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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 September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from         to
Commission File Number 001-40354
Zymergen Inc.
(Exact name of registrant as specified in its charter)
Delaware46-2942439
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
5980 Horton Street, Suite 105
Emeryville, California 94608
(415) 801-8073
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $0.001 par value per shareZYThe 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.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No
As of October 22, 2021, there were approximately 102,400,795 shares of the registrant's common stock, par value $0.001 per share, outstanding.


TABLE OF CONTENTS
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TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and uncertainties. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “target,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.
These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our ability to successfully commercialize our products;
our ability to complete and execute on our new strategic plan, including opportunities in healthcare;
our ability to reduce our operating costs and fund our operations to the middle of 2023;
the scope and timing of restructuring activities;
our ability to focus on a smaller number of programs that capitalize on our capabilities;
the commercial opportunities for the programs on which we are focused;
our ability to generate revenues from our products and timelines for our products;
our plans for the development, launch and commercialization of the products in our product pipeline;
our ability to successfully produce products through fermentation that we initially launch using non-fermentation or non-bio-based molecules;
the implementation of our business model and our ability to transition from revenues that are substantially all derived from research and development ("R&D") service contracts and collaboration agreements to revenues primarily derived from the commercialization of our products;
our ability to find and qualify sources of manufacturing;
the potential benefits of our existing and potential future R&D collaborations and other partner relationships;
our ability to accurately anticipate and address the market opportunity in our target markets, as well as the total market opportunity across numerous sectors;
our ability to accurately anticipate the size and growth potential of the markets for our products and our ability to develop and commercialize products that gain customer acceptance in those markets;
our expectations regarding our ability to obtain and maintain intellectual property protection for our biofacturing platform, products and related technologies;
our ability to obtain and maintain regulatory approval for certain of our products;
regulatory developments in the United States and foreign countries;
the ability of incumbent chemical companies and synthetic biology companies to address the needs of our existing and potential customers;
developments relating to our competitors and our industry;
the success of competing products that are or may become available;
our goals for producing bio-based products that contribute to a more sustainable future;


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our ability to successfully enter new markets and manage any international expansion;
our financial performance;
our ability to obtain funding for our operations, including funding necessary to complete further development of our current and future products;
our estimates regarding margins, future revenue, our ability to manage our expenses, capital requirements and needs for additional financing;
our preliminary allocation of the purchase price of acquisitions;
the success of our significant investments in our continued R&D of new products;
the impact of COVID-19 on our business; and
our ability to attract, train, and retain key personnel, including a permanent Chief Executive Officer.
You should refer to the “Risk Factors” section of this Quarterly Report on Form 10-Q for a discussion of important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.


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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ZYMERGEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share data)
 As of September 30, 2021
As of December 31, 2020 (1)
ASSETS
Current assets:  
Cash and cash equivalents$496,247 $210,205 
Accounts receivable1,044 2,516 
Accounts receivable, unbilled1,581 1,659 
Prepaid expenses9,541 7,024 
Inventories6,210 4,969 
Restricted cash, current30  
Other current assets1,911 2,201 
Total current assets516,564 228,574 
Restricted cash10,777 9,605 
Property and equipment, net54,572 48,718 
Goodwill33,841 11,604 
Intangible assets, net9,153 4,790 
