SEC Filing - Telesis Bio

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dnay-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

Commission file number 001-40497

CODEX DNA, INC.

(Exact name of registrant as specified in its charter)


Delaware			45-1216839
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
9535 Waples Street, Suite 100, San Diego, CA			92121-2993
(Address of Principal Executive Offices)			(Zip Code)

(858) 228-4115

Registrant's telephone number, including area code

9535 Waples Street, Suite 100

San Diego, CA 92121-2993

(858) 228-4115

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	DNAY	Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.☐ Yes ☒ No

APPLICABLE ONLY TO CORPORATE ISSUERS:

The registrant had outstanding 29,307,199 shares of common stock as of October 31, 2021.

Table of Contents


			Page
Part I - Financial Information
Item 1. Financial Statements (Unaudited)			4
Condensed Consolidated Balance Sheet			4
Condensed Consolidated Statements of Operations and Comprehensive Loss			5
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)			6
Condensed Consolidated Statements of Cash Flows			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			33
Item 4. Controls and Procedures			33
Part II - Other Information
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			68
Item 3. Defaults Upon Senior Securities			68
Item 4. Mine Safety Disclosures			68
Item 5. Other Information			68
Item 6. Exhibits			69
Signatures			70

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (Quarterly Report) contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, research and development costs, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal” “intend,” “may,” “objective” “plan,” “predict,” “potential,” “project,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:

•estimates of the synthetic biology market, market growth, and new market expansion;

•our future revenue, expenses, capital requirements and our needs for additional financing;

•our expectations regarding the rate and degree of market acceptance of our BioXp system, BioXp kits and benchtop reagents;

•the ability of our products to facilitate the design-build-test paradigm of synthetic biology;

•the size and growth of the synthetic biology market and competitive companies and technologies and our industry;

•our ability to manage and grow our business;

•our ability to develop and commercialize new products;our ability to establish and maintain intellectual property protection for our products or avoid or defend claims of infringement;

•the performance of third-party manufacturers and suppliers and our ability to qualify second-source suppliers;

•the potential effects of government regulation;

•our ability to hire and retain key personnel and to manage our future growth effectively;

•our ability to obtain additional financing in this or future offerings;

•the volatility of the trading price of our common stock;

•the impact of local, regional, and national and international economic conditions and events;

•the impact of COVID-19 on our business;

•our expectations about market trends;

•our anticipated use of our existing resources; and

•other risks and uncertainties, including those listed in the section titled “Risk Factors.”

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements contained herein to reflect events or circumstances after the date of this Quarterly Report, whether as a result of any new information, future events or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Codex DNA, Inc.

Condensed Consolidated Balance Sheet

(in thousands, except share and per share data)

(Unaudited)


	September 30, 2021		December 31, 2020
Assets			(See Note 2)
Current assets:
Cash and cash equivalents	$	109,802	$	13,463
Accounts receivable, net of allowance for bad debts of $0 and $105 at September 30, 2021 and December 31, 2020, respectively	2,938		2,266
Inventory	1,671		601
Prepaid expenses and other current assets	2,981		851
Total current assets	117,392		17,181
Property and equipment, net	904		689
Right-of-use assets	564		3,090
Long-term deposits	149		81
Goodwill	3,497		3,497
Other intangible assets, net	1,988		2,325
Total Assets	$	124,494	$	26,863
Liabilities, convertible preferred stock and stockholders' equity (deficit)
Current liabilities:
Accounts payable	$	2,213	$	1,191
Accrued employee expenses	2,729		1,470

Finance lease liability, current portion	85		90
Operating lease liability, current portion	911		693
Deferred revenue, current portion	307		606
Other accrued liabilities	628		220
Notes payable, current portion	941		1,333
Other current liabilities	50		22
Total current liabilities	7,864		5,625
Finance lease liability, net of current portion	17		81
Operating lease liability, net of current portion	—		2,776
Notes payable, net of discount and current portion	13,647		3,353
Derivative liabilities	119		1,533
Deferred revenue, net of current portion	85		40
Total liabilities	$	21,732	$	13,408
Commitments and contingencies (Note 12)
Convertible preferred stock
Series Z Preferred stock, $.0001 par value; 0 and 7,500,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 0 and 2,500,000 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	—		1
Series A Preferred stock, $.0001 par value; 0 and 22,797,830 shares authorized at September 30, 2021 and December 31, 2020, respectively; 0 and 7,599,274 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	—		20,992
Series A1 Preferred stock, $.0001 par value; 0 and 15,402,237 shares authorized at September 30, 2021 and December 31, 2020, respectively; 0 and 4,980,055 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	—		17,921
Stockholders' equity (deficit)
Preferred stock, $.0001 par value; 5,000,000 and 0 shares authorized at September 30, 2021 and December 31, 2020, respectively. No shares issued and outstanding	—		—
Common stock, $.0001 par value; 100,000,000 and 72,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 29,307,088 and 5,023,957 shares issued and outstanding at September 30, 2021 and December 31, 2020,respectively	5		2
Additional paid-in capital	155,536		851
Accumulated deficit	(52,779)		(26,312)
Total stockholders' equity (deficit)	102,762		(25,459)
Total liabilities, convertible preferred stock and stockholders' equity (deficit)	$	124,494	$	26,863

