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Table of Contents

 

 

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 June 30, 2022

OR

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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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

The registrant had outstanding 29,518,196 shares of common stock as of July 31, 2022.

 

 

 


Table of Contents

 

Table of Contents

 

Page

Part I - Financial Information

 

Item 1. Financial Statements (Unaudited)

5

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Operations and Comprehensive Loss

6

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

7

Condensed Consolidated Statements of Cash Flows

8

Notes to Condensed Consolidated Financial Statements

9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk

36

Item 4. Controls and Procedures

37

Part II - Other Information

 

Item 1. Legal Proceedings

38

Item 1A. Risk Factors

38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 3. Defaults Upon Senior Securities

78

Item 4. Mine Safety Disclosures

78

Item 5. Other Information

78

Item 6. Exhibits

79

Signatures

80

 

2


Table of Contents

 

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 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, including the war between Russia and Ukraine;
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

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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 Sheets

(in thousands, except share and per share data)

(Unaudited)

 

 

 

June 30,
2022

 

 

December 31,
2021

 

Assets

 

 

 

 

(Note 2)

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,282

 

 

$

82,806

 

Short-term investments

 

 

39,607

 

 

 

 

Accounts receivable, net of allowance for bad debts of $13 and $0 at
   June 30, 2022 and December 31, 2021, respectively

 

 

4,885

 

 

 

3,665

 

Inventory

 

 

1,776

 

 

 

2,368

 

Prepaid expenses and other current assets

 

 

3,477

 

 

 

4,345

 

Total current assets

 

 

72,027

 

 

 

93,184

 

Property and equipment, net

 

 

6,306

 

 

 

3,456

 

Right-of-use assets

 

 

1,747

 

 

 

2,281

 

Long-term deposits

 

 

734

 

 

 

609

 

Goodwill

 

 

14,330

 

 

 

14,330

 

Other intangible assets, net

 

 

2,140

 

 

 

2,397

 

Total Assets

 

$

97,284

 

 

$

116,257

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,870

 

 

$

2,499

 

Accrued employee expenses

 

 

3,999

 

 

 

3,849

 

Finance lease liability, current portion

 

 

39

 

 

 

81

 

Operating lease liability, current portion

 

 

596

 

 

 

1,156

 

Deferred revenue, current portion

 

 

4,086

 

 

 

205

 

Notes payable, current portion

 

 

4,204

 

 

 

603

 

Other accrued liabilities

 

 

981

 

 

 

1,005

 

Other current liabilities

 

 

469

 

 

 

335

 

Total current liabilities

 

 

18,244

 

 

 

9,733

 

Operating lease liability, net of current portion

 

 

1,249

 

 

 

1,394

 

Notes payable, net of discount and current portion

 

 

10,712

 

 

 

14,088

 

Derivative liabilities

 

 

112

 

 

 

108

 

Deferred revenue, net of current portion

 

 

2,247

 

 

 

150

 

Total liabilities

 

$

32,564

 

 

$

25,473

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock, $.0001 par value; 5,000,000 shares authorized at June 30, 2022 and December 31, 2021. No shares issued and outstanding

 

 

 

 

 

 

Common stock, $.0001 par value; 100,000,000 shares authorized at
   June 30, 2022 and December 31, 2021;
29,514,071 and 29,318,578 shares
   issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

158,044

 

 

 

156,049

 

Accumulated other comprehensive loss

 

 

(34

)

 

 

 

Accumulated deficit

 

 

(93,295

)

 

 

(65,270

)

Total stockholders' equity

 

 

64,720

 

 

 

90,784

 

Total liabilities and stockholders' equity

 

$

97,284

 

 

$

116,257

 

 

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

4,092

 

 

$

2,120

 

 

$

8,220

 

 

$

3,919

 

Royalties and other revenue

 

 

1,563

 

 

 

732

 

 

 

3,071

 

 

 

1,260

 

Total revenue

 

 

5,655

 

 

 

2,852

 

 

 

11,291

 

 

 

5,179

 

Cost of revenue

 

 

2,943

 

 

 

1,899

 

 

 

5,801

 

 

 

2,924

 

Gross profit

 

 

2,712

 

 

 

953

 

 

 

5,490

 

 

 

2,255

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

7,124

 

 

 

2,746

 

 

 

13,505

 

 

 

5,624

 

Sales and marketing

 

 

4,514

 

 

 

2,630

 

 

 

7,975

 

 

 

4,905

 

General and administrative

 

 

5,561

 

 

 

3,149

 

 

 

11,360

 

 

 

5,562

 

Total operating expenses

 

 

17,199

 

 

 

8,525

 

 

 

32,840

 

 

 

16,091

 

