant elects to withdraw during an offering, all contributions are refunded as soon as administratively practicable. If a participant elects to withdraw or suspend contributions, they will not be able to re-enroll in the current offering but may elect to participate in future offerings. The ESPP purchases only whole shares of the Company’s shares. The Company’s first ESPP offering period began December 1, 2021 and will end on June 1, 2022, with a second offering period commencing on June 1, 2022. Subsequent offering periods will be on a rolling six-month basis.
As of December 31, 2021, no shares of common stock have been issued under the ESPP. Share-based compensation expense related to the ESPP of $39,000 for the year ended December 31, 2021 was recorded in operating expenses.
In June 2021, the Company established the 2021 Stock Incentive Plan (the 2021 SIP). The 2021 SIP became effective on the effective date of the IPO, at which time the Company ceased granting awards under the 2021 Plan. The 2021 SIP allows the Company’s compensation committee to grant equity-based awards to the Company’s employees, directors and consultants. A total of 3,500,000 shares of common stock were initially reserved for issuance under the 2021 SIP, plus the number of shares (not to exceed 2,459,970 shares) consisting of (i) the shares of common stock that were available for the issuance of awards under the 2021 Plan at the time the 2021 SIP became effective, which ceased to be available for future issuance under the 2021 Plan at such time and (ii) any shares subject to outstanding options or other share awards that were granted under the 2019 Plan and the 2021 Plan that terminate or expire prior to exercise or settlement; are forfeited because of the failure to vest; or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price. In addition, the number of shares reserved and available for issuance under the 2021 SIP automatically increases each January 1, beginning on January 1, 2022 and each January 1 thereafter by the lesser of
5,250,000 shares or 5% of the outstanding number of shares of common stock on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s board of directors. As of December 31, 2021, the number of shares of common stock reserved for issuance under the 2021 SIP is 3,350,226.
Stock option activity under the 2019 Plan, the 2021 Plan and the 2021 SIP for the years ended December 31, 2021 and 2020 are as follows:
Number of options Weighted average exercise price Weighted average remaining contractual term (in years) Aggregate intrinsic value (in thousands)
Balances at December 31, 2019 705,548 $ 0.55 9.5 $ 117
Options granted 303,065 0.72
Options exercised (23,957) 0.49
Options cancelled (224,497) 0.64
Balances at December 31, 2020
760,159 $ 0.60 8.7 $ 2,884
Options granted 2,340,264 6.83
Options exercised (296,160) 0.59
Options cancelled (253,279) 2.86
Balances at December 31, 2021
2,550,984 $ 6.09 9.1 $ 12,417
Vested and expected to vest at December 31, 2021
1,919,893 $ 5.83 9.1 $ 9,828
Vested and expected to vest at December 31, 2020
760,159 $ 0.60 8.7 $ 2,884
Exercisable at December 31, 2021
234,967 $ 2.09 8.2 $ 2,048
Exercisable at December 31, 2020
256,888 $ 0.56 8.5 $ 988
There were 2,340,264 and 303,065 options granted during the years ended December 31, 2021 and 2020, respectively. The weighted average grant date calculated fair value of options granted during the years ended December 31, 2021 and 2020 was $4.05 and $0.26 per share, respectively.
The calculated value of option grants during the years ended on December 31, 2021 and 2020 were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
Year Ended December 31,
2021 2020
Risk free interest rate 1.2 % 1.1 %
Expected dividend yield - % - %
Expected term (in years) 6.4 years 6.1 years
Expected volatility 39.9 % 36.4 %
Stock-based compensation expense related to stock options was classified in the consolidated statements of operations and comprehensive loss as follows (in thousands):
Year Ended December 31,
2021 2020
Research and development $ 25 $ 13
Sales and marketing 93 5
General and administrative 929 25
Total $ 1,047 $ 43
As of December 31, 2021, total unrecognized stock-based compensation expense related to unvested stock-based awards was $5.6 million, which is expected to be recognized over a weighted average period of 3.4 years.