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Codex DNA, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue:
Product sales	$	2,180	$	1,285	$	6,099	$	3,720
Royalties and other revenue	606		350		1,866		919
Total revenue	2,786		1,635		7,965		4,639
Cost of revenue	1,624		739		4,548		1,933
Gross profit	1,162		896		3,417		2,706
Operating expenses:
Research and development	3,593		2,345		9,217		6,263
Sales and marketing	2,955		1,861		7,881		4,758
General and administrative	4,055		990		9,596		2,876
Total operating expenses	10,603		5,196		26,694		13,897
Loss from operations	(9,441)		(4,300)		(23,277)		(11,191)
Other expense, net:
Interest expense, net	(381)		(169)		(1,001)		(502)
Change in fair value of derivative liabilities	15		12		(1,532)		(655)
Loss on extinguishment of debt	—		—		(618)		—
Other expense, net	(13)		(6)		(29)		(77)
Total other expense, net	(379)		(163)		(3,180)		(1,234)
Loss before provision for income taxes	(9,820)		(4,463)		(26,457)		(12,425)
Provision for income taxes	(4)		(2)		(10)		(2)
Net loss and comprehensive loss	$	(9,824)	$	(4,465)	$	(26,467)	$	(12,427)

Net loss attributable to common stockholders	$	(9,824)	$	(4,465)	$	(26,467)	$	(12,427)
Net loss per share attributable to common stockholders—basic and diluted	$	(0.34)	$	(0.89)	$	(1.83)	$	(2.49)
Weighted average common stock outstanding—basic and diluted	29,299,769		5,001,035		14,485,161		5,000,442

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Codex DNA, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)

(in thousands, except share data)

(Unaudited)


	Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance at December 31, 2019	15,079,329	$	38,914	5,000,000	$	2	$	797	(8,302)		$	(7,503)
Stock-based compensation expense	—	—		—	—		15		—		15
Net loss	—	—		—	—		—		(3,880)		(3,880)
Balances at March 31, 2020	15,079,329	38,914		5,000,000	2		812		(12,182)		(11,368)
Stock-based compensation expense	—	—		—	—		10		—		10
Issuance of Common Stock upon exercise of stock options	—	—		329	—		—		—		—
Net loss	—	—		—	—		—		(4,082)		(4,082)
Balances at June 30, 2020	15,079,329	38,914		5,000,329	2		822		(16,264)		(15,440)
Issuance of Common Stock upon exercise of stock options	—	—		1,755	—		—		—		—
Stock-based compensation expense	—	—		—	—		9		—		9
Net loss	—	—		—	—		—		(4,465)		(4,465)
Balances at September 30, 2020	15,079,329	$	38,914	5,002,084	$	2	$	831	$	(20,729)	$	(19,896)

Balances at December 31, 2020	15,079,329	$	38,914	5,023,957	$	2	$	851	$	(26,312)	$	(25,459)
Issuance of Common Stock upon exercise of stock options	—	—		223,216	—		133		—		133
Stock-based compensation expense	—	—		—	—		67		—		67
Net loss	—	—		—	—		—		(7,442)		(7,442)
Balances at March 31, 2021	15,079,329	38,914		5,247,173	2		1,051		(33,754)		(32,701)
Issuance of common shares upon initial public offering, net of issuance costs of $8,587	—	—		7,666,664	1		112,483		—		112,484
Conversion of convertible preferred shares into an equivalent number of common shares	(15,079,329)	(38,914)		15,079,329	2		38,912		—		38,914
Issuance of warrant and conversion into common shares	—	—		1,252,468	—		2,770		—		2,770
Issuance of Common Stock upon exercise of stock options	—	—		45,929	—		25		—		25
Stock-based compensation expense	—	—		—	—		146		—		146
Net loss	—	—		—	—		—		(9,201)		(9,201)
Balances at June 30, 2021	—	—		29,291,563	5		155,387		(42,955)		112,437
Issuance of Common Stock upon exercise of stock options	—	—		15,525	—		10		—		10
Stock-based compensation expense	—	—		—	—		365		—		365
Payment of offering costs	—	—		—	—		(226)		—		(226)
Net loss	—	—		—	—		—		(9,824)		(9,824)
Balances at September 30, 2021	—	$	—	29,307,088	$	5	$	155,536	$	(52,779)	$	102,762

