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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  March 31, 2009** |
|                                                    |       |                                                                                                     |
| **OR**                                                  |
|                                                    |       |                                                                                                     |
| o                                                       | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**For the transition 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 area code)

 

(Former name, former address and former fiscal year, if changed sincelast report.)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes o No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of 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 markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o   No x

 

The number of shares outstanding of the registrant’scommon stock as of May 3, 2009 was 22,983,215.

 

 

 

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**Metabolix, Inc. Form 10-QFor the Quarter Ended March 31, 2009**

 

**Table of Contents**

 
| ** **                              | ** ** |                                                                                           | **Page** |
|-----------------------------------------|------------|------------------------------------------------------------------------------------------------|----------|
| **Part I.  Financial Information** |       |
|                                    |       |                                                                                           |     |
| Item                                    |       |                                                                                           |     |
| 1.                                      |       | Consolidated Financial Statements (Unaudited)                                                  | 1        |
|                                    |       | Consolidated  Balance Sheets at March 31, 2009, and December 31, 2008                | 1        |
|                                    |       | Consolidated Statements of Operations for the three  months ended March 31, 2009 and 2008 | 2        |
|                                    |       | Consolidated Statements of Cash Flows for the three  months ended March 31, 2009 and 2008 | 3        |
|                                    |       | Notes to the Consolidated Financial Statements                                                 | 4        |
| 2.                                      |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations    | 12       |
| 3.                                      |       | Quantitative  and Qualitative Disclosures About Market Risk                                    | 20       |
| 4.                                      |       | Controls and  Procedures                                                                       | 20       |
|                                    |       |                                                                                           |     |
| **Part II.  Other Information**    |       |
|                                    |       |                                                                                           |     |
| Item                                    |       |                                                                                           |     |
| 1.                                      |       | Legal Proceedings                                                                              | 20       |
| 1A.                                     |       | Risk Factors                                                                                   | 21       |
| 2.                                      |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                   | 21       |
| 3.                                      |       | Defaults Upon  Senior Securities                                                               | 21       |
| 4.                                      |       | Submission of  Matters to a Vote of Security Holders                                           | 21       |
| 5.                                      |       | Other Information                                                                              | 21       |
| 6.                                      |       | Exhibits                                                                                       | 21       |
|                                    |       |                                                                                           |     |
| **SIGNATURES**                          | 22         |

 

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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)**

 
| ** **                                                                                                                                                                                                                                            | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                            | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| **Assets**                                                                                                                                                                                                                                            |       |               |       |                  |       |
| Current Assets:                                                                                                                                                                                                                                       |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                                                             |       | $                  | 13,395     |                  | $          | 26,194 |   |
| Short-term investments                                                                                                                                                                                                                                |       | 68,862             |       | 64,902                |       |
| Accounts receivable                                                                                                                                                                                                                                   |       | 10                 |       | 159                   |       |
| Due from related parties                                                                                                                                                                                                                              |       | 304                |       | —                |       |
| Unbilled receivables                                                                                                                                                                                                                                  |       | 129                |       | 56                    |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                             |       | 870                |       | 530                   |       |
| Total current assets                                                                                                                                                                                                                                  |       | 83,570             |       | 91,841                |       |
| Restricted cash                                                                                                                                                                                                                                       |       | 593                |       | 593                   |       |
| Property and equipment, net                                                                                                                                                                                                                           |       | 4,193              |       | 4,388                 |       |
| Other assets                                                                                                                                                                                                                                          |       | 124                |       | 124                   |       |
| Total assets                                                                                                                                                                                                                                          |       | $                  | 88,480     |                  | $          | 96,946 |   |
|                                                                                                                                                                                                                                                  |       |               |       |                  |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                                                         |       |               |       |                  |       |
| Current Liabilities:                                                                                                                                                                                                                                  |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                      |       | $                  | 36         |                  | $          | 858 |   |
| Accrued expenses                                                                                                                                                                                                                                      |       | 3,718              |       | 3,587                 |       |
| Current portion of deferred rent and other current liabilities                                                                                                                                                                                        |       | 240                |       | 165                   |       |
| Total current liabilities                                                                                                                                                                                                                             |       | 3,994              |       | 4,610                 |       |
| Deferred rent                                                                                                                                                                                                                                         |       | 676                |       | 717                   |       |
| Long-term deferred revenue                                                                                                                                                                                                                            |       | 32,743             |       | 32,440                |       |
| Other long-term liabilities                                                                                                                                                                                                                           |       | 90                 |       | 88                    |       |
| Total liabilities                                                                                                                                                                                                                                     |       | 37,503             |       | 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 March 31, 2009 and December 31, 2008; 22,983,165 and 22,962,628  shares issued and outstanding at March 31, 2009 and December 31,  2008, respectively |       | 230                |       | 230                   |       |
| Additional paid-in capital                                                                                                                                                                                                                            |       | 189,693            |       | 188,532               |       |
| Accumulated other comprehensive income                                                                                                                                                                                                                |       | 280                |       | 446                   |       |
| Accumulated deficit                                                                                                                                                                                                                                   |       | (139,226           | )          | (130,117              | )          |
| Total stockholders’ equity                                                                                                                                                                                                                       |       | 50,977             |       | 59,091                |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                       |       | $                  | 88,480     |                  | $          | 96,946 |   |

