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****UNITED STATES****

**SECURITIES AND EXCHANGE COMMISSION**

****Washington, D.C. 20549****

 

**FORM 10-Q**

** **
| **x**                                                 | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934.** |
|-------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                  |       |                                                                                                     |
| **For the quarterly period ended June 30, 2009** |
|                                                  |       |                                                                                                     |
| **OR**                                                |
|                                                  |       |                                                                                                     |
| **o**                                                 | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**For thetransition period from                to**

 

**Commission file number 001-33133**

 

**METABOLIX, INC.**

 

| **Delaware**                                                    | ** ** | **04-3158289**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                            |       |                                  |
| **21 Erie Street  Cambridge, MA**                               | ** ** | **02139**                             |
| (Address of principal executive offices)                        |       | (Zip Code)                            |

 

**(617)583-1700**

(Registrant’s telephone number, including areacode)

 

 

(Former name, former address and former fiscalyear, if changed since last report.)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files). Yes o No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
| Large accelerated  filer o                |   | Accelerated filer x         |
|------------------------------------------------|--------|----------------------------------|
|                                           |   |                             |
| Non-accelerated filer o                        |   | Smaller reporting company o |
| (Do not check if a smaller  reporting company) |   |                             |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

The number of shares outstanding of the registrant’scommon stock as of August 3, 2009 was 23,011,137.

 

 

 

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**Metabolix, Inc.**

**Form 10-Q**

**For the Quarter Ended June 30,2009**

 

**Table of Contents**

 
| ** **                              | ** **                                                                                             | ** ** | **Page** |
|-----------------------------------------|--------------------------------------------------------------------------------------------------------|------------|----------|
| **Part I.  Financial Information** |                                                                                                   | 3          |
|                                    |                                                                                                   |       |     |
| Item                                    |                                                                                                   |       |     |
| 1.                                      | Consolidated  Financial Statements (Unaudited)                                                         |       | 3        |
|                                    | Consolidated  Balance Sheets at June 30, 2009, and December 31, 2008                         |       | 3        |
|                                    | Consolidated  Statements of Operations for the three and six months ended June 30,  2009 and 2008 |       | 4        |
|                                    | Consolidated  Statements of Cash Flows for the six months ended June 30, 2009 and 2008            |       | 5        |
|                                    | Notes to  the Consolidated Financial Statements                                                        |       | 6        |
| 2.                                      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations            |       | 16       |
| 3.                                      | Quantitative  and Qualitative Disclosures About Market Risk                                            |       | 27       |
| 4.                                      | Controls and  Procedures                                                                               |       | 27       |
|                                    |                                                                                                   |       |     |
| **Part II. Other Information**     |                                                                                                   | 28         |
|                                    |                                                                                                   |       |     |
| Item                                    |                                                                                                   |       |     |
| 1.                                      | Legal Proceedings                                                                                      |       | 28       |
| 1A.                                     | Risk Factors                                                                                           |       | 28       |
| 2.                                      | Unregistered  Sales of Equity Securities and Use of Proceeds                                           |       | 30       |
| 3.                                      | Defaults  Upon Senior Securities                                                                       |       | 30       |
| 4.                                      | Submission  of Matters to a Vote of Security Holders                                                   |       | 30       |
| 5.                                      | Other Information                                                                                      |       | 30       |
| 6.                                      | Exhibits                                                                                               |       | 30       |
|                                    |                                                                                                   |       |     |
| **SIGNATURES**                          |                                                                                                   | 32         |
|                                         |                                                                                                        |            |          |  |

 

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**PART I.  FINANCIALINFORMATION**

 

**ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS**

 

**METABOLIX, INC.**

**CONSOLIDATED BALANCE SHEETS**

**UNAUDITED**

**(in thousands, except share and pershare data)**

 
| ** **                                                                                                                                                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                          | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| **Assets**                                                                                                                                                                                                                                          |       |              |       |                  |       |
| Current Assets:                                                                                                                                                                                                                                     |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                                          |       | $                 | 9,314      |                  | $          | 26,194 |   |
| Short-term investments                                                                                                                                                                                                                              |       | 68,292            |       | 64,902                |       |
| Accounts receivable                                                                                                                                                                                                                                 |       | 164               |       | 159                   |       |
| Due from related  parties                                                                                                                                                                                                                           |       | 752               |       | —                |       |
| Unbilled receivables                                                                                                                                                                                                                                |       | 122               |       | 56                    |       |
| Prepaid expenses and  other current assets                                                                                                                                                                                                          |       | 606               |       | 530                   |       |
| Total current assets                                                                                                                                                                                                                                |       | 79,250            |       | 91,841                |       |
| Restricted cash                                                                                                                                                                                                                                     |       | 593               |       | 593                   |       |
| Property and equipment,  net                                                                                                                                                                                                                        |       | 4,077             |       | 4,388                 |       |
| Other assets                                                                                                                                                                                                                                        |       | 96                |       | 124                   |       |
| Total assets                                                                                                                                                                                                                                        |       | $                 | 84,016     |                  | $          | 96,946 |   |
|                                                                                                                                                                                                                                                |       |              |       |                  |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                                                      |       |              |       |                  |       |
| Current Liabilities:                                                                                                                                                                                                                                |       |              |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                    |       | $                 | 108        |                  | $          | 858 |   |
| Accrued expenses                                                                                                                                                                                                                                    |       | 3,755             |       | 3,587                 |       |
| Current portion of  deferred rent and other current liabilities                                                                                                                                                                                     |       | 266               |       | 165                   |       |
| Total current  liabilities                                                                                                                                                                                                                          |       | 4,129             |       | 4,610                 |       |
| Deferred rent                                                                                                                                                                                                                                       |       | 634               |       | 717                   |       |
| Long-term deferred  revenue                                                                                                                                                                                                                         |       | 36,653            |       | 32,440                |       |
| Other long-term  liabilities                                                                                                                                                                                                                        |       | 93                |       | 88                    |       |
| Total liabilities                                                                                                                                                                                                                                   |       | 41,509            |       | 37,855                |       |
| Commitments and  contingencies (Note 11)                                                                                                                                                                                                            |       |              |       |                  |       |
| Stockholders’ Equity:                                                                                                                                                                                                                          |       |              |       |                  |       |
| Preferred stock ($0.01  par value per share): 5,000,000 shares authorized, no shares issued or  outstanding                                                                                                                                         |       | —            |       | —                |       |
| Common stock ($0.01 par  value per share); 100,000,000 shares authorized at June 30, 2009 and  December 31, 2008; 23,000,361 and 22,962,628 shares issued and  outstanding at June 30, 2009 and December 31, 2008, respectively |       | 230               |       | 230                   |       |
| Additional paid-in  capital                                                                                                                                                                                                                         |       | 191,040           |       | 188,532               |       |
| Accumulated other  comprehensive income                                                                                                                                                                                                             |       | 135               |       | 446                   |       |
| Accumulated deficit                                                                                                                                                                                                                                 |       | (148,898          | )          | (130,117              | )          |
| Total stockholders’  equity                                                                                                                                                                                                                    |       | 42,507            |       | 59,091                |       |
| Total liabilities and  stockholders’ equity                                                                                                                                                                                                    |       | $                 | 84,016     |                  | $          | 96,946 |   |

 

*The accompanying notes are anintegral part of these interim consolidated financial statements*

 

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**METABOLIX, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**UNAUDITED**

**(in thousands, except share and pershare data)**

 
| ** **                                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                    | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                                                    | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Revenue:                                                      |       |                   |       |                 |       |   |   |   |   |
| Research and  development revenue                             |       | $                      | 24         |                 | $          | 11 |   | $ | 30 |   | $ | 79 |   |
| License fee and royalty  revenue from related parties         |       | 41                     |       | 35                   |       | 66 |   | 70 |   |
| Grant revenue                                                 |       | 283                    |       | 355                  |       | 513 |   | 656 |   |
| Total revenue                                                 |       | 348                    |       | 401                  |       | 609 |   | 805 |   |
|                                                          |       |                   |       |                 |       |   |   |   |   |
| Operating expense:                                            |       |                   |       |                 |       |   |   |   |   |
| Research and  development expenses, including cost of revenue |       | 6,323                  |       | 6,008                |       | 12,331 |   | 11,942 |   |
| Selling, general, and  administrative expenses                |       | 3,938                  |       | 4,048                |       | 7,652 |   | 8,145 |   |
| Total operating  expenses                                     |       | 10,261                 |       | 10,056               |       | 19,983 |   | 20,087 |   |
| Loss from operations                                          |       | (9,913                 | )          | (9,655               | )          | (19,374 | ) | (19,282 | ) |
|                                                          |       |                   |       |                 |       |   |   |   |   |
| Other income (expense):                                       |       |                   |       |                 |       |   |   |   |   |
| Interest income, net                                          |       | 241                    |       | 730                  |       | 593 |   | 1,909 |   |
| Net loss                                                      |       | $                      | (9,672     | )                    | $          | (8,925 | ) | $ | (18,781 | ) | $ | (17,373 | ) |
|                                                          |       |                   |       |                 |       |   |   |   |   |
| Net loss per share:                                           |       |                   |       |                 |       |   |   |   |   |
| Basic and Diluted                                             |       | $                      | (0.42      | )                    | $          | (0.39 | ) | $ | (0.82 | ) | $ | (0.76 | ) |
|                                                          |       |                   |       |                 |       |   |   |   |   |
| Number of shares used  in per share calculations:             |       |                   |       |                 |       |   |   |   |   |
| Basic and Diluted                                             |       | 22,995,026             |       | 22,787,087           |       | 22,985,297 |   | 22,717,913 |   |

 

*Theaccompanying notes are an integral part of these interim consolidated financialstatements*

 

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**METABOLIX, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**UNAUDITED**

**(in thousands)**

*** ***
| ** **                                                               | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                               | ** ** | **June 30,**    | ** ** |
| ** **                                                               | ** ** | **2009**             | ** ** | **2008** | ** ** |
| **Cash  flows from operating activities**                                |       |                 |       |   |   |
| Net loss                                                                 |       | $                    | (18,781    | ) | $ | (17,373 | ) |
| Adjustments to  reconcile net loss to cash used in operating activities: |       |                 |       |   |   |
| Depreciation and  amortization                                           |       | 1,310                |       | 1,814 |   |
| Charge for  401(k) company common stock match                       |       | 279                  |       | 212 |   |
| Stock-based  compensation                                                |       | 2,250                |       | 2,192 |   |
| Gain on the sale of  equipment                                           |       | (70                  | )          | — |   |
| Changes in operating  assets and liabilities:                            |       |                 |       |   |   |
| Receivables (billed and  unbilled)                                       |       | (71                  | )          | 90 |   |
| Due from related party                                                   |       | 226                  |       | 119 |   |
| Prepaid expenses and  other assets                                       |       | (48                  | )          | 212 |   |
| Accounts payable                                                         |       | (750                 | )          | 245 |   |
| Accrued expenses                                                         |       | (215                 | )          | (996 | ) |
| Deferred rent                                                            |       | (83                  | )          | (80 | ) |
| Deferred revenue                                                         |       | 3,336                |       | 5,302 |   |
| Net cash used in  operating activities                                   |       | (12,617              | )          | (8,263 | ) |
|                                                                     |       |                 |       |   |   |
| **Cash  flows from investing activities**                                |       |                 |       |   |   |
| Purchase of property  and equipment                                      |       | (655                 | )          | (483 | ) |
| Proceeds from the sale  of equipment                                     |       | 70                   |       | — |   |
| Purchase of short-term  investments                                      |       | (63,590              | )          | (62,188 | ) |
| Proceeds the from sale  and maturity of short-term investments           |       | 59,891               |       | 69,685 |   |
| Net cash provided by (used  in) investing activities                     |       | (4,284               | )          | 7,014 |   |
|                                                                     |       |                 |       |   |   |
| **Cash  flows from financing activities**                                |       |                 |       |   |   |
| Proceeds from options  and warrants exercised                            |       | 21                   |       | 664 |   |
| Net cash provided by  financing activities                               |       | 21                   |       | 664 |   |
|                                                                     |       |                 |       |   |   |
| Net decrease in cash  and cash equivalents                               |       | (16,880              | )          | (585 | ) |
| Cash and cash  equivalents at beginning of period                        |       | 26,194               |       | 22,686 |   |
| Cash and cash  equivalents at end of period                              |       | $                    | 9,314      |   | $ | 22,101 |   |

 

*Theaccompanying notes are an integral part of these interim consolidated financialstatements*

 

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**METABOLIX, INC.**

**NOTES TO THE CONSOLIDATED FINANCIALSTATEMENTS**

**UNAUDITED**

 

*(All dollar amounts, except pershare amounts, are stated in thousands)*

 

**1. BASISOF PRESENTATION**

 

Theaccompanying consolidated financial statements are unaudited and have beenprepared by Metabolix, Inc. (the “Company”) in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”) andpursuant to the rules and regulations of the U.S. Securities and ExchangeCommission (“SEC”). Certain information and footnote disclosures normallyincluded in the Company’s annual consolidated financial statements have beencondensed or omitted. The year-end consolidated balance sheet data was derivedfrom audited financial statements, but does not include all disclosuresrequired by GAAP. The consolidated financial statements, in the opinion ofmanagement, reflect all adjustments (consisting only of normal recurring adjustments)necessary for a fair statement of the financial position and results ofoperations for the interim periods ended June 30, 2009 and 2008.

