2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The accompanying interim condensed consolidated financial statements are unaudited. These interim 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 for the year ended December 31, 2010 contained in the Company's Registration Statement on Form S-1 for the year ended December 31, 2010 filed with the SEC. The December 31, 2010 condensed consolidated balance sheet included herein was derived from the audited financial statements as of 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 the Company's interim financial information. The results of operations for the three and nine month periods ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or for other interim periods or for future years.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Solazyme Brazil Renewable Oils and Bioproducts Limitada ("Solazyme Brazil"), which had operations beginning in the first quarter of 2011, and Solazyme Manufacturing 1, L.L.C, which was formed to own the Peoria Facility assets (Note 6) and related promissory note in the second quarter of 2011. All intercompany accounts and transactions have been eliminated in consolidation.

In October 2010, the Company entered into a joint venture with Therabotanics, LLC, in connection with the marketing and sale of a skin-care product line. The joint venture will manufacture, promote and sell the product line through direct response marketing. The joint venture is owned 50% by the Company and 50% by Therabotanics. The Company is obligated to provide initial funding for the infomercial production, and Therabotanics will provide initial working capital. The joint venture had no results of operations for the three and nine months ended September 30, 2011.

On December 16, 2010, the Company entered into a joint venture agreement with Roquette Frères, S.A. ("Roquette"). The JV is a variable interest entity ("VIE") and is 50% owned by the Company and 50% by Roquette. The Company has determined that it is not required to consolidate the 50% ownership in the joint venture and is therefore accounting for the joint venture under the equity method of accounting (see Note 17 in the Notes to the Condensed Consolidated Financial Statements).

Use of Estimates — Financial statements prepared in conformity with GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Significant Risks and Uncertainties —The Company's failure to generate sufficient revenues, achieve planned gross margins, control operating costs or raise sufficient additional funds may require it to modify, delay or abandon the Company's planned future expansion or expenditures, which could have a material adverse effect on the business, operating results, financial condition and ability to achieve intended business objectives. The Company may be required to seek additional funds through collaborations, government programs or public or private debt or equity financings, and may also seek to reduce expenses related to the Company's operations. There can be no assurance that any financing will be available or on terms acceptable to management.

Foreign Currency Translation — The assets and liabilities of our foreign subsidiary, where the local currency is the functional currency, is translated from its respective functional currency into U.S. dollars at the exchange rate in effect at the balance sheet date, with resulting foreign currency translation adjustments recorded in accumulated other comprehensive income (loss) in the consolidated statements of redeemable convertible preferred stock and stockholders' equity (deficit). Revenues and expense amounts are translated at average rates during the period.

Cash Equivalents — All highly liquid investments with original or remaining maturities of three months or less at the time of purchase are classified as cash equivalents. Cash equivalents consist of money market funds, U.S. Treasury securities and corporate bonds.

Marketable Securities — Investments with original maturities greater than three months that mature less than one year from the condensed consolidated balance sheet date are classified as marketable securities. The Company classifies marketable securities as short-term based upon whether such assets are reasonably expected to be used in current operations. The Company invests its excess cash balances primarily in asset-backed securities, mortgage-backed securities, corporate bonds, U.S. Government Agency bonds, municipal bonds, floating rate bonds, collateralized mortgage obligations and commercial paper. The Company classifies its marketable securities as available-for-sale or held-to-maturity. Marketable securities classified as available-for-sale are recorded at estimated fair value in the condensed consolidated balance sheets, with unrealized gains and losses, if any, reported as a component of accumulated other comprehensive income (loss) in stockholders' equity (deficit). Marketable securities classified as held-to-maturity are recorded at amortized cost in the condensed consolidated balance sheets. Marketable securities classified as available-for-sale and held-to-maturity are adjusted for amortization of premiums and accretion of discounts and such amortization and accretion are reported as components of interest income. Realized gains and losses and declines in value that are considered to be other-than-temporary are recognized in interest and other income. The cost of all securities sold is based on the specific identification method.

Restricted Certificates of Deposit — The Company maintained certificates of deposits in the amount of $287,000 as of December 31, 2010. These certificates of deposits were pledged as collateral for a $237,000 letter of credit related to the Company's facility lease and a $50,000 letter of credit that secures a bank guaranty. The $237,000 and $50,000 restricted certificates of deposits were classified in other long-term assets and prepaid and other current assets, respectively, as of December 31, 2010.

In the nine months ended September 30, 2011, the $50,000 letter of credit that secured a bank guaranty expired. The Company's restricted certificate of deposit of $237,000, related to its facility lease, was classified in other long-term assets as of September 30, 2011.

Deferred Offering Costs — Deferred offering costs include costs directly attributable to the Company's offering of its equity securities. These costs were charged against the proceeds received from the Company's initial public offering that closed in June 2011.