11.INCOME TAXES
The domestic and foreign components of pre-tax loss for the years ended December 31, 2021 and 2020 were as follows (in thousands):
Year Ended December 31,
2021 2020
Domestic $ (39,026) $ (18,011)
Foreign 81 1
Total $ (38,945) $ (18,010)
The Company had no current or deferred federal and state income tax expense or benefit for the years ended December 31, 2021 and 2020 because the Company generated net operating losses, and currently management does not believe it is more likely than not that the net operating losses will be realized. The Company’s non-U.S. tax obligation is primarily for business activities conducted through the United Kingdom subsidiary for which taxes were determined to be immaterial and accordingly, such amounts were excluded from the following tables.
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:
Year Ended December 31,
2021 2020
Federal statutory income (benefit) tax rate (21.0) % (21.0) %
State income taxes, net of federal benefit (3.7) (4.9)
Change in valuation allowance 23.7 27.2
Permanent items 1.2 1.2
Tax credits (0.2) (2.5)
Effective income tax rate - % - %
The components of our deferred tax assets and liabilities on December 31, 2021 and 2020 consisted of (in thousands):
Year Ended December 31,
2021 2020
Deferred tax assets:
Net operating loss carryforwards $ 15,555 $ 7,045
Research and development tax credit carryforwards 915 865
Stock based compensation 168 -
Accruals and other 666 303
17,304 8,213
Valuation Allowance (16,749) (7,554)
Total deferred tax assets 555 659
Deferred tax liabilities:
Fixed assets (62) (80)
Intangibles (493) (579)
Total deferred tax liabilities (555) (659)
Net deferred tax assets $ - $ -
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets, which are composed principally of net operating loss carryforwards. Management has considered the Company’s history of cumulative net losses incurred since inception and has concluded that it is more likely than not that the Company will not realize the benefits of its federal and state net deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2021 and 2020. The Company reevaluates the positive and negative evidence at each reporting period.
The changes in the valuation allowance for deferred tax assets during the years ended December 31, 2021 and 2020, related primarily to the increases in net operating loss carryforwards, research and development tax credits generated and accruals.
The valuation allowance increased by $9.2 million and $4.9 million during the years ended December 31, 2021 and 2020, respectively.
On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). On December 21, 2020, the U.S. Congress passed the Consolidation Appropriations Act, 2021 (the CAA Act). The tax provisions under the CARES Act and CAA Act, do not have a material impact on the financial statements for the years ended December 31, 2021 and 2020 given the existence of the full valuation allowance.
On June 29, 2020 California Assembly Bill 85 (AB 85) was signed into law, which suspends the use of California net operating losses and limits the use of California research tax credits for tax years beginning in 2020 and before 2023. The Company does not expect the suspension of net operating losses and the restriction of research tax credits to have a significant impact on the financial statements.
As of December 31, 2021 and 2020, the Company had U.S. federal net operating loss carryforwards of $62.1 million and $28.4 million, respectively. The federal net operating loss carryforwards of $1.3 million, generated before January 1, 2018, will begin to expire in 2034 and the other $60.8 million will carryforward indefinitely but are subject to an 80% taxable income limitation. The Company also had federal research and development tax credit carryforwards of approximately $0.7 million which will begin to expire in 2039, if not utilized.
As of December 31, 2021 and 2020, the Company had state net operating loss carryforwards of $38.5 million and $15.9 million, respectively. The state net operating loss carryforwards of $38.5 million will begin to expire in 2029.
The Company also had California research and development tax credit carryforwards of approximately $0.6 million which do not expire.
The utilization of net operating losses and tax credit carryforwards may be subject to an annual limitation as a result of ownership changes that have occurred previously or may occur in the future. Under Sections 382 and 383 of the Internal Revenue Code (the Code), a corporation that undergoes an ownership change may be subject to limitations on its ability to utilize its pre-change net operating losses and other tax attributes otherwise available to offset future taxable income or tax liability. An ownership change is defined as a cumulative change of 50% or more in the ownership positions of certain stockholders during a rolling 3-year period. The Company has not completed a formal study to determine if any ownership changes within the meaning of Code Section 382 and 383 have occurred. If such ownership change has occurred, the Company’s ability to use its net operating losses or tax credit carryforwards may be restricted, which could require the Company to pay federal or state income taxes earlier than would be required if such limitations were not in effect.
The Company recognizes the financial statements benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company’s policy is to record interest associated with uncertain tax positions as interest expense and related penalties in general and administrative expenses.