 

Theresults of operations for the interim periods are not necessarily indicative ofthe results of operations to be expected for any future period or the entirefiscal year. These interim consolidated financial statements should be read inconjunction with the audited consolidated financial statements for the yearended December 31, 2008, which are contained in the Company’s AnnualReport on Form 10-K filed with the SEC.

 

***Subsequent Events***

 

Duringthe quarter ended June 30, 2009, the Company implemented Statement ofFinancial Accounting Standards No. 165, *SubsequentEvents,*or SFAS 165. This standard establishes generalstandards of accounting for and disclosure of events that occur after thebalance sheet date but before financial statements are issued. The adoption ofSFAS 165 did not impact the Company’s financial position or results ofoperations.  Events or transactions thatoccurred after June 30, 2009 up through August 5, 2009, the date theCompany’s financial statements were filed with the SEC, were reviewed forsubsequent event accounting and disclosure. During this period we did not have any material recognizable subsequentevents.

 

**2.ACCOUNTING POLICIES**

 

Therehas been no material change in accounting policies since the Company’s fiscalyear ended December 31, 2008, as described in Note 2 to the consolidatedfinancial statements included in its Annual Report on Form 10-K for theyear then ended.

 

**3.RECENT ACCOUNTING PRONOUNCEMENTS**

 

EffectiveJanuary 1, 2009, the Company implemented Statement of Financial AccountingStandards No. 141(R), *BusinessCombination,* or SFAS 141(R). This standard requires an acquiringcompany to measure all assets acquired and liabilities assumed, includingcontingent considerations and all contractual contingencies, at fair value asof the acquisition date. In addition, an acquiring company is required tocapitalize in process research and development and either amortize it over thelife of the product, or write it off if the project is abandoned or impaired.The adoption of this standard did not impact the Company’s financial positionor results of operations as SFAS 141(R) is applicable to acquisitionscompleted after January 1, 2009 and the Company did not complete anybusiness combination transactions during the first six months of 2009.

 

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In April 2009, the FASB issued the following newaccounting standards:

 

·                  FASB Staff Position FAS 157-4, *Determining Whether a Market Is Not Active and aTransaction Is Not Distressed,*or FSP FAS 157-4. FSPFAS 157-4 provides guidelines for making fair value measurements moreconsistent with the principles presented in SFAS 157. FSP FAS 157-4provides additional authoritative guidance in determining whether a market isactive or inactive, and whether a transaction is distressed, is applicable toall assets and liabilities (i.e. financial and nonfinancial) and will requireenhanced disclosures.

 

·                  FASB Staff Position FAS 115-2,FAS 124-2, and EITF 99-20-2, *Recognitionand Presentation of Other-Than-Temporary Impairments*, or FSPFAS 115-2, FAS 124-2, and EITF 99-20-2; FSP FAS 115-2,FAS 124-2, and EITF 99-20-2 provides additional guidance to providegreater clarity about the credit and noncredit component of another-than-temporary impairment event and to more effectively communicate whenan other-than-temporary impairment event has occurred. This FSP applies to debtsecurities.

 

·                  FASB Staff Position FAS 107-1 and APB 28-1, *Interim Disclosures about Fair Value of FinancialInstruments*, or FSP FAS 107-1 and APB 28-1. FSP FAS 107-1and APB 28-1, amends FASB Statement No. 107, *Disclosures about Fair Value of Financial Instruments*, torequire disclosures about fair value of financial instruments in interim aswell as in annual financial statements. This FSP also amends APB Opinion No. 28,*Interim Financial Reporting*, torequire those disclosures in all interim financial statements.

 

These standards are effective for periods ending afterJune 15, 2009. The adoption of these standards did not impact thepresentation of the Company’s financial position or results of operations.

 

***Recently Issued Accounting Standards***

 

In June 2009,the FASB issued the following new accounting standards:

 

·                  SFAS No. 166, *Accounting for Transfers of Financial Assets, an amendment of FASBStatement No. 140*, or SFAS 166;

 

·                  SFAS No. 167, *Amendments to FASB Interpretation No. 46(R),*orSFAS 167; and

 

·                  SFAS No. 168, *The FASB Accounting Standards Codification and the Hierarchy ofGenerally Accepted Accounting Principles, a replacement of FASB StatementNo. 162, or SFAS 168*

 

SFAS 166prescribes the information that a reporting entity must provide in itsfinancial reports about a transfer of financial assets; the effects of atransfer on its financial position, financial performance, and cash flows; anda transferor’s continuing involvement in transferred financial assets.Specifically, among other aspects, SFAS 166 amends Statement of FinancialStandard No. 140, *Accounting forTransfers and Servicing of Financial Assets and Extinguishments of Liabilities*,or SFAS 140, by removing the concept of a qualifying special-purposeentity from SFAS 140 and removes the exception from applying FIN 46(R) tovariable interest entities that are qualifying special-purpose entities. Italso modifies the financial-components approach used in SFAS 140.SFAS 166 is effective for transfers of financial assets occurring on orafter January 1, 2010. The Company has not determined the effect that theadoption of SFAS 166 will have on its financial position or results ofoperations, but the effect will generally be limited to future transactions, ifany.

 

SFAS 167amends FASB Interpretation No. 46, *Consolidationof Variable Interest Entities (revised December 2003) — aninterpretation of ARB No. 51*, or FIN 46(R), to require anenterprise to determine 

 

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whether its variableinterest or interests give it a controlling financial interest in a variableinterest entity. The primary beneficiary of a variable interest entity is theenterprise that has both (1) the power to direct the activities of avariable interest entity that most significantly impact the entity’s economicperformance and (2) the obligation to absorb losses of the entity thatcould potentially be significant to the variable interest entity or the rightto receive benefits from the entity that could potentially be significant tothe variable interest entity. SFAS 167 also amends FIN 46(R) torequire ongoing reassessments of whether an enterprise is the primarybeneficiary of a variable interest entity. SFAS 167 is effective for allvariable interest entities and relationships with variable interest entitiesexisting as of January 1, 2010. The Company has not determined the effectthat the adoption of SFAS 167 will have, if any, on its financial positionor results of operations.

 

SFAS 168replaces SFAS No. 162*, TheHierarchy of Generally Accepted Accounting Principles,*to establishthe *FASB Accounting Standards Codification*asthe source of authoritative accounting principles recognized by the FASB to beapplied by nongovernmental entities in preparation of financial statements inconformity with GAAP. SFAS 168 is effective for interim and annual periodsending after September 15, 2009. The Company does not expect the adoptionof this standard to have an impact on its financial position or results ofoperations.

 

**4.COMPREHENSIVE LOSS**

 

Comprehensiveloss is comprised of net loss and net unrealized gains or losses on marketablesecurities. Total comprehensive loss for the three and six months ended June 30,2009 and 2008 is as follows:

 
| ** **                                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                | ** ** | **June 30,**      | ** ** | **June, 30**         | ** ** |
| ** **                                | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net loss                                  |       | $                      | (9,672     | )                    | $          | (8,925 | ) | $ | (18,781 | ) | $ | (17,373 | ) |
| Other comprehensive  income:              |       |                   |       |                 |       |   |   |   |   |
| Change in unrealized  gain on investments |       | (145                   | )          | (353                 | )          | (311 | ) | (192 | ) |
| Total other  comprehensive income         |       | (145                   | )          | (353                 | )          | (311 | ) | (192 | ) |
| Comprehensive loss                        |       | $                      | (9,817     | )                    | $          | (9,278 | ) | $ | (19,092 | ) | $ | (17,565 | ) |

 

**5. BASICAND DILUTED NET LOSS PER SHARE**

 

Inaccordance with SFAS No. 128,*EarningsPer Share*, basic net loss per share is computed by dividing net lossby the weighted-average number of common shares outstanding and warrantsoutstanding during the period that were previously issued for little or noconsideration, excluding the dilutive effects of common stock equivalents.Common stock equivalents include stock options and certain warrants. Dilutednet loss per share is computed by dividing net loss by the weighted-averagenumber of dilutive common shares outstanding during the period. Diluted sharesoutstanding is calculated by adding to the weighted shares outstanding anypotential (unissued) shares of common stock from outstanding stock options andwarrants based on the treasury stock method. In periods when a net loss isreported, all common stock equivalents are excluded from the calculationbecause they would have an anti-dilutive effect, meaning the loss per sharewould be reduced. Therefore, in periods when a loss is reported the calculationof basic and dilutive loss per share results in the same value.

 

Thenumber of shares of potentially dilutive common stock related to options andwarrants that were excluded from the calculation of dilutive shares since theinclusion of such shares would be anti-dilutive for the three and six monthsended June 30, 2009 and 2008, respectively, are shown below:

 

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| ** ** | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------|------------|------------------------|------------|----------------------|------------|
| ** ** | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** ** | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Options    |       | 3,032,506              |       | 2,385,352            |       | 3,032,506 |   | 2,385,352 |   |
| Warrants   |       | 4,086                  |       | 4,086                |       | 4,086 |   | 4,086 |   |
| Total      |       | 3,036,592              |       | 2,389,438            |       | 3,036,592 |   | 2,389,438 |   |

 

In January 2009,the Company implemented FASB Staff Position EITF 03-6-1, *Determining Whether Instruments Granted in Share-BasedPayment Transactions Are Participating Securities,* or FSPEITF 03-6-1. FSP EITF 03-6-1 addresses whether instruments granted inshare-based payment transactions are participating securities prior to vestingand, therefore, need to be included in the earnings allocation in computingearnings per share under the two-class method as described in SFAS No. 128,*Earnings per Share*. Under theguidance in FSP EITF 03-6-1, unvested share-based payment awards thatcontain non-forfeitable rights to dividends or dividend equivalents (whetherpaid or unpaid) are participating securities and shall be included in thecomputation of earnings per share pursuant to the two-class method. The Company’sawards do not have nonforfeitable rights to dividends or dividend equivalentsand therefore the adoption of FSP EITF 03-6-1 did not impact its financialstatements.

 

**6.STOCK-BASED COMPENSATION**

 

On January 1,2006, the Company adopted Statement of Financial Accounting Standards No. 123(R),*Share-Based Payment,* orSFAS 123(R). Under the provisions of SFAS 123(R), compensation costrecognized for the three and six months ended June 30, 2009 and 2008included compensation cost for stock options granted to employees subsequent toJanuary 1, 2006, based on the grant date fair value estimated inaccordance with the provisions of SFAS 123(R) and recognized over thevesting period of the applicable award on a straight-line basis. The effect ofSFAS 123(R) for the three and six months ended June 30, 2009 wasan expense of $1,216 and $2,323. The corresponding increase in basic anddiluted net loss per share for the three and six months ended June 30,2009 was $0.05 and $0.10. The effect of SFAS 123(R) for the three andsix months ended June 30, 2008 was an expense of $1,108 and $2,334. Thecorresponding increase in basic and diluted net loss per share for the threeand six months ended June 30, 2008 was $0.05 and $0.10. There is noexpense recorded for options which were granted prior to January 1, 2006under the minimum value method if the exercise price was equal to the fairvalue of common stock and the measurement date was fixed at the time of grant.