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Codex DNA, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
Cash Flows From Operating Activities:
Net loss	$	(26,467)	$	(12,427)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	283		308
Amortization of intangible assets	337		350
Amortization of debt discount	377		160
Loss on debt extinguishment	618		—
Loss on disposal of intangible asset	—		73
Stock-based compensation	578		34
Amortization of operating lease right-of-use assets	479		439
Change in fair value of derivative liabilities	1,532		655
Non-cash interest on finance leases	(8)		(14)
Changes in assets and liabilities:
Accounts receivable	(672)		99
Inventories	(1,070)		109
Deposits, prepaid expenses and other current assets	(2,198)		(921)
Accounts payable, accrued payroll and accrued liabilities	2,717		458
Deferred revenue	(254)		192
Operating lease liabilities	(511)		(337)
Net cash used in operating activities	(24,259)		(10,822)
Cash Flows From Investing Activities:
Purchase of property and equipment	(498)		(114)
Net cash used in investing activities	(498)		(114)
Cash Flows From Financing Activities:
Borrowings on term loan	14,872		—
Repayment of term loan	(5,000)		—
Debt extinguishment costs	(1,141)		—
Payments on finance leases	(61)		(82)
Proceeds from the exercise of common stock options	168		—
Net proceeds from issuance of common shares in initial public offering	112,484		—
Payments of offering costs	(226)		—
Net cash provided by (used in) financing activities	121,096		(82)
Net Increase (Decrease) In Cash	96,339		(11,018)
Cash and cash equivalents at beginning of period	13,463		29,144
Cash and cash equivalents at end of period	$	109,802	$	18,126

Supplemental Disclosure Of Cash Flow Information:
Cash paid for interest	$	549	$	350
Purchases of property and equipment included in accounts payable	$	28	$	—

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 convertible preferred shares into common shares	$	38,914	$	—
Conversion of warrant into common shares	$	2,770	$	—
Right-of-use asset derecognized upon lease modification	$	2,047	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Codex DNA, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 (US 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.

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.

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the 2020 consolidated financial statements were issued.

Since inception, the Company has incurred cumulative operating losses and negative cash flows from operations. These operating losses and negative cash flows have been financed principally from the issuance of equity securities and debt. The Company’s ability to continue as a going concern is dependent upon the ability to raise additional debt or equity capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to the Company. Risks to which the Company is exposed include uncertainties related to the ability to achieve revenue-generating products; current and potential competitors with greater financial, technological, production, and marketing resources; dependence on key management personnel; and raising additional capital, as needed. Based upon the Company’s current plans, management believes there currently is sufficient financial resources to fund the Company’s operations for at least twelve months from the issuance date of these financial statements.

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The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

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 accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) and included the accounts of the Company and its wholly owned subsidiary after the elimination of all significant intercompany accounts and transactions. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (ASC) and as amended by Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB).

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements as of and for the year ended December 31, 2020, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020.

The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the accompanying notes for the year ended December 31, 2020 included in the Company’s final prospectus that forms part of the Company’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission (SEC) pursuant to Rule 424(b)(4) on June 21, 2021 (the Prospectus). The condensed consolidated balance sheet data as of December 31, 2020 presented for comparative purposes was derived from the Company’s audited consolidated financial statements but does not include all disclosures required by U.S. GAAP.

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2020 included in the Prospectus. Since the date of the audited consolidated financial statements for the year ended December 31, 2020 included in the Prospectus, there have been no changes to its significant accounting policies except as noted below.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations and comprehensive loss, the condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2021 and the results of its operations

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or the three and nine months ended September 30, 2021 and 2020, and its cash flows for the nine months ended September 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2021 and 2020 are also unaudited. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.

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 the Company’s ability to continue as a going concern, 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, fair value of common stock prior to the Company’s initial public offering and accrued warranty are subject to significant estimation. Actual results could differ from those estimates.

Revenue Recognition

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.

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 these 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 condensed consolidated statements of operations and comprehensive loss.

Warranty Obligations

The Company estimates its cost of standard product warranties, primarily from historical information, and records a charge in cost of revenues at the time product revenues are recognized. The Company’s estimated warranty obligation at September 30, 2021 was $52,000 and is included in other current liabilities in our condensed consolidated balance sheet.