Other long-term assets2,429 1,630 
Total assets$627,336 $304,921 
LIABILITIES AND CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$10,472 $12,097 
Accrued and other liabilities26,545 26,888 
Short-term debt, net80,221 79,331 
Short-term deferred rent1,132 494 
Deferred revenue2,282 2,648 
Total current liabilities120,652 121,458 
Long-term deferred rent27,473 9,916 
Warrant liabilities 14,231 
Other long-term liabilities2,395 2,254 
Total liabilities150,520 147,859 
Commitments and contingencies
Convertible preferred stock, $0.001 par value, 170,000,000 and 214,181,024 shares authorized as of September 30, 2021 and December 31, 2020, respectively; no shares issued and outstanding as of September 30, 2021 and 68,093,280 shares issued and outstanding as of December 31, 2020
 900,798 
Stockholders' equity (deficit)
Common stock, $0.001 par value, 1,500,000,000 and 286,477,669 shares authorized as of September 30, 2021 and December 31, 2020, respectively; 102,370,527 and 12,812,109 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
103 13 
Additional paid-in capital1,534,100 29,991 
Accumulated deficit(1,057,387)(773,740)
Total stockholders' equity (deficit)476,816 (743,736)
Total liabilities and convertible preferred stock and stockholders' equity (deficit)$627,336 $304,921 
(1) The balance sheet as of December 31, 2020 is derived from the audited financial statements as of that date.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ZYMERGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except share and per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Revenues from research and development service agreements$2,947 $2,143 $10,440 $4,818 
Collaboration revenue1,135 1,065 3,264 2,560 
Total revenues4,082 3,208 13,704 7,378 
Cost and operating expenses:
Cost of service revenue17,179 21,047 60,138 63,721 
Research and development39,073 21,703 129,036 60,986 
Sales and marketing3,977 4,354 18,753 14,477 
General and administrative17,906 14,410 60,898 44,713 
Restructuring charges21,193  21,193  
Total cost and operating expenses99,328 61,514 290,018 183,897 
Operating loss(95,246)(58,306)(276,314)(176,519)
Other income (expense):
Interest income7 32 62 451 
Interest expense(2,809)(2,769)(8,303)(8,182)
Gain (loss) on change in fair value of warrant liabilities  (477)1,849 (2,093)
Other expense, net(199)(292)(967)(355)
Total other expense(3,001)(3,506)(7,359)(10,179)
Loss before income taxes(98,247)(61,812)(283,673)(186,698)
(Provision for) benefit from income taxes18 (4)26 102 
Net loss and comprehensive loss$(98,229)$(61,816)$(283,647)$(186,596)
Net loss per share attributable to common stockholders, basic$(0.96)$(4.92)$(4.39)$(15.47)
Net loss per share attributable to common stockholders, diluted$(0.96)$(4.92)$(4.40)$(15.47)
Weighted average shares used in computing net loss per share to common stockholders, basic102,337,242 12,559,912 64,662,332 12,058,855 
Weighted average shares used in computing net loss per share to common stockholders, diluted102,337,242 12,559,912 64,812,356 12,058,855 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ZYMERGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
(in thousands, except share data)
Convertible
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
Balance, December 31, 202068,093,280 $900,798 12,812,109 $13$29,991 $(773,740)$(743,736)
Vesting of restricted common stock— — 16,810 — — — 
Issuance of common stock upon exercise of options— — 711,963 3,189 — 3,189 
Stock-based compensation expense— — — 2,253 — 2,253 
Share settlement of non-recourse loan to employee— — (67,050)— — — 
Cash settlement of non-recourse loan to employee— — — 1,946 — 1,946 
Net loss— — — — (84,585)(84,585)
Balance, March 31, 202168,093,280 900,798 13,473,832 1337,379 (858,325)(820,933)
Issuance of common stock upon initial public offering, net of commission and issuance costs of $45,138
— — 18,549,500 19529,878 — 529,897 
Issuance of preferred stock upon exercise of Series C Preferred Stock warrants883,332 27,384 — — — — 
Conversion of preferred stock into common stock(68,976,612)(928,182)68,998,791 69928,113 — 928,182 
Issuance of common stock upon exercise of warrants— — 226,880 — — — 
Issuance of common stock in business acquisition— — 774,402 124,808 — 24,809 
Vesting of restricted common stock— — 16,810 — — — 
Issuance of common stock upon exercise of options— — 256,960 11,257 — 1,258 
Stock-based compensation expense— — — 6,965 — 6,965 
Net loss— — — — (100,833)(100,833)
Balance, June 30, 2021  102,297,175 103 1,528,400 (959,158)569,345 
Vesting of restricted common stock— — 16,810 — — — 
Issuance of common stock upon exercise of options— — 56,542 271 — 271 
Stock-based compensation expense— — — 5,422 — 5,422 
Other— — — 7 — 7 
Net loss— — — — (98,229)(98,229)
Balance, September 30, 2021 $ 102,370,527 $103 $1,534,100 $(1,057,387)$476,816 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ZYMERGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
