AMYRIS, INC. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. These discussions contain forward-looking statements reflecting our current expectations that involve risks and uncertainties which are subject to safe harbors under the Securities Act of 1933, as amended (the Securities Act), and the Securities Exchange Act of 1934 (the Exchange Act). These forward-looking statements include, but are not limited to, statements concerning our strategy of achieving a significant reduction in net cash outflows in 2020 and 2021, aspects of our future operations, our future financial position, expectations for our future revenues, margins and projected costs, expectations regarding demand and acceptance for our technologies and products, introductions of new products, growth opportunities and trends in the market in which we operate, prospects and plans and objectives of management. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q, in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 (the 2019 Form 10-K) and in our other filings with theSecurities and Exchange Commission . We do not assume any obligation to update any forward-looking statements.
Overview
As a leading synthetic biotechnology company, we apply our technology platform to engineer, manufacture and sell high performance, natural, sustainably sourced products into theClean Health & Beauty , and Flavor & Fragrance markets. Our proven technology platform enables us to rapidly engineer microbes and use them as catalysts to metabolize renewable, plant-sourced sugars into large volume, high-value ingredients. Our platform, combined with our proprietary fermentation process, replaces existing complex and oftentimes expensive manufacturing processes. We have successfully used our technology to develop and produce nine distinct molecules at commercial volumes, leading to more than 17 commercial ingredients used by thousands of leading global brands. We believe that synthetic biology represents a third industrial revolution, bringing together biology and engineering to generate new, more sustainable materials to meet the growing global demand for bio-based replacements for petroleum-based and traditional animal- or plant-derived ingredients. We continue to build demand for our ingredients portfolio of products through a sales network provided by our commercial partners that represent leading companies for our target market sectors as well as via direct sales and distributors. We market our wholly owned Consumer brands in brick and mortar retail as well as through various ecommerce platforms. Via our collaboration model, our partners invest in the development of molecules that we bring from the lab to commercial-scale and use their extensive sales force to sell our ingredients and formulations to their customers as part of their core business. We capture long-term revenue both through the production and sale of the molecule to our partners and through royalty revenues from our partners' product sales to their customers. We were founded in 2003 in theSan Francisco Bay area by a group of scientists from theUniversity of California ,Berkeley . Our first major milestone came in 2005 when, through a grant from theBill & Melinda Gates Foundation , we developed technology capable of creating microbial strains that produce artemisinic acid, a precursor of artemisinin, an effective anti-malarial drug. Building on our success with artemisinic acid, in 2007 we began applying our technology platform to develop, manufacture and sell sustainable alternatives to a broad range of markets. We focused our initial development efforts primarily on the production of Biofene®, our brand of renewable farnesene, a long-chain, branched hydrocarbon molecule that we manufacture through fermentation using engineered microbes. The commercialization of farnesene pushed us to create a more cost-efficient, faster and accurate development process in the lab and to drive manufacturing costs down. This investment has enabled our technology platform to rapidly develop microbial strains and commercialize target molecules. In 2014, we began manufacturing additional molecules for the Flavor & Fragrance industry; in 2015, we began investing to expand our capabilities to other small molecule chemical classes beyond terpenes via our collaboration with theDefense Advanced Research Projects Agency (DARPA); and in 2016, we expanded into proteins. Several years ago, we made the strategic decision to transition our business model from collaborating and commercializing molecules in lower-margin mature markets to higher-margin specialty ingredients markets. We began the transition by first commercializing and supplying farnesene-derived squalane as a cosmetic ingredient sold to formulators and 42 -------------------------------------------------------------------------------- distributors. We also entered into collaboration and supply agreements for the development and commercialization of molecules within the Flavor & Fragrance and Clean Beauty markets where we utilize our strain generation technology to develop molecules that meet the customer's rigorous specifications. During this transition, we solidified the business model of partnering with our customers to create sustainable, high-performing, low-cost molecules that replace an ingredient in their supply chain, commercially scale and manufacture those molecules, and share in the profits earned by our customers once our customer sells its product into these specialty markets. These three steps constitute our grants and collaborations revenues, renewable product revenues, and royalty revenues. During 2017, we completed several development agreements with DSM and others for new products