The following table shows the changes in the gross amount of unrecognized tax benefits as of December 31, 2021 and 2020 (in thousands):
Balance as of December 31, 2019 $ 74
Increase of unrecognized tax benefits taken in prior years
-
Increase of unrecognized tax benefits taken in current year 242
Balance as of December 31, 2020
Increase of unrecognized tax benefits taken in prior years
(36)
Increase of unrecognized tax benefits taken in current year 58
Balance as of December 31, 2021
$ 338
If the Company is able to recognize these uncertain tax positions, the unrecognized tax benefits would not impact the effective tax rate if the Company applies a full valuation allowance against the deferred tax assets, as provided in the Company’s current policy.
The Company had not incurred any material tax interest or penalties as of December 31, 2021. The Company does not anticipate any significant change within 12 months of this reporting date of its uncertain tax positions. The Company is subject to taxation in the United States and various state jurisdictions, and the United Kingdom. There are no ongoing examinations by taxing authorities at this time. The Company’s tax years 2014 through 2021 will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss credits. The Company’s 2020 and 2021 tax years will remain open for examination by the United Kingdom tax authority for one year from the filing deadline.
12.COMMITMENTS AND CONTINGENCIES
Litigation
The Company may become involved in various claims, suits, and legal proceedings from time to time in the ordinary course of its business. The Company accrues a liability when it believes that it is both probable and the amount of loss can be reasonably estimated. While the outcome of such claims, lawsuits or other proceedings cannot be predicted with certainty, management expects that any liability, to the extent not provided for by insurance or otherwise, will not have a material adverse effect on the Company’s consolidated financial position or results of operations.
Codexis Trademark Litigation
In May 2020 Codexis, Inc. (Codexis) filed a complaint against the Company relating to its CODEX DNA name based on Codexis’ rights in the CODEX and CODEXIS mark in the U.S. District Court, Northern District of California for federal and common law trademark infringement and unfair competition/false designation (the Complaint). Codexis seeks injunctive relief, including that the Company cease all use of the term CODEX and any other trademark confusingly similar to the marks CODEX and CODEXIS and not apply for registration of or register the CODEX mark or any other mark confusingly similar to the CODEX or CODEXIS marks, transfer to Codexis all domain names and social media accounts/user names that include the term “codex” and pay damages (consisting of Codexis’s actual damages, a disgorgement of the Company’s profits and punitive damages as permitted by California common law) as well as attorneys’ fees and costs. The Company has been defending the case. If the Company cannot resolve the matter with Codexis, then a jury trial is scheduled to begin in May 2022.
Eurofins Pharma Non-Competition/Non-Solicitation Litigation
In October 2018, Eurofins Pharma US Holdings II, Inc. (EPUSH II) and Eurofins DiscoverX Corporation (Eurofins DiscoverX) (collectively, Plaintiffs) filed a complaint against Todd R. Nelson, SGI-DNA, Inc. (SGI-DNA, which is the Company’s prior name) and Synthetic Genomics, Inc. (the Company’s former parent company, and together with Dr. Nelson and SGI-DNA, the Defendants) to enforce non-competition and non-solicitation provisions of an agreement.
The complaint, filed in the Superior Court of California, County of San Diego, charges Dr. Nelson with breach of contract, SGI-DNA with tortious interference, and both with unfair competition. The complaint seeks permanent injunctive relief, monetary damages and other equitable relief (including restitution) against the Defendants. The civil jury trial, initially scheduled for April 24, 2020, and rescheduled to August 27, 2021, is now a bench trial that is scheduled to begin May 6, 2022.
It is not possible at this time to assess whether the outcome of these complaints will have a material adverse effect on the Company’s consolidated results of operations, cash flows or financial position. Therefore, in accordance with ASC 450, the Company has not accrued any accrual for a contingent liability associated with these legal proceedings based on its belief
that a liability, while possible, is not probable nor estimable, and any range of potential contingent liability amounts cannot be reasonably estimated at this time.
Contingencies
As described in the above Note 8, the Company had a success fee contingent liability to a creditor that required a payment of $0.8 million. This contingent liability was recorded at its fair value of $0.5 million at December 31, 2020 and was paid in full in July 2021.
Leases
The Company’s non-cancelable lease commitments are described in Note 7.
