Basis of Presentation and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2013 |
Accounting Policies [Abstract] | ' |
Basis of Presentation and Summary of Significant Accounting Policies | ' |
Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Presentation and Principles of Consolidation |
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The condensed consolidated balance sheet at December 31, 2012 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures including notes required by GAAP for complete financial statements. |
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly its financial position as of September 30, 2013 and results of its operations, comprehensive loss and cash flows for the three and nine months ended September 30, 2013 and 2012. The interim results are not necessarily indicative of the results for any future interim period or for the entire year. Certain prior period amounts have been reclassified to conform to current period presentation. |
The unaudited interim condensed consolidated financial statements include the amounts of Codexis, Inc. and its wholly-owned subsidiaries in the United States, Brazil, Hungary, India, Mauritius, The Netherlands and Singapore. All significant intercompany balances and transactions have been eliminated in consolidation. |
Use of Estimates |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company's management regularly assesses these estimates which primarily affect revenue recognition, the valuation of marketable securities and accounts receivable, intangible assets, goodwill arising out of business acquisitions, inventories, accrued liabilities, common stock, and stock options and the valuation allowances associated with deferred tax assets. Actual results could differ from those estimates and such differences may be material to the condensed consolidated financial statements. |
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Concentrations of Credit Risk |
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, accounts receivable and restricted cash. Cash and cash equivalents, marketable securities and restricted cash are invested through banks and other financial institutions in the United States, as well as in other foreign countries. Such deposits may be in excess of insured limits. |
Credit risk with respect to accounts receivable exists to the extent of amounts presented in the condensed consolidated financial statements. The Company estimates an allowance for doubtful accounts through specific identification of potentially uncollectible accounts receivable based on an analysis of its accounts receivable aging. Uncollectible accounts receivable are written off against the allowance for doubtful accounts when all efforts to collect them have been exhausted. Recoveries are recognized when they are received. Actual collection losses may differ from its estimates and could be material to its consolidated financial position, results of operations, and cash flows. |
The Company's top five customers accounted for 59% and 81% of the Company's total revenues for the three and nine months ended September 30, 2013. Accounts receivable balances for the top five customers were 89% and 84% of total balances as of September 30, 2013 and December 31, 2012, respectively. Major customers that represent more than 10% of total Company revenue include Customer A at 34% and 47% and Customer B at 21% and 10% for the three and nine months ended September 30, 2013, respectively. |
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Fair Value of Financial Instruments |
The carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable, approximate fair value due to their short maturities. |
Fair value is considered to be the price at which an asset could be exchanged or a liability transferred (an exit price) in an orderly transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on or derived from observable market prices or other observable inputs. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments and the instruments’ complexity. |
Cash, Cash Equivalents and Marketable Securities |
The Company considers all highly liquid investments with maturity dates of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market funds. The majority of cash and cash equivalents are maintained with major financial institutions in North America. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits. Marketable securities included in current assets are comprised of corporate bonds, commercial paper, and United States Treasury obligations. Marketable securities included in non-current assets are comprised of corporate bonds and United States Treasury obligations that have a maturity date greater than one year. The Company's investment in common shares of CO2 Solutions Inc. (“CO2 Solutions”) is included in non-current marketable securities. |
The Company performs separate evaluations of impaired debt and equity securities to determine if the unrealized losses as of the balance sheet date are other-than-temporary impairment. |
For the Company's investments in equity securities, its evaluation considers a number of factors including, but not limited to, the length of time and extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer, and its management’s ability and intent to hold the securities until fair value recovers. The assessment of the ability and intent to hold these securities to recovery focuses on its current and forecasted liquidity requirements and capital requirements. Based on these evaluation criteria, the Company concluded during the third quarter of 2012 the unrealized losses related to its equity investment in the common shares of CO2 Solutions were other-than-temporary and as a result, the Company recorded $0.8 million as a selling, general and administrative expense in its condensed consolidated statement of operations (see Note 6). As of September 30, 2013, there were no unrealized losses related to the Company's equity securities. |