such as Vitamin A, a human nutrition molecule and others, and in late 2018 we began commercial production and shipment of an alternative sweetener product developed from the Reb M molecule, PurecaneTM, which is a superior sweetener and sugar replacement. We monetized the use of one of our lower margin molecules, farnesene, in the Vitamin E and Lubricants specialty markets while retaining any associated royalties, and licensed farnesene to DSM for use in the Vitamin E field. We also sold our subsidiary Amyris Brasil Ltda. (Amyris Brasil), which operated our purpose-built, large-scale manufacturing facility located in Brotas,Brazil , to DSM inDecember 2017 . The Brotas facility was built to batch manufacture one commodity product at a time (originally for high-volume production of biofuels, a businessAmyris had exited), which is an inefficient manufacturing process that is not suited for the high-margin specialty markets in which we operate today. As a result, we are building a new large-scale plant focused solely on specialty ingredients inBrazil , which we anticipate will allow for the manufacture of five products concurrently, including our alternative sweetener product, and over 10 different products annually. InSeptember 2019 , we obtained the necessary permits and broke ground on our new specialty ingredients plant and expect the facility to become fully operational by the end of 2021. During construction, we are manufacturing our products at four contract manufacturing sites inBrazil , theU.S. andSpain . Finally, as part of theDecember 2017 sale of Brotas, we contracted with DSM for the use of Brotas to manufacture products for us to fulfill our product supply commitments to our customers until the new production facility is built and becomes operational; inNovember 2018 , we amended the supply agreement with DSM to secure capacity at the Brotas facility for production of our alternative sweetener product through 2022. InMay 2019 , we entered into an agreement withRaizen Energia S.A. (Raizen) for the formation and operation of a joint venture relating to the production, sale and commercialization of alternative sweetener products whereby the parties would construct a manufacturing facility exclusively for sweetener molecules on land owned by Raizen and leased to the joint venture. Also, inMay 2019 , we consummated a research, collaboration and license agreement withLAVVAN, Inc. , a newly formed investment-backed company (Lavvan), for up to$300 million to develop, manufacture and commercialize cannabinoids. Under the Cannabinoid Agreement, we perform research and development activities and Lavvan is responsible for the commercialization of the cannabinoids developed. The Cannabinoid Agreement is being principally funded on a milestone basis, withAmyris also entitled to receive certain supplementary research and development funding from Lavvan. Additionally, the Cannabinoid Agreement provides for profit share toAmyris on Lavvan's gross profit margin once products are commercialized. OnApril 24, 2020 , theFood and Drug Administration (FDA) granted us full Over-the-Counter approval for product listing in theU.S. of our alcohol-based hand sanitizer. Sold through our PipetteTM brand, this hand sanitizer addresses critical public and institutional health needs during the current COVID-19 pandemic. We also became authorized to sell this hand sanitizer inPortugal and are currently pursuing additional authorizations in other European markets. The Company's Reb M sweetener, PurecaneTM, achieved national approvals by the Columbian INVIMA Food Safety, Brazilian ANVISA and Health Canada Authorities onJanuary 29 ,April 15 , andApril 17, 2020 . Additionally, the product was authorized inCosta Rica onJuly 20, 2020 . Each of these approvals allows for immediate distribution ofAmyris's sweetener product in these markets. OnApril 28, 2020 ,Amyris's Aprinnova joint venture received new chemical approval for its hemisqualane ingredient byChina's Ministry of Environment ; this approval authorizes importation to supplyChina's cosmetic manufacturing industry. Finally, onMay 5, 2020 , our infant nutritional ingredient (known as HMO (2'-FL)), received validation by a medical Panel of Experts as Generally Recognized As Safe ("GRAS"), and we have submitted a petition for FDA GRAS approval of this ingredient. We have invested over$700 million in infrastructure and technology to create microbes that produce molecules from sugar or other feedstocks at commercial scale. We have focused on accessing Brazilian sugarcane for our large-scale production because of its renewability, low cost and relative price stability. Our time to market for molecules has decreased from seven years to less than a year for our most recent molecules, mainly due to our ability to leverage the technology platform we have built. The key performance characteristics of our platform that we believe differentiate us include our proprietary computational tools, strain construction tools, screening and analytics tools, and advanced lab automation and data integration. Our state-of-the-art infrastructure includes industry-leading strain engineering and lab automation located inEmeryville, California , pilot-scale production facilities inEmeryville, California andCampinas, Brazil , a demonstration-scale facility inCampinas, Brazil 43
-------------------------------------------------------------------------------- and a commercial-scale production facility inLeland, North Carolina , which is owned and operated by our Aprinnova joint venture to convert our Biofene into squalane and other products. Sales and Revenue
We recognize revenue from product sales, license fees and royalties, and grants and collaborations.