Accounts Receivable — Accounts receivable represents amounts owed to the Company under our government programs, collaborative research and development agreements and for product revenues. The Company had no amounts reserved for doubtful accounts as of September 30, 2011 and December 31, 2010, as the Company expected full collection of the accounts receivable balances. The Company's customer payment terms related to sales of Algenist^™ products are thirty days from invoice date or thirty or forty-five days from the end of the month in which a customer is invoiced. Certain customer invoices are denominated in Euros. The Company began reserving for estimated product returns as reductions of accounts receivable and product revenues in the first quarter of 2011. The Company monitors actual return history and will reassess its return reserve as returns experience develops.

Unbilled Revenues — Unbilled revenues represent fees earned but not yet billed under certain research and development programs.

Fair Value of Financial Instruments — The Company measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. 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 or market and the instruments' complexity. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The carrying amount of certain of the Company's financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses, accounts payable and accrued liabilities, approximates fair value due to their relatively short maturities. Based upon borrowing rates currently available to the Company for debt with similar terms, the carrying value of notes payable approximates fair value.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, marketable securities, accounts receivables and restricted certificates of deposit. The Company places its cash equivalents and investments with high credit quality financial institutions and by policy limits the amounts invested with any one financial institution or issuer. Deposits held with banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents.

Credit risk with respect to accounts receivable exists to the full 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 the Company's estimates and could be material to the condensed consolidated balance sheet, statements of operations and cash flows. The Company had two customers accounting for 98% of the receivable balance as of December 31, 2010. The Company had five customers accounting for 95% of the receivable balance as of September 30, 2011. The Company does not believe the accounts receivable from these customers represent a significant credit risk based on past collection experiences and the general creditworthiness of these customers. As of September 30, 2011, $0.7 million of the Company's total accounts receivable balance related to product sales.

Inventories — Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out basis. Inventory cost consists of third-party contractor costs associated with packaging, distribution and production of Algenist^™ products, supplies, shipping costs and other overhead costs associated with manufacturing. If inventory costs exceed expected market value due to obsolescence or lack of demand, inventory write-downs may be recorded as deemed necessary by management for the difference between the cost and the market value in the period that impairment is first recognized.

Property, Plant and Equipment — Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the following estimated ranges of useful lives:


Asset classification		Estimated useful life
Lab equipment		3 – 7 years
Building		20 years
Plant equipment		7 – 10 years
Computer equipment and software		3 – 5 years
Leasehold improvements		Shorter of useful life or life of lease
Furniture and fixtures		7 years
Automobiles		5 years

Long-Lived Assets — The Company periodically reviews long-lived assets, including property, plant and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset is impaired or the estimated useful lives are no longer appropriate. If indicators of impairment exist and the undiscounted projected cash flows associated with such assets are less than the carrying amount of the asset, an impairment loss is recorded to write the asset down to its estimated fair values. Fair value is estimated based on discounted future cash flows. There were no asset impairment charges incurred for the three and nine month periods ended September 30, 2011 and 2010, respectively.

Redeemable Convertible Preferred Stock —As redemption of the convertible preferred stock through liquidation was outside the Company's control, all shares of convertible preferred stock have been presented outside of stockholders' deficit in the Company's condensed consolidated balance sheets. All series of convertible preferred stock are collectively referred to in the condensed consolidated financial statements as convertible preferred stock. All outstanding shares of redeemable convertible preferred stock were converted to common stock upon the closing of the Company's initial public offering on June 2, 2011.

Redeemable Convertible Preferred Stock Warrant Liability — Prior to the Company's initial public offering, outstanding warrants to purchase shares of the Company's Series A and Series B redeemable convertible preferred stock were freestanding warrants that were exercisable into convertible preferred stock that was subject to redemption and were therefore classified as liabilities on the condensed consolidated balance sheet at fair value. The Company estimated the fair value of these warrants at the respective balance sheet dates utilizing an option-based model to allocate an estimated business enterprise value to the various classes of the Company's equity stock and related warrants. The assumptions used to estimate the business enterprise value and allocation of value to the classes of equity stock and related warrants were highly judgmental. The initial liability recorded was adjusted for changes in fair value at each reporting date with an offsetting entry recorded for the loss from the change in fair value of warrant liabilities in the accompanying condensed consolidated statements of operations. The liability was adjusted for changes in fair value until the conversion of the underlying redeemable convertible preferred stock into common stock and common stock warrants prior to the close of Company's initial public offering in June 2011, at which time the redeemable convertible preferred stock warrants were reclassified to stockholders' equity (deficit).

Segment Reporting — Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results beyond revenue goals or gross margins, or plans for levels or components below the consolidated unit level. Accordingly, the Company has a single reporting segment through September 30, 2011.