 

Asummary of option activity for the six months ended June 30, 2009 and 2008is as follows:

 
| ** **                                                                                           | ** ** | **2009**      | ** ** | **2008**             | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------------|------------|
| ** **                                                                                           | ** ** | **Number of** | ** ** | **Weighted Average** | ** ** | **Number of** | ** ** | **Weighted Average** | ** ** |
| ** **                                                                                           | ** ** | **Shares**    | ** ** | **Exercise Price**   | ** ** | **Shares** | ** ** | **Exercise Price** | ** ** |
| Outstanding at  December 31,                                                                    |       | 2,646,765     |       | $                    | 11.59      |   | 2,151,784 |   | $ | 10.70 |   |
| Granted                                                                                              |       | 424,785       |       | 7.24                 |       | 720,700 |   | 12.52 |   |
| Exercised                                                                                            |       | (11,220       | )          | 1.86                 |       | (291,053 | ) | 2.32 |   |
| Cancelled                                                                                            |       | (27,824       | )          | 17.64                |       | (196,079 | ) | 14.39 |   |
| Outstanding at  June 30,                                                                        |       | 3,032,506     |       | 10.96                |       | 2,385,352 |   | 11.97 |   |
|                                                                                                 |       |          |       |                 |       |   |   |   |   |
| Options exercisable at  June 30,                                                                |       | 1,573,875     |       |                 |       | 1,118,881 |   |   |   |
|                                                                                                 |       |          |       |                 |       |   |   |   |   |
| Weighted average grant  date fair value of options granted during the six months ended June 30, |       |          |       | $                    | 4.89       |   |   |   | $ | 7.40 |   |

 

Forthe six months ended June 30, 2009 and 2008, the Company determined thefair value of stock options using the Black-Scholes option pricing model withthe following assumptions for option grants, respectively:

 

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| ** **                      | ** ** | **Six Months Ended** | ** ** |
|---------------------------------|------------|----------------------|------------|
| ** **                      | ** ** | **June 30,**    | ** ** |
| ** **                      | ** ** | **2009**             | ** ** | **2008** | ** ** |
| Expected dividend yield         |       | —               |       | — |   |
| Risk-free rate                  |       | 1.67% - 2.56%        |       | 2.71% - 3.68% |   |
| Expected option term (in years) |       | 5.41                 |       | 6.1 |   |
| Volatility                      |       | 81%                  |       | 61% |   |

 

**Non-employeeStock Option Awards**

 

Thecompensation expense related to non-employee stock options is generallyrecognized over a period of four years. The grants generally vest quarterly andsuch vesting is contingent upon future services provided by the consultants tothe Company. The Company recorded a consultant related stock-based compensationexpense of $15 for the three months ended June 30, 2009 and recorded abenefit of $73 for the six months ended June 30, 2009.  The Company recorded consultant relatedstock-based compensation expense of $3 for the three months ended June 30,2008 and recorded a benefit of $142 for the six months ended June 30,2008. Options remaining unvested for non-employees are subject to remeasurementeach reporting period prior to vesting in full. Since the fair marketvalue of the options issued tonon-employees are subject to changes in the future, the compensation expenserecognized in each quarter may not be indicative of future compensationcharges.

 

**7.SIGNIFICANT COLLABORATION**

 

Effective in the quarter ended March 31, 2009,the Company implemented EITF No. 07-1, *Accountingfor Collaborative Arrangements,*or EITF 07-1, which prescribesthat certain transactions between collaborators be recorded in the incomestatement on either a gross or net basis, depending on the characteristics ofthe collaboration relationship, and provides for enhanced disclosure ofcollaborative relationships. In accordance with EITF 07-1, the Companyevaluated its collaborative agreements for proper income statementclassification based on the nature of the underlying activity. If payments toand from collaborative partners are not within the scope of other authoritativeaccounting literature, the income statement classification for the payments isbased on a reasonable, rational analogy to authoritative accounting literaturethat is applied in a consistent manner. Amounts due from collaborative partnersrelated to development activities are generally reflected as a reduction ofresearch and development expense because the performance of contractdevelopment services is not central to the Company’s operations. Forcollaborations with commercialized products, if the Company is the principal,as defined in EITF No. 99-19, *ReportingRevenue as a Principal versus Net as an Agent,*or EITF 99-19,it records revenue and the corresponding operating costs in the respective lineitems within the statement of operations. If the Company is not the principal,it records operating costs as a reduction of revenue. EITF 99-19 describesthe principal as the party who is responsible for delivering the product orservice to the customer, has latitude with establishing price, and has therisks and rewards of providing product or service to the customer, includinginventory and credit risk. The adoption of EITF 07-1 did not affect thefinancial position or results of operations of the Company.

 

***ADM Agreement***

 

On November 3,2004, the Company signed an agreement with ADM Polymer Corporation (“ADM”), asubsidiary of Archer Daniels Midland Company, to establish an alliance wherebythe Company would provide technology and licenses thereto and research anddevelopment services, and ADM would provide manufacturing services and capitalnecessary to produce**Mirel*TM* biobased plastic on a commercial scale basis.This agreement was amended by the parties on September 8, 2005 to definecertain cost sharing activities related to pre-commercial manufacturing, tochange certain milestones and to make other minor modifications.

 

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On July 12,2006, ADM exercised an option to enter into a commercial alliance for furtherresearch, development, manufacture, use and sale of Mirel on the terms andconditions set forth in the Commercial Alliance Agreement.

 

***Commercial Alliance Agreement***

 

TheCommercial Alliance Agreement specifies the terms and structure of therelationship between the Company and ADM. The primary function of thisagreement is to establish the activities and obligations of the Company and ADMby which the parties will commercialize Mirel. These activities include: theestablishment of a joint sales company, which has been named Telles, to marketand sell Mirel, the construction of a manufacturing facility capable ofproducing 110 million pounds of material annually (the “CommercialManufacturing Facility”), the licensing of technology to Telles and to ADM, andthe conducting of various research, development, manufacturing, sales andmarketing, compounding and administrative services by the parties.

 

Tellesis a limited liability company, formed and equally owned by the Company andADM, and is intended to: (i) serve as the commercial entity to establishand develop the commercial market for Mirel, and conduct the marketing andsales in accordance with the goals of the commercial alliance, (ii) assistin the coordination and integration of the manufacturing, compounding andmarketing activities, and (iii) administer and account for financialmatters on behalf of the parties. The Company and ADM each have 50% ownershipand voting interest in Telles.

 

Asummary of the key activities under this agreement is as follows: (i) ADMwill arrange for, finance the construction of, and own, a facility in which itwill manufacture Mirel under contract to Telles; (ii) the Company willeither arrange for and finance the acquisition or construction of a facility inwhich it will compound Mirel or it will arrange for third parties to compoundMirel; (iii) the Company, acting in the name and on behalf of Telles, willestablish the initial market for Mirel. The Company will also continue itsresearch and development efforts to further advance the technology and expandand enhance the commercial potential of Mirel. Subject to certain limitations,ADM will finance the working capital requirements of Telles.

 

TheCommercial Alliance Agreement called for Telles to pay the Company twelvequarterly support payments of $1,575 each during the period of construction ofthe Commercial Manufacturing Facility. The last of the twelve quarterly supportpayments was received in December 2008. In January 2009 Telles agreedto provide the Company with two additional quarterly payments of $1,575, bothof which were received as of June 30, 2009. As of June 30, 2009, allquarterly support payments received from ADM on behalf of Telles, totaling$22,050, have been recorded as deferred revenue on the Company’s balance sheetand the Company will continue to defer recognition of these and future paymentsreceived from ADM during the Construction Phase of the agreement.

 

Duringthe Construction Phase of the agreement all pre-commercial material productionexpenses incurred by ADM and the Company are shared equally. Accordingly, fromthe execution of this agreement in July 2006 through June 30, 2009,ADM has reimbursed the Company $7,675. All amounts received from ADM, prior tothe Commercial Phase, relating to this agreement are recorded as deferredrevenue.

 

Duringthe Commercial Phase of the agreement Telles will pay the Company royalties onsales of Mirel. In addition, if Telles engages the Company to perform certainservices, and the Company accepts the service arrangement, Telles willreimburse the Company for the cost of the services provided pursuant to theCommercial Alliance Agreement.

 

WhileTelles is a fifty-fifty joint venture, ADM will be advancing a disproportionateshare of the financial capital needed to construct the Commercial ManufacturingFacility and to fund its activities. Therefore, a preferential distribution ofcash flow will be used, whereby all profits (after payment of all royalties,reimbursements and fees) from Telles will be distributed to ADM until ADM’sdisproportionate investment in the alliance has been returned in full. Once ADMhas recovered such amounts, the profits of Telles will be distributed in equalamounts to the parties.

 

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TheCommercial Alliance Agreement provides for expansion of the operations ofTelles beyond the initial license of 110 million pounds annual productionthrough an equally-owned joint venture. While certain principles of the jointventure have been agreed to, the detailed terms and conditions will not bedetermined until a later date.

 

Revenuerecognition for amounts deferred through June 30, 2009 is expected tocommence when the Commercial Phase of the alliance begins. The deferred amountswill be recognized on a straight line basis over the estimated period, ofapproximately ten years, in which the Company’s obligations are fulfilled inaccordance with the Commercial Alliance Agreement. The Company also expects toreceive payments from Telles for the compounding services it provides as wellas royalty payments. The compounding payments and royalty payments will be dueto the Company as Telles sells product to its customers. These payments will berecognized as revenue during the period in which they are earned.

 

The Commercial Alliance Agreement and relatedagreements include detailed provisions setting out the rights and obligationsof the parties in the event of a termination of the Commercial AllianceAgreement. These provisions include the right for either party to terminate theCommercial Alliance Agreement upon a material default of a material obligationby the other party after a notice and cure period has expired. The parties arealso permitted to terminate the Commercial Alliance Agreement if a change incircumstances that is not reasonably within the control of a party makes theanticipated financial return from the project inadequate or too uncertain. Theparties have specific obligations to fulfill in the event of termination or ifthey file for bankruptcy protection.

 

**8.INCOME TAXES**

 

TheCompany adopted FASB Interpretation No. 48 *Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109,*or FIN 48, on January 1, 2007 with noeffect on financial position. In addition, the Company has no amounts recordedfor any unrecognized tax benefits as of June 30, 2009 or June 30,2008.

 

Thetax years 2005 through 2008 remain open to examination by federal and statetaxing jurisdictions to which the Company is subject, which are primarily inthe U.S.

 

TheCompany’s policy is to record estimated interest and penalties related touncertain tax positions in income tax expense. As of June 30, 2009, and December 31,2008, respectively, the Company had no accrued interest or penalties recordedrelated to uncertain tax positions.

 

At December 31,2008 the Company had net operating loss carryforwards (NOLs) for federal andstate income tax purposes of $62,855 and $47,603, respectively.  Included in the federal and state netoperating loss carryforwards is approximately $16,500 of deduction related tothe exercise of stock options subsequent to the adoption of FAS 123(R). Thisamount represents an excess tax benefit as defined under FAS 123(R) andhas not been included as part of the gross deferred tax asset. The Company’sfederal and state net operating loss carryforwards began to expire in 2009. TheCompany also had available research and development credits for federal andstate income tax purposes of $2,743 and $2,217 respectively. The federal andstate research and development credits will begin to expire in 2012 and 2015,respectively. As of December 31, 2008 the Company also had availableinvestment tax credits for state income tax purposes of $92 which began toexpire in 2009. Management of the Company has evaluated the positive andnegative evidence bearing upon the realizability of its deferred tax assets,which are comprised principally of net operating loss carryforwards andresearch and development credits. Under the applicable accounting standards,management has considered the Company’s history of losses and concluded that itis more likely than not that the Company will not recognize the benefits offederal and state deferred tax assets. Accordingly, a full valuation allowancehas been established against the deferred tax assets.