We have research and development collaboration arrangements for which we receive payments from our collaboration partners, which includeDARPA , DSM,Firmenich SA (Firmenich),Givaudan International SA (Givaudan), Lavvan and others. Some of our collaboration arrangements provide for advance payments to us in consideration for grants of exclusivity or research efforts that we will perform. In 2017, we signed collaboration agreements for an infant nutrition ingredient, and through 2018 and 2019 we signed a collaboration agreement for four vitamins that we expect will contribute to our collaboration revenue and ultimately product sales. Our collaboration agreements, which may require us to achieve milestones prior to receiving payments, are expected to contribute revenues from product sales and royalties if and when they are commercialized. See Note 9, "Revenue Recognition" in Part II, Item 8 of our 2019 Form 10-K for additional information. All our non-government partnerships include commercial terms for the supply of molecules that we successfully upscale and produce at commercial volumes. The first molecule to generate revenue for us outside of farnesene was a fragrance molecule launched in 2015. Since the launch, the product has continued to grow in sales year over year. In 2016, we launched our second fragrance molecule and in 2017, we launched our third fragrance molecule as well as our first cosmetic active ingredient. Our partners for these molecules are indicating continued strong growth due to their cost advantaged position, high purity and sustainable production method. We are continuing to identify new opportunities to apply our technology and deliver sustainable access to key molecules. As a result, we have a pipeline that we believe can deliver two to three new molecules each year over the coming years with a flavor ingredient, a cosmetic active ingredient and a fragrance molecule. In 2019, we commercially produced and shipped our Reb M product that is a sweetener and sugar replacement for food and beverages. Concurrent with the 2017 sale of Amyris Brasil and the Brotas facility, we entered into a series of commercial agreements with DSM that included (i) a license agreement to DSM of our farnesene product for DSM to use in the Vitamin E and lubricant specialty markets and (ii) a royalty agreement, pursuant to which DSM agreed to pay us specified royalties representing a portion of the profit on the sale of Vitamin E produced from farnesene sold under a supply agreement withNenter & Co., Inc. (Nenter) which was assigned to DSM. Under the terms of the royalty agreement, DSM was obligated to pay us minimum royalties totaling$18.1 million for 2019 and 2020. InJune 2018 , we received the 2019 non-refundable minimum royalty payment totaling$9.3 million (net of a$0.7 million early payment discount) and inMarch 2019 , we received the 2020 non-refundable payment totaling$7.4 million (net of a$0.7 million early payment discount). InApril 2019 , we assigned the right to receive such royalty payments under the Vitamin E royalty agreement to DSM for total consideration of$57 million , of which approximately$40.3 million was recognized as royalty revenue in 2019 and$3.8 million was recognized as royalty revenue in 2020. See Note 9, "Revenue Recognition," and Note 10, "Related Party Transactions" in Part I, Item 1 of this Quarterly Report on Form 10-Q and Part II, Item 8 of our 2019 Form 10-K for information regarding the accounting treatment of the assignment of Vitamin E royalty agreement and for a full listing of our agreements with DSM.
We have several other collaboration molecules in our development pipeline with partners including DSM, Givaudan, Firmenich and Lavvan that we expect will contribute revenues from product sales and royalties if and when they are commercialized.
Critical Accounting Policies and Estimates
Management's discussion and analysis of results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in theU.S. (U.S. GAAP). We believe that the critical accounting policies described in this section are those that significantly impact our financial condition and results of operations and require the most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Because of this uncertainty, actual results may vary from these estimates. Our most critical accounting estimates include: •Recognition of revenue for arrangements with service delivery over time and multiple performance obligations; •Valuation and allocation of fair value to various elements of complex related party transactions; •The valuation of freestanding and embedded derivatives, which impacts gains or losses on such derivatives, the carrying value of debt, interest expense and deemed dividends; and 44
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•The valuation of debt for which we have elected fair value accounting.
For more information about our critical accounting estimates and policies, see
Note 1, "Basis of Presentation and Summary of Significant Accounting Policies"
in Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part II, Item 8
of our 2019 Form 10-K.