For the Company's investments in debt securities, management determines whether it intends to sell or if it is more-likely-than-not that the Company will be required to sell impaired securities. This determination considers current and forecasted liquidity requirements and capital requirements. For all impaired debt securities for which there was no intent or expected requirement to sell, the evaluation considers all available evidence to assess whether it is likely the amortized cost value will be recovered. The Company conducts a regular assessment of its debt securities with unrealized losses to determine whether the securities have other-than-temporary impairment considering, among other factors, the nature of the securities, credit rating or financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows of underlying collateral and market conditions. As of September 30, 2013, there were no unrealized losses related to the Company's debt securities. |
The Company's investments in debt and equity securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses are reported on the condensed consolidated statement of comprehensive loss unless considered other-than-temporary. Amortization of purchase premiums and accretion of purchase discounts, realized gains and losses of debt securities and declines in value deemed to be other than temporary, if any, are included in interest income or other expenses. The cost of securities sold is based on the specific-identification method. There were no significant realized gains or losses from sales of marketable securities during the three and nine months ended September 30, 2013 and 2012. |
Impairment of Long-Lived Assets and Intangible Assets |
Long-lived and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. |
The Company determined that it has a single entity wide asset group (“Asset Group”). The directed evolution technology patent portfolio acquired from Maxygen (“Core IP”) is the most significant component of the Asset Group since it is the base technology for all aspects of the Company's research and development, and represents the basis for all of its identifiable cash flow generating capacity. The Core IP consist of developed core technology, trade names, and the intellectual property (“IP”) rights associated with the acquisition of Maxygen, Inc.'s ("Maxygen") directed evolution technology in 2010. |
The Core IP is the only finite-lived intangible asset on the balance sheet as of September 30, 2013 and is considered the primary asset within the Asset Group. The Core IP is being amortized ratably over the six years from the acquisition date. There has been no significant change in the utilization of the Core IP since the Company acquired the technology patent portfolio from Maxygen. Consequently, the Company does not believe that identification of independent cash flows associated with its long-lived assets is currently possible at any lower level than the Asset Group. |
The Company evaluates recoverability of its long-lived assets and intangible assets based on the sum of the undiscounted cash flows expected to result from the use, and the eventual disposal of, the Asset Group. The Company makes estimates and judgments about the future undiscounted cash flows over the remaining useful life of the Asset Group. The anticipated future cash flows include the Company's estimates of existing or in process product revenues, production and operating costs, future capital expenditures, working capital needs, and assumptions regarding the ultimate sale of the Asset Group at the end of the life of the primary asset. |
As of September 30, 2013, the Company determined that its projected annual operating losses, the potential impact of the Dyadic notice from Dyadic International, Inc. (see Note 8), and the decreasing market price of the Company’s common stock were indicators of impairment. Consequently, the Company tested its long-lived assets and intangible assets for impairment as of September 30, 2013. This approach is consistent with the Company’s impairment analysis performed as of December 31, 2012, as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. |
The Company performed the recoverability test and calculated estimated cashflows through the remaining period of the estimated useful life of the Core IP. The expected residual value was determined by applying a Gordon Growth Model to normalized net cash flows using a discount rate of 18% (“Estimated Weighted-Average Cost of Capital”), long term growth rate of 2%, and a capitalization factor of 6.25. The 18% discount rate reflects the nature and the risk of the underlying forecast, and includes such financial components as the risk free rate, systemic stock price risk based on an evaluation with peer companies (“beta”), equity risk premium, size premium, and company specific risk. The long term growth rate of 2% reflects projected inflation and general economic conditions. While the methodology for determining recoverability was consistent with that used in the Company's impairment analysis performed as of December 31, 2012, certain assumptions changed in the third quarter based on activity within the quarter, including reduced anticipated future cashflows related to potential CodeXyme® and CodeXol® transactions and reduced future revenue growth to reflect the Company’s most recent outlook. Following this analysis, the Company determined that its estimated future undiscounted cash flows for the Asset Group are greater than the carrying value of the Asset Group Core IP asset fair value as of September 30, 2013. |
The Company supplementally performed an analysis to determine the fair value of the Core IP. In determining the fair value, the Company prepared cash flow forecasts over the remaining economic life of the Core IP primarily related to final patent expiration from the Maxygen patent portfolio. The Company utilized the multi-period Excess Earnings model and obtained key financial inputs from review of market participants, Company specific factors and generally accepted valuation methods. The Company utilized a discount rate of 19% which reflects the nature and the risk of the underlying forecast and includes other financial components. |
Based on these estimates, judgments and factors, the Company has determined that the fair value of the Core IP exceeded its carrying value by 38% as of September 30, 2013. No impairment loss was recorded as of September 30, 2013. |
