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****UNITED STATES******SECURITIES AND EXCHANGE COMMISSION******Washington, D.C. 20549****

 

**FORM 10-Q**

** **

| **x**                                                                                                                                                                                                                                     | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934.** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                      | ** **                                                                                               | ** ** |
| **For the quarterly period ended June 30, 2008**                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                                |
| **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 telephonenumber, including area code)

 

 

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

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x  No o

 

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

 

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

 

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

 

Thenumber of shares outstanding of the registrant’s common stock as of August 5,2008 was 22,901,801.

 

 

 

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**Metabolix, Inc.Form 10-QFor the Quarter Ended June 30, 2008**

 

**Table ofContents**

 
| ** **                             | ** **                                                                                  | ** **                                                                                                            | **Page** |
|----------------------------------------|---------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|----------|
| **Part I. Financial Information** |                                                                                        |
| ** **                             |                                                                                        |
| Item                                   |                                                                                        |                                                                                                                  |     |
| 1.                                     | Condensed Consolidated  Financial Statements (Unaudited)                                    |                                                                                                                  |
|                                   |                                                                                        |  Condensed Consolidated Balance Sheets at  June 30, 2008 and December 31, 2007                         | 3        |
|                                   |                                                                                        |  Condensed Consolidated Statements of  Operations for the three and six months ended June 30, 2008 and 2007 | 4        |
|                                   |                                                                                        |  Condensed Consolidated Statements of Cash  Flows for the six months ended June 30, 2008 and 2007           | 5        |
|                                   |                                                                                        |  Notes to the Condensed Consolidated  Financial Statements                                                       | 6        |
| 2.                                     | Management’s Discussion and Analysis  of Financial Condition and Results of Operations | 13                                                                                                                    |
| 3.                                     | Quantitative  and Qualitative Disclosures About Market Risk                                 | 22                                                                                                                    |
| 4.                                     | Controls and  Procedures                                                                    | 22                                                                                                                    |
|                                   |                                                                                        |                                                                                                                  |     |
| **Part II. Other  Information**   |                                                                                        |
|                                   |                                                                                        |                                                                                                                  |     |
| Item                                   |                                                                                        |                                                                                                                  |     |
| 1.                                     | Legal Proceedings                                                                           | 23                                                                                                                    |
| 1A.                                    | Risk Factors                                                                                | 23                                                                                                                    |
| 2.                                     | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 23                                                                                                                    |
| 3.                                     | Defaults  Upon Senior Securities                                                            | 23                                                                                                                    |
| 4.                                     | Submission  of Matters to a Vote of Security Holders                                        | 23                                                                                                                    |
| 5.                                     | Other Information                                                                           | 24                                                                                                                    |
| 6.                                     | Exhibits                                                                                    | 24                                                                                                                    |
| **SIGNATURES**                         | 25                                                                                          |
|                                        |                                                                                             |                                                                                                                       |          |  |

 

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1.  CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**METABOLIX,INC.CONDENSED CONSOLIDATED BALANCE SHEETSUNAUDITED(in thousands, except share and per share data)**

** **
| ** **                                                                                                                                                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                          | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| **Assets**                                                                                                                                                                                                                                          |       |              |       |                  |       |
| Current assets:                                                                                                                                                                                                                                     |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                                                           |       | $                 | 22,101     |                  | $          | 22,686 |   |
| Short-term investments                                                                                                                                                                                                                              |       | 78,980            |       | 86,640                |       |
| Accounts receivable                                                                                                                                                                                                                                 |       | 121               |       | 133                   |       |
| Due from related parties                                                                                                                                                                                                                            |       | 244               |       | 1,216                 |       |
| Unbilled receivable                                                                                                                                                                                                                                 |       | 120               |       | 198                   |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                           |       | 448               |       | 673                   |       |
| Total current assets                                                                                                                                                                                                                                |       | 102,014           |       | 111,546               |       |
| Restricted cash                                                                                                                                                                                                                                     |       | 494               |       | 498                   |       |
| Property and equipment, net                                                                                                                                                                                                                         |       | 5,750             |       | 6,890                 |       |
| Other assets                                                                                                                                                                                                                                        |       | 98                |       | 70                    |       |
| Total assets                                                                                                                                                                                                                                        |       | $                 | 108,356    |                  | $          | 119,004 |   |
|                                                                                                                                                                                                                                                |       |              |       |                  |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                                                       |       |              |       |                  |       |
| Current liabilities:                                                                                                                                                                                                                                |       |              |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                    |       | $                 | 544        |                  | $          | 299 |   |
| Accrued liabilities                                                                                                                                                                                                                                 |       | 3,335             |       | 4,195                 |       |
| Current portion of deferred rent                                                                                                                                                                                                                    |       | 165               |       | 165                   |       |
| Deferred revenue                                                                                                                                                                                                                                    |       | 50                |       | —                |       |
| Total current liabilities                                                                                                                                                                                                                           |       | 4,094             |       | 4,659                 |       |
| Deferred rent and other long term  liabilities                                                                                                                                                                                                      |       | 883               |       | 963                   |       |
| Long-term deferred revenue                                                                                                                                                                                                                          |       | 28,579            |       | 24,180                |       |
| Total liabilities                                                                                                                                                                                                                                   |       | 33,556            |       | 29,802                |       |
|                                                                                                                                                                                                                                                |       |              |       |                  |       |
| Commitments and contingencies (Note 11)                                                                                                                                                                                                             |       |              |       |                  |       |
|                                                                                                                                                                                                                                                |       |              |       |                  |       |
| Stockholders’ Equity:                                                                                                                                                                                                                          |       |              |       |                  |       |
| Common stock ($0.01 par value per share);  100,000,000 shares authorized at June 30, 2008 and December 31,  2007; 22,887,214 and 22,576,111 shares issued and outstanding at  June 30, 2008 and December 31, 2007, respectively |       | 229               |       | 226                   |       |
| Additional paid-in capital                                                                                                                                                                                                                          |       | 186,012           |       | 182,852               |       |
| Accumulated other comprehensive income                                                                                                                                                                                                              |       | 44                |       | 236                   |       |
| Accumulated deficit                                                                                                                                                                                                                                 |       | (111,485          | )          | (94,112               | )          |
| Total stockholders’ equity                                                                                                                                                                                                                     |       | 74,800            |       | 89,202                |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                     |       | $                 | 108,356    |                  | $          | 119,004 |   |

 

*The accompanying notes are an integral part of these consolidatedfinancial statements*

 

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**METABOLIX,INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSUNAUDITED(in thousands, except share and per share data)**

 
| ** **                                                    | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                    | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                    | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenue:                                                      |       |                             |       |                           |       |   |   |   |   |
| Research and development revenue                              |       | $                                | 11         |                           | $          | — |   | $ | 79 |   | $ | — |   |
| License fee and royalty revenue from  related parties         |       | 35                               |       | 32                             |       | 70 |   | 107 |   |
| Grant revenue                                                 |       | 355                              |       | 155                            |       | 656 |   | 508 |   |
| Total revenue                                                 |       | 401                              |       | 187                            |       | 805 |   | 615 |   |
| Operating expenses:                                           |       |                             |       |                           |       |   |   |   |   |
| Research and development expenses,  including cost of revenue |       | 6,008                            |       | 5,026                          |       | 11,942 |   | 8,833 |   |
| Selling, general, and administrative  expenses                |       | 4,048                            |       | 4,351                          |       | 8,145 |   | 7,199 |   |
| Total operating expenses                                      |       | 10,056                           |       | 9,377                          |       | 20,087 |   | 16,032 |   |
|                                                          |       |                             |       |                           |       |   |   |   |   |
| Loss from operations                                          |       | (9,655                           | )          | (9,190                         | )          | (19,282 | ) | (15,417 | ) |
|                                                          |       |                             |       |                           |       |   |   |   |   |
| Other income:                                                 |       |                             |       |                           |       |   |   |   |   |
| Interest income, net                                          |       | 730                              |       | 1,524                          |       | 1,909 |   | 3,062 |   |
|                                                          |       |                             |       |                           |       |   |   |   |   |
| Net loss                                                      |       | $                                | (8,925     | )                              | $          | (7,666 | ) | $ | (17,373 | ) | $ | (12,355 | ) |
|                                                          |       |                             |       |                           |       |   |   |   |   |
| Net loss per share:                                           |       |                             |       |                           |       |   |   |   |   |
| Basic and Diluted                                             |       | $                                | (0.39      | )                              | $          | (0.35 | ) | $ | (0.76 | ) | $ | (0.57 | ) |
|                                                          |       |                             |       |                           |       |   |   |   |   |
| Number of shares used in per share  calculations:             |       |                             |       |                           |       |   |   |   |   |
| Basic and Diluted                                             |       | 22,787,087                       |       | 21,730,859                     |       | 22,717,913 |   | 21,581,359 |   |

 

*The accompanying notes are an integral part of these consolidatedfinancial statements*

 

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**METABOLIX, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSUNAUDITED(in thousands)**