 

Utilizationof NOLs and Research & Development, or R&D, credit carryforwardsmay be subject to a substantial annual limitation due to ownership changelimitations that have occurred previously or that could occur in the future asprovided by Section 382 and 383 of the Internal Revenue Code of 1986, aswell 

 

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as similar stateprovisions. These ownership changes may limit the amount of NOL and R&Dcredit carryforwards that can be utilized annually to offset future taxableincome and tax, respectively. In general, an ownership change, as defined by Section 382,results from transactions increasing the ownership of certain shareholders orpublic groups in the stock of a corporation by more than 50 percentagepoints over a three year period. Since the Company’s formation, the Company hasraised capital through the issuance of capital stock which, combined with thepurchasing shareholders’ subsequent disposition of those shares, may haveresulted in a change of control, as defined by Section 382, or couldresult in a change of control in the future upon subsequent disposition. TheCompany is conducting a study to assess whether there have been multiplechanges of control since the Company’s formation. If the Company hasexperienced a change in control at any time since the Company’s formation,utilization of the Company’s NOL or R&D credit carryforwards would besubject to an annual limitation under Section 382 and 383. Any limitationmay result in expiration of a portion of the NOL or R&D creditcarryforwards before utilization. Until a study is completed and any limitationknown, no amounts are being presented as uncertain tax positions underFIN 48.

 

**9.ACCRUED LIABILITIES**

 

Accruedliabilities consisted of the following at:

 
| ** **                           | ** ** | **June 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|--------------------------------------|------------|------------------------|------------|----------------------------|------------|
| Employee compensation  and benefits  |       | $                      | 1,604      |                       | $          | 1,618 |   |
| Pre-commercial  manufacturing costs  |       | 294                    |       | 350                        |       |
| Professional services                |       | 283                    |       | 206                        |       |
| Contracted research and  development |       | 248                    |       | 317                        |       |
| Other                                |       | 1,326                  |       | 1,096                      |       |
| Total accrued expenses               |       | $                      | 3,755      |                       | $          | 3,587 |   |

 

**10.SEGMENT INFORMATION**

 

TheCompany operates in one segment. There have been no changes in the segmentinformation since the fiscal year ended December 31, 2008, as described inNote 2 to the financial statements included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

**11.COMMITMENTS AND CONTINGENCIES**

 

**LegalProceedings**

 

Fromtime to time, the Company may be subject to legal proceedings and claims in theordinary course of business. The Company is not currently aware of any suchproceedings or claims that it believes will have, individually or in theaggregate, a material adverse effect on the business, financial condition orresults of operations.

 

**LicenseAgreement with Massachusetts Institute of Technology (“MIT”)**

 

TheCompany’s exclusive license agreement with MIT requires the Company to payannual license fees of $25 and additional potential royalty payments to MITbased on a percentage of sublicensing revenue or net sales of products orservices covered by patents that are subject to the license. As of June 30,2009, and December 31, 2008, the Company had accrued $4 and $2,respectively, for license fees and royalties attributable to this agreement.

 

**JointResearch Agreement with The Cooperative Research Centre for Sugar IndustryInnovation through Biotechnology**

 

TheCompany entered a joint research arrangement, known as the Cooperative ResearchCentre for Sugar Industry Innovation through Biotechnology, with theCommonwealth of Australia and various other 

 

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parties for the purposeof developing and gaining access to certain intellectual property. TheCommonwealth of Australia established the program to enhance the transfer ofresearch outputs into commercial or other outcomes of economic, environmentalor social benefit to Australia. The terms of the contract stipulate that thecontract commenced on January 1, 2007, and the Company’s fundingobligation continues until July 1, 2010. In connection with this agreementthe Company was obligated at the beginning of the contract to provide fundingin the form of cash in the amount of $805 Australian dollars and in kindcontribution in the amount of $2,287 Australian dollars. As of June 30,2009 the remaining cash portion of the Company’s obligation, denominated inU.S. dollars, is $185 and the total remaining amount of in kind contributionthe Company is committed to is $546, denominated in U.S. dollars. The in kindcontribution consists of salaries and overhead attributable to researchassociated with the joint research agreement. The cash and in kindcontributions are recorded as research and development expense as incurred, inthe consolidated statement of operations.

 

**12. FAIRVALUE MEASUREMENTS**

 

Inaccordance with Statement of Financial Accounting Standards No. 157, *Fair Value Measurements*, or SFAS 157, theCompany’s assets and liabilities are measured at fair value on a recurringbasis as of June 30, 2009 and December 31, 2008. Fair valuesdetermined by Level 1 inputs utilize observable data such as quoted prices inactive markets. Fair values determined by Level 2 inputs utilize data pointsother than quoted prices in active markets that are observable either directlyor indirectly. Fair values determined by Level 3 inputs utilize unobservabledata points in which there is little or no market data, which require thereporting entity to develop its own assumptions.

 

Thefollowing table represents the Company’s assets and liabilities measured atfair value on a recurring basis at June 30, 2009.

 
| ** **                        | ** ** | **Fair value measurements at reporting date using** | ** ** | ** **            | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **Quoted prices in  active markets for**            | ** ** | **Significant other** | ** ** | **Significant unobservable** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **identical assets**                                | ** ** | **observable inputs** | ** ** | **inputs** | ** ** | **Balance as of** | ** ** |
| **Description**                   | ** ** | **(Level 1)**                                       | ** ** | **(Level 2)**         | ** ** | **(Level 3)** | ** ** | **6/30/09** | ** ** |
| Cash equivalents:                 |       |                                                |       |                  |       |   |   |   |   |
| Money Market funds                |       | $                                                   | —     |                  | $          | 6,125 |   | $ | — |   | $ | 6,125 |   |
| Short-term investments:           |       |                                                |       |                  |       |   |   |   |   |
| Treasuries                        |       | —                                              |       | 767                   |       | — |   | 767 |   |
| Commercial paper                  |       | —                                              |       | 6,498                 |       | — |   | 6,498 |   |
| Government-sponsored  enterprises |       | —                                              |       | 61,027                |       | — |   | 61,027 |   |
|                              |       | $                                                   | —     |                  | $          | 74,417 |   | $ | — |   | $ | 74,417 |   |

 

The followingtable represents the Company’s assets and liabilities measured at fair value ona recurring basis at December 31, 2008.

 
| ** **                        | ** ** | **Fair value measurements at reporting date using** | ** ** | ** **            | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **Quoted prices in active markets for identical**   | ** ** | **Significant other** | ** ** | **Significant  unobservable** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **assets**                                          | ** ** | **observable inputs** | ** ** | **inputs** | ** ** | **Balance as of** | ** ** |
| **Description**                   | ** ** | **(Level 1)**                                       | ** ** | **(Level 2)**         | ** ** | **(Level 3)** | ** ** | **12/31/08** | ** ** |
| Cash equivalents:                 |       |                                                |       |                  |       |   |   |   |   |
| Money Market funds                |       | $                                                   | —     |                  | $          | 23,152 |   | $ | — |   | $ | 23,152 |   |
| Commercial paper                  |       | —                                              |       | 1,100                 |       | — |   | 1,100 |   |
| Short-term investments:           |       |                                                |       |                  |       |   |   |   |   |
| Treasuries                        |       | —                                              |       | 4,000                 |       | — |   | 4,000 |   |
| Commercial paper                  |       | —                                              |       | 23,497                |       | — |   | 23,497 |   |
| Government-sponsored  enterprises |       | —                                              |       | 37,405                |       | — |   | 37,405 |   |
|                              |       | $                                                   | —     |                  | $          | 89,154 |   | $ | — |   | $ | 89,154 |   |

 

Short-terminvestments were valued at June 30, 2009 using information provided by apricing service based on market observable information, or for investments inmoney market funds, at calculated net asset values, and are thereforeclassified as Level 2. Because the Company’s investment portfolio may includesecurities that do not always trade on a daily basis, the pricing serviceapplies other available 

 

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information as applicablethrough processes such as benchmark yields, benchmarking of like securities,sector groupings and matrix pricing to prepare evaluations. The Company validatesthe prices provided by a third party pricing services by reviewing theirpricing methods and obtaining market values from other pricing sources. Thefair values of the Company’s cash equivalents and short-term investments aredetermined through market and observable sources and have been classified asLevel 2. After completing the validation procedures, the Company did not adjustor override any fair value measurements provided by its pricing services as of June 30,2009 and December 31, 2008.

 

In January 2009, the Company implementedSFAS 157 for its nonfinancial assets and liabilities that are remeasuredat fair value on a non-recurring basis. The adoption of SFAS 157 for itsnonfinancial assets and liabilities that are remeasured at fair value on a non-recurringbasis did not have a significant impact on the Company’s financial statements.

 

**13.CHANGE IN ACCOUNTING ESTIMATE**

 

In thefirst quarter of 2009, due to an extended construction period and revisedestimated completion date of the Commercial Manufacturing Facility, the Companydetermined it would extend the period of use of its pre-commercialmanufacturing plant by six months to December 2009 from June 2009. Inconnection with this, the useful lives of the leasehold improvements connectedto the pre-commercial manufacturing plant were increased by six months. Thischange in accounting estimate was adopted prospectively from January 1,2009. The effect of the change in accounting estimate on the financialstatements for the three and six months ended June 30, 2009 is a decreasein loss from operations and net loss of $354 and $708, respectively. Loss pershare decreased by $0.02 and $0.03 for the three and six months ended June 30,2009.

 

**14.RELATED PARTIES**

 

TheCompany recorded $41 and $66 of license and royalty revenue from Tepha, Inc.,a related party, during the three and six months ended June 30, 2009.During the three and six months ended June 30, 2008 the Company recordedlicense and royalty revenue from Tepha, Inc. of $35 and $70, respectively.The Company had an outstanding receivable balance due from Tepha of $34 as of June 30,2009. As of December 31, 2008 there was no outstanding receivable balancedue from Tepha. The Company also had various transactions with its alliancepartner ADM, a related party, during the three and six months ended June 30,2009 and 2008. The Company had an outstanding receivable balance of $718 duefrom ADM at June 30, 2009. As of December 31, 2008 there was nosignificant outstanding receivable balance due from ADM.  For moreinformation on the Company’s related party transactions, please see Note 8 toour audited financial statements included in our Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

**15.SHAREHOLDER RIGHTS PLAN**

 

The Company has adopted aShareholder Rights Plan, the purpose of which is, among other things, toenhance the Board’s ability to protect shareholder interests and to ensure thatshareholders receive fair treatment in the event any coercive takeover attemptof the Company is made in the future. The Shareholder Rights Plan could make it more difficult for a thirdparty to acquire, or could discourage a third party from acquiring, the Companyor a large block of the Company’s Common Stock. The following summary description of the Shareholder Rights Plan doesnot purport to be complete and is qualified in its entirety by reference to theCompany’s Shareholder Rights Plan, which has been previously filed with theSecurities and Exchange Commission as an exhibit to a Registration Statement onForm 8-A.

 

In connection with theadoption of the Shareholder Rights Plan, the Board of Directors of the Companydeclared a dividend distribution of one preferred stock purchase right (a “Right”)for each outstanding share of Common Stock to shareholders of record as of theclose of business on July 8, 2009. The Rights currently are not exercisable and are attached to and tradewith the outstanding shares of Common Stock. Under the Shareholder Rights Plan, the Rights become exercisable if a personbecomes an “acquiring person” by acquiring 15% or more of the outstandingshares of Common Stock or if a person commences a tender offer that wouldresult in that person owning 15% or more of the Common Stock.  If a 

 

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person becomes an “acquiringperson,” each holder of a Right (other than the acquiring person) would beentitled to purchase, at the then-current exercise price, such number of sharesof the Company’s preferred stock which are equivalent to shares of Common Stockhaving twice the exercise price of the Right. If the Company is acquired in a merger or other business combinationtransaction after any such event, each holder of a Right would then be entitledto purchase, at the then-current exercise price, shares of the acquiringcompany’s common stock having a value of twice the exercise price of the Right.