Loss from operations

 

 

(14,487

)

 

 

(7,572

)

 

 

(27,350

)

 

 

(13,836

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(299

)

 

 

(379

)

 

 

(635

)

 

 

(620

)

Change in fair value of derivative liabilities

 

 

(27

)

 

 

(1,251

)

 

 

(4

)

 

 

(1,547

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

(618

)

Other income (expense), net

 

 

(12

)

 

 

3

 

 

 

(24

)

 

 

(16

)

Total other expense, net

 

 

(338

)

 

 

(1,627

)

 

 

(663

)

 

 

(2,801

)

Loss before provision for income taxes

 

 

(14,825

)

 

 

(9,199

)

 

 

(28,013

)

 

 

(16,637

)

Provision for income taxes

 

 

(6

)

 

 

(2

)

 

 

(12

)

 

 

(6

)

Net loss

 

$

(14,831

)

 

$

(9,201

)

 

$

(28,025

)

 

$

(16,643

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale short-term investments

 

 

(18

)

 

 

 

 

 

(34

)

 

 

 

Total comprehensive loss

 

$

(14,849

)

 

$

(9,201

)

 

$

(28,059

)

 

$

(16,643

)

Net loss attributable to common stockholders

 

$

(14,831

)

 

$

(9,201

)

 

$

(28,025

)

 

$

(16,643

)

Net loss per share attributable to common stockholders—basic and diluted

 

$

(0.50

)

 

$

(1.06

)

 

$

(0.95

)

 

$

(2.39

)

Weighted average common stock outstanding—basic and diluted

 

 

29,435,838

 

 

 

8,697,707

 

 

 

29,383,870

 

 

 

6,955,084

 

 

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

 

 

Accumulated Other Comprehensive
Loss

 

 

Total
Stockholders'
Equity (Deficit)

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Balances at December 31, 2021

 

 

 

 

$

 

 

 

 

29,318,578

 

 

$

5

 

 

$

156,049

 

 

$

(65,270

)

 

$

 

 

$

90,784

 

Issuance of Common Stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

70,534

 

 

 

 

 

 

78

 

 

 

 

 

 

 

 

 

78

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

448

 

 

 

 

 

 

 

 

 

448

 

Unrealized loss on available- for-sale short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

(16

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,194

)

 

 

 

 

 

(13,194

)

Balances at March 31, 2022

 

 

 

 

$

 

 

 

 

29,389,112

 

 

$

5

 

 

$

156,575

 

 

$

(78,464

)

 

$

(16

)

 

$

78,100

 

Issuance of Common Stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

11,752

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Issuance of Common Stock related to ESPP

 

 

 

 

 

 

 

 

 

113,207

 

 

 

 

 

 

339

 

 

 

 

 

 

 

 

 

339

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,118

 

 

 

 

 

 

 

 

 

1,118

 

Unrealized loss on available- for-sale short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18

)

 

 

(18

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,831

)

 

 

 

 

 

(14,831

)

Balances at June 30, 2022

 

 

 

 

$

 

 

 

 

29,514,071

 

 

$

5

 

 

$

158,044

 

 

$

(93,295

)

 

$

(34

)

 

$

64,720

 

 

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)

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net loss

 

$

(28,025

)

 

$

(16,643

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

449

 

 

 

189

 

Amortization of intangible assets

 

 

257

 

 

 

225

 

Amortization of debt discount

 

 

225

 

 

 

274

 

Loss on debt extinguishment

 

 

 

 

 

618

 

Stock-based compensation

 

 

1,566

 

 

 

213

 

Amortization of operating lease right-of-use assets

 

 

534

 

 

 

315

 

Change in fair value of derivative liabilities

 

 

4

 

 

 

1,547

 

Non-cash interest on finance leases

 

 

(2

)

 

 

(7

)

Accretion of discount on short-term investments

 

 

(15

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,220

)

 

 

344

 

Inventories

 

 

592

 

 

 

(451

)

Deposits, prepaid expenses and other current assets

 

 

743

 

 

 

297

 

Accounts payable, accrued payroll and accrued liabilities

 

 

1,647

 

 

 

1,925

 

Deferred revenue

 

 

5,977

 

 

 

(121

)

Operating lease liabilities

 

 

(705

)

 

 

(333

)

Net cash used in operating activities

 

 

(17,973

)

 

 

(11,608

)

Cash Flows From Investing Activities:

 

 

 

 

 

 

Proceeds from maturities of short-term investments

 

 

25,720

 

 

 

 

Purchase of property and equipment

 

 

(3,314

)

 

 

(165

)

Purchases of short-term investments

 

 

(65,346

)

 

 

 

Net cash used in investing activities

 

 

(42,940

)