*** ***
| ** **                                                               | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                               | ** ** | **June 30,**              | ** ** |
| ** **                                                               | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| **Cash flows from operating activities**                                 |       |                           |       |   |   |
| Net loss                                                                 |       | $                              | (17,373    | ) | $ | (12,355 | ) |
| Adjustments to reconcile net loss to cash  used in operating activities: |       |                           |       |   |   |
| Depreciation                                                             |       | 1,814                          |       | 518 |   |
| Stock-based compensation                                                 |       | 2,192                          |       | 1,635 |   |
| Charge for 401(k) company common stock  match                       |       | 212                            |       | — |   |
| Changes in operating assets and  liabilities:                            |       |                           |       |   |   |
| Receivables (billed and unbilled)                                        |       | 90                             |       | (102 | ) |
| Due from related party                                                   |       | 119                            |       | 521 |   |
| Prepaid expenses, other assets, and  restricted cash                     |       | 212                            |       | 4 |   |
| Accounts payable                                                         |       | 245                            |       | (1,100 | ) |
| Accrued liabilities                                                      |       | (996                           | )          | 2,065 |   |
| Deferred rent and other long term  liabilities                           |       | (80                            | )          | (80 | ) |
| Deferred revenue                                                         |       | 5,302                          |       | 2,572 |   |
| Net cash used in operating activities                                    |       | (8,263                         | )          | (6,322 | ) |
|                                                                     |       |                           |       |   |   |
| **Cash flows from investing activities**                                 |       |                           |       |   |   |
| Purchase of property and equipment                                       |       | (483                           | )          | (2,019 | ) |
| Purchase of short-term investments                                       |       | (62,188                        | )          | (105,149 | ) |
| Proceeds from sale and maturity of  short-term investments               |       | 69,685                         |       | 95,650 |   |
| Net cash provided by (used in) investing  activities                     |       | 7,014                          |       | (11,518 | ) |
|                                                                     |       |                           |       |   |   |
| **Cash flows from financing activities**                                 |       |                           |       |   |   |
| Proceeds from exercise of options and  warrants                          |       | 664                            |       | 1,692 |   |
| Net cash provided by financing activities                                |       | 664                            |       | 1,692 |   |
|                                                                     |       |                           |       |   |   |
| Net decrease in cash and cash equivalents                                |       | (585                           | )          | (16,148 | ) |
| Cash and cash equivalents at beginning of  period                        |       | 22,686                         |       | 25,182 |   |
| Cash and cash equivalents at end of period                               |       | $                              | 22,101     |   | $ | 9,034 |   |

 

*The accompanying notes are an integral part of these consolidatedfinancial statements*

 

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**METABOLIX,INC.NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED**

*(Alldollar amounts are stated in thousands.)*

 

**1. BASIS OF PRESENTATION**

 

The accompanying condensed consolidated financial statements areunaudited and have been prepared by Metabolix, Inc. (“the Company”) inaccordance with accounting principles generally accepted in the United Statesof America (“GAAP”) and pursuant to the instructions to Form 10-Q and Article 10of Regulation S-X. Certain information and footnote disclosures normallyincluded in the Company’s annual consolidated financial statements have beencondensed or omitted. The year-end condensed consolidated balance sheet datawas derived from audited financial statements, but does not include alldisclosures required by GAAP. The condensed consolidated financial statements,in the opinion of management, reflect all adjustments (consisting only ofnormal recurring accruals) necessary for a fair statement of the financialposition and results of operations for the interim periods ended June 30,2008 and 2007.

 

The results of operations for the interim periods are not necessarilyindicative of the results of operations to be expected for any future period orthe entire fiscal year. These interim condensed consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements for the year ended December 31, 2007, which arecontained in the Company’s Annual Report on Form 10-K filed with theSecurities and Exchange Commission.

 

**2. ACCOUNTING POLICIES**

 

Except as indicated below, there have been no material changes inaccounting policies since the end of the fiscal year ended December 31, 2007,as described in Note 3 to the consolidated financial statements included in theCompany’s Annual Report on Form 10-K for the year ended December 31,2007.

 

**Fair Value Measurements**

 

TheCompany adopted the provisions of Financial Accounting Standards Board (“FASB”)Statement of Financial Accounting Standard (“SFAS”) No. 157, *Fair Value Measurements* (“SFAS 157”) on January 1,2008. As permitted by FASB Staff Position (“FSP”) No. SFAS 157-2, *Effective Date of FASB Statement No. 157* (“FSP SFAS157-2”), the Company elected to defer the adoption of SFAS  157 for allnonfinancial assets and nonfinancial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on arecurring basis, until January 1, 2009. SFAS 157 establishes aframework for measuring fair value and expands financial statement disclosuresabout fair value measurements. There was no cumulative effect of adoptionrelated to SFAS 157 and the adoption did not have an impact on ourfinancial position, results of operations, or cash flows. The Company isstudying SFAS 157 with respect to nonfinancial assets and nonfinancialliabilities falling under the scope of FSP SFAS 157-2 and has not yetdetermined the expected impact on the financial position, results ofoperations, or cash flows. See Note 12 for a discussion of the Company’sadoption of SFAS 157.

 

TheCompany adopted the provisions of SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities, including anamendment of FASB Statement No. 115* (“SFAS 159”) on January 1,2008. SFAS 159 permits entities to choose, at specified election dates, tomeasure eligible items at fair value (the “fair value option”). Under thispronouncement, a business entity must report unrealized gains and losses onitems for which the fair value option has been elected in earnings at eachsubsequent reporting period. The Company has not elected the fair value optionfor any items on its balance sheet.

 

**3. RECENT ACCOUNTING PRONOUNCEMENTS**

 

In December 2007, theFASB issued SFAS No. 141(R), *Business Combinations*(“SFAS141(R)”), which replaces SFAS No. 141. This revised standard requiresassets, liabilities and non-controlling interests acquired to be measured atfair value and requires that costs incurred to effect the acquisition berecognized separately from the business combination. In addition, thisstatement expands the scope to include all transactions and other events inwhich one entity obtains control over one or more business. This statement iseffective for all business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008. The Company is in the process of evaluating whether the adoption of thisstandard will have a material effect on its financial position, results ofoperations or cash flows.

 

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In December 2007, theFASB issued SFAS No. 160, *Non-controlling Interestsin Consolidated Financial Statements, an Amendment of ARB No. 51*(“SFAS160”). This statement establishes accounting and reporting standards for thenon-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. This statement is effective for fiscal years beginning on or after December 15,2008. The Company is in the process of evaluating whether the adoption of thisstandard will have a material effect on its financial position, results ofoperations or cash flows.

 

In December 2007, the Emerging Issues Task Force (“EITF”) reacheda consensus on EITF Issue 07-01, *Accountingfor Collaborative Arrangements Related to the Development and Commercializationof Intellectual Property*(“EITF 07-01”).EITF 07-01 prescribes the accounting for collaborations. It requirescertain transactions between collaborators to be recorded in the incomestatement on either a gross or net basis when certain characteristics exist inthe collaboration relationship. EITF 07-01 is effective for all of theCompany’s collaborations existing after January 1, 2009. The Company is inthe process of evaluating whether the adoption of this standard will have amaterial effect on its financial position, results of operations or cash flows.

 

In May 2008, the FASBissued SFAS No. 162, *The Hierarchy of GenerallyAccepted Accounting Principles* (“SFAS 162”). SFAS 162 is intended toimprove financial reporting by identifying a consistent framework, orhierarchy, for selected accounting principles to be used in preparing financialstatements that are presented in conformity with GAAP for nongovernmentalentities. The statement establishes that the GAAP hierarchy should be directedto entities because it is the entity (not its auditor) that is responsible forselecting accounting principles for financial statements that are presented inconformity with GAAP. This statement is effective 60 days following the U.S.Securities and Exchange Commission’s approval of the Public Company AccountingOversight Board Auditing amendments to AU Section 411, *The Meaning of Present Fairly in Conformity with Generally AcceptedAccounting Principles*. The Company is in the process of evaluatingwhether the adoption of this standard will have a material effect on itsfinancial position, results of operations or cash flows.

 

In June 2008, the FASBissued FSP EITF 03-6-1, *Determining WhetherInstruments Granted in Share-Based Payment Transactions Are ParticipatingSecurities* (“FSP EITF 03-6-1”) FSP EITF 03-6-1 addresses whetherinstruments granted in share-based payment transactions are participatingsecurities prior to vesting and, therefore, need to be included in the earningsallocation in computing earnings per share under the two-class method as describedin SFAS No. 128, *Earnings per Share*.Under the guidance in FSP EITF 03-6-1, unvested share-based payment awards thatcontain non-forfeitable rights to dividends or dividend equivalents (whetherpaid or unpaid) are participating securities and shall be included in thecomputation of earnings per share pursuant to the two-class method. FSP EITF03-6-1 is effective for financial statements issued in fiscal years beginningafter December 15, 2008, and interim periods within those years. Allprior-period earnings per share data presented shall be adjustedretrospectively. Early application is not permitted. The Company is in theprocess of evaluating whether the adoption of this standard will have amaterial effect on its financial position, results of operations or cash flows.