13.NET LOSS PER SHARE
Net loss per share
Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts:):
Year Ended December 31,
2021 2020
Numerator:
Net loss $ (38,958) $ (18,010)
Net loss attributable to common stockholders $ (38,958) $ (18,010)
Denominator:
Weighted average common stock outstanding - basic and diluted 18,222,495 5,001,538
Net loss per share attributable to common stockholders - basic and diluted $ (2.14) $ (3.60)
The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential shares of common stock from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
Year Ended December 31,
2021 2020
Series Z convertible preferred stock (as converted to common stock) - 2,500,000
Series A convertible preferred stock (as converted to common stock) - 7,599,274
Series A-1 convertible preferred stock (as converted to common stock) - 4,980,055
Warrants to purchase common stock - 1,081,745
Warrants to purchase Series A-1 convertible preferred stock (as converted to common stock) - 154,022
Stock options to purchase common stock 2,550,984 760,159
Total 2,550,984 17,075,255
14.RETIREMENT PLAN
The Company has a retirement saving plan (the 401(k) Plan) that allows participating employees to defer a portion of their annual compensation on a pretax basis. The Company made no contributions to the 401(k) Plan for the years ended December 31, 2021 and 2020.
15.ACQUISITION
On November 18, 2021, the Company entered into a Share Purchase Agreement, with the stockholders of EtonBio Inc., a California corporation (“Eton”), pursuant to which, the Company agreed to purchase all of the outstanding shares of capital stock of Eton. The total purchase price was approximately $13.6 million, which was funded with the Company’s existing cash on hand. Eton is a San Diego-based biotech company specializing in synthetic biology products and services,
including DNA sequencing and oligo synthesis, for the global academic research, pharmaceutical, and biotechnology industries. Eton also markets DNA prep services and products such as antibodies, peptides, and metabolism assay kits. The Eton acquisition has been accounted for as a business combination in accordance with ASC 805.
The assets acquired and liabilities assumed in connection with the Eton acquisition were recorded at their fair values on the date of acquisition as follows (in thousands):
Cash $ 393
Accounts receivable 664
Inventory 305
Other current assets 79
Property and equipment, net 1,388
Other long-term assets 28
Goodwill 10,833
Intangible assets 530
Accounts payable, accrued employee expenses and other accrued liabilities (389)
Deferred revenue, current portion (252)
Total purchase consideration $ 13,579
Less: Acquired cash (393)
Purchase of Eton, net of cash acquired 13,186
The excess of the purchase price over the fair values of the net identifiable tangible and intangible assets acquired has been assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the Company’s competitive position.
The following table sets forth the amounts allocated to the intangible assets identified and the estimated useful lives of those intangible assets as of the date of acquisition (in thousands):
Fair value Useful life (in years)
Trade name $ 80 3
Customer relationships 420 15
Non-competition agreements 30 3
Total intangible assets acquired $ 530
The intangible assets acquired are expected to be amortized over their useful lives on a straight-line basis.
As part of the Eton acquisition, the Company incurred acquisition-related costs of $0.3 million which were recorded in general and administrative expenses in the consolidated statements of operations and comprehensive loss.
As of the date of the Eton acquisition, the Company’s consolidated statements of operations and comprehensive loss includes the results of the acquired Eton business unit. For the year ended December 31, 2021, revenue of $0.5 million and net loss of $0.2 million have been included in the Company’s consolidated statement of operations and comprehensive loss.
The unaudited supplemental pro forma financial results below for the years ended December 31, 2021 and 2020, combine the consolidated results of the Company and the Eton business unit, giving effect to the Eton acquisition as if it had been completed on January 1, 2020. This unaudited supplemental pro forma financial information is presented for informational purposes only and is not indicative of future operations or results had the acquisition been completed as of January 1, 2020, or any other date (in thousands).
Year Ended December 31,
2021 2020
Pro forma revenue $ 17,094 $ 12,104
Pro forma net loss $ (38,228) $ (17,616)
The unaudited pro forma financial information in the table above summarizes the combined results of our operations and the Eton business unit, on a pro forma basis, as though we had acquired the Eton business unit on January 1, 2020. The unaudited pro forma financial information for all periods presented also includes the effects of business combination accounting resulting from the acquisition, amortization expense from acquired intangibles assets, and reversal of the acquisition-related expenses in the period incurred and recognition of the acquisition-related expenses in the prior period.