 

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

 

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**METABOLIX, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**UNAUDITED**

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

 
| ** **                                                   | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                   | ** ** | **March 31,**     | ** ** |
| ** **                                                   | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Revenue:                                                     |       |                   |       |   |   |
| Research and development revenue                             |       | $                      | 6          |   | $ | 68 |   |
| License fee and royalty revenue from related parties         |       | 25                     |       | 35 |   |
| Grant revenue                                                |       | 230                    |       | 301 |   |
| Total revenue                                                |       | 261                    |       | 404 |   |
|                                                         |       |                   |       |   |   |
| Operating expense:                                           |       |                   |       |   |   |
| Research and development expenses, including cost of revenue |       | 6,008                  |       | 5,934 |   |
| Selling, general, and administrative expenses                |       | 3,714                  |       | 4,097 |   |
| Total operating expenses                                     |       | 9,722                  |       | 10,031 |   |
| Loss from operations                                         |       | (9,461                 | )          | (9,627 | ) |
|                                                         |       |                   |       |   |   |
| Other income (expense):                                      |       |                   |       |   |   |
| Interest income, net                                         |       | 352                    |       | 1,179 |   |
| Net loss                                                     |       | $                      | (9,109     | ) | $ | (8,448 | ) |
|                                                         |       |                   |       |   |   |
| Net loss per share:                                          |       |                   |       |   |   |
| Basic and Diluted                                            |       | $                      | (0.40      | ) | $ | (0.37 | ) |
|                                                         |       |                   |       |   |   |
| Number of shares used in per share calculations:             |       |                   |       |   |   |
| Basic and Diluted                                            |       | 22,975,459             |       | 22,648,740 |   |

 

*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)**

*** ***
| ** **                                                               | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                               | ** ** | **March 31,**     | ** ** |
| ** **                                                               | ** ** | **2009**               | ** ** | **2008** | ** ** |
| **Cash flows from operating activities**                                 |       |                   |       |   |   |
| Net loss                                                                 |       | $                      | (9,109     | ) | $ | (8,448 | ) |
| Adjustments to reconcile net loss to cash used in operating  activities: |       |                   |       |   |   |
| Depreciation and amortization                                            |       | 629                    |       | 896 |   |
| Charge for 401(k) company common stock match                        |       | 160                    |       | 142 |   |
| Stock-based compensation                                                 |       | 1,019                  |       | 1,081 |   |
| Gain on the sale of equipment                                            |       | (70                    | )          | — |   |
| Changes in operating assets and liabilities:                             |       |                   |       |   |   |
| Receivables (billed and unbilled)                                        |       | 76                     |       | 68 |   |
| Due from related parties                                                 |       | (44                    | )          | 122 |   |
| Prepaid expenses and other assets                                        |       | (340                   | )          | 95 |   |
| Accounts payable                                                         |       | (822                   | )          | (151 | ) |
| Accrued expenses                                                         |       | (203                   | )          | (804 | ) |
| Deferred rent                                                            |       | (41                    | )          | (40 | ) |
| Deferred revenue                                                         |       | 119                    |       | 2,575 |   |
| Net cash used in operating activities                                    |       | (8,626                 | )          | (4,464 | ) |
|                                                                     |       |                   |       |   |   |
| **Cash flows from investing activities**                                 |       |                   |       |   |   |
| Purchase of property and equipment                                       |       | (137                   | )          | (379 | ) |
| Proceeds from the sale of equipment                                      |       | 70                     |       | — |   |
| Purchase of short-term investments                                       |       | (37,979                | )          | (25,323 | ) |
| Proceeds the from sale and maturity of short-term investments            |       | 33,853                 |       | 42,977 |   |
| Net cash provided by (used in) investing activities                      |       | (4,193                 | )          | 17,275 |   |
|                                                                     |       |                   |       |   |   |
| **Cash flows from financing activities**                                 |       |                   |       |   |   |
| Proceeds from options and warrants exercised                             |       | 20                     |       | 158 |   |
| Net cash provided by financing activities                                |       | 20                     |       | 158 |   |
|                                                                     |       |                   |       |   |   |
| Net increase (decrease) in cash and cash equivalents                     |       | (12,799                | )          | 12,969 |   |
| Cash and cash equivalents at beginning of period                         |       | 26,194                 |       | 22,686 |   |
| Cash and cash equivalents at end of period                               |       | $                      | 13,395     |   | $ | 35,655 |   |

 

*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. BASIS OF 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 recurringadjustments) necessary for a fair statement of the financial position andresults of operations for the interim periods ended March 31, 2009 and2008.

 

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.

 

**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 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 orimpaired. Due to the fact that SFAS 141(R) is applicable to futureacquisitions completed after January 1, 2009 and the Company did not haveany business combinations this quarter, the adoption of SFAS 141(R) didnot have an impact on the Company’s consolidated financial statements.

 

On May 5,2008, Statement of Financial Accounting Standards No. 162*, The Hierarchy of Generally Accepted AccountingPrinciples,*or SFAS 162, was issued. This standard identifiesthe sources of accounting principles and the framework for selecting theprinciples to be used in the preparation of financial statements that arepresented in conformity with GAAP in the U.S. The adoption of thisstandard will not impact the presentation of the Company’s financial positionor results of operations.