 

**4. COMPREHENSIVE LOSS**

 

Comprehensiveloss is comprised of net loss and net unrealized gains on marketablesecurities. Total comprehensive loss for the three and six months ended June 30,2008 and 2007 is as follows:

 
| ** **                               | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                               | ** ** | **June 30**                 | ** ** | **June 30**               | ** ** |
| ** **                               | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net loss                                 |       | $                                | (8,925     | )                              | $          | (7,666 | ) | $ | (17,373 | ) | $ | (12,355 | ) |
| Other comprehensive income:              |       |                             |       |                           |       |   |   |   |   |
| Change in unrealized gain on investments |       | (353                             | )          | 66                             |       | (192 | ) | 65 |   |
| Total other comprehensive income         |       | (353                             | )          | 66                             |       | (192 | ) | 65 |   |
| Comprehensive loss                       |       | $                                | (9,278     | )                              | $          | (7,600 | ) | $ | (17,565 | ) | $ | (12,290 | ) |

 

**5. BASIC AND DILUTED NET LOSS PERSHARE**

 

Basic net loss per share is computed by dividing net loss by theweighted-average number of shares of common stock outstanding and warrantsoutstanding that were previously issued for little or no consideration,excluding the dilutive effects of common stock equivalents. Common stockequivalents include stock options and certain warrants. Diluted net income pershare includes the dilutive effect of common stock equivalents under thetreasury stock method.

 

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The number of shares of potentially dilutive common stock related tooptions and warrants that were excluded from the calculation of dilutive sharessince the inclusion of such shares would be anti-dilutive for the three and sixmonths ended June 30, 2008 and 2007, respectively, are shown below:

 
| ** ** | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** ** | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** ** | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Options    |       | 2,385,352                        |       | 2,404,038                      |       | 2,385,352 |   | 2,404,038 |   |
|       |       |                             |       |                           |       |   |   |   |   |
| Warrants   |       | 4,086                            |       | 83,648                         |       | 4,086 |   | 83,648 |   |
| Total      |       | 2,389,438                        |       | 2,487,686                      |       | 2,389,438 |   | 2,487,686 |   |

 

**6. STOCK-BASED COMPENSATION**

 

On January 1, 2006, the Company adopted Statement of FinancialAccounting Standards No. 123(R), *Share-BasedPayment* (“SFAS 123(R)”). Under the provisions ofSFAS 123(R), compensation cost recognized for the three and six monthsended June 30, 2008 and 2007 included compensation cost for all stockoptions granted to employees subsequent to January 1, 2006, based on thegrant date fair value estimated in accordance with the provisions of SFAS 123(R) andwill be recognized over the vesting period of the applicable award on astraight-line basis. The effect of SFAS 123(R) for the three and sixmonths ended June 30, 2008 was an expense of $1,108 and $2,334,respectively. The increase in basic and diluted net loss per share for thethree and six months ended June 30, 2008 was $0.05 and $0.10,respectively. For the three and six months ended June 30, 2007 the effectof SFAS 123(R) was an increase in net loss of $806 and $1,205,respectively. The increase in basic and diluted net loss per share for thethree and six months ended June 30, 2007 was $0.05 and $0.08,respectively. There is no expense recorded for options which were granted priorto January 1, 2006 under the minimum value method if the exercise pricewas equal to the fair value of common stock and the measurement date was fixedat the time of grant. The Company granted options to an officer of the Companyprior to January 1, 2006 that contained performance based vestingconditions which were met during the year ended December 31, 2006. Theresulting deferred compensation was recorded ratably over the remaining serviceperiod, $10 and $36 was recorded during the three and six months ended June 30,2007, respectively.

 

A summary of option activity for the six months ended June 30,2008 and 2007 is as follows:

 
| ** **                                                                   | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **June 30,**              | ** ** |
| ** **                                                                   | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| ** **                                                                   | ** ** | **Number**                     | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Number** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|                                                                         |       |                           |       |   |   |   |   |   |   |
| Outstanding at beginning of period                                           |       | 2,151,784                      |       | $ | 10.70 |   | 2,717,244 |   | $ | 4.60 |   |
| Granted                                                                      |       | 720,700                        |       | 12.52 |   | 426,151 |   | 22.76 |   |
| Exercised                                                                    |       | (291,053                       | )          | 2.32 |   | (625,572 | ) | 2.55 |   |
| Canceled                                                                     |       | (196,079                       | )          | 14.39 |   | (113,785 | ) | 3.23 |   |
| Outstanding at end of period                                                 |       | 2,385,352                      |       | 11.97 |   | 2,404,038 |   | 8.41 |   |
|                                                                         |       |                           |       |   |   |   |   |   |   |
| Options exercisable as of June 30,                                      |       | 1,118,881                      |       |   |   | 1,123,151 |   |   |   |
|                                                                         |       |                           |       |   |   |   |   |   |   |
| Weighted average grant date fair value of  options granted during the period |       |                           |       | $ | 7.40 |   |   |   | $ | 14.01 |   |

 

**Non-employee Stock Option Awards**

 

The compensation expense related to non-employee stock options isgenerally recognized over a period of four years. The grants generally vestquarterly and such vesting is contingent upon future services provided by theconsultants to the Company. The Company recorded consultant related stock-basedcompensation expense of $3 for the three months ended June 30, 2008 andrecorded a benefit of $142 for the six months ended June 30, 2008. For thethree and six months ended June 30, 2007 the Company recorded stock-basedcompensation expense of $301 and $394, respectively. Options remaining unvestedfor non-employees are subject to remeasurement each reporting period prior tovesting in full. Since the fair 

 

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marketvalue of the options issued to non-employees are subject to changes in thefuture, the compensation expense recognized in each quarter may not beindicative of future compensation charges.

 

**7.SIGNIFICANT COLLABORATIONS**

 

**ADM Agreement**

 

On November 3, 2004, the Company signed an agreement with ADMPolymer Corporation (“ADM”), a subsidiary of Archer Daniels Midland Company, toestablish an alliance whereby the Company would provide technology and licensesthereto and research and development services, and ADM would providemanufacturing services and capital necessary to produce**MirelTM biobased plastic on acommercial scale basis. This agreement was amended by the parties on September 8,2005 to define certain cost sharing activities related to pilot manufacturing,to change certain milestones and to make other minor modifications.

 

On July 12, 2006, ADM exercised an option (the “Option”) to enterinto a commercial alliance for further research, development, manufacture, useand sale of Mirel on the terms and conditions set forth in the CommercialAlliance Agreement.

 

***CommercialAlliance Agreement***

 

The Commercial Alliance Agreement specifies the terms and structure ofthe relationship 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**biobasedplastic. These activities include: the establishment of a joint salescompany, which has been named Telles, to market and sell Mirel, theconstruction of a manufacturing facility capable of producing 110 millionpounds of material annually (the “Commercial Manufacturing Facility”), thelicensing of technology to Telles and to ADM, and the conducting of variousresearch, development, manufacturing, sales and marketing, compounding andadministrative services by the parties.

 

Telles is a limited liability company, formed and equally owned by theCompany and ADM, and is intended to: (i) serve as the commercial entity toestablish and develop the commercial market for Mirel, and conduct themarketing and sales 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.

 

A summary 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 biobased plastic under contract to Telles; (ii) the Companywill either arrange for and finance the acquisition or construction of afacility in which it will compound Mirel**biobased plastic or it will arrangefor third parties to compound  Mirel biobased plastic; (iii) theCompany, acting in the name and on behalf of Telles, will establish the initialmarket for Mirel. The Company will also continue its research and developmentefforts to further advance the technology and expand and enhance the commercialpotential of**Mirel. Subject to certain limitations, ADM will finance the working capitalrequirements of Telles.

 

Telles will make up to twelve payments of $1,575 per calendar quarterto the Company to support these activities during the construction of theCommercial Manufacturing Facility. In the event construction is completed andsale of commercial product commences prior to Telles making all twelve suchpayments, the quarterly payments will cease and Telles will pay the Company alump sum equal to the number of remaining unpaid payments multiplied by $250.Through June 30, 2008, support payments totaling $15,750 have been receivedby the Company and recorded as deferred revenue.

 

During the construction period of the Commercial Manufacturing Facilityall pre-commercial material production expenses incurred by ADM and the Companyare shared equally. Accordingly, from the execution of this agreement in July 2006through June 30, 2008, ADM has reimbursed the Company $6,380. At June 30,2008, net reimbursements of $241 were due from ADM. All amounts due or receivedfrom ADM relating to this agreement are recorded as deferred revenue.

 

Upon the commencement of commercial sales, Telles will pay the Companyroyalties on sales as well as reimburse it for the cost of services providedpursuant to the Commercial Alliance Agreement.

 

While Telles is a fifty-fifty joint venture, ADM will be advancing adisproportionate share of the financial capital needed to construct themanufacturing plant and to fund its activities. Therefore, a preferentialdistribution of cash flow will be used, whereby all profits (after payment ofall royalties, 

 

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reimbursementsand fees) from Telles will be distributed to ADM until ADM’s disproportionateinvestment in the alliance has been returned in full. Once ADM has recoupedsuch amounts, the profits of Telles will be distributed in equal amounts to theparties.

 

The Commercial Alliance Agreement provides for expansion of theoperations of Telles beyond the initial license of 110 million poundsannual production through an equally-owned joint venture. While certainprinciples of the joint venture have been agreed to, the detailed terms andconditions will not be determined until a later date.

 

Revenue recognition for amounts deferred through June 30, 2008 isexpected to commence approximately at the time of the first commercial sale ofMirel**and the amounts will be recognizedproportionately over the period that the final services are provided over theestimated remaining term of the Commercial Alliance Agreement.

 

The Commercial Alliance Agreement and related agreements includedetailed provisions setting out the rights and obligations of the parties inthe event of a termination of the Commercial Alliance Agreement. These provisionsinclude the right for either party to terminate the Commercial AllianceAgreement upon a material default of a material obligation by the other partyafter a notice and cure period has expired. The parties are also permitted toterminate the Commercial Alliance Agreement if a change in circumstances thatis not reasonably within the control of a party makes the anticipated financialreturn from the project inadequate or too uncertain. Finally, the parties havespecific obligations to fulfill in the event of termination or if they file forbankruptcy protection.