(in thousands, except share data)
Convertible
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
Balance, December 31, 201954,834,169 $607,763 11,030,816 $11$11,957 $(511,546)$(499,578)
Issuance of common stock in business acquisition— — 1,082,747 110,394 — 10,395 
Vesting of restricted common stock— — 16,810 — — — 
Issuance of common stock upon exercise of options— — 40,868 172 — 172 
Stock-based compensation expense— — — 1,042 — 1,042 
Net loss— — — — (65,340)(65,340)
Balance, March 31, 202054,834,169 607,763 12,171,241 1223,565 (576,886)(553,309)
Vesting of restricted common stock— — 16,810 — — — 
Issuance of common stock upon exercise of options— — 327,979 11,627 — 1,628 
Stock-based compensation expense— — — 1,243 — 1,243 
Net loss— — — — (59,440)(59,440)
Balance, June 30, 202054,834,169 607,763 12,516,030 13 26,435 (636,326)(609,878)
Issuance of Series D Preferred Stock, net of issuance costs of $781
4,478,900 99,219 — — — — 
Vesting of restricted common stock— — 16,810 — — — 
Issuance of common stock upon exercise of options— — 82,774 372 — 372 
Stock-based compensation expense— — — 1,139 — 1,139 
Net loss— — — — (61,816)(61,816)
Balance, September 30, 202059,313,069 $706,982 12,615,614 $13 $27,946 $(698,142)$(670,183)
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ZYMERGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
 20212020
Operating activities
Net loss$(283,647)$(186,596)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense15,129 14,306 
Stock-based compensation expense14,640 3,424 
Non-cash interest expense890 741 
Loss from sale of property and equipment 778 
Impairment of long-lived assets11,155  
(Gain) loss on change in fair value of warrant liabilities(1,849)2,093 
Unrealized foreign exchange loss695  
Benefit from income tax(26)(107)
Other63 (116)
Changes in operating assets and liabilities:
Accounts receivable574 763 
Accounts receivable, unbilled(943)(3)
Prepaid expenses(2,373)(434)
Inventories(1,241)(654)
Other current assets612 (78)
Other long-term assets18 4 
Accounts payable(3,733)(3,487)
Accrued and other liabilities(4,909)1,357 
Deferred revenue(908)861 
Deferred rent18,041 3,141 
Other long-term liabilities172 2,820 
Net cash used in operating activities(237,640)(161,187)
Investing activities
Purchases of property and equipment(27,264)(17,141)
Proceeds from sale of property and equipment 15 
Business acquisition, net of cash acquired1,238 80 
Net cash used in investing activities(26,026)(17,046)
Financing activities
Proceeds from initial public offering, net of commission and issuance cost529,897  
Proceeds from exercise of Series C warrants15,002  
Proceeds from repayment of non-recourse loan to employee1,946  
Proceeds from Series D preferred stock offering, net of issuance cost 99,924 
Proceeds from exercise of common stock options, net of repurchases4,719 2,172 
Net cash provided by financing activities551,564 102,096 
Effect of exchange rate changes on cash(654) 
Change in cash and cash equivalents287,244 (76,137)
Cash, cash equivalents, and restricted cash at beginning of the period219,810 163,042 
Cash, cash equivalents, and restricted cash at end of the period$507,054 $86,905 
Cash and cash equivalents$496,247 $77,537 
Restricted cash, current30  
Restricted cash, non-current10,777 9,368 
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows$507,054 $86,905 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ZYMERGEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
20212020
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$8,254 $7,793
Supplemental disclosure of non-cash investing and financing activities:
Conversion of preferred shares to common stock$900,798 $
Exercise of warrant liability into preferred stock$12,382 $
Issuance of common stock in business combination$24,816 $10,395
Acquisitions of property and equipment under accounts payable and accrued and other liabilities$6,665 $2,374
Deferred offering costs related to Series D preferred stock under accounts payable and accrued and other liabilities$ $711
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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ZYMERGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.    Nature of Operations
Zymergen (the “Company”) integrates computational and manufacturing technologies to design, develop, and commercialize bio-based breakthrough products in a broad range of industries. The Company has developed a platform designed to treat the genome as a search space that utilizes proprietary machine learning algorithms and advanced automation to identify genetic changes for the development of bio-based products. In addition, Zymergen's platform is used to discover novel molecules used to enable unique material properties. The Company was incorporated in Delaware on April 24, 2013.