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Valuation of Goodwill |
The Company reviews goodwill impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. |
The Company determined that it has only one operating segment and reporting unit under the criteria in ASC 280, Segment Reporting, and accordingly, all of the goodwill is associated with the Company. The Company's review of goodwill impairment indicators is performed at the Company level. |
The goodwill impairment test consists of a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is not required. |
The Company uses its market capitalization as an indicator of fair value. The Company believes that since its reporting unit is publicly traded, the ability of a controlling shareholder to benefit from synergies and other intangible assets that arise from control might cause the fair value of our reporting unit as a whole to exceed its market capitalization. However, the Company believes that the fair value measurement need not be based solely on the quoted market price of an individual share of our common stock, but also can consider the impact of a control premium in measuring the fair value of its reporting unit. |
Should the Company's market capitalization be less than the total stockholder's equity as of the Company's annual test date or as of any interim impairment testing date, the Company would also consider market comparables, recent trends in the Company's stock price over a reasonable period and, if appropriate, use an income approach to determine whether the fair value of its reporting unit is greater than the carrying amount. |
The second step, if required, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. Implied fair value is the excess of the fair value of the reporting unit over the fair value of all identified assets and liabilities. |
The Company bases its fair value estimates on assumptions it believes to be reasonable. Actual future results may differ from those estimates. Goodwill was tested for impairment as of October 1, 2012, the date of the Company's annual impairment review. The Company concluded that the fair value of the reporting unit exceeded the carrying value and no impairment existed. No impairment charges were recorded through September 30, 2013. |
Restricted Cash |
Restricted cash consisted of amounts invested in money market accounts primarily for purposes of securing a standby letter of credit as collateral for the Company's Redwood City, California facility lease agreement and for the purpose of securing a working capital line of credit. |
Revenue Recognition |
The Company has generally recognized revenue from multiple element arrangements under collaborative research agreements, including license payments, research and development services, milestones, and royalties. Revenue arrangements with multiple deliverables are divided into separate units of accounting if certain criteria are met. |
Revenues are recognized when the four basic revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) products have been delivered, transfer of technology has been completed or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. |
The Company's primary sources of revenues consist of product revenues, collaborative research and development agreements and government awards. Collaborative research and development agreements typically provide the Company with multiple revenue streams, including up-front fees for licensing, exclusivity and technology access, fees for full-time employee equivalent (“FTE”) services and the potential to earn milestone payments upon achievement of contractual criteria and royalty fees based on future product sales or cost savings by the Company's customers. |
Up-front fees received in connection with collaborative research and development agreements, including license fees, technology access fees, and exclusivity fees, are deferred upon receipt, are not considered a separate unit of accounting and are recognized as revenues over the relevant performance periods. |
Income Taxes |
The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are recognized for deductible temporary differences, along with net operating loss (“NOL”) carry forwards, if it is more likely than not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The Company recognizes the financial statement effects of an uncertain tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. |
Net Loss per Share |
Basic net loss per share of common stock is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed by giving effect to all potential common shares, consisting of stock options, warrants and redeemable convertible preferred stock, to the extent dilutive. Basic and diluted net loss per share of common stock was the same for each period presented as the inclusion of all potential common shares outstanding was anti-dilutive. |
The following options to purchase common stock, restricted stock units and warrants to purchase common stock were excluded from the computation of diluted net loss per share of common stock for the three and nine months ended September 30, 2013 and 2012 (in thousands): |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Options to purchase common stock | 4,805 | | 7,228 | | 4,805 | | 7,228 |
Restricted stock units | 1,665 | | 839 | | 1,665 | | 839 |
Warrants to purchase common stock | 75 | | 260 | | 75 | | 260 |
Total | 6,545 | | 8,327 | | 6,545 | | 8,327 |
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Recently Issued and Adopted Accounting Guidance |
In February 2013, the Financial Accounting Standard Board ("FASB") issued ASU 2013-02 related to the reporting of amounts reclassified out of accumulated other comprehensive income that requires entities to report, either on their income statement or in a footnote to their financial statements, the effects on earnings from items that are reclassified out of other comprehensive income. The Company adopted this accounting standard on January 1, 2013, and the adoption of this guidance did not have a material impact on the financial statements. |