 

** 8. INCOME TAXES**

 

TheCompany adopted the provisions of FASB Interpretation No. 48 (“FIN 48”) *Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109*(“SFAS 109”)**on January 1, 2007. As a result of the implementation of FIN48, the Company recorded no adjustment for unrecognized income tax benefits. Atthe date of adoption of January 1, 2007, and also at June 30, 2008,the Company had no unrecognized tax benefits. The Company does not expect thetotal amount of unrecognized tax benefits to significantly increase in the nexttwelve months.

 

The tax years 2004 through 2007 remain open to examination by majortaxing jurisdictions to which the Company is subject, which are primarily inthe US.

 

The Company’s policy is to record estimated interest and penaltiesrelated to uncertain tax positions in income tax expense. As of June 30,2008, the Company had no accrued interest or penalties recorded related touncertain tax positions.

 

At December 31, 2007 the Company had net operating losscarryforwards for federal and state income tax purposes of $33,620 and $23,822,respectively. The Company’s federal and state net operating loss carryforwardswill begin to expire in 2008. The Company also had available research anddevelopment credits for federal and state income tax purposes of $2,082 and$1,662 respectively. The federal and state research and development creditswill begin to expire in 2012 and 2015, respectively. As of December 31,2007 the Company also had available investment tax credits for state income taxpurposes of $124 which began to expire in 2008. Management of the Company hasevaluated the positive and negative evidence bearing upon the realizability ofits deferred tax assets, which are comprised principally of net operating losscarryforwards and research and development credits. Under the applicableaccounting standards, management has considered the Company’s history of lossesand concluded that it is more likely than not that the Company will notrecognize the benefits of federal and state deferred tax assets. Accordingly, afull valuation allowance has been established against the deferred tax assets.

 

Utilization of Net Operating Loss (“ NOL”) and Research &Development, (“R&D”) credit carryforwards may be subject to a substantialannual limitation due to ownership change limitations that have occurredpreviously or that could occur in the future as provided by Section 382and 383 of the Internal Revenue Code of 1986, as well as similar stateprovisions. These ownership changes may limit the amount of NOL and R&Dcredit carryforwards that can be utilized annually to offset future taxableincome and tax, respectively. In general, an ownership change, as defined by Section 382,results from transactions increasing the ownership of certain shareholders orpublic groups in the stock of a corporation by more than 50 percentagepoints over a three year period. Since the Company’s formation, the Company hasraised capital through the issuance of capital stock which, combined with thepurchasing shareholders’ subsequent disposition of those shares, may haveresulted in a change of control, as defined by Section 382, or could 

 

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resultin a change of control in the future upon subsequent disposition. The Companyhas not currently completed a study to assess whether there have been multiplechanges of control since the Company’s formation due to the significantcomplexity and cost associated with such study. If the Company has experienceda change in control at any time since the Company’s formation, utilization ofthe Company’s NOL or R&D credit carryforwards would be subject to an annuallimitation under Section 382 and 383. Any limitation may result inexpiration of a portion of the NOL or R&D credit carryforwards beforeutilization. Until a study is completed and any limitation known, no amountsare being presented as uncertain tax positions under FIN 48.

 

** 9. ACCRUED LIABILITIES**

 

                Accrued liabilities consisted ofthe following at:

 
| ** **                          | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Employee compensation and benefits  |       | $                           | 1,410      |                            | $          | 1,985 |   |
| Other                               |       | 949                         |       | 1,035                           |       |
| Pre-commercial manufacturing costs  |       | 514                         |       | 443                             |       |
| Professional services               |       | 289                         |       | 407                             |       |
| Contracted research and development |       | 173                         |       | 325                             |       |
| Total accrued expenses              |       | $                           | 3,335      |                            | $          | 4,195 |   |

 

**10. SEGMENT INFORMATION**

 

The Company operates in one segment. There have been no changes in thesegment information since the fiscal year ended December 31, 2007, asdescribed in Note 3 to the financial statements included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2007.

 

**11. COMMITMENTS AND CONTINGENCIES**

 

**Legal Proceedings**

 

 From time to time, the Companymay be subject to legal proceedings and claims in the ordinary course ofbusiness. The Company is not currently aware of any such proceedings or claimsthat it believes will have, individually or in the aggregate, a materialadverse effect on the business, financial condition or results of operations.

 

**License Agreement withMassachusetts Institute of Technology (“MIT”)**

 

The Company’s exclusive license agreement with MIT requires the Companyto pay annual license fees of $25 and additional potential royalty payments toMIT based on a percentage of net sales of products or services covered bypatents that are subject to the license. As of June 30, 2008, and December 31,2007, the Company had accrued $2 for license fees and royalties attributable tothis agreement.

 

**Joint Research Agreement with The Cooperative Research Centre for SugarIndustry Innovation through Biotechnology**

 

The Companyentered a joint research arrangement, known as the Cooperative Research Centrefor Sugar Industry Innovation through Biotechnology, with the Commonwealth ofAustralia and various other parties for the purpose of developing and gainingaccess to certain intellectual property. The Commonwealth of Australiaestablished the program to enhance the transfer of research outputs intocommercial or other outcomes of economic, environmental or social benefit toAustralia. The terms of the contract stipulate that the contract commenced on January 1,2007, and the Company’s funding obligation continues until July 1, 2010.In connection with this agreement Metabolix is obligated to provide funding inthe form of cash and in kind exchange. As of June 30, 2008 the cashportion of our obligation is $442 and the total amount of in kind contributionthe company is committed to is $1,286. The in kind contribution consists ofsalaries and overhead attributable to research associated with the jointresearch agreement. The cash and in kind contributions are recorded as researchand development expense as incurred, in the consolidated statement ofoperations.

 

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** **

**12. FAIR VALUE MEASUREMENTS**

 

On January 1, 2008,the Company adopted Statement of Financial Accounting Standards No. 157, *Fair Value Measurements,* (“SFAS 157”) for financial assetsand liabilities. In accordance with the provisions of FASB Staff Position No. FAS157-2, *Effective Date of FASB Statement No. 157*,the Company elected to defer the adoption of SFAS 157 for all nonfinancialassets and nonfinancial liabilities, except those that are recognized ordisclosed at fair value in the financial statements on a recurring basis until January 1,2009. SFAS 157 provides a framework for measuring fair value under GAAP andrequires expanded disclosures regarding fair value measurements.  SFAS 157 defines fair value as the exchangeprice that would be received for an asset or paid to transfer a liability (anexit price) in the principal or most advantageous market for the asset or liabilityin an orderly transaction between market participants on the measurement date.SFAS 157 also establishes a fair value hierarchy which requires an entity tomaximize the use of observable inputs, where available, and minimize the use ofunobservable inputs when measuring fair value. The standard describes threelevels of inputs that may be used to measure fair value:

** **
| **Level 1** |   | Quoted prices in active markets for  identical assets or liabilities.                                                                                                                                                                                                                                      |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  |   |                                                                                                                                                                                                                                                                                                       |
| **Level 2** |   | Observable inputs other than Level 1 prices,  such as quoted prices for similar assets or liabilities; quoted prices in  markets that are not active; or other inputs that are observable or can be  corroborated by observable market data for substantially the full term of the  assets or liabilities. |
| ** **  |   |                                                                                                                                                                                                                                                                                                       |
| **Level 3** |   | Unobservable inputs that are supported by  little or no market activity and that are significant to the fair value of  the assets or liabilities.                                                                                                                                                          |

 

The followingtable sets forth the financial assets (cash equivalents and short-terminvestments) that were measured at fair value on a recurring basis as of June 30,2008 by level within the fair value hierarchy. The Company did not have anyfinancial liabilities, nonfinancial assets, or nonfinancial liabilities thatwere measured or disclosed at fair value on a recurring basis as of June 30,2008. As required by SFAS 157, assets measured at fair value are classified intheir entirety based on the lowest level of input that is significant to thefair value measurement. The assessment of the significance of a particularinput to the fair value measurement in its entirety requires judgment andconsiders factors specific to the asset or liability.

 
| ** **                       | ** ** | **Fair Value Measurements at Reporting Date Using**                   | ** ** |
|----------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| **Description**                  | ** ** | **Quoted Prices in  Active Markets for  Identical Assets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** | **Balance as of  6/30/08** | ** ** |
| Cash equivalents:                |       |                                                                                                |       |   |   |   |   |   |   |
| Treasuries                       |       | —                                                                                              |       | $ | 16,823 |   | — |   | $ | 16,823 |   |
| Commercial paper                 |       | —                                                                                              |       | 1,995 |   | — |   | 1,995 |   |
| Short-term investments:          |       |                                                                                                |       |   |   |   |   |   |   |
| Treasuries                       |       | —                                                                                              |       | 21,658 |   | — |   | 21,658 |   |
| Commercial paper                 |       | —                                                                                              |       | 33,125 |   | — |   | 33,125 |   |
| Credit card backed securities    |       | —                                                                                              |       | 4,045 |   | — |   | 4,045 |   |
| Government-sponsored enterprises |       | —                                                                                              |       | 17,083 |   | — |   | 17,083 |   |
| Corporate bonds                  |       | —                                                                                              |       | 3,069 |   | — |   | 3,069 |   |
| Total                            |       | —                                                                                              |       | $ | 97,798 |   | — |   | $ | 97,798 |   |

 

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**13.CHANGE IN ACCOUNTING ESTIMATE**

 

In the firstquarter of 2008, it was determined that the Company will extend the use of itspre-commercial manufacturing plant. In connection with this managementdetermined that the useful lives of the leasehold improvements connected tothis facility should be extended. The effect of the change in estimate on thefinancial statements for the three and six months ended June 30, 2008 is adecrease in loss from operations and net loss of  $363 and $711, respectively. Loss per sharedecreased by $0.02 and $0.03 for the three and six months ended June 30,2008. This change in accounting estimate was adopted prospectively from January 1,2008.

 
| **ITEM 2.** | ** ** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|------------|-------------------------------------------------------------------------------------------------|

*(Alldollar amounts are stated in thousands)*

 

**ForwardLooking Statements**

 

This quarterlyreport on Form 10-Q contains “forward-looking statements” within themeaning 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.