Initial Public Offering
In April 2021, the Company completed the initial public offering ("IPO") of its common stock. The Company sold an aggregate of 18,549,500 shares of its common stock (inclusive of 2,419,500 shares pursuant to the underwriters’ option to purchase additional shares) at a price of $31.00 per share for aggregate cash proceeds of approximately $529.9 million, net of underwriting discounts, commissions, and offering costs. The sale of 16,130,000 shares in the IPO and the sale of 2,419,500 shares pursuant to the underwriters’ option closed on April 26, 2021. On April 26, 2021, immediately prior to the closing of the IPO, all outstanding shares of convertible preferred stock converted into 68,115,459 shares of common stock. On April 26, 2021, immediately prior to the closing of the IPO, all warrants to purchase preferred stock were exercised and converted into 883,332 shares of common stock.
Need for Additional Capital
The Company has sustained operating losses and expects to continue to generate operating losses for the foreseeable future. The Company had unrestricted cash and cash equivalents of $496.2 million as of September 30, 2021. Since inception through September 30, 2021, the Company has incurred cumulative net losses of $1,057.4 million.
While the Company has signed a number of initial customer R&D services and collaboration contracts, revenues have been insufficient to fund operations. Accordingly, the Company has funded the portion of operating costs exceeding revenues through a combination of proceeds raised from equity and debt issuances (including from its recent IPO). The Company’s operating costs include the cost of developing and commercializing products as well as providing research and development services. As a consequence, the Company expects it will need to raise additional equity or debt financing to fund future operations, which may not be available, if at all, at terms acceptable to the Company. In September 2021, the Company's management commenced initial restructuring activities that are expected to reduce the cost structure of the Company (Note 4). The Company expects that its cash and cash equivalents will be sufficient to fund its operations for a period of at least one year from the date the accompanying unaudited Condensed Consolidated Financial Statements are filed with the Securities and Exchange Commission ("SEC").
The Company cannot at this time predict the specific extent, duration, or full impact that the ongoing COVID-19 pandemic will have on its financial condition and operations. The impact of the COVID-19 pandemic on the financial performance of the Company will depend on future developments, including the duration and spread of the pandemic and related governmental advisories and restrictions. These developments and the continuing impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain. If business conditions, financial markets and/or the overall economy continue to be impacted, the Company’s results may be adversely affected.
Reverse Split
In April 2021, the Company's Board of Directors approved a 3-for-1 reverse split (“Reverse Split”) of its common stock and convertible preferred stock. This became effective on April 13, 2021 with the filing of the Company’s amended and restated certificate of incorporation. The par value of the common stock and convertible preferred stock was not adjusted as the result of the Reverse Split. All share and per share information has been retroactively adjusted to reflect the Reverse Split for all periods presented.
2.    Summary of Significant Accounting Policies
There were no significant changes to the accounting policies during the nine months ended September 30, 2021, from the significant accounting policies described in Note 2 of the “Notes to Consolidated Financial Statements” in the Prospectus dated April 21, 2021, filed with the SEC on April 23, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the "Prospectus"), except as described below.
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ZYMERGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Preparation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2020 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. These unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of the financial information. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other interim period or for any other future year.
The accompanying unaudited Condensed Consolidated Financial Statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2020 included in the Prospectus.
Principles of Consolidation
These Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
Fiscal Year
The Company’s fiscal year ends on December 31. References to fiscal 2021, for example, refer to the fiscal year ended December 31, 2021. The period end for the Company covered by this report is September 30, 2021.
Use of Estimates
The presentation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to, standalone selling price ("SSP") of performance obligations for contracts with multiple performance obligations, estimate of variable consideration from revenue contracts, useful life of property and equipment, fair value of property and equipment of which the carrying value may not be recoverable, allowance for doubtful accounts, net realizable value of inventories, the valuation of intangible assets, and the valuation of common and preferred stock used in the valuation of options to purchase common stock and warrants to purchase common stock or preferred stock, prior to being a publicly traded company. Actual results could differ from those estimates.