16.COLLABORATION
In December 2021, the Company entered into a Research Collaboration and License Agreement (Pfizer Agreement) with Pfizer Inc. (Pfizer), pursuant to which we agreed to collaborate with Pfizer to further develop our novel enzymatic DNA synthesis technology for Pfizer’s use in its research and development of mRNA-based vaccines and biotherapies. The financial terms of the deal include an upfront payment from Pfizer to the Company, along with success-based technical milestone payments that could be earned in the near term. The Company is also eligible to receive additional milestone payments based on the achievement of specified development, regulatory and commercialization goals associated with any products developed from the application of the Company’s technology developed and licensed under the agreement.
The Company granted Pfizer a non-exclusive, worldwide license to use the Company’s enzymatic DNA synthesis technology for purposes of researching, developing, manufacturing and commercializing pharmaceutical and biopharmaceutical products and a limited-time option to convert such license to exclusive for specific applications. If Pfizer exercises its option for these application(s) within the applicable period, then the license to Pfizer will become exclusive for products for such application(s); provided that Pfizer may later convert the particular application back to non-exclusive.
Under the Pfizer Agreement, Pfizer made an upfront payment to us of $8.0 million and if the Company meets certain technical milestones, the Company will be eligible to receive an additional $10.0 million in near-term milestone payments associated with the Research Plan.
In addition to the upfront payment and technical milestone payments, Pfizer has agreed to make milestone payments to the Company upon the products meeting certain clinical milestones, with each product (other than exclusive products) being eligible for milestone payments up to $20.0 million if it were to meet the applicable clinical milestones and the first exclusive product in each exclusive field being eligible for milestone payments up to $55.0 million if it were to meet the applicable clinical milestones. Pfizer has also agreed to pay the Company up to $60.0 million in sales milestones for products (other than exclusive products) if aggregate net sales of such products meet certain thresholds and up to $180.0 million in sales milestones for exclusive products if aggregate net sales of the exclusive products meet certain thresholds. Provided the Pfizer Agreement remains in place, Pfizer will also pay escalating royalties from a low to mid-fraction of one percent of net sales of all products. Pfizer’s obligations to pay royalties with respect to a product within a country will expire after specific criteria including such product no longer being covered by patent rights licensed to Pfizer by the Company in such country. Royalty payments are subject to reduction after the introduction of a biosimilar product in such country by a third party.
The Company assessed the collaboration and license agreement in accordance with ASC 606, Revenue from Contracts with Customers, and concluded that Pfizer is a customer based on the agreement structure. The Company identified a single combined performance obligation under the arrangement which includes performance under the research plan, technology transfer between the parties, participation in the Joint Research Committee, research licenses exchanged by the parties and the non-exclusive commercial license. In addition, the Company identified a material right for the option granted to Pfizer to extend the research term by an additional year. The $8.0 million upfront payment represents the transaction price at inception.
The Company determined that the $8.0 million upfront payment represents the entirety of the consideration to be included in the transaction price as of the outset of the arrangement. The potential milestone payments that the Company may have been eligible to receive were initially excluded from the transaction price at the outset of the arrangement because (i) all technical and development milestone payments did not meet the criteria for inclusion using the most-likely amount method and (ii) the Company recognizes as revenue sales-based milestones and royalties when the related sales occur. As of December 31, 2021 no milestones or royalties have been deemed likely to be achieved or have been achieved.
In accordance with ASC 606, the Company allocated the transaction price, comprising the upfront payment of $8.0 million, based on the standalone selling price of the combined performance obligation and the material right. Based on
Management's analysis, the material right was allocated $0.3 million of the transaction price, while the combined performance obligation was allocated $7.7 million of the transaction price.
The $7.7 million of revenue allocated to the combined performance obligation will be recognized using the input method based on time elapsed as compared to the research term of 24 months, and the $0.3 million of revenue allocated to the material right will be recognized over the third year of services performed under the research plan in the event the option to extend the research plan is exercised, or when the option expires in the event the option to extend the research plan is not exercised. During the year ended December 31, 2021, the Company recognized $0.2 million of collaboration revenue.