Results of Operations
Revenue
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2020 2019 2020 2019
Revenue
Renewable products $ 27,577 $ 17,363 $ 70,619 $ 41,367
Licenses and royalties 3,563 2,305 9,714 43,387
Grants and collaborations 3,118 15,285 13,060 27,267
Total revenue $ 34,258 $ 34,953 $ 93,393 $ 112,021 Three months ended
Total revenue decreased by 2% to$34.3 million for the three months endedSeptember 30, 2020 compared to the same period in 2019. The decrease was the result of a$12.2 million decrease in grants and collaborations revenue, mostly offset by a$10.2 million increase in renewable products revenue and a$1.3 million increase in licenses and royalties revenue.
Renewable products revenue increased by 59% to
Licenses and royalties revenue increased by 55% to
Grants and collaborations revenue decreased by 80% to$3.1 million for the three months endedSeptember 30, 2020 compared to the same period in 2019, due to no collaboration revenue in 2020 from Lavvan, and a substantial reduction in collaboration revenue in 2020 from Yifan.
Nine months ended
Total revenue decreased by 17% to$93.4 million for the nine months endedSeptember 30, 2020 compared to the same period in 2019. The decrease was comprised of a$33.7 million decrease in licenses and royalties revenue and a$14.2 million decrease in grants and collaborations revenue, partly offset by a$29.3 million increase in renewable products revenue. The nine months endedSeptember 30, 2020 included one-off Vitamin E revenue of$3.8 million , and the nine months endedSeptember 30, 2019 included one-off Vitamin E revenue of$40.3 million . Excluding Vitamin E, total revenue would have increased by 23% from$71.7 million in 2019 to$88.2 million in 2020. Renewable products revenue increased by 71% to$70.6 million for the nine months endedSeptember 30, 2020 compared to the same period in 2019, primarily driven by increased sales in our consumer product lines. Licenses and royalties revenue decreased by 78% to$9.7 million for the nine months endedSeptember 30, 2020 compared to the same period in 2019, primarily due to$40.3 million of royalty revenue in 2019 from DSM related to the assignment of a value sharing agreement. Grants and collaborations revenue decreased by 52% to$13.1 million for the nine months endedSeptember 30, 2020 compared to the same period in 2019, primarily due to no collaboration revenue in 2020 from Lavvan, and a reduction in grant revenue in 2020 fromDARPA . 45
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Costs and Operating Expenses
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2020 2019 2020 2019
Cost and operating expenses
Cost of products sold $ 25,822 $ 20,654 $ 60,710 $ 53,482
Research and development 18,197 19,032 52,288 56,093
Sales, general and administrative 38,321 33,341 100,838 92,456
Total cost and operating expenses $ 82,340
$ 213,836 $ 202,031 Cost of Products Sold Cost of products sold includes raw materials, labor and overhead, amounts paid to contract manufacturers, inventory write-downs, and costs related to production scale-up. Because of our diverse consumer and business-to-business product mix and the timing and quantities of product sales, our overall cost of products sold can, but sometimes does not change in proportion to or directionally with changes in our renewable product revenues.
Three months ended
Cost of products sold increased by 25% to$25.8 million for the three months endedSeptember 30, 2020 compared to the same period in 2019, primarily due to a 59% increase in product revenue. The significant improvement in gross profit margin was driven primarily by improved manufacturing efficiencies coupled with higher sales volumes across our consumer product lines. Also contributing to the improvement was a reduction in Reb M sweetener ingredient production costs.
Nine months ended
Cost of products sold increased by 14% to$60.7 million for the nine months endedSeptember 30, 2020 compared to the same period in 2019, primarily due to a 71% increase in product revenue. The significant improvement in gross profit margin was driven primarily by improved manufacturing efficiencies coupled with higher sales volumes across our consumer product lines and a reduction in Reb M sweetener ingredient production costs.
Research and Development Expenses
Three months ended
Research and development expenses decreased by 4% to$18.2 million for the three months endedSeptember 30, 2020 compared to the same period in 2019, primarily due to decreases in laboratory equipment and supplies expenses.
Nine months ended
Research and development expenses decreased by 7% to$52.3 million for the nine months endedSeptember 30, 2020 compared to the same period in 2019, primarily due to decreases in laboratory equipment and supplies expenses.
Sales, General and Administrative Expenses
Three months ended
Sales, general and administrative expenses increased by 15% to$38.3 million for the three months endedSeptember 30, 2020 compared to the same period in 2019, primarily due to increases in marketing and employee compensation costs related to our consumer product lines and$8.3 million of credit loss reserves recorded against one of our contract assets.