Segment Information
Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the chief operating decision-maker (“CODM”) in deciding resource allocation and assessing performance. The Company’s Acting Chief Executive Officer is its CODM. The Company’s CODM reviews financial information presented on a consolidated basis for the purposes of making operating decisions, allocating resources and evaluating financial performance. Consequently, the Company has determined it operates and manages its business in one operating and one reportable segment.
Foreign Currency
For the Company and its subsidiaries, the functional currency has been determined to be the U.S. Dollar (USD). Monetary assets and liabilities denominated in foreign currency are remeasured at period-end exchange rates. Non-monetary assets and liabilities denominated in foreign currencies are remeasured at historical rates. Foreign currency transaction gains and losses resulting from remeasurement are recognized in Other expense, net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
Costs Associated with Exit Activities
We account for employee termination benefits that represent a one-time benefit in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 420, Exit or Disposal Cost Obligations (Topic 420). We record such costs into expense over the employee’s future service period, if any. Other costs associated with exit activities may include contract termination costs, impairments of long-lived assets, and consulting fees, if applicable. These
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ZYMERGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
costs are expensed in accordance with FASB ASC Topic 420 and FASB ASC Topic 360, Property, Plant, and Equipment and are included in Restructuring charges in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
Stock-Based Compensation
The Company’s stock-based compensation for employees and non-employees is accounted for in accordance with the provisions issued by the Accounting Standard Codification principles for stock compensation and share-based arrangements. Under the fair value recognition provisions of this statement, stock-based compensation expense is estimated at the grant date based on the fair value of the award and is recognized as an expense ratably over the requisite service period of the award, taking into consideration actual forfeitures. Determining the appropriate fair value and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, risk free interest rates, expected dividends, and expected life.
The Company estimates the fair value of stock options with a service-based vesting condition and employee stock purchase plan purchases on the date of grant using the Black-Scholes-Merton option-valuation model. The Company estimates the fair value of stock options with a market-based vesting condition on the date of grant using a Monte Carlo simulation model. The grant-date fair value of option awards is based upon the fair value of our common stock as of the date of grant, as well as estimates of the expected term of the awards using the simplified method for service-based vesting awards or the implied term for the market-based awards, expected common stock price volatility over the expected term of the option awards, risk-free interest rates and expected dividend yield. Restricted Stock Units ("RSUs") granted are valued at the market price of our common stock on the date of grant.
Contingencies
The Company is subject to various litigation and arbitration claims that arise in the ordinary course of business, including but not limited to those related to employee matters. Some of these proceedings involve claims that are subject to substantial uncertainties and unascertainable damages. The Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company has determined that no provision for liability nor disclosure is required related to any claim against the Company when: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.
CARES Act
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security (CARES) Act which, among other things, permits the deferral of the employer’s portion of social security tax payments between March 27, 2020 and December 31, 2020. As of September 30, 2021 and December 31, 2020, respectively, approximately $3.7 million of employer payroll tax payments were deferred with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022.
Accounting Pronouncements Adopted
In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, an amendment to the accounting guidance on cloud computing service arrangements that changes the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This guidance is effective for the Company for fiscal years beginning after December 15, 2020, and interim periods within annual periods beginning after December 14, 2021. The Company adopted the new standard effective January 1, 2021 using a prospective transition method. The adoption did not have a material impact on the Condensed Consolidated Financial Statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), which discusses the interaction between Topic 808, Collaborative Arrangements and Topic 606, Revenue from Contracts with Customers, including clarification around certain transactions between collaborative arrangement participants, adding unit-of-account guidance to Topic 808 and require that transactions in a collaborative arrangement where the participant is not a customer not be presented together with revenue recognized under Topic 606. This standard is effective for the Company for annual periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted but an entity may not adopt the amendments earlier than its adoption date of Topic 606. The Company adopted the new standard effective January 1, 2021 using a retrospective transition method. The adoption did not have a material impact on the Condensed Consolidated Financial Statements.
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ZYMERGEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”). Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. ASU 2016-02 will require both types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The Company is evaluating the effect that Topic 842 and related standards will have on its financial statements, related disclosures and ongoing financial reporting, but expects implementation of Topic 842 to result in the recognition of material right-of-use assets and corresponding lease liabilities in its consolidated balance sheets, principally relating to facilities leases. The Company plans to implement Topic 842 on January 1, 2022 using the modified retrospective approach with the cumulative effect of adoption recognized to retained earnings on January 1, 2022.