 

**ITEM 2.****                        ****MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

*(Alldollar amounts are stated in thousands)*

 

**ForwardLooking Statements**

 

Thisquarterly report on Form 10-Q contains “forward-looking statements” withinthe meaning of 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. In particular, statementscontained in the Form 10-Q, including but not limited to, statementsregarding our future results of operations and financial position, businessstrategy and plan prospects, projected revenue or costs and objectives ofmanagement for future research, development or operations, are forward-lookingstatements. These statements relate to our future plans, objectives,expectations and intentions and may be identified by words such as “may,” “will,”“should,” “expects,” “plans,” “anticipate,” “intends,” “target,” “projects,” “contemplates,”“believe,” “estimates,” “predicts,” “potential,” and “continue,” or similarwords.

 

Althoughwe believe that our expectations are based on reasonable assumptions within thelimits of our knowledge of our business and operations, the forward-lookingstatements contained in this document are neither promises nor guarantees. Ourbusiness is subject to significant risk and uncertainties and there can be noassurance that our actual results will not differ materially from ourexpectations. These forward looking statements include, but are not limited to,statements concerning: future financial performance and position, management’sstrategy, plans and objectives for future operations, plans and objectives forproduct development and commercialization, plans and objectives for present andfuture research and development and results of such research and development,plans and objectives for manufacturing, the commercialization ofenvironmentally sustainable, economically attractive alternatives topetroleum-based plastics, chemicals and energy, the commercialization of MirelTMbiobased plastic (“Mirel”) through our alliance with Archer Daniels MidlandCompany (“ADM”), sales of Mirel as an alternative to petroleum-based plastics,the construction of the Commercial Manufacturing Facility, the production ofMirel at the Commercial Manufacturing Facility, the commercial success ofMirel, the feasibility of extractin*g*bioplastics from plant crops, the commercial viability of plant-producedplastics, recognition of revenue, and management’s plans and expectations forrevenue, expenses and capital and working capital requirements. Such forward-lookingstatements are subject to a number of risks and uncertainties that could causeactual results to differ materially from those anticipated including, withoutlimitation, the following risks: (1) we may not be successful atmanufacturing Mirel on a commercial scale in a timely and economical manner, (2) wemay not be successful in the development of commercial formulations of Mirel, (3) wemay not be successful in the development of plant crops for production ofplastics, (4) if there are additional delays or cost increases in ADM’sconstruction and start-up of the Commercial Manufacturing Facility, our financialresults will be negatively affected, (5) we may not be able to developmanufacturing capacity sufficient to meet demand in an economical manner or atall, (6) we may not achieve market acceptance of our products, (7) wehave limited marketing and sales experience and capabilities, (8) we relyheavily on ADM and will rely heavily on future collaborative partners, (9) oursuccess will be influenced by the price of petroleum relative to corn sugar (10) ourfuture profitability is uncertain, and we have a limited operating history onwhich you can base your evaluation of our business, (11) we may need tosecure additional funding and may be unable to raise additional capital onfavorable terms or at all, (12) we may lose key personnel or are unable toattract and retain necessary talent, we may be unable to develop orcommercialize our products, (13) we may not be able to obtain rights to intellectualproperty developed by others using our information and technology,(14) intellectual property protection for our products is important anduncertain, (15) a substantial portion of the technology used in ourbusiness is owned by or subject to retained rights of third parties,(16) third parties may claim we infringe 

 

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their intellectualproperty, (17) we may be unable to manage our growth effectively,(18) we may not be successful in identifying market needs for newtechnologies and developing new products to meet those needs, (19) ourproducts may be, or may be perceived as being, harmful to human health or the environment,(20) we face and will face substantial competition in several differentmarkets, (21) we are subject to significant foreign and domesticgovernment regulations, including environmental and health and safetyregulations, and compliance or failure to comply with these regulations couldharm our business, (22) we may not have adequate insurance and may havesubstantial exposure to payment of product liability claims,(23) potential future acquisitions could be difficult to integrate, divertthe attention of key personnel, disrupt our business, dilute stockholder valueand impair our financial results, and (24) each segment of our operationsis currently conducted at a single location which makes us susceptible todisruptions.

 

Theforward-looking statements and risks factors presented in this document aremade only as of the date hereof and we do not intend to update any of theserisk factors or to publicly announce the results of any revisions to any of ourforward-looking statements other than as required under the federal securitieslaws.

 

**Overview**

 

We area bioscience company that develops and is in the process of commercializingenvironmentally sustainable, economically attractive alternatives topetroleum-based plastics, with work underway to do the same with chemicals andenergy. Our corporate strategy is to develop technology platforms thatintegrate advanced biotechnology with current industrial practice and tocommercialize these platforms with industry leading strategic partners.

 

Ourfirst platform, which we are commercializing through Telles, a joint venturewith Archer Daniels Midland Company, or ADM, is a proprietary, large-scalemicrobial fermentation system for producing a versatile family of polymersknown as polyhydroxyalkanoates, which we have branded under the name MirelTM.Through Telles, we intend to sell these bioplastics as environmentallyfriendly, but functionally equivalent, alternatives to petroleum-basedplastics. In addition, this family of polymers offers superior biodegradabilitycharacteristics and can be used in a wide range of commercial applications,including products used in agriculture and horticulture, compost and organicwaste diversion bags, marine and aquatic applications, consumer products,business equipment and durable goods, and general packaging materials. Mirelwill be produced in a commercial scale plant designed for a 110 millionpound annual capacity, or the Commercial Manufacturing Facility, which ispresently under construction by ADM in Clinton, Iowa. The plant is expected tobegin production by the end of 2009. The Commercial Manufacturing Facility willproduce biobased and biodegradable Mirel plastic using corn sugar, an abundantagriculturally-produced renewable resource. We are currently producing pre-commercialquantities of Mirel jointly with ADM at a small scale pre-commercialmanufacturing facility.

 

Oursecond technology platform, which is in an early stage, is a biomassbiorefinery system using plant crops to co-produce both bioplastics and bioenergy.For this system, we intend to extract polymer from the engineered plant crop,so that the remaining plant material can be used as a biomass feedstock for theproduction of bioenergy products including electricity and biofuel. We areengineering switchgrass to produce bioplastics in the leaf and stem of theplant. We have also collaborated with the Australian Cooperative ResearchCentre to do the same in sugarcane, and in 2008 we established a strategicresearch collaboration with the Donald Danforth Plant Science Center to developan advanced industrial oilseed crop for co-production of bioplastics along withvegetable oil, biodiesel fuel, or oleochemicals. Switchgrass is a commerciallyand ecologically attractive, non-food energy crop that is indigenous to NorthAmerica and is generally considered to be a leading candidate forcellulose-derived production of ethanol and other biofuels. Sugarcane is anestablished energy crop that is well suited for tropical regions of the world.We believe that using these crops to co-produce bioplastics with bioenergyproducts can offer superior economic value and productivity as compared tosingle product systems that produce them individually. We have been working onour biomass biorefinery platform using switchgrass for several years, and webelieve that we are a scientific leader in this field. Our goal for thisprogram is to have commercially viable

 

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plant varieties inpre-commercial field trials in two to three years. We may also seek toestablish alliances with partners to commercially exploit this platform.

 

Asdemonstrated by our first two technology platforms, we take an integratedsystems approach to our technology development. We are focused on developingentire production systems from gene to end product as opposed to developingspecific technologies (for example, gene sequencing, shuffling or directedevolution) or singular aspects of a product’s production (for example,providing a key enzyme, catalyst or ingredient). We believe this systemsapproach optimizes manufacturing productivity and, when commercialized, willenable us to capture more economic value from any platform that we pursue. Wehave core capabilities in microbial genetics, fermentation process engineering,chemical engineering, polymer science, plant genetics and botanical science,and we have assembled these capabilities in a way that has allowed us tointegrate biotechnology with chemical engineering and industrial practice. Webelieve that our approach can be applied to chemicals and other products tohelp establish and grow environmentally sustainable plastics, chemicals andenergy industries.

 

Forour third platform we intend to apply our core capabilities in microbialengineering and plant transformation to develop biological routes to otherchemicals and chemical intermediates. In September 2007, the U.S.Department of Commerce’s National Institute of Standards and Technologyapproved a $2 million award for us to develop a commercially viableprocess for producing biobased chemicals from renewable agricultural products.This award will contribute to our integrated bio-engineered chemicals program,which is developing sustainable solutions for widely used industrial chemicals.Specifically, this award is being utilized in the development of thefour-carbon (“C4”) family of chemical products.

 

Toexploit our first technology platform, we are working with ADM as they buildthe Commercial Manufacturing Facility in Clinton, Iowa. The biodegradablebioplastics that this facility will produce are highly versatile and range inproperties from hard and strong to soft and flexible. These properties allow fora wide variety of commercial applications, offering a biobased alternative topetroleum-derived synthetic materials which are not biodegradable. ThroughTelles we intend to position Mirel as a premium priced specialty materialcatering to customers who want to match the functionality of petroleum-basedplastic, but add the dimension of environmental responsibility to theirproducts and brands.

 

As of June 30,2009, we had an accumulated deficit of $148,898 and total stockholders’ equitywas $42,507.

 

**CollaborativeArrangements**

 

Ourstrategy for collaborative arrangements is to retain substantial participationin the future economic value of our technology while receiving current cashpayments to offset research and development costs and working capital needs. Bytheir nature, these agreements are complex and have multiple elements thatcover a variety of present and future activities.

 

Weentered into our alliance with ADM in 2004. As of June 30, 2009, allpayments received from ADM have been recorded as deferred revenue on ourbalance sheet. We expect that future payments from ADM, through at least theConstruction Phase of the Commercial Alliance Agreement, will be classified asdeferred revenue as well. We expect to begin recognizing this deferred revenueat the time of the First Commercial Sale of Mirel (as defined in the CommercialAlliance Agreement). All amounts will be recognized on a straight-line basisover the estimated period, of approximately ten years, in which our obligationsare fulfilled in accordance with the terms of the Commercial AllianceAgreement.

 

Wereceived the following payments from these arrangements to offset operatingcash needs:

 

·                  upfront payment of $3,000 from ADM in November 2004;

 

·                  milestone payments of $2,000 from ADM in May 2006;

 

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·                support payments of $22,050 from ADM, on behalfof Telles, through June 30, 2009

 

·                cumulative cost sharing payments from ADM forpre-commercial manufacturing plant construction and operations made inaccordance with the Technology Alliance and Option Agreement of $1,209; and

 

·                cumulative cost sharing payments from ADM forpre-commercial manufacturing plant construction and operations made inaccordance with the Commercial Alliance Agreement of $7,675.

 

Duringthe commercial alliance, ADM will construct, finance, own and operate theCommercial Manufacturing Facility through a manufacturing agreement withTelles, and we will provide or procure compounding services to convert theoutput from the Commercial Manufacturing Facility into forms that are suitablefor various commercial applications.

 

Weexpect to incur increased research and development expenses through theConstruction Phase of the ADM agreement for pre-commercial manufacturing andproduct development activities as we continue to develop, test, and refineproduct to meet the specification requirements of our customers. Uponcommencement of the Commercial Phase of the ADM agreement, expenses relating toproduct development are expected to decrease as these expenses will betransferred to Telles. During the transition period between the initialstart-up of the commercial manufacturing facility and the commencement of theCommercial Phase (as defined in the agreement), we will continue to bear theseexpenses.

 

Tellesis a limited liability company, formed and equally owned by us and ADM, and isintended to: (i) serve as the commercial entity to establish and developthe commercial market for Mirel, and conduct the marketing and sales inaccordance with the goals of the commercial alliance, (ii) assist in thecoordination and integration of the manufacturing, compounding and marketingactivities, and (iii) administer and account for financial matters onbehalf of the parties. We and ADM each have 50% ownership and voting interestin Telles.