 

***Recently Issued Accounting Standards***

 

In April 2009,the FASB issued the following new accounting 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.

 

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·                  FASB Staff Position FAS 115-2, FAS 124-2,and EITF 99-20-2, *Recognition andPresentation 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.

 

Thesestandards are effective for periods ending after June 15, 2009. TheCompany is evaluating the impact that these standards will have on it’sfinancial statements.

 

**4.COMPREHENSIVE LOSS**

 

Comprehensiveloss is comprised of net loss and net unrealized gains or losses on marketablesecurities. Total comprehensive loss for the three months ended March 31,2009 and 2008 is as follows:

 
| ** **                               | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------|------------|------------------------|------------|
| ** **                               | ** ** | **March 31,**     | ** ** |
| ** **                               | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Net loss                                 |       | $                      | (9,109     | ) | $ | (8,448 | ) |
| Other comprehensive income:              |       |                   |       |   |   |
| Change in unrealized gain on investments |       | (166                   | )          | 161 |   |
| Total other comprehensive income         |       | (166                   | )          | 161 |   |
| Comprehensive loss                       |       | $                      | (9,275     | ) | $ | (8,287 | ) |

 

**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 months ended March 31,2009 and 2008, respectively, are shown below:

 
| ** ** | ** ** | **Three Months Ended** | ** ** |
|------------|------------|------------------------|------------|
| ** ** | ** ** | **March 31,**          | ** ** |
| ** ** | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Options    |       | 2,735,107              |       | 2,428,802 |   |
| Warrants   |       | 4,086                  |       | 69,343 |   |
| Total      |       | 2,739,193              |       | 2,498,145 |   |

 

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 InJanuary 2009, the Company implemented FASB Staff PositionEITF 03-6-1, *Determining WhetherInstruments Granted in Share-Based Payment Transactions Are ParticipatingSecurities,* or FSP EITF 03-6-1. FSP EITF 03-6-1 addresseswhether instruments granted in share-based payment transactions areparticipating securities prior to vesting and, therefore, need to be includedin the earnings allocation in computing earnings per share under the two-classmethod as described in SFAS No. 128, *Earningsper Share*. Under the guidance in FSP EITF 03-6-1, unvestedshare-based payment awards that contain non-forfeitable rights to dividends ordividend equivalents (whether paid or unpaid) are participating securities andshall be included in the computation of earnings per share pursuant to thetwo-class method. The Company’s awards do not have nonforfeitable rights todividends or dividend equivalents and therefore the adoption of FSP EITF 03-6-1did not impact it’s financial statements.

 

**6.STOCK-BASED COMPENSATION**

 

On January 1,2006, the Company adopted Statement of Financial Accounting Standards No. 123(R),*Share-Based Payment,* or SFAS 123(R).Under the provisions of SFAS 123(R), compensation cost recognized for thethree months ended March 31, 2009 and 2008 included compensation cost forstock options granted to employees subsequent to January 1, 2006, based onthe grant date fair value estimated in accordance with the provisions ofSFAS 123(R) and recognized over the vesting period of the applicableaward on a straight-line basis. The effect of SFAS 123(R) for thethree months ended March 31, 2009 and 2008 was an expense of $1,107 and$1,226, respectively. The corresponding increase in basic and diluted net lossper share for the three months ended March 31, 2009 and 2008 was $0.05.There is no expense recorded for options which were granted prior to January 1,2006 under 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 three months ended March 31, 2009 and2008 is 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                                                                                           |       | 116,030       |       | 7.80                 |       | 346,000 |   | 13.58 |   |
| Exercised                                                                                         |       | (11,025       | )          | 1.85                 |       | (64,384 | ) | 2.46 |   |
| Cancelled                                                                                         |       | (16,663       | )          | 18.24                |       | (4,598 | ) | 1.65 |   |
| Outstanding at March 31,                                                                     |       | 2,735,107     |       | 11.43                |       | 2,428,802 |   | 11.34 |   |
|                                                                                              |       |          |       |                 |       |   |   |   |   |
| Options exercisable at March 31,                                                             |       | 1,363,142     |       |                 |       | 1,123,873 |   |   |   |
|                                                                                              |       |          |       |                 |       |   |   |   |   |
| Weighted average grant date fair value of options granted during the three months ended March 31, |       |          |       | $                    | 5.18       |   |   |   | $ | 7.98 |   |

 

Forthe three months ended March 31, 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:

 
| ** **                      | ** ** | **Three Months Ended** | ** ** |
|---------------------------------|------------|------------------------|------------|
| ** **                      | ** ** | **March 31,**     | ** ** |
| ** **                      | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Expected dividend yield         |       | —                 |       | — |   |
| Risk-free rate                  |       | 1.67%-2.00%            |       | 2.71%-3.10% |   |
| Expected option term (in years) |       | 5.4                    |       | 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 benefit of $88 and $145 for the three monthsended March 31, 2009 and 2008, respectively. Options remaining unvestedfor non-employees are subject to remeasurement each reporting period prior tovesting in full. Since the fair market

 

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value of the optionsissued to non-employees are subject to changes in the future, the compensationexpense recognized in each quarter may not be indicative of future compensationcharges.