 

Although webelieve that our expectations are based on reasonable assumptions within thebounds 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 to petroleum-basedplastics, chemicals and energy, the commercialization of MirelTM biobasedplastic through our alliance with Archer Daniels Midland Company, or ADM, salesof Mirel as an alternative to petroleum-based plastics, the construction of theCommercial Manufacturing Facility, the production of Mirel at the CommercialManufacturing Facility, the commercial success of Mirel, the feasibility ofextractin*g* biobased plastic fromplant crops, the commercial viability of plant-produced plastics, recognitionof revenue, and management’s plans and expectations for revenue from governmentgrants, research and development revenue, research and development expenses andcapital and working capital requirements. Such forward-looking statements aresubject to a number of risks and uncertainties that could cause actual resultsto differ materially from those anticipated including, without limitation, thefollowing risks: (1) we may not be successful at manufacturing biobasedplastics on a commercial scale in a timely and economical manner, (2) wemay not be successful in the development of our products, including Mirel, (3) wedepend on ADM for the construction of the Commercial Manufacturing Facility, (4) ifADM does not build the Commercial Manufacturing Facility on time and on budget,our revenues and the distribution of profits, if any, to us will be delayed, (5) wemay not be able to develop manufacturing capacity sufficient to meet demand inan economical manner or at all, (6) we may not achieve market acceptanceof our products, (7) we have limited marketing and sales experience andcapabilities, which may make the commercialization of our products difficult, (8) werely heavily on ADM and will rely heavily on future collaborative partners, (9) oursuccess will be influenced by the price of petroleum, the primary ingredient inconventional petroleum-based plastics, relative to corn sugar, the primaryingredient in Mirel, (10) our future profitability is uncertain, and wehave a limited operating history on which you can base your evaluation of ourbusiness, (11) we may need to secure additional funding and may be unableto raise additional capital on favorable terms or at all, (12) if we losekey personnel or are unable to attract and 

 

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retain necessary talent,we may be unable to develop or commercialize our products under development,(13) confidentiality agreements with employees and others may notadequately prevent disclosure of our trade secrets and other proprietaryinformation and may not adequately protect our intellectual property, whichcould limit our ability to compete, (14) patent protection for ourproducts is important and uncertain, (15) a substantial portion of thetechnology used in our business is owned by or subject to retained rights ofthird parties, (16) third parties may claim we infringe their intellectualproperty, and we could suffer significant litigation or licensing expense as aresult, (17) if we are unable to manage our growth effectively, ourbusiness could be adversely affected, (18) we may not be successful inidentifying market needs for new technologies and developing new products tomeet those needs, (19) Mirel is made using genetically modified productsand 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 that may adversely affect our results of operations,(21) we are subject to significant foreign and domestic governmentregulations, including environmental and health and safety regulations, andcompliance or failure to comply with these regulations could harm our business,(22) our government grants may subject us to government audits, whichcould materially harm our business and results of operations, (23) we facerisks associated with our international business, (24) our pre-commercialmanufacturing recovery operations are currently conducted at a single locationwhich makes us susceptible to disasters, and (25) we may be subject toproduct liability claims based on products sold by us, our customers and/or ourlicensees.

 

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 are abioscience company that develops and plans to commercialize environmentallysustainable, economically attractive alternatives to petroleum-based plastics,chemicals and energy. Our strategy is to develop technology platforms thatintegrate advanced biotechnology with current industrial practice and tocommercialize these platforms with industry leading strategic partners.

 

Our firstplatform, which we are commercializing through Telles, a joint venture withArcher Daniels Midland Company, or ADM, is a proprietary, large-scale microbialfermentation system for producing a versatile family of polymers known aspolyhydroxyalkanoates, which we have branded under the name MirelTM. ThroughTelles, we intend to sell these bioplastics as environmentally friendly, butfunctionally equivalent, alternatives to petroleum-based plastics in a widerange of commercial applications, including packaging, compostable bags,consumer products including cosmetics and gift cards, business equipment,products used in agriculture and horticulture, and marine and waterapplications. Mirel will be produced in a 110 million pound annualcapacity commercial scale plant, or Commercial Manufacturing Facility, which ispresently under construction by ADM in Clinton, Iowa. We expect that commercialquantities of Mirel from the Commercial Manufacturing Facility will beavailable for customers in the second quarter of 2009. The CommercialManufacturing Facility will produce biobased, sustainable and biodegradableMirel plastic out of corn sugar, an agriculturally-produced renewable resource.We are currently producing pre-commercial quantities of Mirel jointly with ADMat a small scale pre-commercial manufacturing facility.

 

Our secondtechnology platform, which is in an early stage, is a biomass biorefinerysystem using plant crops to co-produce both bioplastics and bioenergy. For thissystem, we intend to extract polymer from the engineered plant crop, so thatthe remaining plant material can be used as a biomass feedstock for theproduction of bioenergy products including electricity and biofuel. We areengineering switchgrass to produce bioplastics in the leaf and stem of theplant. We have also collaborated with the Australian Cooperative ResearchCentre to do the same in sugarcane, and we have recently established astrategic research collaboration with the Donald Danforth Plant Science Centerto develop an advanced industrial oilseed crop for co-production of bioplasticsalong with vegetable oil, biodiesel fuel, or oleochemicals. Switchgrass is acommercially and ecologically attractive non-food energy crop that isindigenous to North America. It is generally considered to be a leadingcandidate for cellulose-derived production of ethanol and other biofuels.Sugarcane is an established energy crop that is well suited for tropicalregions of the world. We believe that using these crops to co-producebioplastics with bioenergy products can offer superior economic value andproductivity as compared to single product systems that produce themindividually. We have been working on our biomass biorefinery platform usingswitchgrass for several years, and we believe that we are a scientific leaderin this field. Our goal for this program is to have 

 

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commercially viable plantvarieties in pre-commercial field trials in three to four years. We may alsoseek to establish alliances with partners to commercially exploit thisplatform.

 

As demonstrated byour first two technology platforms, we take an integrated systems approach toour technology development. We are focused on developing entire productionsystems from gene to end product as opposed to developing specific technologies(for example, gene sequencing, shuffling or directed evolution) or singularaspects of a product’s production (for example, providing a key enzyme,catalyst or ingredient). We believe this systems approach optimizes manufacturingproductivity and, when commercialized, will enable us to capture more economicvalue from any platform we pursue. We have core capabilities in microbialgenetics, fermentation process engineering, chemical engineering, polymerscience, plant genetics and botanical science. We have assembled thesecapabilities in a way that has allowed us to integrate biotechnology withchemical engineering and industrial practice. We believe that our approach canbe applied to chemicals and other products to help establish and growenvironmentally sustainable plastics, chemicals and energy industries.

 

We intend to applyour core capabilities in microbial engineering and plant transformation todevelop biological routes to other chemicals and chemical intermediates. In September 2007the U.S. Department of Commerce’s National Institute of Standards andTechnology approved a $2 million award for us to develop a commerciallyviable process for producing biobased chemicals from renewable agriculturalproducts. This award is funding our integrated bio-engineered chemicalsprogram, which is beginning development of sustainable solutions for widelyused four-carbon industrial chemicals.

 

To exploit ourfirst technology platform, we are working with ADM to build the CommercialManufacturing Facility in Clinton, Iowa. The bioplastics this facility willproduce are highly versatile and range in properties from hard and strong tosoft and flexible. These properties allow for a wide variety of commercialapplications, offering an environmentally-friendly alternative topetroleum-derived synthetic materials which are not biodegradable. ThroughTelles we intend to initially position Mirel as a premium priced specialtymaterial catering to customers who want to match the functionality ofpetroleum-based plastic, but add the dimension of environmental responsibilityto their products and brands.

 

As of June 30, 2008, we had an accumulated deficit of $111,485 andtotal stockholders’ equity was $74,800.

 

**Collaborative Arrangements**

 

Our strategy forcollaborative arrangements is to retain substantial participation in the futureeconomic value of our technology while receiving current cash payments tooffset research and development costs and working capital needs. By theirnature, these agreements are complex and have multiple elements that cover avariety of present and future activities. In addition, certain elements ofthese agreements are intrinsically difficult to separate and treat as separateunits for accounting purposes. Consequently, we expect to defer recognizingmost, if not all, of the payments we receive from partners as revenue untilfuture years.