 

Eventhough Telles is a separate legal entity owned equally by us and ADM, ADM willdisproportionately fund the activities of the joint venture. Specifically, thecost of the Commercial Manufacturing Facility, the working capital requirementsof the joint venture and the support payments to us will exceed the investmentsmade by us to establish compounding operations for the joint venture. In orderto rebalance the respective investments made by the parties, a preferentialdistribution of cash flow will be used, whereby all profits, after payment ofall royalties, reimbursements and fees, from the joint venture, will bedistributed to ADM until ADM’s disproportionate investment in the jointventure, and the costs of constructing the Commercial Manufacturing Facility,have been returned to ADM. Once ADM has recouped such amounts, the profits ofthe joint venture will be distributed in equal amounts to the parties. In orderto track the disproportionate investments ADM has made, a Ledger Account hasbeen established to record the respective investments made by the parties. Asof June 30, 2009, the balance of the ADM Ledger Account was $327,010 andthis balance is expected to increase as the construction of the CommercialManufacturing Facility progresses and Telles becomes operational.

 

**UnitedStates Government Contracts and Grants**

 

As of June 30,2009, expected gross proceeds of $837 remain to be received under ourgovernment contracts and grants, which include amounts for reimbursement to oursubcontractors, as well as reimbursement for our employees’ time, benefits andother expenses related to future performance under the various contracts.

 

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Thestatus of our United States government contracts and grants is as follows:

 
| ** **                           | ** ** | ** **             | ** ** | **Total**      | ** ** | **Total received**     | ** ** | **Remaining amount**   | ** ** | ** **         | ** ** |
|--------------------------------------|------------|------------------------|------------|----------------|------------|------------------------|------------|------------------------|------------|--------------------|------------|
| ** **                           | ** ** | **Funding**            | ** ** | **Government** | ** ** | **through**            | ** ** | **available as of**    | ** ** | **Contract/Grant** | ** ** |
| **Program Title**                    | ** ** | **Agency**             | ** ** | **Funds**      | ** ** | **June 30, 2009** | ** ** | **June 30, 2009** | ** ** | **Expiration**     | ** ** |
|                                 |       |                   |       |           |       |                   |       |                   |       |               |       |
| Integrated Bio-Engineered  Chemicals |       | Department of Commerce |       | $              | 2,000      |                   | $          | 1,163                  |       | $                  | 837        |   | October 2009 |   |
| Total                                |       |                   |       | $              | 2,000      |                   | $          | 1,163                  |       | $                  | 837        |   |   |   |

 

**Critical Accounting Estimates and Judgments**

 

Thediscussion and analysis of our financial condition and results of operationsare based upon our consolidated financial statements, which have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America (“GAAP”) for interim financial information. The preparationof these financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities. On an ongoing basis,we evaluate our estimates, including those related to revenue recognition andstock-based compensation. We base our estimates on historical experience and onvarious other assumptions that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying value of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates. The significantaccounting policies used in preparation of these condensed consolidatedfinancial statements for the three and six months ended June 30, 2009 areconsistent with those discussed in Note 2 to the consolidated financialstatements in our Annual Report on Form 10-K for the year ended December 31,2008. The critical accounting policies and the significant judgments andestimates used in the preparation of our consolidated financial statements forthe three and six months ended June 30, 2009 are consistent with thosediscussed in our Annual Report on Form 10-K for the year ended December 31,2008 in the section captioned “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Critical Accounting Estimates andJudgments.”

 

In thefirst quarter of 2009, due to an extended construction period and revisedestimated completion date of the Commercial Manufacturing Facility, wedetermined we would extend the period of use of our pre-commercialmanufacturing plant by six months from June 2009 to December 2009. Inconnection with this, the useful lives of the leasehold improvements connectedto the pre-commercial manufacturing plant were increased by six months. Thischange in accounting estimate was adopted prospectively from January 1,2009. The effect of the change in accounting estimate on the financialstatements for the three and six months ended June 30, 2009 is a decreasein loss from operations and net loss of $ 354 and $708, respectively. Loss pershare decreased by $0.02 and $0.03 for the three and six months ended June 30,2009.

 

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**Resultsof Operations**

 

**Comparisonof the Three Months Ended June 30, 2009 and 2008**

 

**Revenue**

 
| ** **                                            | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|------------|------------|
| ** **                                            | ** ** | **June 30,**      | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change** | ** ** |
| Research and  development revenue                     |       | $                      | 24         |       | $          | 11 |   | $ | 13 |   |
| License fee and royalty  revenue from related parties |       | 41                     |       | 35         |       | 6 |   |
| Grant revenue                                         |       | 283                    |       | 355        |       | (72 | ) |
| Total revenue                                         |       | $                      | 348        |       | $          | 401 |   | $ | (53 | ) |

 

Totalrevenue was $348 and $401 for the three months ended June 30, 2009 and2008, respectively. During the three months ended June 30, 2009 werecognized $24 of research and development revenue compared to $11 for therespective period in 2008. Research and development revenue is derived fromresearch and development services and delivery of sample product produced fromresearch and development services. Grant revenue decreased during the threemonths ended June 30, 2009 to $283 from $355 during the three months endedJune 30, 2008, primarily as a result of the completion of the StrategicEnvironmental Research Development Program grant that ended in February 2009.

 

**Expenses**

 
| ** **                                                    | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|------------|------------|
| ** **                                                    | ** ** | **June 30,**      | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change** | ** ** |
| Research and  development expenses, including cost of revenue |       | $                      | 6,323      |       | $          | 6,008 |   | $ | 315 |   |
| Selling, general, and  administrative expenses                |       | 3,938                  |       | 4,048      |       | (110 | ) |
| Total operating expense                                       |       | $                      | 10,261     |       | $          | 10,056 |   | $ | 205 |   |

 

***Research and development expenses,including cost of revenue***

 

Research and developmentexpenses were $6,323 and $6,008 for the three months ended June 30, 2009and 2008, respectively. The increase of $315 was primarily due to the additionof new employees and related benefit expenses partially offset by a reductionin pre-commercial manufacturing costs. Employee and benefit related costs were$2,911 for the three months ended June 30, 2009 compared to $2,215 for therespective period in 2008. The increase of $696 in payroll and benefits wasprimarily the result of hiring personnel needed to support our pre-commercialmanufacturing process and microbial and plant research programs. Pre-commercialmanufacturing expenses decreased to $1,103 compared to $1,701 for the threemonths ended June 30, 2009 and 2008, respectively. The decrease of $601was primarily due to improvements in our production process made during thelast year as we continue to focus our attention on reducing production costs,moving certain manufacturing processes in house and improving the quality ofour pre-commercial manufacturing material.

 

Weexpect to incur increased research and development expenses through theConstruction Phase of the ADM agreement for pre-commercial manufacturing andproduct development activities as we continue to develop, test, and refineproduct to meet the specification requirements of our customers. Uponcommencement of the Commercial Phase of the ADM agreement, expenses relating toproduct development are expected to decrease as these expenses will betransferred to Telles. During the transition period between the initialstart-up of the commercial manufacturing facility and the commencement of theCommercial Phase (as defined in the agreement), we will continue to bear theseexpenses.

 

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***Selling, general, and administrative expenses***

 

Selling,general, and administrative expenses were $3,938 and $4,048 for the threemonths ended June 30, 2009 and 2008, respectively. The decrease of $110was primarily due to travel related expenses. Travel related expenses decreasedto $119 from $205 for the three months ended June 30, 2009 compared to therespective period in 2008.

 

Weexpect that selling, general, and administrative expenses will increase throughthe Construction Phase of the ADM agreement due to increasing payroll andexpanding infrastructure to support sales and marketing efforts relating to thecommercialization of Mirel. Upon the commencement of the Commercial Phase ofthe agreement, selling, general, and administrative expenses are expected todecrease as the cost of sales and marketing efforts will be transferred toTelles. During the transition period between the initial start-up of thecommercial manufacturing facility and the commencement of the Commercial Phase(as defined in the agreement), we will continue to bear these expenses.

 

**OtherIncome (Net)**

 
| ** **                | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** |
|---------------------------|------------|------------------------|------------|------------|------------|
| ** **                | ** ** | **June 30,**      | ** ** | ** ** | ** ** |
| ** **                | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change** | ** ** |
| Total other income  (net) |       | $                      | 241        |       | $          | 730 |   | $ | (489 | ) |
|                           |            |                        |            |            |            |  |  |  |  |  |

 

Otherincome (net) was $241 and $730 for the three months ended June 30, 2009and 2008, respectively. Other income (net) during both periods consisted ofinvestment income. The decrease of $489 was primarily due to a market decline in investment yields during theperiod, our decision to convert a majority of our investment portfolio to lowerrisk/lower yield U.S. Federal Treasury Notes and government -backed FederalAgency Notes and a decrease in average cash and short-term investments heldduring the comparative three month periods.

 

**Resultsof Operations**

 

**Comparisonof the Six Months Ended June 30, 2009 and 2008**

 

**Revenue**

 
| ** **                                            | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                            | ** ** | **June 30,**    | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change** | ** ** |
| Research and  development revenue                     |       | $                    | 30         |       | $          | 79 |   | (49 | ) |
| License fee and royalty  revenue from related parties |       | 66                   |       | 70         |       | (4 | ) |
| Grant revenue                                         |       | 513                  |       | 656        |       | (143 | ) |
| Total revenue                                         |       | $                    | 609        |       | $          | 805 |   | (196 | ) |

 

Totalrevenue was $609 and $805 for the six months ended June 30, 2009 and 2008,respectively. During the six months ended June 30, 2009 we recognized $30of research and development revenue compared to $79 for the respective periodin 2008. Research and development revenue is derived from research anddevelopment services and delivery of sample product produced from research anddevelopment services. Grant revenue decreased during the six months ended June 30,2009 to $513 from $656 during the six months ended June 30, 2008,primarily as a result of the completion of the Strategic Environmental ResearchDevelopment Program grant that ended in February 2009.

 

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**Expenses**

 
| ** **                                                    | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                                    | ** ** | **June 30,**    | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change** | ** ** |
| Research and  development expenses, including cost of revenue |       | $                    | 12,331     |       | $          | 11,942 |   | $ | 389 |   |
| Selling,general, and  administrative expenses                 |       | 7,652                |       | 8,145      |       | (493 | ) |
| Total operating expense                                       |       | $                    | 19,983     |       | $          | 20,087 |   | $ | (104 | ) |

 

***Research and development expenses,including cost of revenue***

 

Research and developmentexpenses were $12,331 and $11,942 for the six months ended June 30, 2009and 2008, respectively. The increase of $389 was primarily due to the additionof new employees and related benefit expenses and expenses related to theexpansion of our research departments offset by a reduction in pre-commercialmanufacturing costs. Employee and benefit related costs were $5,790 for the sixmonths ended June 30, 2009 compared to $4,390 for the respective period in2008. The increase of $1,400 in payroll and benefits was primarily the resultof hiring personnel needed to support our pre-commercial manufacturing processand microbial and plant research programs. Expenses relating to the expansionof our research and development departments included increases in research anddevelopment supplies and an increase in facility related expenses. Expensesrelating to research and development supplies increased to $477 for the sixmonths ended June 30, 2009 compared to $310 for the comparative period in2008. Facility related expenses increased to $1,221 for the six months ended June 30,2009 compared to $1,024 for the comparative period in 2008. Pre-commercialmanufacturing expenses offset most of these expense increases as a result ofdecreasing $1,494 in comparison to the six months ended June 30, 2008,primarily due to improvements in our production process made during the lastyear as we continue to focus our attention on reducing production costs, movingcertain manufacturing processes in house and improving the quality of ourpre-commercial manufacturing material.

 

Weexpect to incur increased research and development expenses through theConstruction Phase of the ADM agreement for pre-commercial manufacturing andproduct development activities as we continue to develop, test, and refineproduct to meet the specification requirements of our customers. Uponcommencement of the Commercial Phase of the ADM agreement, expenses relating toproduct development are expected to decrease as these expenses will betransferred to Telles. During the transition period between the initialstart-up of the commercial manufacturing facility and the commencement of theCommercial Phase (as defined in the agreement), we will continue to bear theseexpenses.