In June 2016, the FASB issued ASU 2016-13, Credit losses (Topic 326), subsequently amended by ASU 2019-10, which sets forth a “current expected credit loss” model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The standard will become effective for the Company for fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. This pronouncement is effective for the Company for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on its financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments of ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022 and do not apply to contract modifications made after December 31, 2022. The Company is evaluating the effect of this guidance and has not yet determined the impact to its financial statements and related disclosures.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which will require the Company to recognize and measure contract assets and contract liabilities acquired in a business combinations in accordance with Topic 606 as if it had originated the contracts. The amendments of ASU 2021-08 are effective for the Company for fiscal years beginning after December 15, 2023 with early adoption permitted, including adoption in an interim period. The Company plans to adopt ASU 2021-08 in the fourth quarter of 2021, with a retrospective application to the beginning of 2021. The Company is currently evaluating the impact of adopting this guidance to the acquisition of Lodo Therapeutics Corporation on May 16, 2021.
3.    Business Combinations
Lodo Therapeutics Corporation
On May 16, 2021, the Company completed a nontaxable acquisition of 100% of the equity interests of Lodo Therapeutics Corporation ("Lodo"), a privately-held company which uses its proprietary bacterial metagenomics discovery platform to develop novel therapeutics from nature. The acquisition was accounted for as a business combination. The purchase price for the acquisition was $25.4 million, substantially all of which was non-cash consideration. The non-cash consideration consisted of 774,402 shares of the Company’s common stock. The intangible assets acquired consisted primarily of $22.2 million of goodwill and Lodo’s developed technology of $5.4 million. Goodwill recognized is primarily a measure of the expected synergies from combining the operations of Lodo and the Company’s developed technologies.
The Company granted RSUs to certain employees and consultants of Lodo in connection with the acquisition that generally vest in three installments over a period of up to two years, subject to their continued service with the Company.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table represents the allocation of the purchase consideration, including the non-cash consideration, based on fair value (in thousands):
Cash and cash equivalents$1,778 
Other current assets464 
Property, plant and equipment948 
Other non-current assets305 
Developed technology5,400 
Customer relationship intangible asset420 
Total identifiable assets acquired$9,315 
Accounts payable and accrued expenses$4,636 
Other liabilities1,534 
Deferred tax liability26 
Total liabilities assumed$6,196 
Net identifiable assets acquired$3,119 
Goodwill22,237 
Net assets acquired$25,356 
The Company's purchase price allocation for the acquisition is preliminary and subject to revision as additional information about the fair value of the assets and liabilities becomes available. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received. Primary areas that are not yet finalized are related to acquired intangible assets including goodwill. Additional information that existed as of the closing date but not known at the time of this filing may become known to the Company during the remainder of the measurement period, a period not to exceed 12 months from the closing date.
As a result of the business combination the Company incurred $0.9 million of acquisition related costs for its benefit which are not accounted for as part of consideration transferred. Acquisition related costs related primarily to legal services, accounting, tax, valuation, and due diligence and are recognized in General and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss. Pro forma results of operations will not be presented because the effects of this acquisition were not material to the Company’s Condensed Consolidated Financial Statements under applicable SEC rules.
enEvolv, Inc.