 

We entered intoour alliance with ADM in 2004. As of June 30, 2008, all payments receivedfrom ADM have been recorded as deferred revenue on our balance sheet. We expectthat future payments from ADM, through at least the construction phase of theCommercial Alliance Agreement, including quarterly operating payments of $1,575made on behalf of Telles and other payments, will be classified as deferredrevenue as well. We expect to begin recognizing revenue at the time of thefirst commercial sale of Mirel biobased plastic. All amounts will be recognizedproportionally over the period in which our commercial obligations are fulfilledin accordance with the terms of the Commercial Alliance Agreement.

 

We received thefollowing payments from these arrangements to offset operating cash needs:

 

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

 

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

 

·          support payments of $15,750 fromADM, on behalf of Telles, through June 30 2008; and

 

·          cumulative cost sharing payments from ADMfor pre-commercial manufacturing plant construction and operations of $7,588.

 

During thecommercial alliance phase, 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.

 

Telles is alimited 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. The Company and ADM each have 50% equity and votinginterest in Telles.

 

Even though Tellesis 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, havebeen returned to ADM. Once ADM has recouped such amounts, the profits of thejoint venture will be distributed in equal amounts to the parties. In order totrack the disproportionate investments ADM has made, a Ledger Account has beenestablished to record the respective investments made by the parties. As of June 30,2008, the balance of the ADM Ledger Account was $183,739 and this balance isexpected to increase as the construction of the Commercial ManufacturingFacility progresses and Telles becomes operational.

 

**United States Government Contracts and Grants**

 

As of June 30, 2008,expected gross proceeds of  $1,980 remain to be received under our variousgovernment contracts and grants, which include amounts for reimbursement to oursubcontractors, as well as reimbursement for our employees’ time, benefits andother expenses related to future performance under the various contracts.

 

The status of ourUnited States government contracts and grants is as follows:

 
| **Program Title**                       | ** ** | **Funding  Agency**         | ** ** | **Total  government  funds** | ** ** | **Total received  through  June 30, 2008** | ** ** | **Remaining amount  available under various  government contracts as  of June 30, 2008** | ** ** | **Contract/Grant  Expiration** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
|                                         |       |                        |       |                         |       |                                                      |       |                                                                                                                             |       |                           |       |
| PHA Bioplastic Packaging Materials           |       | SERDP  (1)(2)               |       | $                            | 1,005      |                                                      | $          | 630                                                                                                                              |       | $                              | 375        |   | Aug. 2008 |   |
|                                         |       |                        |       |                         |       |                                                      |       |                                                                                                                             |       |                           |       |
| Blow Molded Bioproducts from Natural Plastic |       | Department  of  Agriculture |       | 80                           |       | 68                                                        |       | 12                                                                                                                               |       | Dec. 2007                 |       |
|                                         |       |                        |       |                         |       |                                                      |       |                                                                                                                             |       |                           |       |
| Integrated Bio-Engineered Chemicals          |       | Department  of  Commerce    |       | 2,000                        |       | 407                                                       |       | 1,593                                                                                                                            |       | Sept.  2009                    |       |
|                                         |       |                        |       |                         |       |                                                      |       |                                                                                                                             |       |                           |       |
| Total                                        |       |                        |       | $                            | 3,085      |                                                      | $          | 1,105                                                                                                                            |       | $                              | 1,980      |   |   |   |

 

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----

| (1)    |   | Strategic  Environmental Research and Development Program.                                                                                                            |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                  |
| (2)    |   | Funding  of these government contracts and grants beyond the United States  government’s current fiscal year is subject to annual congressional  appropriations. |

** **

**Critical Accounting Estimates and Judgments**

 

The discussion andanalysis of our financial condition and results of operations are based uponour condensed consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United Statesof America (“GAAP”) for interim financial information. The preparation of thesefinancial statements requires us to make estimates and judgments that affectthe reported amounts of assets, liabilities, revenues and expenses, and relateddisclosure of contingent assets and liabilities. On an ongoing basis, weevaluate 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 values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. Thesignificant accounting policies used in preparation of these condensedconsolidated financial statements for the three and six months ended June 30,2008 are consistent with those discussed in Note 3 to the consolidatedfinancial statements in our Annual Report on Form 10-K for the year ended December 31,2007. The critical accounting policies and the significant judgments andestimates used in the preparation of our condensed consolidated financialstatements for the three and six months ended June 30, 2008 are consistentwith those discussed in our Annual Report on Form 10-K for the year ended December 31,2007 in the section captioned “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Critical Accounting Estimates andJudgments.”

 

**Results of Operations**

 

**Comparison of the Three MonthsEnded June 30, 2008 and 2007**

 

**Revenue**

 
| ** **                                           | ** ** | **Three Months ended** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **                                           | ** ** | **June 30,**                | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **2008**                         | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Research and development revenue                     |       | $                                | 11         |       | $          | — |   | $ | 11 |   |
| License fee and royalty revenue from related parties |       | 35                               |       | 32         |       | 3 |   |
| Grant revenue                                        |       | 355                              |       | 155        |       | 200 |   |
| Total revenue                                        |       | $                                | 401        |       | $          | 187 |   | $ | 214 |   |

 

Total revenues were $401and $187 for the threemonths ended June 30, 2008 and 2007, respectively. During the three monthsended June 30, 2008 we recognized revenue from research and developmentservices and delivery of sample product produced from research services. Grantrevenue increased mainly as a result of an increase of activity relating to theDepartment of Commerce and Strategic Environmental Research Development Programgrants. We expect revenues from government grants to fluctuate due to theavailability of funding from the government.

 

**Expenses**

 
| ** **                                                   | ** ** | **Three Months ended** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **                                                   | ** ** | **June 30,**                | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | **2008**                         | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Research and development expenses, including cost of revenue |       | $                                | 6,008      |       | $          | 5,026 |   | $ | 982 |   |
| Selling, general, and administrative expenses                |       | 4,048                            |       | 4,351      |       | (303 | ) |
| Total operating expenses                                     |       | $                                | 10,056     |       | $          | 9,377 |   | $ | 679 |   |

 

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***Research and development expenses***

 

Research and development expenses were $6,008 and $5,026 for the threemonths ended June 30, 2008 and 2007, respectively.  The increase of $982 was primarily due to theexpansion of product development activities associated with developing newproduct grades and formulations for prospective customers, increasedpre-commercial manufacturing of Mirel to support market development activities,and increases in research and development personnel for polymer science tosupport our collaborative agreement with ADM. Employee payroll and benefitsrelated expenses for the three months ended June 30, 2008 were $2,215 ascompared to $1,903  for the respectiveperiod in 2007. Expenses relating to product development services were $411 and$115 for the three months ended June 30, 2008 and 2007, respectively. Theincrease in product development services is to support the preparation of Mirelfor commercial applications. Depreciation expense increased to $607 for thethree months ended June 30, 2008 as compared to $227 for the respectiveperiod in 2007. The increase in depreciation is primarily due to increasedleasehold improvements in our pre-commercial manufacturing facility andincreases in equipment to support our microbial and plant research.

 

We expect to incur higher research and development expenses in futureperiods for pre-commercial manufacturing and product development activities aswe continue to develop, test and refine product to meet the specificationrequirements of our customers. We expect that our personnel related costs willincrease to support our microbial and plant research programs.

 

***Selling, general, andadministrative expenses***

 

Selling, general, and administrative expenses were $4,048 and $4,351 forthe three months ended June 30, 2008 and 2007, respectively. The decreaseof $303 was primarily due to a decrease in employee payroll and benefitsrelated expenses. Payroll and benefits related expenses decreased to $2,190from $2,768 for the three months ended June 30, 2008 and 2007,respectively. During the three months ended June 30, 2007 we recorded acharge of $187 relating to the departure of an executive officer. The decreasein employee payroll and benefits related expense was offset by increasedexpenses relating to the expansion of our sales and marketing infrastructure.

 

We expect that selling, general, and administrative expenses willincrease due to increasing payroll and expanding infrastructure to supportsales and marketing effort for commercializing Mirel.

 

**Other Income (Net)**

 
| ** **               | ** ** | **Three Months ended** | ** ** | ** ** | ** ** |
|--------------------------|------------|----------------------------------|------------|------------|------------|
| ** **               | ** ** | **June 30,**                | ** ** | ** ** | ** ** |
| ** **               | ** ** | **2008**                         | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Total other income (net) |       | $                                | 730        |       | $          | 1,524 |   | $ | (794 | ) |
|                          |            |                                  |            |            |            |  |  |  |  |  |

 

Other income (net) consists of investment income of $730 and $1,524 forthe three months ended June 30, 2008 and 2007, respectively. The decreaseof $794 was due to a decrease in interest rates during the quarter, a shifttowards more conservative investments with lower interest rates and a decreasein cash and short-term investments held during the comparative three monthperiods.

 

**Results of Operations**

 

**Comparison of the Six Months EndedJune 30, 2008 and 2007**

 

**Revenue**

 
| ** **                                           | ** ** | **Six Months ended** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|--------------------------------|------------|------------|------------|
| ** **                                           | ** ** | **June 30,**              | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **2008**                       | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Research and development revenue                     |       | $                              | 79         |       | $          | — |   | $ | 79 |   |
| License fee and royalty revenue from related parties |       | 70                             |       | 107        |       | (37 | ) |
| Grant revenue                                        |       | 656                            |       | 508        |       | 148 |   |
| Total revenue                                        |       | $                              | 805        |       | $          | 615 |   | $ | 190 |   |

 

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Total revenues were $805 and $615 for the sixmonths ended June 30, 2008 and 2007, respectively. During the six monthsended June 30, 2008 we recognized revenue from research and developmentservices and delivery of sample product produced from research services.License fee and royalty revenue from related parties decreased as a result of areceipt of $50 milestone payment during the six months ended June 30, 2007,partially offset by an increase of $13 in royalty revenue from related partiesduring the first six months of 2008. Grant revenue increased mainly as a resultof an increase of activity relating to the Department of Commerce and StrategicEnvironmental Research Development Program grants. This was partially offset bythe completion of the Department of Energy program in the second quarter of2007.