 

***Selling, general, and administrative expenses***

 

Selling,general, and administrative expenses were $7,652 and $8,145 for the six monthsended June 30, 2009 and 2008, respectively. The decrease of $493 wasprimarily due to a decrease in stock-based compensation expense and a decreasein recruiting expense. Stock-based compensation expense decreased to $1,468 forthe six months ended June 30, 2009 from $1,707 for the comparable periodin 2008. Stock-based compensation decreased mainly as a result of thecompletion, in May 2008, of the vesting period for options granted to ourboard of directors and an officer of the company. Recruiting expense decreasedto $44 for the six months ended June 30, 2009 compared to $227 for thecomparable period in 2008. The decrease of $183 in recruiting expense isprimarily attributable to the recruitment of our CEO and CFO during the sixmonths ended June 30, 2008. In addition, consulting related expensesdecreased to $447 from $508 for the six months ended June 30, 2009 and2008, respectively. The decrease of $61 was primarily due to decreased use ofconsultants to support administrative activities such as employee compensationreviews and accounting compliance.

 

Weexpect that selling, general, and administrative expenses will increase throughthe Construction Phase of the ADM agreement due to increasing payroll andexpanding infrastructure to support sales and marketing efforts relating to thecommercialization of Mirel. Upon the commencement of the Commercial 

 

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Phase of the agreement,selling, general, and administrative expenses are expected to decrease as thecost of sales and marketing efforts will be transferred to Telles. During thetransition period between the initial start-up of the commercial manufacturingfacility and the commencement of the Commercial Phase (as defined in theagreement), we will continue to bear these expenses.

 

**OtherIncome (Net)**

 
| ** **                | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** |
|---------------------------|------------|----------------------|------------|------------|------------|
| ** **                | ** ** | **June 30,**    | ** ** | ** ** | ** ** |
| ** **                | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change** | ** ** |
| Total other income  (net) |       | $                    | 593        |       | $          | 1,909 |   | $ | (1,316 | ) |
|                           |            |                      |            |            |            |  |  |  |  |  |

 

Otherincome (net) was $593 and $1,909 for the six months ended June 30, 2009and 2008, respectively. Other income (net) during both periods consisted ofinvestment income. The decrease of $1,316 was primarily due to a market declinein investment yields during the period, our decision to convert a majority ofour investment portfolio to lower risk/lower yield U.S. Federal Treasury Notesand government-backed Federal Agency Notes and a decrease in average cash andshort-term investments held during the comparative six month periods.

 

**Liquidityand Capital Resources**

 

Currently,we require cash to fund our working capital needs, to purchase capital assetsand to pay our operating lease obligations.

 

Wefund our cash requirements primarily through the following methods:

 

· our strategic alliance with ADM;

 

· government grants;

 

· equity financing; and

 

· interest earned on cash and short-term investments.

 

Currentlyour products are in the pre-commercial stage of development, and large-scalecommercial sales have not begun. In addition, we have incurred significantexpenses relating to our research and development efforts. As a result, we haveincurred net losses since our inception. As of June 30, 2009, we had anaccumulated deficit of $148,898. Our total unrestricted cash, cash equivalentsand short-term investments as of June 30, 2009 were $77,606 as compared to$91,096 at December 31, 2008. As of June 30, 2009, we had nooutstanding debt.

 

Ourcash, cash equivalents and short-term investments at June 30, 2009 wereheld for working capital purposes. We do not enter into investments for tradingor speculative purposes. The primary objective of our investment activities isto preserve our capital to support the growth of our business. As of June 30,2009 we had restricted cash of $593. Restricted cash consists of $493 held inconnection with the lease agreement for our Erie Street facility in Cambridge,Massachusetts and $100 held in connection with our corporate credit cardprogram. Short-term investments are made in accordance with our corporateinvestment policy, as approved by our Board of Directors. Investments arelimited to high quality corporate debt, U.S. Treasury bills and notes, bankdebt obligations, municipal debt obligations and asset-backed securities. Thepolicy establishes maturity limits, concentration limits, and liquidityrequirements. At June 30, 2009, we were in compliance with this policy.

 

Webelieve that our cash, cash equivalents and short-term investments, theinterest we earn on these balances, as well as cash expected from governmentgrants and our ADM alliance will be sufficient to meet our anticipated cashrequirements, including cash requirements with respect to the commercial launchof Mirel, for at least the next 24 months. If our available cash, cashequivalents, and short-term securities are 

 

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insufficient to satisfyour liquidity requirements, or if we develop additional products, we may needto sell additional equity or debt securities or obtain a credit facility. Thesale of additional equity and debt securities may result in additional dilutionto our stockholders. If we raise additional funds through the issuance of debtsecurities or preferred stock, these securities could have rights senior tothose of our common stock and could contain covenants that would restrict ouroperations. We may require additional capital beyond our currently forecastedamounts. Any such required additional capital may not be available onreasonable terms, if at all. If we are unable to obtain additional financing,we may be required to reduce the scope of, delay, or eliminate some or all ofour planned research, development and commercialization activities, which couldharm our business.

 

Netcash used in operating activities increased to $12,617 during the sixmonths ended June 30, 2009 from $8,263 used during the six months ended June 30,2008. Net cash used during the six months ended June 30, 2009 primarilyreflects the net loss for the period partially offset by non-cash expenses,including stock-based compensation expense of $2,250, depreciation expense of$1,310 and the Company’s 401(k) matching stock compensation of $279. Theincrease in cash used for operating activities during the six months ended June 30,2009 as compared to the respective period in 2008 was primarily due to adecrease in pre-commercial cost sharing payments received from ADM and adecrease in funds received from investment income as a result of lowerinvestment yields and lower average funds available for investing. We received$301 in pre-commercial cost sharing payments from ADM during the six monthsended June 30, 2009 compared to $2,102 during the respective period in2008. Pre-commercial cost sharing payments were lower during the six monthsended June 30, 2009 due to a reduction in pre-commercial manufacturingcosts. We received $593 in funds from investment income during the six monthsended June 30, 2009 compared to $1,909 for the respective period in 2008.

 

After the Commercial Phase of the ADM alliancebegins, Telles will reimburse us for the costs of services provided pursuant tothe Commercial Alliance Agreement, including product development and sales andmarketing. During the transition period between the initial start-up of the CommercialManufacturing Facility and the commencement of the Commercial Phase, we willcontinue to bear these costs. If there are difficulties, delays or otherunforeseen issues with the construction and start-up of the CommercialManufacturing Facility or the ramp-up of commercial sales from the CommercialManufacturing Facility, we may incur additional unreimbursed pilotmanufacturing, product development, sales and marketing costs until the CommercialPhase of the alliance begins.

 

Netcash used in investing activities was $4,284 during the six months ended June 30,2009 compared to net cash of $7,014 provided by investing activities during thesix months ended June 30, 2008. Net cash used in investing activitiesduring the six months ended June 30, 2009 primarily represents net cash of$3,699 used in the purchase, sale and maturity of investments and a cashoutflow of $655 used to purchase new equipment for research purposes.

 

Net cash provided byfinancing activities was $21 and $664 for the six months ended June 30,2009 and 2008, respectively. The cash provided by financing activity during thesix months ended June 30, 2009 and 2008 was solely attributable toproceeds received from the exercise of stock options and warrants.

 

**ContractualObligations**

 

Thefollowing table summarizes our contractual obligations at June 30, 2009and the effects such obligations are expected to have on our liquidity and cashflows in future periods:

 
| ** **                   | ** ** | **Payments Due by Period** | ** ** |
|------------------------------|------------|----------------------------|------------|
| ** **                   | ** ** | ** **                 | ** ** | **Less than** | ** ** | **2-3** | ** ** | **4-5** | ** ** | **More than** | ** ** |
| ** **                   | ** ** | **Total**                  | ** ** | **1 year** | ** ** | **years** | ** ** | **years** | ** ** | **5 years** | ** ** |
| Purchase obligations         |       | $                          | 415        |   | $ | 250 |   | $ | 90 |   | $ | 50 |   | $ | 25 |   |
| Operating lease  obligations |       | 5,454                      |       | 1,284 |   | 2,358 |   | 1,812 |   | — |   |
| Total                        |       | $                          | 5,869      |   | $ | 1,534 |   | $ | 2,448 |   | $ | 1,862 |   | $ | 25 |   |

 

**Off-BalanceSheet Arrangements**

 

As of June 30,2009, we had no off-balance sheet arrangements as defined in Item 303(a) (4) ofthe Securities and Exchange Commission’s Regulation S-K.

 

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**RelatedParty Transactions**

 

Werecorded $41 and $66 of license and royalty revenue from Tepha, Inc., arelated party, during the three and six months ended June 30, 2009. Duringthe three and six months ended June 30, 2008 we recorded license androyalty revenue from Tepha, Inc. of $35 and $70, respectively. We had anoutstanding receivable balance due from Tepha of $34 as of June 30, 2009.As of December 31, 2008 there was no outstanding receivable balance duefrom Tepha. We also had various transactions with our alliance partner ADM, arelated party, during the three and six months ended June 30, 2009 and2008. We had an outstanding receivable balance of $718 due from ADM at June 30,2009. As of December 31, 2008 there was no significant outstandingreceivable balance due from ADM.  For more information on our relatedparty transactions, please see Note 8 to our audited financial statementsincluded in our Annual Report on Form 10-K for the year ended December 31,2008.

 

**RecentAccounting Pronouncements**

 

EffectiveJanuary 1, 2009, the Company implemented Statement of Financial AccountingStandards No. 141(R), *BusinessCombination,* or SFAS 141(R). This standard requires anacquiring company to measure all assets acquired and liabilities assumed,including contingent considerations and all contractual contingencies, at fairvalue as of the acquisition date. In addition, an acquiring company is requiredto capitalize in process research and development and either amortize it overthe life of the product, or write it off if the project is abandoned or impaired.The adoption of this standard did not impact our financial position or resultsof operations as SFAS 141(R) is applicable to acquisitions completedafter January 1, 2009 and we did not complete any business combinationtransactions during the first six months of 2009.

 

In April 2009, the FASB issued the following newaccounting standards:

 

·                  FASB Staff Position FAS 157-4, *Determining Whether a Market Is Not Active and aTransaction Is Not Distressed,*or FSP FAS 157-4. FSPFAS 157-4 provides guidelines for making fair value measurements moreconsistent with the principles presented in SFAS 157. FSP FAS 157-4provides additional authoritative guidance in determining whether a market isactive or inactive, and whether a transaction is distressed, is applicable toall assets and liabilities (i.e. financial and nonfinancial) and will requireenhanced disclosures.

 

·                  FASB Staff Position FAS 115-2,FAS 124-2, and EITF 99-20-2, *Recognitionand Presentation of Other-Than-Temporary Impairments*, or FSPFAS 115-2, FAS 124-2, and EITF 99-20-2; FSP FAS 115-2,FAS 124-2, and EITF 99-20-2 provides additional guidance to providegreater clarity about the credit and noncredit component of another-than-temporary impairment event and to more effectively communicate whenan other-than-temporary impairment event has occurred. This FSP applies to debtsecurities.

 

·                  FASB Staff Position FAS 107-1 andAPB 28-1, *Interim Disclosures about FairValue of Financial Instruments*, or FSP FAS 107-1 and APB 28-1.FSP FAS 107-1 and APB 28-1, amends FASB Statement No. 107, *Disclosures about Fair Value of Financial Instruments*,to require disclosures about fair value of financial instruments in interim aswell as in annual financial statements. This FSP also amends APB Opinion No. 28,*Interim Financial Reporting*, torequire those disclosures in all interim financial statements.

 

These standards are effective for periods ending afterJune 15, 2009. The adoption of these standards did not impact thepresentation of our financial position or results of operations.