On March 10, 2020, the Company completed a nontaxable acquisition of 100% of the equity of enEvolv, Inc., which has developed an enzyme and strain development platform that is built on diverse strain libraries and ultra-high throughput screening that utilizes molecular sensor systems. The acquisition was accounted for as a business combination. The purchase price for the acquisition was $10.7 million, of which $10.6 million was non-cash consideration. The non-cash consideration primarily consisted of 1,082,747 shares of the Company’s common stock. The intangible assets acquired consisted primarily of $7.9 million of goodwill and enEvolv’s developed technology of $2.6 million. Goodwill recognized is primarily a measure of the expected synergies from combining the operations of enEvolv and the Company’s developed technologies.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table represents the allocation of the purchase consideration, including the non-cash consideration, based on fair value (in thousands):
Cash and cash equivalents$141 
Accounts receivable589 
Other current assets195 
Property, plant and equipment292 
Other non-current assets150 
Developed technology2,600 
Customer relationship intangible asset600 
Total identifiable assets acquired$4,567 
Accounts payable and accrued expenses$1,021 
Other current liabilities653 
Deferred tax liability107 
Total liabilities assumed$1,781 
Net identifiable assets acquired$2,786 
Goodwill7,871 
Net assets acquired$10,657 
As a result of the business combination the Company incurred $0.4 million of acquisition related costs for its benefit and were not accounted for as part of consideration transferred. Acquisition related costs related primarily to legal services, accounting, tax, valuation, due diligence, and escrow fees and are recognized in General and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss. Prior to the close of the transaction, the Company and enEvolv were unrelated parties that entered into a Research Agreement, whereby enEvolv provided services to the Company. As of the transaction date, the Company had $0.2 million prepaid services which were effectively settled through the business combination. Pro forma results of operations have not been presented because the effects of this acquisition were not material to the Company's Condensed Consolidated Financial Statements under applicable SEC rules.
4.    Restructuring

In August 2021, the Company released a business update regarding its commercial product pipeline and financial forecast. Since that business update the Company has been conducting an assessment of its target markets and the fit of the products in its pipeline to those markets (the "Portfolio Review") and developing a plan to reduce its costs. In September 2021, the Company's management implemented a reduction in force that represented a preliminary phase of the Company’s plan to reduce its costs (the “2021 Restructuring”). In connection with the Portfolio Review and the 2021 Restructuring, the Company has determined to focus on a smaller number of programs that it believes capitalize on its capabilities and provide clear commercial opportunities. The 2021 Restructuring was initiated in the third quarter of 2021 and is expected to be substantially completed by the end of the first quarter of 2022.
The Company is continuing to evaluate the 2021 Restructuring. The Company expects the 2021 Restructuring to result in total pre-tax charges of approximately $29.4 million and approximately $18.2 million of these charges are estimated to result in cash outlays, of which the Company has made payments of $1.3 million through September 30, 2021. The Company has recorded costs of $21.2 million from the inception of the initiative through September 30, 2021.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides a summary of our costs incurred from the inception of the initiative through September 30, 2021, and cost estimates associated with the 2021 Restructuring through the end of the first quarter of 2022, by major type of cost (in thousands):
Total amount incurred since inception through September 30, 2021Total estimated amount expected to be incurred
Restructuring charges:
Termination benefits$4,151 $8,700 
Impairment of long-lived assets (Note 7)11,155 11,155 
Contract terminations3,727 4,000 
Other (1)
2,160 5,500 
Total$21,193 $29,355 
—–—–—–—–—–—–
(1) Comprised of other costs directly related to the 2021 Restructuring, including consulting fees in relation to portfolio review, realignment of organizational resources to strategic priorities and organization redesign in order to achieve reduced operating costs.
The following table provides a reconciliation of the beginning and ending balances for the restructuring liabilities, which are reported as components of Accounts payable and Accrued and other liabilities in the accompanying Condensed Consolidated Balance Sheets (in thousands):
Termination BenefitsContract TerminationsOtherTotal
Balance at January 1, 2021$ $ $ $ 
Charges4,151 3,727 2,160 10,038 
Adjustments    
Cash Payments(291)(977) (1,268)
Balance at September 30, 2021$3,860 $2,750 $2,160 $8,770 
5.    Goodwill and Intangible Assets
The following table summarizes goodwill as of September 30, 2021 and December 31, 2020 (in thousands):
September 30,
2021
December 31,
2020
Goodwill$33,841 $11,604 
The $22.2 million increase in goodwill from December 31, 2020 to September 30, 2021 is due to the acquisition of Lodo on May 16, 2021 (Note 3).