17.RELATED PARTY TRANSACTIONS
During the years ended December 31, 2021 and 2020, the Company made payments to related parties of approximately $0.3 million and $0.2 million, respectively for payments to board members and services relating to intellectual property matters, including patent filings and patent prosecution.
18.SUBSEQUENT EVENTS
The Company has evaluated subsequent events through March 23, 2022, the date these consolidated financial statements were issued and concluded there are no events to disclose.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.
None.
Item 9A. Controls and Procedures.
To come
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller or, persons performing similar functions. The code of business conduct and ethics is available on our website at http://codexdna.com. We intend to disclose future amendments to such code, or any waivers of its requirements, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, or our directors on our website identified above or in a Current Report on Form 8-K. Information contained on the website is not incorporated by reference into this Annual Report.
The remaining information required under this item is incorporated herein by reference to our definitive proxy statement (Proxy Statement) pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, which Proxy Statement is expected to be filed with Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2021.
Item 11. Executive Compensation
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Party Transactions, and Director Independence
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Part IV
Item 15. Exhibits, Financial Statement Schedules
The following documents are filed as part of this Annual Report:
1.Financial Statements: The financial statements filed as part of this Annual Report are included in Part II, Item 8 of this Annual Report.
2.Financial Statement Schedules: Financial statement schedules have been omitted in this Annual Report because they are not applicable, not required under the instructions or the information requested is set forth in the financial statements or related notes thereto.
3.Exhibits: The list of exhibits filed with this Annual Report is set forth in the Exhibit Index preceding the signature page and is incorporated herein by reference or filed with this Annual Report, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
Exhibit Number Description Form File No. Exhibit Filing Date
2.1 Share Purchase Agreement among Codex DNA, Inc. and the stockholders of Eton Bioscience Inc. dated November 9, 2021
8-K 001-40497 2.1 11/9/21
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
S-1 333-256644 3.2 5/28/21
3.2 Amended and Restated Bylaws of the Registrant.
S-1 333-256644 3.4 5/28/21
4.1 Amended and Restated Investors’ Rights Agreement by and among the Registrant and certain of its stockholders, dated December 19, 2019.
S-1 333-256644 4.1 5/28/21
4.2 Specimen common stock certificate of the Registrant.
S-1/A 333-256644 4.2 6/14/21
4.3 Warrant to Purchase Stock issued to Silicon Valley Bank, dated as of March 4, 2021.
S-1 333-256644 4.3 5/28/21
4.4 Description of the Registrant's securities registered pursuant to section 12 of the securities exchange act of 1934.
10.1+ Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.
S-1 333-256644 10.1 5/28/21
10.2+ 2019 Stock Plan, as amended, and forms of agreement thereunder.
S-1 333-256644 10.2 5/28/21
10.3+ 2021 Equity Incentive Plan, as amended, and forms of agreement thereunder.
S-1 333-256644 10.3+ 5/28/21
10.4+ 2021 Stock Incentive Plan and forms of agreements thereunder.
S-1/A 333-256644 10.4+ 6/14/21
10.5+ 2021 Employee Stock Purchase Plan and forms of agreements thereunder.
S-1 333-256644 10.5+ 5/28/21
10.6+ Confirmatory Employment Letter between the Registrant and Todd Nelson dated May 19, 2021.
S-1 333-256644 10.6+ 5/28/21
10.7+ Confirmatory Employment Letter between the Registrant and Jennifer McNealey dated May 19, 2021.
S-1 333-256644 10.7+ 5/28/21
10.8+ Confirmatory Employment Letter between the Registrant and Daniel Gibson dated May 19, 2021.
S-1 333-256644 10.8+ 5/28/21
10.9+ Confirmatory Employment Letter between the Registrant and Timothy Cloutier dated May 19, 2021.
S-1 333-256644 10.9+ 5/28/21
10.10+ Confirmatory Employment Letter between the Registrant and Brent Hunter dated May 19, 2021.
S-1 333-256644 10.10+ 5/28/21
10.11+ Executive Incentive Compensation Plan.
S-1 333-256644 10.11+ 5/28/21
10.12+ Form of Change in Control Severance Agreement.
S-1 333-256644 10.12+ 5/28/21
10.13+ Outside Director Compensation Policy.