 

**7.SIGNIFICANT COLLABORATION**

 

Effectivein the quarter ended March 31, 2009, the Company implemented EITF No. 07-1,*Accounting for Collaborative Arrangements,*orEITF 07-1, which prescribes that certain transactions between collaboratorsbe recorded in the income statement on either a gross or net basis, dependingon the characteristics of the collaboration relationship, and provides forenhanced disclosure of collaborative relationships. In accordance withEITF 07-1, the Company evaluated its collaborative agreements for properincome statement classification based on the nature of the underlying activity.If payments to and from collaborative partners are not within the scope ofother authoritative accounting literature, the income statement classificationfor the payments is based on a reasonable, rational analogy to authoritativeaccounting literature that is applied in a consistent manner. Amounts due fromcollaborative partners related to development activities are generally reflectedas a reduction of research and development expense because the performance ofcontract development 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.

 

On July 12,2006, ADM exercised an option (the “Option”) to enter into a commercialalliance for further research, development, manufacture, use and sale of Mirelon the terms and conditions 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

 

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will compound Mirel or itwill arrange for third parties to compound Mirel; (iii) the Company,acting in the name and on behalf of Telles, will establish the initial marketfor Mirel. The Company will also continue its research and development effortsto further advance the technology and expand and enhance the commercialpotential of Mirel. Subject to certain limitations, ADM will finance theworking capital requirements of Telles.

 

TheCommercial Alliance Agreement calls 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 whichare payable on the first business day of each of the second and third quartersof calendar 2009. As of March 31, 2009, all quarterly support paymentsreceived from ADM on behalf of Telles, totaling $18,900, have been recorded asdeferred revenue on the Company’s balance sheet and the Company will continueto defer recognition of these and future payments received from ADM during theConstruction 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 March 31, 2009,ADM has reimbursed the Company $7,375. 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.

 

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 March 31, 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.

 

TheCommercial Alliance Agreement and related agreements include detailedprovisions setting out the rights and obligations of the parties in the eventof a termination of the Commercial Alliance Agreement. These provisions includethe right for either party to terminate the Commercial Alliance Agreement upona material default of a material obligation by the other party after a noticeand cure period has expired. The parties are also permitted to terminate theCommercial Alliance Agreement if a change in circumstances that is notreasonably within the control of a party makes the anticipated financial returnfrom the project inadequate or too uncertain. The parties have specificobligations to fulfill in the event of termination or if they file forbankruptcy protection.

 

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**8.INCOME TAXES**

 

TheCompany adopted FASB Interpretation No. 48 *Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,*or FIN 48, on January 1, 2007 with no effect on financialposition. In addition, the Company has no amounts recorded for any unrecognizedtax benefits as of March 31, 2009 or March 31, 2008.

 

Thetax years 2005 through 2008 remain open to examination by major taxingjurisdictions to which the Company is subject, which are primarily in the U.S.

 

TheCompany’s policy is to record estimated interest and penalties related to uncertaintax positions in income tax expense. As of March 31, 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 $46,357 and $31,108, respectively. The Company’sfederal and state net operating loss carryforwards will begin to expire in2009. The Company also had available research and development credits forfederal and state income tax purposes of $2,743 and $2,217 respectively. Thefederal and state research and development credits will begin to expire in 2012and 2015, respectively. As of December 31, 2008 the Company also hadavailable investment tax credits for state income tax purposes of $92 whichbegin to expire in 2009. Management of the Company has evaluated the positiveand negative evidence bearing upon the realizability of its deferred taxassets, 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 as similar state provisions. These ownership changes may limit the amountof NOL and R&D credit carryforwards that can be utilized annually to offsetfuture taxable income and tax, respectively. In general, an ownership change,as defined by Section 382, results from transactions increasing theownership of certain shareholders or public groups in the stock of acorporation by more than 50 percentage points over a three year period.Since the Company’s formation, the Company has raised capital through theissuance of capital stock which, combined with the purchasing shareholders’subsequent disposition of those shares, may have resulted in a change ofcontrol, as defined by Section 382, or could result in a change of controlin the future upon subsequent disposition. The Company has not currentlycompleted a study to assess whether there have been multiple changes of controlsince the Company’s formation due to the significant complexity and costassociated with such study. If the Company has experienced a change in controlat any time since the Company’s formation, utilization of the Company’s NOL orR&D credit carryforwards would be subject to an annual limitation under Section 382and 383. Any limitation may result in expiration of a portion of the NOL orR&D credit carryforwards before utilization. Until a study is completed andany limitation known, no amounts are being presented as uncertain tax positionsunder FIN 48.