3.FAIR VALUE MEASUREMENT

The following table summarizes the fair values of the Company’s assets and liabilities on the condensed consolidated balance sheets which comprise money market funds and the participation right liability, warrant liability, contingent put option liability, and success fee contingent liability (in thousands):


	Fair value measurements as of September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	107,241	$	—	$	—	$	107,241
Total	$	107,241	$	—	$	—	$	107,241

Liabilities


Contingent put option liability	$	—	$	—	$	119	$	119
Total	$	—	$	—	$	119	$	119

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	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 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. 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 September 30, 2021 and December 31, 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 fair value of the Series A-1 convertible preferred stock warrant 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 September 30, 2021, there were no outstanding preferred stock warrants.

As of June 18, 2021, the SGI preferred stock warrant was valued by calculating the intrinsic value of the warrant upon the closing of the IPO. The following reflects the significant quantitative inputs used in the valuation of the SGI preferred stock warrant liability as of December 31, 2020:


	December 31, 2020
Risk-free interest rate	0.1	%
Expected term	2.0 years
Expected volatility	83.6	%
Expected dividend yield	0.0	%

The following reflects the significant quantitative inputs used in the valuation of the preferred stock warrants issued pursuant to the 2021 Loan Agreement as of June 18, 2021:


	June 18, 2021
Risk-free interest rate	1.4	%
Expected term	9.7 years
Expected volatility	56.0	%
Expected dividend yield	0.0	%

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

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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 condensed consolidated statements of operations and comprehensive loss.

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 during the three months ended September 30, 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 condensed 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, 2020	$	420	$	594	$	51	$	468
Extinguishment of liability	—		—		(51)		—
Issuance of liability	—		322		303		—
Change in fair value	(30)		198		—		128
Fair value at March 31, 2021	390		1,114		303		596
Change in fair value	—		1,656		(169)		154
Extinguishment of liability	(390)		(2,770)		—		—
Transfer out of Level 3 to Level 1	—		—		—		(750)
Fair value at June 30, 2021	—		—		134		—
Change in fair value	—		—		(15)		—
Fair value at September 30, 2021	$	—	$	—	$	119	$	—

For the each of the three months ended September 30, 2021 and 2020, the Company recorded a change in fair value of derivative liabilities included in other expense of less than $0.1 million. For the nine months ended September 30, 2021 and 2020, the Company recorded a change in fair value of derivative liabilities included in other expense of $1.5 million and $0.7 million, respectively.

4.INVENTORY

Inventories include material, labor and overhead and are stated at the lower of cost (first-in and first-out method) or net realizable value. The components of inventory are as follows as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Raw materials	$	561	$	299
Work in process and sub-assemblies	887		201
Finished goods	223		101
Total	$	1,671	$	601

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5.PROPERTY AND EQUIPMENT

Property and equipment consisted of the following on September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Machinery and equipment	$	1,745	$	1,315
Computer hardware and software	6		6
Leasehold improvements	58		32
Construction in progress	141		102
Total	1,950		1,455
Less: Accumulated depreciation and amortization	(1,046)		(766)
Total property and equipment, net	$	904	$	689

Depreciation expense for the each of the three months ended September 30, 2021 and 2020 was $0.1 million and depreciation expense for each of the nine months ended September 30, 2021 and 2020 was $0.3 million, and is included in operating expenses.

6.GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

As part of the March 8, 2019 transaction (see Note 1), the Company acquired its intangible assets with resulting goodwill. The goodwill carries a fair value of approximately $3.5 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 the goodwill to be impaired. 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 three and nine months ended September 30, 2021 and 2020, the Company did not record any impairment of goodwill.

Other Intangible Assets

Other intangible assets 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), the amount allocated to the trade name of $0.1 million was deemed impaired and written off in April 2020.

Amortization expense for each of the three months ended September 30, 2021 and 2020 was approximately $0.1 million and for the nine months ended September 30, 2021 and 2020 was approximately $0.3 million and $0.4 million, respectively.

The following table summarizes the estimated future amortization expense of the intangible assets as of September 30, 2021 (in thousands):


Years ending December 31:
2021	$	113
2022	450
2023	450
2024	450
2025	450
Thereafter	75
Total	$	1,988

7.LEASES

As of September 30, 2021, the Company had three outstanding leases for office and laboratory space and scientific manufacturing equipment. The leases have terms between 12 and 15 months.

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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.