S-1 333-256644 10.13+ 5/28/21
10.14 Office Lease, dated April 4, 2019, between the Registrant and BMR-Waples LP, as amended.
S-1 333-256644 10.14+ 5/28/21
10.15# Supply Agreement, dated October 26, 2015, between the Registrant and Integrated DNA Technologies, Inc., as amended.
S-1 333-256644 10.15+ 5/28/21
10.16# Loan and Security Agreement, dated March 4, 2021, between the Registrant and Silicon Valley Bank.
S-1 333-256644 10.16+ 5/28/21
10.17# Confidential Settlement Agreement between the Registrant and New England Biolabs, Inc. dated September 20, 2017.
S-1/A 333-256644 10.17# 6/14/21
10.18 Lease by and between the Registrant and BRE-BMR Waterbridge Pointe LP dated September 29, 2021
10-Q 001-40497 10.1 11/10/21
10.19 Separation and General Release Agreement
10-Q 001-40497 10.2 11/10/21
10.20 Second Amendment to Loan and Security Agreement by and between Registrant and Silicon Valley Bank, dated November 8, 2021
8-K 001-40497 10.1# 11/08/21
10.21# Research Collaboration and License Agreement by and between Registrant and Pfizer Inc. dated December 20, 2021
16.1 Letter of OUM & CO. LLP, dated July 20, 2021
8-K 001-40497 16.1 7/20/21
21.1 Subsidiaries of the Registrant
S-1 333-256644 21.1 5/28/21
23.1 Consents of Independent Registered Public Accounting Firms.
31.1† Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2† Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1† Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
_______________
+ Indicates management contract or compensatory plan.
# Portions of the exhibit have been omitted as the Registrant has determined that (i) the omitted information is not material; and (ii) the Registrant customarily and actually treats the omitted information as private or confidential.
† The certifications attached as Exhibit 31.1, 31.2 and 32.1 that accompany this Annual Report, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report, irrespective of any general incorporation language contained in such filing.
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 23, 2022
CODEX DNA, INC.
By: /s/ Todd R. Nelson
Todd R. Nelson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ Todd R. Nelson President, Chief Executive Officer
and Director
(Principal Executive Officer)
March 23, 2022
Todd R. Nelson
/s/ Jennifer I. McNealey Chief Financial Officer
(Principal Financial Officer)
March 23, 2022
Jennifer I. McNealey
/s/ Brent M. Hunter Senior Director, Corporate Controller
(Principal Accounting Officer)
March 23, 2022
Brent M. Hunter
/s/ Andrea L. Jackson Director March 23, 2022
Andrea L. Jackson
/s/ Jami D. Nachtsheim Director March 23, 2022
Jami D. Nachtsheim
/s/ William F. Snider Director March 23, 2022
William F. Snider
/s/ Christine A. Tsingos Director March 23, 2022
Christine A. Tsingos
/s/ Frank R. Witney Chair of the Board of Directors March 23, 2022
Frank R. Witney

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
To come

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller or, persons performing similar functions. The code of business conduct and ethics is available on our website at http://codexdna.com. We intend to disclose future amendments to such code, or any waivers of its requirements, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, or our directors on our website identified above or in a Current Report on Form 8-K. Information contained on the website is not incorporated by reference into this Annual Report.
The remaining information required under this item is incorporated herein by reference to our definitive proxy statement (Proxy Statement) pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, which Proxy Statement is expected to be filed with Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2021.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Party Transactions, and Director Independence
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Part IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
The following documents are filed as part of this Annual Report:
1.Financial Statements: The financial statements filed as part of this Annual Report are included in Part II, Item 8 of this Annual Report.
2.Financial Statement Schedules: Financial statement schedules have been omitted in this Annual Report because they are not applicable, not required under the instructions or the information requested is set forth in the financial statements or related notes thereto.
3.Exhibits: The list of exhibits filed with this Annual Report is set forth in the Exhibit Index preceding the signature page and is incorporated herein by reference or filed with this Annual Report, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
Exhibit Number Description Form File No. Exhibit Filing Date
2.1 Share Purchase Agreement among Codex DNA, Inc. and the stockholders of Eton Bioscience Inc. dated November 9, 2021
8-K 001-40497 2.1 11/9/21
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
S-1 333-256644 3.2 5/28/21
3.2 Amended and Restated Bylaws of the Registrant.
S-1 333-256644 3.4 5/28/21
4.1 Amended and Restated Investors’ Rights Agreement by and among the Registrant and certain of its stockholders, dated December 19, 2019.