 

***Recently Issued Accounting Standards***

 

In June 2009,the FASB issued the following new accounting standards:

 

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| · | SFAS No. 166,  *Accounting for Transfers of Financial  Assets, an amendment of FASB Statement No. 140*, or  SFAS 166;                                                             |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                  |
| · | SFAS No. 167,  *Amendments to FASB Interpretation  No. 46(R),*or SFAS 167; and                                                                                               |
|   |                                                                                                                                                                                                  |
| · | SFAS No. 168,  *The FASB Accounting Standards Codification  and the Hierarchy of Generally Accepted Accounting Principles, a replacement  of FASB Statement No. 162, or SFAS 168* |

 

SFAS 166prescribes the information that a reporting entity must provide in itsfinancial reports about a transfer of financial assets; the effects of atransfer on its financial position, financial performance, and cash flows; anda transferor’s continuing involvement in transferred financial assets.Specifically, among other aspects, SFAS 166 amends Statement of FinancialStandard No. 140, *Accounting forTransfers and Servicing of Financial Assets and Extinguishments of Liabilities*,or SFAS 140, by removing the concept of a qualifying special-purposeentity from SFAS 140 and removes the exception from applying FIN 46(R) tovariable interest entities that are qualifying special-purpose entities. Italso modifies the financial-components approach used in SFAS 140.SFAS 166 is effective for transfers of financial assets occurring on orafter January 1, 2010. We have not determined the effect that the adoptionof SFAS 166 will have on our financial position or results of operations,but the effect will generally be limited to future transactions, if any.

 

SFAS 167amends FASB Interpretation No. 46, *Consolidationof Variable Interest Entities (revised December 2003) — aninterpretation of ARB No. 51*, or FIN 46(R), to require anenterprise to determine whether its variable interest or interests give it acontrolling financial interest in a variable interest entity. The primarybeneficiary of a variable interest entity is the enterprise that has both (1) thepower to direct the activities of a variable interest entity that mostsignificantly impact the entity’s economic performance and (2) theobligation to absorb losses of the entity that could potentially be significantto the variable interest entity or the right to receive benefits from theentity that could potentially be significant to the variable interest entity.SFAS 167 also amends FIN 46(R) to require ongoing reassessmentsof whether an enterprise is the primary beneficiary of a variable interestentity. SFAS 167 is effective for all variable interest entities andrelationships with variable interest entities existing as of January 1,2010. We have not determined the effect that the adoption of SFAS 167 willhave, if any, on our financial position or results of operations.

 

SFAS 168replaces SFAS No. 162*, TheHierarchy of Generally Accepted Accounting Principles,*to establishthe *FASB Accounting Standards Codification*asthe source of authoritative accounting principles recognized by the FASB to beapplied by nongovernmental entities in preparation of financial statements inconformity with GAAP. SFAS 168 is effective for interim and annual periodsending after September 15, 2009. We do not expect the adoption of thisstandard to have an impact on our financial position or results of operations.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

Therehave been no material changes in information regarding our exposure to marketrisk, as described in Item 7A of our Annual Report on Form 10-K for theyear ended December 31, 2008.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

**Evaluationof Disclosure Controls and Procedures**

 

Ourmanagement (with the participation of our Principal Executive Officer andPrincipal Financial Officer) evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 30,2009. Disclosure controls and procedures are designed to ensure thatinformation required to be disclosed by the Company in the reports it files orsubmits under the Exchange Act is recorded, processed, summarized and reportedon a timely basis and that such information is accumulated and communicated to 

 

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management, including thePrincipal Executive Officer and Principal Financial Officer, as appropriate, toallow timely decisions regarding required disclosure. Based on this evaluation,our Principal Executive Officer and Principal Financial Officer concluded thatthese disclosure controls and procedures are effective.

 

**Changesin Internal Control over Financial Reporting**

 

Therewas no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended June 30,2009 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART II — OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

Fromtime to time, we may be subject to legal proceedings and claims in the ordinarycourse of business. We are not currently aware of any such proceedings orclaims that we believe will have, individually or in the aggregate, a materialadverse effect on the business, financial condition or the results ofoperations.

 

**ITEM 1A. RISK FACTORS**

 

Exceptas listed below there have been no material changes in information regardingour risk factors as described in Part I, Item 1A of our Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

**If ADMdoes not successfully build and start up the Commercial Manufacturing Facilityon time and on budget, our financial results will be negatively affected.**

 

The cost of planning, designing, constructing andoperating the Commercial Manufacturing Facility being developed to serve thealliance with ADM, and the cost of ancillary facilities and services related tothe production of Mirel by Telles, will be very significant. ADM will beadvancing a disproportionate share of the financial capital needed for suchactivities and, therefore, under our agreement all profits, after payment ofall royalties, reimbursements and fees, from Telles will first be distributedto ADM until ADM’s disproportionate investment in the joint venture has beenreturned. Previously, we expected that commercial quantities of Mirel from theCommercial Manufacturing Facility would be available for customers by December 2008.We now expect that commercial quantities of Mirel from the CommercialManufacturing Facility will be available for customers by the end of 2009. Ifthere are further difficulties, delays or other unforeseen issues with theconstruction and start-up of the Commercial Manufacturing Facility, the cost ofsuch activities will almost certainly increase, we may incur additionalunreimbursed pilot manufacturing, product development, sales and marketingcosts until the Commercial Phase of the alliance begins, and the revenue fromsales, if any, of Mirel and the distribution of profits, if any, to us will befurther delayed.

 

**We maynot achieve market acceptance of our products.**

 

Telles currently has only limited customer commitmentsfor commercial quantities of Mirel. Market acceptance of Mirel and our futureproducts will depend on numerous factors, many of which are outside of ourcontrol, including among others:

 

· public acceptance of such products;

· ability to produce products that offerfunctionality comparable or superior to existing or new polymer products;

· our ability to produce products fit fortheir intended purpose;

 

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· our ability to obtain necessaryregulatory approvals for our products;

· the willingness and speed at whichpotential customers qualify Mirel for use in their products;

· pricing of our products compared tocompetitive products, including petroleum-based plastics;

· the strategic reaction of companies thatmarket competitive products;

· our reliance on third parties whosupport or control distribution channels; and

· general market conditions.

 

Prospective customers are currently evaluating andperforming tests on Mirel prior to making any large-scale purchase decisions.We may not be able to successfully demonstrate that our plastics have propertiescomparable or superior to those of environmentally sustainable competitors orsimilar to conventional petroleum-based plastics. There can be no assurancethat products based on our technologies will be perceived as being comparableor superior to existing products or new products being developed by competingcompanies or that such products will otherwise be accepted by consumers. Themarket for our biobased plastics may not be willing to support premium pricesto purchase environmentally sustainable plastics. If there is not broad marketacceptance of our products, we may not generate significant revenues. Generally,new product applications require a long lead time and sufficient quantities ofpolymer for development and qualification before customers enter into salescommitments. Delays in the availability of material for product development,compounding scale-up and marketing activities could delay or slow the ramp-upof commercial sales from the Commercial Manufacturing Facility. If the start ofthe commercial phase of the alliance is delayed as a result of such delays orfor other reasons, we may incur additional unreimbursed product development andsales and marketing costs until the commercial phase of the alliance begins.  In addition, if such delays occur, or if weare unable to obtain the anticipated premium pricing for Mirel, there could bea material adverse effect on the timing of the distribution of Telles profits,if any, to us.

 

**Provisionsin our certificate of incorporation and by-laws and Delaware law and ourshareholder rights plan might discourage, delay or prevent a change of controlof our company or changes in our management and, therefore, depress the tradingprice of our common stock.**

 

Provisions of our certificate of incorporation andby-laws and Delaware law may discourage, delay or prevent a merger, acquisitionor other change in control that stockholders may consider favorable, includingtransactions in which our stockholders might otherwise receive a premium fortheir shares of our common stock. These provisions may also prevent orfrustrate attempts by our stockholders to replace or remove our management.These provisions include:

 

· limitations on the removal of directors;

· a classified board of directors so thatnot all members of our board are elected at one time;

· advance notice requirements forstockholder proposals and nominations;

· the inability of stockholders to act bywritten consent or to call special meetings;

· the ability of our board of directors tomake, alter or repeal our by-laws;

· a supermajority stockholder voterequirement for amending certain provisions of our amended and restatedcertificate of incorporation and bylaws; and

· the ability of our board of directors to designate the terms of andissue new series of preferred stock without stockholder approval.

 

The affirmative vote of the holders of at least 75% ofour shares of capital stock entitled to vote is necessary to amend or repealthe above provisions of our certificate of incorporation. In addition, absentapproval of our board of directors, our by-laws may only be amended or repealedby the affirmative vote of the holders of at least 75% of our shares of capitalstock entitled to vote.

 

We have adopted a shareholder rights plan, the purposeof which is, among other things, to enhance our Board’s ability to protectshareholder interests and to ensure that shareholders receive fair treatment inthe event any coercive takeover attempt of the company is made in thefuture.  The shareholder rights plan couldmake it more difficult for a third party to acquire, or could discourage athird party from acquiring, our company or a large block of our company’sCommon Stock.

 

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In addition, Section 203 of the Delaware GeneralCorporation Law prohibits a publicly-held Delaware corporation from engaging ina business combination with an interested stockholder, generally a person whichtogether with its affiliates owns, or within the last three years has owned,15% of our voting stock, for a period of three years after the date of thetransaction in which the person became an interested stockholder, unless thebusiness combination is approved in a prescribed manner.

 

Theexistence of the foregoing provisions and anti-takeover measures could limitthe price that investors might be willing to pay in the future for shares ofour common stock. They could also deter potential acquirers of our company,thereby reducing the likelihood that our stockholders could receive a premiumfor their common stock in an acquisition.

 

**ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIESAND USE OF PROCEEDS**

 

**RecentSales of Unregistered Securities**

 

On April 28,2009, the Company issued 17,001 shares of common stock to participants in itsMetabolix, Inc. 401(k) Plan as a matching contribution. The issuanceof these securities is exempt from registration pursuant to Section 3(a)(2) ofthe Securities Act of 1933 as exempted securities.

 

**IssuerPurchases of Equity Securities**

 

Duringthe three months ended June 30, 2009, there were no repurchases made by usor on our behalf, or by any “affiliated purchasers,” of shares of our commonstock.

 

**ITEM 3.  DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

TheCompany’s annual meeting of stockholders was held on May 28, 2009.

 

Thestockholders elected Richard P. Eno, Edward M. Giles, and Anthony J. Sinskey toserve on the Board of Directors until the annual meeting of stockholders to beheld in 2012. The tabulation of votes with respect to the election of suchdirectors is as follows:

** **
| ** **          | ** ** | **Number of Shares** | ** ** |
|---------------------|------------|--------------------------------|------------|
| ** **          | ** ** | **For**                        | ** ** | **Withheld** | ** ** | **Abstain** | ** ** |
| Richard  P. Eno     |       | 20,010,578                     |       | 318,190 |   | 0 |   |
| Edward  M. Giles    |       | 19,750,414                     |       | 578,354 |   | 0 |   |
| Anthony  J. Sinskey |       | 15,876,259                     |       | 4,452,509 |   | 0 |   |

 

Followingthe meeting, the Company’s Board of Directors consists of Jay Kouba (Chairman),Richard P. Eno, Edward M. Giles, Peter N. Kellogg, Edward M. Muller, Oliver P.Peoples, Anthony J. Sinskey, Matthew Strobeck and Robert L. Van Nostrand.

 

**ITEM 5. OTHER INFORMATION**

 

None.

 

**ITEM 6. EXHIBITS**

 
| 10.1   |   | Employment Agreement  between the Registrant and Johan van Walsem executed July 9, 2009 (filed  herewith).                                                     |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                           |
| 31.1   |   | Certification Pursuant  to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934  of the Principal Executive Officer (furnished herewith). |
|   |   |                                                                                                                                                           |
| 31.2   |   | Certification Pursuant  to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934  of the                                                   |

 

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|   |   | Principal Financial  Officer (furnished herewith).     |
|--------|--------|--------------------------------------------------------|
|   |   |                                                   |
| 32.1   |   | Section 1350  Certification (furnished herewith). |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                | METABOLIX, INC. |
|---------------------|-----------------|
|                |            |
|                |            |
| August 5, 2009 | By:             | /s/ RICHARD P. ENO |
|                |            | Richard P. Eno |
|                |            | *President  and Chief Executive Officer* |
| * *            |            | *(Principal  Executive Officer)* |
| * *            | * *        |
| August 5, 2009 | By:             | /s/ JOSEPH D. HILL |
|                |            | Joseph D. Hill |
|                |            | *Chief  Financial Officer* |
| * *            |            | *(Principal  Financial and Accounting Officer)* |

 

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