 

**9.ACCRUED LIABILITIES**

 

Accruedliabilities consisted of the following at:

 
| ** **                          | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|-------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| Employee compensation and benefits  |       | $                       | 1,110      |                       | $          | 1,618 |   |
| Pre-commercial manufacturing costs  |       | 501                     |       | 350                        |       |
| Professional services               |       | 255                     |       | 206                        |       |
| Contracted research and development |       | 177                     |       | 317                        |       |
| Other                               |       | 1,675                   |       | 1,096                      |       |
| Total accrued expenses              |       | $                       | 3,718      |                       | $          | 3,587 |   |

 

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**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 MIT basedon a percentage of sublicensing revenue or net sales of products or servicescovered by patents that are subject to the license. As of March 31, 2009,and December 31, 2008, the Company had accrued $2 for license fees androyalties 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 parties for the purpose ofdeveloping 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 March 31,2009 the remaining cash portion of the Company’s obligation, denominated inU.S. dollars, is $197 and the total remaining amount of in kind contributionthe Company is committed to is $576, 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**

 

In accordance withStatement of Financial Accounting Standards No. 157, *Fair ValueMeasurements*, (“SFAS 157”), the Company’s assets and liabilities aremeasured at fair value on a recurring basis as of March 31, 2009 and December 31,2008. Fair values determined by Level 1 inputs utilize observable data such asquoted prices in active markets. Fair values determined by Level 2 inputsutilize data points other than quoted prices in active markets that areobservable either directly or indirectly. Fair values determined by Level 3inputs utilize unobservable data points in which there is little or no marketdata, which require the reporting entity to develop its own assumptions.

 

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The following tablerepresents the Company’s assets and liabilities measured at fair value on arecurring basis at March 31, 2009.

 
| ** **                       | ** ** | **Fair value measurements at reporting date using**        | ** ** | ** **                                | ** ** |
|----------------------------------|------------|------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                       | ** ** | **Quoted prices in active  markets for identical  assets** | ** ** | **Significant other   observable inputs** | ** ** | **Significant  unobservable  inputs** | ** ** | **Balance as of** | ** ** |
| **Description**                  | ** ** | **(Level  1)**                                             | ** ** | **(Level  2)**                            | ** ** | **(Level  3)** | ** ** | **3/31/09** | ** ** |
| Cash equivalents:                |       |                                                       |       |                                      |       |   |   |   |   |
| Money Market funds               |       | $                                                          | —     |                                      | $          | 12,474 |   | $ | — |   | $ | 12,474 |   |
| Short-term investments:          |       |                                                       |       |                                      |       |   |   |   |   |
| Commercial paper                 |       | —                                                     |       | 17,234                                    |       | — |   | 17,234 |   |
| Government-sponsored enterprises |       | —                                                     |       | 51,628                                    |       | — |   | 51,628 |   |
|                             |       | $                                                          | —     |                                      | $          | 81,336 |   | $ | — |   | $ | 81,336 |   |

 

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  assets** | ** ** | **Significant  other   observable inputs** | ** ** | **Significant  unobservable   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-term investmentswere valued at March 31, 2009 using information provided by a pricingservice based on market observable information, or for investments in moneymarket funds, at calculated net asset values, and are therefore classified asLevel 2. Because the Company’s investment portfolio may include securities thatdo not always trade on a daily basis, the pricing service applies otheravailable information as applicable through processes such as benchmark yields,benchmarking of like securities, sector groupings and matrix pricing to prepareevaluations. The Company validates the prices provided by a third party pricingservices by reviewing their pricing methods and obtaining market values fromother pricing sources. The fair values of the Company’s cash equivalents andshort-term investments are determined through market and observable sources andhave been classified as Level 2. After completing the validation procedures, theCompany did not adjust or override any fair value measurements provided by itspricing services as of March 31, 2009 and December 31, 2008.

 

In January 2009,the Company implemented SFAS 157 for its nonfinancial assets andliabilities that are remeasured at fair value on a non-recurring basis. Theadoption of SFAS 157 for its nonfinancial assets and liabilities that areremeasured at fair value on a non-recurring basis did not have a significantimpact 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 months ended March 31, 2009 is a decrease in lossfrom operations and net loss of $354. Loss per share decreased by $0.02 for thethree months ended March 31, 2009.

 

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**14.RELATED PARTIES**

 

TheCompany recorded $25 of license and royalty revenue from Tepha, Inc., arelated party, during the three months ended March 31, 2009. During thethree months ended March 31, 2008 the Company recorded license and royaltyrevenue from Tepha, Inc. of $35. The Company had an outstanding receivablebalance due from Tepha of $44 as of March 31, 2009. As of December 31,2008 there was no outstanding receivable balance due from Tepha. The Companyalso had various transactions with its alliance partner ADM, a related party,during the three months ended March 31, 2009 and 2008. The Company had anoutstanding receivable balance of $260 due from ADM at March 31, 2009. Asof December 31, 2008 there was no significant outstanding receivablebalance due from ADM.  For more information on the Company’s related partytransactions, please see Note 8 to our audited financial statements included inour Annual Report on Form 10-K for the year ended December 31, 2008.

 

**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. Suchforward-looking statements are subject to a number of risks and uncertaintiesthat could cause actual results to differ materially from those anticipatedincluding, without limitation, the following risks: (1) we may not besuccessful at manufacturing Mirel on a commercial scale in a timely andeconomical manner, (2) we may not be successful in the development ofcommercial formulations of Mirel, (3) we may not be successful in thedevelopment of plant crops for production of plastics, (4) if there areadditional delays or cost increases in ADM’s construction of the CommercialManufacturing Facility, our revenues and the distribution of profits, if any,to us will be further delayed, (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 tointellectual

 

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property developed byothers using our information and technology, (14) intellectual propertyprotection for our products is important and uncertain, (15) a substantialportion of the technology used in our business is owned by or subject toretained rights of third parties, (16) third parties may claim we infringetheir intellectual property, (17) we may be unable to manage our growtheffectively, (18) we may not be successful in identifying market needs fornew technologies and developing new products to meet those needs, (19) ourproducts may be, or may be perceived as being, harmful to human health or theenvironment, (20) we face and will face substantial competition in severaldifferent markets, (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 to petroleum-basedplastics, with work underway to do the same with chemicals and energy. Ourcorporate strategy is to develop technology platforms that integrate advancedbiotechnology with current industrial practice and to commercialize theseplatforms 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 in the second half of 2009. The Commercial ManufacturingFacility will produce biobased and biodegradable Mirel plastic using cornsugar, an abundant agriculturally-produced renewable resource. We are currentlyproducing pre-commercial quantities of Mirel jointly with ADM at a small scalepre-commercial manufacturing facility.