The following table summarizes the net book value of the finite-lived intangible assets as of September 30, 2021 and December 31, 2020 (in thousands):
 CostAccumulated
Amortization
Intangible Assets, Net
 September 30,
2021
December 31,
2020
September 30,
2021
December 31,
2020
September 30,
2021
December 31,
2020
Developed technology$12,300 $6,900 $(3,613)$(2,460)$8,687 $4,440 
Customer relationships1,400 980 (934)(630)466 350 
Net carrying value$13,700 $7,880 $(4,547)$(3,090)$9,153 $4,790 
As a result of the acquisition of Lodo, the Company acquired intangible assets consisting of $5.4 million in developed technology and $0.4 million in customer relationships, which are amortized over an estimated useful life of six and two years, respectively. The Company recognized $0.7 million and $0.3 million in amortization expense for the three months ended September 30, 2021 and 2020, and $1.5 million and $0.9 million for the nine months ended September 30, 2021 and 2020, respectively.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Future amortization of intangible assets is as follows (in thousands):
Remainder of 2021$625 
20222,248 
20232,067 
20241,271 
20251,271 
Thereafter1,671 
$9,153 
6.    Fair Value Measurements of Financial Instruments
GAAP defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements. GAAP permits an entity to choose to measure many financial instruments and certain other items at fair value and contains financial statement presentation and disclosure requirements for assets and liabilities for which the fair value option is elected.
The hierarchy of fair value valuation techniques under GAAP provides for three levels: Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, generally would require significant management judgment. The three levels for categorizing assets and liabilities under GAAP’s fair value measurement requirements are as follows:
Level 1 – Fair value of the asset or liability is determined using unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Fair value of the asset or liability is determined using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 – Fair value of the asset or liability is determined using unobservable inputs that are significant to the fair value measurement and reflect management’s own assumptions regarding the applicable asset or liability.
There were no transfers between the levels during the periods presented. As of September 30, 2021 and December 31, 2020, the Company’s financial assets and financial liabilities measured at fair value on a recurring basis were classified within the fair value hierarchy as follows (in thousands):
Level 1Level 2Level 3Balance as of September 30, 2021
Financial Assets    
Cash equivalents$484,581 $ $ $484,581 
Total financial assets$484,581 $ $ $484,581 
Level 1Level 2Level 3Balance as of December 31, 2020
Financial Assets    
Cash equivalents$205,873 $ $ $205,873 
Total financial assets$205,873 $ $ $205,873 
Financial Liabilities
Warrant derivative liability$ $ $14,231 $14,231 
Total financial liabilities$ $ $14,231 $14,231 
Financial instruments consist principally of cash equivalents, accounts receivables, accounts payable, accrued liabilities, debt, and warrant derivative liability.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides a reconciliation of the beginning and ending balances for the warrant derivative liability measured at fair value using significant unobservable inputs (Level 3) (in thousands):
Balance at January 1, 2021$14,231 
Change in fair value(1,849)
Fair value of warrants exercised(12,382)
Balance at September 30, 2021$ 
The warrant derivative liability represented the fair value of the warrants issued in conjunction with the term loan agreement entered into in 2019. In April 2021 all warrants were exercised effective with the Company's IPO. No warrants were outstanding at September 30, 2021 (Note 8).
The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:
Accounts receivable, accounts payable, and accrued liabilities: The amounts reported in the accompanying balance sheets approximate fair value due to the short maturity of these instruments.
Debt: The gross amounts reported approximate fair value due to the debt being a variable interest rate debt and its relatively short-term maturity.
Warrant derivative liability: In April 2021 all warrants were exercised effective with the Company's IPO. At exercise, the warrants were remeasured to intrinsic value, with the resulting change in fair value recognized in Other income (expense) in the Condensed Consolidated Statements of Operations and Comprehensive Loss. Prior to the exercise of the warrants, the Company estimated the fair value of outstanding warrants using a weighted average between the value derived from a Black-Scholes (BSM) option model for a fully diluted scenario and the price of the warrant by applying the probability-weighted expected return method. The BSM model's inputs reflect assumptions that a market participant would use in pricing the instrument in a current period transaction and included the following as of December 31, 2020:
 December 31,
2020
Value per Series C Preferred share (fully-diluted)$35.46 
Exercise price$16.98 
Expected volatility77.0 %
Risk-free rate0.79 %
Time to liquidity (years)8.97
7.    Balance Sheet Components
Property and equipment consist of the following as of September 30, 2021 and December 31, 2020 (in thousands):
 September 30,
2021
December 31,
2020
Machinery and equipment$73,940 $54,999 
Leasehold improvements