S-1 333-256644 4.1 5/28/21
4.2 Specimen common stock certificate of the Registrant.
S-1/A 333-256644 4.2 6/14/21
4.3 Warrant to Purchase Stock issued to Silicon Valley Bank, dated as of March 4, 2021.
S-1 333-256644 4.3 5/28/21
4.4 Description of the Registrant's securities registered pursuant to section 12 of the securities exchange act of 1934.
10.1+ Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.
S-1 333-256644 10.1 5/28/21
10.2+ 2019 Stock Plan, as amended, and forms of agreement thereunder.
S-1 333-256644 10.2 5/28/21
10.3+ 2021 Equity Incentive Plan, as amended, and forms of agreement thereunder.
S-1 333-256644 10.3+ 5/28/21
10.4+ 2021 Stock Incentive Plan and forms of agreements thereunder.
S-1/A 333-256644 10.4+ 6/14/21
10.5+ 2021 Employee Stock Purchase Plan and forms of agreements thereunder.
S-1 333-256644 10.5+ 5/28/21
10.6+ Confirmatory Employment Letter between the Registrant and Todd Nelson dated May 19, 2021.
S-1 333-256644 10.6+ 5/28/21
10.7+ Confirmatory Employment Letter between the Registrant and Jennifer McNealey dated May 19, 2021.
S-1 333-256644 10.7+ 5/28/21
10.8+ Confirmatory Employment Letter between the Registrant and Daniel Gibson dated May 19, 2021.
S-1 333-256644 10.8+ 5/28/21
10.9+ Confirmatory Employment Letter between the Registrant and Timothy Cloutier dated May 19, 2021.
S-1 333-256644 10.9+ 5/28/21
10.10+ Confirmatory Employment Letter between the Registrant and Brent Hunter dated May 19, 2021.
S-1 333-256644 10.10+ 5/28/21
10.11+ Executive Incentive Compensation Plan.
S-1 333-256644 10.11+ 5/28/21
10.12+ Form of Change in Control Severance Agreement.
S-1 333-256644 10.12+ 5/28/21
10.13+ Outside Director Compensation Policy.
S-1 333-256644 10.13+ 5/28/21
10.14 Office Lease, dated April 4, 2019, between the Registrant and BMR-Waples LP, as amended.
S-1 333-256644 10.14+ 5/28/21
10.15# Supply Agreement, dated October 26, 2015, between the Registrant and Integrated DNA Technologies, Inc., as amended.
S-1 333-256644 10.15+ 5/28/21
10.16# Loan and Security Agreement, dated March 4, 2021, between the Registrant and Silicon Valley Bank.
S-1 333-256644 10.16+ 5/28/21
10.17# Confidential Settlement Agreement between the Registrant and New England Biolabs, Inc. dated September 20, 2017.
S-1/A 333-256644 10.17# 6/14/21
10.18 Lease by and between the Registrant and BRE-BMR Waterbridge Pointe LP dated September 29, 2021
10-Q 001-40497 10.1 11/10/21
10.19 Separation and General Release Agreement
10-Q 001-40497 10.2 11/10/21
10.20 Second Amendment to Loan and Security Agreement by and between Registrant and Silicon Valley Bank, dated November 8, 2021
8-K 001-40497 10.1# 11/08/21
10.21# Research Collaboration and License Agreement by and between Registrant and Pfizer Inc. dated December 20, 2021
16.1 Letter of OUM & CO. LLP, dated July 20, 2021
8-K 001-40497 16.1 7/20/21
21.1 Subsidiaries of the Registrant
S-1 333-256644 21.1 5/28/21
23.1 Consents of Independent Registered Public Accounting Firms.
31.1† Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2† Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1† Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
_______________
+ Indicates management contract or compensatory plan.
# Portions of the exhibit have been omitted as the Registrant has determined that (i) the omitted information is not material; and (ii) the Registrant customarily and actually treats the omitted information as private or confidential.
† The certifications attached as Exhibit 31.1, 31.2 and 32.1 that accompany this Annual Report, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report, irrespective of any general incorporation language contained in such filing.