Revenue Recognition — Revenues are recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) 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 are revenues from research and development programs and product sales. If sales arrangements contain multiple elements, the Company evaluates whether the components of each arrangement represent separate units of accounting. To date, the Company has determined that all revenue arrangements should be accounted for as a single unit of accounting.

Research and development programs consist of the following:

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Government Programs — Revenues from research and development programs with governmental entities generally provide cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period. Revenues from government programs are recognized in the period during which the related costs are incurred, provided that the conditions under which the government program activities were provided have been met and only perfunctory obligations are outstanding.

•

Collaborative Research and Development — Collaborative research and development programs with commercial and strategic partners typically provide the Company with multiple revenue streams, which may include up-front non-refundable fees for licensing and reimbursement for research and development activities; cost reimbursement fees may include reimbursement for full-time employee equivalents ("FTE"), contingent milestone payments upon achievement of contractual criteria, licensing fees and commercialization royalty fees. Such revenues are recognized as the services are performed over a performance period, as specified in the respective agreements with the non-governmental entities. To date, payments received are not refundable. The research and development period is estimated at the inception of each agreement and is periodically evaluated. Reevaluation of the research and development period may shorten or lengthen the period during which the deferred revenue is recognized. To date, upfront payments received upon execution of such agreements, including license fees, have been recorded as deferred revenue upon receipt and have not been considered a separate unit of accounting. When up-front payments are combined with funded research services in a single unit of accounting, the Company recognizes the up-front payments using the proportional performance method of revenue recognition based upon the actual amount of research and development labor hours and research expenses incurred relative to the amount of the total expected labor hours and research expenses estimated to be incurred, but not greater than the amount of the research and development program fee as specified under such agreements. The Company is required to make estimates of total labor hours and research and development expenses required to perform the Company's obligations under each research and development program; the Company evaluates the appropriate period based on research progress attained and reevaluates the period when significant changes occur.

Product Revenue — Product revenue is recognized from the sale of Algenist^™ products. Algenist^™ products are sold with a right of return for expired, discontinued, damaged or non-compliant products. In addition, one customer has a right of return for excess inventory beyond 120 days of consumer demand. Algenist^™ products have a three year shelf life from their manufacture date. The Company gives credit for returns, either by issuing a credit memo at the time of product return or, in certain cases, by allowing a customer to decrease the amount of subsequent payments for the amount of the return. The Company reserves for estimated returns of products at the time revenues are recognized. To estimate the return reserve, the Company analyzes its own actual product return data, as well as data from its customers regarding their historical return rates of well-established similar products to other manufacturers, and also uses other known factors, such as its customers' return policies to their end consumers, which is typically 30 to 90 days. The Company monitors its actual performance to estimated rates, and adjusts the estimated return rates as necessary.

Research and Development — Research and development costs are expensed as incurred and includes costs associated with research performed pursuant to research and development programs with governmental entities and commercial and strategic partners ("partners"). Research and development costs include, but are not limited to, personnel and related expenses, laboratory supplies, and scale-up research manufacturing and consulting costs. The Company's research and development programs are undertaken to advance its overall industrial biotechnology platform that enables the Company to produce cost-effective, tailored, high-value oils. Although the Company's partners fund certain development activities, the partners benefit from advances in the Company's technology platform as a whole, including costs funded by other development programs. Therefore, costs for such activities have not been separated as these costs have all been determined to be part of the Company's total research and development related activity.

Patent Costs — All costs related to filing and pursuing patent applications are expensed as incurred as recoverability of such expenditures is uncertain and the underlying technologies are under development. Patent-related legal costs incurred are recorded in selling, general and administrative expenses.

Income Taxes — The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company's assets and liabilities and their financial statement reported amounts. A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized.

The Company provides for reserves necessary for uncertain tax positions taken or expected to be taken on tax filings. First, the Company determines if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit. Second, based on the largest amount of benefit that is more likely than not to be realized on ultimate settlement, the Company recognizes any such differences as a liability. Because of our net operating loss carryforwards, none of the unrecognized tax benefits through September 30, 2011, if recognized, would affect the Company's effective tax rate.

Comprehensive Loss — The Company reports comprehensive loss, and its components, on the condensed consolidated statements of redeemable convertible preferred stock and stockholders' equity (deficit). Comprehensive loss consists of net loss and unrealized gains (losses) on available-for-sale securities and foreign currency translation adjustment.