 

 Oursecond technology platform, which is in an early stage, is a biomassbiorefinery system using plant crops to co-produce both bioplastics andbioenergy. For this system, we intend to extract polymer from the engineeredplant crop, so that the remaining plant material can be used as a biomassfeedstock for the production of bioenergy products including electricity andbiofuel. We are engineering switchgrass to produce bioplastics in the leaf andstem of the plant. We have also collaborated with the Australian CooperativeResearch Centre 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.

 

To exploitour first technology platform, we are working with ADM as they build theCommercial 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 allowfor a wide variety of commercial applications, offering anenvironmentally-friendly alternative to petroleum-derived synthetic materialswhich are not biodegradable. Through Telles we intend to position Mirel as apremium priced specialty material catering to customers who want to match thefunctionality of petroleum-based plastic, but add the dimension ofenvironmental responsibility to their products and brands.

 

As of March 31,2009, we had an accumulated deficit of $139,226 and total stockholders’ equitywas $50,977.

 

**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 March 31, 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, including tworemaining quarterly operating payments of $1,575 made on behalf of Telles andother payments, will be classified as deferred revenue as well. We expect tobegin recognizing revenue at the time of the First Commercial Sale of Mirel (asdefined in the Commercial Alliance Agreement). All amounts will be recognizedon a straight-line basis over the estimated period, of approximately ten years,in which our obligations are fulfilled in accordance with the terms of theCommercial Alliance Agreement.

 

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;                                          |
|   |   |                                                                                              |
| · |   | support payments of  $18,900 from ADM, on behalf of Telles, through March 31, 2009; and |
|   |   |                                                                                              |
| · |   | cumulative cost sharing  payments from ADM for pre-commercial manufacturing plant                 |

 

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construction and operations of $8,584.

 

Duringthe commercial alliance, ADM will construct, finance, own and operate theCommercial Manufacturing Facility through a manufacturing agreement with Tellesand we will provide or procure compounding services to convert the output fromthe Commercial Manufacturing Facility into forms that are suitable for variouscommercial applications.

 

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 March 31, 2009, the balance of the ADM Ledger Account was $309,378 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 March 31,2009, expected gross proceeds of  $1,092 remain to be received underour  government contracts and grants, which include amounts forreimbursement to our subcontractors, as well as reimbursement for our employees’time, benefits and other expenses related to future performance under thevarious contracts.

 

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**      | ** ** | **March 31, 2009** | ** ** | **March 31, 2009** | ** ** | **Expiration**     | ** ** |
| PHA Bioplastic                       |       |                   |       |           |       |                    |       |                    |       |               |       |
| Packing Materials                    |       | SERDP(1)               |       | $              | 1,005      |                    | $          | 943                     |       | $                  | 62         |   | Feb. 2009 |   |
|                                 |       |                   |       |           |       |                    |       |                    |       |               |       |
| Integrated  Bio-Engineered Chemicals |       | Department of Commerce |       | 2,000          |       | 970                     |       | 1,030                   |       | Sept. 2009         |       |
|                                 |       |                   |       |           |       |                    |       |                    |       |               |       |
| Total                                |       |                   |       | $              | 3,005      |                    | $          | 1,913                   |       | $                  | 1,092      |   |   |   |

 

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(1) StrategicEnvironmental Research and Development Program

 

**CriticalAccounting 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

 

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from other sources.Actual results may differ from these estimates. The significant accountingpolicies used in preparation of these condensed consolidated financialstatements for the three months ended March 31, 2009 are consistent withthose discussed in Note 2 to the consolidated financial statements in ourAnnual Report on Form 10-K for the year ended December 31, 2008. Thecritical accounting policies and the significant judgments and estimates usedin the preparation of our consolidated financial statements for the threemonths ended March 31, 2009 are consistent with those discussed in ourAnnual Report on Form 10-K for the year ended December 31, 2008 inthe section captioned “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Critical Accounting Estimates and Judgments.”

 

In thefirst quarter of 2009, due to an extended construction period and revisedestimated completion date of the Commercial Manufacturing Facility, we determinedwe would extend the period of use of our pre-commercial manufacturing plant bysix months from June 2009 to December 2009. In connection with this,the useful lives of the leasehold improvements connected to the pre-commercialmanufacturing plant were increased by six months. This change in accountingestimate was adopted prospectively from January 1, 2009. The effect of thechange in accounting estimate on the financial statements for the three monthsended March 31, 2009 is a decrease in loss from operations and net loss of$354. Loss per share decreased by $0.02 for the three months ended March 31,2009.