Nine months ended
Sales, general and administrative expenses increased by 9% to$100.8 million for the nine months endedSeptember 30, 2020 compared to the same period in 2019, primarily due to increases in marketing expense and employee compensation costs related to our consumer product lines and$8.3 million of credit loss reserves recorded against one of our contract assets, partly offset by reduced audit and legal fees. 46
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Other Expense, Net
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2020 2019 2020 2019
Other income (expense):
Interest expense (6,627) (16,857) (41,747) (44,608)
Gain (loss) from change in fair value of
derivative instruments 1,999 (398) (6,498) (2,437)
Gain (loss) from change in fair value of
debt 34,360 (2,055) 2,908 (18,629)
Loss upon extinguishment of debt (2,606) (2,721) (51,954) (8,596)
Other income (expense), net (49) 1,076 1,452 920
Total other expense, net $ 27,077 $ (20,955) $ (95,839) $ (73,350) Three months ended
Total other income, net was$27.1 million for the three months endedSeptember 30, 2020 , compared to total other expense, net of$21.0 million for the same period in 2019. The$48.0 million change was primarily due to a$36.4 million change from loss to gain from change in fair value of debt, and a$10.2 million decrease in interest expense. See Note 3, "Fair value Measurements" and Note 4, "Debt" in Part 1, Item 1 of this Form 10-Q for more information on the individual transactions giving rise to these charges in the three months endedSeptember 30, 2020 .
Nine months ended
Total other expense, net was$95.8 million for the nine months endedSeptember 30, 2020 , compared to$73.4 million for the same period in 2019. The$22.5 million increase was primarily due to a$43.4 million increase in loss upon extinguishment of debt, partly offset by a$21.5 million change from loss to gain from change in fair value of debt. See Note 3, "Fair value Measurements" and Note 4, "Debt" in Part 1, Item 1 of this Form 10-Q for more information on the individual transactions giving rise to these charges in the nine months endedSeptember 30, 2020 .
Provision for Income Taxes
Three and nine months ended
For the three and nine months endedSeptember 30, 2020 , we recorded provisions of$0.1 million and$0.3 million for income taxes related to accrued interest on uncertain tax positions. For the three and nine months endedSeptember 30, 2019 , the provision for income taxes was$0.5 million .
Liquidity and Capital Resources
September 30 ,
(In thousands) 2020 2019
Working capital (working capital deficit)
Cash and cash equivalents $ 38,280 $ 270
Debt and lease obligations $ 195,619 $ 289,065
Accumulated deficit $ (1,977,075) $ (1,755,653)
Nine Months Ended September 30,
(In thousands) 2020 2019Net cash (used in) provided by:
Operating activities $ (165,813) $ (113,467)
Investing activities $ (9,619) $ (9,013)
Financing activities $ 213,338 $ 78,742 Liquidity. We have incurred significant operating losses since our inception, and we expect to continue to incur losses and negative cash flows from operations for at least the next 12 months following the filing of this Quarterly Report on Form 10-Q.
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As of
As ofSeptember 30, 2020 , our outstanding debt principal (including related party debt) totaled$175.3 million , of which$36.2 million is classified as current. Our debt agreements contain various covenants, including certain restrictions on our business that could cause us to be at risk of defaults, such as restrictions on additional indebtedness, material adverse effect and cross default provisions. A failure to comply with the covenants and other provisions of our debt instruments, including any failure to make a payment when required, would generally result in events of default under such instruments, which could permit acceleration of a substantial portion of such indebtedness. If such indebtedness is accelerated, it would generally also constitute an event of default under our other outstanding indebtedness, permitting acceleration of a substantial portion of such other outstanding indebtedness. AtDecember 31, 2019 , we failed to meet certain covenants under several credit arrangements, including those associated with cross-default provisions, minimum liquidity and minimum asset coverage requirements. Further, atMarch 31, 2020 , we failed to meet certain covenants and provisions under several credit arrangements, including those associated with cross-default provisions. InMarch 2020 and again inMay 2020 , most of these lenders provided permanent waivers to us for breaches of all past covenant violations and cross-default payment failures throughMay 8, 2020 under the respective credit agreements. We cured these defaults with the closing of the$200 million equity offering described below and the repayment of these past due amounts. As ofSeptember 30, 2020 , we failed to achieve the minimum revenue thresholds under the Foris Convertible Note, Naxyris LSA and Senior Convertible Notes Due 2022, which are described in more detail in Note 4, "Debt", Part 1, Item 1 of this Form 10-Q, and obtained a waiver from each of these lenders to cure theSeptember 30, 2020 minimum revenue covenant violations. The minimum revenue threshold test is based on 4-quarters trailing revenue and has been significantly impacted by the elimination of a$37.5 million royalty from the measurement period that was recorded inApril 2020 related to the DSM Value Sharing Agreement. See Note 9, "Revenue" for more information. Beginning inMay 2020 and continuing throughJune 2020 , we executed a series of financial transactions to minimize cash outflows related to debt service payments and to increase operating cash. OnMay 1, 2020 , we amended the Senior Convertible Notes Due 2022 to eliminate the monthly amortization payments and change the interest payment frequency from monthly to quarterly. OnMay 7, 2020 , we received a$10 million