 

We expect revenues from government grants tofluctuate due to the availability of funding from the government.

 

**Expenses**

 
| ** **                                                   | ** ** | **Six Months ended** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------|------------|------------|------------|
| ** **                                                   | ** ** | **June 30,**              | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | **2008**                       | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Research and development expenses, including cost of revenue |       | $                              | 11,942     |       | $          | 8,833 |   | $ | 3,109 |   |
| Selling, general, and administrative expenses                |       | 8,145                          |       | 7,199      |       | 946 |   |
| Total operating expenses                                     |       | $                              | 20,087     |       | $          | 16,032 |   | $ | 4,055 |   |

 

***Research and development expenses***

 

Research and development expenses were $11,942 and $8,833 for the sixmonths ended June 30, 2008 and 2007, respectively. The increase of $3,109was primarily due to the expansion of product development activities associatedwith developing new product grades and formulations for prospective customers,increased pre-commercial manufacturing of Mirel to support market developmentactivities, and increases in research and development personnel for polymerscience to support our collaborative agreement with ADM. Employee payroll andbenefits related expenses for the six months ended June 30, 2008 were$4,390 as compared to $3,292  for therespective period in 2007. Expenses relating to product development serviceswere $740 and $269 for the six months ended June 30, 2008 and 2007,respectively. The expenses related to pre-commercial manufacturing increased to$3,645 for the six months ended June 30, 2008 as compared to $2,953 forthe respective period in 2007. Depreciation expense increased to $1,179 for thesix months ended June 30, 2008 as compared to $435 for the respectiveperiod in 2007. The increase in depreciation is primarily attributable toincreased leasehold improvements in our pre-commercial manufacturing facilityand increases in equipment to support our microbial and plant research.

 

We expect to incur increasing research and development expenses in futureperiods for pre-commercial manufacturing and product development activities aswe continue to develop, test and refine product to meet the specificationrequirements of our customers. We expect that our personnel related costs willincrease to support our microbial and plant research programs.

 

***Selling, general, and administrativeexpenses***

 

Selling, general, and administrative expenses were $8,145 and $7,199 forthe six months ended June 30, 2008 and 2007, respectively. The increase of$946 was primarily due to increased sales and marketing costs associated withbuilding our sales and marketing infrastructure for the commercialization ofMirel. Employee payroll and benefits related expenses increased to $4,423 forthe six months ended June 30, 2008 as compared to $3,964 for therespective period in 2007. Included in payroll and benefits is stock-basedcompensation expense, which increased to $1,707 for the six months ended June 30,2008 as compared to $1,330 during the respective period in 2007

 

We expect that selling, general, and administrative expenses willcontinue to increase due to increasing payroll and expanding infrastructure.

 

**Other Income (Net)**

 
| ** **               | ** ** | **Six Months ended** | ** ** | ** ** | ** ** |
|--------------------------|------------|--------------------------------|------------|------------|------------|
| ** **               | ** ** | **June 30,**              | ** ** | ** ** | ** ** |
| ** **               | ** ** | **2008**                       | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Total other income (net) |       | $                              | 1,909      |       | $          | 3,062 |   | $ | (1,153 | ) |
|                          |            |                                |            |            |            |  |  |  |  |  |

 

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Other income (net) consists of investment income of $1,909 and $3,062 forthe six months ended June 30, 2008 and 2007, respectively. The decrease of$1,153 was due to a decrease in interest rates during the six months ended June 30,2008, a shift towards more conservative investments with lower interest ratesand a decrease in cash and short-term investments held during the comparativesix month periods.

 

**Liquidityand Capital Resources**

 

Currently, werequire cash to fund our working capital needs, to purchase capital assets andto pay our operating lease obligations.

 

We fund our cash requirements primarily through thefollowing methods:

 

·our strategic alliance with ADM;

 

·government grants;

 

·equity financing; and

 

·interest earned on cash and short-terminvestments.

 

Currently ourproducts are in the pre-commercial stage of development and large-scalecommercial sales have not begun. In addition, we have incurred significantexpenses relating to our research and development efforts. As a result, we haveincurred net losses since our inception. As of June 30, 2008, we had anaccumulated deficit of $111,485. Our total unrestricted cash, cash equivalentsand short-term investments as of June 30, 2008 were $101,081 as comparedto $109,326 at December 31, 2007. As of June 30, 2008, we had nooutstanding debt.

 

Our cash and cashequivalents at June 30, 2008 were held for working capital purposes. We donot enter into investments for trading or speculative purposes. The primaryobjective of our investment activities is to preserve our capital. Restrictedcash of $494 was held at June 30, 2008 in connection with the leaseagreement for one of our facilities in Cambridge, Massachusetts. Short-terminvestments are made in accordance with our corporate investment policy, asapproved by our Board of Directors. Investments are limited to high qualitycorporate debt, U.S. Treasury bills and notes, bank debt obligations, municipaldebt obligations and asset-backed securities. The policy establishes maturitylimits, concentration limits, and liquidity requirements. At June 30,2008, we were in compliance with this policy.

 

We believe thatour cash, cash equivalents and short-term securities, the interest we earn onthese balances, as well as cash expected from government grants and our ADMalliance will be sufficient to meet our anticipated cash requirements,including cash requirements with respect to the commercial launch of Mirel, forat least the next 24 months. If our available cash, cash equivalents, andshort-term marketable securities are insufficient to satisfy our liquidityrequirements, or if we develop additional products, we may need to selladditional equity or debt securities or obtain a credit facility. The sale ofadditional equity and debt securities may result in additional dilution to ourstockholders. 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 on reasonableterms, if at all. If we are unable to obtain additional financing, we may berequired to reduce the scope of, delay, or eliminate some or all of our plannedresearch, development and commercialization activities, which could harm ourbusiness.

 

Net cash used inoperating activities was $8,263 and $6,322 for the six months ended June 30,2008 and 2007, respectively. The net cash used during the first six months of2008 primarily reflects the net loss for the period offset by an increase indeferred revenue of $5,302, and non-cash expenses including stock-basedcompensation expense of $2,192, 401(k) company common stock matchingexpense of $212 and depreciation expense of $1,814. The increase in deferredrevenue was due to an increase in pre-commercial plant construction andoperations that are subject to our cost sharing collaborative arrangement withADM and continued support payments from ADM, made on behalf of Telles.

 

Net cash of $7,014was provided by investing activities during the six months ended June 30,2008, compared to net cash of $11,518 used in investing activities for therespective period in 2007. Cash 

 

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provided by investingactivities in 2008 represents net cash of $7,497 provided from the sale,maturity and purchase of investments offset by a cash outflow of $483 used forthe purchase of property and equipment. Property and equipment purchases for2008 mainly consisted of equipment for research and development purposes. Netcash flows from investing activities may fluctuate from period to period due tothe timing of our capital expenditures and other investments.

 

Net cash providedby financing activities was $664 and $1,692 for the six months ended June 30,2008 and 2007 respectively. The cash provided by financing activities in 2008was solely attributable to the proceeds from the exercise of stock options andwarrants.

 

**Contractual Obligations**

 

The followingtable summarizes our contractual obligations at June 30, 2008 and theeffects such obligations are expected to have on our liquidity and cash flowsin our future periods:

 
| ** **                  | ** ** | **Payment Due by Period** | ** ** |
|-----------------------------|------------|------------------------------------------|------------|
| ** **                  | ** ** | ** **                               | ** ** | **Less Than** | ** ** | **2-3** | ** ** | **4-5** | ** ** | **More Than** | ** ** |
| ** **                  | ** ** | **Total**                                | ** ** | **1 year** | ** ** | **Years** | ** ** | **Years** | ** ** | **5 years** | ** ** |
| Operating lease obligations |       | $                                        | 6,796      |   | $ | 1,342 |   | $ | 2,466 |   | $ | 2,165 |   | $ | 823 |   |
| Purchase obligations        |       | 712                                      |       | 286 |   | 351 |   | 50 |   | 25 |   |
| Total                       |       | $                                        | 7,508      |   | $ | 1,628 |   | $ | 2,817 |   | $ | 2,215 |   | $ | 848 |   |

 

On April 30, 2008 the Company signed arental agreement to sublease additional office space. The term of the subleasecommenced on  May 1, 2008 and willexpire February 28, 2010. The monthly rent payments of $15 are included inthe operating lease obligations.

 

We entered into a joint research agreement,known as the Cooperative Research Centre for Sugar Industry Innovation throughBiotechnology, with the Commonwealth of Australia and various other parties forthe purpose of developing and gaining access to certain intellectual property.The Commonwealth of Australia established the program to enhance the transferof research outputs into commercial or other outcomes of economic,environmental or social benefit to Australia. The terms of the contract stipulate that the contract commenced on January 1,2007, and our funding commitment continues until July 1, 2010. Inconnection with this agreement we are obligated to provide funding in the formof cash and in kind contribution. As of June 30, 2008, the cash portion ofour obligation is $442 and the total amount of in kind contribution we arecommitted to is $1,286. The in kind contribution consists of salaries andoverhead attributable to research associated with the joint research agreement.