The components of accumulated other comprehensive loss is as follows (in thousands):


	September 30, 2011			December 31, 2010
Unrealized loss on available for sale securities	$	(383	)	$	(40	)
Foreign currency translation adjustment		(383	)		—

Total accumulated other comprehensive loss	$	(766	)	$	(40	)

Stock-Based Compensation — The Company grants stock options, restricted stock units, and restricted stock pursuant to its equity incentive plan. The Company accounts for stock-based compensation arrangements with employees using a fair value method that requires the recognition of compensation expense for costs related to all stock-based payments including stock options and stock purchase rights. The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model. The Company uses the Black-Scholes pricing model to estimate the fair value of options granted that are expensed on a straight-line basis over the vesting period. The Company accounts for restricted stock units and restricted stock based on the quoted market price of the Company's common stock on the date of grant that are expensed on a straight-line basis over the vesting period.

The Company accounts for stock options issued to nonemployees based on the estimated fair value of the awards using the Black-Scholes option pricing model. The Company accounts for restricted stock awards issued to nonemployees based on the estimated fair value of the Company's common stock. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in the Company's condensed consolidated statements of operations during the period the related services are rendered.

Net Loss per Share Attributable to Solazyme, Inc. Common Stockholders — Basic net loss per share attributable to Solazyme, Inc. common stockholders is computed by dividing the Company's net loss attributable to Solazyme, Inc. common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share attributable to Solazyme, Inc. common stockholders is computed by giving effect to all potentially dilutive securities, including stock options, common stock issuable pursuant to the 2011 Employee Stock Purchase Plan, restricted stock, restricted stock units, warrants and convertible preferred stock. Basic and diluted net loss per share attributable to Solazyme, Inc. common stockholders was the same for all periods presented as the inclusion of all potentially dilutive securities outstanding was anti-dilutive.

The following table summarizes the Company's calculation of basic and diluted net loss per share attributable to Solazyme, Inc. common stockholders (in thousands, except share and per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Actual
Numerator
Net loss attributable to Solazyme, Inc. common stockholders	$	(14,086	)	$	(8,957	)	$	(38,380	)	$	(19,302	)

Denominator
Weighted-average number of common shares outstanding		59,671,948			12,132,341			33,497,444			11,745,564
Less: Weighted average shares subject to repurchase		(163,577	)		(424,020	)		(225,628	)		(381,847	)

Denominator: Basic and diluted		59,508,371			11,708,321			33,271,816			11,363,717

Net loss per share attributable to Solazyme, Inc. common stockholders, basic and diluted	$	(0.24	)	$	(0.77	)	$	(1.15	)	$	(1.70	)

The following outstanding shares of potentially dilutive securities were excluded from the calculation of diluted net loss per share attributable to Solazyme, Inc. common stockholders for the periods presented as the effect was anti-dilutive:


	September 30,
	2011		2010
Period-end options to purchase common stock		7,508,555		4,537,593
Period-end common stock subject to repurchase		103,169		348,998
Period-end restricted stock units		200,000		—
Warrants to purchase convertible preferred stock		—		386,012
Warrants to purchase common stock		1,000,000		5,000
Convertible preferred stock (on an as if converted basis)		—		34,534,125

Total		8,811,724		39,811,728

Recent Accounting Pronouncements — In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures — Improving Disclosures about Fair Value Measurements, which requires entities to make new disclosures about recurring or nonrecurring fair-value measurements and provides clarification of existing disclosure requirements. This amendment requires disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This amendment is effective for periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances and settlements, which will be effective for fiscal years beginning after December 15, 2010. The adoption did not have a material impact on the Company's condensed consolidated financial statements.

In February 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-09, Subsequent Events — Amendments to Certain Recognition and Disclosure Requirements, which amends guidance on subsequent events. This amendment removes the requirement for Securities and Exchange Commission ("SEC") filers to disclose the date through which an entity has evaluated subsequent events. However, the date-disclosure exemption does not relieve management of an SEC filer from its responsibility to evaluate subsequent events through the date on which financial statements are issued. All of the amendments in this ASU are effective upon issuance of the final ASU, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The adoption of this standard did not have an impact on the Company's condensed consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS") of Fair Value Measurement – Topic 820. ASU No. 2011-04 is intended to provide a consistent definition of fair value and improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The amendments include those that clarify the FASB's intent about the application of existing fair value measurement and disclosure requirements, as well as those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The update is effective for annual periods beginning after December 15, 2011. The Company is currently evaluating the impact of adoption of ASU No. 2011-04.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. Rather, it gives an entity the choice to present the components of net income and other comprehensive income in either a single continuous statement or two separate but consecutive statements. Companies will continue to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The components of comprehensive income and timing of reclassification of an item to net income do not change with this update. ASU No. 2011-05 requires retrospective application and is effective for annual and interim periods beginning after December 15, 2011. Early adoption is permitted. The Company is currently evaluating the impact of adoption of ASU No. 2011-05.