The components of lease cost under ASC 842 are as follows (in thousands):


	September 30, 2021		September 30, 2020
Lease costs
Finance lease cost:
Payment of finance lease liability	$	61	$	82
Interest on lease liabilities	8		14
Amortization of right-of-use asset	479		439
Variable lease cost	363		254
Total lease cost	$	911	$	789

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Supplemental disclosure of cash flow information related to leases are as follows (in thousands):


	September 30, 2021		September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	723	$	589
Operating cash flows from finance leases	$	8	$	14
Financing cash flows from finance leases	$	61	$	82

The weighted-average remaining lease term and discount rate were as follows:


	September 30, 2021		September 30, 2020
Weighted-average remaining lease term
Finance leases	1.2 years		2.0 years
Operating leases	1.0 years		4.3 years
Weighted-average discount rate
Finance leases	7.7	%	7.9	%
Operating leases	8.9	%	8.9	%

The following table summarizes the minimum lease payments of the Company’s operating and finance lease liabilities as of September 30, 2021 (in thousands):


Year Ending December 31,	Operating		Finance
2021	$	245	$	22
2022	702		85
2023	—		—
2024	—		—
2025	—		—

Total future minimum lease payments	947		107
Less: imputed interest	(36)		(5)
Present value of operating lease liability	$	911	$	102

Less: current portion of lease liability	(911)		(85)
Non-current portion of lease liability	—		17

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 September 30, 2021. Commencement of the lease at 10421 and 10431 Wateridge Circle is expected to occur in the second half of 2022.

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8.NOTES PAYABLE

Loan and Security Agreement

As of September 30, 2021 and December 31, 2020, the loans payable on the condensed 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):


	September 30, 2021		December 31, 2020
Principal amount of loans payable	$	15,000	$	5,000
Less: Current portion of loans payable	(941)		(1,333)
Loans payable, net of current portion	14,059		3,667
Accrued Interest	91		90
Final debt payment liability	400		287
Debt discount and financing costs, net of accretion	(903)		(691)
Loans payable, net of discount and current portion	$	13,647	$	3,353

2019 Loan and Security Agreement

On September 5, 2019, we entered into a Loan and Security Agreement with Oxford Finance LLC 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 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. 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 our assets, other than our 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, we had a contingent obligation to pay Oxford a success fee of $0.8 million upon the completion of our IPO. We 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 our consolidated balance sheets and corresponding discount to the loans under the 2019 Loan Agreement. 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 success fee contingent liability was paid in full during the three months ended September 30, 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 loans bear 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 loans are secured by substantially all of the Company’s assets,

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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 nine months ended September 30, 2021, the effective interest rate on outstanding borrowings was approximately 10.40%.

The term loans mature 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 loans 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 loans, in whole but not in part, at any time. If the Company elects to voluntarily prepay the term loans 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 loans upon an acceleration of the loans. Upon a voluntary or mandatory prepayment of the loans, the Company is also required to pay SVB’s expenses and all accrued but unpaid interest on the loans 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 loans, or a voluntary or mandatory prepayment of the loans. 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 once the Company’s cash balance falls below $55 million. Additionally, the interest-only period was extended until August 1, 2022 and the maturity date was amended to January 1, 2025. The Company will assess the amendment to the 2021 Loan Agreement for debt modification or extinguishment under ASC 470 and account 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. Except as detailed above, the Company is in compliance with its covenants as of September 30, 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.

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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 condensed consolidated financial statements. The contingent put option liability is classified as a component of derivative liabilities on the condensed consolidated balance sheet. As of September 30, 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).

The estimated future principal payments due under the 2021 Loan Agreement were as follows:


	September 30, 2021
Estimated future principal payments due
2022	$	2,500
2023	6,000
2024	6,000
2025	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 three months ended September 30, 2021 and 2020 and the nine months ended September 30, 2021 and 2020, the Company recorded stock-based compensation expense of approximately $0.4 million, less than $0.1 million, $0.6 million, and less than $0.1 million, respectively. No income tax benefit was recognized in the accompanying condensed 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 September 30, 2021 and December 31, 2020, there were no outstanding shares subject to these repurchase rights.

Effective in connection with the IPO, the Company established the 2021 Stock Incentive Plan (the 2021 SIP), which reserved 3,500,000 shares of common stock for future issuance, and the 2021 Employee Stock Purchase Plan (the ESPP), which reserved 350,000 shares of common stock reserved for future issuance.

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Stock option activity under the 2019 Plan and 2021 Plan for the nine months ended September 30, 2021 is 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, 2020	760,159	$	0.60	8.7	$	2,884
Options granted	2,161,464	6.74