 

**Resultsof Operations**

 

**Comparisonof the Three Months Ended March 31, 2009 and 2008**

 

**Revenue**
| ** **                                           | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|------------|------------|
| ** **                                           | ** ** | **March 31,**     | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change** | ** ** |
| Research and development revenue                     |       | $                      | 6          |       | $          | 68 |   | (62 | ) |
| License fee and royalty revenue from related parties |       | 25                     |       | 35         |       | (10 | ) |
| Grant revenue                                        |       | 230                    |       | 301        |       | (71 | ) |
| Total revenue                                        |       | $                      | 261        |       | $          | 404 |   | (143 | ) |

 

Totalrevenue was $261 and $404 for the three months ended March 31 2009 and2008, respectively. During the three months ended March 31, 2009 werecognized $6 of research and development revenue compared to $68 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 March 31, 2009 to $230 from $301 during the three monthsended March 31, 2008, primarily as a result of a decrease in billableactivity related to the Strategic Environmental Research Development Programgrant.

 

**Expenses**

** **
| ** **                                                   | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|------------|------------|
| ** **                                                   | ** ** | **March 31,**     | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change** | ** ** |
| Research and development expenses, including cost of revenue |       | $                      | 6,008      |       | $          | 5,934 |   | $ | 74 |   |
| Selling,general, and administrative expenses                 |       | 3,714                  |       | 4,097      |       | (383 | ) |
| Total operating expense                                      |       | $                      | 9,722      |       | $          | 10,031 |   | $ | (309 | ) |

 

 ***Research and development expenses***

 

Researchand development expenses were $6,008 and $5,934 for the three months ended March 31,2009 and 2008, respectively. The increase of $74 was primarily due to the additionof new employees and related benefit expenses offset by a reduction inpre-commercial manufacturing costs. Employee and benefit related costs were$2,879 for the three months ended March 31, 2009 compared to $2,175 forthe respective period in 2008. The increase of $704 in payroll and benefits wasprimarily a result of hiring personnel needed to support our pre-commercialmanufacturing process and microbial and plant research programs. Pre-commercialmanufacturing expense decreased to $1,050 from $1,944 for the three months

 

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ended March 31, 2009and 2008, respectively. The decrease of $894 was primarily due to improvementsin our production process made during the last year as we continue to focus ourattention on reducing production costs, moving certain manufacturing processesin house and improving the quality of our pre-commercial manufacturingmaterial.

 

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. We expect our personnel costs will increase to supportour microbial and plant research programs.

 

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

 

Selling, general, andadministrative expenses were $3,714 and $4,097 for the three months ended March 31,2009 and 2008, respectively. The decrease of $383 was primarily due to reducedconsulting expenses and a decrease in employee compensation and related benefitexpense. Consulting related expenses decreased to $179 from $297 for the threemonths ended March 31, 2009 and 2008, respectively. The decrease of $118was primarily due to decreased use of consultants to support administrativeactivities such as employee compensation reviews and accounting compliance.Payroll and benefits related expenses decreased to $2,213 from $2,233 for thethree months ended March 31, 2009 and 2008, respectively. Included inpayroll and benefits is stock-based compensation expense, which decreased to$639 for the three months, ended March 31, 2009 from $856 for therespective period in 2008. Stock-based compensation expense decreased mainly asa result of the completion, in May 2008, of the vesting period for optionsgranted to our board of directors and an officer of the company.

 

We expect that selling,general, and administrative expenses will increase through the ConstructionPhase of the ADM agreement due to increasing payroll and expandinginfrastructure 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.

 

**OtherIncome (Net)**

 
| ** **               | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** |
|--------------------------|------------|------------------------|------------|------------|------------|
| ** **               | ** ** | **March 31,**     | ** ** | ** ** | ** ** |
| ** **               | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change** | ** ** |
| Total other income (net) |       | $                      | 352        |       | $          | 1,179 |   | $ | (827 | ) |
|                          |            |                        |            |            |            |  |  |  |  |  |

 

 

Otherincome (net) was $352 and $1,179 for the three months ended March 31, 2009and 2008, respectively. Other income (net) during both periods consisted ofinvestment income. The decrease of $827 during the three months ended March 31,2009 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.

 

**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

 

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· 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 March 31, 2009, we had anaccumulated deficit of $139,226. Our total unrestricted cash, cash equivalentsand short-term investments as of March 31, 2009 were $82,257 as comparedto $91,096 at December 31, 2008. As of March 31, 2009, we had nooutstanding debt.

 

Ourcash and cash equivalents at March 31, 2009 were held for working capitalpurposes. We do not enter into investments for trading or speculative purposes.The primary objective of our investment activities is to preserve our capitalto support the growth of our business. As of March 31, 2009 we hadrestricted cash of $593. Restricted cash consists of $493 held in connectionwith 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 March 31, 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 insufficient to satisfy ourliquidity requirements, or if we develop additional products, we may need tosell additional equity or debt securities or obtain a credit facility. The saleof additional equity and debt securities may result in additional dilution toour 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 by $4,162 to $8,626 during thethree months ended March 31, 2009 from $4,464 during the three monthsended March 31, 2008. Net cash used during the three months ended March 31,2009 primarily reflects the net loss for the period partially offset bynon-cash expenses, including stock-based compensation expense of $1,019,depreciation expense of $629 and the Company’s 401(k) matching stockcontribution of $160. The increase in cash used for operating activities duringthe three months ended March 31, 2009 as compared to the respective periodin 2008 was primarily due to the timing of quarterly support and pre-commercialcost sharing payments we receive from ADM. We received $2,500 from ADM duringthe three months ended March 31, 2008 and received no payments during thethree months ended March 31, 2009. We also received $798 less in fundsfrom investment income during the three months ended March 31, 2009 thanthe same period of the prior year as a result of lower market yields and ourlower average funds available for investing.