 

**Off-Balance Sheet Arrangements**

 

As of June 30,2008, we had no off-balance sheet arrangements as defined in Item 303(a) (4) ofthe Securities and Exchange Commission’s Regulation S-K.

 

**Related Party Transactions**

 

We recorded $35and $70 of license and royalty revenue from Tepha, Inc., a related party,during the three and six months ended June 30, 2008, respectively. Duringthe three and six months ended June 30, 2007 we recorded license androyalty revenue from Tepha, Inc. of $32 and $107, respectively. We had anoutstanding receivable balance due from Tepha of $3 and $122 as of June 30,2008 and December 31, 2007, respectively. We also had various transactionswith our alliance partner ADM, a related party, during the six months ended June 30,2008 and 2007. We had an outstanding receivable balance of $241 and $1,093 duefrom ADM at June 30, 2008 and December 31, 2007 respectively.  For more information on our related partytransactions, please see Note 10 to our audited financial statements includedin our Annual Report on Form 10-K for the year ended December 31,2007.

 

**RecentAccounting Pronouncements**

 

In December 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141(R), *BusinessCombinations* (“SFAS 141(R)”), which replaces SFAS No. 141. Thisrevised standard requires assets, liabilities and non-controlling interestsacquired to be measured at fair value and requires that costs incurred toeffect the acquisition be recognized separately from the business combination.In addition, this statement expands the scope to include all 

 

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transactions and otherevents in which one entity obtains control over one or more businesses. Thisstatement is effective for all business combinations for which the acquisitiondate is on or after the beginning of the first annual reporting periodbeginning on or after December 15, 2008. We are in the process ofevaluating whether the adoption of this standard will have a material effect onour financial position, results of operations or cash flows.

 

In December 2007, the FASB issued SFAS No. 160,*Non-controlling Interests in Consolidated FinancialStatements, an Amendment of ARB No. 51*(“SFAS 160”). Thisstatement establishes accounting and reporting standards for thenon-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. This statement is effective for fiscal years beginning on or after December 15,2008. We are in the process of evaluating whether the adoption of this standardwill have a material effect on our financial position, results of operations orcash flows.

 

In December 2007,the Emerging Issues Task Force (“EITF”) reached a consensus on EITFIssue 07-01, *Accounting forCollaborative Arrangements Related to the Development and Commercialization ofIntellectual Property*(“EITF 07-01”).EITF 07-01 prescribes the accounting for collaborations. It requirescertain transactions between collaborators to be recorded in the incomestatement on either a gross or net basis when certain characteristics exist inthe collaboration relationship. EITF 07-01 is effective for all of theCompany’s collaborations existing after January 1, 2009. We are in theprocess of evaluating whether the adoption of this standard will have amaterial effect on our financial position, results of operations or cash flows.

 

In May 2008, the FASB issued SFAS No. 162, *The Hierarchy of Generally Accepted Accounting Principles* (“SFAS162”). SFAS 162 is intended to improve financial reporting by identifying aconsistent framework, or hierarchy, for selected accounting principles to beused in preparing financial statements that are presented in conformity withGAAP for nongovernmental entities. The statement establishes that the GAAPhierarchy should be directed to entities because it is the entity (not itsauditor) that is responsible for selecting accounting principles for financialstatements that are presented in conformity with GAAP. This statement iseffective 60 days following the U.S. Securities and Exchange Commission’sapproval of the Public Company Accounting Oversight Board Auditing amendmentsto AU Section 411, *The Meaning of PresentFairly in Conformity with Generally Accepted Accounting Principles*.  We are in the process of evaluating whetherthe adoption of this standard will have a material effect on our financialposition, results of operations or cash flows.

 

In June 2008, the FASB issued FSP EITF 03-6-1, *Determining Whether Instruments Granted in Share-Based PaymentTransactions Are Participating Securities* (“FSP EITF 03-6-1”) FSPEITF 03-6-1 addresses whether instruments granted in share-based paymenttransactions are participating securities prior to vesting and, therefore, needto be included in the earnings allocation in computing earnings per share underthe two-class method as described in SFAS No. 128, *Earnings perShare*. Under the guidance in FSP EITF 03-6-1, unvested share-basedpayment awards that contain non-forfeitable rights to dividends or dividendequivalents (whether paid or unpaid) are participating securities and shall beincluded in the computation of earnings per share pursuant to the two-classmethod. FSP EITF 03-6-1 is effective for financial statements issued in fiscalyears beginning after December 15, 2008, and interim periods within thoseyears. All prior-period earnings per share data presented shall be adjustedretrospectively. Early application is not permitted. We are in the process ofevaluating whether the adoption of this standard will have a material effect onour financial position, results of operations or cash flows.

 

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

There have been nomaterial changes in information regarding our exposure to market risk, asdescribed in Item 7A of our Annual Report on Form 10-K for the year ended December 31,2007.

 

**ITEM 4.********CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls and Procedures**

 

Our management (with the participation of our ChiefExecutive Officer and Chief Financial Officer) evaluated the effectiveness ofour disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)), as of June 30, 2008. Disclosure controls and procedures aredesigned to ensure that information required to be disclosed by the Company inthe reports it files or submits under the Exchange Act is recorded, processed,summarized and reported on a timely basis and that such information isaccumulated and communicated to 

 

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management, including the Chief Executive Officer andChief Financial Officer, as appropriate, to allow timely decisions regardingrequired disclosure. Based on this evaluation, our Chief Executive Officer andChief Financial Officer concluded that these disclosure controls and proceduresare effective and designed to ensure that the information required to bedisclosed in our reports filed or submitted under the Exchange Act is recorded,processed, summarized and reported within the requisite time periods.

 

**Changes in Internal Control over FinancialReporting**

 

There was no change in our internal control overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act) during the quarter ended June 30, 2008 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

**PART II – OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

From time to time,we may be subject to legal proceedings and claims in the ordinary course ofbusiness. We are not currently aware of any such proceedings or claims that webelieve will have, individually or in the aggregate, a material adverse effecton the business, financial condition or the results of operations.

 

**ITEM 1A. RISK FACTORS**

 

Except as indicated in Part II, Item 1A of our Quarterly Report forthe three months ended March 31, 2008 on Form 10-Q there have been nomaterial changes in information regarding our risk factors as described in Part I,Item 1A of our Annual Report on Form 10-K for the year ended December 31,2007.

 

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

 

**Recent Sales of Unregistered Securities**

 

On April 10, 2008, the Company issued 12,984 shares of common stockto participants in its Metabolix, Inc. 401(k) Plan as a matchingcontribution. The issuance of these securities is exempt from registrationpursuant to Section 3(a)(2) of the Securities Act of 1933 as exemptedsecurities.

 

**Use of Proceeds from Registered Securities**

 

There has been no material change in the planned use of proceeds from ourinitial public offering as described in our Annual Report on Form 10-K forthe year ended December 31, 2007.

 

**Issuer Purchases of Equity Securities**

 

During the three months ended June 30, 2008, there were norepurchases made by us or on our behalf, or by any “affiliated purchasers,” ofshares of our common stock.

 

**ITEM 3.   DEFALTS UPON SENIOR SECURITIES**

 

None.

 

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

 

The Company’sannual meeting of stockholders was held on May 30, 2008.

 

The stockholderselected Jay Kouba and Oliver P. Peoples to serve on the Board of Directorsuntil the annual meeting of stockholders to be held in 2011. The tabulation ofvotes with respect to the election of such directors is as follows:

** **
| ** **        | ** ** | **Number of Shares** | ** ** |
|-------------------|------------|--------------------------------|------------|
| ** **        | ** ** | **For**                        | ** ** | **Withheld** | ** ** | **Abstain** | ** ** |
| Jay Kouba         |       | 17,871,083                     |       | 284,672 |   | 0 |   |
| Oliver P. Peoples |       | 17,884,661                     |       | 271,094 |   | 0 |   |

 

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

 

**ITEM 5.OTHER INFORMATION**

 

Our policygoverning transactions in our securities by our directors, officers, andemployees permit our officers, directors, employees, and entities affiliatedwith our directors to enter into trading plans complying with Rule 10b5-lunder the Exchange Act , as amended. We have been advised that during thequarter ended June 30, 2008, Anthony J. Sinskey, a Director of theCompany, and Oliver P. Peoples, our Chief Scientific Officer and VicePresident, Research and Development, entered into trading plans in accordancewith Rule 10b5-l and our policy governing transactions in our securities.We undertake no obligation to update or revise the information provided herein,including for revision or termination of an established trading plan.

 

**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**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                 | METABOLIX, INC. |
|----------------------|-----------------|
|                 |            |
|                 |            |
| August 11, 2008 | By:             | /s/ RICHARD P. ENO |
|                 |            | Richard P. Eno |
|                 |            | *President  and Chief Executive Officer* |
|                 |            | *(Principal  Executive Officer)* |
|                 |            | * * |
| August 11, 2008 | By:             | /s/ JOSEPH D. HILL |
|                 |            | Joseph D. Hill |
|                 |            | *Vice  President and Chief Financial Officer* |
|                 |            | *(Principal  Financial Officer)* |

 

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