Paycheck Protection Plan loan (PPP Loan). OnJune 1, 2020 , we amended the Foris LSA to eliminate the quarterly principal payments and defer all interest payments until maturity onJuly 1, 2022 , and to provide for the conversion of all outstanding indebtedness under the LSA at a$3.00 per share conversion price, which conversion was approved by our stockholders onAugust 14, 2020 . Further, onJune 1, 2020 andJune 4, 2020 , we entered into securities purchase agreements with investors for the private placement of an aggregate of$200 million of common and preferred stock, resulting in our receiving approximately$190 million of net proceeds. A portion of the proceeds from the offering was used to pay down approximately$37.1 million of debt principal (which included$10 million to repay the PPP Loan) and$6.1 million of accrued interest. Also, onJune 2, 2020 ,Total Raffinage Chimie (Total) converted approximately$9.3 million of debt principal and accrued interest into common stock under the terms of the 2014 Rule 144A Convertible Note, further reducing our outstanding indebtedness. OnAugust 10, 2020 , we andGinkgo Bioworks, Inc. (Ginkgo) entered into a Second Amendment to Promissory Note and Partnership Agreement to reduce the frequency of partnership payments from monthly to quarterly, in an aggregate amount of$2.1 million , and to defer an aggregate of$9.8 million in partnership payments to the end of the agreement inOctober 2022 . See Note 4, "Debt." for more information. As a result of closing the equity offering, making past due payments, converting the$9.1 million 2014 Rule 144A Convertible Note principal into equity, and executing amendments to the Foris LSA, the Senior Convertible Notes Due 2022, and the Ginkgo Note, we cured all payment defaults and other events of default, including cross-defaults under our various debt instruments as ofJune 30, 2020 . Although we have been able to obtain waivers in the past for substantially all our prior defaults to date and were able to cure the existing minimum revenue covenant default, we may not be able to cure or obtain a waiver for any defaults in the future. Further, our cash and cash equivalents of$38.3 million as ofSeptember 30, 2020 will not be sufficient to fund expected future negative cash flows from operations and cash debt service obligations throughNovember 2021 . These factors raise substantial doubt about our ability to continue as a going concern within one year after the date these condensed consolidated financial statements are issued. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue as a going concern will depend, in large part, on our ability to eliminate or minimize the anticipated negative cash flows from operations during the 12 months from the date of this filing, and to either raise additional cash proceeds through financings or refinance the debt maturities that will occur inDecember 2020 andJune 2021 , all of which are uncertain and outside our control. Further, our operating plan for the remainder of 2020 contemplates (i) revenue growth from sales of existing and new products with positive gross margins, (ii) reduced production costs as a result of manufacturing and technical developments, (iii) reduced spending in general and administrative areas, (iv) continued cash inflows from collaborations and grants, and (v) the monetization of certain contractual assets. If we are unable to complete these actions, we expect to be unable to meet our operating cash flow needs and our obligations under our existing debt facilities over the next 12 months. This could result in an acceleration of our obligation to repay all amounts outstanding under those facilities, and we may be forced to obtain additional equity or debt financing, which may not occur timely or on reasonable terms, if at all, and/or liquidate assets. In such a scenario, the value received for assets in liquidation or dissolution could be significantly lower than the value reflected in these condensed consolidated financial statements. 48 -------------------------------------------------------------------------------- If we do not achieve our planned operating results, our ability to continue as a going concern would be jeopardized and we may need to take the following actions to support our liquidity needs during the next 12 months: •Shift focus to existing products and customers with significantly reduced investment in new product and commercial development efforts; •Reduce expenditures for employees and third-party contractors, including consultants, professional advisors and other vendors; •Reduce or delay uncommitted capital expenditures, including expenditures related to the construction and commissioning of the new production facility inBrazil , non-essential facility and lab equipment, and information technology projects; and •Closely monitor our working capital position with customers and suppliers, as well as suspend operations at pilot plants and demonstration facilities. Implementing this plan could have a negative impact on our ability to continue our business as currently contemplated, including, without limitation, delays or failures in our ability to: •Achieve planned production levels; •Develop and commercialize products within planned timelines or at planned scales; and •Continue other core activities. We expect to fund operations for the foreseeable future with cash and investments currently on hand and cash inflows from collaborations, grants, product sales, licenses and royalties, and debt and equity financings. All our research and development collaboration milestone payments are subject to risks that we may not meet milestones. Our planned working capital and capital expenditure needs for the next 12 months are dependent on significant inflows of cash from renewable product sales, license and royalties and existing and new collaborations, as well as additional debt financing for the construction of our new specialty ingredients fermentation facility inBrazil .