 

Netcash used in investing activities was $4,193 during the three months ended March 31,2009 compared to net cash of $17,275 provided by investing activities duringthe three months ended March 31, 2008. Net cash used in investmentactivities during the three months ended March 31, 2009 primarily representsnet cash of $4,126 used in the purchase, sale and maturity of investments and acash outflow of $137 used to purchase new equipment for research purposes.

 

Net cash provided byfinancing activities was $20 and $158 for the three months ended March 31,2009 and 2008, respectively. The cash provided by financing activities duringthe three months ended March 31, 2009 and 2008 was solely attributable tothe proceeds received from the exercise of stock options and warrants.

 

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**ContractualObligations**

 

Thefollowing table summarizes our contractual obligations at March 31, 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        |       | $                           | 427        |   | $ | 222 |   | $ | 130 |   | $ | 50 |   | $ | 25 |   |
| Operating lease obligations |       | 5,789                       |       | 1,327 |   | 2,369 |   | 2,011 |   | 82 |   |
| Total                       |       | $                           | 6,216      |   | $ | 1,549 |   | $ | 2,499 |   | $ | 2,061 |   | $ | 107 |   |

 

**Off-BalanceSheet Arrangements**

 

As of March 31,2009, we had no off-balance sheet arrangements as defined in Item 303(a) (4) ofthe Securities and Exchange Commission’s Regulation S-K.

 

**RelatedParty Transactions**

 

Werecorded $25 of license and royalty revenue from Tepha, Inc., a relatedparty, during the three months ended March 31, 2009. During the threemonths ended March 31, 2008 we recorded license and royalty revenue fromTepha, Inc. of $35. We had an outstanding receivable balance due fromTepha of $44 as of March 31, 2009. As of December 31, 2008 there wasno outstanding receivable balance due from Tepha. We also had varioustransactions with our alliance partner ADM, a related party, during the threemonths ended March 31, 2009 and 2008. We had an outstanding receivablebalance of $260 due from ADM at March 31, 2009. As of December 31,2008 there was no significant outstanding receivable balance due fromADM.  For more information on our related party transactions, please seeNote 8 to our audited financial statements included in our Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

**RecentAccounting Pronouncements**

 

EffectiveJanuary 1, 2009, we implemented Statement of Financial AccountingStandards No. 141(R), *BusinessCombination,* 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.Due to the fact that SFAS 141(R) is applicable to future acquisitionscompleted after January 1, 2009 and we did not have any businesscombinations this quarter, the adoption of SFAS 141(R) did not havean impact on our consolidated financial statements.

 

On May 5,2008, Statement of Financial Accounting Standards No. 162*, The Hierarchy of Generally Accepted AccountingPrinciples,*or SFAS 162, was issued. This standard identifiesthe sources of accounting principles and the framework for selecting theprinciples to be used in the preparation of financial statements that arepresented in conformity with GAAP in the U.S. The adoption of thisstandard will not impact the presentation of our financial position or resultsof operations.

 

***Recently Issued Accounting Standards***

 

In April 2009,the FASB issued the following new accounting 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.

 

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·                  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.

 

Thesestandards are effective for periods ending after June 15, 2009. We areevaluating the impact that these standards will have on our financialstatements.

 

**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 March 31,2009. 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 tomanagement, including the Principal Executive Officer and Principal FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure. Based on this evaluation, our Principal Executive Officer andPrincipal Financial Officer concluded that these disclosure controls andprocedures are effective and designed to ensure that the information requiredto be disclosed in our reports filed or submitted under the Exchange Act isrecorded, processed, summarized and reported within the requisite time periods.

 

**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 March 31,2009 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**

 

Therehave been no material changes in information regarding our risk factors asdescribed in Part I, Item 1A of our Annual Report on Form 10-K forthe year ended December 31, 2008.

 

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

 

**RecentSales of Unregistered Securities**

 

On January 21,2009, the Company issued 9,512 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 March 31, 2009, there were no repurchases made byus or 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 OF SECURITY HOLDERS**

 

None

 

**ITEM 5. OTHER INFORMATION**

 

None

 

 

**ITEM 6. EXHIBITS**

 
| 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 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. |
|------------------|-----------------|
|             |            |
|             |            |
| May 7, 2009 | By:             | /s/ RICHARD P. ENO |
|             |            | Richard P. Eno |
|             |            | *President  and Chief Executive Officer* |
| * *         |            | *(Principal  Executive Officer)* |
| * *         | * *        |
| May 7, 2009 | By:             | /s/ JOSEPH D. HILL |
|             |            | Joseph D. Hill |
|             |            | *Chief  Financial Officer* |
| * *         |            | *(Principal  Financial and Accounting Officer)* |

 

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