 

 

(165

)

Cash Flows From Financing Activities:

 

 

 

 

 

 

Borrowings on term loan

 

 

 

 

 

14,872

 

Repayment of term loan

 

 

 

 

 

(5,000

)

Debt extinguishment costs

 

 

 

 

 

(391

)

Payments on finance leases

 

 

(40

)

 

 

(42

)

Proceeds from the exercise of common stock options

 

 

90

 

 

 

158

 

Proceeds from the issuance of common stock related to ESPP

 

 

339

 

 

 

 

Net proceeds from issuance of common shares in initial public offering

 

 

 

 

 

112,484

 

Net cash provided by financing activities

 

 

389

 

 

 

122,081

 

Net (Decrease) Increase In Cash and Cash Equivalents

 

 

(60,524

)

 

 

110,308

 

Cash and cash equivalents at beginning of period

 

 

82,806

 

 

 

13,463

 

Cash and cash equivalents at end of period

 

$

22,282

 

 

$

123,771

 

 

 

 

 

 

 

 

Supplemental Disclosure Of Cash Flow Information:

 

 

 

 

 

 

Cash paid for interest

 

$

576

 

 

$

270

 

Initial public offering costs in accounts payable

 

$

 

 

$

363

 

Purchases of property and equipment included in accrued expenses

 

$

15

 

 

$

 

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

 

 

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 March 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 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 6). 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.

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, on terms acceptable to the Company, or at all. 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 it has sufficient financial resources to fund the Company’s operations for at least twelve months from the issuance date of these condensed consolidated financial statements.

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 include the accounts of the Company and its wholly owned subsidiaries after the elimination of all significant intercompany accounts and transactions. Any reference in these notes to

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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, 2021, 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 June 30, 2022, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2022 and 2021, condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three and six months ended June 30, 2022 and 2021 and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021.

The accompanying unaudited 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, 2021 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (SEC) on March 23, 2022 (the Annual Report). The condensed consolidated balance sheet data as of December 31, 2021 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 results for the three and six months ended June 30, 2022 and 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period.

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2021 included in the Annual Report. Since the date of the audited consolidated financial statements for the year ended December 31, 2021 included in the Annual Report, there have been no changes to its significant accounting policies except as noted below.

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.

Short-term Investments

As of June 30, 2022, short-term investments primarily consisted of corporate debt securities, commercial paper, and U.S. Government securities. The Company classifies its investments in securities as available-for-sale because, for accounting purposes, they are not considered to be either held-to-maturity securities or trading securities. They are not considered to be held-to-maturity securities because the Company does not have the intent to hold those securities to maturity. They are not considered trading securities because they were not acquired with the intent of selling them within hours or days. The Company’s investments in securities are classified as current as they are available for use in current operations. Short-term investments are carried at fair value with the unrealized gains and losses included in other comprehensive loss as a component of stockholders’ equity until realized. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity and recorded as interest income. Realized gains and losses are determined using the specific identification method and are included in other expense, net.

The Company evaluates its investments in securities that are in an unrealized loss position quarterly to determine if those securities are other-than-temporarily-impaired. If the Company intends to sell or if it is more likely than not that the Company will be required to sell those securities prior to the recovery of their book value, then those securities would be considered

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other-than-temporarily-impaired, and the Company would record this impairment as a loss through other expense, net. During the three and six months ended June 30, 2022 and 2021, the Company concluded that none of its investments in securities were other-than-temporarily-impaired and thus recorded no impairment losses for its investments in securities.

The following tables summarize the short-term investments held at June 30, 2022 (in thousands):

 

 

 

June 30, 2022

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

12,233

 

 

$

 

 

$

 

 

$

12,233

 

Corporate bonds

 

 

1,426

 

 

 

 

 

 

(1

)

 

 

1,425

 

U.S. Government agencies

 

 

25,982

 

 

 

 

 

 

(33

)

 

 

25,949

 

Total

 

$

39,641

 

 

$

 

 

$

(34

)

 

$

39,607

 

 

As of June 30, 2022, all short-term investments held by the Company had remaining contractual maturities of one year or less.

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 of money market funds, commercial paper, corporate bonds, U.S. government agencies and the contingent put option liability (in thousands):

 

 

 

Fair value measurements as of June 30, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

20,914

 

 

$

 

 

$

 

 

$

20,914

 

Commercial paper

 

 

 

 

 

12,233

 

 

 

 

 

 

12,233

 

Corporate bonds

 

 

 

 

 

1,425

 

 

 

 

 

 

1,425

 

U.S. Government agencies

 

 

 

 

 

25,949

 

 

 

 

 

 

25,949

 

Total

 

$

20,914

 

 

$

39,607