Cash Flows during the Nine Months Ended
Cash Flows from Operating Activities
Our primary uses of cash from operating activities are costs related to the production and sale of our products and personnel-related expenditures, offset by cash received from renewable product sales, licenses and royalties, and grants and collaborations.
For the nine months endedSeptember 30, 2020 , net cash used in operating activities was$165.8 million , consisting primarily of a$217.6 million net loss, partially offset by$97.9 million of non-cash adjustments that were primarily comprised of a$52.0 million loss upon extinguishment of debt,$10.5 million of non-cash interest expense,$9.9 million of stock-based compensation expense, an$8.3 million credit loss, and a$6.5 million loss from change in fair value of derivative instruments. Additionally, there was a$46.1 million net increase in working capital. For the nine months endedSeptember 30, 2019 , net cash used in operating activities was$113.5 million , consisting of a$163.9 million net loss, partially offset by$68.7 million of favorable non-cash adjustments, and a$18.3 million increase in working capital. The non-cash adjustments were primarily comprised of an$18.6 million loss from change in fair value of debt,$10.2 million of amortization of right-of-use assets under operating leases,$10.1 million of stock-based compensation expense, and$9.7 million of debt discount accretion.
Cash Flows from Investing Activities
For the nine months endedSeptember 30, 2020 andSeptember 30, 2019 , net cash used in investing activities was$9.6 million , and$9.0 million , respectively, comprised of property, plant and equipment purchases.
Cash Flows from Financing Activities
For the nine months endedSeptember 30, 2020 , net cash provided by financing activities was$213.3 million , primarily comprised of$247.4 million of net proceeds from common and preferred stock issuances and$15.3 million of net proceeds from debt issuance, partly offset by$46.8 million of debt principal payments. 49
-------------------------------------------------------------------------------- For the nine months endedSeptember 30, 2019 , net cash provided by financing activities was$78.7 million , primarily comprised of$53.6 million of net proceeds from common stock issuances and$89.2 million of net proceeds from debt issuance, partly offset by$63.7 million of debt principal payments.
Off-Balance Sheet Arrangements
At
Contractual Obligations
The following is a summary of our contractual obligations as of
Payable by year endingDecember 31 , (In thousands) Total 2020 2021 2022 2023 2024 Thereafter Principal payments on debt$ 175,296 $ 5,133 $ 56,174 $ 99,235 $ 12,793 $ 307 $ 1,654 Interest payments on debt(1) 32,646 2,734 13,449 16,050 106 91 216 Financing leases 5,654 1,086 4,568 - - - - Operating leases 20,570 1,960 7,480 7,657 3,322 151 -
Partnership payment obligation 11,578 292 878 10,408
- - -
Contract termination fee 3,973 3,973 - - - - -
Total $ 249,717 $ 15,178 $ 82,549 $ 133,350 $ 16,221 $ 549 $ 1,870 ____________________
(1)Fixed and variable interest rates are described in Note 4, "Debt" in Part II, Item 8 of the 2019 Form 10-K. Future interest payments shown above for variable-rate debt instruments are measured on the basis of interest rates for such instruments as ofSeptember 30, 2020 . The fixed interest rates are more fully described in Note 4, "Debt" in Part II, Item 8 of the 2019 Form 10-K. 50
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